Terry Leyden (Fianna Fail)
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I welcome the Minister for Finance, Deputy Noonan, and his senior official to the House.

Michael Noonan (Limerick City, Fine Gael)
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I am pleased to have the opportunity of introducing the Second Stage reading by the Seanad of the Fiscal Responsibility Bill 2012. I thank Members of the Seanad for agreeing to discuss it today.

With regard to the topic of fiscal responsibility, the Seanad has a head start over the Dáil because of the Fiscal Responsibility (Statement) Bill 2011 which was introduced by Senator Barrett. Prior to the Second Stage debate on that Bill, Senator Barrett held a number of sessions on the Bill and the topic in general. The Bill before the House today is explicitly drafted to meet the specifications of the treaty in making provision for its implementation in national law. This is why it has not been possible to incorporate Senator Barrett's proposals, but I congratulate him on the work he has done in this area.

As Senators will be aware, on 31 May 2012 the people voted in a referendum to ratify the stability treaty or, to give it its full title, the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union. The aim of the stability treaty is to improve the stability of the euro and provide for better co-ordination between the participating countries and agreement on shared ways of managing our economies.

To fully inform the electorate of the context of the referendum, I published the general scheme of the Fiscal Responsibility Bill 2012 on 26 April 2012. That general scheme set out the draft legislation that would implement key provisions of the stability treaty, subject to the will of the people. The key purpose of this legislation is to implement the fiscal rules in the stability treaty. These rules are sensible and prudent and represent a responsible approach to budgeting.

As per our programme for Government commitment, the Irish Fiscal Advisory Council was established on a non-statutory basis in July 2011. It was tasked with assessing the official macroeconomic and budgetary forecasts and the fiscal stance. Now, as part of the Fiscal Responsibility Bill 2012, the fiscal council will be put on a statutory basis and assigned additional responsibility for monitoring and assessing compliance with the fiscal rules we have signed up to under the stability treaty.

The Fiscal Responsibility Bill is part of an overall move towards more secure and stable economic governance throughout Europe. Many steps have also been taken Europe-wide to address the problems caused by the acute economic crisis, to encourage recovery and to ensure the mistakes of the past cannot be repeated. The stability treaty is an important part of this effort and the people agreed.

The EU has fundamentally strengthened the economic rules that apply, particularly in the euro area. This was achieved through reforms, including in the six pack, which consists of five regulations and one directive covering fiscal surveillance and macroeconomic surveillance. The reforms amended and strengthened the Stability and Growth Pact, reinforcing the corrective elements of it.

Other major steps were taken to strengthen the euro area economy. Rescue mechanisms were put in place to ensure member states, such as Ireland, experiencing difficulties could access loans when they could not raise money from the markets at a sustainable cost. The EU has worked to stabilise Europe's banks and has refocused its efforts to ensure economic growth and job creation are its top priorities. Ireland has participated and co-operated fully in this regard.

These aims were clear in the stability treaty. According to its first article, its aim is to "support the achievement of the European Union's objectives for sustainable growth, employment, competitiveness and social cohesion". It contributes to these objectives through budgetary rules, intended to ensure good housekeeping in each country, and by arranging for countries using the euro to work closely together and support each other.

The stability treaty will enter into force on 1 January 2013, provided that 12 euro area member states have deposited their instruments of ratification, or on the first day of the month following the deposit of the 12th instrument of ratification by euro area member states, whichever is the earlier. At present, eight euro area member states and four other European member states have ratified the stability treaty. Ireland will deposit its instrument of ratification as soon as the Fiscal Responsibility Bill 2012 has been enacted.

In other measures aimed at improving expenditure control, the Ministers and Secretaries (Amendment) Bill 2012 was published at the end of September. The purpose of this is to provide a statutory basis for multi-annual Government expenditure ceilings and multi-annual ministerial expenditure ceilings that have been introduced on an administrative basis. It amends section 17 of the Ministers and Secretaries (Amendment) Act 2011 and provides for the Government, following a proposal from the Minister for Finance, to approve an upper limit on Government expenditure, which carries the aggregate amount of voted expenditure and the expenditure of the Social Insurance Fund and the national training fund, for each of the following three financial years.

It also provides that the Government shall, following a proposal from the Minister for Public Expenditure and Reform, approve the amount of Government expenditure to be apportioned into ministerial expenditure ceilings for each of the three financial years concerned.

The Bill before Senators closely follows the stability treaty, as accepted by the people. A key change from the general scheme involves providing for a correction mechanism to be triggered automatically in the event of significant observed deviations from the medium-term objective or the adjustment path towards it. The correction mechanism, which concerns the nature, size and timeframe of the corrective action to be undertaken, could not be included in the general scheme because the common principles required under the stability treaty were not yet available. However, the European Commission subsequently adopted them in June. In addition to the correction mechanism, the common principles also covered the role and independence of the institutions responsible at national level for monitoring the observance of the rules and these elements have been reflected in the Bill.

The key elements of the Bill are the introduction of a budgetary rule, the introduction of a debt rule, the requirement to implement a correction mechanism if there is a significant deviation from the budgetary rule, and placing the Fiscal Advisory Council on a statutory basis, ensuring its independence and ability to complete the relevant competencies.

I will now set out full information on the Bill, section by section. The purpose of the Bill is to provide for the implementation of Articles 3 and 4 of the stability treaty, including the establishment of the Irish Fiscal Advisory Council on a statutory basis, as it will be the independent body responsible at national level for monitoring compliance with the fiscal rules. We have been advised by the Office of the Attorney General that Articles 3 and 4 of the stability treaty require implementation by way of national legislation, while the remaining articles of the stability treaty are binding obligations at international law that do not require to be reflected in national law.

Section 1 is the interpretation section. Section 2 requires the Government to endeavour to comply with the fiscal rules, which are set out in the subsequent sections. This section also provides that the official macroeconomic and budgetary forecasts prepared by the Department of Finance include all the data needed to assess if the Government is complying with the fiscal rules.

Section 3 outlines the budgetary rule required by Article 3 of the stability treaty. One of two conditions must be satisfied. These conditions are that the budgetary position of general Government is in balance or in surplus, and this will be deemed to be the case if the medium-term budgetary objective set under the Stability and Growth Pact is achieved, or, if it is not, that it is on the adjustment path towards adhering to our medium-term budgetary objective.

In line with the stability treaty, section 3 allows for neither condition to be met in the event of exceptional circumstances. The definition of exceptional circumstances as per the stability treaty means an unusual event outside the control of the State which has a major impact on the financial position of the general Government or a period of severe economic downturn, provided that the temporary deviation of the State does not endanger fiscal sustainability in the medium term.

Senators should be aware that the medium-term budgetary objective set under the Stability and Growth Pact is expressed in structural terms. This means the deficit target excludes one-off and temporary measures, and is cyclically adjusted.

Section 4 deals with the debt rule specified in Article 4 of the stability treaty. The requirements of the debt rule are already law under EU Regulation 1467/97, which was amended by the EU six pack of reforms. However, as it is specifically included in the stability treaty, we are providing for its implementation in domestic law through this Bill. The text accomplishes this by direct reference to the relevant EU regulation. This eliminates the possibility of drafting a provision that could be inconsistent, and ensures better adherence to the regulation. The EU regulation states that debt in excess of the 60% debt to GDP ratio must be reduced by at least one twentieth per year based on changes over the past three years. I remind Senators that the debt rule specifies that when the level of general Government debt exceeds 60% of GDP, the Government must reduce the debt by one twentieth of the difference between that level and 60%, not one twentieth of the whole debt.

The EU regulation goes on to provide for a transition period for member states, including Ireland, that were subject to an excessive deficit procedure on 8 November 2011. This transition period means that the general rule will only apply three years after the correction of the existing excessive deficit. Our existing excessive deficit will be corrected in 2015 when our general Government deficit is targeted to be just under 3% of GDP. This means that the one twentieth rule will fully apply in 2019. In the meantime, it is required that there is satisfactory progress in reducing the debt to GDP ratio, and this will be assessed by the Commission and ECOFIN.

Section 5 provides for the requirements in Articles 3.1.b and 3.1.d of the stability treaty in relation to the setting of the medium-term budgetary objective or MTO under the Stability and Growth Pact. The MTO results from the requirements of EU Regulation 1466/97. It is a calculated figure and what the stability treaty and this section say is that, notwithstanding the result of the calculation, the lower limit of the MTO is an annual structural deficit of the general Government of minus 0.5 % of GDP. In line with the stability treaty, the section provides that when the debt to GDP ratio is significantly below 60% of GDP, the lower limit is changed to minus 1% of GDP. In most countries, this situation will not arise for the foreseeable future. Ireland's current MTO is minus 0.5% of GDP.

Section 6 has been changed substantially from the general scheme, as it provides for the correction mechanism that member states are required to put in place under the stability treaty. The correction mechanism has been drafted in light of the now available common principles from the European Commission. This section provides that the Government shall present a plan that specifies the corrective measures it will take if there is a significant deviation from the medium-term objective or from the agreed convergence path towards that objective.

Reference is made in the section to Article 6.3 of EU Regulation 1466/97 which defines a significant deviation as 0.5% of GDP in a single year or 0.25% of GDP in two consecutive years. The correction plan, which must specify the period covered and the revenue and expenditure measures to be taken, has to be consistent with recommendations made to the state under the Stability and Growth Pact in relation to the period over which the correction will take place and the size of the measures to be taken.

Provision has also been made in this section for the Government to lay a statement before the Dáil outlining the steps it intends to take if a significant deviation is likely to occur in the future. This was added into the Bill as the common principles allow for an option for either ex anteor ex postactivation of the correction mechanism. Credible fiscal management suggests that it would be prudent to address both circumstances. This is a sensible and prudent measure, as it would be very difficult for the Government to refuse to take action on an ex antebasis if, for example, its own forecasts projected a significant deviation.

Section 7 provides for the establishment of the Irish Fiscal Advisory Council, or fiscal council, on a statutory basis, which will operate in accordance with the Schedule. Section 8 provides that the fiscal council shall be independent in the performance of its functions and assigns it the function, as required under the stability treaty, of monitoring compliance by the Government with the duty imposed on it by section 2.

In light of the finalisation of the common principles, some further clarification was required in the Bill on the duties of the fiscal council in relation to the stability treaty. The common principles require that the fiscal council's monitoring and assessments should cover whether there has been a significant deviation from the agreed fiscal targets, exceptional circumstances have begun or ceased, and if a correction is proceeding in according with the corrective plan. The common principles also require governments to comply with the above assessments or explain publicly why they are not complying. Provision has been made to fulfil this requirement.

Provision also must be made for the other functions assigned to the fiscal council by the Government.

These functions, which were included in the general scheme, are to assess the official macroeconomic and budgetary forecasts of the Department of Finance and assess the appropriateness of the fiscal stance of each budget and stability programme. The fiscal council is required to publish its assessments within ten days of giving a copy to the Minister for Finance.

Section 9 provides for the regulation-making powers required by the Bill. A residual power to make regulations if the common principles change has been retained but it can only be used if the resulting changes are not substantive. Section 10 is the standard section for expenses incurred in the administration of the Act. Section 11 provides for the Short Title and the commencement provisions. The Schedule sets out the provisions with regard to the establishment and operation of the fiscal council, including membership, terms of office and staffing. These measures are to ensure the fiscal council's independence is protected and guaranteed, which is vital to its performance of its role.

In addition to measures which I will detail further, the fiscal council's mandate is also protected, and cannot be altered without legislative action. The fiscal council will have five members appointed for staggered terms of four years. This does not include the current members, some of whom will serve shorter terms to rotate their end dates. The Schedule also lays out the details of the appointment of members to the fiscal council. These members will be chosen with regard to the desirability of their having competence and experience in domestic or international macroeconomic or fiscal matters and, to the extent practicable, ensuring an appropriate balance between men and women in the membership of the fiscal council.

There are a number of key differences in the provisions for this body compared to most other non-commercial State agencies. These differences result from the need to ensure the fiscal council meets the independence requirements of the common principles. The principal issues are that the termination of the appointment of a fiscal council member by the Minister on the grounds set out in section 4(2) of the Schedule will require a motion of approval from Dáil Éireann; and the fiscal council will be funded from the Central Fund for expenditure incurred in the performance of its functions up to a ceiling of ¤800,000 per annum, which will be indexed to the harmonised index of consumer prices. This will ensure the fiscal council's annual budget is guaranteed, unless a future Oireachtas decides to amend this provision.

One amendment was made to the Bill during its passage through the Dáil, with regard to paragraph 10(2) of the Schedule. The reference to "accounting officer" was changed to "the officer accountable" and the reference to "appropriation accounts" was removed. Both are legal terms in the Comptroller and Auditor General Acts and do not apply to bodies such as the fiscal council. This amendment does not change the original intent and purpose of paragraph 10(2).

I look forward to a constructive debate on the Bill. The purpose of the Bill is to give full effect to the decision made in the referendum on the stability treaty. The Bill will facilitate stable economic governance in Ireland and ensure more controlled fiscal structures. This will also allow us to ratify the stability treaty in line with our fellow euro area member states. It is in the interests of the country and the euro area. Therefore, I urge Senators to support the Fiscal Responsibility Bill 2012 which I commend to the House.

Terry Leyden (Fianna Fail)
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On behalf of Members, I thank the Minister for coming to the House.

Darragh O'Brien (Fianna Fail)
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I welcome the Minister to the House and thank him for his contribution. My party supports the Bill as necessary legislation following the passing of the EU stability treaty. I am sure all of us including the Minister would rather this discussion were taking place when certain agreements had been made on the residual banking debt and the break between banking and sovereign debt and that things were clearer. During the referendum campaign a major discussion focused on our banking debt and the fact the sovereign is responsible for it.

On 18 July in this House the Taoiseach was very clear on several issues following the summit on 29 June. Will the Minister give the House an update on a prospective timeframe for the establishment of a single supervisory mechanism for banking regulation in Europe? The ESM seems to hinge on this. Following this, another discussion will have to take place on retrospective recapitalisation of our banks. On 18 July in this House the Taoiseach formally acknowledged this for the first time. He stated: "I simply could not accept a position whereby Ireland would be at a disadvantage for having taken the steps necessary to secure our banking system, both in the interests of our economy but also in the wider European interest, before new arrangements applied." All of us now agree that at the time decisions were taken in a vacuum when there was no EU mechanism. Importantly, the Bill will deal with many of the deficiencies which were inherent in the Stability and Growth Pact and which became effectively unenforceable once France and Germany stated they would not apply to them. What is good about the passing of the treaty is that the rules apply to all states equally.

We all want a better and more transparent budgetary process. In this light, in his statement the Minister alluded to the fact that the establishment of the fiscal council should effectively lead to a more transparent and open budgetary process, something which was promised in the programme for Government. I hope this comes about. Our experience to date with the Irish Fiscal Advisory Council which is in place, albeit on a non-statutory basis, is that anything it has stated has been disregarded not only by the Government, but also by members of some Opposition parties. If we have an independent statutory fiscal council, it is important the Oireachtas and all parties take its advice seriously.

An example is how a transparent budgetary process, which the Minister stated is a commitment in the programme for Government, was applied in the debate on property tax. We have not had a proper debate on the proposed property tax being introduced in the budget. All that was stated by the Minister the month before last was that the details would be announced in early December. This is not a criticism of the Minister. For years our budgetary process has been wrong. We do not have open debate or discourse about the options available. This is a failing not only of the Government, but also of all previous Governments I can remember. We have one big bang approach in early December, which is what leads to the grave uncertainty we find in our domestic market, particularly the Irish indigenous market. Consumer confidence has plummeted again since late September or early October, and this is in anticipation of the budget. I hope the establishment on a statutory basis of a fiscal council will mean the Government and all future governments will engage properly with the public and the Oireachtas, and not only on the basis of a December budget announcement with everything else following quickly to establish changes in early January.

The Taoiseach stated the Ministers for Finance in the Eurogroup have agreed technical discussions on direct recapitalisation of banks through the European Stability Mechanism, which was to start in September. This could put the ESM in a position to decide to recapitalise banks directly once an effective single supervisory mechanism is established. I have already asked the Minister when he believes this single supervisory mechanism will be established. Are we looking for an effective write-down of our debt? Are we looking for retrospective recapitalisation of the money put in by taxpayers to Anglo Irish Bank, Allied Irish Banks and Bank of Ireland? I do not know what our negotiating position is and what we are looking for.

The Taoiseach has said in the other House that we will pay all our debts in full, but he comes into this House and states, rightly, that we should not be disadvantaged on the basis that we took decisions at the time in the interests of the economy and the wider European economy. It is important that people get a view. We were all hopeful that something would happen before the end of the year, and that was mentioned by many Ministers, including the Minister present, as far back as the summer. Where does it stand in terms of the establishment of the banking regulator and the European Stability Mechanism? Does the Government see this process going through 2013, 2014 and beyond? Can we expect a clearer decision from the European Union?

The passing of the Fiscal Responsibility Bill is important because it beefs up the strengths in the eurozone in terms of proper budgetary policy and ensuring deficits do not overrun every year. That is all well and good but legislation such as this is only relevant if it is acted upon properly. The fundamental question the people will ask is whether we are seeing light at the end of the tunnel. There have been many false dawns. I respect the fact the Minister was in a new position and a new Government took over the reins during the negotiations. Nonetheless, there is general frustration about the lack of perceived progress and that the European Union seems to be dragging its feet.

We are talking about the stability of banks in Europe and Ireland and I have made the point that it is clear to me that we have totally and utterly failed to get the banks, especially the two pillar banks, to support citizens. While I welcome that Bank of Ireland yesterday raised ¤1 billion on the markets at a rate of 3.2%, I condemn the fact it raised its variable mortgage rate arbitrarily by 0.5% to 4.5% along with the ICS, while AIB raised also its rate. The problem is that while we can talk about banks, banking regulation, the ESM and the retrospective recapitalisation of banks, nearly one in four people with mortgages is in arrears, people's houses are being repossessed and people who cannot pay their mortgages are faced with paying a property tax in January that we cannot discuss and debate in advance of the budget. I respectfully ask that the banks be hauled in once again and told that they should be grateful for their existence because it is based on the fact the taxpayer ensured they remained in business. I shall not mention salaries and pensions because I am sure that the Minister is sick to his back teeth hearing about them.

Terry Leyden (Fianna Fail)
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The Senator does not have time to talk about that issue.

Darragh O'Brien (Fianna Fail)
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I welcome the Bill but I will never miss an opportunity to mention to the Minister and I am sure he is well aware of how disappointed and let down the people feel by their two main pillar banks, the ones that we as Oireachtas Members, the Government and the previous Government supported in the interest of the economy. I ask the banks to examine what is in the best interest of their customers because it is something of which they appear to think less and less as each month passes. In specific terms, my party welcomes the Bill and supports it.

Terry Leyden (Fianna Fail)
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I thank the Senator.

Michael D'Arcy (Fine Gael)
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Senator Darragh O'Brien did not say an awful lot about the legislation.

Darragh O'Brien (Fianna Fail)
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There was a fair bit.

Michael D'Arcy (Fine Gael)
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It was a speech that primarily focused on the general economy. I am glad that he welcomed the Bill. We could rename it as the checks and balances Bill. It is a pity that these types of checks and balances were not in place back in September 2008 when, as Senator Barrett spoke about, people walked up the back steps into the Department of Finance and laboured a bill of ¤64 billion upon the sovereign.

I shall quote a wonderful analogy given by Professor Patrick Honohan yesterday during his speech at the Scottish Institute for Research and Economics at the David Hume Institute. He said:

In the 1990s, Ireland had stuck to the arduous but dry uplands of growth through competitiveness and fiscal discipline that alone lead safely to sustainable higher income, full employment and steady prosperity. But sometime around the turn of the century, lured by a Will O? the wisp, in the form of a property and construction bubble financed by easy access to foreign borrowing, Ireland stumbled into a morass of over-indebtedness from which it is now extricating itself.

I welcome the fact Mr. Alan Dukes, a former Minister and now the chair of the Irish Bank Resolution Corporation, formerly Anglo Irish Bank, has said that the entity will cost the State closer to ¤25 billion and not ¤29 billion to ¤34 billion. It is still an enormous sum of money but I shall put it in context. The difference is the magnitude of last year's deficit. While citizens are angry and annoyed over what Anglo Irish Bank will cost the State, and they have every right to be angry, it seems okay to run a deficit of ¤25 billion. The reason it is okay is because I saw a statistic in recent weeks that 50% of the people are in receipt of moneys from the State. That will not be able to continue. Last year's deficit was ¤25 billion, but it is not just in this country. Deficits have occurred internationally. California is running a deficit of $17 billion on top of its state debt of $618 billion. That is the extent to which countries and states are trading, but the system is flawed. We must put in place checks and balances, about which I spoke initially and which is the aim of the legislation. If they had been in place at the start of this century or at the mid-point of the first decade, we might not have reached the point where we must rectify the deficit in the manner we are doing. Here we are, however, and we must get on with it.

I had a couple of debates during the referendum on children's rights with people on the other side of the argument. They held the view that the aim of this legislation will never happen and that we will impoverish the people even further, but that is not the case. I am glad there is now complete clarity on what has become known as the debt brake. It has been made clear that we have 20 years from 2019 to make our general Government deficit 60% of GDP, to be followed by a further decrease of one twentieth from then on. That will put in place the correct grounding to allow us to advance in that at the end of the period there will not be a top-heavy position where taxpayers must pay down the debt of previous generations. The six pack of five regulations and one directive is part of European law and we are codifying it here to provide for it in national law.

I would like further details on a couple of matters from the Minister and I do not mind if he gives me the information now or later. I would like some clarity on the exceptional circumstances. When there is a grey area of that nature, there is potential for somebody, either here, in the European Union or in the Commission, to interpret the legislation in a particular way. I would like to hear more details on it.

I support the multi-annual expenditure ceilings. We must take a more medium-term view rather than the annual view we take.

I have been at meetings of the Oireachtas Joint Committee on Finance, Public Expenditure and Reform with the fiscal council. They are fine people who are in an advisory role. Mr. Donal Donovan was previously at the IMF, Dr. John McHale is from NUI Galway and Dr. Alan Ahearne was with the ESRI and is currently with Trinity College Dublin. These people are giving good advice but they are not the Government, the Cabinet or the Minister. It is good to put in place such structures and have them codified.

I refer to the stabilisation of the banks. The Irish banks may be deleveraging too quickly. They are attempting to pay back the exceptional liquidity assistance, ELA, from the Central Bank of Ireland and the ECB, which has been reduced from ¤186 billion to ¤128 billion. They are doing so at a time when repossessions are disallowed. This point is contrary to the popular view. There are practically no repossessions in Ireland. In Northern Ireland, per thousand homes, it is ten times the rate here. During the week, we learned that 400,000 homes in Spain have been repossessed. The rate of deleveraging is too fast. It is difficult for the banks to pay down the ELA and keep people in their homes while trying to get into a position where we can move them back into the private market to be taken over in the same way as Bank of Ireland, in which the State now owns 15%.

Sean Barrett (Independent)
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I welcome the Minister and thank him for his kind remarks about the previous Fiscal Responsibility (Statement) Bill. The remarks are appreciated. I thank the Minister for gracing an international economics conference with this presence during the summer. One of the questions that arose was what was happening to the Munster rugby team. The Minister's reply was that they are rebuilding and it is the same with the economy. The Bill is excellent and I will support it. The Bill proposed on 7 December 2011 had the support of every Member and the Minister will also enjoy the same support for this Bill. That was an occasion when the Seanad proved itself to be invaluable in the governance of the country.

Why do we need the Bill? One must protect the country against what happened on 29 and 30 September 2008. The Attorney General was there and future Attorneys General, after the Bill is passed, will advise that it cannot be done because of the debt brake and borrowing brake. These are useful instruments in rebuilding the country and I commend the Minister for having introduced them in law. They are needed. Parliament must respond to what happened on that dreadful night. There is now parliamentary and legal protection, which will stand up in court if anyone tries to perform that kind of act again. It is important because we need those rules and we are not alone.

The international aspect of the Minister's speech referred to the fact that many countries have allowed debt to GDP ratios to get out of control. We need protection against lobbyists, those who hijack the public purse, those who waste public money,empire building bureaucrats, quangos, subsidy seekers and pressure groups. Regarding the latter, I was astounded to see, in the Evening Herald on Monday, the former Governor of the Central Bank say that bailing out the banks was heroic. If that is heroism, we do not need it. It was a daft statement by the former Governor. It was a dreadful night for the economy but we now have legislative measures to prevent it happening again.

With regard to the people we bailed out, page 13 of the IMF assessment of Ireland dated 28 August 2012 says that SME credit is flat and new lending has slowed further. I agree with the IMF criticism of the banks. In 1947, in older times, when Trinity College Dublin was in receipt of a subsidy for the first time, the Government of the day said it was not to be used to pay more to those higher up. It is open to the Minister to examine the 1947 file and see if there is a way to bring some discipline to the way the banks have been conducting themselves. There is a view in the House that we need a rule preventing anyone in a grant-aided body from earning more than the Taoiseach. There have been criticisms about the high earnings of charities aided by public funds. We are trying to make this a fiscally responsible country after eight or ten years in which we were not so. That requires a great deal of change. The laissez-faire approach does not seem to operate anymore. Does too big to fail mean it is too expensive to save? I think it does. We must take many organisations off the public payroll so that we can balance the books again.

A handful of lobbyists can get an item of expenditure going and we never do broad cost benefit analysis from the point of view of society as a whole. That problem has existed. The problem of tax lawyers and accountants, the complexity of the tax code and the way their loopholes and tax expenditures are sheltered from the budget discussion we will be having in a few weeks time should be opened up for scrutiny. I commend the Minister for establishing the fiscal council on an independent basis and I commend the personnel in place. There was a cosy consensus between the Department of Finance, the Central Bank and the ESRI that got us into the euro without fully discussing the options and gave us a weak scheme of bank regulation. We need contrarian voices and I commend the Minister for the way he set up the fiscal council so that contrarian voices will be there. The wrong kind of consensus got us into this situation.

Can the Minister be accused, as happens frequently, of being hard hearted? We have done the borrowing experiment and it makes the rich richer, lobbyists proliferate, bureaucracy grows, bankers prosper, unemployment grows, inequality grows and the next generation inherits a debt mountain. There is a strong social case to support what the Minister is doing. We tried the experiment of borrowing 120% of GDP and ended up with 14.8% unemployment, as well as emigration.

The Bill is a good start to the necessary task of setting the public finances in order. It is a major part of the recovery agenda and I commend the Minister. I may table technical amendments at a later stage. The Minister's initiative deserves the support of the House, as the Bill in December received support.

John Gilroy (Labour)
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I welcome the Minister and I am glad the senior Minister has come to the House. It demonstrates the importance of this legislation. The Bill gives expression to the provisions of the treaty the people voted in favour of in the springtime. During the referendum debate, there was great deal of misinformation and some of the arguments were not as we would hope or what we strive towards. We do not want to revisit or relive the arguments in favour of and against the treaty. It is prudent to implement fiscal rules, as Senator Sean Barrett proposed in December last year, that make provision for balanced budgets, which is prudent, and for contingencies arising when budgets become unbalanced in rare and exceptional circumstances and for mechanisms to deal with that. Despite some of the comments at the time of the treaty, its passing has led to improved levels of confidence in Ireland and Europe. We can see evidence of that in falling interest rates charged on Irish debt and on the return of the NTMA to the markets, albeit in treasury bills and short-term debt. Nevertheless, it is encouraging and significant and stems from the confidence in our economy gained across Europe by the people of Ireland accepting the provisions of the Bill. The enshrinement of the rules into legislation will go towards consolidating confidence.

Those who were opponents of the treaty at the time are noticeably silent on what may have happened if we had rejected the provisions of the treaty. If we had followed the course of action proposed by the opponents of the treaty at the time we would not be in the position we are in now, albeit in a fragile position. The idea was proposed at the time that in passing the treaty we were somehow conceding some level of sovereignty to unnamed and unimaginable forces in Europe but the fact that we are bringing the legislation into the House demonstrates that our autonomy in that regard at least remains in our hands.

Senator Darragh O'Brien was correct in his comments earlier in regard to monetary union when it was set up and that France, Germany and the larger economies of Europe had seemingly found it expedient not to live within the Stability and Growth Pact rules. When the larger economies could do so with impunity there was very little incentive for smaller economies to attempt to live within the measures.

I have much more to say about this and some of it might be more appropriate to raise on Committee Stage. I refer to section 7 and the establishment of the fiscal council. I note from the Minister's contribution and the notes we have on this that the fiscal council will monitor and assess the provisions of the Bill but where is the report published by the fiscal committee? Where does responsibility for action on the recommendations in the report lie? Does it lie with the Department of Finance or ECOFIN? It is certainly welcome that a report would be published in advance of the budget but I am not sure what is actionable and who is responsible for that action. That is one question I want to put to the Minister.

The Minister will recall there was a great deal of comment in political and academic circles, and in the committee set up to discuss the fiscal treaty at the time which was chaired very well by Deputy Hannigan, on the difficulty of arriving at an agreed formula to establish what exactly would constitute a structural deficit. I understand more may need to be done on that but from what I have read on that I am not sure how we will agree on what constitutes the structural deficit and who will be responsible. Will we do it ourselves? How does it fit in with the European structures, and what happens if there is lack of agreement on what constitutes the structural deficit?

If the Minister could answer those two questions I will ask more on Committee Stage and they are probably more appropriate to it. I acknowledge Senator Barrett's contribution, as did the Minister who generously accepted most of the provisions of what Senator Barrett suggested last December. I will leave it at that and return to this on Committee Stage when I look forward to opportunity to tease this out further.

Thomas Byrne (Fianna Fail)
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Cuirim fáilte roimh an Aire ar ais go dtí an Teach arís inniu. We want to support this Bill. We believe it is important and that anyone who opposes it is opposing the will of the people in the referendum that was held some time ago. The Bill, effectively, was tied up in the fiscal treaty and there are some extra provisions in it but anyone who opposes it is going against the will of the people and that should be borne in mind.

The fiscal treaty rules give enhancement to what was always there in terms of the Stability and Growth Pact. We have a job as a nation to explain to our colleagues in Europe how the Stability and Growth Pact worked. France and Germany were the first to breach it and even at a party conference at the weekend with some of our European colleagues it came as a considerable shock to some of them that Ireland was fully in compliance with the Stability and Growth Pact throughout the years of the Fianna Fáil Governments until 2008. That is not say that everything we were doing was right, rather quite the opposite, it says that the rules were wrong, they did not go far enough and were not enforced in many countries. That is a point that needs to be hammered home repeatedly particularly with Germany and to a lesser extent with France which is more supportive of us.

The new set of rules we are enacting, and that the people effectively enacted, address the deficiency with the original Stability and Growth Pact by setting out an automatic corrective mechanism which will be very difficult on governments. If the rules had been in place before 2008, I hope we would not have reached levels of public expenditure that would have required such a huge correction, but if it had come into force in 2008 it would have resulted in a massive correction in public expenditure. We have got to get to a position where we do not allow that to happen again. Bringing in these rules at this point in the economic cycle should help in that respect.

The currency of the Union is still vulnerable to destabilising financial flows and credit bubbles in regional areas, and that may well be currently happening in some European countries. It is not happening here, in France, Spain, Portugal or Greece - it has happened already. There has been talk about a property bubble arising in some of the northern European countries. It is worth bearing in mind that these things can still happen. They have happened in the past and history can repeat itself.

The Bill establishes the Irish Fiscal Advisory Council on a statutory footing and everyone will praise that and say it is a great move but the fact of the matter is that it has been on a non-statutory footing for the past while. I believe it has issued two major reports. Those on the council have not been listened to; they have been completely dismissed by the Taoiseach and kind of dismissed by the Minister as well. I wonder what these people who are highly regarded economists - not all of them are from Ireland, some of them have to fly over here to meetings - think when they produce this important information for the public to try to prevent the crisis we are in from happening again and to keep this country on the straight and narrow and they are not listened to by the Government. One wonders what is the point of this. Some of the reaction from Government to previous reports of the fiscal council has been insulting, to put it mildly.

The fiscal council must become known and trusted by the public and the people must listen to what it says because those on it will not always say things that are palatable to the citizens. They will be providing information in many cases that will not be at all palatable and that will result in further cuts than what the Government proposes.

We will support the Bill. We support the fiscal treaty. My party leader played a huge role in that referendum and I pay tribute to him for doing that. It is partially his role in that respect that has allowed us to move forward and set out this Bill to comply with our European obligations to get it passed, as was the will of the people, and to move on to the other urgent matters that are on the Minister's agenda.

Feargal Quinn (Independent)
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The Minister is welcome to the House. I was impressed by the words he used. He talked about the need for sensible, prudent responsibility. These were exactly the words we used last year when Senator Barrett proposed exactly this theme and I was very happy to support it last year. The objective of this Bill must be accepted by everybody, I cannot believe anybody would disagree with it. The concept of a balanced budget is very solid and sound but I am sceptical about whether these targets can they met and if it will be some time before they can be met. This is seen by some as optics but it could be argued that it will limit our growth. Even the IMF, in its report issued last month, suggested that it had miscalculated the effect of the austerity on the economy. Clearly, it is not a science that is easy to define. This means that consumer spending is being hit harder than originally assumed while unemployment is even more severe. That means that the social, political and the economic effects of austerity are larger than expected. Nobody disagrees with fiscal responsibility but there will be times where we will have make sure that we do not run into the same difficulties we have had in the past.

We also have to bear in mind that this measure puts stricter rules in place which makes it harder for member states to spend their way out of trouble, which is very wise. David McWilliams has written:

Europe has 25 million unemployed and short-term interest rates in the core are negative. If that doesn't scream at you the need for a fiscal expansion in the eurozone, I don't know what does!"

Perhaps we are seeing an overall shift in policy making. People must have money in their pockets to spend. They need to get their confidence back and need to be encouraged to consume. Should there be rules, therefore, in order that when the economy improves or goes beyond forecast, we will know what to do? Instead of slashing taxes should we have rules to maintain certain taxes which might give more stability to the system and enable us to be better prepared for downturns? When Charlie McCreevy was the Minister for Finance he introduced the National Pensions Reserve Fund. Should we also be looking at another rainy-day fund, which would also mean the Government would have more flexibility for dealing with sudden shocks, as in the current crisis?

I am concerned that there is not enough diversity on the Irish Fiscal Advisory Council, as it is the Minister for Finance of the day who makes the appointments. How can we assume that the appointments are not politically biased or, indeed, divided up among the Government partners? How do we restore faith in economic forecasting? Economists are very fickle characters and it is not an exact science, so which ones do we trust? Transparency is what we need at the very least. The UK's Office for Budget Responsibility, which is the equivalent of our Irish Fiscal Advisory Council, answers parliamentary questions on forecasts and gives evidence to parliamentary committees. We need that kind of openness here. Why does our council not report to the Oireachtas? On a side note, the OBR recently admitted poor forecasting, but I wonder how accurate and independent our body will prove to be.

The Germans have their own council of economic experts. There were reports recently that they were asked by the French Government to draw up economic reform proposals for France. While these reports might not be true, it would be more open to some sort of outside body to look over finances here and make proposals. The fact is that so many decisions in terms of taxation or Government spending are politically motivated or have been in the past. Politicians need to get re-elected and while members of the Irish Fiscal Advisory Council are politically appointed, we need to get the brightest and best from outside to advise the Government.

At the time of the crisis in 2008, it was well documented how few economists there were in the Department of Finance. We should be open to outside advice and I would like to think that the appointments would reflect that. I am not really talking about the Minister's say in this, but this will last for some time. As there will be other Ministers for Finance and other Governments, I would like to ensure that we stitch in some control on their appointments to the Irish Fiscal Advisory Council.

Kathryn Reilly (Sinn Fein)
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I welcome the Minister for Finance to the House. I am pretty sure that what I am about to say will come as no surprise to anybody, given our position on this legislation. Sinn Féin is all in favour of fiscal responsibility-----

John Gilroy (Labour)
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The evidence is there.

Kathryn Reilly (Sinn Fein)
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-----but we are not in favour of writing bad rules into our laws. We do want the Government to get the deficit under control, but we do not believe the policies that are currently being implemented are helping the situation. In fact, they are exacerbating the crisis. Even when the policies are having an impact on the deficit, it comes at a great cost to the economy and society at large. Last year, we were told that the austerity treaty was a necessity that would be a turning point for our economic fortunes.

John Gilroy (Labour)
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It has been.

Kathryn Reilly (Sinn Fein)
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We believe, however, that it is a step in the wrong direction. Unemployment is higher than ever since we started making the adjustments a few years ago. Almost all the social and economic indicators tell us that we are not on the right path, yet here we are in the national Parliament going to write these same failing policies into law. That is what I have a problem with and why we will be opposing this Bill.

We must now look at how practical this legislation will be. Public debt is still increasing and by the end of the year it will be at a debt-to-GDP ratio of 117.5%. It will subsequently hit 120%, which is not a fiscally responsible place to be. The policies that are keeping the domestic economy in recession are not fiscally responsible. The Stability and Growth Pact was dubbed the austerity treaty.

John Gilroy (Labour)
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By Sinn Féin.

Jillian van Turnhout (Independent)
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Senator Reilly to continue, without interruption.

Kathryn Reilly (Sinn Fein)
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It was called the austerity treaty because of the flawed policies contained therein. The policies were flawed when pursued by the previous Government and are also flawed now. They were flawed when Angela Merkel pushed them and when Barroso supported them. Even the IMF is coming around to the view that the policies are flawed.

As other contributors have mentioned, the core function of the Bill is to put the treaty into domestic legislation and enforce the rules arising from the treaty's ratification. I do not wish to go into too much detail on the measures contained in the Bill, but we did warn during the treaty campaign that the structural deficit rule would mean greater levels of austerity. We said the structural deficit rule could mean further adjustments of up to ¤6 billion from 2015.

John Gilroy (Labour)
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The Senator is wrong on that again.

Kathryn Reilly (Sinn Fein)
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That would mean additional tax and spending cuts. Another fundamental issue is democratic accountability. We must remember that this Bill will tie the hands of Governments to implement a particular economic policy. That is a serious matter which needs to be closely examined. When those limitations are placed upon Governments by international pressure we must question how we have arrived at that situation. Earlier in the debate, Senator Byrne mentioned that opposition to this legislation would be going against the will of the people, but there is no popular movement of citizens calling for these laws.

John Gilroy (Labour)
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They passed a referendum.

Kathryn Reilly (Sinn Fein)
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The Government did not receive a mandate to bring forward these laws that, to quote Chancellor Merkel, will be binding and valid forever. These rules have been forced upon us as part of a stripping exercise. I do accept there was a referendum and that people voted for the treaty, but it was a referendum based on fear. The point was made that we had no choice but to accept it because there was a linkage to the ESM, which was essentially our safety blanket.

We must accept that growth will not be possible, nor will reaching these figures be possible without damaging society. We talk so much about the economy but we also need to talk about the effects on society. There will be no growth without the deal on our banking debt and the question of promissory notes. We require more clarity on what is going to happen arising from the June 2012 European summit meeting. I would be grateful if the Minister could provide such clarity on what will happen and how this special case will be dealt with.

It is a bad Bill and we will be opposing it, as Sinn Féin opposed it in the Dáil. However, we will be tabling amendments to remove the most economically and socially damaging aspects of the legislation.

Michael Noonan (Limerick City, Fine Gael)
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I thank all contributors to the debate. I have received some notes from my officials and I will go down through them. It was obviously a very constructive debate, which underlines the importance of the Fiscal Responsibility Bill. The Bill will implement the key provisions of the stability treaty, as voted for by the people. As Senator Reilly said, there might not have been any mass movement on the streets for this type of legislation but when it was put to the people there was a very strong majority in favour of it. It is therefore not true to say that there is not public support for this measure. We believe that the proposed rules are sensible, prudent and represent a sensible approach to budgeting.

A number of issues have been raised, while various proposals and queries have been put to me. I would like to respond to them in due course. Some of the responses will be more appropriate on Committee Stage but I will give an initial response now.

I welcome the support of Senator Darragh O'Brien and his party for the Bill. I also welcome the support of Senator Barrett and his comments on the Bill. Senator Darragh O'Brien raised the issue of the recapitalisation of the banks. With regard to the comments about a solution to our banking debt, discussions are ongoing between Ireland, the ECB and other members of the troika.

We will see how that works out. I cannot be expected to negotiate over the airwaves or in public, but talks are ongoing.

Ireland is subject to an excessive deficit procedure decision requiring us to reduce our headline deficit to below 3% by 2015. We are in line to do so and will continue with budgetary policies to get us to that position. When we emerge from the programme we will be required to comply with the adjustment path towards our medium-term objective and, as such, we will be subject to the budgetary rule. The fiscal council examined this recently, suggesting that based on current information and a number of technical economic assumptions, including tight expenditure control, Ireland may reach its medium-term objective as early as 2019. However, caution must be taken with this forecast and as highlighted by the fiscal council in its report, there is great uncertainty about the structural position so far into the future.

I thank Senator Michael D'Arcy for his support and excellent speech, in which he spoke about the "exceptional circumstances" reference in the Bill. As outlined in the interpretations section of the Bill, "exceptional circumstances" refer to a period where an unusual event occurs that is outside the control of the State and which has a major impact on the financial position of the general government. This phrase can also refer to any unusual economic circumstances, such as those in which we currently find ourselves. It is further specified that exceptional circumstances must be defined within the meaning of the Stability and Growth Pact to ensure we are complying with the essence of the pact.

In the event of a case of exceptional circumstances, we will set out the position to the European Commission in our stability programme update and our case will take full account of the assessments of the fiscal council under section 8(3)(a) as to whether exceptional circumstances exist. The process that follows is that the Commission, in its assessment of our stability programme update, decides whether exceptional circumstances exist and ultimately includes a recommendation to ECOFIN, the final arbiters of whether the case comes within the definition of "exceptional circumstances". In essence, we work towards a definition and send a report if we believe there are exceptional circumstances. The Commission evaluates this and makes a recommendation to ECOFIN, which has the final decision. If it finds in our favour and decides that exceptional circumstances exist, we get a reprieve from the terms of the Bill for the period in which exceptional circumstances prevail.

Beyond that explanation it is extremely difficult to provide a clear and unambiguous definition of the phrase. We know exceptional circumstances when they arrive but we are not always in a position to describe them in advance. There is enough in the Bill and process to ensure that a result in favour of the country would be achieved if we get into that kind of difficulty. Rather than creating a definition that would be inconsistent with the treaty definition, the best course of action is to follow closely the definition provided in the treaty.

Senator Gilroy asked about the fiscal council reports and where the responsibility for action on the reports lies. The reports and recommendations of the council are a matter for the Government to consider and I have undertaken to provide comprehensive responses to the reports. I should also point out that the Government is required to comply with or explain if it disagrees with the council's assessments on exceptional circumstances and the need to deploy the correction mechanism and adherence to a correction plan.

Other Senators also raised this issue. Representatives of the fiscal council have gone before the Oireachtas finance committees and participated in full discussions. The council is not accountable to the Houses of the Oireachtas because it is independent in the exercise of its functions but there is no reluctance to come before committees of the House, particularly the finance committee, for an exchange of views and to be subject to scrutiny.

The council does not have an executive function. If the fiscal council produces a report which in its independent state indicates that the Government's forecasts are totally off the rails and the budgetary strategy is incorrect, it would not take very long for the Opposition to hold the Government to account. It has independent input to public and Oireachtas debate, and that gives the council its authority. It does not have any executive function in implementing the recommendations, as they are considered by the Government.

There has been much debate about the structural deficit calculation. This must be done on the basis of a harmonised methodology agreed by member states. This is not ideal for small open economies like Ireland but we can and do contribute to the revision of the methodology. As the process develops, the Irish input is being taken into account and we may get to a point where there is a more refined definition of structural deficit. It is an issue that is hard to measure but very often the fact that there is a structural deficit is the base position for dealing with it. I accept that definition is difficult in that area.

Senator Reilly's views mirror the arguments put forward by her party during the fiscal stability treaty referendum campaign. It was the party's entitlement to oppose the referendum on the fiscal stability treaty but circumstances have now changed; the people considered all the arguments and supported the treaty. As I have indicated, the purpose of the Bill is to implement the stability treaty. I suggest to the Senator that her party is now positioning itself to hold out against the express will of the people and, in effect, to talk down to a very significant majority of the people on the insistence that Sinn Féin knows better.

The Senator also mentioned a point made by her colleague in the other House that the remit of the fiscal council is quite narrow and that it should have a wider mandate to take in social and economic issues. The council has been set up for a specific job and has been given the resources to focus on it. It is not the only organisation to proffer advice to the Government and the public. For example, the Economic and Social Research Institute and the National Economic and Social Council report at considerable length with considerable frequency on all aspects of policy development, assessing social and economic impacts of policies put in place by the Government. We do not need to duplicate processes by widening the remit of the fiscal council.

Some comments seem to indicate confusion about the debt rule. I remind Senators that the debt rule specifies that when the level of general government debt exceeds 60% of GDP, the Government must reduce debt by one twentieth of the difference between the level and 60%. It is not one twentieth of the whole debt, as I indicated in my original speech. If the debt is 100% of GDP, the calculation is done on 40%, taking 2% off each year. It is a straightforward concept.

I acknowledge Senator Barrett's comments on fiscal responsibility in general, particularly the Fiscal Responsibility (Statement) Bill 2011. On the single supervisory mechanism, a clear timetable was set out at the October European Council by the Heads of State and Government. It was decided that the legislative proposal to establish this would be dealt with as a priority no later than 1 January 2013. The single supervisory mechanism will come into operation during the course of 2013. The European Central Bank has suggested that the implementation of the supervisory rule could take between six and 12 months. Some progress has been made and the Commission published a paper in that respect. In simple rather than legalistic terms, the legal mandate to regulate would be vested in the European Central Bank.

The bank will have the legal competence and then it will directly regulate some of the large international banks. However, it will decentralise the function to the local supervisory authorities in respect of many other banks with the division to be decided as the process develops.

It is not possible to say all the banks in Ireland should be regulated from Dame Street and all the small banks in Spain should be regulated from Madrid and, therefore, a rule book has to be put in place that will apply common rules across the banking industry with a legal mandate from Frankfurt. There are approximately 6,000 banks altogether and that rule book will have to be supported by instruction manuals for the local regulators and by protocols. All that work is being done in advance of the single supervisory authority being put in place.

The other decision which is likely to be made - because in the political debate it is clear what politicians are thinking - is that there must be no spillover between the two functions of the ECB. In other words, the bank's function as the monetary authority must be kept entirely separate from its function as the supervisory authority. It will not be a case of Chinese walls; the ECB will have to have a totally different set of functions, legal mandates and personnel in order that there is not a spillover and that in the course of supervision of banks there is not a transgression of the monetary rules in easing the difficulties in banks.

I thank all Senators for their contributions. We will have a reasonably lengthy Committee Stage, to which I look forward.

Kathryn Reilly (Sinn Fein)
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Vótáil.

Paddy Burke (Fine Gael)
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Will the Senators claiming a division, please, rise?

Paddy Burke (Fine Gael)
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As fewer than five Senators have risen, I declare the question carried. In accordance with Standing Order 61, the names of the Senators dissenting will be recorded in the Journal of the Proceedings of the Seanad.

Paddy Burke (Fine Gael)
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When is it proposed to take Committee Stage?

Maurice Cummins (Fine Gael)
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Next Tuesday.