Wednesday, 8 December 2010
Budget Statement 2011: 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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As Mark Twain might have said, rumours of this House's demise are much exaggerated.
A year ago when I addressed this House on the 2010 budget, I highlighted the background of an unprecedented rate of economic decline experienced since 2008. I went on to say, however, the Government's strategy over the previous 18 months was working and we could see the first signs of a recovery in our main international markets. I also pointed out the measures taken by the Government up to then had been commended by international bodies such as the European Central Bank, the European Commission, the International Monetary Fund and the Organisation for Economic Co-operation and Development, as well as winning the approval of the international markets.
After the 2010 budget, improvements continued into the early months of this year until the crisis in Greece in April. This crisis precipitated a series of events which led to the costs of funding for the State and for our banks becoming increasingly expensive. Also, during the autumn, firm estimates of the cost of dealing with the banks became available and were higher than previously calculated. This, as well as concerns about the prospects for the global economy, added to doubts in the markets about the sustainability of our public finances and our capacity to fix the financial system without outside help.
These doubts continued to grow, as did the price of Irish debt in secondary markets. Therefore, it became clear these stresses would not go away but, instead, would have intensified and have led to disaster for our banks and economy unless they had been urgently addressed.
This was the background to the Government's decision to seek support from our European and international partners to achieve a sound and smaller banking system, as well as a sustainable budget position, to implement structural reforms to underpin economic stability and enhance growth and job creation. If we had not been able to obtain this support, it is doubtful if the State could have borrowed the money needed, other than at exorbitant interest rates, to maintain our public services or a functioning banking system.
Prior to seeking this support, the Government had already begun work on a comprehensive plan to secure a return to sustainable growth in our economy and put our public finances in order. The policies set out in the joint programme of assistance incorporate to a considerable extent the blueprint set out in the National Recovery Plan 2011-2014, published on 24 November. The policies in the programme are not new ones imposed on us by outsiders but are a continuation of the Government's strategy for recovery which best fits our circumstances.
At the end of last September, during my speech to this house on statements on the economy, I mentioned the many pointers to a stabilisation in the economy and in the public finances that were becoming apparent at the time. Notwithstanding the crisis that led to us having to seek support through the joint programme, the real economy and the public finances have continued to improve.
It is now expected that gross domestic product will record a small increase this year after a fall of 7.6% last year. Exports increased by approximately 7% in real terms in the first half of this year and are expected to grow by more than 6% for 2010 as a whole. Output in the manufacturing sector was up 12% in the third quarter of this year. There are signs that conditions in the labour market are beginning to stabilise. Last week, we saw a fall in the underlying live register for the third month in a row, marking the first time we have seen such a sustained drop since 2004. In the 12 months to November 2010, redundancies notified to the Department of Enterprise, Trade and Innovation were 21% fewer than in the same period last year. I accept migration by Irish and other citizens may contribute to this outcome, however.
Our underlying budget deficit has stabilised. Our tax revenues in 2010 are ahead of target despite a weaker start to the year and our spending has been brought under control. These data taken together paint a picture of an economy that is returning to growth after a deep and prolonged recession.
Looking to the future until 2014, real gross domestic product is forecast by the Department of Finance to strengthen to an average increase of almost 2.75% per annum. Again, it must be taken against the backdrop of the large drop in 2009. The most recent indicators point to economic recovery. However, the scale of the adjustment needed in the public finances is such that any rate of economic growth that could reasonably be expected over the medium term would fall way short of providing the resources needed to close the huge gap in the public finances by 2015 or to stabilise the banking system.
Accordingly, the adjustments in the 2011 budget have had to be severe, both as regards expenditure cuts and tax increases. We do not have any choice, however. Adjustments on this scale must be made and we must make them now. Notwithstanding the severity of these measures and despite arguments to the contrary, the actions taken in this budget to stabilise our public finances and those planned for the years ahead are consistent with economic recovery.
This is because they will provide a degree of certainty that will encourage consumers to spend and businesses to invest, as well as - this is perhaps the most important aspect - boosting the competitiveness of our economy.
I will turn to outlining the various measures in the 2011 budget and the rationale for each of them. In the national recovery plan we have set out the timetable for achieving an overall adjustment of €15 billion in tax and expenditure adjustments over the next four years. We need this adjustment to reach the target to bring our deficit down to 3% of GDP by 2015. Owing to lower than expected medium-term growth prospects as well as higher debt interest costs arising from the bank rescue, the European Commission has agreed to give Ireland an extra year to reach the 3% deficit target required under the Stability and Growth Pact. This extra year will change neither our targets nor our timetable for achieving them.
As outlined in the plan, €6 billion of the overall adjustment is being made in the 2011 budget. Big as it is, this is the scale of the adjustment needed to demonstrate we are serious about restoring order to our public finances. The benefits of the now-gone boom were spread across every section of the population. Between 2000 and 2008, public spending increased by in excess of 140% while the consumer price index increased by just 35%. Working age social welfare rates are now more than twice their rate in 2000. Over the same period, the State pension almost doubled. These increases were therefore well ahead of the cost of living. At the same time, taxation was reduced and the proportion of income earners exempt from income tax increased from 34% in 2004 to an estimated 45% this year.
It is important to keep things in perspective. The current spending reductions set out in the national recovery plan to 2014 will bring total gross voted current spending back only to 2007-2008 levels. The income tax measures in the plan will bring us back only to 2006 levels. Today, the CPI is where it was in April 2007, which is an important factor to bear in mind.
The Government has maintained working age rates of payments at a rate which far exceeds total inflation since 1997 and has now become unaffordable. This rate of increase also has implications for replacement rates for the unemployed. This is why the Government has decided to reduce working age rates of payment by about 4%. These new rates will still be slightly ahead of the 2007 working age rates of payment when price levels were about the same as they are now.
Between 2000 and 2009, expenditure on child benefit grew from €638 million to approximately €2.5 billion per year, which is 12% of gross social welfare spending. There will be a €10 reduction both on lower and higher child benefit rates, with an additional €10 reduction for a third child only. This is a step in the direction of diverting support to selective poverty reducing measures, such as the family income supplement and qualified child increases, as well as rationalising the child benefit structure.
The large increases to the State pension over the past ten years or so have been successful in addressing poverty in that age group. This is shown in the recently published 2009 survey of income and living conditions in Ireland which revealed that the proportion of persons aged 65 years or over living in consistent poverty has been brought down to 1% or lower. Despite the huge pressures on the public finances the Government is determined to preserve this achievement, which is why it decided not to reduce the State pension.
Despite the fact that considerable savings have been made in the cost of delivering public services, further savings and reforms are needed. This is why savings will continue to be made through planned reductions in the number of public servants and through greater efficiencies in delivering public services. The salaries of the Taoiseach, Tánaiste and Ministers will be reduced by €14,000, €11,500, and €10,000 per annum, respectively, and the Government will seek a maximum salary rate of €250,000 in the public sector.
I wish to elaborate on this point. One of the famous sayings of Eamon de Valera when he took office in the early 1930s was that no man was worth more than £1,000 a year. In terms of net public sector take-home pay, it is now the case that no one is worth much more than €100,000 a year. For example, the Taoiseach's net pay and gross income have declined. In 2008, his gross income was €285,000 while it is now down to €214,000. Taking into account all the various changes that have been made, his net take-home pay has gone down from €174,000 to €102,689. It may come as a surprise that in the case of TDs, for example, the gross income has come down from €100,000 to €92,672. This will be especially relevant to those of us who will again be Dáil candidates. The net take-home pay has come down from €69,000 to scarcely more than €50,000. I do not have figures for Senators but they are obviously less. I do not think the public has any idea of that situation. I welcome it, however, because over the past ten years in particular, salaries across the top levels of the public sector got completely out of hand in line with the general euphoria of the late Celtic tiger era. This is the new situation. As announced in the national recovery plan, provision will be made in legislation for a 10% reduction to be applied to the pay of new entrants to the public service, including those appointed to hold office in the Judiciary in 2011.
The cost of providing public service pensions has risen by 56% to €2.235 billion in the period 2006 to 2010. Failure to reduce the cost of pension provision could undermine the longer-term viability of the public service pension system. Up to now, existing public service pensioners did not have their pensions reduced to reflect the pay reductions applied to serving public servants. Accordingly, it is appropriate and reasonable that public service pensions above €12,000 a year would be reduced by an average of 4%. Those on a pension below €12,000 a year, roughly equivalent to the value of the social welfare pension, will be exempt from the reduction. The reduction will apply to former political office holders, retired members of the Judiciary, and their survivors or dependants.
The grace period under which previous salary levels for public servants are to be used to calculate pension entitlements, which was due to expire by the end of 2011, is being extended by two months. As the Minister explained in the Dáil, that is to prevent a pile-up at the end of this month.
The new pension scheme based on career average earnings for new entrants to the public service, which was announced in last year's budget, will come into effect in 2011. Under this scheme, post-retirement pension increases will be linked to retail price inflation rather than to pay.
Notwithstanding the considerable programme of investment in recent years, the Government will invest 3.6% of GNP in 2011 in the Exchequer capital programme, which will be augmented by the investment programmes of the commercial State-sponsored bodies. In addition, the National Pensions Reserve Fund, NPRF, has confirmed that it is willing to invest in Irish infrastructure assets on a commercial basis in partnership with third party institutional investors. The Government will help to identify opportunities for the NPRF and other private investors. While it is to be regretted that public capital investment has been reduced to this level, we must bear in mind the huge level of capital investment that has occurred over the past ten years.
It has given us a national motorway network and many other assets.
The OPW capital allocation for 2011 includes €41million for flood risk management. Although we were allocated €50 million for this year, we only succeeded in spending approximately €38 million or €39 million on a huge programme around the country this year. Some of that will be carried over, giving €44 million next year. Major flood relief schemes are under way at Mallow, Clonmel, Ennis, Fermoy, Bray and Clontarf. We have also undertaken a couple of hundred minor flood relief works around the country in conjunction with county councils. It is a major amount of activity.
Public procurement represents a considerable proportion of economic and commercial activity and is estimated to account for up to or more than €15 billion, close to 12% of GNP. The public procurement function has been receiving particular attention from Government in recent times and a number of reform initiatives have been undertaken. The national procurement service, the NPS, was recently established in the Office of Public Works and has been given the task of implementing the ongoing programme of reform. The main aim of national policy on procurement is to achieve value for money in a regime of probity and accountability. The primary objectives of the NPS include achieving value for money from large-scale public service procurement exercises, assisting in the training and development of public service procurement officials and facilitating greater collaboration. Through its strategic approach to procurement the NPS ensures that appropriate engagement takes place with both suppliers of all sizes and public service clients prior to the running of any competitive process. It is recognised that when officials, across sectors, work together to identify suitable opportunities for demand aggregation, significant cost savings can result. The resulting cost reductions can alleviate the impacts that reduced budgets would otherwise have on the delivery of public services. We are very conscious of the importance of public procurement for small and medium-sized enterprises. We have done our best in terms of revising the documentation and conducting outreach courses in order to make procurement as user-friendly as possible, particularly for such enterprises. Despite impressions to the contrary, a high level of procurement contracts remain within the country. At the same time, there is no point in thinking we can apply that pre-1958 approach to public procurement, following the old Sinn Féin economic policy. Firms engaged in this must be competitive and must seek and win contracts abroad. Many of them are doing so.
It is essential that Ireland's tax system provides the resources to pay for public services without damaging our economic growth potential. That is why the Government has decided in the national recovery plan that two thirds of the required adjustment should be through expenditure reductions and one third should be raised by taxation. Our tax base is too narrow. Too few income earners pay any income tax. This year, just 8%, earning €75,000 or more, will pay 60% of all income tax while almost 80%, earning €50,000 or less, will contribute just 17%. Also, many high earners have opportunities to shelter their income from tax. These are serious structural defects that must be addressed to create a system that is rational, sustainable and fair and that delivers the resources required.
Such a system cannot be created in one budget but the following major steps forward in the reform process have been made in this budget. This budget has replaced the income levy and the health levy with a single universal social charge, governed by one set of rules on a broad base; removed the employee PRSI contribution ceiling, as has been long called for; increased the PRSI rate for the self-employed, higher earning public servants and office holders; reduced the value of bands and credits by 10% in line with overall reductions in incomes; tackled over-generous reliefs associated with private pension provision; abolished or restricted many tax reliefs that higher earners use to shelter income unfairly; and targeted the remaining reliefs more clearly on employment growth. By broadening the base at both ends of the income spectrum, the nominal rates of tax can be kept lower while the effective rate can be raised in a way that is fair to all. Those on the new reduced minimum wage will not be brought into the tax net. The top marginal tax rate will be maintained at 52%.
The national recovery plan contains a commitment to the abolition or curtailment of tax expenditures and to the phased abolition of property-based legacy reliefs. The 16 measures identified in the plan will be given full legislative effect. This budget will abolish or restrict a further nine reliefs, bringing the total to 25. Property-based legacy reliefs will be further restricted. Three new measures in particular will be targeted at passive investors. Restrictions on the carry forward capital allowances will start in 2011 and have an impact progressively over the next few years. From 2011, section 23 relief will be restricted to income from section 23 property. A guillotine provision will ensure all unused capital allowances after 2014 and section 23 reliefs will be lost, effectively terminating all property-based reliefs in 2014. Following the economy-wide fall in asset values in recent years, the base for capital acquisition tax will be broadened by reducing the tax free thresholds by a further 20%. Finally, the deposit interest retention tax, DIRT, rate on ordinary deposit accounts is increased by 2% to 27% and on longer-term deposit accounts by 2% to 30%.
The national recovery plan contains a commitment to significant reform of pension tax relief. Employee PRSI and health levy relief on pension contributions have been abolished. The annual earnings cap for tax-relievable pension contributions will be reduced. The portion of retirement lump sums above €200,000 will be subject to tax and the maximum allowable tax-relieved pension fund will be reduced.
Employer PRSI relief on employee pension contributions is being reduced by 50% from 1 January next. The effective tax rate on approved retirement funds will be increased by raising the deemed annual distribution of assets in those funds from 3% of end-year assets to 5% per annum with that distribution subject to full income tax each year.
The Government's commitment to the 12.5% corporation tax rate was restated in the national recovery plan. Recent comments by European finance ministers who understand the importance of this issue to Ireland are welcome. There will be no change to Ireland's corporation tax rate.
In order to stimulate the property market as well as to provide necessary valuation information for a site value tax and to increase market transparency for the smooth operation of the market, stamp duty on residential property transactions has been reformed with immediate effect. From today there will be a flat rate of 1% on all residential property transactions, old or new, up to a value of €1 million with 2% applying to amounts above €1 million. All existing reliefs and exemptions for stamp duty on residential property are abolished. This is in line with the aim of this budget to broaden the tax base. Instead of increasing rates of tax, which experience shows leaves us with less revenue in many cases, the choice has been made to broaden the tax base if the objective is to bring in extra revenue. There is no increase in the standard rate of VAT, which has implications for Border counties and the country north of a line from Dublin.
An air travel tax on passengers departing Irish airports was introduced on 30 March 2009. The tax is expected to yield €105 million in 2010, despite the impact of the volcanic eruption on air travel this year. Similar taxes, often at a higher rate, apply in many countries. There have been consistent calls for the abolition of the tax which is blamed for the reduction in visitor numbers. I have debated the issue many times in the Dáil and the Seanad. The rate of the tax is being temporarily reduced to €3 from 1 March to the end of 2011. The position will be reviewed next year and the rate will be increased again, unless there is evidence of an appropriate response from the airlines.
Excise has been increased by 4 cent per litre on petrol and 2 cent per litre on auto-diesel, both increases inclusive of VAT, from midnight last night. However, the cost of petrol and diesel will still be cheaper south of the Border than it is north of the Border.
In the light of its success, the car scrappage scheme introduced last year will be extended for a further six months to 30 June 2011. The VRT relief provided in that period will be up to a reduced maximum of €1,250. The VRT relief for series production hybrid and flexible fuel vehicles has been extended for two years to the end of 2012.
A review will be undertaken of the excise duty payable for licences for on-trade and off-licence sales of alcohol products during 2011 to ensure the system is both transparent and fair.
The construction sector has been at the centre of the economic downturn and it will be some time before the sector returns to a sustainable level of output. In the meantime the Government wants to ensure existing employment levels are, as far as possible, protected, although they have been greatly reduced, and support construction businesses operating in the legitimate economy. To that end, the budget proposes significant reform of the relevant contracts tax regime to enhance its effectiveness and reduce the opportunities for fraud and includes a new 20% rate for those registered for tax to foster compliance.
The budget also introduces a new tax incentive which will support employment, while improving energy efficiency in homes and complement the grant aid available through the home energy savings scheme available from the Sustainable Energy Authority of Ireland. Contractors employed to complete the work must be registered with the Revenue Commissioners.
Small and medium-sized companies are a cornerstone of employment and innovation in the economy. As job creation and protection is the Government's priority, it is essential that schemes such as the business expansion scheme and the three-year corporation tax exemption for start-up companies are targeted and evaluated against jobs created or retained. Accordingly, the business expansion scheme is to be refocused as the investment for employment initiative with increased limits and simplified certification requirements. The new incentive will expire on 31 December 2013. The three-year corporation tax exemption for start-up companies commencing a new trade in 2011 will be extended and refocused on employment creation in order that companies which create jobs will be rewarded. The accelerated capital allowance scheme for energy efficient equipment will also be extended for a further three years.
The national employment action plan is being refocused to establish clearer pathways to employment by ensuring there will be early and ongoing contact between State agencies and those who have lost their jobs to provide them with opportunities to participate in education, training or work experience placements, as appropriate. An additional 15,000 activation places and supports for the unemployed will be provided at a cost of approximately €200 million. The skills development and internship programme will provide up to 5,000 places in the private sector. The work placement programme will provide up to 5,000 places in the public service. A new community work placement scheme will provide up to 5,000 additional places in the community and voluntary sector. The labour activation measures will be complemented by the extension of the employer job, PRSI, incentive scheme to the end of 2011 and transforming the business expansion scheme into a new investment for employment initiative. The national recovery plan provides for reform of the labour market and the removal of barriers to job creation resulting from inflexible employment agreements and the wider impact of the current level of the national minimum wage. The aim is to stimulate employment in labour-intensive sectors, particularly for the young.
The budget has involved hard decisions and choices and will result in reductions in the living standards of nearly everyone in the State. It is nevertheless the right budget to address the serious problems which threaten the economy and financial sector which are the fundamental basis of our future material well-being. The budget, while severe, has been fair and seeks to get most from those who can pay most. Where it has affected the less well-off, particularly those dependent on social welfare, the cuts made have taken account of the substantial increases in such payments in past years which, combined with the recent falls in prices and the prospect of low inflation in future years, will keep the standards of living of these citizens substantially intact.
This is not just a budget to increase taxes and reduce expenditure; in our current economic circumstances we have to do far more than this. It is also, crucially, a wide-ranging plan which points the way to securing stability in the public finances and the economy which will be followed by sustainable economic and employment growth in the years ahead and which will also be underpinned by reforms in key areas that will boost the performance of the private and public sectors. An important point made in a recent debate in this House is that difficult and critical situations such as at present do provide an opportunity to undertake fundamental reforms that are often recognised as desirable in better times but where there is not the impetus or obvious necessity to undertake them. The point has been made at least as often on the Opposition benches as on the Government side. This is an opportunity to undertake some fundamental restructuring which will not just save money but also put us on a more sustainable basis for the future.
The economy is showing widely based and strong signs of recovery. That should not be surprising because it still has many fundamental strengths. We have a young, highly skilled, well educated and flexible labour force. Our infrastructure which had been a serious drag on the economy has been brought up the standard needed to support growth and the Government will improve on the existing good standard of provision. Our taxation system strongly supports enterprise and will continue to do so. Already we have won back much of the competitiveness that we lost earlier in this decade. However, there is a long way to go yet.
I was struck by a letter to The Irish Times in the past week or ten days from an Irish citizen living and working in Germany, pointing out that, on many fronts, their costs and welfare rates were lower than ours. I am not sure if I have it to hand, but it is somewhere among my papers. I was struck forcefully on two recent visits to Germany, one private and one official, to Berlin and Frankfurt, respectively. This one example is not necessarily hugely significant, but one could get from the centre of Berlin or Frankfurt to the respective airports by train for a fare of €2.50, whereas the minimum fare from somewhere like Busáras is €6. I am afraid this is replicated in a lot of fields, although not everyone might like to hear it. There has been talk about dictation from outside, appealing to a latent anti-German feeling, of which I do not think there is much in this country which is in the eurozone. If we did not realise it before, we do now and have to internalise the logic of this. We must never again allow ourselves to become uncompetitive and lax because of the apparent ease of conditions, particularly credit conditions, that we have experienced in the past ten years. Although there is a long way to go yet, the budget is an important first step in restoring stability to our public finances and economy so that we can move with increasing strength and confidence towards securing strong, enduring and job-rich economic growth.
Do I take it from the Minister of State's ad lib comments near the end of his contribution that it was not Lehman Brothers that got us into this mess but Government policy during the past decade? After we have had time to digest this budget and its impacts fully, it will be interesting to see whether it will contribute to getting us out of this crisis or whether it will be interpreted as a holding budget ahead of an early election, one that will not damage Government parties too much irrespective of whether the long-term crisis gets sorted. The budget focuses on cuts and taxes. The measures on jobs are not strong or clearly defined and are not underpinned by the policies that are needed to make them work during the next one or two years. For this reason, a certain amount of scorn has been poured on the budget.
The Minister of State alluded to another factor that has contributed to where we are today as opposed to where we were when making our statements on last year's budget. The dreadful mismanagement of the banking crisis has cost us additional billions of euro that we were not discussing this time last year. A hallmark of the Government's approach to the banking crisis seems to have been the country getting hit with extra billions of euro every couple of months. The underlying concern that further problems exist within the banking sector still remains. I do not want anyone to tell me that Bloomberg is looking in on proceedings in the Seanad and that our rating will drop further following my comments, but the concern about additional problems in the banks and why the Government needs an extra €25 billion is being expressed. We are not getting much information from the Minister for Finance in that regard.
Irrespective of this year's one-off measures to deal with the banking crisis, there are ongoing problems with the public finances. If additional problems exist in the banking sector, next year will also see one-off measures. Where would that leave the Government deficit next year and the year after? Some people claim the potential for economic growth is zero while others claim it will be 1.8%. This is a sizable difference in terms of sorting out the problems in the public finances.
The Minister of State was right in one respect, in that the non-government economy has reacted quickly, has restored its competitiveness and is on the verge of recovery. Exports have increased and there are other signs within the private sector that changes are coming about to make it more competitive. Unfortunately, the parts of the economy for which the Minister of State is responsible do not seem to have the same enthusiasm for or ability to change.
The budget brings with it risks. For example, the increased taxes could have a negative impact on the economy. As is usually the case with budgets, one wonders how some glaring changes were included. Perhaps the Minister will have an opportunity to consider those at a later stage.
The last time the Minister of State attended the House during a similar debate on the economy, I asked whether he had indirect concerns about our corporation tax. While there are no direct concerns, I asked him whether VAT or other taxes would be levied on the profits of some European companies. This would have an indirect impact on our revenue from corporate taxes. The Minister of State did not answer. When he is concluding this debate, perhaps he will respond.
These are the reasons we are where we are. The budget breaks down into cuts valued at €4 billion and taxes valued at €2 billion. Some €1.8 billion of the cuts will be made in the capital budget. This is a significant portion of the overall adjustments. As we pointed out, there is no clear policy on restoring jobs in the economy. The €1.8 billion would have been spent on building school extensions, refurbishing hospitals, local authorities fixing roads and so on. As such, it would have provided jobs in the public and private sectors. This significant cut will have an impact on jobs in both sectors and could lead to further problems next year unless a clear policy, one that is not just about tinkering around the edges, is put in place to reinvigorate job creation. The Government needs to examine this issue ahead of next year, otherwise we will not be able to get ourselves out of this trouble.
A further €2 billion in cuts will either come from public sector pay and pensions or social welfare. We have agreed with the Government on some of the cuts in the social welfare budget that affect people trying to get back to work. We want to make going to work a desirable option, but there is a sense that working is not the desirable option. Being on social welfare is offering people a cushion in these straitened times. We must change people's focus by taking them off social welfare and putting them into work. We support this policy, but a greater focus must be placed on producing jobs for those who will see their social welfare benefits reduced.
The naked political decision to leave the old age pension alone has been pointed out, as has the decision to cut the pension entitlements of blind people, widows, widowers and those with disabilities. It sounds strange that one would want to hurt a 62 year old blind woman, a 59 year old disabled person or someone who was widowed at an early age. It does not stack up. Consistency throughout the budget is required and the Government must examine whether other options are available to it instead of targeting a group of vulnerable people, including those with disabilities, who cannot stand up for themselves in the same organised and coherent way in which the elderly approached the Government. That said, the latter group's approach is good, in that it shows how people power can work.
Public sector pay and pensions constitute a significant issue. The amount of money involved is considerable. Fine Gael has discussed slimming down the public sector and increasing efficiencies. These measures will be vital in controlling the Government deficit of €18 billion. What will happen to public sector pay and pensions if efficiencies and redundancies are not delivered and radical changes are not made? The Croke Park agreement was approved last March, yet there is significant concern to the effect it is not working as it should be. The International Monetary Fund, IMF, has put a gun to the Government's head by stating it will move by next September. It is a question of being honest with the large number of people working in the public and civil services and with public sector pensions. What will occur in three or four years if the situation does not work out? The only option will be forced redundancies or considerable cuts to pay and pensions. The unions are also responsible. There is still a certain mindset within the public sector unions, emanating from the partnership arrangements that were in place for years, to the effect that somehow all that needs to be done is to fill up the ATM machine, but that day is long gone. There is an enormous push on us to reduce the Government deficit, although the problem was not of our making. I believe the Government is not showing leadership but rather misleading public sector workers, and those relying on public sector pensions. It is playing a game with them, indicating in effect that the Croke Park agreement is the one. Both the Minister of State and I know, however, that this is like a train coming down the tracks and something must be done about it now. Otherwise, it will just crash straight into the buffers.
The IMF will enforce stringent cuts to the pay and pensions of public sector workers in the event. I have nothing against public sector workers. I am a public sector worker, as is my wife and other members of my family. If they ask me, I cannot mislead them and say that somehow things will not change if we do not deal with our problems, if we do not achieve growth in the economy over the next couple of years or if more people lose their jobs. If the banking crisis deteriorates, we have to pay for it and we must make allowances for that eventuality now. I do not believe that type of honesty is entering the debate.
On the €2 billion on taxes, one sees that across the board the majority of people will take a hit in take-home income next year of somewhere between 4% and 5%. It will be somewhat more for some and less for others. One of the topics raised earlier in the week was the fact that the bankers were still paying themselves bonuses. Everyone else is taking a 5% pay cut, in effect, to pay out another €25 billion to the banks, and they are awarding themselves bonuses.
There is also the issue about Ministers giving themselves a clap on the back because their pay has been brought into line with that of President Obama of the United States. There is an argument that Ministers are still grossly overpaid and perhaps need to look again at their severance arrangements. There are issues to be addressed when one sees that people on €12,000 will have their pay reduced to something marginally above what an old age pensioner receives. There are issues about the increasing cost of mortgages next year. The only areas reflecting inflation in the economy at present are mortgages and utilities such as gas and electricity. The taxes imposed in this budget affect families who must pay mortgages and meet high ESB and gas bills.
The Government's promise to get rid of property reliefs by 2015 does not really count for much because most of these reliefs would have been for a five or seven-year duration, which means they would have been taken out in 2007 around the time the crisis in the property sector began, so they will have run out. The Minister of State has not indicated whether the €660 million, which seems to be the price the State will get for the sale of Bord Gáis, is part of the €6 billion as well or whether the whole amount is €6.6 billion?
On the issue of the cap of €250,000 on public sector pay, were many people taken on in recent months in excess of that figure? I would like an answer to that when the Minister of State responds because people on the minimum wage face twice as many cuts in terms of adjustments to pay and tax as those who face adjustments being made to social welfare. That does not send out the right signals when the Government is supposed to be trying to get people back to work.
I would also like the Minister of State to bear in mind the consequences of the figures for families and individuals. A family on €40,000 a year, for instance, with three children, will face a cut in take home pay of €1,000. That is not €1,000 off the €40,000 but rather off the net pay, having paid all the cuts up to this point before the latest changes came into play. That will fundamentally distort the picture in terms of whether such a family might be better off on social welfare. The Minister of State needs to look at all these figures.
I join others in welcoming the Minister of State and am glad of the opportunity to make a few points on yesterday's budget.
No one would set out willingly to introduce a budget such as this and many of its measures are regrettable in the context of the reductions people will have to take. In the history of the State, no Administration, apart from the last two or three, it is worth noting, have invested more across all Departments and sections of society. Regrettably, as we have analysed in countless debates over the past 12 months, circumstances have changed substantially, and with that so too have policy priorities. To meet the €19 billion deficit between income and expenditure we have had to adopt a budgetary process which continues with the €6 billion adjustment that was made in yesterday's budget.
On a personal level I am surprised at how balanced it is. That is not remotely to suggest there are not many measures in it that will be very painful for people. As the Minister of State has rightly pointed out, there are measures which will reduce the standard of living for every household in the country. That is an adjustment very few have had to contemplate. People of my age, 37, and younger have never known the necessity for that type of sacrifice, but this is what is necessary. There are adjustments we can all make and challenges we can meet if we focus our minds and work together.
The cost of living in the context of consumer prices is back to about April 2007 levels. In the context of the proposed reductions in social welfare, for example, this means it will be reduced to €2.20 more than was paid in 2007. Life was not all bad in those years between 2005 and 2007 in the context of the taxation measures that have been changed and in the context of social welfare.
The Minister of State has gone through the various measures in the budget in some detail and I am not going to replicate that. I want to indicate, however, a couple of areas with which I am particularly pleased, and one is the old age pension. Obviously, from the Government's perspective it would have been much better to have been in a position where no cuts had to be made. Speaking as an individual citizen, I am quite happy to sacrifice more to give relative security to old age pensioners. I am very pleased the State pension has not had to be cut.
Another positive move has been the cut in the travel tax from €10 to €3 because this will bolster the incentivisation the airport authorities provide to carriers to encourage them to grow their numbers from those of last year. There is a vast opportunity in tourism and this initiative can enhance capability to get more people to visit Ireland and get more money into the economy from tourism. Many other countries have travel taxes and more are to introduce them next year. This will make us more competitive in that regard and give the airlines, which rightfully have been very vocal in criticising the tax, the opportunity to grow the market and contribute to economic progress.
In the context of the reworking of the business expansion scheme, the employment investment incentive is very welcome as well. It increases the maximum to €2.5 million in a given year and for the first time it is very employment focused. It will be relevant to companies' PRSI contributions, and that is very positive because it ensures the numbers of employees must increase if concerns are to maximise the benefits they may draw down from investors. The three-year corporation tax holiday people are afforded, up to a maximum of €200,000, also must be linked to PRSI contributions, and again this will be very employment focused.
I welcome the new agri-environment options scheme to be introduced in 2011. This will be open to those coming out of REPS 3, with participation levels capped at 10,000 and maximum payments at €5,000. This is a welcome boost.
The Minister of State referred to our corporation tax rate of 12.5%. It is vital that we have managed to maintain this because it will be the cornerstone of Government economic policy regardless of who is in government in the coming years. We have not been hearing much on the airwaves during recent days about the many positives mentioned by the Minister of State. I watched breakfast television this morning from which the age old concept of balance was absent. One wonders if Government representatives were invited to participate in any of these programmes.
While there has been much uncertainty and fear among the public during recent years, this budget and the four year plan announced last week provide certainty and hope for them. There has been some progress in the real economy. Unemployment numbers have fallen for three months in a row. While some people have gone abroad, not all have done so. There has been job creation. We have also seen a strong, robust performance in the export area. As such, there are positives and we must be conscious of them. We must also believe in the resilience and determination of the people who in the past were able to meet the challenges presented to them. We certainly can do so again. While this budget contains painful measures, we can deal with them and make the necessary adjustments. I accept it will be difficult for the younger generations who have known little more than increments, flexi-time, salary increases, holidays, new cars and so on which came with the Celtic tiger era, but circumstances are different and we must adapt accordingly.
In terms of rebuttal of some of the things that have been said such as, that we blew the boom and so on, it is worth reminding ourselves of some of what the Minister of State said, namely, that €6 billion was spent on our road network during recent years, 4,000 more gardaí were recruited, 1,700 new prison places were provided, 9,000 more special needs assistants were recruited and we trebled the rates of social welfare between 2000 and 2009 when the prices of goods and services increased by less than one third. We are not returning back to 2000 levels but to levels which pertained in the middle of this decade. It is possible for us to make these type of adjustments.
There are 1.86 million people in employment and we continue to have a strong education workforce. I believe the increase in registration fees by €500 is just. As I have often said to Senator Ross, what other universities like Trinity College, which is among the top 100 universities in the world, do not have fees? The answer is that there are none. I would like if in future budgets we could ensure those who can afford it pay higher fees. My parents paid significantly more in the 1980s than is paid today to ensure my brothers and sisters went to university. Perhaps there is scope in this area for whoever is in Government in the future, be it Fianna Fáil or another party.
As I said earlier, the number of people on the live register has decreased. Some 2,500 jobs have been announced by Government agencies since March this year. If one were to average this out, it amounts to almost two announcements per week. We are ranked number one in the world for jobs created by foreign direct investment. We have heard many times that eight of the top ten technological firms are based here. As I said earlier, exports have bucked the trend.
Having listened to the analysis of the Opposition parties in recent times, while they might be ready for an election one wonders whether they are ready for Government. Their alternative budgets published last week indicate they are to a large extent polar opposites. While Fine Gael agrees a €6 billion adjustment was necessary in the budget, the Labour Party disagrees and believes this figure should be €4.5 billion. On "The Week in Politics" on 5 December 2010 Deputy Gilmore stated it was the view of the Labour Party that this is a product of right wing consensus in this country and in Europe and it is not an approach it supports. Fine Gael disagrees. It plans to cut a further 30,000 public sector jobs and to dismantle the HSE and FÁS, with which the Labour Party disagrees. The Labour Party wants to introduce a new 48% tax rate; Fine Gael vehemently opposes this. Fine Gael wants to abolish the Seanad and to reduce the number of Deputies by 20; the Labour Party does not agree. Fine Gael would cut social welfare rates by €6 in 2011, rising to €14 in 2014 while the Labour Party says that all headline social welfare rates must be protected. Fine Gael wants to increase VAT rates. On the other hand, the Labour Party believes we should reduce them, which is fantasy land economics in the context of the crisis we are facing. Clearly, there is work to be done by the Opposition parties as they contemplate their readiness for Government as opposed to elections.
Senator Twomey said the Government had postponed some of its decisions owing to electoral concerns. The Government published its four year plan last week, the first instalment of which was addressed in yesterday's budget which credibly takes €6 billion from the economy and which, while painful, ensures through the introduction of other schemes that we will not be killing the patient with the medicine.
I acknowledge the budget contains difficult measures. We are a resilient nation, however, and can overcome these difficulties. The budget is the first instalment of the four year plan. As stated by the Minister for Foreign Affairs, Deputy Martin, last Sunday night on "The Week in Politics" and echoed today by the Taoiseach, we will support these policies regardless of who is in Government. We have not conceded defeat in the forthcoming general election. I have just outlined the reason it is essential people focus on the real alternative. We have seen from the plans outlined by the alternative government of Fine Gael and the Labour Party that they are polar opposites and have not put forward credible alternatives to what is proposed in the four year plan and budget announced yesterday by the Minister for Finance. As difficult as the adjustments are that will have to be made all sections of society, they are manageable and credible. I commend the budget to the House.
As a veteran of many budget debates in this House, I am reasonably used to the pattern of such debates, namely, the Government spokespersons speak about the parts of the budget of which they approve and the Opposition spokespersons speak about the parts of it about which they can be critical and which hurt individual sectors. While this is not a difficult game to play, it is much more difficult this time round for the Government because this budget contains so little that is saleable to any vested interests or lobby groups, although Senator MacSharry made a good fist of it with the limited ammunition he had in his armoury.
I am disappointed the budget is not being debated from a slightly different perspective. Rather than speak to individual items contained therein we should be examining it in the context in which it comes to us. If we are honest, this budget is the result of a negotiating rout in Merrion Street ten days ago. The Government is not unused to negotiating routs for budgets. This budget, however, despite what has been said by the Minister of State in the debate and by the Minister in the Dáil yesterday, was not written by the Minister or the Cabinet. It was written and dictated by outside forces that are more powerful than our Government and ourselves. Whereas this House is so often the rubber stamp in terms of budgets, the rubber stamp in this case was not this House or the Dáil but the Cabinet. We took our orders from the IMF and Europe. That is what has been delivered to us today. This is not unusual because in the past we have taken our orders on budgets from the social partners. It is enlightening that the social partners are outside the tent on this budget. The reality is that external forces dictated what went into this budget.
I would have preferred us not to have had the type of conventional budget we have and for the Minister to have announced yesterday that we were going to burn the bondholders.
Once the decision was made that the bondholders would not suffer any pain, it was directly and immediately transferred to social welfare recipients, taxpayers and even those with a fair amount of wealth. It would have been better if the Government and the Department of Finance had thought outside the conventional area and stated they were going to make the bondholders pay because that price had to be paid. There is a rationale for this. Whereas the bankers are, possibly, the most guilty parties for the entire fiasco that is the economy and they were reckless and irresponsible, where did they get the money? If we ask the question and point the finger at them and say they were reckless in producing the property frenzy and that they vandalised the nation, we also have to ask if those who gave or lent to the banks must share the responsibility and if they were equally guilty because they also lent recklessly and without accountability. That was the message we should have received. The Minister of State should not paint a picture of horror and despair if that were to happen. It would have been a default, but what would have been wrong with that? Once one defaults, one is saying, "I cannot pay". The reality is we cannot and could not pay. We are, in effect, defaulters.
The lender of last resort has come to rescue us because nobody else will lend us money and the reason is we are bust. If one looks at the budget from the position of a bankrupt nation, one is looking at it from a very different perspective. Instead the Government parties took the line that they would pay off the bankers who had lent recklessly to us because they said no one would lend to us ever again if that were to happen, which is an extraordinary reason because nobody was lending to us anyway. Therefore, what was the big problem? Our credit rating had sunk to levels which made it impossible for us to borrow. Why did the Government not state it could not borrow and that it would reach a settlement with the bondholders on its terms, not theirs. Instead, it has opted to pay a huge price which we probably will not be able to pay.
We have already debated the interest rate. I do not want to go over that ground, but it is horrific. Assumptions made in the four year plan and the budget can be debated until kingdom come, but the growth rates are based on very weak evidence. It would be surprising to the world markets and many independent economists in Ireland if we had a growth rate that consistently averaged 2.75% in the years to come. The figures are wildly optimistic. Perhaps we have to be optimistic, but if we cannot pay the IMF and the European funds the rates they are charging, we will have to borrow more money to pay the penal interest rates on these loans. There is an element of hope and postponement rather than evidence-based information that indicates that we can pay. The budget is based on a premise which is on rocky foundations. Why have we not been given, at least, a good argument spelled out in black and white against the consequences of a default or against a debt for equity swap? Why have they not been spelled out because people are asking everywhere why the taxpayer has to pay for the sins of the banks? Why cannot somebody else, particularly the institutions which lent to the banks, at least take some of the pain?
Why has there not been a good and rational explanation for Ireland not becoming part of a two-tier Europe with two currencies? These issues still seem to be taboo, but if one looks at what is happening in Europe objectively - I do not make predictions because that is dangerous and I do not know what will happen no more than anybody else - the signs of structural strains in the eurozone in Portugal, Spain, Italy, Ireland, France and Greece indicate that is a real possibility. It is not what anybody wants to see happen, but when one considers that Greece, Portugal, Spain, Italy and Ireland could all be bailed out, the pattern that is developing is that the problem will get larger each time and the eurozone will crack up and, bit by bit, we are trying to put sticking plaster on it. However, the direction in which we are pointing means something will happen to the euro. Everybody hopes this will not happen, but let us see what the scenario is because there is a good chance that will happen and, by pretending it is not a possibility every time we have a crisis, we are on the back foot.
The first crisis was remedied by the creation of €750 billion fund which was supposed to be the solution, but we now know the problem is so great that this fund is too small. If the problem affects Portugal, Spain and Italy, it will have to be increased. Everybody has read about the squabbling over euro bonds as the next answer to this growing problem. I do not know whether that will happen, but it looks increasingly unlikely because the Germans will not put up with it. Why, at the very least does, the Department of Finance not spell out to every concerned citizen the implications of a departure from or the break up of the euro for Ireland, as well as the downside and the upside? It is no good saying it will not happen because it may. We are entitled to receive an answer because the budget is working on the absolute assumption that the IMF package will work not only for Ireland but also for Greece and all of the other countries, the economies of which are in jeopardy as a result of the contagion in the banks.
I wanted to get into the detail of the budget, about which I have been somewhat critical, like everybody else. However, those who say the budget is an attack on social welfare recipients are right, but spare a thought for middle Ireland and the middle classes also. What about the young middle class and the middle-aged married couple with two school children to whom Senator MacSharry referred? They have been hit everywhere, not just in their income but also in child benefit, the price of petrol and mortgage payments. This has put them in a position where they might not be able to repay their mortgages or educate their children. That is the reality. More emphasis might be put on the real difficulties of those who have their heads just above the parapet and who will sink beneath it as a result of this budget.
This morning I attended a briefing by the Irish Taxation Institute. Obviously, the organisation does valuable work, but the briefing revealed the existence of many Irelands. The reaction to the budget was based solely on the tax changes, as that is within its remit. There was no reference to the cuts in social welfare payments and only one vague reference to the cuts in public expenditure in general. What most concerned this group of professionals was that the ability to avoid tax had been seriously compromised by the budget. Whatever else we might examine with regard to the circumstances that have brought us to this position, at least there should be some acknowledgement of the fact that the budget finally eliminates 25 tax reliefs and tackles the tails that have lingered for too long of unnecessary reliefs extinguished several years ago. I hope it has undermined the concept of tax reliefs being introduced on such an ad hoc basis with little thought given to their long-term costs and consequences. This is something that has bedevilled our political system for the last 20 years. The Labour Party representatives will contribute to this debate on their own behalf, but I recall a Government during the 1990s in which a Labour Party Minister for Finance introduced tax reliefs for items such as holiday homes and multi-storey carparks. Reliefs were never logical then and are certainly not now; therefore, nobody should regret their passing. The effect of this and horizontal measures means that those on higher incomes will pay more tax. These are only some of the balancing measures in the budget.
There is a gesture, certainly a small one but a step in the right direction, with regard to ministerial pay. Frankly, the PRSI adjustment for higher level civil servants, Deputies and Senators is not enough. It affects income by a figure of approximately 5%, but it should have been a more honest and across the board pay cut. The budget lacks such gestures to show some affinity with many of the decisions that have had to be made.
Most of the negative commentary will concentrate on the social protection decisions. They are the decisions nobody in public life ever wishes to make. For many of these categories, it is the second year of such changes. Yes, decisions have been made to protect people on the State pension and other social welfare payments for those over 65 years of age. However, in the case of cuts to the carer's payment, disability payment and specific payments such as the blind pension, it is difficult to offer a rationale as to how it could be done. However, how could it have been avoided?
There have been ten years - this applies across the political system - in which we spent too much and taxed too little and the biggest beneficiaries of this were those in receipt of social welfare payments which have more than doubled in a decade, during which the underlying rate of inflation was 40%. Even following two years of adjustments, they are still at a higher level than those in many other European countries. They are also at a level at which the recipients' purchasing power is still greater than those in receipt of social welfare payments in other countries. Following the adjustments in this and previous budgets, the rate of child benefit is still three times what it was ten years ago. This is happening in a country which has lost its ability to be financially sustainable.
Senator Ross can make the argument, as he regularly does in the Seanad, that the banks have brought us to this position. I believe they were only the straw that broke the camel's back. This situation is due solely to the financial unsustainability of the policy mentioned - the constant willingness to spend more and tax less. Even the tax changes which bring those on lower incomes into the tax net and the introduction of the universal social charge will result in the country having an average tax regime, as a percentage of GDP, that is still lower than the European average. This distancing from reality, in which we lived through a period of time when we thought we had it all but were not providing for it or not doing so sustainably and ignoring the future consequences, is something that is as much a societal problem as a political problem.
That said, the circumstances created since 2008 and how they would have been dealt with by any other combination of political parties would not have been substantially different. One could have taxed slightly more, but the more one taxes, the more one undermines the ability of the economy to recover quicker. Some might have been tempted to cut even more, but the more one cuts, particularly in areas such as social welfare, the more one deprives others of the right to spend. Spending more money in the economy also acts as an economic impetus. Getting the balance right will be a challenge for any Government. It is not realistic to claim that whatever budget is produced in these circumstances and the budgets that will follow in the next three to four years can be produced without affecting the 40% of the budget that is accounted for by social welfare payments or the 80% accounted for by social welfare payments, health and education funding.
In the context of the OECD report released today and the critical comments made on the Order of Business both here and in the Lower House, the fact that current expenditure on education will rise this year appears to have been missed by many of those who are critical of the budget. There will be more teachers. Our demographics are such that there are more young people and we must provide more teachers to maintain the pupil-teacher ratio.
On all these grounds, the budget has the right emphasis. Two themes must be conveyed in the budgetary process - to protect and try to improve education and training, for economic as much as social reasons, and to encourage and foster enterprise. We have elements within the economy because it is an open economy and attracts foreign direct investment that will see it grow in any case. We can argue about whether the rate will be 2.75%, but there will be growth. What will make it the necessary and sustainable is if we can add the ingredients of hope and confidence. I hope there will be these ingredients for whoever is in government in the coming years.
One of our main difficulties and the reason we found ourselves in a situation where we had to accept an agreement with the European Union and the IMF is not that we could not borrow money - we can - but that the rates of interest available for that money are utterly unsustainable. One of the reasons for this, aside from the weakness of the euro as a currency, is our ability to talk ourselves into a situation where things are as bad as they can possibly be, are beyond salvation and that somehow we need to be dug out of a hole. The elimination of that attitude is the first requirement. The reality is that when we have a €15 billion adjustment, with €6 billion being front-loaded of €6 billion - I accept that not everybody accepts this - it cannot be done without striking an appropriate balance between cutting capital and current expenditure and increasing taxation. To believe that we can achieve the €6 billion this year or the €15 billion in any year, and not affect social protection, is not being honest with the people. Once the finance Bill and the social welfare Bill that accompany this budget are approved and we eventually have a national debate in the form of an election campaign, then we will have honesty about our economic future, when we have that conversation with the people. It has been sadly lacking today.
I do not accept it is dishonest to say we can make the kind of adjustment that undoubtedly is required without affecting social welfare. I do not accept that, so I must be blunt about it. In circumstances where the Government has engaged in an adjustment in this budget of the order of €6 billion, we know the proportion that is attributable to social welfare payments, including the reduction in payments to people of working age and in payments of child benefit, amounts to about €500 million. I do not accept the proposition of Senator Boyle and others that it is not possible for the Government to avoid affecting the least well-off in our society and to avoid reducing welfare payments by 4% and still bring in a credible budget. I think he is wrong with that proposition, but he is right to say we will have an opportunity to debate these issues in the course of the general election, which cannot come soon enough. I would not mind asking Senator Boyle when he thinks that will come. We have heard all manner of rumours about extensions and target dates moving as well as proposals for referenda being held on the same day as a general election and so on. What is going on? Perhaps the leader of the Green Party will clarify that when he gets an opportunity.
I would like to begin my contribution by quoting the Minister of State towards the end of his speech, which I thought was quite striking. He said: "This is not just a budget to increase taxes and reduce expenditure; in our current economic circumstances we have to do far more than this." He went on to say: "It is also, crucially, a wide-ranging plan which points the way to securing stability in the public finances and the economy which will be followed by sustainable economic and employment growth in the years ahead and which will also be underpinned by reforms in key areas that will boost the performance of the private and public sectors." With all due respect, he could have fooled me. He could have fooled anyone who heard the speech because this is entirely a measure that increases taxes and reduces expenditure. Can someone point to a plan in here? Where is it? It is not in the speech. It is not in the bigger document. It is not there. It does not exist. There is no point in the Minister of State trying to persuade us it is there when it is not. We had a look and we cannot find it.
It comes down to what Senator Boyle said in his contribution when he used the word "wish". In fairness to him, he said in good faith that he wishes that there would be growth and that the Irish economy's fortunes would improve under whichever Government is in charge of it. It is fair enough that he should wish those things, and I share his good wishes that things would improve. More is expected of politicians, however, than the expression of wishes. Senator Boyle is right when he says we are not beyond salvation. I do not believe anything in human affairs is beyond salvation. It is not beyond our ingenuity as a people to turn this appalling situation around. I share the optimism, but that is not to say it is not a very difficult task. It is not beyond the bounds of possibility that we can regain control of our affairs, develop and improve our country and the wealth of our people if we take the right decisions. Wishing it to happen will not make it happen. There is no point in just talking about wishing.
The first difficulty we in the Labour Party have with this budget is that it is only six weeks since the Department of Finance stated the correct order of adjustment in the 2011 budget was €4.5 billion. That is a very short time since the Department took this view. Its officials were exercising a judgment. Everyone knows that if we take money out of the economy in this radical way, we will cause a deflationary impact. The Government does not talk about that. Its members accept it is true if this is put to them, but they tend not to want to remind us of that. Whether it was €6 billion, €4.5 billion, €3 billion or €1 billion, we know it would have that impact. People might ask why we are going for €4.5 billion or €6 billion. They want to know where we get the figures. These numbers can go over people's heads sometimes.
We have to exercise a judgment. We have to point out that this will have a negative impact. How can we minimise that impact? How can we control the possibility of growth in the economy and not rely on international improvements? What steps can we take to ensure we open up and free up the possibility for growth in our economy? It seems an adjustment in €6 billion in such a brutal way can only have the effect of very severely deflating, if not clobbering, the economy and any prospects it has for growth next year. There is no point in Ministers or their colleagues in this House criticising the Labour Party and saying a figure of €4.5 billion does not have credibility when this was the Department's own figure only six weeks ago.
We are seeking to exercise a judgment on what the correct figure ought to be. Why did it get to €6 billion from €4.5 billion? How did it happen? It is clear what happened and it has been admitted what happened. The members of the Government saw the chaos on the markets and the extraordinary difficulty we had in borrowing at any kind of a sustainable level and they decided they would throw them the figure of €6 billion in the hope that this would be good for the optics, that this would persuade people they were serious in Dublin, that they were really taking this on board, that they were going to tear the backside out of their economy and that they really meant business. They were not talking about €4.5 billion but about €6 billion. It was all about optics and how it would look. How does it look to people who are facing a reduction in welfare payments? How does it feel to them? What are the optics of the situation for the people who must sustain the effect of this much larger adjustment?
The Minister of State in the House, Deputy Brady, will understand the effects of what is happening. We all see the effects of it in the daily lives of people in our constituencies. We cannot turn our backs on that. There is much lip service paid to fairness in this budget, but it is no more than lip service. It is not a fair budget. No budget can be fair. There is a notion that to be fair, we must take something from everyone. There are many people in society who cannot afford to have anything taken from them. Let us be blunt about that. It is an academic argument to demonstrate by taking some from here and more from there and so on, but there are some people who cannot manage if anything at all is taken from them, given what they have had to sustain over the past two years. That is the basis on which we should be debating this.
I agree with Senator Ross that the budget is the result of a negotiating rout. Instead of sitting down, as they do in other countries, to negotiate a memorandum of understanding, the Minister of State claims we prepared one and that the IMF and European Central Bank looked at it and stated they would have everything in it. Pull the other one. Does anyone believe there was no close collaboration between the Government and the external parties to the memorandum of understanding prior to its being agreed? No one buys this. This is part of the narrative that stretches back to the start of the crisis, where people are told things by Ministers and, like in Alice in Wonderland, words mean what the Minister says they mean. People can read and understand what is going on. They do not buy the notion that the budget is anything other than the result of the Government being in an incredibly weak position by virtue of the catastrophic failure of its banking policy.
How many times in this Chamber have we heard the Government and its supporters say the reason we had to pump money into the banks and establish NAMA and introduce all of the other measures introduced was so that the banking system would function again and lend in the economy? They have not said this for weeks now because they would not have been able to say it while keeping a straight face. It has not happened and there is no sign that it will. Where is the credit from the banking system, the life blood of business? It is not forthcoming. Even according the Government's own test of the success of its banking policy, the availability of credit, it has failed. To call it mistaken does not even begin to describe the disaster of the Government's banking policy, which is recognised internationally. It is an disaster to pin the fortunes of the taxpayer to the banking system as it collapses.
The budget comes at the end of an extraordinary period. It is a bookend in historical terms. Senator MacSharry can read bullet points of good things that have happened within the last ten years all he wants - good things did happen; infrastructure has been improved - but if they had not happened, it would have been absolutely extraordinary. Why would it be a surprise if we could point to something like the roads system or the provision of special needs assistants? If they were not in place, it would be worse than an0 abject failure. Of course, there have been infrastructural gains; the problem is that the Government failed throughout this period to provide sustainable funding for infrastructure and public services more generally. It ignored that key responsibility, not just to find money to pay this year's bills but also to look to the future of our children and put in place a sustainable basis for funding the public services we want.
That idea was totally set to one side by Fianna Fáil. Its view of the economy and future looked to the fortunes of the party rather than the country. That is why we have reached this stage. No amount of pleading on the part of the Government, particularly Fianna Fáil, that no one saw this coming and that the Opposition had demanded improved services, as if that was not our responsibility, will lessen the impact of that fact. The Government is a gate keeper and iresponsible for the public finances. What it has done in the budget will not give anyone confidence that it has taken a serious approach to securing the future of the country or the economy.
The necessity of the budget announced yesterday is clearly outlined by the fact that we spend significantly more than we take in. In the good years, when the money was rolling in - we are now being blamed for the expenditure then incurred - it is worth noting that across every Department, the Opposition was looking for extra expenditure. Not only that, but it blamed us for not foreseeing the banking crisis or the property bubble, yet in its last manifesto, Fine Gael wanted to do away with property tax. This morning, however, we are being asked not to mind the fact that the Opposition sought these increases because that was the job of the Opposition parties and they did not really mean it. That is arrant nonsense.
The €6 billion in adjustments that had to be made yesterday were made in a fair manner across the board. There were some increases in income tax and some decreases in social protection rates. The reason there was a decrease in certain social protection payments was to ensure there would be social protection in the future. How will the Opposition parties reconcile the fact that one wants to see no increase in taxation, while the other wants to see no cuts in social protection payments? How will they ever get a budget through? If they are to be honest with the people, they will have to tell them on the doorsteps that they will have to compromise and change their policies if they are to put together a Government. We all know that will not happen.
I ask people to bear in mind that these were necessary adjustments and that the Government made them n a fair manner and only to protect people. When we look at the decreases in social protection payments, the average figure is 4.1%. The only thing that matters is what a person can spend. The fact that there was an 8% decrease in the cost of living means real spending power has been protected. What would be the use of a 10% increase if the inflation rate was 20%? People are being protected a level that is sustainable and affordable. I am particularly pleased that in difficult times the Government was able to achieve this.
The fact that we are looking at a growth rate of 1.7% has been questioned, with people asking how we can achieve such growth when taking €6 billion out of the economy. As one of the most globalised economies in the world after Singapore and Hong Kong, we will disproportionately share in the growth in world markets which are to grow significantly this year. A growth rate of 1.7% next year will come exclusively from growth in world markets. We have achieved significant increases in exports this year, with manufacturing output up 12% in the third quarter. Export figures were up 7% in real terms in the first half of the year, while corporation taxes were up significantly. This year we will come out of the recession and next year we will see growth. The live register figures are down for the third month in a row, while the number of redundancies is down by 30%.
There are initiatives to look after the unemployed in the budget that are welcome such as the extension of the employer job initiative, the additional 15,000 activation places for the unemployed and the refocusing of the national employment action plan to provide opportunities to avail of education, training and work experience placements. Also to be welcomed is the transformation of the business expansion scheme into a new employment and investment incentive to boost job creation by small and medium-sized enterprises. The amount has also increased and the regulations have been eased in order that it is easier and more efficient for businesses to avail of the scheme, because businesses are always complaining about red tape. This is also to be welcomed.
The necessary adjustments in salary have been carried out by the Government. The Taoiseach, Tánaiste and Ministers have again reduced their salaries for this year, and many public officials have agreed voluntarily to reduce their salaries to the new limit of €250,000, including those in State agencies. At a time of fiscal uncertainty, when we are making necessary adjustments, salaries of more than €500,000 or up to €750,000 in State agencies are unsustainable. There are people who will be happy to accept the changes. The old adage about losing the best and the brightest was the argument used by the banks, and we saw what happened there. We want the best and the brightest. It says a lot about a person that he or she is willing to take a salary cut to €250,000 while continuing to work at a high level in the public service, rather than in the private sector, to do something for the State. Of course, there are benefits to working in the public sector, one of which is security of employment.
Tax must be levied on the basis that everyone contributes according to his or her means, and that is what the Government achieved in yesterday's budget. The income and health levies will now be replaced with a single universal social charge, the employee PRSI contribution ceiling will be removed, and the PRSI rate for the self-employed, high-earning public servants and office holders will be increased. We all took a reduction of 10% in tax bands and tax credits. The excessively generous reliefs on private pensions needed to be tackled. The many tax reliefs that high earners used to establish tax shelters were effectively abolished yesterday, which must be welcomed. At a time of fiscal uncertainty we must have equity, and those who can afford to pay more need to pay more.
If we are taking increased amounts of tax from the economy, we need to give a message of hope. The message of hope has not gone away. Our 12.5% rate of corporation tax is one of the foundation stones of our development, and we are still bringing disproportionate amounts of foreign direct investment to this country. What we say in this forum is not said in a vacuum. To say the economy is a corpse or that it is banjaxed is inappropriate. Those who suggested the economy was banjaxed then turned around and said that was not really what they had meant. They said it was something to do with mechanics and that it was a Dublin colloquialism meaning a car that needed to be fixed. That is arrant nonsense. To say something is banjaxed means it is broken badly, possibly beyond redemption. That is what went out into the international marketplace, and it did this country harm.
One item in the budget which will be significant in the future and which we should consider in terms of underpinning the housing market is the new provision on stamp duty. The property market still has a disproportionate effect on Ireland Inc., and the reduction of stamp duty to 1% will at last give a boost to that sector on which we are so dependent. The reason we are unable to fix the amount the banks or NAMA might need is our inability, in a falling market, to see the floor. We will now, through the efforts of the Government, see a levelling off of the property market, which will be a significant boost. We can clearly see a period of growth ahead, which is badly needed. I welcome that change in particular. There were many other positive developments in yesterday's budget. It is a difficult time, but it was done fairly, and that is the criterion by which I am happy to be judged.
I want to talk about the way in which Senator Hanafin evaluated this budget in terms of fairness, and I will consider a number of examples to help us understand how fair it really is. Before I do so, however, I want to consider some of the commentary that has taken place about the budget. I was struck by an image I saw on my way to the House this morning. It was a picture on the front of a newspaper of the Minister for Finance dressed up as a German general, and the message was that Ireland had been given orders from abroad to blitz various parts of our society. That is a myth we must destroy in the House. Such images and language do our country no good and have the potential to cause great harm. There is no doubt our country was targeted to deliver a deficit reduction of €6 billion in the budget. Even if we were not dependent on the IMF and the ECB for outside help, those cuts would have been required. The deficit reduction program that has been undertaken by the Government, the objectives of which Fine Gael supports in the context of this budget, is necessary for our country to regain its full independence and to ensure it can stand on its own two feet. Regardless of the relationship we have with the outside world and how it has changed, we would need to do that anyway. A myth is being peddled by certain people with vested interests within and outside our country that there are other options open to Ireland, that we could go it alone or consider measures such as defaulting on our sovereign debt, but any of those measures would be catastrophic to the interests of our country. As I said before, Ireland should not be involved in any experiment that no country in the developed world has managed to pull off.
One of the great engines of economic prosperity our country has enjoyed has been our positive engagement with the outside world. Let us stop blaming the outside world for the difficulties in which we find ourselves. Much of that difficulty was inflicted on our country by Fianna Fáil, a party in a Government we elected ourselves. That was the cause of our difficulties. It was not a foreign or alien agency that caused this fate to befall our people and our country, it was choices that were made at home. For our country, and people who are writing about our country, to indulge in a fantasy that seeks to put the blame on others is the worst possible kind of escapism. It is dangerous and it could be fatal. We need to be honest and accept that the cause of this was decisions that were made at home, decisions made politically by Fianna Fáil which will pay the price. That said, decisions made at home are capable of restoring our country to the path it should be on. Let us not blame people who were not involved or who, if they did play a role, played a far smaller role than domestic forces - faces we knew and people who were elected.
Senator Hanafin said in his contribution that the budget sent out a message of hope and fairness. I want to consider three examples and ask where is the hope and fairness of which he speaks. The first is the reduction in the salaries of Cabinet Ministers and the Taoiseach. The story that has been put out is that our political leaders and the elite are taking pain to reflect what the rest of the country is going through. The fact is that before those changes were implemented and before the minimum wage was cut, the Taoiseach was earning 13 times the minimum wage but after these changes are implemented he will be earning 14 times the minimum wage. These are the figures. The minimum wage will be cut at a faster rate than the salary of anyone holding senior public office in this country. This is exactly the type of relationship and unfairness that makes the people we represent believe other forces are at play beyond the need to be fair and to ensure everyone shares the burden equally. A great deal more could have been done to ensure the budget was fair and that the people at the top, especially those at the top of the public service and the political classes, made a fairer contribution.
Our party has outlined what we believe these proposals should involve, including a smaller Dáil and the future of the Seanad. Our leader has made clear that upon the formal announcement of a general election, we will have more to say about the salaries people are paid in these Houses and the way we conduct our business. Let us consider those who teach in the classroom, run schools or hold senior roles in hospitals. These are the type of front-line workers that my colleague, Senator Jerry Buttimer, talks about regularly with such passion. We must reach a point such that no one in these Houses is earning much more than anyone performing such roles. Only then will we restore fairness and the principle of ensuring everyone makes a contribution to the path out of this disaster. Only then will the people who wish to be led have faith in those who aspire to lead them.
Another example of where fairness appears to be lacking is the relationship between those on the minimum wage and those on social welfare. Our country learned a crucial lesson during the 1980s, especially the middle of the 1980s, about the need to ensure the right incentives are in place for someone who wishes to work and that it is worth his or her while to work. Both of these boxes must be ticked. Many people are keen to work but we must ensure it is worth their while to work. If a person enters the workplace and finds he or she is worse off as a result, the people who suffer are his or her children and those workers trying to pay household bills and mortgages.
Let us consider someone on the minimum wage who will now be in the net for the universal social contribution. Such a person will be €879 per year worse off as a result of the implementation of this budget. This is twice the adjustment or change that someone on social welfare must face or deal with. This will mean the incentive for people at the lower end of the income scale in the services industries and what is left of the construction industries to work beyond the need to maintain their dignity and self-esteem, which is their primary motivation, will be reduced further. We must find a way to ensure this is re-balanced and the incentive to work is maintained where the social welfare system meets the tax code. I am concerned this area has been dealt damage as a consequence of the changes made yesterday.
I will finish on a broader point with regard to the apparatus of the State. We are all aligned to the view that we should take the most from those who need it least. The classic example often proposed relates to child benefit. Why do people on high incomes need child benefit? I have some sympathy for the point of view but this is the choice we must consider making. It stuns me that whenever this issue is explored, we are informed we do not have the administrative ability to distinguish between people on different levels of income and tailor child benefit or the welfare payment such people receive to reflect the difference. How have we reached the point that our systems are unable to tailor fully the level of welfare benefit a person has to that person's need. Had more progress been made in this area there would not have been the need for the instruments under discussion today to be as blunt as they are.
I concur with the comments of Senator Donohoe regarding media comment and the way in which we are portrayed abroad. It is important the proper message is sent from these Houses that the budget represents taking responsibility for our imprudent past spending. The budget today represents a correction to ensure the message goes out loud and clear to the markets, the EU and the IMF, the organisations currently funding our situation for the coming three years. It is vital we do this and put down this marker.
I realise every household and family in the country will suffer greatly because of various decisions we have had to make in the budget and we should not minimise or understate the importance of this. In future when times become good again we must be more prudent than we have been. Having said this, many good things took place during the ten or 12 years of the Celtic tiger. People have indicated that there are better roads and water systems. We have upgraded our rail systems, including the Luas system. There have been improvements in education and sports. Although the health system could be improved, many great achievements have been made in the health services, including breakthroughs to help people suffering from cancer and various other diseases. These are all pluses and we should not undersell or underestimate the value to our economy in this regard.
It is important to bear in mind that the EU has a responsibility to all members in the community. As one such member of the community I believe the EU paid a major part in ensuring cheap money was sent into this economy. This is a danger from which we have suffered within the EU. Now the EU does not wish to take responsibility for this. This represents a failure in the system as well as our own failure to recognise the problem. It is important to correct this. There was a suggestion that a new bond system in the EU would be considered. The paymaster of the EU, the German economy, has decided it does not favour this idea. It is important we reflect on how we can fund ourselves in future and the budget is the first step on the ladder, regrettable though it is and that it will affect every family in the country. Everyone who works will pay something in this budget and this is where fairness comes into it.
Some elements of the budget may help us to lift the property situation which is effectively non-existent.
The reduction in stamp duty will help restore some sort of reasonable sales to the property market.
It is important to remember that in the 1980s we paid 35 p in the punt on our debt abroad while it will only cost 22 cent in each euro now. These facts need to be used to put the economy into perspective. We must ensure we manage the economy much better than we did in the past. It is good if it means we have someone from the International Monetary Fund or the European Commission looking over our shoulder to ensure that happens.
It would be remiss of me not to point out that any other government would have had to have introduced exactly the same budgetary measures. The Fine Gael Party has shown a genuine consensus in this regard. Polls indicate the new government will be made up of Fine Gael and Labour, however, and the latter has a very different approach to tackling these budgetary requirements. Accordingly, there will be difficulties for both parties to join up the dots when it comes to taking hard decisions. Unless both parties come to some sort of a compromise, I cannot see how they can provide effective government. Fine Gael has also ruled out Sinn Féin as government partners. According to the polls, Labour and Sinn Féin could reach 39% of the national vote. What would happen then in the election of a new Taoiseach?
This budget is an important step in tackling our economic problems. I am glad we have ensured the old age pension and those at the lowest end of the ladder are protected, an important part of any budget. This is where fairness comes into this budget. A low inflation rate will also help ease the other reductions. Albeit unwelcome, those reductions are necessary to balance our spending costs and send the correct message to our European partners and international markets.
Neither did I want to embarrass my good friend, Senator Coghlan, in the Chair. The calamitous 13 year reign of this Fianna Fáil-led Government is about to end. Senator Alex White referred to this budget as the bookend. The Minister of State, Deputy Mansergh, of whom I must say I have become fond, has been an elected and non-elected partner in this roller coaster reign.
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 was never a non-elected Member.
I meant as an adviser. To paraphrase the bible, shouts of glee will go up with trumpet blasts when the Taoiseach calls time on this Government. Ireland's current economic position has been greeted with amazement and incredulity abroad. Friends of mine from across the world have e-mailed me wondering if we will be okay in this crisis. It is hard when one sees a great nation reduced as such before the eyes of the world.
I do not believe for one second our economic crisis was a result of the world recession or the decision of the former US President, Mr. Bush, to let Lehman Brothers go. I believe it was the policies of the Fianna Fáil-led Government. These have led to polarisation in society with, unfortunately, the Government successfully managing to pit private sector worker against public sector worker, the lower and middle classes against the upper classes. In the past 13 years, it has also marginalised people, giving a young educated generation no hope but to emigrate with no opportunity to return home.
The Budget Statement says that with the fall in economic activity and the impact on Government revenues, the State is no longer in a position to afford the level of public services and social welfare rates of recent years and that reductions in capital expenditure in 2011 will also be significant. That is an indictment of the Government's policies which have caused our nation to become paralysed and our people to live in fear and trepidation. I do not say that lightly. I canvass my constituency four days a week and everyone I meet is united in their disbelief at how Ireland has come to this.
Under three main headings, this budget can be judged as not being fair, not protecting the most vulnerable in our society and not providing a job stimulus package. I agree with Senator Hanafin that we must be careful with the language we use in these debates. As a teacher, I am proud of the students who come out of our schools and the graduates from our universities. I am also very proud of our public sector workers who do great work in their respective front-line services, protecting, defending, caring and educating.
I dismiss the naysayers – those opposed to reform – in the public service, however. The Fine Gael Party is not for cutting public sector wages but for real sectoral reform. The opportunity for reform could have been grasped in this budget but the Government flunked it. There is no need for the public sector to be afraid of Fine Gael's polices on the public sector. We stand with public sector workers, but for a better and more streamlined sector.
Ireland will recover. I agree with those speakers who say it is not banjaxed. It may be broken and demoralised, but we will rise again. We have done so at every opportunity in our history and always emerged as a better nation, producing great individuals in the arts, education, sport and music.
There must be a changing of the guard that runs the country. Any Government which can propose a reduction in the national minimum wage and allow the banks to continue with a culture of bonuses and high remuneration rates does not have the concerns of its people at heart. The bottom line is that the Government has not been pro-employment. We must examine how we can promote job creation and reward entrepreneurship. Surely a person is better off working than on social welfare, but there is no message of hope and fairness in the budget.
While I welcome the cuts to ministerial salaries, including the Taoiseach's, they do not go far enough. The Government has no real ability to tackle the cost of the political class. We can quote the percentage decreases in recent years, but those on lower incomes and the national minimum wage are being pummelled, which is wrong. We cannot allow a situation to continue where the marginalised are penalised. The budget is lacking in social justice and fairness. Since yesterday people have contacted me by text and telephone to ask how they can afford to continue when they are already struggling to make ends meet. Are we seriously saying blind people, the elderly and the disabled must pay for the sins of a few? I hope that is not the case.
I welcome the Minister of State, Deputy Mansergh. We should consider the implications of budget 2011 in the context of what the Government has done in recent months to sort out the country's problems. It has set out its stall by directing and restructuring policies and services to boost confidence. For the first time in the country's history, the budget was approached on the basis that it formed part of a multi-annual process, as set out in the National Recovery Plan 2011-2014. That is the correct procedure to adopt and I hope it will be set in stone for years to come.
The policies pursued in the last two years by the Fianna Fáil-led Administration, with the four year plan, the joint EU-ECB-IMF programme of assistance and the financial measures in budget 2011, are all targeted at getting the country back on its feet. We have all heard the announcements by a host of commentators, not just in the last 24 hours but in the past two or three years, on the state of the economy. These commentaries have focused on unemployment, our financial difficulties and the banking crisis. We have heard that a variety of adjustments are necessary to ensure correction. In certain instances, there has been detailed analysis of isolated aspects, but there has been a great deal of fragmented thinking and a fuelling of destructive propaganda.
There is no doubt we are at a critical point in the country's history, but we are not alone in facing this challenge. We must take account of the position in the world around us. The sad, sober and grim reality is that we are going through an exceptionally difficult period. All of the elements of the global economic and financial difficulties are present in the domestic economy and, in certain instances, are more intense.
It has been said a rising tide lifts all boats. Equally, however, one assumes an ebb tide lowers all boats. We are in uncharted waters, with unprecedented internal and external factors having an impact on our course. At times such as these, if I were asked whom I would like to see captaining the ship, I would prefer to have an experienced captain who knows all about the impact external forces can have. The National Recovery Plan 2011-2014 demonstrates that we have a Government with knowledge and expertise. Budget 2011 is an addendum to that plan. We must examine the macro picture. In launching the four year plan the Government indicated that it was only part of a process, that the budgetary aspects would form another. We have seen the first instalment in budget 2011.
The question at issue is whether the Government is taking the correct measures or whether somebody else could do better. Allowing for the impact of external forces, the Government was not content to let the downward spiral continue. It could have taken the easy option of engaging in window-dressing with a general election looming. Instead it took the appropriate measures - albeit tough ones - in the national interest.
Given everything that has been said, I am seriously concerned about the message emanating from the media and my colleagues in the Oireachtas. We all need to display a positive attitude. There is no doubt that a renewed effort is required, with a strengthening of our national will and an ability to succeed in tackling the challenges facing us. We are a great people with tremendous determination and resilience. Budget 2011, the national recovery plan and the EU-ECB-IMF joint assistance programme present a clear framework to which we can all work. It is a welcome framework that allows us to take the necessary corrective action. In two or three years we may come back and say we should have tweaked it one way or another. It is easy to do that in retrospect. The policies of this Government over the past two years, the work in the national recovery plan and the joint assistance programme are all targeted in the same direction. That shows there are people with knowledge and experience who know the direction in which this country should be headed. The figures add up, the equation works out and the equation was not considered solely on the basis of party politics or the Government.
I do not have the time or information to go into the full details of the budget, nor am I qualified. I agree with the Minister for Finance and the Government when they say that the issue is jobs. I congratulate the Government on what it has done on exports and other aspects, including the falling number of people signing on for unemployment benefit. This points in a positive direction.
We can do other things that cost little money and I ask the Minister of State, Deputy Mansergh, to take one aspect back to his Government colleagues. Recognising the importance of jobs in exports, we should listen to small and medium-sized enterprises. We should work with them closely over a short period to identify the issues that must be addressed because they have their finger on the pulse. Issues are causing impediments to small and medium-sized enterprises. If the Department of Enterprise, Trade and Innovation had an e-mail system with an accident and emergency assistance line to hear what businesses want the Government to do to assist them in creating jobs and products, it would be greatly beneficial. I regret I do not have sufficient time but I will take the issue up with the Minister of State directly.
It is difficult to know what to say on an occasion such this. I was in the Visitors Gallery of the Dáil yesterday, as were many of my colleagues, listening and witnessing what happened as the budget was presented by a man with whom I have a professional friendship and whom I respect and like, Deputy Brian Lenihan. What appalled me was the spurious air of formality given by the production of the document, which is just like all the other budgets. The atmosphere in the House, the tables at the back and the supplementary leaflet were all as if everything was just as usual. In the Minister's opening statement, he said this had been a traumatic and worrying time for the citizens of the country. That is the understatement of the year. I would say apocalyptic on a biblical scale. Later that evening, when I heard the Bank of Ireland ATMs were vomiting money onto the snow, I decided to pack my bags and get off home before it started raining blood and I was attacked by an army of frogs on O'Connell Street. We had the locusts in last week and we fed them our elderly, our infirm and our weak. They gobbled them up greedily and now they are back for more. We are still supine because this country and its workers have been sold into slavery. This must be particularly difficult for the Minister of State, Deputy Mansergh. There has been a betrayal of the principles on which this State was founded and, in particular, of the ideals so movingly expressed in the Proclamation of Easter 1916. In what manner could this budget be held to cherish all the children of the nation equally? It simply does not. In microcosm, it does what the ECB and IMF have done to us in that it privileges the rich and disadvantages the poor.
I cannot possibly agree to this. There is no vote allowed in the Seanad; we are not to be trusted with finance. How extraordinary and laughable it is that Senators are not regarded as worthy to have a proper say, control or a vote on a budget such as this because we might be irresponsible. There has been plenty of real irresponsibility in the other House and it cannot be covered by any quantity of cant about what a wonderful, resilient people we are and how we must act in the national interest, ensure we show the country in a positive light and be careful of our reputation. We have very little reputation left and it is time we faced the facts.
The Minister's speech in the Dail yesterday was full of logical jumps, gaps, inconsistencies and points that are difficult to believe. He stated: "For the period out to 2014, real GDP is forecast by my Department to increase by an average of almost 2.75% per annum". Does anyone believe any of the figures that come out of the Department of Finance? They have been wrong for so long. I remember saying long before this crisis that the Department of Finance rarely got any of its figures or forecasts right. My attention was drawn to this by the late Mr. Ken Monaghan, a nephew of James Joyce and a banker. Over coffee, he and I used to discuss the production of these figures. We tallied how disastrously wrong they inevitably were.
The Minister asked the following question:
So if the real economy is poised to grow, why do we need the help of the IMF and the EU? The answer is that we need their support to break the vicious cycle that has threatened our national finances and our banking system.
No, not at all. The answer is that he was so ineffably stupid as to give the banks a blanket guarantee. This was the astonishing and catastrophic mistake. Everything else could be dealt with, although with difficulty and hardship for all of us, which one would hope would be spread equally.
I return to the principle of equality. It is some years since I used my Private Members' time to take on what the Government was doing in seeking to undermine the agencies that spoke out for the vulnerable and marginalised going into this economic blizzard, which was bound to create levels of poverty never seen before, by abolishing Combat Poverty Agency, undermining the Equality Authority and attacking the Irish Human Rights Commission. The Government did this and it was sly, underhand and indefensible but so was the behaviour of the media. I do not expect them automatically to cover every word I say - I am not that self-important - nor do I think they will bother themselves with the debate at 5 p.m. on Wednesday, but I took the opportunity to issue written statements and the full text of what I said to every media outlet and not one took it up. Having given advance notice of the serious matter of what the Government was clearly doing, I advanced my case by argument and systematic analysis with facts and figures inside the named groups and Departments and I was astonished it was never covered. I regard it as a moral dereliction because the people should have been warned that this was happening.
The guarantee was so obviously wrong and it does not give me any huge satisfaction to know I voted against it. My conscience is clear but that will not help anyone. Let us look at the groups that are being victimised: carers, the blind and the disabled. This is the most astonishing dereliction of duty.
I will make a few brief comments as I did not realise the time was going quite so quickly. The car scrappage scheme is a load of complete rubbish. Who does it help? It helps the Germans, whose banks we are paying. We have been turned into a money-laundering machine for the ECB, the German, Swiss, Italian, French and British banks. We are now helping their car industry as well because the profits are for the manufacture of cars, not for their resale and distribution. What we should have said to those groups is that if they want us to be a money-laundering machine, we would oblige them for a small fee. Otherwise, we will do a Samson and pull the whole thing down around their ears and see how they would like being in it, the same as they have put us into it, because they did, with their easy money and stress tests on the banks that were all over the place. I have very serious concerns about that.
The Minister said that public debate on our currency has focused almost exclusively on our banks. He also said that much of what was said is plain wrong. Much of it is right, but it is just very uncomfortable. A lot of what was said is very weak. The Minister said he does not know whether any alternative Government would have done better. That is the weakest and most pathetic thing I have heard.
Anyone who wants to know the amount of damage that has been wreaked only had to look at "The Frontline" with Pat Kenny last Monday. A young woman and her mother were in the audience. The young woman had supplied a question by e-mail. She was directed by Pat Kenny to direct the questions and material contained in the email to a Minister. She had difficulty remembering it. She was abashed. When the programme returned later to her mother, the woman said her daughter had suffered. One only had to look at the faces of those two women to realise they were traumatised. That is a horrible legacy. I wish I had the opportunity to vote against the budget because vote against it I most certainly would.
I am reassured by my good friend Senator Norris's frankness about his inability to have his worthwhile statements picked up by any aspect of the media. I had always been of the opinion that he had a direct line, if not to God then to the gods of the media in this country, so I am somewhat reassured that he, like the rest of us, must fight his corner in terms of getting news space. His point is well made. The chances are that, unfortunately, it was as much because the statement was emanating from this House as it was about the merit of the statement itself.
It is rather interesting that the overall media reaction to the budget yesterday has been uniformly hostile. The people have been divided into two camps in the sense that the perception is that the poor have been attacked and the rich have got away. I am disappointed by that. In a free and democratic society a free media is entitled to take whatever position it wishes. Like many of my colleagues on this side of the House I attended numerous pre-budget briefings by the Ministers with large spending Departments: the Minister for Finance, the Minister for Social Protection, the Minister for Health and Children and the Tánaiste and Minister for Education and Skills. This will probably be lost on the wind anyway but I should put it on the record that throughout all of those briefings I came to the conclusion that the Ministers who are dealing with these large sums of money that are like Monopoly money had an underlying ethic to try to ensure, even in these most difficult of times, that they would protect the vulnerable and those who need help most. Whatever criticisms are being levelled at the budget in its totality, I would be failing in my duty as a Government Senator and as someone who attended the briefings and saw at first hand the manner in which the Ministers and their advisers were wrestling with the complexities of the various issues that were being put forward by Deputies and Senators in advance of the budget. They have been successful in some respects in trying to protect the most vulnerable in society.
The other aspect of the debate has been about the bank guarantee and the celebrity economists. I never realised there were so many economists until the past two years. Practically every programme now wants to have its own panel trying to outdo every other programme. Newspapers are trying to do the same. It is sometimes forgotten by members of the public that they too are being manipulated by a competitive media with its 24-7 rolling news. Every aspect of a story is now teased out to get a particular dimension in order that one can put a headline in a newspaper so that when one walks into a newsagent with so many competing newspapers, the hope of the newspaper owners is that whichever one has the most attention-grabbing headline will be the one people buy. The reply of those in the newspaper industry would be why not, as they are in a competitive business. My response to that is to ask about their sense of responsibility. Is it only about ratings? Obviously that is all it is about because rational argument in many cases is either ignored or twisted and screwed to come up with a particular conclusion.
In the context of the bank guarantee, the example of Argentina is constantly put before the public. I do not wish to read any more about references to Argentina without any context, background or rational analysis of what the Argentinean Government did. Only one newspaper in the past week went into the detail of what happened in Argentina. It pointed out that there had been a succession of finance ministers and that the country defaulted and was out of the bond markets for several years. The only person from whom the country got money was President Chavez in Venezuela. It was certainly not from the international investors.
Boringly, the question must again be put of what options the Government was faced with in September 2008 that got us into the financial mess we are in. The simple answer from some of the celebrity economists, and I include David McWilliams as one in particular who has consistently said that we should have defaulted, is what difference it would have made because people would have got on with life and said "Hard luck". Obviously he can come to those conclusions because he has no accountability. He can say whatever he likes because he will not be called to account. The public should be aware that there is always an agenda. There is always a context whenever they hear and see people on radio and television spouting about economics from their particular agenda. They are not independent, detached observers or commentators on the economic and political environment or on the decisions made by the Government.
I welcome one budgetary initiative and express concern about another. The concern is about the reduction of 12.5% in the allocation to county child care committees under the Department of Health and Children. I am honoured to be chairman of the committee in County Leitrim. Our current budget is €285,000. According to my administrator, that will be cut by approximately €35,000. That will affect front-line services, to use that loose term. In the next few weeks, with my colleagues on the committee, which is a statutory body, we will have to try to rationalise this reduction. I am not at all happy that despite all that is going on in the wider economy, the child care allocation has been reduced. It is a retrograde step, especially as this is a service that has been built up in the past 13 years and the structures in place administratively and in the provision of child care services throughout the country will now come under severe threat.
My positive comment is on the budget initiative announced yesterday by the Minister for Tourism, Culture and Sport, Deputy Hanafin, namely, a reduction in the travel tax to €3. I am sorry it was not abolished. Will this initiative work administratively? Whenever one increases or decreases a tax, there must be critical mass to ensure the process of implementing the change does not cost more than maintaining the status quo. Will it cost more to administer the €3 tax?
The Dublin Airport Authority has decided to incentivise airlines to increase the volume of business. I send the message to Mr. Michael O'Leary - as I have made clear since entering the House, he is a man I have long admired - and, to a lesser extent, Aer Lingus that they now have a real opportunity in the light of this incentive to increase the number of tourists coming to Ireland. I understand Mr. O'Leary has not exactly embraced the budget initiative enthusiastically, but I hope he will realise on reflection that increasing traffic levels into the country will result in an increase in his profit margins. I ask him to give serious consideration and a positive response to the initiative included in the budget with the best of intentions, that is, to increase tourist numbers. Without sounding repetitive, tourism is the most important indigenous industry after agriculture. Some 250,000 people are employed in the sector. I have faith that Mr. O'Leary who has done much to reduce the cost of accessing Ireland through Ryanair, with Aer Lingus following his lead, will rise to the challenge. I ask him to do it as much in the national interest as in the interests of his shareholders.
"We are where we are" is the message we have heard many times. We are where we are because of the policies the Government has pursued for 13 years. Last year the Minister for Finance, Deputy Brian Lenihan, told the people that we had turned the corner. We had certainly turned the corner, but we ran into a wall. Every turn taken since has highlighted the inability of the Government to be brave in dealing with the fiscal crisis. The Government has been and probably still is in denial.
The budget announced yesterday targeted the most vulnerable. The payment made under the working age rate scheme has been slashed by €8 per week, while payments made to carers, widows, widowers and people with disabilities have been reduced by 4%. The old age pension has been left alone, yet carers, widows, widowers and blind people can be hit. I cannot fathom what the Government is doing in cutting benefits for the most vulnerable in our community. While that phrase is often used, they really are the ones who are most vulnerable.
Business people, graduates and the unemployed needed the budget measures to lead the way and stimulate growth in the economy. However, they have been badly let down.
Low and middle income families have been targeted in the budget. The universal social charge will be applied to those earning more than €4,000 a year. Was the need for fairness and social justice considered when a charge on poor people earning more than €4,000 a year was added? It is a disgrace. People living in rural areas who need to send their children to school but do not have a means of transport will face an extra charge of €50 under the primary and secondary school transport scheme.
My party has real and workable proposals, some of which have been taken on board by the Government, to get people back to work. We need a pro-jobs tax policy, significant reform of the public service and protection of the most vulnerable. We realise that we cannot recover our independence in economic matters unless we deal with the deficit. For this reason, we have rejected the soft options offered by the left which would involve borrowing even more and accepted the need to cut the deficit aggressively in 2011. Delivering deficit reduction measures to a figure of €6 billion will maximise Ireland's chances of restoring confidence and borrowing in the private markets at a lower interest rate than the rate of 5.8% available as part of the EU-IMF bailout. Unlike some right-wing elements of the Government, however, we know we cannot deal with the deficit if we continue to ignore the jobs crisis and bail out reckless banks.
Given the lack of substantive new ideas to promote job creation and growth, combined with the Government's commitment to continue with its failed banking policy, the Government's plan is not workable and should not be supported. We needed a plan that was fair, but the budget is excessively harsh for low and middle income families. The Government's policies have wreaked havoc in the economy and destroyed confidence. The Government has put 450,000 people out of work and forced many young people to emigrate. While canvassing in the Donegal South-West by-election, I encountered many young, bright people who wanted to join the workforce but will emigrate. That is the legacy of the Government and its policies of recent years. That our young people must leave the country and parents they love to try to find work in Australia, Canada or wherever they can eke out an existence is sad. It is an indictment of Government policy to see young people leaving our shores in such large numbers. We believed we had seen the end of this in the 1950s and 1980s. To see it recurring after the so-called Celtic tiger years is dreadful for everyone, particularly parents.
I will address the cuts outlined in the budget. I remember the time when we did not enter into a pairing arrangement for the Tánaiste when she travelled abroad to attract students to study in Ireland. It made newspaper headlines. However, the element of the Department of Education and Skills budget that funds the general expenses of organisations and those involved in the promotion of Ireland as an international education centre will be cut by 56%. We were told that the focus of the Tánaiste was on bringing people into Ireland and promoting Ireland as an international education centre-----
-----yet the budgetary allocation is being cut by 56%. That is what we mean when we say someone is speaking out of both sides of his or her mouth. The people will see the true picture behind the cuts. Let us take the cuts in the RAPID programmes for the disadvantaged throughout the country, equivalent to 41%. I could go on and on, but I shall bow to the Cathaoirleach in this regard. I could say a great deal more, but this Government has done little or nothing to protect employment and foster any growth in the economy which is absolutely necessary to get our people back to work.
I appreciate being given a little time to speak on the budget. Everyone has said it was not easy to deliver and neither will any of the next few budgets be. I was quite interested in Senator Cummins's criticisms of where the cuts are to come. If Fine Gael is fortunate enough to serve in Government after the general election it will have to make difficult choices too, and it will be targeting vulnerable groups. It is fine for the Senator to be on his high horse today, but he knows his party will have to address these difficult challenges in the years ahead.
It is difficult to accept that one particular group may be singled out for special treatment, but as the Minister for Finance said in his speech yesterday, the road to recovery is all about getting the fundamentals of the economy right again and restoring competitiveness in order that people can provide jobs. It is the best security against poverty that could be provided, and that is what we are doing, as the Minister announced yesterday.
Different people I spoke to around the House yesterday all agreed that the fundamentals of this economy are good and beginning to get better. This budget represents a restoration of our competitiveness. I have heard talk about the costs involved in a factory that might be coming to Ireland being reduced by 40%, so of course people are far more interested in providing jobs here. Witness the announcements we had this week. That is where we should do the country a service now and start talking positively, especially when we hear international media opining that they cannot get over the gloom and doom in Ireland. The fundamentals are good, we have made a start and the task of achieving competitiveness is most important.
The Minister has done something very clever with the travel tax. He has put it up to those who have been whining about this being one of the reasons for the collapse of the tourism industry. I find it amusing that when one finishes booking a flight with any of the operators, one gets a €10 handling fee. Why do they not believe this is not bothering people, whether they are coming or going? The travel tax cut is really putting it up to them and it has been done in a clever way. I welcome this and endorse the difficult challenge the Government had in framing this budget.
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 thank all Senators for contributing to what has been an interesting and constructive debate. I can only take up a few points in the time available.
Senator Twomey asked about the present position of what is called the CCTB, the harmonisation of the corporation tax base as opposed to the base in Europe. The European Commission has indicated it will bring forward a proposal for a directive next year on this issue. This matter has been ongoing for a number of years, in fact during the lifetime of the present Commission. It does not appear to have made a great deal of progress and neither do the background noises from different member states suggest a consensus on it is likely to be reached. In any event, the answer is that the proposal is in gestation and has not been progressed for discussion.
Senator Twomey issued what I took to be a warning about the Croke Park agreement and the need to achieve efficiencies and otherwise. In the words he used, the only option would be forced redundancy or a further drop in income and pay, and this, I believe, reflects a significant strand of opinion in the Fine Gael Party. The Government's position is to the effect that the Croke Park agreement has to deliver.
Senator MacSharry spoke about the higher registration fee per family of €500, which I believe to be a very reasonable compromise in all the circumstances. There are sharply differing views on that subject but the decision arrived at, I believe, will deter very few from participating in third level education.
Senator Shane Ross was right, of course, to refer to the wider background to the budget, but he is very wrong to talk about default. Neither is he prepared, no more than he was last week, to think through any of the consequences of that. The reality is that if we default we will not be able to borrow. If one looks at the Argentinian experience, the only place they have been able to borrow from is Hugo Chavez's Venezuela. That is a perfectly disastrous and defeatist position, and it reflects, of course, the views of the newspaper he is involved with. I am simply flabbergasted by the irresponsibility of that type of contribution which goes on to talk about leaving the eurozone. The reality is we are in a tightly-knit group, which is the eurozone. We do not have the freedom to act unilaterally in ways that will cause a great deal of damage to others. It is easy to come in here and to write in newspapers about what is, in my opinion, an utterly irresponsible option which would have the deepest and most detrimental impact on the welfare of this country.
One can argue that morally, this, that and the other should not be so, but the reality is we have to agree with our partners in the EU. We have chosen to be part of the EU and the eurozone and we do not have the freedom to act unilaterally. There are problems, as referred to by Chancellor Merkel, with dealing with future financial crises based on the outcome of the current one, but these will have to be addressed multilaterally. We do not have the freedom, apart from accepting disastrous consequences for Ireland, of acting unilaterally.
Senator Dan Boyle was correct to talk about the purchasing power of social welfare recipients being maintained and to point out that education spending was rising. Despite the cuts on the capital side, the education spend is still substantial. I am not tempted to say anything much in response to Senator Callely, except that in my opinion, la commedia è finita.
Average gross income here is currently €32,000 per annum, which translates into considerably less take-home pay than is common in the Republic......University teachers here can only dream of what their Irish counterparts of equivalent qualification take home and the same goes for ordinary teachers. A hospital Oberarzt [a senior doctor] effectively works around 50 hours a week and takes home less than half as much as an Irish hospital consultant, his equivalent in qualifications and experience.
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The work of Government will be difficult for some time to come.