Wednesday, 24 November 2010
National Recovery Plan 2011-2014: Statements
Martin Mansergh (Minister of State with special responsibility for the Arts, Department of Arts, Sport and Tourism; Minister of State with special responsibility for the Office of Public Works, Department of Finance; Tipperary South, Fianna Fail)
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I am presenting to the House the Government's four year national recovery plan. This is a period of considerable difficulty for the country and the plan provides a framework for economic recovery. It sets out the measures that will be taken to restore order to the public finances. It identifies the areas of economic activity which will provide growth and employment in the recovery.
Martin Mansergh (Minister of State with special responsibility for the Arts, Department of Arts, Sport and Tourism; Minister of State with special responsibility for the Office of Public Works, Department of Finance; Tipperary South, Fianna Fail)
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It is. I hope it will be circulated shortly. I apologise, but Members will appreciate that the plan was only launched two hours ago. It specifies the reforms the Government will implement to accelerate growth in the key sectors.
The four year plan has been in preparation for some time and has taken on considerably greater significance in view of the application to our European partners for assistance. It sets out the Government's three-strand approach to resolving our current difficulties: restoring order to the public finances; restructuring the banking sector; and structural reforms affecting both the public and private sectors to encourage renewed growth.
Since the downturn started in 2008 we have made fiscal adjustments through taxation and expenditure of â¬14.6 billion. These succeeded in stabilising the underlying budget deficit this year below 12% of GDP; if no action had been taken, the deficit would have reached 20% of GDP, which excludes the impact of the promissory notes on the 2010 general Government deficit. This stabilisation in the public finances has been accompanied by an improving economy which is emerging from recession. GDP will record a very small increase this year based on strong export growth. Exports are expected to grow by approximately 6% in real terms this year, driven by improvements in competitiveness and a strengthening of international markets. Conditions in the labour market are also beginning to stabilise. However, domestic demand remains weak as households and businesses continue to save and pay down debt.
Despite these positives, we still have a considerable amount of ground to make up. There is a gap between what we receive as a country in tax receipts and what we spend. The gap is currently â¬18.5 billion which is unsustainable and currently filled by borrowing. If we do not reduce the rate of borrowing, debt service costs will absorb a rapidly increasing proportion of tax revenue. Moving towards a balanced budget is a prerequisite for future economic growth. The plan will achieve the target of reducing the general Government deficit to less than 3% of GDP by 2014 through a combination of expenditure reductions, tax increases, a renewed focus on growth and competitiveness, structural reform and public service transformation.
As Members are aware, the fiscal adjustment will amount to â¬15 billion over the four years. The Government will make the biggest adjustment, â¬6 billion, next year. This will encourage confidence at home and abroad in the Government's commitment to make the necessary adjustment. The plan provides clarity and certainty about what will be done and will help in restoring consumer confidence which will be important for our overall recovery.
We are all aware that the economy went though a period of unprecedented growth from the mid-1990s through to 2007. The benefits of this growth were felt across every section of the population, with increases in social welfare payment rates, higher public sector pay and falling taxes. However, in our current circumstances these expenditure and taxation measures have proved to be unsustainable. We, therefore, need to restore balance.
Although we are making a significant budgetary adjustment, the economic outlook is favourable. The conditions for resumed export-led growth are in place. Our transport infrastructure has been transformed; our workforce, as we often point out, is one of the best educated in the world; and our tax system supports enterprise and innovation. The macroeconomic outlook for the plan is positive. Real GDP will grow by an average of 2.75% from 2010 to 2014, with lower growth in the earlier years and increasing thereafter. Unemployment will fall from 13.5% in 2010 to 10% in 2014. The balance of payments is expected to return to surplus in 2011 and will increase steadily in the following three years. This means that the economy is no longer borrowing from the rest of the world. This positive view of prospects is reflected by other commentators; the recent OECD Economic Outlook also contains a favourable economic outlook for Ireland.
The critical aspect of the plan is the fiscal adjustment. The budgetary adjustment will be â¬15 billion over four years, with the biggest adjustment of â¬6 billion to be made in 2011. Two thirds of this adjustment will be achieved through expenditure savings, while one third, â¬5 billion, will come from revenue raising measures. These measures will bring the general Government deficit below 10% of GDP in 2011 and 3% by 2014. The debt to GDP ratio is expected to peak at 105% of GDP by 2013 and improve thereafter, falling to 101% by 2014.
Of the overall expenditure reduction of â¬10 billion, current expenditure will contribute â¬7 billion, while capital expenditure will provide â¬3 billion. An expenditure reduction of this magnitude requires a focus on the major areas of expenditure - public service pay and pensions, social welfare, public services, including student supports, publicly provided medical care and treatment, and public investment.
One third of the total adjustment - â¬5 billion - will come from taxation measures. Some 40% of these measures will be introduced in 2011, with substantial reform of the income tax system. Of course, one element of our tax system that will not change is corporation tax. The Government's commitment to the 12.5% rate means it will not change. The Government's commitment includes that of the two main Opposition parties. The changes to income tax will include base broadening measures to bring more taxpayers into the net, while a range of tax exemptions and reliefs will be abolished or curtailed. These changes will return income tax revenue to 2006 levels. A new local services contribution will also be introduced. There will be changes to indirect taxes, capital taxes and other charges, and tax expenditures. The details of these changes are contained in the plan and Members will, no doubt, become familiar with them.
The plan, however, includes measures aimed at supporting growth and to achieve public service transformation. In the case of the private sector, our approach is to support it by removing potential impediments to competitiveness and employment and by adopting sectoral policies to encourage export growth and a recovery of domestic demand. I will focus on some of the more fundamental reforms contained in the plan. These may receive less attention but they are critical to our longer term prospects.
Getting people back to work is a central plank of the recovery plan. We need to create the conditions for job creation and retention in a real and meaningful way. At a minimum, this requires flexibility and agility of the workforce and a move away from the rigidities that have characterised the labour market in recent years. The cost of labour has impacted on our competitiveness in the provision of domestic services and that of exporting firms. The challenge now is regain the lost competitiveness achieved in the 1990s and early 2000s and set the labour market on a firm footing for recovery. The movement back to an agile and competitive labour market is difficult but essential and decisive action is required. This will be achieved through a combination of measures - reform of the minimum wage and activation of the unemployed.
The level of the minimum wage has remained unchanged while GNP has fallen in value terms by 19% since 2007. This has been accompanied by reductions in rates of pay across the economy. The national minimum wage is the second highest in the European Union in absolute terms and the OECD has recommended a reduction to remove a barrier to job creation for younger and less skilled workers. The reduction of â¬1 to â¬7.65 will still leave it above the UK rate.
It is absolutely critical to our economy recovery that unemployed people are equipped with relevant skills and kept closer to the labour market in order that when jobs become available, they can move quickly into the workforce as our economy recovery takes hold. For that reason, we are providing for a further focus on the provision of structured pathways to employment for unemployed people.
We will promote rigorous competition in the professions. There will be measures to reduce waste and energy costs to business. The availability of technology infrastructure will be enhanced, with an emphasis on next generation broadband. There will be renewed action to reduce rents for both the private and public sectors. In addition, there will be an emphasis on increasing the efficiency of public administration to reduce costs for the private sector.
The plan sets out sector specific policies to increase exports and improve domestic demand. There will be a continued emphasis on innovation through the innovation fund and the enterprise supports in the tax system. This will include implementation of a number of the goals set by the innovation task force. These reforms and other measures will lead to a more stable macroeconomic environment.
The plan outlines a considerable number of reforms for the public sector to enable it to operate more flexibly, efficiently and effectively with a substantially reduced number of staff and financial resources. The resulting reduced costs and improved service will support the measures to boost growth in the private sector.
As I have just come from launching a tourism guide, I wish to mention some of the measures that relate to tourism. Obviously, it is just one sector but an important one. The revaluation exercise which has reduced the rates bill for hotels, guesthouses and so forth in the Dublin area will be accelerated across the country. What I have said on the subject of the minimum wage will have particular implications for the hospitality sector. It is not just of benefit to employers in the industry, it is equally of benefit to those seeking employment in the industry, in which employment has tended to dry up. While there will be some limited economies, expenditure on tourism promotion in key markets and on tourism product, in some of which the Office of Public Works has an interest, will be broadly maintained.
As Members are aware, we are in discussions with the European Union and the IMF on a programme to provide fiscal support for Ireland in the coming years. The plan sets out a considerable range of measures to achieve the objectives of that programme. They are measures that can be justified in their own right. The plan will restore order to the public finances. It will also stimulate broadly based export-led growth, bringing sustainable employment creation which will support the recovery of the domestic economy.
It is evident that we have taken some very difficult but necessary decisions. Deferring action will only increase the difficulty of the adjustment. All of these steps are being taken to secure the future for the country in order that we can stabilise the economy, return to sustainable levels of growth and, in turn, reduce the level of unemployment. That is the key objective of the Government. A total of 90,000 net new jobs are expected to be created in the period 2012-14, while unemployment will fall below 10% by 2014. The economy is recovering, but we still have a long way to go, particularly for the public finances. The plan provides a platform on which to build a better and more sustainable future.
The plan runs to 140 pages and contains a great deal of detail. Obviously, if I were to delve into the details at length, I could easily speak for an hour or so which I do not wish to do. I want to allow others to contribute. All I have been able to give is a brief outline of the thrust of the document. There is a great deal to be chewed over sectorially. We must also bear in mind it is still a fortnight to the budget when the specific decisions not contained in this document will be announced. I look forward to hearing what can probably be only preliminary reactions from the House.
There is a certain amount of detail in this report and, like most Members, I have only had the opportunity to go through it briefly. The report also contains a significant amount of waffle and postponement of the rainy day. It pushes certain matters forward to a time when the Government will be a bad memory for the majority of the people. According to Ministers this afternoon, this report received an enthusiastic response in Frankfurt and Brussels.
I cannot understand the Minister for Finance's thinking when he publishes reports. Since he first spoke on the banking crisis in September 2008, he has been spoofing, guessing and telling half-truths. I am not allowed to accuse anyone of lying in this House. The Government's various spoof responses, which reached a crescendo last weekend, would have made a pathological liar blush.
This report is supposed to set the economy in train for the next four years. Will the Minister of State point out the references in the report to the banking crisis, the very reason we are told the IMF is in the country. This report was supposed to outline the 40% front-loading of cuts, yet it does not provide the detail we would have liked.
Fine Gael agrees with the broad parameters of this recovery plan. The European Commission, however, will allow a new government to reserve the right to renegotiate the specifics of this plan between Ireland, the EU and the International Monetary Fund, IMF. Accordingly, if the Government collapses, most of the targets in this report can essentially be renegotiated. I suspect much of it will remain but it can still be renegotiated.
The Government's responsibility was to give confidence back to the people which it has not achieved with this report. If one is going to bring in the European Central Bank, ECB, and IMF into the country, then this report should have been a little more forceful.
I was told by colleagues that on the Order of Business that the Green Party was getting wishy-washy about its intentions. The little hissy fit its Members threw during the week now seem to be nothing more than a ploy to renegotiate another programme for Government in the new year. Does this kind of behaviour instil confidence in the people during the middle of this crisis? The people and the EU â God help the Government if the IMF insists on it â want a budget passed and stable government to get the country out of this crisis. Nothing we have seen so far, however, can give us any sort of confidence.
The Taoiseach loves using the euphemism "We are where we are". I will tell the Minister of State where we are. The Government has been completely abandoned by international investors. It has lost the people's confidence and its instability is a serious threat to the economic future of the country as well as being considered a significant threat to the European Union. One would not think any of this from the Government's public responses, however.
The European Commissioner, Olli Rehn, visited Dublin two weeks ago not to sample the nightlife but to put some sense into the Government, which clearly has not happened. The Government's approach to the forthcoming budget shows how out of touch it has become. It has no problem taking a four-week holiday for Christmas when the country is in such a crisis. We should be taking no holidays but giving confidence to the people by bringing forward the Budget Statement and the Finance Bill.
Most people do not understand the Budget Statement is not the endgame but the opening chapter of the Finance Bill. If the Finance Bill falls in the second half of January or February, the whole budget falls and, in turn, the Government which would leave us in exactly the same position we are in now. That is why the Government has been asked to bring forward the budgetary process as quickly a possible.
The national recovery plan may be important, but fast-tracking the budgetary process must be the number one priority. The Minister's excuse for not doing so is that he does not have all revenue information to hand. Most tax payments due from the self-employed are in since the beginning of last week so that claim is unacceptable. Two weeks ago when I was coming into Leinster House, a motorcyclist was thrown off his bike by a car. As a doctor, I naturally responded to the accident. If I had used the Minister's logic, I would have just stood there waiting for the ambulance. Similarly, in an economic crisis, one moves quickly and works as best as possible with what is at hand. One does not sit around waiting for the whole economy to go pear-shaped and then respond. All the Government has done so far is sit around, publish a report and do everything in its own good time, like the Bulmer's advert slogan. This report will not instil confidence or be enthusiastically received with rapturous applause in Frankfurt and Brussels. In fact, our European partners will be laughing at it because they expect some sort of leadership from Ireland that it is getting its finances under control. The Minister needs to take this issue seriously. We need to bring forward the budget and the Finance Bill and get them out of the way. Then we need to have a general election early in the new year because this outline plan will be implemented over the course of four years. Many of the main recommendations have been pushed back until 2012, 2013 and 2014. Some of the easier tax increases were announced today but it does not contain the detail we hoped for. There are many words and much talk about reducing red tape, tackling waste and dealing with bureaucracy but no timeframes are involved and there is no coherence on what we will do. The Croke Park agreement is a massive project for the Civil Service and the public service and it is not being implemented at the speed necessary to make it a realistic proposition for our public finances. On a number of occasions I have asked the Minister of State to point out what is being done with the Croke Park agreement, the transformation programmes and the changes in work practices. Most people can understand this example. We were told that the working day in the health services would go from 8 a.m. to 8 p.m. and that all people in the health sector would have an average working day of 8 a.m. to 8 p.m. How far has this got? It has gone nowhere. This is what has gone wrong. I am sure the Minister of State will expand on some of the points during the course of the budget but overall the plan will not be received with much enthusiasm.
Student fees have increased and water metering and property taxes will be introduced but this does not include the strong stuff we need to know about. These are big issues, with student fees increasing to â¬2,000 a year. The introduction of a property tax has been postponed until 2012. More was expected of the report to show that the Government is serious about reducing the size of the Government, increasing the efficiency of Government and the services provided by it and reducing the cost of these services. There is no detail in the plan, just a few points about cutting the minimum wage, reducing public service numbers and increasing costs on a few core issues. The Minister of State should have provided more detail to give us the confidence we need in this report. Sadly, that is lacking and it will not relieve the concerns of the public about this Government and the state of our economy. In fact, it may add to the concerns of the public and I am disappointed in that.
I join others in welcoming the Minister of State to the House for what seems like his fortnightly visits. I welcome the publication of the four year plan, The National Recovery Plan 2011-2014. There is no question but there are positive points in it. Notwithstanding that, it is unlikely to receive accolades from the vested interest groups. In any economic context no one would try to introduce the measures included here. In recent weeks when contributing in the Chamber, I have reflected on the past 30 years. One line in the report reads: "We have eroded the income tax base to an unsustainable level". That says it all. From the mid-1970s, consecutive Governments from all sides of the House have presided over a redefinition of entitlement to its current meaning, which is completely unsustainable. I welcome the measures included in the report that seek to replace some element of local service contributions.
I refer to the abolition of domestic rates in 1977, which were unfairly calculated. They often penalised those with big houses and who had raised big families. When the children were gone, they had to pay higher contributions. That was unjust. To create at the time a surreal environment that led people to believe in the lack of contribution, which is not the case in most other countries, was wrong and unsustainable. It ravaged regional capabilities to develop on their own steam and underlined the unfair reality that one depended on the proximity of a Minister to bank a capital project. In that context, I welcome underpinning contributions to local services through a property tax. Although it is â¬100 in the first year, it is envisaged to be approximately â¬200 by 2014. By 2013, a suitable valuation mechanism will be set up. That is good and it will serve future generations, unpalatable as it may be in that it marks a change that none of us has had to face since the mid-1970s. That is positive.
I also welcome the widening of the tax base. Over recent years we have taken too many people out of the tax net. Painful as it is and given where we have come from in the relative prosperity of recent years, it seems draconian to ask people on incomes as low as â¬15,300 to make a contribution, but it is essential.
It is also appropriate that those in receipt of generous State pensions take a reduction. It is not sustainable for them to continue on the levels they were at in line with incomes before. In many other areas, savings must be made. The reduction in the minimum wage was mentioned recently in these Houses. It was one of the highest in Europe at â¬8.65. Times have changed and we must change with them. The joint labour council agreements for the agricultural, catering and construction sectors and the various contributions made by NERA in enforcing the laws served in their day to give adequate protection to workers. Unfortunately, they have increased activity in the black economy and have been an impediment to employment creation in recent times. I welcome these measures. Obviously I do not expect the trade union movement to welcome these. I watched Mr. Jack O'Connor of SIPTU say these measures will contribute to a loss of jobs. I do not accept his analysis. This change will enhance the prospects of younger people to get employment.
The plan was published only a few hours ago so it is difficult for us to get through the detail. Several debates over the next few weeks will facilitate us teasing out the detail. Social welfare will be cut by â¬2.8 billion. Very few of us will agree where â¬2.8 billion can be cut but there is no question that people have opted for a lifestyle dependency on social welfare. I spoke to a crÃ¨che owner involved in the State scheme for children under four years of age. Having gone through an expansion and attracted more children, there was scope for three additional child care workers. Having advertised in the media, the owner could not secure three adequate people to take those jobs because she kept coming across people who said they would only work for three days. They were suited to the lifestyle whereby they could claim for two days and work for three days.
That was wrong. I hope the measures and reductions envisaged are targeted to ensure we will protect those genuinely dependent on social welfare and encourage those who have opted to remain on it for lifestyle dependency reasons to return to the workforce to the extent that employment is available. I am not saying it is endemic among all those who are unemployed, but there is some scope for change.
While we are to maintain capital expenditure at levels among the highest in Europe as a percentage of GDP, it is regrettable that the reductions are necessary. The Construction Industry Federation has commented that they will have an undue impact on that sector. The plan indicates that â¬500 million from the National Pensions Reserve Fund will be committed to such areas as public private partnerships and State capital projects. Perhaps more of the fund should be made available for that purpose. While various Departments, including the Department of Enterprise, Trade and Innovation, have announced and are implementing schemes aimed at work activation and promoting enterprise through the enterprise fund, as I have said previously, I would like to see approximately â¬4 billion from the National Pensions Reserve Fund invested directly in the SME sector, not by way of grant aid but by means of the State taking an equity stake in the sector. That would provide a much needed stimulus and represent a good investment over time for the people's money in the fund. SMEs could be given an opportunity within a time limit to buy back the equity stake when the success of the business permitted. I would like to see such a measure such introduced.
We are pleased that the 12.5% corporation tax rate is to be maintained. It is the cornerstone of our enterprise policy. I also welcome the broadening of the tax base. It is important that everyone make some contribution. There is no getting away from the pain the plan will cause, but we must return to the pre-1977 era when the word "entitlement" meant one was entitled to get out of bed in the morning and do a day's work and if one could not do so, the Government stepped in and tried to help. Equally, people should make a contribution in line with their means, albeit a small one in the case of those who have least or earn the least amount.
Bringing third level registration fees up to â¬2,000 will be difficult for some. Equally, the fact that 75% of the education budget of approximately â¬9 billion goes on pay should be tackled. The recent analysis by The Irish Times showed the monthly income of the highest paid individual in the Department of Education and Skills was â¬22,000. While I am sure they are well worth the generous salary for their expertise and what they bring to the party, I am sure they could survive on substantially less. This is a national emergency.
I appreciate we have the Croke Park agreement, but the delay in implementation of some of its recommendations is reprehensible. It contains some very good measures, but if it were a business plan, it would be decided today and implemented tomorrow morning. It is now nine months since it was agreed. There are many reasons for the failure to implement the plan but no excuses. While Senator O'Toole has been nodding in agreement heretofore, from now on he will disagree with what I have to say. As I said on the Order of Business both this morning and for many months, everyone above a certain threshold in the public sector, perhaps â¬60,000 or â¬70,000 or a little less, should take a percentage reduction in income. That threshold could be decided in partnership with the unions. I accept we will all pay more in taxes as a result of the new taxation measures, but those of us above a certain threshold are paid too much. There is scope not to renegotiate or tear up the Croke Park agreement but to adjust it to make it even better, fairer and more penetrative in what it can contribute to the reform of the structures of the nation which we are all agreed is badly needed, given the circumstances in which we find ourselves. While it is clear that it is not now the intention of the Government, I hope in the short time left before the budget that we will see there is scope and that those earning â¬22,000 a month could accept â¬18,000, while those earning â¬15,000 could accept â¬14,000 and so on. That would make for a much fairer country and those rates would be much more realistic. Ultimately, we may need to benchmark the entire workforce in the public service against the workforce in the public service in other countries because, inevitably, in the private sector, if circumstances change, the commercial realities quickly change payroll figures and pensions, whereas in the public sector benefits are defined and not subject to change or agile enough to be able to be adapted to changed circumstances. The agility, innovation and ability to change immediately which the private sector, of necessity, has to display need to be replicated in the public sector. While that is envisaged in some of the positive elements of the Croke Park agreement, unfortunately, our inability to introduce changes for almost an entire year underlines the fact that serious action needs to be taken to remedy the pedestrian nature of the system within which we operate.
Senator Twomey mentioned that the plan contains some waffle. Aspects of it lead one to wonder who wrote it. Measures are outlined on page 50 to assist the retail sector. The intention is to make roads better in order that delivery times can be improved. Later in the plan there is a reference to adding 1% to the VAT rate in 2013 and 2014 which will do nothing for my part of the country, the north west, where cross-Border shopping is a major issue. A little more thought is required on some aspects of the plan. It is clear, however, that it contains some good measures. The most important point is that we are to redefine our cost and income base, which needs to be done. Fianna FÃ¡il has been the senior party in government for most of the past 30 or 40 years, but we can all share in the blame for the erosion of the income base and a redefining of the word "entitlement" to the point where it is unsustainable and not one over which we can stand.
On environmental issues, water will be the new oil before we are too much older. In that context, water metering is just. In implementing other measures it is important that those who can pay do pay.
I referred briefly to third level education fees, the increase in which will be painful for the student population. We should inject more money into education but, equally, we should not have free third level education for the children of persons earning â¬150,000 or â¬200,000 a year. Instead, those who can should pay to ensure the children of those who genuinely cannot afford to go to college - at a cost of approximately â¬9,000 a year in Dublin - can access a fund to ensure they are adequately looked after.
Like the Minister of State, I could probably speak for an hour or more on the issues involved. Perhaps in the coming fortnight during preparations for the budget we can add to our initial thoughts on the document.
This is an important document at which we must look in a level-headed way and to which we should try to take a balanced approach. I congratulate the Minister of State for what he said, that he wanted to hear from Members and that extra time had been provided for a response. I have no doubt he will return to this later.
After we finish discussing this, it is important we have another day's debate on the possible ways to create growth. Even though the plan contains specifics, to which I will refer shortly, about various aspects, generalities, economic indicators and requisite economic changes, we must examine the kinds of initiative that we want this and the incoming Governments to take in hand.
I will address Senator MacSharry's point about the Croke Park agreement. I have been the agreement's greatest critic and greatest supporter in the House, so I will acknowledge a few points. For public servants, it was important that the Minister for Finance acknowledged the public service's contribution. He clearly stated that the contribution was made without crowds taking to the streets, strikes or interference with the operation of the apparatus of the State. The savings contributed by public servants in recent times amount to â¬1.8 billion per year. I want to put this in context. Like the Cathaoirleach, I must sit in the Chamber and listen to a great deal during the course of the Order of Business. Often, I would prefer to be speaking last rather than first. What does â¬1.8 billion mean? Figures like that mean nothing to anyone anymore, so I will put it simply - it amounts to twice benchmarking. This contribution was made before the Croke Park agreement. Whenever anyone mentions benchmarking in the lounge, at a meeting or in the Chamber, the Cathaoirleach might interrupt to explain that benchmarking has been repaid twice over.
Senators Twomey and MacSharry made a point about the slow implementation of the Croke Park agreement. While I agree with them concerning the areas of flexibility that must be pursued, it is not all bad news. Since the agreement's commencement, the number of jobs that have been saved, not filled or extinguished is 14,000. For two or three months, I have stated how the agreement should bring with it savings derived from 25,000 jobs of at least â¬1 billion. I received many queries at the time, so I am glad to see the Government has put figures on those savings in this document. It must have been listening to me, because it has called for a reduction of 25,000 jobs, which I believed was a possibility, and savings of â¬1.2 billion per year. This means that the public service, having repaid â¬1.8 billion to date and given the â¬1.2 billion to be saved under the Croke Park agreement, will be returning â¬3 billion per year.
Anyone running a business knows that the bottom line in terms of pay is the bottom line in terms of pay. It can be dealt with in two ways, although they both achieve the same result. One can cut pay across the board or cut numbers. Under the Croke Park agreement, the result is to be achieved via numbers. Let us consider what we are trying to save - â¬1.2 billion per year under the Croke Park agreement. This is the benchmark that we must find. Next week, we will ask the Minister of State, Deputy Calleary, how much of that amount has been saved so far. We know there will be so many thousand jobs involved.
It is not all bad news, but I agree with Senator MacSharry that the flexibilities, which are equally important, are not occurring quickly enough. The Minister of State, Deputy Mansergh, and I know this, as we have sung from this hymn sheet together many times. For the public service and the Civil Service to survive, they must show themselves to be the model of best practice in Europe. It can be done, given the intellectual investment in our Civil Service and public service. I agree with the Senator in that there should be no delays. We should see progress month by month. He might have been OTT in asking for it all to have been done yesterday. The plan should have been put in place yesterday, but the implementation must be done over time.
The points I am making are important to the people on the ground. Public servants believe they are being hammered in all sorts of ways by every commentator. When debating the health service, people discuss the significant administrative burden. Senator MacSharry is a good example and I tend to agree with him. However, every time someone makes that point, he or she should also consider education. Instead of saying that the education budget goes on payroll, he or she should say that education is brilliant for its lack of administrative costs. For example, the entire primary school sector is run without an administrative sector's costs. Teachers, principals, boards of management and locals sit down and administer their schools. The only administration is in the Department of Education and Skills. This is a model of good practice, one that would be attractive were it to be migrated into the health service. I do not want people to believe they can do it every way. If one does without administration, it means that front line payroll costs and education feature.
Martin Mansergh (Minister of State with special responsibility for the Arts, Department of Arts, Sport and Tourism; Minister of State with special responsibility for the Office of Public Works, Department of Finance; Tipperary South, Fianna Fail)
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There are a few school secretaries and bursars.
I could speak about special needs assistants, school secretaries and so on. They are important, but no one would deny that school secretarial and caretaker staff give bang for their buck.
I wish to make two more points about education. I am sorry about the reduction in the capitation grant for primary schools, although I can see from where it is coming. The amount is not being taken from the schools. Instead, it is costing the local community, as locals will need to find the extra money. It is an additional cost.
I welcome another measure. I listened to the Minister for the Environment, Heritage and Local Government, Deputy Gormley, as he made a clear point today, one that will be welcomed. We have given the Green Party a great deal of hassle, but we must be fair and admit it has taken a leading role during the past year in opposing a reduction in primary school class sizes. In the middle of all of this, it is an important vote of confidence in the system.
I am not sure where the local services money will go. The Minister of State might clarify whether it is going to local authorities, which would be positive. I am sure that is the intention, but I cannot see where it has been clearly outlined. If the money is going into the central funds, the measure defeats the purpose of what we are trying to achieve. For politics to be re-established with the trust and confidence of the ordinary people, it must begin at local authority level. This means local authorities must have a budget for which they are responsible. For example, people in Sligo should be able to see what Sligo Town Council or Sligo County Council is spending their money on and argue on that basis instead of believing the money is coming from Dublin, which they would not view as being their money at all. People would feel no ownership over "Dublin money".
I welcome water metering. I am unsure about the infrastructural costs involved, although they are mentioned. Siemens Ireland has offered to save the Government â¬1.1 billion by putting the water meters into every home. The company would be repaid through water charges. The Government is shell shocked and will take no further risks, but it should take a decision on this matter as well as others to which I will refer. The Government should enter into a public private partnership with Siemens Ireland, which has been with us since 1927. It built the Shannon scheme and various other projects. The Green Party would acknowledge that Siemens, above all other international companies, has a feel for renewable resources and so on, having produced information and research that is second to none.
I welcome something outlined on page 33 of the report, although I have a conflict of interest. I am vice president of the Personal Injuries Assessment Board, PIAB. I am delighted to see a reference to the good work that is being done by us. The PIAB's board, executive and staff are fantastic. They take their responsibility for reducing costs for industry, claimants and everyone else involved in insurance seriously.
It is a success story and people will be delighted that it is referenced there. The chief executive, the chairman of the board as well as the executive and staff will be delighted with that. I would like the Minister of State to convey my appreciation to the Department and the board that this has been done.
Another great conundrum in this is the issue of the minimum wage. I have not heard a convincing argument for reducing it. If we want to make it more attractive to work and less attractive for people to be on welfare, then to reduce both by the same amount will just keep the same gap in place. It surely makes sense to me to keep the minimum wage as it is, and if welfare has to be reduced, in the event, that at least opens the gap. Very clearly, we have conceded a point to IBEC while the case has not been made. I shall back this up in a second. I have read the report from cover to cover and the most important single fact in it is that in the last year no other country in Europe has improved its competitiveness except Ireland. Every other country in Europe has seen its competitiveness disimprove.
If we take our improvement as compared to the European average, we see we have improved our competitiveness by 6.75%, against the average. While we have improved our competitiveness we have increased our output and workers should be rewarded for that. It is a vote of no-confidence in them and an unnecessary step to reduce the minimum wage. We could certainly have held it and it saddens me above all other issues. I could speak at length about pensions, the public service etc., but the thing that bothers me most is that. I am saying this in terms of growth and I do not want my comments to be written off as just a whinge from the Independent benches.
The other thing I do not believe is a good idea is the increase in VAT to more than 23% over two years, which is regressive. It will impact on growth and I do not believe it will incentivise. Reducing the minimum wage is a disincentive, as is increasing VAT. These measures are both disincentives to growth. I am sure the Minister of State can give me the reasoning behind all of that, but I cannot welcome those two initiatives. I am trying to keep away from the things about which we shall hear plenty more, the sad stories, as I want to deal with the top-line issues at the moment.
I do not have a problem with the â¬200 site tax on a house, although I believe it should be called something else, as it is somewhat unfair to somebody who is struggling to pay for a site he or she will never build a house on, to be charged for it. That is an unfair and unnecessary burden, and there should be some element of potential relief for people struggling to pay a mortgage, in certain cases. It is all right for people such as myself who got a mortgage 30 or 40 years ago and do not have to worry about it. There is no problem about hitting people such as us, but it is a problem for others.
In that regard, I would like to hear more from the Minister of State in his response in terms of the 2.75% projected growth in the economy in each of the years covered. I did not pick up exactly how we got to that. I welcome the abolition of the various tax exemptions, but I should like to hear an impact report on what this will do to pensions, because I do not want a situation whereby having taken away the pension inducement or incentive, people will fall back on the State from here on in. This will leave a great many people poorer. I have tried to work out what it is going to cost on average. It is a great deal of money and people will be hit hard by it.
I have to support it as it goes along, although it contains issues, as I mentioned, that I disagree with. However, I do not see that I have a choice at this point until we have more details and can, perhaps, nuance some of these things in a particular way. In the meantime I wish the Government well, and the next one even better. It is hugely important that we climb our way out and I think we have. I conclude by asking for a debate next week or the week after on the initiatives. I want people to stand here and say what can be done. I will have a list of things, and we can take it from there.
At a cursory glance by the media, with them giving the contents even the most superficial treatment, it has to be expected that the four year plan will be reacted to in a most negative light. The contents are truly horrible. We are experiencing a vista that none of us in public life ever could have imagined given the circumstances we enjoyed at the height of the Celtic tiger. That said, the adjustments are being made to a period when we enjoyed levels of wealth that even now are in excess of many of our European partners and in a global index rate us very high in the scheme of things.
To have to make decisions as regards reducing the income and wealth levels of any member of society is something any public representative would wish to avoid. None of the content in this particular plan is indicative of decisions anyone wants to make, but they must be made nonetheless given the circumstances. Because of that we must think long and hard as regards the consequences of those decisions.
There is legitimate debate as to how the plan is to be achieved, as between expenditure and taxation, and between the different levels of expenditure. Whichever Government has to make the ultimate decisions in 2012-14 may be engaged in elements of tweaking that could make this a slightly more palatable package, but we need to show consensus as regards where we are internationally given that these headline figures cannot be avoided. We have to adjust our budgets accordingly to ensure that come 2014 we come as close as possible to the figures indicated in this plan. In the event, we shall have achieved a remarkable feat as a country.
We are capable of achieving such a feat, because we have shown in the relatively short period of the Celtic tiger economy that we can grow fast and deep and achieve significant levels of growth. We need to learn, however, that we can never envisage a situation where we throw money around with such largesse and lack of direction, without accountability, which is the real failure of the last seven years in particular.
Policy decisions were made in the period from the start of this decade, which have been expounded upon as regard how we reacted to their effect in the second half of this decade, which have made things far more difficult than they needed to be. While we are dealing with the effects of such wrong decisions, we need to factor in that although a large part of what we are addressing may be put down to political failure, a significant part too has been fomented by international circumstances. If we are to face the reality of the new international economy and assess the country's position as regards competitiveness, we must make difficult decisions.
Senator O'Toole has pointed to two areas he is unhappy about. Even in expressing his unhappiness, he understands the wider context of where we are. At the very least, we need to be positive as regards some aspects of this plan. A particularly positive aspect of it is the decision to protect education and enterprise. If we are to achieve improvement and to get out of this situation as quickly as possible, we will need to prime the engines that will allow us do this. Education and enterprise are the two areas that are so primed to allow us do this.
The downside of where we are is that income will be adjusted among the sectors that have least in our society. There will be impacts in terms of social welfare and the lower paid. This must be counteracted by an equal and greater adjustment by those in our society who have more. I heard Senator MacSharry make this point on the Order of Business today. There is a need to cap and reduce higher level salaries and for the political system in particular to adjust in ways that are not alone equal but greater in terms of what we are asking of particular sectors of society. The message must go out from whoever is in government as we move towards the specifics of budgets 2011-14 that a greater loss is being asked of those in our society who have more than is being asked of those who will be affected by adjustments in social welfare and the minimum wage. We have a responsibility as a political class to show the way in our sector.
I would be particularly disappointed if come budget day we do not see a reduction not alone in the cost of politics but in salaries paid. I will not listen to any argument in regard to the Croke Park agreement and relativities in this sector because I believe they will adjust accordingly. We must as a political class put in place measures that show that we are prepared to take a greater loss in terms of income than are those we identify in this plan. If we do not do so, we will have failed the country.
In terms of the public sector, which is a wider debate regularly aired in this House, there are many caveats in regard to our being well served by our public sector which is often asked to meet needs that would not otherwise be met by the cost to which we expose it on a daily basis. Three heavy spending Departments in the form of Health and Children, Education and Skills and Social Protection account for 80% of our expenditure. A further analysis of expenditure by the State in any given year illustrates that 50% - this figure was quoted earlier as being 70% - of expenditure goes on the public sector, 26% in the form of direct salaries and 24% in the form of provision for future pensions or the payment of existing pensions. If we believe that this is in any sense sustainable into the future while meeting the needs of everyone in society, we are deluding ourselves.
The biggest change needed in the course of the life of this plan that will adjust our public finances and will accordingly, I hope, inspire international confidence, will be a more appropriate balance in terms of the cost of our public sector and how we spend elsewhere in terms of public expenditure. On social protection, there is an obvious difficulty in that there are 450,000 people on the live register, 280,000 of whom are directly unemployed with the remainder being in part-time employment, which accounts for a significant part of â¬21 billion budget in this area. The biggest challenge we face during this four year period will be significantly reducing those numbers. The more they are reduced the more our costs will decrease. The more people who return to full or part-time employment the more tax we will take in, thus the more the equation in terms of what we take into the Exchequer and what we pay out in terms of social protection becomes more easy to manage. While this sounds simple in theory, the imbalance between where we are as a society and where we need to get to is colossal. All of us in public life must concentrate on the challenges we face and must provide concrete responses to our people in regard to how we can make up this difference.
On taxation, Commissioner Olli Rehn when visiting Dublin recently spoke about Ireland being a low tax economy. This was taken as code in regard to our corporation tax. The reality is that if we are to improve as an economy, we need incentives to encourage further foreign investment and further export led growth. There is consensus on this issue. It is hoped we can have an ongoing agreement with our partners in the European Commission and European Central Bank in this regard. It is true that as a percentage of gross domestic product we pay less in tax in terms of our overall wealth than do other countries. We must ensure that during this four year period higher income earners and everyone in general, by way of a wider and deeper taxation system, pays more tax so that we can avoid this type of situation in the future. It was the pretence that there was a mythical future ahead of us that we could increase public expenditure and pay less tax that got us into this problem in the first instance. The more consensus on these issues and the more honest we are with the Irish people, the quicker we will get out of the morass in which we find ourselves, regardless of the circumstances and the individuals who brought us to where we are.
I welcome the opportunity to participate in this debate on the plan published by the Government this afternoon. This plan is in many ways the bill for economic failure. Regrettably, it is a bill that must be paid over a period of some years.
Having listened to Senator Boyle, I have a real sense that he is finding his voice on some issues and that he may be, in terms of some of the things he said, feeling a sense of political liberation. I agree with much of what he had to say. There is a sense that people have been codding politicians, and not perhaps only Government politicians, and that they may have been unwitting participants in the illusion that we can fund and have the type of public services to which we aspire and should have for our citizens and children, and that these can be sustained and managed at a particular level of taxation. A stark statement on page 91 of the plan, with which no one could disagree, states : "We have eroded the income tax base to an unsustainable level". This is manifestly true. However, I do not believe income tax is the only element we need to examine in the context of from where we raise taxes. I agree with Senator MacSharry and others who said that it is necessary that we not confine ourselves to only looking at income tax. We do not wish to raise taxes for the hell of it but so that we can look towards having a sustainable economy and public service in respect of which there is certainty in terms of funding into the future. We must never again think we can pin everything on the type of transitional taxation we had during the so-called boom.
I recall sitting beside a politician on a radio programme prior to the last general election. She was a supporter of the then Government and is not now a Member of the Houses. I recall her seeking to sustain the argument over many minutes on that radio programme that it was possible to reduce taxes and improve public services. I do not understand how it would have been possible then or since to do this. The extent to which any of us was party to such an illusion was a mistake but the principal responsibility must lie with the Government regarding these matters. Opposition politicians can from time to time be criticised for calling for this and that. It is sometimes legitimate to engage in such criticism but it is greatly dwarfed by the legitimate criticism that one can level at a government that has failed to carry out the policies it ought to have implemented.
The document, regrettably and sadly, is a bill and it is not particularly detailed. It has detailed aspects and although it purports to contain a growth strategy and a jobs strategy, it does not. There is nothing new in the narrative on these areas. There is a great deal of generalised, aspirational material, with which it would be impossible to disagree, but there is little relating to a jobs strategy. The IMF is constantly being invoked but its officials are in the House and, in an interim report published earlier this week, they rightly identified the urgent necessity for a growth strategy and to put in place serious measures to get people back to work. That is what we need.
Somebody said to me earlier that when I debated the document, I would criticise it, but that I should start by outlining a number of aspects with which I agree. I must ask myself, therefore, what is acceptable or unavoidable. I very much welcome the Government's conversion regarding tax expenditures and reliefs. The Minister of State will acknowledge that the Labour Party has repeatedly raised this issue year after year during the budget debate in the context of the pensions system and other tax expenditures. They have been addressed in the plan, with some being front-loaded. However, there has been more front-loading of the income tax measures than of other taxation measures. It is a pity that there is selective front-loading. It would be wrong of me not to welcome the Government's attempt to address these matters, although some members of the Government have been content in public to be dismissive of them and say they are not as crucial as the Government has belatedly recognised them to be.
It is regrettable that the capital programme has to take a hit. It is unavoidable but any government would be faced with that reality and it simply has to be done.
It is good that the Government has said that water charges will be introduced on a metered basis. That is an essential element of the plan and it is right that the Government parties have taken that view.
A number of elements of the plan are quite curious. Senator O'Toole and others referred to the reduction in the minimum wage. We know all the anecdotal augments. We are all politicians and we all talk to employers who tell us the minimum wage is too high. I have great respect for those who employ people but I have met few of them who would not welcome the opportunity to reduce pay as a percentage of their costs. We should not rely on employers saying that they would rather the minimum wage be lower but on evidence-based analysis as to whether it has a negative effect on unemployment, as is suggested. I would prefer if that were done. This measure will not affect the bottom line of the â¬15 billion adjustment. It was suggested earlier that it is being implemented on an ideological basis to tick a box or to touch a particular nerve to gain a welcome in particular quarters. Is that why it is being done? I would prefer to tackle the minimum wage on the basis of rigorous analysis and evidence rather than anecdotes.
I do not have a difficulty with a review of registered employment agreements and the regime of employment regulation orders. If there is to be a review, let there be a review but reference is made to a review within three months and, because it will happen so quickly, that means it is anticipating change. There seem to be changes in mind. The orders and agreements are described in the plan as another form of labour market rigidity by preventing the adjustment of wage levels. That is a blunt description of a regime of setting pay for, by and large, low paid workers, which has been in place for 60 years and which has served the economy well. There is a bipartite mechanism to set pay levels through the Labour Court and legislation is in place. Nobody is picking numbers out of the sky; there is a tested process by which these wage levels are reached. I remind the House that they generally apply to low paid workers in the services sector. By all means have a review but let us not jump quickly to the conclusion that our problems can be solved by reducing pay.
Senator O'Toole pointed out there is evidence in the report of a dramatic reduction in the past year of unit labour costs in the economy. People constantly rail in certain quarters about competitiveness and wages being too high but wages have taken a significant tumble in the past 12 months. There has been an enormous adjustment. Let us not get carried away and think cutting wage levels in low paid sectors is the answer. I do not have a difficulty with issues such as Sunday working being examined but I do not commit my party to necessarily saying that should be changed. If it can be demonstrated that, for example, business owners cannot open on Sundays because it would not be worth their while, then the issue should be examined. The Leader said he is aware of this being the case. If so, it should not be difficult to put together evidence in this regard. If there is inflexibility in the agreements for adjusting pay levels, it should be relatively easy to address. I do not know what is meant by a lack of flexibility. Given my knowledge of the Labour Court processes, they are not unwieldy and people can go there if there is a proposal to vary an agreement. If the Government believes it is worthy of examination, nobody could object to this.
I refer to the reductions in public service pensions. The Government is right to address this area, as it is impossible to avoid it in the context of equity and fairness. However, I query the reduction on pensions of between â¬12,000 and â¬24,000. That is a relatively modest pension and the issue of the threshold for implementing various reductions also arose when the income and pension levies were implemented. It is quite likely that people on a pension of between â¬12,000 and â¬24,000 have no other income. It is at least conceivable that some people on high public service pensions have other incomes. It is not just that it is conceivable. It is manifestly true that people on very high public service pensions can have another source of income. That is not a criticism of them but it is simply saying by way of equity and on the basis of what Senator Boyle rightly said about spreading the pain and the burden that it is not unreasonable that it would be addressed.
I mentioned that I welcomed the conversion regarding the tax expenditures. They are even listed on page 96 of the plan and that list looks very familiar to the list the Labour Party prepared at least in last year's budget if not the one before that and which has been repeated frequently by myself in this House and by other colleagues.
There is a great deal in the plan to consider and read. Unfortunately, it is the price of failure. It does not purport to be a document that deals with the banking crisis, which is the great concern, if that is not an understatement, for all of us in terms of the way it will be addressed. It is important we look at planning our budgetary strategy over a longer term and not have this mad rush in the lead-up to a budget, especially in areas such as public expenditure. It is crazy that our system seems only to address these areas for a few weeks, even though we seem to have been talking about them since the summer of this year. As I said previously, there should be an ongoing review of public expenditure, as they have in Canada, rather than seeing what we can cut. It should be possible to have a continuing process of review and consideration of what we want and what is important. We should almost start again in regard to all areas of public expenditure. We should shake all the trees and examine them all, not just for the purpose of cutting but for the purpose of working out in a positive way what it is that we want to cherish and keep.
As the Taoiseach said today at the launch of the National Recovery Plan 2011 to 2014, it is about being optimistic for the future of our country. Wearing my business hat, unless we are optimistic about the future of our country, it will remain stagnant. Currently, the media and the Opposition are doing everything in their power to make us out to be a country with no hope, which is having a seriously detrimental effect on businesses, companies, families and children. As a business person I am and always will be optimistic. I believe our standard of living will not escalate in the way it did in the past ten years. It will remain static and may regress but in about three years time it will begin to grow again.
In 2000, our costs in Ireland were the same as those in Germany but by 2008 our costs had increased by an angle of 45 degrees, so to speak. We lost our competitiveness. There are many policies and decisions in this plan that should have been implemented in the past ten years. I wrote to the Minister, Deputy Mary Harney, on the introduction of the minimum wage in 2000 and congratulated her. I met her and told her it was a very good idea to have a minimum wage but it increased on six occasions over the years. It is not that the minimum wage itself is high but other people up the scale financially wanted to get a higher increase in wages, which added to the increase in labour costs. Other people saw it increasing and said they wanted more. That is what it caused.
I do not agree with Senator Alex White's view that we have to agree the plan and examine it more carefully. It was good to have the minimum wage but it acted against people taking on lesser skilled people and giving them work experience. Employers ended up paying â¬10 an hour. Paying â¬10 an hour to someone who has no experience is crazy because one must teach the person how to do the work. It was a failure of Government that it did not re-examine the policy it had introduced. That is the main difference between business and politics. I find it fascinating. One must examine every decision one makes. One must re-examine it, refine it and make it work in a strategic manner but the Government carved policies in stone and then the whole process crumbled.
The same applies to water charges. The Government should have brought in water charges a long time ago. There was a political failure to do that. I spoke at a local authority conference in Castlebar five years ago and the theme of my presentation was that there should be an introduction of water charges. Water is a scarce and valuable commodity, but the Government did not have the guts to make those decisions.
I read in the newspaper, and therefore I presume it is correct, that the Minister for Tourism, Culture and Sport will consider reducing the departure tax on people exiting the country. If she did that, thousands more visitors would come here. Why did the Government not do that a year ago? A person's business will not survive if they do not innovate. They must refine their policy and innovation strategy, come up with new products and improve others. The disappointing aspect of politics for me is that policies are carved in stone and they then fail because they do not re-examine and refine them.
My area of immediate interest is the strategy for improving our competitiveness, growth and employment because it is all about reassuring the people that there are jobs for themselves and their children and that they are not terrified. I am aware from doing business that one cannot grow a business in a small open economy with a population of 4.4 million. One must export. The Minister of State, Deputy Mansergh, may recall me speaking about that. I find it frustrating. The country does not earn any money unless it exports goods and services or attracts people into the country to give us their foreign exchange. It was running out of sync with an efficient economy. If we look at the contrast with the German economy, they were able to keep their costs in line from 2000. They did not allow them increase. They were realistic, and we have lessons to learn in that regard.
I am delighted with this plan. I believe it will be a source of optimism as it is spelled out, but we have to monitor it and ensure there is delivery on it. I am particularly interested in the agrifood area. It is our indigenous industry. It employs 150,000 people directly and another 100,000 indirectly. I do not know where we would be today if we did not have our multinational companies which came here for the high level of education of our young people and our 12.5% corporation tax rate.
I have been listening to a great deal of rubbish on the radio and reading in the newspapers about whether the corporation tax will be abolished. I cannot understand the stupidity of it. That tax is carved in stone until every member of the European Union does not agree with it. We will never agree with it being abolished and therefore it can never be changed. Someone made an interesting point to me the other day. Her daughter, who is about 16 years old, stated: "Mum, our corporation tax is like our monarchy; nobody can touch it." I thought it was a fascinating remark. This is our tax and all the criticism we have been getting in the international media recently has a lot to do with jealousy that we have this 12.5% corporation tax.
The agrifood industry needs young leadership in the productive and the farming sector. We must reward them and encourage innovation in the food sector and among the food processing people and the people making food products for export. Lir Chocolates, which employs 250 people in Navan, innovates with 30 new products a year. One does not hold on to one's market unless one innovates. I am worried by the increase in VAT from 21% to 22% in 2013, with a further increase to 23% in 2014. As Senator MacSharry said earlier, that is negative for the Border counties and business and jobs in the Border counties should also be cherished. In addition, VAT affects the poorest, it is frightening the effect it has instead of taxing income.
I wish the Taoiseach well. I believe he is the right man to lead us through this. He knows what he is up against. I predict people will begin to see clearly his excellent qualities and that all he must do is appear on television once a week to take the people along with him. He takes us along with him, he took us along with him last night. It is all our futures, on both sides of the House, and the Irish people are relying on the result of this and everyone getting behind it.
I welcome the Minister of State. I welcome the publication of a plan such as this because one of the great failings in the budgetary process is that it is done on a year-to-year basis. This plan will put in place a framework for a number of years, laying out budgetary targets while recognising the fact that a new Government will have the discretion to decide to achieve the targets in a different way.
Given the atmosphere, I want to make some positive comments about the plan, how it can be implemented and how it can be improved. The publication of today's report will bring clarity for people about the effect the plan will have on their standard of living. I saw some of the RTE coverage of the plan and a tax expert made the point that the average family on â¬50,000 per year, as a result of the tax changes across the next five years, will see a loss of â¬2,500 per year. I do not want to see that sort of change taking place when people should be spending more, which is what we need. Nevertheless, the fear and uncertainty that exists at present leads many families to anticipate that their income will be affected by many multiples of that. There are people who are assuming the worst for the standard and higher rates of tax. Too many families assume that they will have no disposable income to save or to invest at the end of this process. Hopefully this plan will provide clarity through balanced discussion in the coming days. We will be able to spell out the likely effect on our standard of living in the coming years. That will give people and businesses the confidence to plan and organise their lives and investments.
It is also important because there has been what has been called "the great deceit" perpetrated on people in recent years. That deceit is that there is a simple, cost-free, fair plan to address the difficulties our country faces but it cannot be implemented because the Government and Opposition are too stupid to see it. This plan lays out that there are no cost-free choices for anyone, be they for this Government or a new Government. If any Administration wants to do something under this framework, there will be something else it will not be able to do. That is a welcome improvement in politics, where there has been a belief that it is possible to increase public expenditure while decreasing taxation. There was a belief we could do everything to satisfy all of the needs placed upon us by those we represent. This plan, and the fact that the two main Opposition parties have signed up to the objectives of the plan, will provide a framework for more honesty in the discussions that must take place on the future.
The table on page 92 of the document should be noted by everyone. It lays out that since 2004 until the present, 45% of income earners have been exempt from any income tax. Fixing that will be painful but it must be done. Fairness is about everyone making a contribution depending on the means they have. Fairness is also about everyone making a contribution, except those who have next to nothing and finding a way to do that fairly will make a huge contribution to fixing the deficit.
I welcome the Minister of State. He has always been generous in the time he has given to the Seanad.
I was interested in listening to Senator Mary White and the practical comments she made, which obviously come from her business background. She made a lot of sense, and made the point that she was frustrated reading through the document that so many issues in it had not already been addressed; I felt the same. It is frustrating to see so many structural reforms that have not been made. Her party, however, has been in power for 13 years and had the opportunity to address many of these structural issues but did not and, in that sense, wasted the boom.
I agree with Senator Donohoe when he says this is a framework for a more honest discussion, a new politics about the choices we must make. Fine Gael will publish a response to the document that will outline our approach, and we do not consider we are tied to the detail of the plan. Clearly, a new Government will not be tied to the individual policy choices in the plan; the targets are fixed, but the means to arrive at them are not. We accept, however, the broad parameters of the report, remaining committed to the target of reducing the deficit to 3%.
There is much in the document that makes sense. The initiatives in the tourism section are welcome. We have the infrastructure, the hotels and roads, but we do not have the tourists and we need to see initiatives in that area. There are many other practical suggestions about what needs to happen.
If we are to bring about these changes, we must display the political will to make the structural reforms necessary. There must be a Government with the will to do what is necessary to reform our approach to public services and the political system. That is what Fine Gael has and what we have outlined in our policies in recent months.
There is no reference in the document to the banking issue. We do not know what the impact the issue will have on jobs and the budget crisis, given the amounts we still might have to pay into the banks.
There is so much to say about this. On the subject of the cut in the minimum wage, the interaction with the social welfare system will have to be examined, because we do not want people to be caught in the poverty trap and feel it is not worth their while to work. Such interaction and the poverty traps that people can easily find themselves in are key issues.
Families, as Senator Donohoe said, had hoped for certainty from this plan. They were concerned about whether the plan would make clear the reality that is facing us. It does to some degree, but if one is on social welfare, which is facing â¬2 billion in cutbacks, it does not. How much of this will be obtained from waste reduction and efficiencies, and how much will be obtained from changes that need to be made to systems, such as rent supplement, that we know are not working effectively? Families dependent on social welfare face uncertainty; they do not know where the â¬2 billion in cuts will fall.
This is also the case for the reductions in the health budget. What will be the impact of the â¬444 million of reductions in procurement and demand-led schemes on people who really need their medicines every week? Will they still be able to afford them? More than â¬746 million per year is being taken out of our health system.
One of my concerns is about the effect of the plan on young people. The plan seems to assume that many will emigrate. They will be charged more for third level fees and funding to third level institutions will be reduced. What impact will this have on young people from disadvantaged families who wish to access third level education? There are cutbacks in the school completion programme. Where is the hope for young people and the ambition for their generation? I am concerned about this.
I do not believe the plan will result in growth in the economy. Some of the assumptions in the document about the level of growth may unfortunately turn out not to be correct. There is much more I would like to say about the document, but we will have another opportunity.
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I regret I will have to leave the House shortly, although I will be replaced. I pay tribute to the exceptionally constructive tone of the debate so far, which brings us hope for the future.
The necessity of the national recovery plan is self-evident. We have the lowest tax wedge within the EU and 45% of our people pay no tax at all. While we would all love to see this continue, in the current climate change is unavoidable. Over the last two years, there has been an 8% decrease in the cost of living; in real terms, even though there might be a small tax increase for people, in terms of their purchasing power they will be no worse off. That is significant. The same applies to those on fixed-income pensions and in paid employment. Our first concern must always be for those who, through no fault of their own, find themselves unemployed. One of the main tenets of the national recovery plan is that it provides hope. It points out that although GNP fell by 7.5% last year, there will be a modest increase this year. That increase of around 0.5% means that within one year there will have been an 8% swing.
Ireland is the third most globalised economy in the world. In fact, if we discount the city state of Singapore and the special administrative region of Hong Kong, Ireland as a nation is the most globalised economy in the world. As the world economy grows by 4% or 4.5% this year and next year, we will share disproportionately in that growth. Our corporation tax receipts are up in 2010 and our exports are already marching ahead. This will continue, and it will have knock-on effects throughout the economy. The retention of our 12.5% corporation tax rate, which is an essential advantage for us, along with our people and our high standard of education, is to be welcomed.
In recognising the positives, we must also recognise that there is a need for cuts, because the revenue stream has become significantly smaller. The gap must be bridged and we are doing this by facing our choices in the best possible way. The correction will consist of two thirds cuts and one third taxation. The cuts have been spread as evenly and fairly as possible. People on pensions will receive a cut, which is unavoidable, and those on State pensions will feel the brunt. However, we must recognise that over nine years the level of pay in the public service went up by four or five times the rate of inflation, and people are still significantly better off than they were in 2006.
What did we hope for from today's announcement? We hoped for a clear, balanced view that we would achieve sustainable targets. We are obliged, by our membership of the euro and the European economic and monetary union, to reduce the deficit to less than 3% of GDP, and I believe we will achieve this by 2014. We are front-loading the fiscal corrections despite whatever public concerns there may be and any resulting unpopularity. Despite the protestations of those who feel otherwise, the Government is taking tough decisions and it is taking them now. The first concern of this Government must be to restore the public finances and restore public trust. This is a major step in that direction.
I have always believed we would come through the recession, and I have always believed in the bigger plan. We are part of the eurozone, with a population of 500 million consumers who can buy our products, and we are part of a strong currency. I have no doubt there are those who wished, for whatever selfish reason, to prevent the success of the euro, and some of this perhaps stems from old prejudices. However, as we discussed in this Chamber before with Pat Cox, the euro is part of the light of the European Union. It is a wonderful experiment which should not fail, and we must ensure it does not.
We will start paying more in tax, as a percentage of our income, to meet the interest repayments on our loans, but that will fall by 2014. Although we will be paying more tax and taking on an extra burden, it will be for the short term. That extra burden of taxation stems from a situation in which we had one of the lowest debt-to-GDP ratios not only in Europe but in the world. At one stage, our net fiscal position was a 14% debt-to-GDP ratio. After this year's adjustments we will be at 90%, and by the end of 2014 we will be at 100%. There are many European countries that would love to be in that position. Many of them, before this recession ever took place, had a 100% debt-to-GDP ratio - that was in 2006-07. Even though we have faced considerable difficulties in our banking sector, our national finances were in good shape and we had the National Pensions Reserve Fund.
Do I believe the national recovery plan will help? The Opposition is engaging constructively with the Government on the plan, although if there were a change of Government it would alter certain aspects of it.
The fundamentals of this plan will not change and the amounts will not change. This nation has had a single focus in the past, particularly towards the difficulties in the North of Ireland, which appeared totally intractable and impossible. The saying was: "If you had the solution, you didn't understand the question." I know the Minister of State who is present played a leading role in bringing peace to the country and by doing so solved what was regarded as an intractable problem. We will get through our difficulties. While I am loath to use the phrase "The fundamentals are solid", our people are still well educated, willing to work and committed, and we have social cohesion.
We would do well to recognise that the unions may be protesting in Portugal - I hope it does not go further then that but the Portuguese Opposition has rowed in with support for the budgetary strategy there. It would be useful if it were to happen here in order that we can get on the road to the recovery that every party in this House wishes to achieve.
At times such as this, we all must try to play a constructive, not a destructive, role and try not to be overly critical of what is happening and what has happened. In a serious crisis, it is not helpful to come in and kick at an open goal, at a Government or Department of Finance which are both a kind of beaten docket at this stage anyway. I will try not in any way to play the blame game in my contribution because there is no point. That is for another day and, by God, there will be plenty of time to do that in the budget debate, and the Opposition will have plenty of time to do that during the general election campaign. The situation we are facing today is critical and very fluid and we all have a duty to try to make constructive suggestions in the hope that some of them may be at least listened to.
I thank the Leader of the House for organising this important and useful debate about a plan which will change a great deal in the four years to come. It is just a blueprint and there will be such substantial changes in the years ahead that it will become unrecognisable. Nevertheless it is useful to get an idea of the Government's thinking, even if it is somewhat in a vacuum and in a situation that may not be the same tomorrow or the day after. I do not believe this is the Government's document. I was just on a radio programme and the message came through that it had been approved by Olli Rehn. No one was quite sure whether it had been approved by Europe, but it has. If it has received Europe's approval, in the present changed circumstances it means it is Europe's document. Europe has approved the plan's parameters and so has the IMF. That is something with which we must live in the next few years.
To my mind the plan is a kind of compromise between the public service unions and Europe. I am surprised the Croke Park agreement has been set in stone and that the Government is living in the same straitjacket in which we have lived for so long. If one can be critical of the document, one of my principal criticisms is that it is very unimaginative and written along the same lines as conventional budgets have been since time immemorial. I would have thought this was the time to make radical departures.
I would like to ask the Minister of State a few questions to explain things I do not understand. If Members of the Opposition have raised these already, I apologise. How can the Government possibly have a credible four year plan without mention of the banking crisis? It makes it pretty well irrelevant because the banking crisis is the most important economic factor and the biggest hole in the economy at present. Despite this, we have a four year plan that does not mention it, at least not in the overview and summary, which are all I have read. I have no doubt in his reply the Minister of State will say we are in the middle of negotiations because of which he is probably not willing to indicate the cost of the money we will borrow. The interest rate to be paid will be will be an enormous factor. Even if the plan had included an optimistic and pessimistic scenario - a best and worst case - it would have been acceptable because at least we would have been able to have a look at it. The arithmetic of budgets for the next four years will be completely and utterly controlled by this very important factor. Neither I nor anyone else knows whether this â¬85 billion, if not more, we are about to borrow will be borrowed at a rate of 7%, 5% or 4%. It may be lower or higher, but probably not higher. That is such a material factor that the budget arithmetic would be greatly changed by it, yet it is not mentioned in the plan. All the cuts in social welfare and public service pensions will be dwarfed by the figure that comes out from the loans to the banks and the interest rates. What are we supposed to make of these figures if they are irrelevant in terms of the big figure? Could the Minister of State-----
Of course, but it is irrelevant if we do not have the biggest figure for what we will be paying annually to someone else. That will be far more important than these other cuts. The difference between 4% and 7% is enormous. The Minister of State should not shake his head. It is enormous in this context.
I could not agree more, but sovereign debt and bank debt are the same thing, as the Minister of State knows perfectly well. If the Government is servicing the bank debt, it will come out of the taxpayers' pockets. It is the same thing in the end. The Minister of State is just playing semantics and talking technical nonsense. At the end of the day, it will come out of our pockets and will be part of the budget arithmetic. If the Minister of State wants to separate them, it is up to him, but at the end of the day the same source of funds will pay for it and we need that figure in the plan.
I find it difficult to find any basis for the plan's growth projections. It is difficult to believe we will have an average growth rate of 2.85% over three years, which seems to be based on the 6% rise in exports this year. For some reason the Government believes that will balloon while the rest of the economy stays steady. Why does the Minister of State believe we can grow at the rapid rate predicted in the plan in years when we are cutting public expenditure and increasing taxes? There may well be some reason for believing that, but normally if there is less money to spend, growth will not be encouraged. There must be some exceptional reason for projecting that the economy will be able to grow at a high rate despite the fact that we are taking money out of people's pockets and reducing public expenditure, with social welfare and other cuts. It does not make sense initially and to rely on the export argument is very tenuous.
I do not know why the Minister did not do something else. Why have we so successfully defended the 12.5% corporation tax? We defended it not so much because we wanted the revenue from it but because of the incredible boost it gives to the economy. I congratulate the Minister on defending it successfully. I believe there was some pressure to raise it, but there has always been such pressure, although I suspect it was exaggerated in order the Government could tell us it had saved it. However, why did the Minister not think differently? Given that the argument for it is so strong, why did he not suggest cutting it? The 12.5% rate is the most important anchor of our economic growth and exports. It attracts the multinationals which are the vibrant part of the economy. US multinationals provide 112,000 jobs, something which must be encouraged. What is the best way of doing so? The Minister should tell the European Commission that we are reducing it to 9.5%. Why did he not do this? It would be the way to increase exports, employment and investment. There would be a short-term loss of tax but this could be made up elsewhere. God knows, the Minister has been brutal enough elsewhere.
It could be made up in many other places. The Minister of State knows where it has been done. He will have time to answer the question which is a fair one.
Why, in the name of God, does the plan not have a programme for a sale of State assets? If we are in such an appalling situation economically and given that the ESB is worth â¬8 billion and Aer Rianta, â¬1 billion, why did the Government not list the State's assets and declare that it would sell them in a particular order? This is an emergency, not a time to sit back and say: "We have these in our back pocket but we better not sell them." Why is there no programme for the sale of State assets to raise the money that it is necessary to raise? This is an emergency, not a time for sitting on assets, a lot of which are monopolies which are losing money.
I welcome the national recovery plan which sets out the direction the country will take in the next four years. It is a first because we usually consider budgets on an annual basis. However, the plan shows how we will do our housekeeping and keep our finances in check, which is most important. We have been spending far too much money and getting little or no return for it. We have not been effective in curbing expenditure on the public service, but this document clearly sets out how we will do this and make up the difference between what we borrow and spend. That is both good and vital.
The red line we defended, the 12.5% corporation tax rate, is an important feature of the plan. If there is to be growth in the economy, it must be generated by inward investment and export-led companies. That is where growth is anticipated in the plan. However, how will we negotiate the loan in the context of the plan and the budget? It is extremely important that we get the right balance in what the ECB and the IMF will charge us in interest. As I said this morning in the House, unless we secure favourable rates, the savings to be made under this welcome plan and in the forthcoming budget which aim to balance the budget will end up being paid out in interest. That will not create jobs, only negativity in the economy. It is important, therefore, that we beef up our negotiating team in order that it can explain that if people want their money back, the economy must grow. We must be even more ruthless. A total of â¬90 billion is owed to the ECB. We must tell it that we could default on that debt if we cannot afford to meet the repayments. Therefore, I believe a rate of 2.5% or 3%, not 5%, is the ball line we should seek. Remember, every percentage point represents a sum of â¬1 billion.
I am disappointed that the document does not include one of our growth areas, the green economy. There is nothing in it to grow the green economy. The energy industry is probably one of the most important we could develop at this time. Why? First, it will employ people. It will also provide us with an export industry. It will help us to save on imports; over ten years it would save us â¬60 billion. It is important to look at where there is growth in the economy and this is one area in which there is growth. We have the greatest sources of wealth in Europe in terms of energy resources. Some strides have been made in harnessing some of this energy with our wind farms. However, we now have an opportunity to install storage facilities to store this energy, instead of ploughing it into the grid when the wind is blowing and there is no spare backup. We could harness this energy and sell it at a vast profit.
The Spirit of Ireland group gave us an update a week ago on its current position. It has a â¬3.5 billion investment ready to go. It is important that the Government has a policy on energy and the upgrading of the grid which will be vital for us in the next few years, especially when we will be paying high interest payments. It is also important for the European Union which is supporting the bailout. A contagion from our problem could spread to the rest of the Union which could make matters far worse.
The ECB which appears to be run by the German Government because it wants to keep its bonds at a valuable rate and very much in demand has not done much to deal with our exporting position. The euro has changed very little in value against the dollar, but the Americans are printing more money. They are making the dollar less valuable in order that they can export more cheaply. Who else is doing this? The Chinese are and making their exports cheaper. They are also cutting their costs. That is what this plan is about and I strongly support it. I wish to see everything in it being implemented.
The plan will change politics in this country for the first time. In the next election campaign no one will be able to promise anymore than what is contained in the plan. It will be the document for the next election. Whatever Government is elected will be able to tweak things here and there, but the 3% target to reduce our borrowing is sacrosanct and vital.
The problems in banking are serious and could undermine the recovery plan unless they are dealt with. They can only be dealt with by the ECB as they are too large for Ireland to handle on its own. It is important to show the European Union that we are serious about the budgetary plan. We have done so with the â¬6 billion in cuts to be front-loaded and by ensuring the balance of payments will be corrected. However, all this will be for naught if we do not get a good loan deal from the European Union. Greece was able to borrow at the reasonable rate of 4.4%; Ireland must be offered a similar rate.
Alternative energy production is one area in the domestic economy we can develop. Five wind power generating stations on the west coast could make us virtually self-sufficient in energy supply, save us â¬60 billion on imported fuel in the next ten years and even give us up to â¬10 billion in energy exports. This is what we need to hone in on to ensure the economy will recover.
This debate on the publication of a four year budgetary plan is a waste of time, as those delivering it have no credibility whatsoever. We cannot believe a word they say because every intervention and projection they have made in the past two years has proved to be disastrous. Several of the statements made show how incompetent the Government has been.
In January 2009 the Minister for Finance, Deputy Brian Lenihan, stated in the DÃ¡il that both Bank of Ireland and Allied Irish Banks were "fundamentally sound and solvent institutions." Eight months later he said NAMA would:
... ensure credit flows again to viable businesses and households by cleansing the balance sheets of Irish banks. It will ensure we avoid the Japanese outcome of zombie banks that are just ticking over and not making a vibrant contribution to economic growth.
Last September he said he was "bringing closure" to the banking nightmare the people had had to live with since September 2008. However, there has been no closure. Not only is the nightmare set to continue, but it is to be of historic proportions, with Ireland, the economy of which represents a tiny 1.7% of the EU economy, now owing 20% of the European Union's banking debt.
The Green Party has belatedly recognised its Government partners' incompetence and effectively fired them this week. If the financial controller of a bankrupt company was to be fired for incompetence, would he or she demand he or she had a right deliver a four year strategy for that company on his or her way out the door? Most certainly not. If the members of the Government had even a modicum of shame or patriotism left, they would have left the stage a long time ago. Their very presence in government is a major factor in our continuing downfall.
Last night on TV3 some of us witnessed a defining moment in public service broadcasting when the clouds of obfuscation and deceit surrounding the bailout were swept away and the real facts surrounding the proposed IMF-ECB loan scheme emerged. Figures of â¬6 billion or â¬15 billion were dwarfed by a projected total national debt of â¬330 billion. Saddling the country with this debt is not alone immoral, it is also completely unworkable.
We are in danger of being sleepwalked into a bailout arrangement that will burden our children and grandchildren with a debt for which they are not responsible and one they will simply never be able to repay. How credible is this â¬330 billion figure?
We have an existing national debt of approximately â¬90 billion. Bonds which will fall due to be paid by Ireland in the next three years amount to â¬23 billion. The ECB has already fed funding of â¬100 billion into our banks, while the Central Bank has pumped in another â¬30 billion in the past two weeks when the ECB said, "No more." Our bailout debt, to be incurred in the next three years, is â¬85 billion. That all adds up to just under â¬330 billion, an extraordinary amount of money.
Applying a very conservative interest rate of 5% to that figure, our nation of 4 million people will have to come up with over â¬15 billion per annum to service this debt. Bearing this in mind, it is difficult to comprehend why the Government's four year plan makes no provision for servicing that debt. It is like preparing a household budgeting plan and leaving out the mortgage payments.
What is even more frightening is that this evening the Minister for Foreign Affairs, Deputy Martin, confirmed on RTE television we would continue to pump money into the banking black hole using our precious National Pension Reserve Fund savings.
It is time to stop the IMF negotiations in their tracks, call an immediate general election and let the people decide if they want to burden future generations with this debt. We must also realise that when the negotiations recommence, Ireland will be in a very powerful position and have the upper hand. The ECB is petrified of a contagion; it simply cannot allow the Irish bushfire to escalate into an EU forest fire. It must be told we will do a deal but on our terms alone.
It is time Members in both Houses who claim to have the best interests of the people at heart followed the advice of the German Chancellor, Angela Merkel, who said today that European politicians needed the courage to make private investors share the risk in future debt crises in the eurozone and show the financial markets who was in charge. She asked a valid question: do politicians have the courage to make those who earn money share in the risk or is dealing in government debt the only business in the world economy that involves no risk? In her statement I hear echoes of Joseph Stiglitz's statement several months ago when he questioned the wisdom and, most certainly, the morality of privatising the gains and socialising the losses associated with the banking system. I will not support the imposition of the banking burden on the backs of the people without first giving them the full unvarnished truth and the option to decide their destiny. That is what democracy is about. It is most certainly not about prostituting our children's future at the feet of a bunch of misguided and irresponsible financiers who are not willing to live with the consequences of their actions.
I welcome the Minister of State. I wish to put the recovery plan in context. The report states:
From the late 1990s, the benefits of our booming economy were felt across every section of the population. Working-age social welfare rates are now more than twice their rate in 2000. [They increased by 300% between 2000 and 2009 at a time when the rate of inflation was 16%.] Public service pay also increased well ahead of inflation. From 2000 to 2009 average public service salaries increased by 59%. At the same time, taxation was reduced. During the period after 2000, the entry point to income tax increased from â¬7,238 to â¬18,300 for PAYE earners and since 2000, bands have widened by 105% for the single person and married two earners.
The statistics contained in the recovery plan put the matter in context. The downside is the effect of the property boom which swelled VAT and other receipts. The report states:
In 2007, capital taxes and stamp duty yielded â¬6.7 billion. This year, that figure is expected to fall to as low as â¬1.6 billion. In these dramatically changed circumstances, it is clear the State can no longer afford the current levels of social provision and personal taxation.
It seems there has been historical revisionism in recent weeks. If I have a criticism, it is that the extension of the tax schemes for the construction industry, specifically private housing rather than corporate construction, from 2004 onwards should have been stopped earlier. Such was the pressure exerted by all sectors of society, not least by the construction industry which was creating an enormous number of jobs, the Government did not respond adequately. As I pointed out on the Order of Business, despite the wonderful hindsight shown by critics of the Government, none of these issues was under discussion in the 2007 general election campaign. There was no reference to a flawed banking system, an impending banking crisis or the implosion of Government receipts. The Fine Gael and Labour Party manifestoes called for increased expenditure, while the Fianna FÃ¡il manifesto called for restraint. That is a fact of life many in the toxic atmosphere outside that is so anti-Fianna FÃ¡il and anti-Government have chosen not to remember. Perhaps they are ignorant enough not to look at the facts.
The report states capital spending must be reduced, but the reduction must be considered in the context of the substantial investment made in the past decade which has transformed the road network, the public transport system, education institutions and cultural, sports and tourism facilities. These are real gains for the country and represent a legacy for future generations. They were not magicked out of the air but were made because the Government prudently spent the money accruing in ever increasing amounts in the period 2000 to 2010. Such is the scale of historical revisionism, the gains made by successive Fianna FÃ¡il Administrations have been forgotten. They are permanent and show a benefit in terms of the economic impact on the country. As a result, there are lower transport costs and easier access. The country is still an attractive location for foreign direct investment, despite the gainsayers.
I have never taken the approach that the glass is half empty. I accept that the making of a political charge and counter charge is in the nature of politics. However, we must provide hope for and give confidence to the people. I applaud the Taoiseach for the manner in which he opened proceedings today, followed by the Minister for Finance and the leader of the Green Party, Deputy Gormley. The message was one of hope and confidence rather than we had a beaten Government. That was not the rhetoric of a Government in its last weeks. It provided a beacon of hope for the people, that this is a national recovery plan. Society as a whole can combine to bring the country to a better environment.
It is estimated that 45% of taxpayers will pay no income tax in 2010. This is an extraordinary figure when one considers that in the United States of America everyone pays tax. This issue will be specifically addressed in the budget. The economy enjoyed sustained, balanced and export-led growth as recently as the 1990s. The point made in the report is that we can get back to that point. Between 1993 and 2000 exports expanded by almost 18% per annum, driving an average annual GDP growth rate of 9%, a cumulative increase of 500,000 people in employment, a cumulative rise in living standards of about 80%, all in the context of maintaining a healthy balance of payments position and achieving a substantial Government budget surplus. I give credit to the rainbow coalition which was in government between 1994 and 1997. What happened subsequently was in a different context. The reason it is included in the report is that the formula for achieving balanced, sustainable growth appropriate to a small, open economy is not elusive. We discovered and applied the formula for export-led growth in the 1990s and can do so again. It has been shown in the figures compiled in the past 12 months. Exports are improving on an ongoing basis and we will have a balance of payments surplus next year. We will export more than we will import, which is unique among the countries under attack in the eurozone, including Portugal, Spain and Italy.
The report reflects the fact that a number of sectors will experience growth. Exports in the agrifood industry amounted to approximately â¬7 billion in 2009, representing half of all exports by indigenously-owned firms. During the first five months of this year the value of exports was more than 8% higher than one year earlier, at almost â¬3 billion. The rate of recovery has accelerated as the year has progressed. Exports grew by 14% in the third quarter. The prospects for the major agrifood product categories in 2010 are generally positive, as better market prices and a more stable economic picture across Ireland's key markets underpin trade. Was it not a joy to see potato farmers loading Irish potatoes onto three ships at Drogheda Port last week? They came from various parts of the country but primarily from the major potato growing areas in County Meath and on the east coast. The surplus of 50,000 potatoes on the Irish market will be sold for export. These are being sold on the Russian market. The people there specifically wanted Irish potatoes because they were free of a particular disease strain endemic elsewhere. This is a wonderful tribute.
The tourism marketing budget of â¬44 million will maintain Ireland's visibility in overseas markets. This is welcome. Capital funding for the tourism sector will be focused on completing the upgrade of major tourist attractions and developing a number of key iconic attractions. In this regard, I thank the Minister for Community, Equality and Gaeltacht affairs, Deputy Carey, who hosted a tourist initiative in Ballyshannon last Saturday. I pay tribute to Mr. Paul McLoone, general manager of FÃ¡ilte Ireland in the north west, with whom I worked in the years I was chairman, for developing three major iconic attractions in the region - Glencar Waterfall in County Leitrim which is known to the followers of Yeats's beautiful poetry; Ben Bulbin of Queen Maeve fame; and Slieve League Cliffs, much more impressive natural cliffs than the famous Cliffs of Moher. I pay tribute to the three local authorities in counties Leitrim, Donegal and Sligo which are putting in money to improve access and infrastructure.
Like others, I raised previously in the House and with the Minister for Finance the question of whether the ten year period for the solidarity bond issued last year was acting as a disincentive, in particular to those who were at or near retirement age and had significant, although not large, sums of money to invest to help the State. They asked me and others if the time limit could be reduced because they considered ten years was a long time. I am pleased to say that in the national recovery plan it is stated that it is intended to launch a new four year solidarity bond shortly with a similar structure to the ten year bond. It will pay a coupon each year and a bonus to those who hold it to maturity. I applaud the initiative taken and thank the Minister for Finance for responding so effectively in that regard.
I welcome the Minister of State, Deputy Finneran. As acknowledged on all sides of the House, we have never been at such a crossroads in our political and economic history. We have only managed to have a cursory look at the plan and while there are many aspects of which we are critical - no doubt, some speakers have been and more will follow me who perhaps will be even more critical - but we wish it well. We do not wish to knock it, despite our valid criticisms.
No one wishes to cut anyone's standard of living, salary or wage, but we also realise that we must cut our cloth according to our measure. The State has a deficit of â¬18.5 billion between what it receives in tax receipts and what it pays out in running the services provided. Clearly, that is not sustainable. On page 91 of the plan the Government admits the error of its ways in regard to the unsustainability of the income tax base. Reference is made to the base broadening measures now required as a result. The situation we have allowed to develop is serious and must be corrected. We may have different ways of broadening the base and closing the gap. That is natural. However, we subscribe to the figure of â¬15 billion and the plan to reduce the general Government deficit to 3% by 2014. We only argue about the detail. The devil is often, if not always, in the detail. We subscribe to the need to restore order to the public finances. We want to provide for extra growth and the creation of employment in the recovery process. It is proposed that the economy will grow by 2.75% on average between 2011 and 2014. I would like to know a little of the detail on which that estimation is based. Perhaps the Minister of State might refer to this. It must be based on projections from some source. We would also like to know more about the reforms the Government will implement to accelerate growth in certain key areas.
I support what Senator Mooney said about tourism and our iconic tourist attractions. While he did not refer to the travel tax, I welcome the hint that perhaps the Minister might be prepared to drop it as it is not bringing in sufficient revenue. The Minister has put it up to the airline operators to show how they would bring in extra numbers of tourists if it was removed. That approach must be pursued. We heard the chairman of FÃ¡ilte Ireland speak on the matter on radio this morning. Those of us who come from prime tourism areas know how much the tax has hindered and obstructed us in the achievement of our goals. I invite the Minister of State to say more on the subject also. I agree with the goal in that regard.
The Minister of State recently visited my part of the country and is aware of our iconic attractions. I will mention just two - Muckross House and Killarney House which is a wonderful attraction. Lord Castlerosse and members of the Kenmare family lived there between 1913 and 1953, but the house is now being allowed to fall into rack and ruin. Sadly, while there is limited expenditure to strengthen the foundations, much more could be done to preserve this wonderful and historic house that is part of our heritage in the south west. It is situated both in the town of Killarney and the national park.
The â¬85 billion package has often been referred to as a bailout, but it is not a dig-out in the sense that we properly understand these terms. It has not been totally finalised. The Minister of State might comment further on this. We would like to know whether the loan or, as I heard it described earlier today, an overdraft facility will have to be drawn down in its entirety. We hope that will not be the case. I would like to know if there is an outline of how much of it is intended for the provision of Government services, the ongoing running of the various Departments and how much - I presume by far the larger part - is for our banks which are in such difficulty. We have been hearing on a daily basis about the continuous withdrawal of large-scale deposits - â¬12 billion since June - and despite all the assurances and the guarantee in place, some people have shifted their money from banks to elsewhere. What proportion is earmarked for the banks? That may change because moving from a 7% or 8% tier one capital requirement to 12% will result in a huge imposition. We wish to know, therefore, the rate at which the facility will be made available. We have heard much from the Government to the effect that this will be a back-stop and the firepower to settle and calm matters which we all desire so much but which sadly is not happening. I would like to hear more about this aspect of the â¬85 billion being given to us, which amount may not be exact.
The Leader is aware that I have often referred to the frightful mistakes made with the banks. I did not disagree with the giving of the guarantee because it was absolutely necessary. However, mistakes were made with Anglo Irish Bank. Allied Irish Banks and Bank of Ireland are the two institutions of most systemic importance, with branches in practically every town. They were providing the lifeblood of business. However, we know how tight things have become and how difficult it is to have an overdraft or loan facility sanctioned. Even if one had such a facility beforehand, cuts are being imposed when the matter comes up for review. Life is difficult, but, as a country, we cannot live or trade without a functioning banking system. Despite our criticisms, we should plan well.
We have been told that we will move towards 99.9% ownership of Allied Irish Banks, which is probably true. I am sure it is the Government's intention to keep the stock market listing to give hope to the small shareholders who have lost so much. In the past day or two the frightful news has been that we will move from a figure of 36% or 38% to 78% or 80% ownership of Bank of Ireland. That would represent a significant jump in State involvement. With what moral authority did the Minister and the Department allow the clowns at the top of these banks - I am not referring to genuine branch workers - who sanctioned the sizable exposure in the property sector during the years and who have contributed to the mess we are in to stay on? I hope the Government takes a firm hand and removes those at board or senior management level who do not deserve to be there.
I welcome the Government's initiative in introducing a four year national recovery plan. Those of us who have been in the House a long time remember what happened in the 1980s when the situation was even more difficult. Some 900,000 people were unemployed compared with a figure of more than 1.7 million in employment today. According to the Minister, our exports have grown by 6% this year in what has been one of the most difficult trading years globally. There is, therefore, a considerable number of positives on which we must work.
I compliment and agree with Senator Coghlan who stated we must have a functioning banking system. This poses a difficulty because the public sector accounts for 20% of those in employment; the private sector, including small and medium-sized enterprises, is responsible for 80%. I am anxious to make that point as I would like to see further Government initiatives to promote economic growth and job creation.
I welcome the announcement made by the Minister for Tourism, Culture and Sport, Deputy Hanafin, on the â¬44 million to be invested in tourism next year. As we all know, more than 300,000 people work in that sector, nearly as many as those who work in the public service. The Minister stated she would work hard to ensure tourists from everywhere would be helped to access visas and so forth. Some of us have had the opportunity to visit China, India, Abu Dhabi, Dubai and so on. They are all places with substantial wealth, large populations and considerable potential to assist our tourism sector.
In recent budgets and the four year plan the removal of tax incentives, particularly for the hotel sector in which I have a vested interest, has proved difficult, given the package the Government offered ten years ago to prompt people to invest in the industry. The Government is now rewriting the rules. It is almost as if it is retrospectively removing the undertakings given at the time. This makes it difficult for employers, investors, innovators and entrepreneurs to further invest in the tourism business. The National Asset Management Agency has mentioned that it will have a large number of hotels on its books because of the factors I have cited. There should be an note of caution in the sector which has considerable potential in terms of job creation and maintenance.
Senator Cannon referred to a television show he watched last night. I could be wrong, but the figures quoted might not be correct. There might have been some double counting. Since a significant element of any package agreed with the IMF and the European Union would be sovereign debt, there has been significant double counting and as such, the figures should be checked. The Minister for Finance has referred to the facility as being firepower for the banks. If the economy becomes buoyant again, some of the money might not need to be drawn down. The figure for the sum needed for recapitalisation of the banks, to raise the capital ratio from 8% to 12%, is speculative. As we know, because of the money invested in the economy, particularly in the retail trade as we near Christmas, short-term loans can often be turned around twice in a single year if the loans are taken out for four-month or six-month periods. There could be double counting in this respect also. A figure of â¬300 billion has been cited, but I understood the Department's working estimate was approximately â¬150 billion or â¬160 billion. While that is a large amount, it is manageable compared with a figure of â¬300 billion.
I am happy that the 12.5% corporation tax rate has been retained. Thanks to Donogh O'Malley's decision, the education system has helped to transform the country in the past 50 years. Likewise, the corporation tax rate has given our island nation an opportunity. Some 90% of everything manufactured on the island is exported. I congratulate the Government and everyone involved in the negotiating team for retaining the 12.5% rate.
I agree with Senator Butler on the urgent need to develop the energy sector, be it wind power or wave power. We must eliminate the â¬60 billion paid out over ten years on oil imports. We could become a significant exporter; the excess energy supply generated on the island could be used to create a considerable revenue stream for the Exchequer every year.
I look forward to more debates on the urgent and pressing challenges facing the people and the Government. I support every initiative the Government is trying to take and thank the Opposition for its support in seeking to reduce the debt ratio to 3% of GDP by 2014.
I welcome the Minister of State, Deputy Finneran. Having listened to the debate, there have been some singularly constructive contributions from the Opposition. This is welcome, given our position. I listened to today's "Morning Ireland", on which a socialist member of the Portuguese Government acknowledged that Portugal's Opposition was abstaining on the fiscal and taxation measures being introduced. When the RTE correspondent noted how strange that was and asked why the country's Opposition would do such a thing, the member said it was a sign of Portugal's political maturity. I am glad the same is starting to dawn on certain people within our Opposition. It is just a pity that we did not have it for the past two years. It would have been helpful and we might have made more advances.
I welcome the plan. It is courageous and tackles in a responsible way those areas that require tackling. I was particularly impressed by the contributions by the Taoiseach and the Minister for Finance at the news conference and subsequently on the news. They were reassuring. It is obvious that they have a grasp, a vision, but above all they have the courage as politicians facing into an election where they know they are going to be unpopular, to put the country first. That is something the Taoiseach told the parliamentary party more than two years ago, and I very much welcome the fact that he has continued on that path despite much of the personalised vilification from sections of the media, and others as well, perhaps.
I welcome the fact the minimum wage is being tackled, and I had hoped it might have been done before this. I just wonder whether it is a significant reduction, but at least it is a start in the right direction. It is becoming a wedge and I know of people moving into the black economy as a consequence. Employers cannot get people to work. However, I would strongly welcome if the joint labour committee, JLC, agreements which are totally unsustainable in today's climate, were addressed. They are totally unsustainable in today's climate, with people here being paid â¬2 to â¬4 more than they would get in Germany, the strongest economy in Europe. It is not sustainable and the JLCs should be suspended as a matter of urgency.
I believe the â¬15 billion figure is correct, although I wonder whether it will be sufficient. I note it will comprise â¬5 billion in taxation and expenditure cuts of â¬10 billion, but I would have liked to have seen that varied. The â¬10 billion in expenditure cuts should have been exclusively in the current expenditure area, and the â¬5 billion in taxation is too much. It should have been â¬3 billion in taxation and â¬2 billion in capital expenditure. Perhaps we might be able to move in that direction. I have some concerns about the projections being predicated on 2.75% growth in GDP. Ireland is a very open economy, and given what has happened in the US and the EU my view is that we may not see more than half that level of growth achieved during the period of the plan.
I have mentioned public service pay and the professions here before. I am glad there is focus on the professions in this, but we really need strong action to back the words towards having a rigorous promotion of competition within the system. I would like to see the Competition Authority's 2006 report on legal and professional fees, which has not been acted upon, being implemented. It is unconscionable that we are still paying people â¬2,500 a day in the tribunals and in the Four Courts, and I do not believe we can stand over the fact that people on low incomes are paying taxes so that those people may get these types of increases.
Finally, pay and numbers employed in the public service need to be tackled far more strenuously than we have done to date. I believe the figure of 24,500 is too low, and unless the Croke Park agreement yields enormous savings, which I do not anticipate given the make-up of the implementation body, we shall have to return to adjust this, probably within the next 12 months.
The Minister of State is very welcome and I thank him for being here.
We have the four year plan, and while I welcome that, it is a four year Government plan, not a cross-party one. It has some strengths, however, and I am delighted that corporation tax has not been touched because this is critical for the 150,000 FDI jobs. What this initiative lacks, however, is a job creation plan. Neither is there a stimulus plan and that is something we believe to be essential.
As the Minister of State knows, Fine Gael is committed to reducing the budget deficit to 3% of GDP by 2014 and this is the target. With ever changing figures as regards the national debt, unfortunately this appears to be short on detail. What we really have in the plan are just the figures on how we are going to reach our targets in 2011. We do not have the specifics for 2012-14, and that leaves much to the imagination.
I shall deal specifically with two areas, education and health. I speak on education because I am the Fine Gael spokesperson in the Seanad for this area. We all know education is the driver of growth. The OECD has said that the three crucial areas for growth are education, trade and reform, in terms of leaner government, so that the State may work more efficiently. We therefore have to look carefully at how education is being handled, and what I see is less restructuring than cutting. I would have liked better use of resources to bring about improved and better results. Only today we heard that one in seven children is not being adequately taught maths and English at primary school level, and 20% of our teachers are unprepared. What could this plan have done to make this situation better?
This plan needs to invest in leadership in schools and in principals who can give better guidance to teachers so that they may have more of a role in supervision, to ensure learning outcomes are achieved. I am somewhat shocked that the plan talks about reducing teacher numbers by a combination of measures, with â¬24 million in savings in 2011. If the average teacher is on â¬50,000, which a teacher starting would not be on, it means we will lose 500 teachers from the system this year. We are talking about incredible teacher unemployment at the moment. Of the 400 graduates who came out of St. Patrick's College this year only 30 have permanent posts. We have a crisis in teacher unemployment, even as regards getting a few months teaching where they could do their probation.
Some 54 young teachers came to me in Galway about a month ago. They could get jobs abroad, but they needed to be probated here because if they come back in more than three years, they will be outside the probation period. There used to be a five-year window in which to be probated, but the Minister has just reduced it to three. This is a bad idea when there are no jobs. I took it up with the Minister who told me she did not have the inspectors. However, if one does not have enough inspectors one leaves it at five years. Otherwise one only creates a further crisis by cutting it to three years. With the stroke of a pen the Minister can make a difference in that area which would not cost money.
Despite the impression given by the Taoiseach, the Green Party leader and the Minister for Finance, students in the education system look as if they will be hit hard by this plan. I acknowledge the Greens have done their best to protect education, but third level students face a significant increase in their registration costs. Registration fees are set to rise from â¬1,500 to â¬2,000, not including the separate costs being added on by some third level institutions. This is a tax on families as well as on young people.
Members will know of parents with two or three children in third level, so this is quite a crippling cost. Somebody has to bear this cost. Does it matter that young people are taking the brunt of it? I believe it does, because the OECD has clearly indicated that while we do well in the middle range, our elite students, or the top 10%, are underperforming. We need the top 10% to do better in the maths and sciences, so that we may keep the Intel jobs and attract the Google jobs here, instead of such companies having to locate abroad.
Equally, we have a problem at the bottom end with 16% or 17%, one in six of our students, performing poorly. When I met the OECD recently, that was the advice I got. Those are the areas we need to touch on, and this is going to hit hard because the Government is talking too about putting a â¬200 new charge on post-leaving certificate students. They are 17 and 18 year olds who obviously did not get the leaving certificate results they needed or they would be attending college. The Government proposes to force the youth of this country to pay for the chance to make something of their lives. These students are obviously not happy with their results and are seeking a direction. I am concerned that instead of staying in school, they will decide to go on the dole, which is no future for young people. On top of this, there is also a suggested 5% cut in all capitation grants. I presume this relates to primary and second level. Again, the advice from the OECD is that there should be no cuts at preschool, primary or secondary level. This 5% cut will include adult literacy, community education, school completion programmes and Youthreach. Who are the people involved? They are the people school did not suit. They are the people who dropped out early, the one in six we are advised to protect. This is in absolute contrast to the advice of the OECD. A total of 16% of students are leaving the school system early. This cut will do nothing to reduce that number and will only exacerbate their problems in terms of literacy and life chances. All this comes in the wake of today's report on students doing poorly in English and mathematics. Implementation of these new measures in the plan will amount to the narrowing of options for students who form the generation we are hoping will work in the future to pay for our pensions.
An interesting report in one of yesterday's daily newspapers states that we are driving 100,000 young people from the campus to the dole. This figure does not include those leaving the country. We must be careful about how we handle education, which we are all agreed is the driver of growth. If we truly believe that, let us not makes cuts to education. In this regard, I am not talking about cutting inefficiencies or about standing over poor performance because I agree these must be rooted out. I am, however, talking about cutting the opportunity for growth for young people in the education system. In this regard, we need only look to the Finish experience. It was through education that Finland made its country a success, improved the living standards of its people and grew its economy. This plan is more about cutting than restructuring or doing things in a new and improved way. I suggest we should be investing in leaders and school principals, which would be cost neutral in the long run and would go a long way to counteracting the poor performances we find in the system.
I would like to touch on the area of health care.
The national recovery plan is short on specifics in the area of health. Although it claims to protect front-line services, it suggests more staff cuts in the planned services sector. We learned today that 10% of our youth are failing to avail of mental health services in the HSE west and HSE south regions, which is very serious. A young person requiring mental health services is in trouble. Perhaps the Minister of State, Deputy Mansergh, will say if there will be a cut in mental health funding. The plan contains no specifics on health. It does not guide us. The plan merely sets out the Vote in this area. This is an area that should not be touched.
There is concern that funding for the community addiction clinic at Merlin Park University Hospital in Galway will be cut. The clinic has lost one addiction counsellor owing to retirement and is now getting referrals from general practitioners for alcohol counselling and treatment, which are simply being stamped and put in a pile. It will take six to nine months to deal with these referrals. What is the benefit in not replacing one addiction counsellor on the front line? These patients will end up in our emergency rooms, costing the State much more than the amount saved in not employing one addiction counsellor.
The people expect fairness. I welcome the broadening of the tax base because I believe it is important that everyone contributes, even if it is only â¬5 a week. I am concerned, however, that this plan will force the youth of our country to choose between education and financial hardship or welfare. I do not believe welfare is the future for anyone. I am concerned that this plan also asks those on the front line in our health system to do the impossible, which is downright dangerous.
I am glad to have an opportunity to contribute to this debate on the national recovery plan. Its title is similar to the original plan for recovery in 1987 which, in fairness, led to a genuine degree of economic recovery at that time. In this much more difficult and financially disastrous time for our economy, it is vital that this plan or a variation thereof is equally successful.
There has been much talk about this plan during recent weeks. It was billed in strong lighting. I always had reservations, not about the final document but about the amount of credibility anyone could expect from such a document. In fairness, and this is not a party political point, economics is a moving boat at present in that we cannot determine with any great certainty the markets, international growth rates, the banking problem and so on. This plan is based on growth figures, some of which are deemed to be overly optimistic. Let us hope they prove slightly pessimistic and that growth does increase significantly, which would be of major assistance in turning around the future of our country.
The basis for this national recovery plan, even though flagged some months ago, stems from the fact that the Government was aware, even though we did not have any final announcements until last week, that there may well be a need for outside intervention from the IMF, ECB and so on and that such intervention could only come about with the production by Government of a substantial plan for the next three to four years. That intervention from outside agencies has come to pass. Negotiations between the IMF, ECB, other agencies and the Irish Government are ongoing at present, the fruits of which we will see soon. A plan was necessary and I wish the Government well with it. Regardless of what party presented the plan, I do not believe it does or could provide all the answers. Its whole basis is the projections for growth.
I have not undertaken detailed scrutiny of the plan but have heard various media, party political and brief summaries on it. I have also read the leaflet accompanying the plan. I was disappointed to read about the adjustment figures which, as outlined by my colleague, Senator Healy Eames, will pose further challenges in terms of cuts in resources. The adjustment figure portrayed in this plan comprises two thirds cuts or spending restraint and one third taxation. I am not an economic expert but then who is? Most experts have got it wrong anyway. There is substantial international advice, economically and historically, that such a proportion is not the best way to deal with adjustments, rather such adjustment should be higher on the savings side and lower on the taxation side. There is a substantial body of evidence to show that where an adjustment goes too heavily on the taxation side, it is a barrier to job growth and creation. What this country desperately needs next week, next month and next year, apart from the obvious political change, is a job creation strategy, which will be difficult to put in place when this plan proposes substantial increases in tax and VAT. My first note of caution is that the balance of spending cuts and taxation is wrong. Further spending cuts would challenge the numbers working in the public service. That would cause its own difficulties, as outlined effectively by Senator Healy Eames, but that is a debate for another day.
I refer to a number of specifics that jumped off the page. I am concerned about the proposed increase in VAT. When the Value Added Tax Consolidation Bill was before the House last week, the Minister of State pointed out that one third of the tax take was accounted for by VAT. There is room to add money to the State's coffers by increasing VAT rates, but it would come at the cost of jobs and not stimulating the economy. Therefore, this proposal needs further reflection.
I refer to the move towards property taxation. Ireland is unique in not having property or local taxes. During the reign of the next Government there will have to be a huge overhaul of the taxation system. We would be living in cloud-cuckoo-land if we did not acknowledge that such an overhaul would result in the introduction of local or property taxes or a combination of both.
This leads, in turn, to the reform of politics. Local government is as broken as national government and in need of urgent reform. When reference is made to growth, stimulus plans and the future, we must consider political reform and leadership. Perhaps the demand was not on the Government to address political reform, but if we are to reform the country economically, we have to reform it politically. That is not a party political point. We need a renewed local government structure with real powers, responsibilities and revenue raising and spending opportunities. That would transform local government. Many officials are trying to do so much with so little within the structures of local government, including through enterprise boards and ADM, Leader and partnership groups. Presumably, they do valuable work, but all of that work should be the function of elected local authority members. A medium-term strategy for structural and economic reform must involve local government and genuine political reform. The Minister of State who has a broad interest in politics will have read the Fine Gael document, Reinventing Government. If I was commenting on his party's proposals, I would say they were not perfect and I am sure he will say ours are not perfect, but, sadly, that is how politics works. There is a significant body of reform proposals in the document authored by Deputy Bruton that would transform this society and economy in a relatively short time. I hope the next Government will take on board much of what is contained in the document. A significant element of the economic crisis stems from a lack of political leadership at Government level, a lack of political debate at Oireachtas level and a lack of political responsibility among us all. That must change, but as I have said on numerous occasions, it cannot change within the confines of the current electoral system which puts a premium on potholes over policies. While recommendations along these lines need not necessarily be part of this plan, any reform programme for the economy, society and priorities will have to have a substantial chapter on political reform. That is missing from the plan.
With regard to taxation, I am sketchy on specifics, but reference is made to broadening the tax base which, presumably, will result in people currently outside the tax net being brought into the taxation system to pay tax. That will be difficult to accept for those affected, but we must adopt the principle that everybody should pay some tax. In tha regard, the broadening of the tax net is welcome. However, we must be cautious that we do not go down the easy to travel road of the late 1970s and early 1980s of piling tax increase upon tax increase, which was disastrous economically. That would generate a short-term fiscal dividend for the Minister for Finance, but it would cause economic chaos. This is not an ideological perspective. We must continue with a policy of low taxation and making it attractive for people to create and take up work. That issue is addressed somewhat in the plan through reductions in social welfare payments and the national minimum wage.
I am not disappointed with what has been produced because nobody could expect a new economic-social-political bible to emerge following a few months' work. This is necessary, presumably, to send a signal to the international markets and I hope our short-term economic masters, the ECB and the IMF, that we have a plan. I look forward to further debate on this issue. This is the beginning of a new book of political and economic reform, but it is only the first of what will have to be many chapters. Reform has to be at the core of everything the Oireachtas and society engages in in the next few years. There must be reform of our economic structures, thinking, politics and practice. We can blame the banks, markets and every other external factor, but, as politicians, we are responsible for taking wrong decisions and not taking others. We cannot remove ourselves from this. We need to create political space for debate, decision-making and new political structures in the years ahead. If we do, we will help to rebuild and regenerate the economy.
I wish the Government well with the plan. Its days are numbered, but, for the sake of the country, I hope we will see the beginning of the plan's implementation and, in conjunction with publication of the budget, we will create certainty for the markets and provide hope and optimism for the people. We are short of money, but, more than this, we are short of hope and confidence. The debate on the plan should, at least, lead to optimism and hope and a point where we will, at least, begin to speak politically about a new beginning. The next Government which I hope will be led by Fine Gael will have to take charge of the programme of national recovery. We will have new ideas, politics and policies to bring on board, but there is much in the document with which we agree and some which we will change, but I hope all of us can work together to rebuild and save the country.
There is a changing of the guard. I welcome my old friend from "Operation Transformation" and bid a sad farewell to my friend, the Green Party Minister of State. It does not matter much who is sitting in for the Government because this is not a terribly serious debate. I asked at the beginning whether it would be rolled over to another day and I was assured it would. I was on my way home only to be told it would not and since this is one of the critical moments in the history of the country, I considered it was important that I should say something, but it is just a marker. That is true for a few other Members because I listened to one or two contributions and they were rambling. There was inevitably a lack of focus because there has not been time to digest or examine the document in detail. There is a certain lack of seriousness. We are just a decoration, and that is part of the problem. There has been very little accountability to the Houses of the Oireachtas in terms of financial matters. All the big decisions have been taken outside parliamentary scrutiny to a very large extent and not just Seanad Ãireann but DÃ¡il Ãireann are just a rubber stamp. We are not given responsibility.
On this subject, it is extraordinary, in the light of the way this country's finances have been mishandled, that constitutionally this House is not trusted with even sufficient money to print an advertisement. Time and again people on all sides of this House have had significant amendments ruled out of order because they would create a charge upon the Exchequer. In the light of the colossal sums involved in our current difficult situation, that is laughable.
I want to make a few comments on the national recovery plan. I have glanced through it, and it is full of the usual graphs, tables and rhetoric. How do we know it will work? We could not even get things right up to this point. This goes back a long way. I recall raising the fact statistics from the Department of Finance were routinely way off the mark. I recall asking what qualifications there were and how the figures were arrived at, and I did that partly because people outside this House were concerned. They asked me if I could find out the reason the forecasts were so often wide of the mark. Now we have seen situations where â¬7 billion becomes â¬15 billion inside a week or two.
One of the problems, and it may not be a problem the Minister of State and his colleagues will have to deal with for very much longer, and that may come as a relief, is a lack of confidence - a lack of belief. There is a psychological atmosphere in the country that is poisoned by fear, anxiety and uncertainty. I hope when this plan is fleshed out in a finance Bill it will give some degree of certainty. That is what is needed.
I want to examine some of the elements. First, there is the question of the markets. We are in danger of missing an opportunity to take a radical philosophical look at the basis of the western economic structure, not just in Ireland but throughout the west. I believe this is a systemic failure. It is not just bad behaviour. The system does not meet the situation.
I recall being told in this House on several occasions that we could not do this or that. We could not let Anglo Irish Bank collapse, which I recommended from the very beginning, because it was of systemic importance. Many people around the House referred to systemic. That word was repeated like some kind of a mantra but we must look underneath that to see what it means. It means, basically, that the system is more important than the welfare of the people. This is a moment when we should say "no". We should say that, collectively, as a responsible political class, as a Parliament and as a people, we are putting the rights and welfare of our citizens above the purported claims of the system.
With regard to the market, I predict confidently that these kind of catastrophic events will occur in closer conjunction, in more rapid succession and in more extreme form. This is not the end of it. We may just manage to get the sticking plaster on it in time to get us over this particular difficulty but it will recur unless we examine the entire system.
It is the same with climate change, and in my opinion the two are inter-related. There is not time, unfortunately, to go into that philosophically but it is perfectly obvious that western capitalism is based on a fairly crude interpretation of the market. It is based on the infinitely expanding market idea which meets a wall very quickly these days in terms of the finite resources of the planet, and therefore it is a contradiction. That will eventually have to be faced and we will have to revise the whole thing.
We have market sentiment and market confidence. How is confidence generated? How is confidence undermined? I would say much of what is going on is nothing other than a gigantic confidence trick.
Let us look at the banks. Basically, the banks are bust. We have shoved immeasurable quantities of money into them that are beyond the imagination of simple people like myself. We then went on and borrowed more money and shovelled it into the banks by the bucket load. Today we are told that because of German concerns about the rate of corporation tax the Government is prepared to introduce a levy on the banks. Perhaps the Minister of State can tell me what they intend to levy. Where is this levy coming from? It seems absurd.
It is rather like the little story that was going around about the American tourist who came into a little village hotel, plonked a â¬100 note on the counter and said he would like to inspect the rooms and he was leaving that money as a deposit. The owner of the hotel was delighted with that because he could pay his bill in the pub. The pub owner was knocking off the local tart and he was able to pay her. I am short-circuiting the story slightly. She was able to pay her room in the hotel. The American fellow then came back and took the â¬100.
It is very difficult to understand where the flaw in the logic is; it is just that money seems to go round. Nothing is actually paid but it circulates. The difficulty is that one person did not provide the service. That is the missing link in the chain, but that is the confidence trick and that is what has been going on.
Let us consider the ratings agencies because they are part of this whole set-up. Why do we not start rating the ratings agencies - Standard & Poor's, Fitch, Moody's and all those people? They are the people who got it wrong with Enron. They are the people who got it spectacularly wrong with Iceland to which they gave a three star rating a week before it went down the drain, so to speak. They are the very people who are giving us a triple star rating when we were doing all the sort of things that we are now being criminalised and criticised for. They did not spot it so why did they give us three stars? Why should we believe them now? Goldman Sachs and the rest of them were all up to their ears in helping the Greek Government massage its figures, and landed us in these waters. What are these ratings agencies which have been seen to be so incompetent and criminally corrupt with their involvement in sub-prime mortgages, and helping to conceal the toxic elements in those bundles and then validating them?
I used to teach in a university. The students would be thrilled to pieces if they believed they could buy their ratings, and that is what happened. Did they ever hear of a conflict of interest? Ratings agencies were being paid by the people they were rating. We should get rid of all this froth. Let us start rating the ratings agencies. That should be part of our price. I have been saying for two years that we in Europe should stand up to the ratings agencies and establish a fully independent trustworthy ratings agency and get rid of these people who have lost all credibility.
What about the hedge funds? These are the nice people who gamble against currencies in the hope they will collapse. They seem to have no feeling for the ordinary people on the ground. We should know a little bit more about them. I would like to know more about them. I got another requirement about which I am delighted. Let the people know what I am paid, what I do for my pay, the number of times I am in the place and so on. I am delighted because I believe my record will be pretty good, and it is all in the name of letting the people know.
How about letting the people know the names of the senior bond holders? Who are they? We have been asked to write a blank cheque for people we do not know with money we have not even borrowed yet. I would like to know who they are. Who are the people in the share funds? These are the people who are gambling against us. We should have their names. We should know who they are so we can rate them as well because it is an extraordinary position and people are entitled to that kind of information.
With regard to the banks, they showed a complete contempt for the small people who are their savers. The very least we expect from these documents is a reassurance for the ordinary people that their savings are intact. I said a long time ago in this House that the principal banks should be amalgamated and nationalised in one clean sweep, and Anglo Irish Bank let sink. I wish we had done that.
There is one way out of this, and perhaps the Minister of State will comment on this. We must punish those who gambled, those who got a higher rate of interest because of the risk involved. When that risk arrived, we insured them against it, indemnifying so they suffered not a jot. Why not do what David McWilliams has suggested and have a share for equity exchange and let them take the pain? That would get us off the hook; it would save â¬160 billion. The figures are unbelievable and I hope something of that sort will be tried. This is a moment when we should stand up to these financial institutions and ensure it is not just the little people once again who take the pain and that some of the big interests are forced to take the pain.
What has happened to moral hazard? Why are the rules of the market suspended in favour of the biggest financial interests? This is intolerable and unjustifiable. We can sell a measure of fairness and clarity to the people but cannot and should not sell muddle and unfairness, which seem to still rest at the heart of the financial system. I look forward to reviewing this when we have an opportunity to look at some of the details.
One of those details illustrates the difficulty we face: the â¬1 reduction in the minimum wage. That will hurt people, but this is precisely what was lobbied for by the restaurant industry, which needs it because it is in a bad situation. As often, it is a judgment call and at least something has been done. It will be difficult to defend against the mob.
I find it extraordinary that every second person in this country is now an economist. It took me a long time to get my head around any of these figures, and I do not understand some of them, but every second person knows the situation, knows the figures and can give a lecture on the circumstances. That is because there is no confidence; people are not leaving it to their "betters" to work these things out and it is a sad day to have to say that. I hope and trust we will get out of this situation. We will get out of it because of our creativity and imagination and without much help from the international banking system.
Senator Norris in his fine address mentioned Operation Transformation, in which we both participated. Today is not about the transformation of Ireland; it is the day when Ireland says goodbye to being a low tax economy and we let the little people pay the bill.
I acknowledge the fact we are having this debate in Seanad Ãireann, which is important and timely. Unlike Senator Norris, I think this is a serious debate because it is about a four year plan that has failed to deliver. Senator Norris was totally correct, however, that one of the biggest mistakes of Fianna FÃ¡il under Deputy Bertie Ahern was to take away parliamentary scrutiny, particularly with regard to social partnership. I was a strong advocate of social partnership but the Houses of the Oireachtas should have been a pillar of that process.
Bertie Ahern and his cabal could not wait to bring everyone in and to dole out the goods. They forgot about the rainy day. This is a circle.
I say to the Minister of State, Deputy Connick, that the people must punish the political party that presided over all of this - Fianna FÃ¡il. The party must be punished electorally for all eternity. Fianna FÃ¡il deserves never to be elected to any House ever again because the party has no interest beyond its own interest. Fianna FÃ¡il has no interest in the people whatsoever. The party has no respect for anything beyond getting elected. The example of that lies on page 91 of the document, which states that the income tax base has been eroded to an unsustainable level and that this must be rectified if revenue raising capacity and fairness are to be restored.
Today, on national television, the Minister for Foreign Affairs, Deputy MicheÃ¡l Martin, refused to accept any responsibility or acknowledge that Fianna FÃ¡il had got it wrong. He and his Cabinet colleagues sat for 13 years around the Cabinet table and presided over budget after budget which brought us here to the mess we are in. The Government forgot about regulation, let the banks run ragged and now the gnÃ¡thduine, the ordinary person, must pay.
That is the reality. Fianna FÃ¡il has bankrupted the country. The Government was handed an economy in surplus in 1997. In 13 years, Fianna FÃ¡il has done what no other Government has done, it has bankrupted the country. On page 37 of the document, on social welfare, the plan states that the jobseeker rate of social welfare payment almost doubled between 2001 and 2009 before being reduced in the budget last year. If that is not an indictment of Government policy, and its failure to place value on work, I do not know what it is.
We have heard all about education and the smart economy from Ministers in this House. The Government, however, has completely removed the opportunities for people to be upskilled or to enter education. It is targeting people following courses in literacy, community education and Youthreach, the most vulnerable in our society. The college graduates in medicine and engineering will always be with us, they will always prosper. In my previous role as an adult education lecturer, however, I saw the difference in adults who went back to education and the number of young people who stayed in school because of Youthreach or the leaving certificate applied. Those people have been dealt a severe blow tonight.
What does the plan mean where it states that teachers and academic staff will work an additional one hour per week to provide for a wide range of needs in various institutions? Where are the specifics? On policing and defence, the document states that a more effective garda rostering system will ensure there are enough gardaÃ to meet priority policing demands. It was Fianna FÃ¡il that said there would be zero tolerance. Is Fianna FÃ¡il now saying the plan to increase the number of gardaÃ was wrong? It beggars belief.
Page 118 of the plan deals with community, rural and Gaeltacht affairs. It contains measures that target the most vulnerable. We all accept there is no easy way but this is not a road map, it is a fudge. The Minister for Finance has been wrong in every figure he has given. I am no economist and I am no genius, but I listen and watch. It is one thing to perform in front of a television camera as if one is in a court of law, but we are talking about ordinary people. Everything has changed. The budget and the Finance Bill should be taken early and we must have a general election because the people want the Government out. They have no confidence or belief in the Government and they do not trust it. They see this plan and think it is another tale. It is like a fairy tale but it is actually reality, because when they look in their pockets next month there will be little money there. How can we believe the Government?
This morning we woke up to talk of â¬85 billion from the ECB. Will that be enough? There has been a run on the banks this week. Senator MacSharry has probably had telephone calls, as I have, from people asking whether their money is safe. These are ordinary people who trust, or did trust, the Government. I met people in Donegal last weekend who asked me what they should do with their money. Are we to tell them to take it out and dig it into a trench in the back garden or put it in an English bank or some other bank? I have great respect for the Minister of State as a person, but the Government has led the people up to the hill and, unlike the Duke of York, it has just pushed them off. It has bankrupted our country in 13 years through populism at its worst. Its members have some nerve to stand before the people, but we live in a democracy and I am a democrat.
There is a different model. The Minister, Deputy Brian Lenihan, said on radio that any alternative plan was rubbish. I cannot see any Green Party Members. The Government party Members were talking about consensus for months. In this House it was like the seventh decade of the rosary. They said we must have consensus. They did not listen when it came to the banks or the last two budgets, and they did not listen when they were preparing the four year plan, yet they want consensus. The Government wants Fine Gael to vote for the budget next week, and then its backbenchers will go off to the four corners of the country and say they stood by the people, they did not cut the old age pension, but Fine Gael did. The Minister for Finance changed all that with his comments. He said that any alternative plan was rubbish. This is from the man who has got it wrong so often. He has not got one figure right. I would love to see all the opinion writers who said he was the best Minister for Finance since the foundation of the State. There was an avalanche. He spoke in BÃ©al na BlÃ¡th. He could nearly walk on water. He has been wrong, wrong and wrong.
That shows how great a party we are. We are not afraid. We are a forward-looking party. We have hope for our people and a vision for the future. We have people who will govern and tell people the truth. They will not tell lies on a Sunday, attend a Cabinet meeting on Tuesday and, when asked what happened, refuse to say because the markets are sensitive. Does the Government really expect the people to tell it to carry on as normal? It has been like a "Carry On" film. Where is the renewal of Government? Where is the job creation stimulus plan? Where is the real reform of the public sector? There is none. It is penalising the people. The markets and the people want certainty and confidence, but none has been given today nor by this Government in the past 13 years.
It is important we have certainty and confidence, but it is more important we have a Government that can govern with authority and that has a mandate. Sadly, the current one is not giving us that. We need a Government from this side of the House and I hope we will get one pretty soon.