A few short months ago, the Minister for Finance, Deputy Cowen, was quoted in The Irish Times as telling us that Ireland’s economy was at its strongest for ten years. It is fair to say that if that statement was uttered today, nobody would take it credibly. Amid falling house prices, a decline in construction activity, sliding share values, increased unemployment as measured by the live register and the quarterly national household survey, inflation and a worsening fall-off in tax receipts, it is clear that the economy in entering a significant downturn.
The writing has been on the wall for some time despite the fact that Members opposite have chosen to ignore it. Massive increases in private debt, an end to artificially low interest rates and over-dependence on the construction sector were the warning signs ignored by a Government drunk on power and infatuated with its electoral success.
The past ten years can be broken into two different phases economically. The first phase was from 1994 to 2000 when Ireland experienced a genuine economic boom built on added-value productivity and exports. During that period, Ireland's low tax, low cost, lightly regulated, politically stable economy anchored firmly within the EU and the eurozone with a highly skilled, English-speaking workforce became an example to the rest of the world — what was known as the Celtic tiger. After a brief slowdown, in the aftermath of the attacks of 11 September 2001 in the United States, we entered a second phase economically where the economy boomed again, but the character of this boom was very different. It was not based on the creation of wealth, but on a debt-fuelled construction boom based on cheap credit, foolish tax incentives for developers, mass immigration and unsustainable increases in public spending. Growth in the economy shifted from being driven by productivity increases and exports to being driven by domestic demand. To quote David McWilliams, we were making money by selling houses to each other.
The vast bulk of new jobs created in this period were almost entirely in the construction sector for men and in the public sector for women, whereas employment in manufacturing and agriculture fell. Rather than adopting a prudent economic policy designed to manage growth, maintain competitiveness and deliver improved public services through reform and targeted investment, the Fianna Fáil-Progressive Democrats Government recklessly poured fuel on the flames of an overheating economy through untargeted tax cuts, massive public spending increases and the SSIA give-away. This Government, which was once economically incompetent, has morphed, to use the words of a former Member of the House, into a "slump coalition".
Under the last Government, Ireland's economic competitiveness tumbled. This did not happen by chance or as a result of external factors beyond our control. The loss of competitiveness, falling from fifth place in the world to 22nd, can be directly linked to a series of major policy errors made by the Government. These included the botched privatisation of Eircom, which has relegated us to third from last in the OECD's broadband league table, ahead of only Turkey and Mexico; the failure to introduce real competition into the energy sector; the decision to proceed with benchmarking at a cost of €1.3 billion to the taxpayer — who knows what this cost private industry in terms of increased labour costs — without insisting on real reform and efficiency improvements in the public sector; the creation of almost 200 more unaccountable over-funded quangos; the Minister for Finance, Deputy Cowen's reckless cheerleading of the housing boom; his decision to increase current account public spending from 25% of GNP to 31% of GNP in six years without delivering any real improvement in public services; and, worst of all, the fuelling of inflation, 53% of which can be accounted for by increases in the cost of services delivered by Government or services regulated by Government.
It is interesting that the Government's amendment states:
recognises the Government's commitment to tackling inflation in areas where it has direct influence.
I welcome that sentiment and I hope the Government will do it because inflation in the greater part has been driven by Government policies and the failure to regulate our utilities correctly.
In recent years, the unsustainable property boom and the explosion in public expenditure has led to a domestic demand boom which has masked the underlying weakness of the economy. With the bursting of the property bubble in recent months, this phoney boom is coming to an end and we must rely on genuine economic competitiveness to deliver future growth.
With the right policies, I firmly believe that Ireland can recover from the property and construction downturn, although it may take two to four years for this to play itself out. What will happen after we overcome the current property downturn? Will Ireland's economy rebound once more into another boom phase? Will we enter a period of more sustained growth or will Ireland have to endure a period of low growth or stagnation? That is the focus of this debate.
Competitiveness is in many ways an academic term for economic fitness. A fit economy will recover from any setback whereas an unfit economy will struggle to do so. At 22nd place in the World Economic Forum league table, Ireland is not nearly as fit as it was when the Rainbow Government left office in 1997. While we are still relatively competitive compared to many countries, the fundamentals that brought about economic growth in the first part of the past decade are no longer present. If competitiveness continues to decline, it will in itself become a brake on economic progress and the current property and construction-related downturn will transform into a prolonged period of stagnation for the once-proud Irish economy.
Regaining and improving economic competitiveness must be the first priority of the Government's economic policy. We must embark on the long, painstaking and painful process of restoring economic competitiveness as a matter of urgency. While Fine Gael and I do not have all of the answers, I will focus on five areas where much could be done: national infrastructure; the reduction of costs to business; the building of a more business-friendly environment; education and training; and sound fiscal and taxation policies.
Ireland's physical infrastructure remains a source of acute economic and competitive disadvantage, to quote the National Competitiveness Council, the report of which is welcomed by the Minister in his amendment. The World Economic Forum rightly places us at 49th place in the world with regard to infrastructure, behind countries such as Thailand, Barbados, South Africa, Jordan and Namibia. Despite billions of euro in Structural Funds from the EU and several national development plans, we still do not have motorways connecting our major cities. Congestion in Dublin is making it almost impossible to do business in the city and public transport is infrequent and unreliable. Dublin Airport, our gateway to the world, is a national embarrassment and, as we saw in recent days, does not even have a safe power supply, while our sea ports are substandard.
Investment in ICT is below the EU average. The absence of a proper electricity cable connection to the UK and continental Europe is forcing us to pay much more for energy than we should. Broadband, particularly fixed line broadband, the highway for future enterprise, is unavailable in many parts of the country. According to the OECD, average broadband speeds in Ireland are 14 times slower than in France and 30 times slower than in Japan.
We need major Government investment in all of these areas and radical reforms to our planning laws and public tendering policies to ensure that projects can be delivered quickly and cheaply. We also need to turn to the private sector by offering it the possibility of funding, building and operating major pieces of infrastructure.
The Government can no longer hide behind aspirational plans such as Transport 21. Transport 21 is aspirational; it is not Government policy. The decision of Iarnród Éireann not to include, for example, Hansfield station in the Dunboyne rail order demonstrates exactly the extent to which Transport 21 is a pick-and-choose menu of options and not a real transport policy for the future. We cannot tolerate any more waffle about EU averages to hide our problems. Ireland should not aspire to merely catching up with our competitors. If we are serious about developing a sound economic base for this country for generations to come, we must aim to be the world leader.
The cost of doing business in Ireland is considerably higher than in most of our competitor countries. A simple comparison between Manchester and Dublin, for example, carried out by Business and Finance, shows that the cost of electricity, local authority charges and levies and waste collection are up to 40% higher in Dublin than Manchester, not to mention India or China. This must change through better regulation, increased competition and wholesale reform of the way we fund local government so its cost does not fall disproportionately on business. We must also grasp the nettle of controlling the inexorable rise in labour costs through public sector wage restraint, beginning with Ministers, lower inflation and targeted reductions in income taxes, VAT and employers’ PRSI over several years.
There is substantial scope for improving Ireland's regulatory environment. By adopting the recommendations of the Business Regulation Forum of 2007 — erroneously referred to in the Minister's amendment as the "Better Regulation Forum" — and using the standard costs model, we could cut the administrative cost of regulation to Irish businesses by 25%, a saving of €1.5 billion. The Netherlands has done so; we should do so too.
To date, Ireland's education system has served us well but we are starting to fall behind other countries in this regard, particularly the Nordic countries and Asian countries such as South Korea, Singapore and Taiwan. We must reverse the ongoing trend towards easier exams, grade inflation and lower academic standards. In addition to smaller classes, we need higher standards and better teachers. In particular, we need to improve take-up and standards in mathematics, science and foreign languages.
I noted today that the OECD PISA report has placed Ireland 22nd in the world in maths, which is totally unacceptable, and suggests only 10% of Irish 15-year olds have reached levels five and six in maths versus a 13% OECD average. We need to be leading the world in this regard, not catching up with the average. We are well behind countries like Finland, China and Canada, our real competitors in the modern world.
Through a package of genuine welfare reforms and a new opportunities policy to replace the current welfare system, we could reach Nordic labour force participation levels, lifting tens of thousands currently stuck in the poverty trap of welfare benefits into gainful employment. State-funded education vouchers could help to fund higher level tuition fees for people seeking to take masters degrees or PhDs and may also provide a second chance at education for those who did not take their leaving certificate at an earlier age. We need to radically reform FÁS, an €800 million quango, by separating from it the important social employment schemes, and calling them what they are, and having a separate group for training, upskilling and apprenticeships.
We need real public sector reform, not the non-reform we have seen for ten years. We must move away from pro-cyclical budgets that increase spending and cut taxes when the economy is booming and cut back spending and increase taxes when the economy is slowing. Increases in public spending which exceed inflation must deliver real improvements in public services.
This is where the Government's budgetary policy is totally flawed. We have a budgetary policy whereby one calculates the cost of doing the same thing next year as was done this year, and then includes any add-ons. Any modern business or organisation begins every year at zero and asks itself how well it spent money in the past year before automatically adding on increases.
It is interesting the Minister congratulates himself that Ireland is in third place globally in terms of job creation for its population size. I doubt we will be in the same place this time next year. I hope when I introduce a motion at that stage to point out that fact, he will vote for it.
It is also interesting the Minister refers to the solid management of the public finances. A country that has seen current public spending, not capital spending, leap from 25% to 31% of GNP in a short period without delivering any real improvements in public services should not regard its management of finances to be sound.
The Minister referred to the Small Business Forum, the Business Regulation Forum, the Expert Group on Future Skills and the Enterprise Strategy Group. Most of these bodies have made recommendations but only approximately one third of them have been implemented.
