Finance (No. 2) Bill 2008: Second Stage (Resumed).

Question again proposed: "That the Bill be now read a Second Time."

When I spoke just before 7 p.m. I was drawing to the attention of the Minister for Finance an issue which first arose on budget day. I knew the Minister would not be back in the Chamber at 8.30 p.m. but in the four minutes that I had before 7 p.m. it was difficult to make the point I was trying to make. That point relates to the decision that medical expenses in future may only be claimed at the standard rate of tax. I understand the reasons for that decision and am not opposing it because of the dire financial circumstances in which the Government finds itself.

I understood on budget day, from debating the budget in RTE as it was announced and subsequently, that it was the Minister's intention that this would not apply to nursing home charges. However, under the terms of the Finance Bill, while nursing home charges are exempt from application of the standard rate in 2009, they are not exempt from 1 January 2010. Due to the manner in which the Finance Bill is drafted, once 2009 elapses, the primary section takes over and the exception falls out. Therefore, without any further political decision or change in any future Finance Bill, nursing home charges will only be claimable at the standard rate of tax.

This is extremely unfair and anyone who is familiar with the thinking behind the Nursing Homes Support Scheme Bill, known as the Fair Deal proposal, will understand just how unfair it is. The provisions of that Bill do not apply to the people to whom I am referring. Under the Nursing Homes Support Scheme Bill, an individual is subject to a means test. It is a curious means test in that it decides the contribution which persons in nursing homes will make to the Exchequer, rather than the amount they will receive from the Exchequer. It is, in a sense, a means test in reverse. If one applies the means test in the Nursing Homes Support Scheme Bill to the standard rate bands in this Finance Bill, practically everyone in a nursing home will be paying at the standard rate band, so the issue does not arise. The people who pay tax at the higher rate will not be eligible, except in very occasional circumstances, for the so-called Fair Deal so, as a consequence, they will be paying their own nursing home fees.

The interdepartmental committee that examined the Nursing Homes Support Scheme Bill gave a range of nursing home charges, which are available on the record to the Minister of State, Deputy Mansergh, and everyone else who participated in Government. The charges were examined in 2006. In general terms, outside Dublin, a high-maintenance bed in a nursing home costs approximately €800 per week, while in Dublin the same bed costs between €1,200 to €1,500 per week. I know of a person in County Limerick who is paying €800 per week for a nursing home bed and of another person in Rathgar who is paying €1,200 per week. If one rounds off the figures, the cost is between €40,000 and €60,000 per year. Under the Fair Deal, if one has an income of €40,000, as calculated under that legislation, one will receive nothing from the State but will pay all of one's fees oneself. If one is a single person, under this Finance Act, one will not reach the higher rate of tax until one earns more than €45,000. In fact, the figure is even higher if one allows for personal credits, but the band is up to €45,000.

Let us examine the difference between the marginal and standard rate. The person in County Limerick, Cork or Clare who is paying €800 per week is getting a rebate of approximately 40% of that amount, if he or she is on the higher rate of tax. In other words, he or she is currently getting €16,000 per annum, but will get only €8,000 under the terms of this Finance Bill. One can easily do the calculations for my friend whose mother is in the nursing home in Dublin. She will be required to pay an additional 20% of €60,000, which is €12,000 per annum. In most cases, that is simply not affordable for people. The source of income is not unlimited. One would have to be in receipt of an excellent pension to be able to take €60,000 from it to pay for a nursing home, even when one is in receipt of a tax break, but to do that without getting a tax break at the marginal rate moves one beyond the realm of affordability.

I do not think this was ever the intention. Somebody somewhere thought there was a match between the marginal rate of tax and the means test in the Nursing Homes Support Scheme Bill and on that basis, if one was a beneficiary of the Fair Deal, one would not need to draw down this money from the Revenue Commissioners. However, they do not match although there may be a marginal crossover. Furthermore, the means test in the Nursing Homes Support Scheme Bill is based on after-tax income. Therefore, if one actually got the benefit of a rebate at the marginal rate of tax, one would have to contribute more to the nursing home because one's imputed income would be higher than if one received the rebate at the standard rate. The State was going to get it anyway.

In terms of the question of paying relatives who contribute to the nursing home charges, under the Nursing Homes Support Scheme Bill, they will be taken out of the loop completely. If the person in the nursing home does not have an adequate income, the family home will be attached. Therefore, the issue of a rebate to relatives no longer arises, whether at the standard or higher rate. If one looks at the attachment, at either 7.5% or 15%, the Nursing Homes Support Scheme Bill is silent on the tax treatment of the repayment. When a person who was a resident in a nursing home dies and the State, through the Revenue Commissioners, gets its money back through the mortgage attachment of the family home, I do not know what the tax situation is because the Bill is silent on the matter. However, I am not particularly worried about whether the person who inherits the family home gets no rebate, gets it at the standard or at the marginal rate. That is not the issue. The issue of concern comes into play while people are alive and in nursing homes. They need to have the use of their own funds to be able to pay the fees because, if they are on the higher rate of tax, in 99 cases out of 100, the provisions of the Fair Deal will not apply to them.

I understood from a response from the Minister for Defence, Deputy O'Dea and from the Minister for Finance that my point was taken. However, the Finance Bill is drafted on the basis that the marginal rate of tax will apply to nursing home fees for 2009 but from 1 January 2010, the standard rate will apply. That is unfair, misguided and based on a false logic. I believe the Minister intends to amend the Bill but having said that, I have had the same conversation with him on a number of occasions already. This provision is like Dracula — it keeps coming back.

I will now move on to the budget itself, which was a very difficult one for the Minister to put together. As with all budgets, he had three options — to borrow, tax or cut. In my view, he taxed and borrowed too much and did not cut enough. There is much talk about the public service at the moment. The public service is this and that, public servants earn this and that and so forth. I was a Minister on a number of occasions and worked with public and civil servants. When I was in the Department of Justice in the 1980s, fellows worked all night for small money. They were very good at their jobs. They did not get overtime once they were past a certain grade — administrative officer was the grade at the time. I also worked in the Department of Health. Sometimes I agreed with the policy that was being advocated and sometimes I disagreed, but I never disagreed with the fact that they work very hard. Again, once one was past a certain level of seniority, one worked into the night, and frequently at weekends. I am certainly not going to launch any kind of attack on the public service. Teachers work hard, nurses work hard, and gardaí all over the country and in my town work very hard indeed. However, that is not the issue. I resent the fact that by some convoluted logic an international crisis caused, by and large, by the private sector, specifically the financial services industry, is now being attributed to the public service. Whoever caused the financial crisis internationally, it was not the public service. However, the public service does come into it.

Let us come back to the choices facing the Minister of whether to borrow, cut or tax. We had a building boom that generated an enormous amount of revenue in income tax, PRSI, VAT, stamp duty and capital gains tax, which the Government, in its political unwisdom — if there is such a word — decided to spend on ongoing programmes. It was not sustainable. When the building industry collapsed, the revenue stream that was funding the public service programmes collapsed as well. Thus, we are now running a State we can no longer afford. This is where the public service comes into it. We can no longer afford the public service we could afford when there was a huge flow of revenue coming through from the building industry. Every 10,000 houses built generated €1 billion. When the amount of houses being built goes from 90,000 down to 40,000 and is heading for 25,000 next year, is it any wonder there is a hole in the Government finances? In seeking to address this, the public service does come into the frame. It is not because its members are lazy — they are not. It is not because they are untalented — they are not. It is because a Government addressing a fiscal crisis such as this cannot do so without reducing payroll expenditure. Unless this is done, either through numbers or through salaries, the hole remains. That is the problem. The public service understands this as much as everybody else, but it seems to me we would go farther with a type of partnership solution in which everybody acknowledges the problem, rather than some people grandstanding and implying that public servants for one reason or another are now to blame for what is essentially a private sector crisis.

The country is spending what it cannot afford at the moment. We were supposed to restrict borrowing to 3% of GDP under European rules. According to the budget, we will now raise this to 6.5%. Already, even though the budget is only a few weeks old, it looks like 8% at year-end without further correction. That is not sustainable. We are no longer borrowing just for capital, which I support. Some 10% of the current budget is funded by borrowing. That cannot continue either. If we tax, we will take any steam there is out of the economy. Every country in Europe that has a bit of leeway is trying to give some kind of Keynesian impulse to the economy, either by cutting taxes or by further spending. Ireland is the odd man out because we do not have the leeway to do so. That is my objection to the budget. There is too much borrowing. A total of €2 billion is being raised in taxation of various kinds. It is the wrong solution.

There is a further problem. The public gets tired of medicine after a while. They get very tired of harsh measures. They can sustain it for a short period of time, but if the Government wastes a year with the wrong type of medicine, such as is being applied in this budget, it may run out of time. This budget has thrown away the options for 2009. There is nothing in this prescription which goes towards solving the problems in 2009. When it comes to solving problems for 2010, the Minister and his advisers would want to start now. To take measures which will be effective in 2010, the Government needs to have them sorted out before 1 March. There is a lead-in time to all these things. If it is left again until late autumn or early winter next year, and the Government comes up with another budget that is trying to fill a gap, with too many taxes, not enough cuts and more borrowing, we will be in for years of this. The time is short. I thank the Leas-Chathaoirleach for his patience.

I thank the Deputy and hope Dracula is not upset by his remarks.

Without agreeing with everything Deputy Noonan had to say, I compliment him on the thoughtful and constructive tone of his speech. I share his appreciation of the public service. His point about nursing homes will be examined and a reply provided tomorrow before the close of the debate.

The Minister for Finance has set out the difficult economic and financial backdrop to the Finance Bill. For some months earlier this year an attempt was made to argue that Ireland was the only country in recession. It is now clear the problem is a global one, with events in one country having effects in others. There are of course specific characteristics to this recession, but to think that even the most perfectly intelligent and virtuous economic management would have sheltered us from the difficulties that are affecting every country in the world is an illusion.

We are the only country that brought in a property budget.

The Minister without interruption, please.

We have many strengths that we must use, such as low public debt, low direct taxes, much improved infrastructure — although there is obviously still a long way to go — an employment level that has risen by almost a third since ten years ago and living standards that today can compare to elsewhere.

Built on nothing.

The Government has adopted a middle course between those who want us to be even tougher in terms of borrowing and expenditure and those who want us to reflate the economy and forget about the public finances for the moment. I agree with Deputy Noonan that the 10% gap is not something that can be ignored. It is politically convenient to suggest that all service cutbacks can be avoided and that public sector employment can bear the entire weight, in the short term, of reducing borrowing even more stringently. Many are not particularly impressed with the notion put forward at the weekend of extending a pay freeze from 11 months to 12 months. With regard to freezing increments, it needs to be realised that the top grades in the Civil Service — Secretaries General, second secretaries, deputy secretaries and so on — and their equivalents in many State services do not get any increments. A clerical officer, on the other hand, is on a scale of 14 increments.

Middle ranking and lower paid public servants would be most affected by a freeze. Some of the figures that have been thrown around amount to throwing shapes but they do not begin to add up as an alternative. Social partnership is a cornerstone to getting through the difficulties and to real and meaningful public service reform. One analysis of the failure of Government between 1982 and 1987 to get a grip on the public finances was the absence of social partnership. I do not think we should talk, as have some Members of this House, about scrapping social partnership or thinking that we can ride roughshod over it. We are going to need social partnership in the period ahead. There is a lot of realism to be found in the social partners and a lot of help that can be given through that process.

With regard to reflating the economy in the present situation, this was attempted in 1980 and 1981 and before that in 1974 and 1975. It did not work except for a relatively short period and higher indebtedness created much greater problems. The reflation being attempted across the water and which is being recommended to us from some quarters as the course that we should be following, takes place in a certain political and electoral context.

A Financial Times opinion piece this morning claims that the UK’s budget deficit could soon be the largest in the developed world and that the present stimulus package will still fall far short of the desired effect. It pointed out that the UK consumer is now too stunned by the housing crash, stagnant wages and fears of unemployment, to be coaxed into resuming the insane credit-funded binge of yesteryear.

I am sure what was said about the UK would apply equally here if that were the course of action that we were following. As Deputy Noonan referred to one dimension of it relating to the public service, there is a blame game. I would regard the past 20 years in many respects as being the best years of our history, from an economic point of view. Of course the Celtic tiger period would sooner or later come to an end. The laws of economic gravity were not being suspended——

The soft landing.

The amazing thing was that it lasted so long and enabled so much progress to be made, economically, socially and in infrastructural terms.

To deal specifically with the Finance Bill, the importance of the manufacturing base remains. Research and development will have a high spin off which underpins much of the service economy. One of the most significant developments introduced in this year's Bill has been the change to research and development, R&D. The central issues considered by Government have been how we optimise the benefit to companies in order to influence investment decisions; how we recognise that most research and development takes place in a production setting and how we address the volume issue without exposing the Exchequer to deadweight costs in the short term.

In order to achieve this, the Finance Bill provides for a number of measures. The tax credit is set against current profits in the first instance; unused credit is to be set against the previous year's corporation tax payment, creating a repayment; any remaining unused research and development tax credit would then be monetised by way of a payable credit, one third of the outstanding credit monetised per annum over the next three years. This means that a credit granted in any one year will be fully utilised by the company over three years, regardless of profits, giving certainty for planning purposes. To assist with the cost of buildings the scheme applies to buildings used substantially, 35%, for research and development purposes rather than wholly and exclusively as is the case at present. Finally, abolishing the ten-year look-back period for incremental research and development, that is, setting 2003 as the permanent base year, gives certainty about the scheme.

These measures represent a significant change to our research and development tax regime and would increase its attractiveness. When implemented the measures will target the tax incentive on the productive high value-added sectors of the economy and improve our offering to investors who derive full benefit over not more than three years. They would also help start-up companies to benefit from the credit in a period where they were unlikely to have profits against which to set the credit and recognise the fact that the vast majority of research and development does not take place in laboratories but in facilities involved in production.

Like many other Members of the House, I regularly visit such facilities in or on the edges of my constituency. In most cases, despite market difficulties and exchange rate difficulties, they have been in business for many years in many cases and they have every intention of staying rather than transferring somewhere else. They are a good advertisement for other industries from the same area. Yesterday I visited an Indian-managed plant in Ballymacarbry just inside County Waterford along with my Oireachtas colleagues. Much of the workforce comes from County Tipperary. Appreciation was expressed of the research and development supports in the Finance Bill. This measure would be a de facto volume-based scheme through the abolition of the ten-year look-back without short-run deadweight costs, similar to the evolution of the US scheme.

The Government is also supporting enterprise through an exemption from tax that is granted by reducing to nil the corporation tax relating to the profits of a new trade and the chargeable gains on the disposal of any assets used for the purposes of a new trade. The exemption period is three years from the commencement of the new trade. The exemption applies to companies incorporated on and from 14 October 2008, who commence to carry on a new trade in 2009. The scheme only applies to companies commencing to trade in 2009. There will be full relief where total corporation tax liability in any of the first three accounting periods does not exceed €40,000.

There will be marginal relief where corporation tax liability falls between €40,000 and €60,000. The marginal relief will be given by way of a standard marginal relief formula detailed in the legislation. In short, the closer its corporation tax liability is to €40,000, the greater the marginal relief a company will receive. For example, a company with a total corporation tax liability of €42,000 in its first year will pay corporation tax of €6,000 and benefit from marginal relief of €36,000, while a company with a corporation tax liability of €59,000 will pay €57,000 and its marginal relief will amount to €2,000. New start-up companies with a corporation tax liability of €60,000 or more in any of its first three years will not receive any relief for that year. Since the taxable profits of a company in this scenario would be close to €500,000 at €480,000, this is not justified.

The Government does not believe it is necessary to formally notify this tax relief measure to the EU Commission from a State-aid perspective as the amount of assistance involved falls below the de minimis level of aid allowed under the relevant regulation. We want to be sure, however, that all aspects of the measure meet EU requirements and we will seek to clarify this with the EU Commission. An order will then be made to commence this section of the Bill.

The current stamp duty system applicable to non-residential property is being changed. At present, stamp duty is charged at various rates up to 9% where the consideration exceeds €150,000. The new top rate is 6%. The existing regime, with its top rate of 9%, was introduced by the last Fine Gael-Labour-Democratic Left Government in 1997. This change in the top rate is a positive move to assist business and sends a clear message that the Government is doing its part in restoring confidence in the market.

In bringing stability to the public finances, the income levy is a progressive measure and is carefully constructed. It has several precedents in the past 20 years. Those on low incomes and the elderly who are below the exemption thresholds will not have to pay the income levy. Social welfare payments and medical card holders are also exempt. Middle income earners will pay 1%. Individuals with high earnings of more than €100,100 per annum will pay 2% on the amount in excess of €100,100 and very high earners of over €250,120 per annum will pay 3% on income above that amount.

To raise the same amount of revenue, approximately €1.2 billion in a full year, through increasing the standard and higher rates would have meant 1% on the standard rate, 2% on the higher rate or 4% if the increase were confined to the higher rate. Middle income earners would have faced an increase in income tax of 3%, or even 4%, instead of the 1% currently being applied on that range of income by the levy. The use of the levy mechanism also implies it is a temporary arrangement, as previous ones were.

The income levy has a broad base. Individuals who may be able to reduce their income tax liability through pension contributions, capital allowances or tax incentive schemes, such as film relief or the business expansion scheme, will not be able to do so under the income levy. Streams of income that currently have exemptions from income tax are not exempt from the income levy. These include earnings of writers, composers and artists, income from patent royalties, mining operations and profits from woodlands. Farmers will not be disproportionately affected.

The income levy is structured so that everyone who can afford to pay the income levy makes a contribution. The progressive nature of the levy is demonstrated by the fact the top 1% of earners, that is those earning more than €250,000 per annum, account for 20% of the yield from the levy.

The Government is always conscious of the need to target resources where they will have most effect. Changes to mortgage interest relief were specifically made to refocus the relief on those who need it the most. First-time buyers, who are under most pressure in the current economic climate, will benefit. This measure could be worth as much as an extra €3,500 over a five year period to a first-time buyer couple and worth as much as an extra €1,750 over the same period to a single first-time buyer. These changes constitute a genuine reform of the system on a revenue neutral basis.

The so-called "Cinderella rule" has been controversial for some years. The current rules for determining residency in the State are based on the number of days an individual spends here. However, to count a day, the individual must be here at midnight, hence the Cinderella rule. It is clear that it is excessively elastic and allows individuals to allude the residency rule by leaving the jurisdiction prior to midnight and ensuring their presence in the State could not be counted for tax purposes. I could allow myself some humorous reflections on a comparison between the superwealthy and Cinderella but I will refrain from doing so.

She married one of the superwealthy.

This amendment ensures that where an individual is present in the State at any point in a day, that day will be counted for determining tax residence. It will mainly affect high-wealth individuals who can fly into the State in the morning and fly back out by midnight. It will not affect cross-Border workers who are employed in the State.

Coming from the same region as Deputies Tom Hayes and Michael Noonan, I am glad a change has been made to the way the air travel tax will be levied. It will be levied as if from a single point defined as the east coast, Dublin Airport, and, therefore, will not be discriminatory against different airports.

I note the British Chancellor of the Exchequer further raised the UK's equivalent of the travel tax yesterday. Even its lowest rate is higher than our higher rate of €10. The UK's highest rate will be raised to £55. I do not see the Irish travel tax having a negative effect on airline competition from outside the country. Many other European countries are applying this form of tax. It may be the case that we are not tuned into some of the debates that take place across the water, but I do not recall hearing voluble protests by certain notorious airline managers at these increases. I will not refer to the manager of a certain well-known popular airline by name, as he is not in the House, but I wonder what he makes of these increases on airport tax across the water.

We live in a situation of tax competition. The Finance Bill raises VAT rate by 0.5%. Across the water, it has been reduced to 15% until the end of 2009. There has long been a benefit from having lower petrol prices and duty south of the Border. I suppose there is an element of swings and roundabouts. However, there are separate jurisdictions and each Government is rightly jealous of its tax sovereignty.

I wish to share time with Deputy James Bannon.

Is that agreed? Agreed.

This Finance Bill — I have seen a few of them in my time in the House — is a damage limitation exercise. With all respect to the Minister of State, Deputy Mansergh, one would think after listening to his speech that he never heard of this budget. He genuinely believes he was neither involved in nor knew the first thing about it.

On budget day, the Minister for Finance claimed he had a difficult task to perform, which we all accept, and everyone would be expected to share the pain. He continued that taking into account people's capacity to do so, his budget would be fair and balanced. In times of great hardship when an economy runs into the high seas, most people will react positively to measures that are fair, reasonable, necessary, unavoidable and likely to lead to a better standard of living in the future. The public might not like such measures but it will buy them. My colleague, Deputy Michael Noonan, spent much of his time as a senior Minister putting through such a regime in bad economic times. By and large, we were reasonably successful.

What did Fianna Fáil do this time? Let us consider the 3% levy imposed on the golden circle — the very gang that was inside the tent at the Galway races and which Fianna Fáil is trying to protect. When the Minister had finished his budget speech, it was the first time I saw a budget so enthusiastically received — both by Fianna Fáil and Green Party Members.

The clowns in the circus in my home town did not get as good a round of applause.

How could Members on that side of the House expect the most vulnerable in society to accept the contents of that budget? It would be funny only that it has turned out to be so disastrous.

The budget was brought forward. The day I heard the Taoiseach say that it was the answer to the problem and that the Government was doing something, I decided it was a fig leaf. It takes time and commitment to get a budget balanced, particularly in bad times. I have ideas about what went wrong. As a result of the Credit Institutions (Financial Support) Bill that was passed the week before the budget, the Government thought it was walking on water in the worst of times and that it could dish out anything. We are far away from the 1930s and 1940s now.

The vulnerable people in society knew it was not fair. It was in their heads — it was a psychological matter. The ink was not dry on the budget before people said this. There is no group more disorganised than the elderly. They do not pay into any group, they are very peaceful but they knew that the Government was trying to protect the super rich. They knew it was not a balanced budget. They knew it in their hearts and souls. A Fianna Fáil Government of ten, 20 or 30 years ago would not have done it. The Government got drunk on power. The greed and arrogance of this Government comes from the fact that whatever happened over the past ten years, it thought it could be solved by throwing money at it. That is what the Government did because it had the money. In the ten minutes at my disposal, I do not have the time to go back through the rigamarole of where money solved problems that should not have been solved by money. Good, prudent management was needed at that stage but we did not have it.

How many times did I hear the Taoiseach and the former Taoiseach tell us that the fundamentals of the economy were right and there were 2 million people at work? What sort of work were they doing and how productive was it? The vast majority were working in the building industry, building houses to sell to one another. The only ones carrying the cot now are the thousands of young men and women who paid twice the going rate for a house, which they will be paying for over the next 35 years, while the house will be worth half what it should have been.

My party backed the bank guarantee scheme not for the golden circle people or for the banks, but for the ordinary depositors all over Ireland. We gave it our full support and rightly so. I remember the Minister mentioning that the banks informed him that they had about €15 billion of assets on their books for which there was no return because the builders could not sell and it was toxic borrowing. There is a smell from that €15 billion and I think the sum is far greater than €15 billion.

Perhaps I am on my own in this House in this but I do not believe the bankers have the slightest intention of allowing the taxpayer or the Government to direct them in anything. One need just listen to the interview given by the chief executive of Bank of Ireland on the radio the other day. The man was surprised and disappointed that a reporter asked him to comment on what would happen in the banking world in the future. There has been a particular culture in the banks down through the years. As they see it, they run their economy and are there to make money for the shareholders and how dare any Government get involved. The guarantee from the Government is that people will be appointed to act as watchdogs. We will come back to it in a year's time and see where we are going. For every small depositor, investor and person who has an iota of an idea of creating a job, I sincerely hope this will work but I greatly doubt it.

I referred to a fair and reasonable budget. The Government then turned around and decided to take out other vulnerable people in society. The Government had a go at the disabled but that had to be changed. It was the first budget in my 30 years here that was apologised for every day until a couple of weeks ago. Every Minister and Green Deputy apologised to the people for the hurt caused to them. That is some budget in a time when one expects the people of Ireland to tighten belts and that, in unison with one another, as a nation we would try to come out of one of the worst recessions I have ever seen.

The Deputy has one minute remaining.

I am sorry I do not have 30 minutes.

I refer to the farming community, which I know most about. We discussed the 1% levy. Most farmers have been fined or penalised by 10% to 15%. The Government put its hand in every farmer's pocket, even the smaller lads, and took up to €3,000-5,000 in one go. It is difficult to think that in an agricultural country we do not have a programme to help the young farmers of Ireland to be trained properly, take over their farms and compete with the farmers of Europe. The installation aid grant and the retiring farmers grant were pulled for €10 million. Any Government that thinks this is fair and balanced and wants the people to back them is getting its answer in the polls and will get a lot more of it.

To say this Bill is based on a fallacy and mere empty words is an understatement. Announcing it with the usual fanfare and spin last Thursday, the Minister for Finance, Deputy Brian Lenihan, spoke the unbelievable words: "The Government is committed to protecting the economy from the worst effects of the current international downturn and to ensuring our international competitiveness is maintained and enhanced." I would like to ask the Minister what exactly he means by ensuring our international competitiveness is maintained and enhanced when the problem across the length and breadth of the country, leading to one business closure after another and a rapidly rising live register figure, is our lack of competitiveness and the impossibility of enhancing something that does not exist in the first place.

As for the Government protecting the economy from the worst effects of the current international downturn, the Minister will forgive me if I find that totally laughable. What would be more believable and relevant would be if the Minister had said the purpose was to protect the economy from the worst excesses and mismanagement of this jaded Fianna Fáil and withering Green Government. In perhaps the most desperate words ever used by a politician for self-justification, the Minister told us last Thursday that the Bill will give effect to the proposed budget changes and help restore order and stability in the public finances - some hope with the inadequacies of budget 2009.

This was not the end of the farce. Once again, the Minister and the Government are harping back to what is becoming an old chestnut at this stage, the development of a knowledge-based economy. With a quarter of Irish adults functionally illiterate, perhaps rather than put the cart before the horse, it might be advisable to enhance rather than diminish educational spending and provision, to give what seems to be a pipe-dream of a knowledge-based economy some chance of getting off the ground. Words are cheap but the day-to-day reality for everyone in the workforce is that jobs are being eaten up at the rate of one every three minutes as the result of the Government's economic mismanagement, forcing businesses to close their doors. It is happening in my county and in County Westmeath, the two counties I represent. As a Deputy for Longford-Westmeath, which has suffered from continuous Government neglect under the watch of Deputy Peter Kelly and Deputy Mary O'Rourke, I am only too aware of the impact this is having on rural areas.

According to the latest live register figures, the number of people signing on in County Longford stands at 3,423. This represents an increase of 1,136, or 49.7%, in 12 months and a rise of 678, or 24.7%, since Deputies Cowen and Coughlan took over as Taoiseach and Tánaiste.

Unemployment in County Westmeath to the end of October was 6,213, with a figure of 2,331 in Athlone, up 1,470 since October 2007. The Castlepollard figures are up from 424 in October 2007 to 796 and Mullingar has 3,086 on the live register, an increase of 52.5% from the October 2007 figure of 2,023.

The standardised unemployment rate of 6.7% is the highest since 1998 in percentage terms. Ireland now appears certain to overtake the European Union average by the end of the current year. With the live register showing the biggest monthly increase in history, hard-hit families are suffering in their thousands from Fianna Fail's botched handling of the economy. The Government is paralysed and not one Minister is performing at the present time.

Unemployment is the human cost of economic mismanagement. The Government has abandoned the people on employment in the same way as it has on public services and finances.

The Tánaiste, Deputy Coughlan, as Minister for Agriculture and Food, was responsible for a large number of midlands farmers being driven off the land and now it looks as though she will stand over a continual pattern of job losses in the midlands. Nothing changes in agriculture, however. The Minister's successor, Deputy Brendan Smith, has shamefully axed the farm retirement scheme and the installation aid scheme for young farmers, as Deputy Connaughton said, once again hitting the livelihood of our farming sector. There is nothing in the Finance Bill to relieve farmers from the 1% levy on their gross income. Across the board the midlands is losing out under this Government. Whether it is the under-spend in BMW funding, corporate expansion, foreign business investment, infrastructure, health or education, this Government leaves the midlands out of the equation.

Six months ago, when the Tánaiste, Deputy Coughlan, took the Enterprise, Trade and Employment portfolio, I shuddered to think what the new Minister could do to make the situation in the midlands worse. Those months have told me exactly what her capabilities are, or rather, are not. There is a history of Government neglect in respect of Longford-Westmeath. The area has been shamefully disregarded in respect of the natural gas expansion scheme. Companies operating in Longford-Westmeath have again been left on the hind tit in respect of this important facility. Seven years after it was first promised inclusion under the expansion scheme, Longford-Westmeath is now under consideration for the final phase, phase 3, of that scheme. I do not like the word "phase" because I am aware of the position with regard to the development of the Longford-Westmeath General Hospital, which has been ongoing for the past 13 years under a Fianna Fáil led Government.

It is frightening to consider that in one year unemployment in County Longford has risen by 49.7%, and Athlone has seen an increase of 58.6% in the past year, with rises of 87.7% and 52.5% in Castlepollard and Mullingar respectively. Government policy is to blame others for the shocking rise in unemployment in Longford-Westmeath and other areas throughout the country. Far too many jobs have disappeared as a result of the high cost base. Companies are leaving the country and transferring their operations to more business-friendly locations abroad.

Stealth taxes, high fuel prices, infrastructural deficiencies and a lack of competitiveness are driving up unemployment figures at an alarming rate. We need a high level of intervention and investment by Government and State agencies to secure a future for the people, and particularly my counties of Longford and Westmeath. This country lacks an industrial strategy geared towards low taxes. The Government deserves criticism in respect of inflation and the lack of competitiveness. There is no competitiveness.

The Government must overhaul FÁS, which was described today in the other House as a protected political species, and provide a public works scheme for the unemployed. I call on the Minister and the Government to restore competitiveness and to support business, in particular small and medium enterprises and other companies throughout the country and in the midlands region, which has been badly hit recently. It is clear to everyone but the Government that this can be achieved by freezing charges such as rates and development levies; reducing utility costs for electricity, gas, water and telecommunications; investing in infrastructure, in particular broadband, road and rail; cutting back red tape; reversing the hike in VAT; and suspending the pay deal, consolidating labour law and abolishing anti-employment provisions such as double pay for Sunday working in the catering sector, something that a huge number of my constituents have come to my office on in recent weeks. The Minister will close down public houses and restaurants on Sundays with its carry-on in regard to double pay because most of the people employed on Sundays are young students who need the few bob but they will not have the few bob to spare to help them with their education and accommodation if restaurants close as a result of Government policy of doubling the rate of pay on Sundays.

I do not want to waste too much of the time of the House but the issue of the banks must be addressed. They are behaving dreadfully towards businesses and in terms of freeing up credit for people. In the past, farmers, machinery operators and other business people had no problem repaying mortgages and loans. There is now a credit squeeze and their industries are stifled because of the behaviour of the banks. The banks should free up more cash for those businesses, allow the economy to survive and save jobs.

Householders are becoming homeless as a result of home repossessions. The onus is on the Minister to minimise repossession. We need a proper mortgage rescue scheme to prevent families becoming homeless. The Minister should also increase awareness of the advice services for people experiencing difficulties with mortgages. Comprehensive advice should be available to people currently experiencing difficulties and there is an onus on the Government to provide that.

The next speakers are Deputies Cyprian Brady and Chris Andrews who are sharing 20 minutes. Deputy Brady has ten minutes.

If it is agreed we will take ten minutes each.

I welcome the opportunity to speak on this important Bill. When we consider the economic climate, not just at home but abroad, this legislation is probably one of the most important legislative measures this House will have introduced in a very long time. We are a small, open economy on the periphery of Europe susceptible to the changes taking place globally in economies we have used as models for many years but which are now struggling.

The only welcome aspect is that the foundations we have laid in the past ten years will ensure we do not experience some of the more drastic and sudden collapses we have seen in other economies. Commentators and speakers in this House have mentioned countries such as Iceland but difficulties are being experienced in countries like Japan, which we regarded as a model economy for many years. When we consider how susceptible we are as a small country, the chances are that this legislation will have to save us from going under like some of the other countries. This legislation is about managing our way through the difficulties. I have to laugh when I hear some commentators say we have wasted the so-called Celtic tiger and its benefits.

What about electronic voting, PPARS, etc.?

I come from a working-class area in the inner city of Dublin and I see it there. The transformation in that area in the last ten years is phenomenal. Less than a generation ago we had very high unemployment, social deprivation, rampant crime and drug abuse in the north inner city.

We still have them.

We now have third-level institutions, financial services centres, new housing, schools and colleges. This Bill is about providing those changes for people. Despite the recent losses, we have 600,000 more people in employment than we had ten years ago. They are 600,000 families and individuals who, ten or 15 years ago would not have had a job and a house. We had generations of that. We have doubled our exports over the last ten years. This Bill is about the management of where we go and what we do now.

Changes have taken place, particularly in the employment market. The costs of doing business in Ireland have increased, but so have wages and profits, and employment conditions have improved. Companies have come here from all over the world to take advantage of the situation we have had for the last ten or 12 years. Nobody can say we have not managed to attract our fair share of foreign direct investment when one considers the competition not just from Europe but throughout the world.

For many years I have listened to people denigrate developers and business people solely because they took advantage of the economic conditions of the last ten years. These are Irish people who took a chance, set up a business and took advantage of it. They employ Irish people and we should make no apology for supporting those people and ensuring they were in a position to do business.

The Government has wrecked their businesses.

We supported and encouraged entrepreneurs to open businesses. That forms a large part of some of the sections of the Bill, particularly changes in research and development and increasing credits to 25%. This Bill continues to support those businesses and the higher value research and development companies we have managed to grow over the last number of years. We have been in a position to provide graduates from our third-level institutions to take advantage of the progress made in research and development. We have to continue to do that and to improve on it. The competition is not just in Europe and the UK. We compete with Asia, the Far East and the United States, particularly in these high-value, high-end businesses. Countries such as China and India are much farther advanced than they have been in recent times. We must continue to invest in our people. That is what we have done up to now. We have invested in our people and we will continue to do so. This Finance Bill does that.

There are 95 sections in the Bill and six schedules. I listened to the Minister of State, Deputy Mansergh, go through some of the detailed sections but some of the simple changes in the Bill will be extremely effective. There are simple changes in the business expansion scheme and the seed capital schemes. Extending the cut-off date for claims by three months will make a significant difference to businesses starting off and continuing in to the future. It will change those schemes and make them more user-friendly and attractive for people to take advantage of. It is a very small change.

The changes to vehicle registration have been sought for some time. The establishment of a register particularly for secondhand and imported cars is crucially important. In the 1980s and 1990s we went through a spate of importing cheap cars from the Far East, some of which were not safe and caused accidents. Having to register foreign registered cars after 42 days is right because we have had an influx. People have raised this issue with me on a regular basis, particularly regarding foreign-registered cars.

I greatly welcome some of the other details, for instance section 12 provides for an increase in the rate of mortgage interest relief for first-time buyers from 20% to 25% in years one and two and from 20% to 22.5% in years three, four and five. It also provides for a reduction in the rate of mortgage interest relief. This protects people who have been in a position, up to now, to take up a mortgage and buy a house because they were in employment. We should not have to apologise for that. To listen to some commentators one would swear it was an offence to provide housing for people. We have provided record numbers of houses and made them available to people. The market dictated the prices. We managed to get mortgage relief right eventually. This is just another step in that direction.

I welcome the fact that the so-called Cinderella rule is changed by section 13. This takes advantage of the progress people have made in various different professions over the years. It is right that we expect people who have managed to do well and make a lot of money to make a contribution. Nobody would have a problem with that.

There has been much talk on the introduction of the air travel tax. I very much welcome the changes on this in the Finance Bill. When somebody is considering travelling abroad the pain of €10 extra will not change his or her mind. That is the principle behind this. The reduction to the lower rate of €2 for all airports is very much welcomed. People can and will accept this. Over the last number of weeks since the budget it has struck me that a number of people have said they are willing to take some pain to keep us going and to continue to provide services and improve our education and health systems. The Bill is probably one of the most important pieces of legislation the House will introduce.

I am delighted to have this opportunity to speak. If anybody remained unconvinced that we live in a globalised world, they now realise we are part of something bigger than just a country alone. In many ways we are like a little ship bobbing on very stormy waters. Unfortunately we are being thrown around because of our dependence and interaction. We are more exposed than other countries and are probably suffering more than most. I heard the Minister speak earlier. It is hard to believe that each day seems to bring worse news and more negativity than the previous one. Almost all countries are suffering financial difficulties. The United States economy appears to be frozen. The President-elect, Mr. Barack Obama, seems to be stepping into the breach by trying to heat up the American economy with cash injections. I understand the US Treasury Secretary, Mr. Hank Paulson, today decided to inject a further $800 billion into the US economy. While people might find it galling that such money is being used to bail out Wall Street, as opposed to Main Street, there would be repercussions around the world if such action were not taken.

Deputy Cyprian Brady spoke about the notion being peddled by the Opposition that the Celtic years were wasted. I will give an example of how money was spent for the benefit of this country during that period. In 1997 there were virtually no special needs assistants in our schools. In 2008 there are 10,000. Such assistants support children with special needs. They ensure the right of such children to an education is vindicated and help them to develop. That is where the money has been spent in the last ten years. It is helping disadvantaged people who are less fortunate than Members of this House.

The budget introduced comprises a balanced and coherent plan to address the difficulties we are encountering as a consequence of falling revenue. It has focused attention on the severe challenges and difficulties we face. It is important to stress that we are not going back to the 1980s which was a completely different time of mass emigration. We are in a different position. We are in good shape to take advantage of the tough decisions being made in the budget and future ones.

It is unfortunate for the person who becomes unemployed. However, there are 600,000 more people in employment today than there were ten years ago. Our export levels have doubled in the past decade. As Deputy Cyprian Brady said, our living standards have improved dramatically in that time. We have one of the lowest debt levels in the European Union. There are over 600,000 more people working now than there were in 1998. There are 2 million people at work in this country. We have a low debt-to-GDP ratio. It has decreased from 53% of GDP in 1998 to 26% this year. We also have a pension fund and a generous welfare system. In real terms, the State pension is one of the highest in the European Union.

It is easy to criticise young people. We have an energetic, well trained and well educated young workforce. By international standards, we have a low tax environment for workers and business. That has been an important driver of economic growth. I am glad to say administrative changes will take place within the Health Service Executive and the rest of the public sector. People are looking for dramatic changes to be made in the broader public sector, as if that would change everything. In reality, public sector reform will take time. It will not happen overnight. It will be done in a constructive and meaningful manner that will see us right in the long term.

I wish to comment briefly on the banks. They appear to be unable to operate in any state other than greed or fear. We need them to be able to operate in a balanced way. It is important to stress that they were not bailed out for the sake of the banking industry. It was done to help ordinary people. If the banks had not been bailed out, this country would have collapsed, which would have had a desperate effect on families and, in particular, disadvantaged and older people. It was not done for the bankers — it was done for decent, hard-working and honest people. I am seriously concerned that the banks are continuing to look after themselves, first and foremost. They are being supported by the public, through the Government, but do not seem to appreciate that they are still in business as a result of that assistance. They do not seem to have realised that everything has changed.

The public will not accept the astonishing levels of arrogance the banks have shown to date. The banks appear to believe they are untouchable but they are in for a shock. They need to realise that they have to start behaving with a degree of humility. They should recognise that they will not get out of this mess, which they were active participants in bringing about, unless they show balanced judgment and a sense of social responsibility. If they do not do so, they will suffer just as the rest of us probably will. Now may not be the time for retribution but there will come a time when heads will have to roll. It will be expected that heads will roll. The terms and conditions that apply to any scheme of recapitalisation should ensure this happens to senior bank officials. The possible recapitalisation of the banks has been bandied about as a silver bullet that will solve everything. The reality is that recapitalisation, on its own, will not solve all the problems in the banking sector. If it comes to pass, it must be implemented and supervised carefully. The terms and conditions of any recapitalisation scheme must be very clear. They must be skewed in favour of the public purse. It is clear that supervision of the banks is key. The banks need to be brought to heel but this has not yet happened.

The income levy, one of the key measures in the budget, is aimed at stabilising tax revenues. It will mean that the better-off will pay more. The more one earns, the more one will pay. That is a positive measure. This is a difficult time and almost everyone will have to bear some pain. It is likely that those who prospered most in the last ten years will, proportionately, have to endure the most pain.

I would like to share time with Deputy Morgan. I presume that will happen when the debate resumes tomorrow morning.

I wish to begin by making a simple point. Twelve months ago Members sitting in this Chamber may have been asking themselves where would they be in a year's time. An obvious question needs to be asked. Who knew where we would actually be? I am of the view that the Government knew this time last year that the writing was on the wall. Civil servants in various Departments, including the Department of the Taoiseach and the Department of Finance, knew that the writing was on the wall. When the budget was brought before the House a number of weeks ago, the people expected two simple things to happen. They knew that we would have difficulties, that tough times were ahead, that hard decisions needed to be taken and that tough choices would be encountered. In the Budget Statement they expected a strategy to be put in place to deal with public spending and they expected an employment support package to be put in place to rescue the economy. In effect, we did not get either. The budget proved to be a record of unprecedented calamities, one after the other. For a number of years, as the economy expanded, there was an expectation that should a bad day arrive, we would be prepared for it. Like a builder leading a person to believe the roof will be fine as long as the sun is shining, we had one wet day and the water started pouring through the roof.

The Government claims foreign factors over which we have no control such as international banking and the global economic downturn are the source of our difficulties but this is clearly not the case. Two critical factors make the Irish recession unique — banking regulation and a developer-driven property market. A country can decide to elect a government that leads development or one that is led by developers. For the past 15 years, we have had developer-led government and the legislation passed during that period reflects that. Tax breaks were provided for homes that were not required while tax incentives were provided for landlords to generate further money.

Last night I watched the television programme about former Taoiseach, Deputy Bertie Ahern. In April 2004, he appeared on our televisions on a Friday night complaining about those who said the property market was in danger of collapse. He called them naysayers and so on. However, that year the price of property was beyond the reasonable grasp of middle income earners. If hard working families could not afford to buy a home, surely there was a significant problem in the property market. For whose benefit were houses being built? Were they being built for bankers or developers or the professionals who had a 2% cut out of every property transaction? If one bought at house at the beginning of the 1990s for IR£50,000, the auctioneer was paid 2% of the transaction in fees. In 2006 when the property market was at its peak, the house was probably worth €400,000 but if sold, the auctioneer would still have been paid 2% in fees, as would the solicitor and the estate agent. Nobody in the State received wage increases of that magnitude over that 15-year period. Everyone was at it because there was no regulation and the Government, even in the dying days of the Celtic tiger, when the manufacturing base of the country was collapsing, camouflaged the problem through the Exchequer figures and stamp duty generated by the property market.

The Government parties behaved like junkies, high on the returns from property speculation and in complete denial of the problems its addiction was causing for broader society. That is why our kids must clean up the mess the Government parties have created. Like junkies high on the fix of property taxation, they ignored every single factor telling them the economy was in danger. A total of 20% of our manufacturing base was linked to the construction sector, 10% above the European norm. We know why the Galway tent was in place. Meanwhile, sewerage systems, housings standards and energy rating for housing have not been addressed because these are after the fact matters when it comes to development. The Government was happy for developers to move their houses and it did not care what happened afterwards. As a result, housing estate after housing estate was built but communities were not and they are still reeling from the effects of this mismanagement.

Given the downturn, why are the most vulnerable carrying the can? In the budget old age pensioners were hit through their medical cards, young children through education cuts and teenagers and the disabled through other measures. The Government has rescinded a number of its proposals and it will rescind more. However, the construction sector could have been stimulated and redirected many years ago through a permit scheme. The entire population could not be buying and selling houses. Credit card debt stands at more than €2 billion and, until recently, banks and credit card institutions were calling 18 year olds on their birthday offering them unlimited credit. People were offered mortgages up to 12 months ago who now cannot qualify for assistance from a community welfare officer because their finances were in such bad shape when they guaranteed their mortgages.

The Government could have done 101 things but no strategy was put in place and a crisis-driven approach to everything was adopted. I refer to a number of the more anomalous scenarios in the budget. The Minister for Finance proposes the introduction of a €200 parking levy. Low paid workers go to work at 5 a.m. every day to stock shelves or work in the merchandising area of Dunnes Stores or another supermarket in Santry or another city suburb. They must drive to work because public transport is not available at 5 a.m. and one would not walk the streets of any city in Ireland at that time. They earn a minimum wage of €200 for a 15 to 20 hour week. They must pay for the parking space they avail of at 5 a.m. outside the supermarket and when the 1% levy is taken into account, they will lose two weeks wages next year because of the budget.

The budget will result in a litany of problems but the fundamental issue is the Government has lost touch and it does not know the value or cost of anything anymore. Sadly, the Government has no recollection of what is a recession and it does not know what are tough times but one only needs to ask one question of people of my generation in this regard. Ask anybody in their late 30s to mid 40s what is their PPS number and they will quote it off the top of their head. Why? It is because they went through the 1980s signing on and signing off social welfare. That is a legacy we inherited from the 1980s. It was something I hoped our children would not have as a mark of recognition as they grew up but, unfortunately, we may be back to that time again.

Debate adjourned.