OECD and IMF Reports: Statements.

The Taoiseach

I welcome the opportunity to debate the important reports published recently by the International Monetary Fund, IMF, and the OECD. We are living in a time of unprecedented crisis in the global economy, a crisis worse than any predicted by leading economic commentators. As a small, open economy which earns its living by trading on world markets, Ireland is uniquely exposed to this crisis. It is no exaggeration to state that responding to this crisis is one of the greatest challenges the country has faced since independence. Meeting that challenge is the primary focus of the Government's effort. It requires the energy, imagination and determination of everyone in this House and the country.

However, before I outline the Government's strategy, which has been broadly endorsed by the IMF, I want to respond to some of the misplaced efforts to use this opportunity to criticise the Government's economic policies in recent years.

When I took up office as Taoiseach in May 2008, the experts in the IMF, OECD and ESRI were predicting economic growth of over 3% in 2009. They are now predicting a contraction of between 8% and 10%. In simple terms, nobody predicted what has happened globally or in Ireland.

In 2007, the IMF stated that "economic performance remains very strong supported by sound economic policies". Its executive directors commended Ireland's continued impressive economic performance, characterised by one of the highest growth rates of GNP per capita among advanced countries and one of the lowest unemployment rates. This performance has been underpinned by outward-oriented policies, prudent fiscal policy, low taxes, and labour market flexibility. They expected economic growth to remain robust over the medium term. Nevertheless, they did warn of a possible overheating in the housing market.

The IMF's latest analysis showed the housing boom was mainly caused by cheap credit due to low interest rates. This combined with rising incomes, a fast-growing population-workforce and pent-up demand for housing to create a structural weakness in the economy now exposed by the international economic crisis. However, our interest rates are set by the European Central Bank, not the Government.

Regarding those aspects in my control when I was Minister for Finance, I moved to end the tax incentives that then existed for the property market. In my first budget in 2005, I announced a review of tax incentive schemes. In 2006, in line with the recommendations from Goodbody Stockbrokers, Indecon, the Department of Finance and the Revenue Commissioners, I announced a termination date of 31 July 2008 for all existing property-related tax incentive schemes with the exception of private hospitals, registered nursing homes and child care facilities.

Most importantly, despite a concerted attempt in the media and by the Opposition, I refused to get rid of stamp duty, the largest transaction tax on property in the EU. If we had heeded those calls to remove stamp duty, the brakes would have been off entirely and we would be in far greater trouble than we are now.

This goes to show none of us was right in what we thought would happen. As the NESC said in a widely-praised report on the current crisis:

In Ireland, until autumn, 2008, there were grounds for hoping that a substantial housing-market correction, which began towards the end of 2006, and strategies to renew the economy's competitiveness by focusing on knowledge and innovation, would enable the country to enter a new phase of more moderate but soundly-based growth without major dislocation. But the global financial crisis precipitated the credit crunch which spilled over into the real economy. Ireland is now experiencing the vulnerability of its economic openness (without which, of course, the rapid expansion and higher living standards since 1993 would not have happened).

My regret is that I did not manage to predict that such a seismic shock to the world economy was going to happen. Neither did anyone else. If my crystal ball had been better than those of the IMF, the OECD and the ESRI, I would have done more to reduce spending so it would have been easier to deal with this international recession. However, I stand over the decisions I made based on the best information and advice that I had.

When times were good, I chose to spend on badly needed public services, against the wishes of the Opposition which wanted me to spend more. I also ran budget surpluses and brought down the national debt. The cumulative current budget surpluses for 2005 to 2007, inclusive, amounted to €22 billion. The national debt as a share of national income fell from 30% in 2004 to 23% in 2007.

At all times, decisions were made in good faith to reduce the debt and improve public services. This was the political consensus at the time and was consistent with the view of many IMF directors. When I was Minister for Finance, the 2006 and 2007 country reports commended our economic management and sound fiscal position.

No one has the benefit of hindsight. What I can do, and will do, is provide honest and strong leadership through this crisis. The Government is implementing a coherent strategy to manage through this difficult situation, an approach broadly endorsed by the IMF. The IMF stated the Government "has moved with resolve to counter the severe economic and financial shocks" and the IMF directors "commend the scale and speed of the authorities response so far".

The first part of the Government's strategy is to return the public finances to a stable and sustainable position. We have set out a pathway for reducing the deficit back below 3% of GDP by 2013, striking a balance between sustaining economic activity in the short term and making a credible start on the difficult adjustment required. The IMF has supported this approach, stating "the basic approach and elements of the plan are appropriate". In particular, the IMF shared the Government's view that fiscal stimulus measures that further exacerbate the imbalances in the public finances would prove counter-productive.

The IMF acknowledged the initial reliance on increases in income taxes in the October and April budgets was appropriate and that those tax increases were "a necessary process of returning tax rates to more normal levels". We have taken some difficult decisions on both public spending and taxation, and more difficult choices lie ahead over the next several years. The Government shares the IMF's view that a greater focus on reductions in current spending is needed.

The second part of the Government's strategy is to restore stability to the banking and financial system. This is not about helping the banks per se, it is about helping businesses and citizens access the credit required in a modern economy. The IMF welcomed “the important steps to stabilise the financial system” taken by the Government. It specifically mentions the State bank guarantee scheme which they say was vital to maintaining financial stability. That is the same guarantee the Labour Party opposes.

The IMF supported the establishment of NAMA which it described as:

pivotal to the orderly restructuring of the financial sector and limiting long-term damage to the economy . . . NAMA offers the prospect of extracting distressed assets from the banks, a precondition for their return to healthy functionality.

The IMF agreed it can be self-financing and stated: "if well managed, the distressed assets acquired by NAMA could over time produce a recovery value to compensate for the initial fiscal outlays." If there is a shortage as a result of getting rid of those assets over that period and the longer time horizon as suggested by NAMA, the question of a levy on the banking system to make up the difference is also envisaged. Protecting the exposure of the taxpayer to the greatest extent possible has been a fundamental perspective we have been seeking to maintain in whatever policy responses have been formulated and devised.

The IMF has the most experience in dealing with banking crises around the world. It has real banking and economic experts and their informed view on NAMA is very much at variance with the arch positions that have been adopted by the Opposition and some commentators.

The IMF rightly emphasised the importance of the prices at which the assets are purchased, a factor with which we agree. That is why NAMA has hired experts to make recommendations on valuation methodologies. The methodology will have to be validated by the European Commission. The IMF has emphasised the importance of getting the legislative and operational structure for NAMA right and ensuring the agency is in place as soon as possible. We agree with the IMF in this respect and share its sense of urgency.

Preparations for the establishment of NAMA are continuing. We have appointed experts to advise and assist departmental officials and other Government legal advisers on the drafting of the legislation and on practical preparations. We expect to publish the legislation later this month and hope to have it debated in the Oireachtas in September.

Some people seem to support the wholesale nationalisation of the State-guaranteed banks. It has been suggested that the IMF favours nationalisation but that is not the case. The IMF sees nationalisation as possibly necessary in certain situations. The Government believes it is important, where possible, for the banking sector to have a market presence and to operate in line with market disciplines. The best way to achieve this objective is to provide for a commercially focused banking system, which includes banks that have a market presence and operate within market disciplines and constraints. The nationalisation of the entire Irish banking system is not the panacea some people suggest. By itself, it would not address any of the problems faced by the banks. No country is adopting a policy of wholesale bank nationalisation. If Ireland were to take that route on its own, it could damage its international reputation with investors. That would affect not only the funding provided to the banking sector, but also the economy more generally.

The Opposition has claimed many times that no independent economist supports the Government's approach to the banks. The IMF, which is independent and has more expertise in advising on banking problems than most commentators, supports the Government's approach. The IMF does not even give consideration to the Fine Gael proposal of setting up a magic recovery bank and some legacy banks. It is clear that the IMF does not regard the proposal as a viable alternative.

The third aspect of the Government's strategy involves restoring competitiveness and returning to sustainable economic growth. The Government set out its approach in Building Ireland's Smart Economy: A Framework for Sustainable Economic Renewal. A smart economy combines the successful elements of the enterprise economy and the innovation or ideas economy. Such an economy also promotes a high-quality environment, improves energy security and promotes social cohesion. The lesson to be learnt from the severe global recessions in the past is that as well as weathering the economic storm, countries need to restructure their economies to target the next wave of economic growth. Our overall objective is to increase the productivity of our people by creating greater value in what we produce and provide as a nation. This is the key to driving economic development and improving living standards. Our vision is based on specific objectives. For example, we want to attract a greater proportion of high-value, research and development intensive, foreign direct investment. We intend to develop a critical mass of Irish and international companies that are at the forefront of innovation, create the products and services of tomorrow and provide well-paid jobs for this and future generations. We will create the conditions in which entrepreneurs will want to come to Ireland because it provides the best environment for turning ideas into products and services for sale.

Ireland will be at the leading edge of renewable energy and environmentally friendly markets. The Government intends to enhance the environment, secure energy supplies and build the green technology sector. It will provide for more efficient and effective public services and smarter regulation.

The Government has already introduced a number of significant initiatives to move towards the vision I have outlined. It has introduced a range of taxation provisions to encourage venture capital activity in Ireland and support investment in research and development and start-up high-tech companies. It has introduced a new tax regime for intellectual property. It has established a high-level group on green enterprise to identify new opportunities to create jobs and growth. The ESB has recently announced 3,700 new jobs in this area. We are promoting the restructuring of the higher education sector to better concentrate expertise and investment. The recent announcement by UCD and Trinity College of an innovation alliance is a major step forward in that regard. We are targeting a range of new opportunities for Ireland in international services including financial services, the international education sector, the maritime sector and arbitration services. We are developing an action plan to improve trade, investment and tourism links with new and fast-developing markets, for example in Asia, the Middle East and South America. This reflects the growing importance of such regions. Work on these and other aspects of the smart economy is ongoing. To take this effort further, we have established an innovation task force to support a co-ordinated approach to the development of Ireland as an innovation hub in all sectors of the economy. The final part of our strategy involves maximising employment in the short term and helping those who lose their jobs.

Deputy Joe McHugh

Almost 20,000 people are losing their jobs each month.

The Taoiseach

I understand the impact unemployment can have on individuals and families. Our objective is to retain as many of this country's 1.8 million jobs as possible, while ensuring those who lose their jobs have opportunities to develop new skills or qualifications which will prepare them for a return to employment. The €100 million stabilisation fund, which we have established to support vulnerable but viable companies over the next two years, is operating well. It will help companies to reduce costs and increase sales in recession-hit overseas markets.

As well as stabilising the banking system to restore the flow of credit to the enterprise sector generally, we have taken specific steps to help small and medium sized enterprises. The recapitalised banks have committed to increase their lending capacity to such enterprises by 10% over 2008. European Investment Bank funding of €350 million has been made available to such enterprises. An independent review of the wider issue of credit availability and trade finance is being finalised. The Government has established a clearing house with representatives from the business sector to monitor trends in lending to enterprises and address any blockages that are identified. We are seeking to maximise the number of people in employment by sustaining a high level of investment in labour intensive infrastructure. We are actively exploring new and innovative ways of accessing private sector finance to support public private partnership projects. We have seen average reductions of 10% and 12% in electricity and gas prices. The costs faced by large industrial users remain out of line with international competitors. We are working to identify and make progress with further measures to improve the situation for Irish business in this critical era. We are introducing a new initiative to safeguard vulnerable jobs through a temporary employment subsidy scheme. This has been developed in consultation with the social partners. It will provide a subsidy to support jobs in exporting companies in the manufacturing and internationally traded services sectors.

Deputy Damien English

It is 18 months late.

The Taoiseach

The scheme has been designed to minimise the risks of deadweight and displacement. Its roll-out will be carefully monitored. This new scheme is in addition to the significant support the State already provides to people on short-term work. Compared to 12 months ago, an additional 50,000 workers are receiving social welfare payments in respect of short-time working. This is the equivalent of, or in many cases greater than, the support offered in other EU member states. The Government's focus is on delivering good outcomes through measures that work. We are keen to allocate resources where results are proven.

However, we cannot avoid the difficult adjustment that needs to take place in the labour market. Costs have to fall. The level of employment in certain sectors, particularly construction, was not sustainable. This week's live register figures highlight the scale of the challenge. The best pathway to sustained job creation and economic growth is to regain competitive advantage in the marketplace by doing whatever is necessary to retain and regain market share in an environment of depleted demand.

The Government has introduced a wide range of measures to help those who have become unemployed. Some 128,000 training and work experience activation places, funded through FÁS, have been established this year. Provision has been made for 146,000 participants in further education programmes. In all our policies, our priority is to create job opportunities for such people. That will not happen unless we have stable public finances, a sound banking system and sustainable growth based on a competitive economy that is to the forefront in innovative terms. Despite what some people claim, there is no short-cut or easy solution. As the IMF has pointed out, the adjustment is and will continue to be difficult.

The Government is working with the social partners to try to manage that adjustment. It is willing to listen to good ideas from any source. We will not try to fool people into believing difficult decisions can be avoided. The global economic and financial crisis, which was not foreseen by the IMF, the OECD or any similar commentator, has hit Ireland hard. The Government's past decisions were informed by the best forecasts and advice available at the time, given the downside risks that also existed. They have all crystalised together, which has added to the complexity and difficulty we are encountering. The Irish people will not thank us for wasting time and energy wishing things had turned out differently. We owe it to them to concentrate on dealing with the world as we find it——

Deputy Seymour Crawford

What about the world that was shaped by the Government's decisions?

The Taoiseach

——and to make the right decisions now. The benefits of adjustment that is based on realistic engagement with the social partners and at enterprise level, and is combined with structural reforms across the economy, will place us on a strong footing to grow again when the international economy recovers.

The Government has set out its strategy for managing this difficult adjustment. It welcomes the IMF's support for its broad approach. We will continue to implement the strategy I have outlined and provide the leadership that is required to bring the country through this crisis.

I got a letter this morning from a man who worked for 26 years in a reputable company and then applied for a FÁS course in domestic appliances which was held in Shannon last year over four or five months, to which he travelled from his house. There were ten buckets in the warehouse where the course was being held to collect rain water. The person giving the course did not know the outlet tube from the inlet tube in any washing machine. There were no domestic appliances on view. This was a course that was paid for and somebody endorsed it at a time when Members of this House through the Committee of Public Accounts were examining elements of training being done by FÁS. I shall write to the Taoiseach about this and I hope he gives me a considered response. It seems to have been a training course that was "phantom" in its proposal and useless in its output.

The Taoiseach also talks about not fooling the people as regards difficult decisions that cannot be avoided and must be made. I respect that, but the Taoiseach said in the Dáil the other day that for the first time the numbers signing on the live register were declining when they are at 418,000 — for the month of June an additional 21,000 people signed on and the figure is expected to increase upwards. It is important to have trends from seasonally adjusted figures, but it is neither true nor honest to say that the rate of unemployment and the numbers signing on the live register are declining when the fact is that 1,000 people a day have signed on every day for the last six months.

The recent IMF report on this country is a damning indictment of the Taoiseach's tenure as the former Minister for Finance. The report makes it clear that the failed policies of the Government have given Ireland the worst recession in the advanced economies. Thousands of people have lost their jobs because the Taoiseach and his Government failed to do their job. The IMF leaves no room for doubt, and despite the Taoiseach's selective quotations, I shall give him a few more. On page eight of its report it says that Ireland was, perhaps, the most overheated of all advanced economies. I challenge any Member on the Government side to look at the remarks and contributions made by Deputy Bruton, in referring to budget after budget since 2003. On page 21 the IMF argues that well before the crisis hit, the public finances had developed serious structural weaknesses. When I asked the Department of Finance recently, under the Freedom of Information Act constrained by this Government, for the information given to the Minister for Finance from Departments, including his own, as to the projections for spend and the emphasis as regards where that might lead us, the charge requested was €6,000.

The executive summary of the IMF report could not be clearer. It states that given its imbalances Ireland was especially vulnerable to the recent global shocks. Every country has had its share of hits in terms of the global recession, but the sump in this country has run dry because the reserves were spent and blown during a period of enormous economic expansion. Some of this money was spent to very good effect, but a great deal of it was wasted through inefficiency, mismanagement and downright profligacy.

The current Minister for Finance has certainly got the point. No sooner was this report out, than he was out of his box, popping up on the media like a latter day Pontius Pilate to say the economy was overheated, while adding that he was not a member of the Government at the time. I would remind the Taoiseach that the Minister for Finance does not share his view that political loyalty is a virtue. Loyalty is not the only virtue, however. There is a need for honesty and for people to be upfront. It is time that the Government was honest with the Irish people and admitted that Ireland is now facing what could be called "the lost decade". This was a term that applied to Japan in the 1990s after its economic bubble had burst. It was a decade of stagnant growth, when the Japanese economic miracle disappeared. It is now clear that Ireland is going down the same road Japan took in the 1990s. The IMF forecasts that Ireland's GDP will not reach 2007 levels again until 2017. That is what the Taoiseach's legacy is from his time as Minister for Finance, a decade of growth wiped out and tens of thousands facing long-term unemployment.

Just a few days ago the Taoiseach was telling the Irish people that he had nothing to apologise for. This Government, comprising Fianna Fáil and the Green Party and supported by Independents has no shame. It goes back to the fundamental experience of Fianna Fáil Party principles, when the Taoiseach said on the evening of the count for the recent elections, that it was "important to put the people first sometimes" and that it was "important to put the country first sometimes". From this party's perspective one should always put the people first and always put the country first.

If the Taoiseach had done his job as Minister for Finance there now would be no need to cut spending or increase taxes in the way the Government has. The debate here today would be about how to stimulate the economy. Instead nothing is being done for jobs, even as the GNP falls a staggering 12% in the first quarter of this year. If he had done his job as Minister for Finance, by properly regulating the banks and cooling the property boom he knew was happening, there would not be a banking crisis of the scale and magnitude that has occurred. Any Deputies on this side of the House, from Fine Gael or the Labour Party, who warned about this were blown out of it by Fianna Fáil Ministers saying in effect: "You're talking down our country and our economy. Why do you not go away and commit political suicide?"

If he had done his job as Minister for Finance and listened to the IMF, the Fine Gael Party and Deputy Bruton in particular, when they warned that Ireland was losing its competitiveness, thousands of jobs could have been saved. Instead, unemployment has now reached 11.9%, the second highest in Europe. The Taoiseach and his Ministers did not do the job and we are now in crisis. As they did not do the job, hundreds of thousands of people must now lose theirs. For several months at the beginning of this crisis, both the Taoiseach and every Minister in Government denied there was any problem. They then panicked, brought in emergency measures and went on to do a subsequent U-turn on many of them. Every step of the way this Government has only taken action when it had no choice. Even then it did not go about it in the right fashion.

The attempts by the Minister for Finance, Deputy Brian Lenihan, to spin the recent Exchequer returns show that even now the Government is not being straight and upfront with the people in all of these matters. The truth is that apart from corporation taxes, where the rules were changed, there has been no underlying improvement in the tax take. The impact of higher tax rates has been offset by a weakening economy and public spending continues to increase. The implications are obvious. The Government is again on course to miss its own fiscal targets. For 2010 the Department of Finance is currently forecasting a budget deficit of 10.75%. However, the IMF, that independent, reputable body the Taoiseach quotes, forecasts that the deficit will be two points higher at 12.75%. In other words, the IMF is saying that the Government will have to find approximately an additional €3 billion in savings or tax increases in its next budget if it wants to meet 2010 targets.

If all of this was not bad enough, Moody's, the credit rating agency, has lowered its rating on Ireland. It is also warning that the rating could be cut again, if the budgetary situation does not improve. I made this point in the House a number of weeks ago; due to the lack of clarity about the discount to be applied by NAMA, banks are telling their stakeholders the discount will be of the order of 20%. That means, by implication, that bank shares rise and the country's credit rating decreases.

Moody's pointed out two chief concerns. First, they warn that Ireland faces a "debt trap", where a shrinking economy keeps the deficit high, despite higher taxes and spending cuts. Second, they are very worried about the impact on our economy of the banking crisis, a subject the IMF report also addresses. The figures produced by the IMF are terrifying. It estimates the total losses in the banking system could be a massive €35 billion for property development loans alone. However, it also believes losses are likely to extend well beyond the property development sector. In other words, total losses may be well over €35 billion.

Fine Gael's position has been very clear — we must protect taxpayers. Unfortunately, nobody has any clear idea how much risk the taxpayer will be taking on through NAMA. It appears we will have heads of a Bill and the Dáil will be called back in September to deal with NAMA. Some nine months after the banking crisis started, the Government still refuses to give anybody, including the IMF, estimates of the losses in the banking sector. In this pre-NAMA phase there is clearly a crisis with business all over the country. Banks are restructuring loans and reissuing them as new loans. Banks are refusing to give credit and overdraft facilities to thousands of businesses.

Deputies

Hear, hear.

Deputy Enda Kenny

Banks are telling businesses they will be taken over by NAMA and they should not come near the banks. If the Government does not do something about this in the pre-NAMA phase, hundreds of thousands more jobs will be lost. It appears as if a discount of 20% being touted from bank sources will mean a massive transfer to the taxpayer for acquisition of these assets. It gives the perception that the Government is more interested in bailing out professional bond investors who turned Irish banks into casinos than in protecting our citizens and taxpayers. There is clearly a crisis in this pre-NAMA phase and it requires urgent and direct action and response from the Government.

Far from being an endorsement of the Government, as the Taoiseach is trying to spin it, the IMF report supports key elements of Fine Gael's policy and analysis in this area. The authors of the report have made it very clear that Ireland needs new sources of economic growth. Fine Gael is the only party that has put forward a detailed plan to transform this economy into a new "smart green economy". The NewERA strategy promoted by Deputies Coveney, Varadkar and Bruton will invest €11 billion in major infrastructure projects in energy, broadband and water. I welcome the Taoiseach's response the other day that he will give me a considered analysis of our proposals.

Irish pension funds which are cash-rich want to look around for investment opportunities in the country and the creation of a holding company with commercially driven companies achieving targets and objectives on time would allow for such investment. The infrastructure provided would be an attraction in itself for further investment and the creation of up to 100,000 jobs and the protection of a further 80,000 jobs all over the country were that to be followed. Fine Gael's NewERA proposal will make our economy one of the most competitive and green in Europe, and generate up to 100,000 jobs.

The IMF report argues very clearly that spending cuts, not tax rises, are the best way to deal with the deficit. Fine Gael has consistently argued that too much emphasis is being placed by the Government on raising taxes, rather than cutting State expenditure. The IMF believes that, unless it is done properly, spending reductions could end up hurting the most vulnerable. God knows, every Deputy in this House is seeing evidence of that every weekend at their clinics. It is precisely for this reason that Fine Gael has consistently called for real reform of our public sector so those working in the public sector know they are contributing to the good and benefit of the country, and that good government can create a more efficient system where everybody can deliver the services the taxpayer deserves and seeks. We have pointed out how that can be done through our FairCare health policy, which will help protect front line services. The other day the Minister for Health and Children said we were spending €16 billion, but it is not delivering the service or efficiency we need. Fine Gael has pointed out under our FairCare programme how that can happen.

Any fair minded individual reading the IMF's report can come to only one conclusion: after 12 years of Fianna Fáil in office and incompetence in managing this country's economy and the people's affairs, we are, once again, the economic sick man of Europe. Most countries are facing serious economic difficulties. Few, if any, are facing a crisis on this scale. The crisis we face is even more serious than the one we faced in the 1980s.

If the measure is economic incompetence, nobody can match this Fianna Fáil Government's record. It deserves to be in the Guinness book of world records. Ireland is suffering the worst depression of any advanced economy since the Second World War. It is, on average, four times greater than the decline of other OECD countries. Our public finances have suffered the worst deterioration of any EU country. The creation of NAMA means Ireland will have the biggest property company in the world, valued between €80 million and €90 million. That is a testament to and legacy of what went on in the past ten years.

As always, the taxpayers of Ireland pay the price for Fianna Fáil profligacy. The people pay the price for incompetence, arrogance and a refusal to listen to common sense. We live in an Ireland in 2009 where "Celtic tiger" has become an international punch line, 500,000 of its sons and daughters will be out of work by Christmas and 100,000 families face negative equity. We live in an Ireland where we take medical cards from the elderly, close children's hospital wards and pump billions of euro into failed banks.

It is impossible to escape the fact that this Government has turned economic incompetence into an art form. In the space of five years, we have gone from "champagne Charlie" to "bankrupt Brian". The Irish people deserve better. So much could be done in this time of recession. The Department of Finance appears to be suffering from complete paralysis. There is no energy and enthusiasm in Government and no plan to deal with this. So much could be done now. The Government cannot tax its way out of this recession. It is time for the Government to go, and to be replaced by a Government that has a plan and a team that will transform this country into one with services that are up to standard, which the people pay for and deserve. It will not happen under this outfit.

Deputies

Hear, hear.

Deputy Charles Flanagan

And not a green shoot in the House.

Deputy Eamon Gilmore

This is a very important debate. Those were two very serious reports on the state of our economy. I had hoped that we might be able to have a considered discussion in the House on their contents and how we might be able to respond to them. I was disappointed that the Taoiseach instead of pursuing that approach has resorted to a kind of scripted version of a church gate party political speech, which was more about self-justification, an apologia for his time as Minister for Finance and some good old-fashioned thumps at the Opposition. In the course of doing that the weapons used are always distortion and misrepresentation. Let me take three specific items from his speech.

First, there was the argument that because he did not see it coming nobody else saw it coming. I accept that none of us saw the collapse of Lehman Brothers coming, but this party, the Labour Party, certainly saw what had been happening in the property market and in housing prices for more than a decade. We drew attention to it repeatedly here in the House and repeatedly we introduced proposals — which the Government derided — in an attempt to address the spiral of land speculation and rising house prices which were going to be, and turned out to be, unsustainable.

The second distortion related to stamp duty. The Taoiseach said the Opposition wanted to get rid of stamp duty. That is not so. The Labour Party and, I know, Fine Gael wanted to reform stamp duty. The person who announced that he wanted to get rid of stamp duty was the then Tánaiste, Mr. Michael McDowell, in September 2006. I still meet builders who tell me that the last day they sold a unit they were building was the day before Mr. McDowell announced that there would be an abolition of stamp duty. That and the dither for which the Government was responsible afterwards in responding to it were what contributed to the decline in confidence in the building industry.

The third distortion is what the Taoiseach said about some people wanting wholesale nationalisation of the banks. When he says "some people", I presume he means the Labour Party and the 20 eminent economists who agree with our position on the banking situation. None of us is saying we want wholesale nationalisation of the banks. We have been saying there should be a temporary nationalisation of the larger banks, which is an entirely different matter.

We need this debate not just because of the reports, but because vital decisions will be made by Government most likely during the summer recess. Many of those decisions may be very difficult to reverse afterwards. We need the debate because the report of the IMF in particular calls attention to fundamental flaws in the Government's approach to the banking crisis in particular, which it is not too late to address. The report of the IMF is not gospel. There is much in it with which I would differ, and all of us are entitled to do so. However, it is the work of an influential international body that brings an important external perspective and we should take it seriously.

The IMF report rightly analyses Ireland as having three inter-linked economic crises. It summarises the complexity and difficulties involved quite crisply in stating:

The authorities agree that the risks remain significant. The risks arise from the continuing interaction of slowing growth, financial sector stress, and the state of public finances, with each threatening to pull the other down. If the distress in the financial sector is larger than currently estimated, this damaging reinforcement could accelerate.

In other words, we must address the jobs crisis. No one doubts the importance of fiscal crisis. No one doubts either the importance of the banking crisis — of restoring the flow of credit. However, we also need to deal with the crisis in the real economy — people losing their jobs and their businesses. The Labour Party has repeatedly come back to this point. If the Government thinks that higher unemployment is the cost of saving the banking system and the public finances, it is wrong. Keeping people in work, keeping businesses going, and supporting new ventures with whatever tools are available are essential to dealing with the other two crises. The tools are limited, but they do exist. Labour has argued, for example, for a State investment bank that would fund infrastructure development and also provide finance to business.

Of course, we must demonstrate that the public finances are on a path to sustainability, but we cannot ignore what is happening in the real economy. The construction sector, in particular, is in dire straits. Yet at the same time many infrastructural projects which could be carried out would yield a positive long-term return. There is an opportunity to make these investments now when there is spare capacity in the building sector and tender prices are at an historical low. That is why Labour has been calling for a new national development plan to be drawn up and innovative financing options to be examined. I agree with Deputy Kenny on the potential in private pension funds for the financing of some of our infrastructural work. Given that the construction sector is operating below its sustainable level, jobs and incomes can be saved, and valuable infrastructure put in place with a determined approach by Government.

It is also vital that we provide training and work experience opportunities for the unemployed. Labour has repeatedly made the argument that we must learn the lessons of the 1980s. It is not economically, socially or morally credible, that this State would be passive in the face of 500,000 people on the live register. It is simply not acceptable. I cannot understand the inertia from the Tánaiste and her Department on this issue. Modest proposals have been brought forward in the budget and since then on training, but they are minuscule when compared to the scale of the problem. While active labour market programmes cost money, the cost is modest when it is realised that the person on the scheme would otherwise be in receipt of a social welfare payment. We also know that schemes do not need to be expensive to be successful. Labour has brought forward a range of innovative ideas that attempt to learn from the experience of the 1980s: an earn and learn scheme; a bridge the gap scheme for work experience; more places in further education; new criteria for the back to work and back to education schemes; a tax back scheme for people who want to go back to full-time study; and literacy programmes for those with reading difficulties who are among the most vulnerable when they lose their jobs.

The Government's response has been piecemeal and limited. It has agreed an "earn and learn" scheme, but with only 277 places. It has done some work on training and education, but the scale of the response does not meet the scale of the problem. If there are to be 500,000 people on the live register, then we should be thinking in terms of 100,000 new opportunities to gain skills and experience. This is not a matter of giving people on the dole something to do. This is about ensuring that we do not allow the build up of a new group of long-term unemployed. It is about investing in a pool of people who will be more highly educated, more highly trained, better skilled and better prepared to participate in the recovery. This is an investment that has a long-run impact on the productivity of the economy and there is an opportunity to do so now when the economy is in a downturn.

Those are but two areas of policy. There are others. We should review supports for SMEs, to help viable businesses to survive and new businesses to start up. Businesses today are being crippled. They are suffering from the drop in trade as a result of the recession. The banks will not lend them money and they also need to deal with a range of State bodies, such as Revenue, the local authorities and regulatory bodies, some of which are continuing to behave as though Ireland was still at the height of the boom rather than in recession.

Labour has argued for a temporary PRSI exemption scheme for companies that create new jobs. We have argued that local authorities should have discretion to introduce rates exemptions for new businesses. We have also argued for changes in the law on rent reviews. Here I had hoped the Government would adopt Labour's Bill in this area, but instead it is applying the new rules only to new leases, which is of little use to those already in leases and are hard pressed in their businesses.

If we are to develop a new NDP, we should consider the capacity of each sector in our economy to create jobs. Are we making the most of the food industry? What about tourism? At the height of the boom the Irish tourism sector was in danger of pricing itself out of the market. In the past 12 months, accommodation prices have fallen by 12.4%, which is something we can now sell abroad. We repeatedly come back to the point that the Government is ignoring the jobs crisis, which is undermining its capacity to deal with both the banking crisis and the fiscal crisis.

The IMF is an intergovernmental organisation, which takes care to couch all its comments in the most diplomatic language. The report was written so that the Government would be able to welcome its findings — such is the nature of the process. Yet, amid the carefully constructed language, two things stand out. The first is the estimate from the IMF that the banking crisis will cost the Exchequer some €35 billion, which is 20% of GDP. That is a truly staggering figure to contemplate. It is important to note that a billion has nine zeros. It means that because Fianna Fáil were, at best, asleep at the wheel of banking regulation, every man, woman and child in Ireland is left with a bill of nearly €8,000.

While the IMF's estimate is just an estimate, it also is striking that the Government has no alternative figure to advance and that it was left to the IMF to come up with a number. This leaves one with the question as to what is the Government's figure. Although there has been a drip-feed of bad news from the banking sector for months, an authoritative figure regarding the bad debts in the banks has not been put forward. While no-one doubts this is difficult to do, in the absence of a credible figure from the Government others have made their own assumptions.

This is a central issue. As the IMF again points out and as I have pointed out earlier, there is a significant linkage between the banking crisis and the cost of borrowing for the Exchequer. The Exchequer took on a huge contingent liability by taking on responsibility for the bad loans in the banks via the guarantee that no one has been able to quantify. Therefore, it is little wonder that movements in our bond spread have been strongly associated with events in the banking system. Put simply, the inability of the Government to sell a convincing story about Ireland abroad and to put a credible figure on the cost of the banking crisis has contributed to our higher cost of borrowing. Somewhat belatedly, the Minister for Finance has been wooing the bond markets on a road show of financial markets. I was sent a copy of the presentation that he has been using by a somewhat disgruntled banker who found it much less than impressive.

The core concern of the IMF report is NAMA and in this regard the usages of diplomatic language have been strained to breaking point. It is amply and manifestly clear that the IMF mission believes the present NAMA proposals represent an unwarranted risk for the Exchequer. In IMF-speak, "price determination is a major challenge". The report goes on to essentially endorse the approach proposed by the 20 economists and by the Labour Party, which is based on temporary nationalisation. While the IMF of course does not rule out the NAMA idea, rather it seeks its redesign to operate alongside temporary nationalisation. The insertion of a long paragraph taken from recent IMF documents on the role of nationalisation is a clear signal of what the organisation actually thinks.

One also must have regard to the delay in setting up NAMA and in legislating for it. This delay is the cause of further damage to the banking system and to the economy. As NAMA will take both good and bad loans, the delay in its introduction is causing banks to restrict credit where a business has some holding of development land or property. Meanwhile, those who owe the banks a fortune for development loans have no incentive to pay the banks in the hope they will get a better deal from NAMA. In addition, the delay provides some individuals the opportunity to try to hide good assets.

It is clear there was a greater level of agreement between the IMF and the Government on the public finances, though that is not necessarily something with which I would agree. The IMF report makes a bald statement that fiscal adjustment should focus on expenditure cuts. It argues that international evidence suggests that adjustments based on cuts in spending rather than on taxation have been better sustained and often have been expansionary rather than contractionary. This line echoes comments being made by the Government in recent times. One must be particularly careful not to simply apply blindly the result of a statistical analysis of what may have happened in other countries in other circumstances to the position of the Irish economy in the present and nor should one vest this issue with any great economic mystique.

Ultimately, this comes down to fairly simple logic. For a fiscal adjustment to succeed, it must deal with the underlying cause of the deficit. If the cause is ever-increasing public spending, then the solution is to arrest public spending. If, however, the cause is an excessively narrow tax base, one then must broaden the tax base. The keys to successful adjustment are sustainability, credibility and political acceptability. If the public finances are put onto a sustainable footing and are seen to be so, it will be seen as credible and financial markets will respond positively. If an adjustment is to be sustained and sustainable, then it must be fair and must be seen to be fair. If the argument is advanced that this can all be done through lower public expenditure, then that will not be credible and will not be so perceived. If the burden of adjustment is placed on the least well-off in society, then it will not be politically acceptable and will be undermined accordingly.

The Labour Party has been arguing for years that Ireland's tax base is too narrow and that too many people have been able to avoid paying tax on too much of their income and this must change. A broader tax base is needed both because it is more fair and because it is more sustainable. The Commission on Taxation essentially was the brainchild of my colleague, Deputy Joan Burton. I hope that report will contain a set of proposals that will contribute to the required fiscal adjustment. We need a tax system that will support high quality public services in a sustainable manner and that is manifestly fair.

Equally, there must be adjustment on the public expenditure side. Again, the Labour Party has been arguing for years that the system of budgeting for public expenditure in Ireland is crazy. It is little more sophisticated than adding a set percentage each year to last year's allocation. Since 2001, Labour has been proposing better scrutiny and better prioritisation of spending and this can no longer be delayed. The Labour Party is committed to the development of the best possible public services for the people. It is precisely for that reason that we are committed to public sector reform. We seek budgeting systems that achieve this goal on an ongoing and consistent basis. Value for money in public spending is not something about which one only should be concerned when there is a budgetary crisis. It should be hard-wired into the system of resource allocation and to achieve this we will be obliged to place a far greater onus on Departments and agencies to manage their own affairs, rather than attempting to micro-manage everything from a single office in the Department of Finance.

I do not wish to see proposals for a set of random cuts from the McCarthy group but a set of proposals for doing more with less and for systematically improving productivity in the public service on an ongoing basis. While such proposals certainly should make savings now, they should do so in a managed and sustainable manner that is based on the concept that public services often are different from private companies, which is the reason they are in the public sector in the first place. However, I do not know whether the McCarthy report passes that test because the Government has neither published it nor committed to so doing. What is the big secret? Last April the Labour Party asked for the departmental submissions to the McCarthy group but was not provided to them. There is no sign of the report and all one gets are leaks. The report should be put into the public domain in order to ascertain its contents.

One also must ask why a McCarthy group was needed in the first place. Without being disrespectful to the people who are on the group, why is an outside group needed to tell the Government what to do? The Opposition parties are constantly asked what would they do and are expected to have detailed answers, which is fair, and as far as possible, they give them. However, we suffer from a disadvantage, namely, we are not in government and do not have at our disposal the managerial information that comes from being in government, which is the kind of information one only can access when one is part of the system of government. However, Fianna Fáil has been in office for 12 years. The Taoiseach has served in several ministries, as has the Tánaiste. What is it that Mr. McCarthy knows about the running of the Government that the Taoiseach and the Tánaiste do not know or should not know after 12 years in office?

These are difficult times and difficult decisions will be required. However, we also must have priorities. This is the moment when values matter and for me, cutting the basic rate of social welfare is the last place one should look for economies. I do not accept that in a society in which the superwealthy can pay little or no tax, we must look for savings from those on less than €11,000 per year. Moreover, if we are concerned with macroeconomic effects, then social welfare again is the last place one should look for cuts. A person who is on the breadline spends practically all his or her income. While others will reduce savings, people on social welfare will have no option but to reduce spending. The impact on the broader economy, therefore, is greatest from that type of spending reduction.

Our country and our economy face grave challenges. We can and should address them together in national solidarity. That means the greatest contribution being made by those who can best afford to bear it. That means all political parties being prepared to contemplate difficult options. However, we cannot have any attempt to use the crisis to advance a right wing ideological agenda of reducing the social safety net or rolling back the State, while avoiding the responsibility to contribute on the part of those who can most afford it.

An important issue that we also must address is the rate at which consolidation is achieved. In this regard, the minutes of the debate at the IMF board are interesting, albeit not that revealing. They state "A few Directors, while recognizing that fiscal consolidation is an imperative, cautioned that consolidation should not undermine efforts to arrest the economic downturn". This reverts to the point I made at the outset about the interlinkages between the three crises. I am deeply concerned that we do not attempt to correct the public finances so quickly that we end up doing more damage to the real economy with negative feedback to both the fiscal and the banking crises. As I stated at the outset, there are three interlinked crises and unless we deal with each of them and in particular unless we do more for jobs and businesses, we risk making the other problems even harder to manage.

Deputy Arthur Morgan

I seek leave to share time with my colleague and Sinn Féin leader in the Dáil, Deputy Caoimhghín Ó Caoláin.

An Leas-Cheann Comhairle

Very well. The Deputies have ten minutes each.

Deputy Arthur Morgan

I welcome the opportunity to contribute to this debate on the OECD and IMF reports. Much of what they contain regarding the history of the economic crisis is correct but we cannot deny that the Taoiseach, previously Minister for Finance, along with his Fianna Fáil and PD band, is responsible for the situation in which we now find ourselves. The Greens are now equally culpable.

I would like to highlight what exactly is the IMF and its economic history. It is important to do this so the Government does not get away with using the recommendations of this disreputable body as cover for its own right wing ideological agenda.

Deputy Caoimhghín Ó Caoláin

The Taoiseach is getting away.

Deputy Arthur Morgan

If the recommendations of this report were to be implemented, we would see the economy spiral into depression. There is no stimulus package in place, just slash and burn policies. It is what we have come to expect both from the IMF and, unfortunately, from this Government.

Ironically, when the IMF was set up at Bretton Woods after the Second World War, it was meant to monitor free markets and to keep them from going astray. John Maynard Keynes, an economist to whom I would subscribe, was a proponent at the time. Very quickly, however, the IMF developed a specialty for seeing financial crises as opportunities to push a right wing, free market agenda. It aligned itself to the ideologies of powerful countries and became advocates and tools for the likes of Margaret Thatcher and Ronald Reagan in the 1980s. The IMF is a product of Milton Friedman and the Washington consensus philosophy, the same economist who is behind, in spirit at least, the current banking crisis. The IMF's agenda entails low taxes, expenditure cuts, minimum government intervention and privatisation. The kind of structural adjustment the IMF advocates had a devastating impact on Latin America, Africa, Russia and Asia.

Argentina is one example. Domingo Cavallo's IMF-backed plan sold off virtually all the riches of that country. By 1994, 90% of the state's enterprises were gone and 700,000 public servants had been fired. Eventually, half of the population had been pushed below the poverty line and it became too expensive for indigenous industries to make goods in the country. Manufacturing was virtually wiped out.

I make this point because we must consider this report in the context of who and what is the IMF. This is not a body any government should look to for advice or from which to take criticism. It is certainly not a body on which any government should become economically dependent, yet this Government pushes us a step further in that direction every day.

Some of the basic facts set out in the report are correct. Much of what the IMF says about what went wrong with the economy includes policy decisions it would have advocated at the time. The property incentive taxes that were constantly increased and expanded by Government and the lack of regulation of the banking sector were both ideological positions to which the IMF subscribes. In the same way that both of these policies failed and caused an economic crisis, the solutions offered by the IMF, and currently being pursued by the Government — expenditure cuts and economic contraction — are also destined to fail.

Last October, in the first emergency budget, my party stated clearly that we could not tax and cut our way out of this situation. We pointed out that if job losses continued to mount and jobs were not created for those unemployed, the situation would deteriorate further. The Government did not share our view, choosing instead to engage in the sort of book balancing exercise favoured by both the IMF and the ECB. Now we have a contracting economy.

Sinn Féin has unfortunately been proved correct. Earlier this week we saw the levels to which the economy has shrunk and they are the worst since the 1960s. The measures this Government continues to pursue with an bord snip nua will contract the economy even further.

It is also important to note what the IMF does not say about the lead-up to this crisis. It focuses on how wages are allegedly too high, and on how that has impacted on competitiveness. Surprise, surprise. It does not point out, of course, that we have experienced soaring energy bills because the Government has steadily increased indirect taxes like VAT on utility bills. It does not point out that we do not have universal broadband because the Government privatised the main communications provider and then left us at its mercy for broadband provision. It does not point out that our infrastructure, from schools to hospitals to rail and roads, has been described as Third World because this Government chose to invest in tax breaks for private property development rather than useful assets for the State. All of these, and more, have lead to our loss of competitiveness.

The orthodox line being pushed by the IMF, IBEC and their ilk, that wages and social welfare payments must be reduced, is a cynical and strategic attempt to target the vulnerable, not just in this crisis but for years to come.

It is also short sighted and economically naive. Our economy is contracting. Taking money out of people's pockets, so they cannot consume, while we are still heavily dependent on indirect taxes such as VAT, will contract it further.

My party is not blind to the problems facing this country with regard to competitiveness or, indeed, employers with regard to wage bills when they are barely able to keep things going, let alone turn a profit. That is why in our jobs retention and creation document, published in March, we focused on ways to help employers through this by means of a subsidised jobs retention fund. We want to see the cost of doing business reduced and have made several proposals on how to achieve this. Slashing wages and social welfare will not lift us out of this crisis. Making the right choices on budget day, going after those who can afford it, investing in infrastructure and public services, helping businesses keep afloat and stimulating the economy will right this mess.

There is a way out of this crisis. Neither the IMF nor this Government can see it, they are reverting to type. They want to strip the country of all its economic activity, of wealth from the lower and middle income families. I urge the Minister to be careful because reducing the deficit in a time of recession has rarely worked.

I will finish by putting the record straight in one regard. In his contribution, the Taoiseach claimed that no one saw this crisis coming. Of course no one saw it coming to this extent but if we go back to the election in 2007, all parties in this House, bar Sinn Féin, were advocating tax cuts. They said the economy would grow by 3% or more. At the time we were described as economic illiterates. We did not have a crystal ball, any more than the Taoiseach did, but there was a clear sign that the property bubble, together with an over-dependence on consumption taxes, was unsustainable. Unfortunately, again we were correct.

We are advocating now that the Government listen to us. To contract the economy to the point of depression will not help our case. We must be creative and embark on a substantial school building programme that will stimulate the construction sector and get people back to work, helping to put confidence back into the economy. I look forward to the Government listening to some of these suggestions but, unfortunately, I do think it will.

Deputy Caoimhghín Ó Caoláin

There is a very unfortunate Freudian slip in the summing up of this IMF report. On page 29, bullet point 52, the IMF recommends "More targeting of the vulnerable". That, I am afraid, is how this report and this Government's attitude to the economic crisis, can be summed up.

I agree with my colleague Deputy Arthur Morgan in his statement on how we should view the IMF and, in turn, this report. As a general rule, we should pay the IMF as little heed as possible, except in circumstances such as this where it produces a report that I fear may be used by this Government as cover for policies it is happy to pursue anyway.

Broad protection is given to the Government's plans on the first page of the report, where it states that expenditure cuts must be the key element for fiscal consolidation, mentioning in particular the public wage bill and social welfare cuts. In our view, there is room for both tax increases and savings in public expenditure. Sinn Féin has advocated a 48% tax on income earned in excess of €100,000. We have called for all tax reliefs to be brought to the standard rate and reviewed on their individual merits. We have put forward savings in many areas, including in the large salaries of the highest paid individuals in the State — consultants and heads of boards — and identified savings in drugs bills. In our pre-budget submission we clearly identified the billions of euro worth of structural deficit adjustment needed in the emergency April budget but we did it by making the right choices, not by targeting the vulnerable in our society.

As my colleague Deputy Morgan has pointed out, we cannot tax or cut our way out of this crisis. In public expenditure, for example, we are only catching up. It may have increased in recent years, but that was from a low starting point. We still have the third lowest public expenditure in the OECD. I point out that the portrayal of issues such as social welfare cuts and the public wage bill by the media has been disgraceful at times and certain journalists have demeaned themselves once again in their clamour to do the Government's job for it.

There is a fallacy being bandied about in this report — and by this Government and others — that must be challenged. I have heard several people refer to how Ireland must return to the early years of this decade to get back on an even keel and to restore our competitiveness. It is said we must go back to the place we were before we lost the run of ourselves. However, not everyone lost the run of themselves. Some people took out large mortgages on small homes; some saw child care costs go through the roof. While the cost of living rocketed, some depended on the minimum wage to help them cope with all of this. If we return people to the wages and social welfare payments of 2002, they will still have their 2007 mortgages, their 2009 child care costs, and their large utility and transport bills. Can we not improve the country's competitiveness in a way that moves us forward? Must we always try to compete at the basest level?

When the IMF report was published, the Taoiseach stated he stood over the decisions he had made as Minister for Finance, although he did not claim to have got everything right. As our economy collapses as a direct result of the policies pursued by the Governments led by the former Taoiseach, Deputy Bertie Ahern, and the current Taoiseach, we finally hear an admission that they did not get everything right. Big deal. The Taoiseach has yet to acknowledge that the very foundation of the Government's economic policy was unsound, based as it was on a grossly inflated property market. Like dodgy builders, the Taoiseach, in his previous role as Minister for Finance, and the former Taoiseach highlighted the flashy fittings in the showhouse while the foundations were crumbling and massive cracks were appearing in the walls.

Many people pointed out what was going on, including Sinn Féin, and we totally reject the self-serving attempt by the Government to create some kind of collective national responsibility for a massive mess created, in the main, by conservative and corrupt politicians, bankers and property speculators. The current Minister for Finance, Deputy Brian Lenihan, has tried to distance himself from the Governments of which he was a part, but he never spoke out, never shouted stop, and never questioned the flawed economic policy that has led us into the current economic disaster, with more than half a million people expected to be on the dole by Christmas. The Taoiseach and the Minister, as in the past, are in this together, as is each and every Fianna Fáil Deputy who followed them through the voting lobbies since 1997. It gives me no pleasure to say to the Minister opposite, Deputy Gormley, that responsibility also now rests on the Green Party, whose members have trundled through those lobbies time after time enforcing Fianna Fáil-Progressive Democrats policy they rightly opposed when in Opposition.

Other countries are stimulating their economies. They are borrowing strategically with the knowledge that they will invest it wisely and create the jobs and the revenue needed to get public finances back on track and repay sovereign debt. Much of what this State is borrowing is disappearing down a banking black hole because the Government has not established a workable solution for the financial institutions. We are not alone in trying to fix our economic crisis by slowing down economic activity, but we are certainly in the minority.

The economic decisions being taken now, which are set out in this report, bring to the surface an important issue in Irish politics: what do we want our Government to do? How involved do we want the State to be in the economy and the general well-being of society? Sinn Féin wants the State to be very involved. We want public employment, we want high-quality public services and we want nationalisation where appropriate. This Government and the IMF want minimal involvement and privatisation. Provisions of the State such as social welfare are not seen as important by the IMF other than when they can be reduced to balance public finances. Sinn Féin sees social welfare as being one of the methods by which one can judge a society. How it treats its vulnerable, particularly in times of economic crisis, says everything there is to know about a state.

As my colleague said, there is a way out of this economic crisis and that is through jobs, investment and education. Cutting wages and welfare, focusing all efforts on banks and balancing the budget is what the Government has been doing to date and it has not worked. How much further must we sink before the Minister and his colleagues in Government realise that clear and patent fact?

Minister for the Environment, Heritage and Local Government (Deputy John Gormley)

The IMF report is a valuable piece of work for this country. It is an independent appraisal of what needs to be done if we are to emerge from an economic crisis that is without precedent in this State. The report speaks for itself and the authors have been clear and concise in their analysis of the causes of Ireland's problems and the remedies that are necessary if we are to emerge from the current crisis. They do not need interpretation. Speaking in the wake of the report, the IMF mission chief to Ireland, Ashoka Mody, stated, "The basic message of the [IMF] report is straightforward: the imbalances in the Irish economy were serious, the response to the ongoing global crisis has been appropriate, and yet the size of the problem is such that the road ahead is a long one."

The report identifies that alongside the global economic recession, the roots of Ireland's economic problems stretch back to the turn of the century and the policies that were laid down then. Export-led growth was abandoned for a property bubble. Competitiveness was eroded and the economy became totally over-reliant on the construction sector. This was exacerbated by a loose financial regulatory system combined with a cavalier approach from the Irish banks, who rushed to lend obscene amounts to developers.

The question now facing us in Government and in this House is this: what are we going to do about it? The Opposition has, to its shame, failed to engage realistically in that debate. Opposition Members have used a cloak of unsubstantiated claims and criticisms to hide a paucity of ideas for dealing with the current crisis. They are the living, breathing, walking examples of empty vessels making the most noise. They shy away from telling the public that extremely difficult and sometimes unpalatable decisions must be taken in responding to this crisis. They are not being honest with the public. They do not tell people we cannot maintain spending at current levels and that we must fund new revenue streams.

Deputy Arthur Morgan

Closing children's wards in hospitals is unjustifiable.

An Leas-Cheann Comhairle

The Minister should be allowed to make his contribution without interruption.

Deputy Olivia Mitchell

It is difficult to listen to it.

Deputy John Gormley

They unashamedly try to mislead people as with their latest attempted con whereby they claimed that the €200 levy on investment properties was somehow an attack on the vulnerable. The people of this country deserve honesty and they have yet to get it from the Opposition.

Deputy Kathleen Lynch

They deserve a good Government.

Deputy John Gormley

Returning to the real world, we must focus on three key areas, namely, making our public finances sustainable by reducing the current deficit, making the economy more competitive, and restoring the banking system. If we meet these three objectives, the economy will recover. Each is an enormous task in itself involving some of the most difficult decisions any Government in the State has faced. If we do not face that challenge, if we do not make those choices, I shudder at what this country faces.

Regarding the Government's efforts in these areas, the IMF has stated:

The [Irish] authorities have responded in the right manner, on the two aspects that matter the most: the financial sector and fiscal consolidation. The essential policy framework within which the authorities are operating is the right one.

The IMF also stated:

There are many challenges to bringing back Irish competitiveness to a level that allows for solid and sustained growth, but the potential to do so is clearly there and the authorities are moving the economy in a direction where that potential should once again become achievable.

Lest there be any doubt about the IMF's views on the measures the Government is taking to resolve our economic and financial crisis, last week's IMF report states:

The Irish authorities have moved with resolve to counter the severe economic and financial shocks. That resolve will need to be maintained.

The IMF's press release observes:

The IMF report commended the scale and speed of the authorities' response so far, while noting that these efforts will need to be sustained over an extended period of time.

As the report states, the Government has recognised the vulnerabilities of the Irish economy to the unprecedented global financial events of the past 12 months. We have acted to contain the damage. We have introduced initiatives to repair the financial and fiscal systems. These measures will take time and determination to work. We must find a pragmatic, practical and workable balance in our policy decisions in the current crisis. Ireland must restore a functioning financial sector. It is a critical infrastructure which ensures businesses have access to cash and credit, but these measures undoubtedly add to the fiscal burden facing the country. It is a classic cheap shot for Members of the Opposition to claim the Government is bailing out cronies in the banks.

Deputy Olivia Mitchell

The Minister knows all about cheap shots.

Deputy John Gormley

I take this opportunity once again to say loud and clear that we are not acting in the interests of any bank. I abhor the underlying attitudes and non-philosophy — the creed of greed — in Irish banking, which drove us to this point.

Deputy Pat Rabbitte

The Minister must recall it was he who coined the phrase "Planet Bertie".

Deputy John Gormley

It was only when fear exceeded greed, in a clash of two of humanity's least attractive traits, that we saw any semblance of sense return to banking here and in many other western countries. However, we cannot deny basic realities. If there are no banks, there will be no credit flows and thus no jobs.

Deputy Kathleen Lynch

There is no flow of credit now. The Minister himself is sitting on Planet Bertie.

Deputy John Gormley

Ireland needs a functioning banking system. It is our bounden duty to put such a system back on track, painful as it may be.

At the same time, we must reduce the fiscal deficit in a way that is balanced and which protects the most vulnerable. This year we will borrow in the region of €20 billion to plug the gap between spending and revenue. That is unsustainable. Some 11% of tax revenues are going towards payment of the national debt. This debt is low when compared with our European neighbours but will grow dramatically if we do not take action now. We cannot afford to repeat the mistakes made in the 1980s when Governments of all hues buried their heads and failed to tackle budget deficits. The story of the 1980s was this failure to take timely action, and it cost an entire generation of Irish people dearly. We had the worst of all worlds, with huge debt, one in five unemployed and emigration not seen since the slump of the 1950s.

The Government has set out a multi-annual programme of expenditure reductions and taxation measures of €4 billion next year and another €4 billion the following year. As I said, the unpalatable truth is that restoring our public finances will be very painful. Between now and December's budget we must decide how exactly we can reduce spending. There must be an honest and realistic debate on this point. We must also have a debate on where the additional revenues will be found to meet our budgetary targets. Again, tough choices are required and a realistic and honest debate is essential.

As the report highlights, tough new measures are needed in terms of regulation for the banking sector, and the report commends the Government on the actions taken to date. The IMF executive board supports the authorities' efforts to restructure the financial sector, including the decision to establish the National Asset Management Agency, NAMA. While it states that nationalisation may be required, it does not advocate this as a solution. To clarify, the Government has never ruled out nationalisation of banks but has consistently said this is an option it would rather avoid. The IMF report clearly contradicts the erroneous and misleading claims by the Opposition that somehow NAMA and recapitalisation represent a bailout of builders and bankers. That is not the case and both sectors will pay dearly for these measures.

Deputy Kathleen Lynch

Taxpayers, the people the Minister is supposed to represent, will pay dearly.

An Leas-Cheann Comhairle

The Minister must be allowed to make his contribution.

Deputy John Gormley

As the leader of the only party that did not take cheques from either developers or bankers, I would not support these measures if I considered them to constitute such a bailout. I put it to the Opposition — how many of the bad loans relate to land that was hugely overpriced because it was zoned by its councillors against the best advice available? I shudder to think of the cost of these irresponsible rezonings.

Deputy Pat Rabbitte

Fianna Fáil had nothing to do with those zonings of course.

Deputy Olivia Mitchell

The Minister's bedfellows are responsible.

Deputy John Gormley

Deputy Rabbitte knows the parties that were involved.

I will not dwell too long on the Opposition's disarray and contradictory statements on how best to tackle the banking crisis.

Deputy Kathleen Lynch

I have never seen anybody sucked in as quickly as the Minister.

Deputy John Gormley

Suffice to say that the Labour Party, perhaps in a mood of atavism, favours nationalisation. Fine Gael emphatically does not. I am in no doubt that the Opposition has also failed to put forward any clear alternative. When the Labour Party claims it would nationalise the banks it is abundantly clear it does not have a clue how to sort out the bad loans. Fine Gael has proposed something that is nothing short of a magic bank. Its proposal is straight out of a Harry Potter novel where alchemy works and one can create gold out of base metal.

Deputy Kathleen Lynch

The Government has created base metal out of gold.

Deputy John Gormley

I did not want to go back over what the IMF has stated but, having heard the Taoiseach, it is difficult not to. The IMF indicated that in his 2007 budget, the current Taoiseach created a structural deficit of 3% and another 3.8% on top of that in his 2008 budget. In two budgets alone, he doubled the domestic structural problem, with which this country is now lumbered. The people losing their jobs are doing so in no small part because of those two budgets, and the Taoiseach must face up to that.

A culture has grown up behind that process and the Minister, Deputy Gormley, has quickly forgotten that, as he sinks into that same culture. It is almost as if the Minister was always used to it. This country destroyed our strength in our ability to compete abroad. We were alert and nimble but a culture developed where not alone was there a refusal to contain the property bubble but there was an irresponsible attitude to public finances. This led to the notion that when a problem came along, it was bought out rather than confronted or changed. When public service reform was there to be grappled with and benchmarking emerged as a tool to make changes, it was flunked.

We have the legacy of some appalling decisions that have profoundly damaged our public service. Decentralisation did this and there was a hollowing of the capability of our public service as quango after quango was created that was unaccountable to this House. That damaged or destroyed the moral fibre and quality of the public service.

If we want to change the Ireland now in crisis, we must change the attitudes that created it. The belief that decentralisation was a master political stroke and should be defended to the hilt is an example of the thinking which has destroyed this country. We should wise up to that because if we do not understand the problems which put us in the hole we are in, we will not be able to confront those problems or work our way out of them.

I sometimes despair in this House that we cannot have a serious debate on the enormous issues that confront us. The IMF has put such matters before us. To take the banking crisis as an example, to listen to the contributions from the Taoiseach and the Minister, Deputy John Gormley, one would imagine that the IMF has stated that NAMA is a wonderful idea, the Government is on the right track and it should go for it. The IMF's report indicated anything but that. Although it stated that dealing with toxic debt in the banks is vital if we are to deal with the problem, it raised significant caveats not even mentioned in the earlier contributions. The Minister dwelt on a caricature of Fine Gael and Labour proposals but did not defend the Government's proposals.

For example, how is the Government dealing with the IMF's contention that we should not confine this to development loans? How is it dealing with the IMF's contention that we should not take in well-performing loans or that the taxpayer is not getting any upside benefit from the way this is unfolding? How is it dealing with the contention that with €35 billion of losses by 2010 and our banks effectively below the water by that stage, temporary nationalisation would be a more effective way to manage the model in question? That did not deserve a sentence in the Minister's contribution.

In addressing our problems we are putting €90 billion of debt — we do not know how much will be paid for it — along with empty houses and undeveloped sites on the shoulders of taxpayers. We are putting €4 billion into a bank that cannot and will not lend a cent. We are pretending the IMF did not say that Ireland needs some type of administration for winding up banks.

Why were these issues not addressed by the Taoiseach and by the Minister for the Environment, Heritage and Local Government, Deputy Gormley, in their contributions? NAMA is not a joke in which Government members peddle platitudes and then think their job is done. This is a serious business and we deserve more engagement on the IMF's analysis.

We are undergoing a profound economic crisis. We have already seen the wipeout of 20% of the value of our output. As a community, we can choose how we respond. We can continue our current approach so that 20% of people will lose 100% of their income and those who have to leave our shores on emigrant boats or sit on the dole will pay. Alternatively, we can start to address the profound problems that have arisen in our political and budgeting systems, job creation and competitiveness. These should have been the subjects of this debate. I would have liked the Taoiseach to acknowledge that competitiveness is a huge problem. He could have set out a plan for electricity, telecommunications and transport costs. He could have identified sectors which the Government would vigorously promote. He did not utter a word on these issues, however.

It is difficult to believe that when the Taoiseach first took office he described the Lemass era as his lodestar. Let us recall that Whitaker and Lemass began by acknowledging failed policies. They had the courage to get rid of these failed policies, unlike this Government, which continues to pretend there are no problems. Lemass and Whitaker were prepared to confront orthodoxies and powerful interests which prevented change. However, a cosiness has since developed among powerful interests in our banking system, the commercial world and trade unions which is preventing the Government from confronting the crisis. The exchanges between Whitaker, Lemass and other Ministers reveal vibrancy and a willingness to seek change. Lemass had the ambition for creating full employment and he was tireless in addressing obstacles. He was prepared to grab opportunities and to drive change. I see no such appetite on the part of this Government. If we want to get out of this hole, we will have to see a restoration of that political appetite.

As parliamentarians, we fail in that challenge when we continue to fight the sort of sham battles we have gotten from the Taoiseach and the Minister, Deputy Gormley. We fail when we persist with the budget presentations that have been made year after year. Will we have a different style of budget this year whereby proposals are brought to the House early enough to allow us to tease out the alternatives in a genuine exchange of opinions or will we revert to traditional sham debates until everything is pulled from the hat on budget day? Will the Government again point the finger at the Opposition and ask it where it would make cuts or raise taxes? We could sit down together to use democracy as a means of finding the best options, even if none is attractive. Instead, the Government continues to pretend the Opposition is living in cloud cuckoo land and does not understand the need to make tough decisions. We want grown up political engagement on how we will confront problems such as the jobs crisis. It is not enough to present a budgetary strategy that jacks up taxes and slashes capital spending while pretending we can maintain an economy that supports employment. Part of the reason jobs are being lost is a budget which does not offer a single idea on confronting the jobs crisis.

The Opposition parties have offered solutions even if the Government may not like them. In my party's case, we proposed the NewERA strategy for using private equity from the National Pensions Reserve Fund, which the Government appears to be determined to put into failing banks, and pension funds to develop a smart electricity system, a decent broadband and telecommunications network and high quality water systems. If we are to get out of this problem, we need to develop our infrastructure without relying on public borrowing. However, the Government has merely scoffed at Fine Gael's idea. If it truly wants to develop a green economy, why will it not engage with us on ensuring competitive delivery of key infrastructure?

I do not hold a particular torch for ICTU or any other social partner but at least the former tabled a genuine strategy for confronting the jobs crisis. Every working day, 1,000 jobs are lost but the Government has no idea what to do about it. Its smart economy document contained approximately 560 vague proposals crammed together by a big bulldog clip and flung at the media a few days before Christmas. Now we hear of a strategy committee which will not have its own dedicated budget and will be led by the same person who acts as secretary to the Cabinet, Secretary General at the Department of the Taoiseach and secretary to the social partnership. How can one believe such a strategy can be driven by someone with four jobs? The Taoiseach failed to set out any milestones or timelines for the so-called smart economy. If he were serious about his strategy, he would explain to us how he plans to make people responsible for delivering it. Whitaker and Lemass would have driven such a strategy as their Government's first priority because they would have realised the need to address the crisis.

I am depressed when I look at the sectors which offer huge opportunities, including the public service and the budgeting system. We will have to deal with the same budgetary system this year, after slash and burn from our friend, Colm McCarthy. When will we see the change that devolves powers to managers so they are paid for using resources responsibly? At present, we see a ridiculous budget situation in Crumlin children's hospital, which is closing wards and theatres while preserving its full complement of staff. According to this model, the perfect hospital treats no patients. Fianna Fáil has not put a shred of effort into reforming the budgetary system since it came to power.

We have to start thinking radically. We are facing a bill of €20 billion for welfare payments which require recipients to remain idle when we should be empowering them to develop their talents through placement opportunities in not-for-profit organisations. We have to think outside the box about this, and a job subsidy is not the answer. As regards the notion of coming along with a job subsidy for 1.5% of the workforce, giving them 30% of the wage bill, how will that 1.5% be selected? Will they consist of jobs that have taken no wage cuts or work practice changes and have got into difficulties for that reason? Will we end up with 100 people queuing to get a job subsidy that will be available to only 1.5% of them? That is what the Minister is saying but we need genuine thinking about what will work to protect and create jobs. The Minister should have a debate on that issue alone, with Government and Opposition ideas being tabled. Let us have an honest debate on that. That is the sort of parliamentary response ordinary people outside this House expect to be happening here today. They would be profoundly depressed to come here and see what is going on.

We have a very short window of opportunity to build a strategic plan to confront our multiple problems together in a way that is prudent, well thought out and commands the confidence of both sides of this House. Unless the Government is willing to find a vehicle for that sort of exchange, we will miss a really important moment. We will continue to slide with unemployment mounting and huge social problems that will be with us for a generation to come. This is a vital moment and we need to start to think about the changes we need to make as a community. It is an issue that concerns the total transformation of Government and the way in which we make decisions. When the Minister, Deputy Gormley, returns to the House it should not be with these quips that have come off the Fianna Fáil word processor, but a genuine attempt to engage with the elected representatives here who have a mandate to try to save our people at a time of profound crisis. That is what I would like to see the next time.

Tánaiste and Minister for Enterprise, Trade and Employment (Deputy Mary Coughlan)

I am delighted to have the opportunity to discuss both the IMF report on Ireland and the recent OECD economic review. The OECD report was released in advance of the annual OECD ministerial council which I attended in Paris last week. It was important to participate in that exchange of views with ministerial colleagues from 30 developed countries and countries where we are building good economic relations such as India, Brazil, China and Russia.

The global economy is experiencing its biggest contraction since the Second World War. It is clear, both from the debate at the Ministerial Council and from the analysis done by the OECD, that almost all states are undergoing considerable economic hardships in a year where world trade could shrink by up to 16%.

Our economic situation, while urgent and grave, is not unique. As we are integrated into global trade and production networks, our recovery will be intrinsically linked to a recovery in global trading. Although the OECD suggested that a global recovery might be "weak and fragile", the council focused its discussions on those policy areas that could accelerate recovery. I was pleased to note that the OECD shared our emphasis on innovation and the importance of green growth for the next phase of economic growth. There was a consensus around the three dimensions of recovery where government action is needed. Correcting unbalanced growth and major failures in the financial system is the first of these. Recognition of a collective approach to a cleaner and greener economy is the second, while the social and human dimension of the crisis is the third critical factor in our recovery plan.

With specific reference to Ireland, the OECD states that the economic turnaround is likely to begin in 2010. It further notes that exports will pick up as the world economy recovers and costs are declining. While this is encouraging, we fully recognise that we need to take a number of steps to take advantage of the global recovery. The IMF has acknowledged that we have moved "with resolve" to counter the economic and financial shocks. We will continue to act with resolve in our pathway to recovery.

I want to take this opportunity to outline the steps we have taken, and propose to take, to make our economy stronger, greener and fairer. I will focus first on cost competitiveness, an issue that was raised by the previous speaker. The IMF also stated in its report that Ireland needs a sustained decline in wages to restore competitiveness. The need for cost competitiveness is now more pressing than ever. Unfavourable exchange rates — particularly with two of our main trading partners, Britain and the United States — add further urgency to the need to lower costs. As an adjustment through exchange rate depreciation is not an option, downward pressure on real wages and costs must be the main driver of cost competitiveness and future growth. This is an adjustment that is needed by the economy to bring our costs into line with those of our competitors. There is plenty of evidence that this adjustment is taking place.

Our immediate policy objective is to restore competitiveness and in particular cost competitiveness. Restoring our cost competitiveness is a key action set out in the framework for economic renewal. We are aware that strong domestic demand in recent years led to significant increases in the cost of doing business in Ireland. However, the economy is now undergoing a radical adjustment which is incorporating the necessary changes required to restore external competitiveness. As part of this process there are a number of factors which can influence our cost base.

First, the decline in Irish inflation reached minus 4.7% in the year to May 2009, which is the sharpest fall since 1933. Inflation fell significantly across most goods and services groups in 2009. Input costs for manufacturing and services industries have seen months of consecutive decline. The OECD has predicted mild deflation in Ireland for the next two years. This will maintain the current downward pressure on wages and prices. While the eurozone is also experiencing deflation, estimated to be the lowest for the region since 1953, the IMF believes that Irish prices should continue to decline at a pace greater than the rest of the eurozone. This in itself will help to restore our competitiveness.

Second, the Government has stepped in to exert downward pressure on prices and costs. Although it has been a painful adjustment, the reduction in unit labour costs delivered through public pay reform will strengthen our longer-term competitiveness. For most exporting firms, labour costs account for more than half their input costs. While Irish wage levels are moderate compared to other high-income economies, wage inflation in Ireland has been running at up to 50% higher than the eurozone average during the 2005-08 period. More recently, nominal wage growth has slowed and is likely to fall this year. The EU estimates that Irish unit labour costs will fall by 4% this year, compared with a 3% increase in the EU on average, translating into a significant improvement in competitiveness.

Third, in line with the commitment in the programme for economic renewal, we will implement the recommendations of the Competition Authority and tackle excessive costs in the non-traded sectors where they can best contribute to overall competitiveness. The IMF acknowledged the importance of Irish labour market flexibility in helping our competitiveness adjustment. It also suggested that competition policy should be used to support the process of price and wage adjustments.

Competition policy in a small open economy is relevant for all sectors of the economy but particularly the services and non-traded sector, since it is the non-traded sector that determines Ireland's cost competitiveness. Fostering efficient and innovative enterprises through pro-competitive market structures will better enable Ireland to weather the current economic storm and enhance growth prospects in the medium to long term.

The Competition Authority, as the agency responsible for enforcing competition law in Ireland, has tended to focus its efforts, especially its advocacy efforts, on the non-traded sectors of the economy. The authority has issued a number of reports in the past few years on non-traded sectors, including the areas of banking, utilities and professional services, such as engineers, architects, the legal profession, dentists and others. The Government has already agreed to accelerate consideration of the Competition Authority report's recommendations to see where they can best contribute to greater cost competitiveness. We are determined to remove competitiveness bottlenecks in the economy to deliver better value and more innovation.

It is my intention to submit a report to Government before the end of the year outlining the progress achieved on the implementation of these prioritised recommendations. Across Government there is already a concerted approach to eliminate structural rigidities and competition bottlenecks that have contributed to high costs. This week the Minister for Justice, Equality and Law Reform acted to ban upward-only rent reviews. The Minister for Health and Children is taking action to drive down health costs. These are further examples of the cross-Government effort.

Fourth, we are working to control costs in administered sectors of the economy, such as local authority charges, as well as easing the administrative burden that regulations can create. The Minister for the Environment, Heritage and Local Government and I have met with the county managers about actions that local authorities can take to ease cost pressures on businesses, and we plan to meet with them again shortly.

I do not disagree with Deputies opposite that energy costs represent one of the key issues to be managed. The trend of energy prices has been downward, with a 10% drop in electricity prices for residents and small and medium enterprises from 1 May, while gas prices have reduced by an average of 12%. These reductions will result in a further easing of cost pressures for businesses. Recent data from Eurostat demonstrated that energy taxes in Ireland as a proportion of total taxes are the third lowest in the EU, and that we have the lowest energy taxes as a percentage of GDP. This means the Government is already playing an important part in keeping down prices. In recent months, the trend of energy prices has been downward. In response to this trend, ComReg has lowered electricity prices for residential customers and small and medium enterprises by 10% from 1 May. The energy regulator reduced gas prices by an average of 12%. According to the latest published Eurostat comparisons, smaller SMEs are paying 1% below the average EU 27 price, and approximately 60% of the ESB's SME customers are in this category. We are also seeing greater competition among electricity suppliers, which is helping to drive down costs for SMEs.

It is my view that we must never again allow costs to drift out of line with those of our competitors. We have learned a harsh lesson, but as a Government we have acted with resolve and will continue to take the necessary actions to restore our external competitiveness.

A leaner, trimmer but stronger economy is critically dependent on active entrepreneurship with access to finance. Ireland has one of the highest levels of entrepreneurship in the EU. To help firms in the current downturn, the Minister for Finance and I recently established the credit supply clearing group to examine where the flow of credit to viable businesses appears to be blocked, and to develop solutions that enable adequate business credit flow. The Minister of State with responsibility for trade and commerce, Deputy Billy Kelleher, is holding a series of regional meetings around the country to assess the factors affecting access to bank credit at local and regional level. These meetings allow the Government to hear at first hand the views and experiences of local business representative groups, local bank representatives and State agencies on access to bank lending. This will complement the work of the credit supply clearing group and will feed into future Government policies on the issue.

The IMF rightly highlighted the increasingly difficult environment for foreign direct investment for all countries. The recent Ernst & Young country attractiveness survey showed inward investment was largely flat in 2008. However, the same report highlighted that Ireland experienced a significant increase, from 80 to 108, in FDI projects in 2008 and Ireland has moved from 13th to ninth place overall in terms of attractiveness for FDI. Furthermore, Ireland grew its share of job creation from FDI into Europe from 2% in 2007 to 4% in 2008, and grew its overall share of inward European FDI from 2% in 2007 to 3% in 2008.

Foreign owned companies continue to contribute significantly to employment and exports in Ireland. Foreign owned companies employed 152,364 persons in Ireland in 2008, according to the latest Forfás employment survey. The strength of Irish export performance is in large part due to the resilience of the multinational sector, especially in areas such as chemicals and pharmaceuticals.

Despite the economic downturn, the IDA remains guardedly optimistic of Ireland's ability to continue attracting high level FDI in 2009 and beyond. There have been 130 foreign direct investment projects won. New investments secured are up 14% on 2007. The number of new companies investing in Ireland for the first time is up 16% on 2007. More than 8,800 new jobs have been created. There has been a 22% increase in research, development and innovation projects, while approximately €2 billion in investment has been secured. In the current economic climate, there is enormous competition in a growing number of locations for high-quality highly mobile investment. Ireland is no longer a prime location for what might be called low cost, low skills, basic manufacturing and service activities. We must instead continue to facilitate and encourage current and new FDI clients to move up the value chain, into higher value added, higher skills products, functions and activities, more in tune with our competitive strengths today. Continuing to lower costs in areas such as tendering and office rents has no small part to play in maintaining Ireland as an attractive location for investment.

The global business community now sees Ireland as a prime location for research, development and innovation functions. Government policies such as the strategy for science, technology and innovation have played a key role in establishing this competitive advantage for Ireland. We will continue to target high value investments in keeping with our current strategy outlined in the recent framework document, Building Ireland's Smart Economy. The Government and the enterprise agencies are focusing on the four essential ingredients on which investors concentrate, namely, the right people and skills, a supportive environment and infrastructure, locations of critical mass and a positive and forward-looking attitude. This is the basis for the continued development of the economy and balanced regional development.

This ongoing emphasis on research and development is demonstrated by the fact that business expenditure on research and development in Ireland rose to an estimated €1.6 billion in 2008, from €1.3 billion in 2005. This research and development has been carried out by 13,900 employees in 1,200 enterprises. Foreign owned companies accounted for about 70% of expenditure on research and development in 2005, and a similar proportion is likely for 2008. Already in 2009, a number of companies have announced significant investment in research and development in Ireland with the support of IDA, including Sony, Toshiba, IBM, and Alps Electric.

The IDA's main focus for FDI is on securing investment from new and existing clients in the areas of high-end manufacturing, global services and research, development and innovation. New opportunities are also emerging in areas such as clean technology, convergence and services innovation. I have authorised the IDA to reallocate its resources to reflect these new priorities.

The OECD report referred to a collapse in world trade in the last quarter of 2008 and in the first quarter of 2009. Furthermore, it expects double-digit declines in the exports of OECD members to linger in the second quarter of 2009. However, Ireland has out-performed this trend to a considerable extent. I would like to outline the positive standing of our export performance and the exceptional achievement of Irish exporters in recent years. Page four of the IMF report ranked us second only to Belgium on imports and exports as a percentage of GDP. A strong trading performance by Ireland is obviously crucial for our economic well-being. Key achievements in recent times can be summarised as follows. Between 2003 and 2007, total Irish exports increased by more than 6% per annum year-on-year. The latest preliminary merchandise trade statistics show that for April 2009, exports rose by 6% compared with the same month last year. Total trade over the same period showed a trade surplus for the month of just over €4 billion, the highest monthly surplus in eight years and the second highest on record. In addition, detailed data published for the period January to March 2009 show that merchandise exports for that quarter rose by 2% on the first quarter of 2008, with a strong performance in March having counteracted the declines that occurred in January and February. With data for the first four months of 2009 now available, our merchandise exports are running at 3% higher than the corresponding period in 2008.

In recent years, net exports have made a very significant contribution to GDP growth. The contribution of net exports was 2.7% in 2008, and it was 6.09% in the first quarter of 2009. In both cases this made a significant contribution to counteracting the other GDP elements that were negative. This performance is against a background of the global downturn and the adverse exchange rate between the euro and both the US dollar and the pound sterling, which increases the cost of our exports to the US and Britain.

It is encouraging to note that both the range of export destinations and commodities for the first quarter of 2009 show significant increases. In particular, exports to Switzerland rose by 53%, to Belgium by 20% and to the USA by 18%. Our performance is especially significant when compared to our EU partners. The latest figures released by EUROSTAT demonstrate that at -1%, Ireland has the smallest rate of decline in exports in the EU for the period January to March 2009, when compared to the same period last year. At -14%, Denmark is the next best ranked country. European countries with similar levels of exports showed a decrease in their merchandise exports, such as -30% in Sweden, -22% in Poland and -23% in Austria. The United Kingdom showed a drop in its exports of -24% for the same period. In a year when it is estimated that world trade volume will decline by 16%, we can be very proud of our export performance and the contribution it has made, and will continue to make, to our future economic performance.

The factors I have outlined strengthen our economy by driving down costs, facilitating entrepreneurship, encouraging research and development and inward investment and will continue to be the key dimensions of our stronger smarter economy.

The second dimension in the path to recovery is the opportunity to kick-start a shift towards greener more sustainable growth. There is huge potential for the green economy to help Ireland meet its economic and environmental challenges. The latest estimates put the size of the global environmental goods and services market as exceeding $700 billion by 2010. The value of this sector for Ireland is growing and estimated to be more than €2.8 billion in 2008. The green economy provides Ireland with a tremendous opportunity to create quality jobs in a sustainable and high growth area.

The human and economic cost of this recession has been foremost in all our minds as we tailor our economy and resources to new economic realities. I am acutely aware of the response to those who have found themselves unemployed and I have reorganised the available resources to support people who are out of work. The future skills needs of this country will be reflected in the courses and training available.

There is a need to sustain people in employment and it is on that basis the Government is working with the social partners to provide a temporary subsidy scheme. Unfortunately, I do not have time to go through it all but we will certainly not support companies which are uncompetitive and unsustainable. Enterprise Ireland is looking at the stabilisation fund and those sectors where there will be new opportunities for growth and development. I look forward to its completion fairly soon when companies will have an opportunity to apply for it.

Despite the economic difficulties, we have opportunities, particularly export ones. We will continue to support entrepreneurship, activation measures, new skills opportunities and sustainable, fairer and greener growth.

Deputy George Lee

This IMF report on the Irish economy is a shocking mid-term report for any Government to receive. It is deeply depressing. There is no light and absolutely no hope in regard to its prognosis. It states we are especially vulnerable. It speaks about festering problems and an anaemic economy. It states large macro-economic imbalances will have to be dealt with. It makes clear that the budget announced only two months ago is already way off course and that the deficit is heading for 12% of GDP this year rather than the 10.75% announced by the Government in the budget. It speaks about major risks from the interaction of the collapse in economic activity, the collapse in banking and the collapse in public finances and it fears we will get into a vicious downward spiral where they will reinforce each other. This is very depressing.

The report also states we are losing out in terms of the race for foreign direct investment, which is not at all reassuring. It states we are in for a contraction of 13.5% of economic activity, which is the biggest economic collapse any country has ever experienced in the post-war era. How could any Government think that is anything other than a shocking report in terms of its management? It is not a case that all countries are contracting like that; it is just that we are and that is a function of somebody's decision.

It is almost like a war of sorts, an economic war in which many people do not believe the Government cares about them. It cares particularly to fix the banks and the public finances but all on the backs of ordinary people.

I have been on the front line of that war recently. I spoke to many people when I was going around the country trying to get elected to this House. I heard all the stories from the front. One woman cried when I went back to thank her for her vote because she did not believe any politician would return to speak to anybody whose issue was unemployment. Her son had been unemployed for a year and she could not understand why the unemployed had been so left out.

One man told me he gets up every morning since he became unemployed and that he goes about busying himself because he wants his family to think he is okay. He said he is not okay and he does not know what to do. I spoke to another man who told me he has plenty of orders for his business but there is no money. He had 15 employees which he reduced to seven and then to three. He spoke about his future and he does not know what to do about it.

I spoke to a well-paid lawyer whose bonuses and business have gone down. He told me his mortgage is now 20 times his salary because his wife is on maternity leave. She does not believe she will be able to go back to work because the company for which she works is in an uncertain situation. He said that to get out of his fixed rate mortgage, he will have to pay the bank €85,000. He does not understand why we are helping the banks and not him.

There are many stories like that from the front line — real human stories which underline the economic facts and realities in this IMF report. They are the human side of it. People are looking for hope but this report shows none.

The IMF makes it clear the Government has been fooling us. Where that is very clear is where it speaks about a structural deficit in the public finances. It states our structural deficit in the public finances, which is what we would be left with if the economy returned to a growth period, would be 12.5% of economic activity for 2008 and 11% for this year. That is a massive structural deficit. That is the key in terms of what the IMF is saying, what is wrong and who did what in this economy. It is the Government's fault we have a structural deficit and if the economy returns to growth, we will still have that massive problem.

The bubble has burst and the mask has slipped. What has been revealed is that we have been living in a fool's paradise. The Government speaks a lot about this smart economy but I find it impossible to see how one can have a smart economy when it is being run by a Government which is full of economic fools in terms of where they have left us.

For people trying to understand the mystery of what went wrong in this economy, what the IMF report states is helpful. When trying to unravel any mystery, one is often told to follow the money. I read what the report stated in regard to money to try to put my finger on what went wrong. It is quite clear.

There have been two budgets in fewer than nine months. The scale of tax increases in those budgets has been mind-blowing. I will remind the House of some of them. An income levy, at rates of 1%, 2% and 3%, on all income was introduced and the rates were then doubled to 2%, 4% and 6%; the income thresholds were substantially reduced and people on the minimum wage were brought into that tax net; PRSI ceilings have been substantially raised twice; the health levy was doubled to 4% and 5% and the threshold at which it applies was raised substantially; VAT was increased by 0.5% and tax on cigarettes went up by 50 cent first and then by 25 cent. This all happened within a couple of months. Tax on wine went up by 50 cent per bottle, petrol tax went up by 8 cent and diesel tax went up by 5 cent. An air travel tax of €10 was introduced, motor tax was raised and there was a tax on second homes. There were large increases in DIRT and new taxes on life assurance policies. Capital gains tax rates were increased twice and capital acquisitions tax rates also increased. There was a reduction in mortgage interest relief and the ceiling for pension contributions and inheritance tax thresholds were substantially reduced.

There were massive changes in the timing of corporation tax and capital gains tax which faltered the most recent public finance figures because they brought forward substantial taxes. That was all done in a couple of months. They all add up to an enormous and aggressive change in the taxation system.

One might expect that by doing that, the Government is saying it has a firm hold on matters and that it might instil confidence in terms of its economic management. However, when one looks closely, that is not what it does; it does the exact opposite. It underlines why we should be fearful of the Government's hold on the economy.

The reality is that out of all of those enormous tax changes, the Government thought it would raise a great deal of money this year. It was going to raise €3.75 billion in 2009. That €3.75 billion would enable it to take in taxes of €34.4 billion. Without those tax changes, we would be sitting with a tax receipt for the Government of €30.65 billion. The €30.65 billion underlying taxes coming to the Government this year is 28% lower than the amount of taxes collected last year. What is remarkable is the Government claims this 28% reduction in taxes collected is the result of a 7.75% reduction in economic activity. Something is seriously wrong when the reduction in revenue for the Government is four times larger, in percentage terms, than the reduction in economic activity. This is a structural problem, right at the heart of what is wrong with the Government's direction. It did not and would not recognise this even when the IMF made it clear this was what was wrong with the economy.

The Government has undermined the ability of the taxation system to fund the economy, run the public finances and sustain the economic environment. Accordingly, one must be fearful of the Government's ability to handle this crisis. The Government is as guilty as the banks. The banks borrowed money short term and lent it long term. Likewise, the Government has taken in short term taxes and built up enormous commitments in public expenditure. We are now in a hole.

The IMF stated that there are many difficulties in the Government's choices over the coming months. It said the formidable task ahead will involve difficult policy trade-offs and tackling large imbalances. Tough choices will have to be made on policy proposals. The IMF has said we will have to examine universal welfare payments, cuts in social welfare payments, child benefit, more cuts in public sector pay and the minimum wage. My difficulty is that as these decisions are so fundamental, I am concerned about the ability of the Government in making these, the Government that first got us into this mess and masterminded such a massive structural deficit. It is outrageous the IMF report has been welcomed by the Government. Ministers should hang their heads in shame. It is a disgrace we are in a situation where there is no hope and no help. God help us if the Government has to make those decisions I have outlined. I have no trust in the Government's ability to deliver economic growth out of nothing but cutbacks.

Deputy Mary Coughlan

At least we can give people hope when there is nothing from the leadership over there.

Deputy Joe McHugh

Earlier the Taoiseach stated that no one predicted what would happen globally or in Ireland. I do not accept his hypothesis, particularly if one compares Donegal's economic experiences ten years ago to this current economic crisis. Donegal had put it eggs into one basket, the manufacturing sector. By 1999, those manufacturing companies based in Donegal moved to low-cost economies. In 1999 a task force was established with an interdepartmental group set up in 2002 to cope with the resulting economic problems.

Since then there has been intellectual snobbery with how democracy works. Today the Taoiseach did not show the necessary maturity in setting the tone for a proper debate. In the past ten years, from Donegal to Cork, from east to west, the ordinary man on the street knew the construction bubble would burst, free money cannot be given out and that all one's eggs should not go into the one basket. What we are left with is a "mediocracy" over a democracy.

In Donegal, today 20,000 people are on the live register, 5,000 of whom are in the under 25s category. The focus must be to get these people back working. Yesterday morning, the UK exported 1,000 MW of electricity to France, due to summer peak demand. France will need up to 8,000 MW throughout the summer, enough to light up Paris. Meanwhile, Ireland has 8,000 MW outside of gate 3 waiting to be connected to the national grid which could be provided to France. It has not been connected because the interconnector between Ireland and the UK, which would open up other markets, has not been built. The Government must focus on the challenge of the future of green energy production.

Over the coming months, up to 5,000 graduates in engineering, architecture and other disciplines will come out of our colleges without jobs and with gaps on their CVs. The skills set of these graduates and those over the next four years must be examined for various employment schemes.

Ireland has unaccountable governance. In the past two years I have had 52 parliamentary questions ruled out of order or disallowed. In the case of the Department of Transport, questions concerning the NRA's function were specifically ruled out. Employers in Donegal wanting to set up businesses along national secondary routes are not allowed because of NRA policy, set in stone. When I try to hold the Department or NRA accountable, I cannot even get a response. The public knows this type of governance is unaccountable. Reading between the lines of the IMF report, it is obvious the real missing piece of the jigsaw is in the democratic deficit. The Government has not been listening to the people or to common sense.

Deputy John Perry

This has been another bad week for employment and job seekers. The number of people claiming unemployment benefit rose by 11,400 in June. For those who have lost their jobs and especially for this year's second level and third level graduates, future employment prospects are bleak. No one can have any doubt about the economic crisis. This week, even the Taoiseach publicly accepted that the number of people out of work will pass the 500,000 mark by the end of the year.

The bursting of the Bertie Ahern bubble is now in plain sight for all to see. For many, the dangers inherent in the economic and development policies followed by the Fianna Fáil-led Government were anticipated and documented. In a speech before the last general election I stated:

Of more importance to national economic success is the indigenous sector, both manufacturing and services. The manufacturing sector has made little progress in the past ten years with the number of jobs falling. There is an urgent need to review the effectiveness of the incentives used in the development of the sector. This sector must get renewed priority so that investing in productive capacity for solidly based growth becomes more rewarding than making quick profit through speculation in property.

I also spoke of the urgent need to improve the long term competitive advantage.

Various international experts have now passed their professional judgment on the performance of Fianna Fáil-led Governments in the past decade. The three main international credit rating agencies have removed Ireland's top credit rating, a direct commentary on the poor leadership performance of Fianna Fáil.

No matter which way one reads the IMF report, the result is the same. The Government is directly responsible for the crisis now engulfing the country. The economic situation is the direct result of the policies followed by the Government, particularly since 2005.

When I chaired the Committee of Public Accounts, I was aware of the indicators of political incompetence in the waste of public funds, poor value for money in departmental projects which various reports by the Comptroller and Auditor General documented. It was also clear that Fianna Fáil Ministers never wanted to hear about these problems in the Departments. They were only interested in good news stories, with problems being swept under the carpet for others to inherit.

Listening to the various Government spokespersons trying to defend its record against the criticisms of the IMF report reminds me of the spokesman for the then Iraqi government during the 2003 US-led invasion, Mohammed Saeed al-Sahhaf, better known as Baghdad Bob. Every day during the invasion he denied every obvious fact about the progress of the war. Listening to the contributions from the Government side, several Members are worthy contenders to replace him as the official spokesperson for people who cannot face reality. That no one pointed out the danger signals is a standard part of a defensive answer. As long ago as December 2005, Deputy Bruton called on the Government to focus on improving the competitiveness of businesses that were trying to survive in tough external markets. Ordinary people are paying the price for the Government's decision to ignore the warnings about Ireland's competitiveness. One important voice, that of Deputy Bruton, spoke at an early stage about the dangers emerging in the economy. He voiced his concerns many times. Fianna Fáil Ministers, in their obvious incompetence, missed all the error signals and warning signs. The core point is that the present Government, which was in charge of the levers of power when the Irish economy veered off course, carries the responsibility for the management of the economy. I ask Ministers not to try to pass the blame for the current disaster to absent messengers, who allegedly failed to communicate adequately or loudly enough with them.

I reiterate that Ireland is an open exporting economy. No sector of the economy other than the manufacturing sector can offer the volume of quality jobs that will lead to full employment in the medium term. We must declare manufacturing to be the foundation sector of the national economy. We also need to benchmark manufacturing costs, including labour costs, to our main European competitors. We cannot rely on tax breaks in the future as they can be wiped out at the stroke of a pen. All other economic sectors must be benchmarked to the manufacturing sector. If we take these steps, we will have real hope that we can weather the current storm. As a businessman who employs more than 40 people, I remind the House that the retail sector, which should have job creation potential, is on the floor — it has reached rock bottom. Business tenants are paying high rents that are based on the profits of others. Per head of population, Ireland has ten times more square feet of retail space than the UK. It is a fallacy. The consequences of the policy of incentivising developers to build new shopping centres in every urban area are coming home to roost. Tenancies are being handed back by retailers who are finding it impossible to pay the high rents they are being charged per square foot.

The Government also needs to assist those who are unable to make payments to the banks. Some €4 billion has been given to Anglo Irish Bank, which is unable to lend any money. A further €3.5 billion has been given to each of Bank of Ireland and Allied Irish Banks. Regardless of the rhetoric we hear from the Government, business people on the ground are unable to avail of those moneys. Rather than talking about the IMF report, the Government should be listening to business people. They will tell the Minister about the crisis in the economy. A well-known company in Ballymote, McDonagh's Electrical, closed last week after 60 years in business. It was to a small town like Ballymote what Lehman Brothers was to New York. The proprietor, who is in his 82nd year, worked in the business, with 30 employed people, every day. That is an example of the crisis that exists. The Government is ventilating its views on the IMF report. I suggest it should listen to business people. Experience and new ideas are needed. The Government has experience of the good times, when cash was rolling in, but it does not have the ideas or experience to deal with the economy now.

Minister for Finance (Deputy Brian Lenihan)

The most important part of the International Monetary Fund's Article IV report is the policy recommendations included in it. The policy recommended in the report that was published last week is entirely in agreement with the strategy the Government has adopted to put this country on the path to sustainable recovery. The IMF stated that the Government has moved in the right direction on the two fronts that matter most — the healing of the financial sector and the correction of the budgetary situation. In the third paragraph of the report, the IMF states that the Government "has moved with resolve to counter the severe economic and financial shocks". The IMF believes the Government has taken the right choices. The report states that "the basic approach and elements of the plan are appropriate". The IMF has suggested that the reliance on tax increases in the April budgets was appropriate as "a necessary process of returning tax rates to more normal levels". That has not been the stance of the principal Opposition party. Our policies and strategies for dealing with this unprecedented recession have been opposed tooth and nail by the parties opposite. Fine Gael continues to rail against any tax increases that require to be introduced. The Labour Party and an assortment of media and academic pundits complain on a daily basis about the State guarantee scheme, which the IMF regards as essential to stabilising our banking system.

Deputy Joan Burton

Deputy Brian Lenihan

I am not blaming the Opposition for anything. I am saying a huge united effort is required to surmount our difficulties.

Deputy Seán Barrett

The Minister knows the 2007 election is the cause of this problem.

Acting Chairman (Deputy Michael Kennedy)

The Deputy will have an opportunity to speak. Let the Minister continue.

Deputy Seán Barrett

He should not blame the Opposition.

Deputy Brian Lenihan

I am not blaming the Opposition for anything.

(Interruptions.)

Deputy Brian Lenihan

I am making it clear that a huge unified national effort is required for this country to surmount its difficulties. We shall give the necessary lead and if the Opposition does not want to join us in this, that is its business. The simple fact is that the Labour Party opposed the bank guarantee scheme, while the IMF report supported the scheme. The IMF support the scheme because it knows that it was a necessary measure to ensure that the banks had sufficient liquidity to operate on a day to day basis. It knows that if this action had not been taken at that time, the whole banking system would have failed. I want to quote something as regards banks, specifically for those in the Labour Party who criticise many of the actions we have taken:

There are some who argue that the government should stand back and simply let these banks fail, especially since in many cases it was their bad decisions that helped create the crisis in the first place. But whether we like it or not, history has shown repeatedly that when nations do not take early and aggressive action to get credit flowing again, they have crises that last years and years instead of months and months — years of low growth, years of low job creation, years of low investment, all of which cost these nations far more than a course of bold, upfront action.

These are not my words. They are the words of President Obama speaking at Georgetown University in April. The banking system is at the core of a functioning economy and needs to be maintained in the interests of the economy and society at large. Again, Opposition parties opposed the establishment of NAMA.

Deputy Seán Barrett

Rightly so.

Acting Chairman

Deputy Barrett must stop interrupting.

Deputy Brian Lenihan

Deputies can either read this report or interrupt my speech.

The IMF supports NAMA and recognises it is a crucial step in resolving the banking crisis as it will deal with the uncertainty about asset quality, in particular uncertainty relating to land and property and associated loans, on the banks balance sheet. As long as this matter is not addressed, the banks will not be able to play their part in the restoration of economic growth.

The IMF indicates that, along with ECB facilities, the bank guarantee has helped the banks obtain market funding and stabilise the banking system. It notes the Government is willing to provide additional capital, subject to EU approval and an appropriate return to important banks. I was glad to see that the directors of the IMF registered their support for the Government's proposals to restructure the financial sector and the decision to establish NAMA. The IMF commended the speed and scale of the initiatives taken by the Government to counter the severe shock to the financial system.

I am happy to make that aspect accountable to the House.

Deputy Joan Burton

He is distancing himself from the HSE now.

Deputy Brian Lenihan

The Government has taken a number of significant steps to protect and restore the financial system with the sole interest of protecting the economy and the Irish people. I have no interest in developers or bankers. My sole concern is the welfare of the Irish people and the availability of credit to our economy.

Deputy Bernard J. Durkan

It is late in the day that became an objective.

Deputy Brian Lenihan

It is clear that the IMF endorses and supports that broad framework. It is also clear that the actions taken to date have supported the financial system and provided an international demonstration of the commitment of this Government to sustain our financial system. The third and most important challenge is to restore economic growth and competitiveness. In the midst of this very deep recession it is essential that economic activity be restored to the type of activity we saw in the past.

Earlier this week, the Central Statistics Office published data for the first quarter of this year which envisage an annual GDP decline of 8.5%. This was a very sharp fall but broadly in line with our limited expectations. Most of the economic data relating to developments in the second quarter suggest that the rate of deterioration may have slowed. That does not mean we are out of the woods. Economic activity is clearly still falling but not at the same pace as in the first quarter.

Bearing in mind that economic forecasting is not an exact science, my Department's assessment of a drop in GDP of more than 13% over the 2008 to 2010 period is broadly similar to the IMF's recent forecast. Moving beyond economic forecasting, one aspect of both the OECD and IMF analysis with which I strongly agree, is the need to improve our international cost competitiveness. While there is much to be done in that regard, there is considerable evidence that the economy has adjusted rapidly to the changed environment.

Wage costs have fallen in most sectors. Regardless of what some may say, the public sector is no different in this regard. This flexibility of our labour market was acknowledged in the IMF report, and is clearly a positive feature in which all of us can take pride and which will stand to us in the future. While nobody likes to have his or her wages reduced, most Irish people — including those of us in Government — recognise and accept that the world does not owe us a living. We have a firm determination and a clear strategy to restore the nation's finances and put our economy on the path to recovery.

Deputy Joan Burton

The IMF report forecasts that the Irish economy will contract by 13% in three years. This is the worse economic performance I know of in the world. Unemployment has doubled in not much more than a year and is expected to rise by the same amount again in the next two years. We know the horrifying figures. Some 420,000 people are out of work. Many small business people and their families have been devastated, not just in the building and construction sector but across the economy and society. The extent of human misery the Government is creating in our country is almost unimaginable in its breadth.

Only the Taoiseach and the Minister for Finance would have the brass necks to maintain that a report highlighting an economic collapse of 13% and mass unemployment and bankruptcy represents some type of vindication of their economic stewardship of the country. It is depressingly obvious that this Government duo did not learn much about economics or business during their professional training but they obviously learnt something about putting forward the best argument for their clients no matter how hopeless the case.

It is difficult and depressing to fully appreciate just how catastrophic the economic collapse really is. The Minister is an optimist by nature, but an assessment of the pit into which Fianna Fáil has brought the economy and the country must be done. If we do not fully get to grips with the nature and scale of the problem, it will be impossible to devise the best solutions and implement them. I cannot find any instance of an economic collapse of equivalent magnitude in Ireland in the past hundred years, not even when we were suffering from the worst of Éamon de Valera's policies of economic autarky.

This Fianna Fáil-led Government has brought about the worst collapse in the Irish economy since the famine. The IMF report said this country would suffer the worst collapse and stress of an economic downturn of any developed economy since the Second World War.

Deputy Brian Lenihan

The Labour Party supported economic autarky.

Deputy Joan Burton

In December 2006 when the Taoiseach announced the 2007 election budget as Minister for Finance, I warned that it was simply an election budget and that the then Minister for Finance, Deputy Cowen, was being generous with the people's money. The Taoiseach won the election but the people have paid an extraordinarily high price. If the Minister, Deputy Brian Lenihan, and Fianna Fáil have their way, they will pay an astronomically high price to support the banks in such a way that is protective of property developers and speculators.

The public should be aware that all the international institution reports on the Irish economy — the IMF, OECD and EU — are negotiated by officials from the Deportment of Finance before they are published. This is important. That is why there are differences between the IMF staff report and the general executive report. The general executive report is in part a diplomatic document with our representative from the Department of Finance who works with and sits in the IMF being part of the negotiation of the language, verdicts and proposals. It involves not just the writing of a report by the IMF staff group but negotiation and consideration with players in Ireland of whom the Government and Department of Finance are the key and critical players.

Therefore, the normal style of these reports is that they are supportive of any Government's policies and positive about anything they see as potentially hopeful. Let us not, therefore, get carried away, as the Minister has been, where he perceives some kind of positive mark in the IMF report. Criticisms and arguments for policy changes are usually discussed in private and agreement is sought in private. The published texts have to be analysed in detail to find any carefully veiled criticisms of the Government. What is surprising about the 2009 IMF report is that some of the criticisms and policy disagreements are so obvious, up front and out there, particularly in the staff report, the back part of the report.

I want to talk about what the IMF previously said to Fianna Fáil and whether Fianna Fáil listened. Some five years ago, in 2004, the IMF report on Ireland stated, "Rapidly rising property prices in the face of slow growth have been a feature in many countries recently, but the extent, scale and duration of the boom in Ireland set it apart." The report also stated, "The question remains whether the house price increases to date have outstripped developments in fundamentals." The IMF staff appraisal in 2004, which is more independent than the summary report, went on to state, "At this conjuncture, public policy should aim to engineer a soft landing in the housing market but over the medium term reforms will need to improve the stability of the sector."

So much for a soft landing. The Taoiseach when he was Minister for Finance would not eliminate the tax breaks on property that benefited the rich and property speculators — the Fianna Fáil supporters in particular — despite the constant urging of the Labour Party and despite the IMF report and the reports of other entities. In 2005 the IMF warned:

However, staff analysis suggests that not all of the increase in house prices over the past several years can be attributed to fundamentals and that the estimated house price overvaluation in Ireland is relatively large compared to other countries . . . Staff suggested that, given Ireland's cyclically advanced position and accommodative euro area monetary policy, fiscal tightening would be desirable...Banking system profitability and capitalization are strong, but vulnerabilities exist

The Department of Finance should have known that when the interests of the country and Fianna Fáil winning an election conflict, Fianna Fáil will always go after power regardless of the cost to the country. It has the slogan "we'll sort out the difficulties afterwards." That is what so many hundreds of thousands of Irish people will need to carry on their backs for the next ten years. There has been no better man than the current Taoiseach and then Minister for Finance to do that. He proved he could give us an election budget as well as any of his Fianna Fáil predecessors.

The immediate economic and financial issue that overwhelms all others in financial scale is the banking crisis and the billions of euro of taxpayers' money that the Government is giving away and planning to give away. The Labour Party does not believe the NAMA proposal is the best for the country. However, if the Government goes ahead with it, the critical issue will be the scale of discount to face value that the Government applies to tens of billions of euro worth of property loans from the banks. A few minutes ago the Minister for Finance consciously attempted to sow confusion by talking about whether it was the €35 billion that the IMF mentioned or whether it was his €80 billion or €90 billion he himself chose to identify in his budget speech. As a lawyer he is very skilled at sowing such confusion. It is no wonder people end up confused.

Many of these loans are now worth very little or at best a fraction of their face value. However, the Government wants to discount these loans by only 20% of their face value. The discounts consistently mentioned in the weekend newspapers, which are briefed by people presumably in the Government's advisory circle or directly by members of the Government, are 16% to 22%. If they are the rates of discount, it would expose Irish taxpayers and their children to a total bill of possibly more than €50 billion. When the IMF chose a figure of €35 billion, my guess is that it envisaged a discount of approximately 50%. However, it is important to remember the Department of Finance would know what the rates were because it was party to the discussions when the report was written. If those turn out to be the figures, it would mean there would be no financial room for practically any public capital spending for many years to come and we would be living in something similar to the Japanese lost decade about which I have spoken going right back to the night of the Government's disastrous guarantee scheme. The annual Government debt interest burden would crowd out other much needed public spending and force tax rates to very high levels.

Until perhaps yesterday, the Minister for Finance lived off telling the public that there was no cost to the bank bailout. He repeatedly stated the bank bailout would not cost taxpayers a cent. Did I hear him say recently that Irish Nationwide Building Society has not cost us a cent? Our borrowing has gone out of control and risks sinking the country. Moody's and other agencies have downgraded our rating, which means that our borrowing costs have soared. Unfortunately the country is entering what is called a "debt trap". The Government seems to have no exit strategy from the debt trap.

On this critical issue, under the surface there is a major disagreement between the Government and the IMF. The IMF report states:

A key aspect of NAMA's success will be the prices at which the assets are purchased. This will determine the extent to which banks' losses are transferred to the taxpayer. Since price determination is a major challenge, risk-sharing structures could be usefully explored. For example, if sold at a price that is clearly lower than the expected eventual recovery value, bank shareholders could be given a share in the upside. Similarly, the government could be given an opportunity to participate in the upside of the residual healthy bank. The authorities noted that they remained open to a number of refinements, including such upfront risk-sharing structures. Also, while there has been some public discussion of a bank-specific ex post "claw back" provision, the authorities are considering an industry-wide levy to recoup any losses suffered by NAMA.

That is the IMF giving the Government, the Department of Finance and the other agencies a very clear message to watch their step. Of course, the Government previously had been very cool on the ideas that the IMF put forward here. These have been proposed by a number of eminent economists. The last sentence I quoted effectively shows that the IMF rightly believes the Government's levy approach is a bad idea. It is clear that the IMF strongly believes the discount on purchased loans should be large and a mechanism can be put in place to compensate the banks if the discount turns out to have been too high. The Labour Party and Fine Gael in their respective proposals have left significant room to do that for the bank shareholders.

I lived in Tanzania in east Africa for three years. I left there as the IMF came in. When the IMF comes into a country, as it did in many countries, it normally slashes public spending and imposes extraordinarily harsh medicine on economies. Clearly our relationship with the IMF is tempered by us being in the eurozone and the involvement of the European Central Bank. Not everything the IMF says or does merits its traditional bogeyman reputation among progressive politicians. Its present director, Strauss Khan, is one of the leading promoters of an international stimulus package to reverse the present recession. The difficulty for Ireland about the stimulus package is that if there is a change of Government the commitments entered into by the present Government might be so great that a successor Government will have very little room for manoeuvre on borrowing, which would be a real problem in creating the stimulus the Labour Party and Fine Gael have mentioned. On the other hand, the hard medicine inspectors continue to ply their traditional trade with abandon in individual countries. Like Janus in the ancient Greek myth, the IMF shows two faces to the world, one for stimulus and nutrition, one for medicine and the draining of blood. Departmental officials might like to read the remarks of Simon Johnson, who is now professor of economics at the Massachusetts Institute of Technology.

Until recently, however, he was the IMF's leading economist. In a recent article he noted that when the representatives of the IMF arrive in a country, no one is ever happy to see them. Moreover, a visit from the IMF or the kind of report Ireland has received constitutes the signal of failure when circumstances are dire and practically all else has failed.

He also stated:

The real concern of the fund's senior staff, and the biggest obstacle to recovery, is almost invariably the politics of countries in crisis. Typically, these countries are in a desperate economic situation for one simple reason—the powerful elites within them overreached in good times and took too many risks.

That is close to being a perfect description of Ireland's plight in 2009. Mr. Johnson goes on to state these elites "reckon—correctly, in most cases — that their political connections will allow them to push onto the government any substantial problems that arise". The Government then will push the cost of the adjustment onto ordinary people. This is the core of what Members are debating, namely, the efforts of a politically well-connected golden circle to push the Government to take their losses on board. That is what the ill-fated guarantee of 30 September was all about. That is the heart of the NAMA policy and is the reason this country is on the edge of an abyss.

As for the Minister for Finance, Deputy Brian Lenihan, quoting from President's Obama's recent speech, I remind the Minister and his officials that an intense debate is raging in the United States at present to the effect that unless President Obama provides sufficient stimulus, he will bring the country to the same point reached in 1937 during the Great Depression, when President Roosevelt practically lost it. Indeed, many would argue that he was saved by the Second World War. Recently, Professor Christina Romer, who is the Chair of the Council of Economic Advisers in the United States, wrote an article about the lessons of 1937, the year in which President Roosevelt gave in to the deficit hawks.

Moreover, it left the first small budgetary surplus. Fianna Fáil then feasted on what was left to it and now unfortunately is leading the country to another state of ruination, from which I presume other parties will be obliged to rescue the unfortunate people.

Minister of State at the Department of Finance (Deputy Martin Mansergh)

I note that with the exception of a single year, that surplus was maintained for at least ten years afterwards and the rate of job creation of 1,000 jobs a week was increased even further in the late 1990s.

Deputy Olivia Mitchell

Jobs now are being lost at a rate of 1,000 a day.

Deputy Martin Mansergh

Membership of international organisations such as the IMF, the OECD and above all the EU and the eurozone in particular, provides a valuable framework of support and, where necessary, assistance to all participating countries and is equally appreciated by smaller sovereign countries such as Ireland. Such organisations also provide critical peer review and a reasonably objective means of comparative benchmarking against the performance of other developed partner countries. The IMF used to have a fiercesome reputation among left-wingers in the 1970s, 1980s and perhaps even into the early 1990s that was somewhat akin to the big bad wolf. If a Third World economy was managed badly, the IMF effectively would come in and dictate strong free market prescriptions, which might or might not produce some economic and fiscal cure but only at the expense of devastating the already inadequate social fabric or at least that was its image. Both Deputies Morgan and Burton alluded to this but as far as I can recall, Dominique Strauss-Kahn was a socialist politician in France and Deputy Burton acknowledged that the spirit is different, which is what I intend to state this evening.

I represented Ireland with a small team of officials from the Department of Finance and the Central Bank at the IMF annual conference last October in Washington at the height of the international banking crisis. Given that a number of economies such as Iceland and certain countries in central and eastern Europe are in dire difficulties, the IMF has moved into the mainstream again from having been a relative backwater during the boom years and is approaching its great international task in what I consider to be a much more progressive and enlightened spirit than was the case in the past. At present, it is doing a considerable service to the world community. Nevertheless, coming back to Ireland, it is the determination of the Government to face up to its responsibilities and to take the immense challenges, both political and economic, head on, without abdicating its role to external organisations and leaving them in effect to impose solutions.

I have been reading IMF commentaries on the Irish economy since the 1980s and always have found that they provide a useful, stimulating and reasonably objective external perspective. Obviously, it is a perspective based on research and briefings inside this country, as well as comparative data and experience of other countries, and Deputy Burton explained well the process of how IMF teams visit Ireland. While I welcome the recent report, and this is a point made by many Members, IMF country reports are not written on tablets of stone. They are intended to stimulate discussion and to assist the taking of appropriate action. However, their analyses and judgments certainly always deserve to be taken seriously.

As Members are aware, it is always easier to gain in wisdom and perspective with the benefit of hindsight. I have retained the last IMF country report on Ireland, which was published in September 2007, four months after the general election and it contains some striking statements in its opening introduction. The first sentence reads:

Economic performance remains very strong, supported by strong sound policies. The growth rate of real GNP per capita continues to be one of the highest among advanced economies and the unemployment rate one of the lowest.

In addition to outward oriented policies, key pillars of Ireland's performance are prudent fiscal policy, low taxes on labour and business income, as well as labour market flexibility. Moreover, a box on that opening page entitled fund policy recommendations and implementation, repeats that:

. . .fiscal policy has been prudent. . . . In the past couple years, windfall property-related revenues were saved and the fiscal stance was not procyclical, in line with Fund advice.

The second heading on fiscal stability states: "The regulatory and supervisory framework continues to be strengthened in line with the recommendations of the 2006 FSAP Update." On wage policies, it states "the present social partnership agreement contained no fiscal concessions, in line with Fund advice, though the wage increases were a little on the high side". It is true that further on in the report, there are a number of references to an erosion of competitiveness and a warning of a slow-down in growth with the risks on the downside. Moreover, there are criticisms such as "substantial fiscal stimulus in 2007 is unfortunate, but the authorities pointed to the need to achieve social objectives". On banking it stated, "Stress tests by the Central Bank indicate that the major lenders have adequate funds to avert a range of shocks.

Deputy Bernard J. Durkan

That is what the banks told it.

Deputy Martin Mansergh

Even in an extreme scenario involving a sharp rise in unemployment and a sharp decline in house prices, capital remains adequate in every bank."

Deputy James Bannon

It is all about rich men and women.

Deputy Martin Mansergh

It is truth whether people like it or not.

The criticisms go further back to Charlie McCreevy, who left the Government in 2004 to become an EU Commissioner. These are based partly on ideological reasons but also result from the very human and understandable desire by Opposition parties and others who want to write off by far the most successful period in Ireland's economic history which has led to huge improvements over a 20 year period in our infrastructure, services, level of employment and average incomes.

They did.

Deputy Martin Mansergh

No one predicted the tsunami that swept across the developed world and many other less developed countries last autumn or could have easily guarded against it.

There are, none the less, plenty of lessons to be learned, domestically and globally, and analysis is needed of what went wrong and how to prevent its repetition in the future, not just here but in many other countries. The IMF is broadly supportive of the Government's efforts to tackle the crisis. It endorsed the view that eurozone membership has provided Ireland with a degree of safety from currency speculation. It has acknowledged that the Irish authorities have moved with resolve to counter the severe financial and economic shocks but underlined the need to sustain that resolve. It emphasises what we know from the experience of the 1980s, "that expenditure reduction, as distinct from raising taxes, is the superior approach to fiscal consolidation" but it recognises as it may not have done in the 1980s that unless carefully managed, expenditure reduction risks hurting the most vulnerable. The IMF states that the recent tendency of wages to decline, if sustained, will help to repair competitiveness. It is the logic of eurozone membership and shows Irish labour market flexibility.

With regard to the banking crisis, the IMF states that the authorities' extensive and ongoing support has been vital to maintain financial stability and the establishment of NAMA marks a significant step in the process of bank restructuring. The Government differs from the IMF on the desirability of bank nationalisation.

The IMF states that regaining credible control of public finances will require a steady hand over several years. The present Government provides a steady hand and the next election is not due for almost three years. It points to the formidable challenge in meeting financial targets by 2013 and argues that social welfare expenditure must be better targeted and the public service wage bill reduced. On the tax side, broadening the base is the real challenge.

In its conclusions, while emphasising the risks and formidable nature of the tasks ahead, the IMF states on the two fronts that matter most, the authorities have moved in the right direction. Most recently, the proposed establishment of NAMA offers the prospect of extracting distressed assets from the banks, a precondition for their return to healthy functionality. They have also laid out a multi-year plan to contain the fiscal deficit.

The OECD also approves the broad course being adopted by the Government. I have heard few references to the OECD during this debate. It states in its economic outlook:

Given the weak budgetary position and impact of support to the banking system, it is appropriate for consolidation to have begun while avoiding the destabilising effect of excessively rapid retrenchment. Considerable further consolidation will be necessary in coming years to close the underlying gap between tax revenues and expenditure.

However, despite listing a number of continuing risks it ends on a more positive note: "Given the scale of adjustment in Ireland so far, the underlying economic imbalances may be correcting rapidly and this could add more strength to the recovery than anticipated". Any improvement in the global economic climate could have that effect, given the degree of adaptability that has been shown by our society so far.

That remains to be seen. I do not prejudge what the people will do; perhaps the Deputy does.

Deputy Simon Coveney

Of course the Minister of State does not.

Deputy Bernard J. Durkan

Unlike the Government, the people will admit their mistakes. I am sorry again, a Leas-Cheann Comhairle.

Deputy Martin Mansergh

It will be interesting to see if draft budget proposals, rather than budget decisions and a budget statement, are brought to the House under any alternative coalition. I am somewhat sceptical about that.

To refer to Deputy Burton's contribution, I suppose the Labour Party never goes after power. I thought there was a determination that the old saying "Labour must wait" be firmly consigned to the past. The Taoiseach, as the former Minister for Finance, should be given credit as he was in the process of phasing out most of the property-related tax reliefs.

Deputy Joan Burton

He was afraid to do it.

Deputy Olivia Mitchell

He was in the process of doing it for four years.

Deputy Joan Burton

He could not take on the vested interests in his party.

Deputy Simon Coveney

I wish to share my time with Deputies Mitchell and Bannon.

An Leas-Cheann Comhairle

Is that agreed? Agreed.

Deputy Simon Coveney

I ask the Leas-Cheann Comhairle to let me know when eight minutes are up.

The IMF report from last week highlights the enormous challenge we all face. Ireland's economy is in deeper crisis any other advanced economy on the globe; the IMF forecasts a 13.5% drop in GDP through 2010. The report puts to bed the argument about what led to Ireland's current crisis being so much more serious than other countries' in the global economic turmoil. It was said most clearly during an internal IMF conference call when the IMF mission chief to Ireland, Ashoka Mody, said:

The imbalances in the Irish economy were serious. . . . I look back at the imbalances not to assign any blame, but they are a necessary part of the diagnosis. There were three features that were particularly prominent in the evolution of this crisis: overvalued property prices, the vulnerabilities built up within the banks . . . and the gradual loss of competitiveness of the Irish economy over a period of several years.

These are Government policy failures on an enormous scale and we should all recognise that so we can move on from the political squabble to concentrate our energies on formulating policies that can lead us out of this economic cul de sac. I have little interest in pursuing the political blame game; it is a waste of time and a turn-off for most members of the public. I would rather concentrate on elements of the IMF report to which we can respond with immediate actions and, more importantly, with longer term strategic policy.

Let us consider the challenge of restoring lost competitiveness. The IMF says clearly that Ireland needs to create a more competitive market for doing business and, perhaps more importantly, to create new and progressive sources of economic growth. In short, we must transform our economy and we must do it quickly. For Ireland to be competitive again, we must be cost competitive. Doing business in Ireland has become too expensive compared to our neighbours. My expertise is in the area of energy. There are businesses in Ireland that are choosing to invest in the UK because electricity bills there are 50% more for the same plant in Ireland.

There are specific things we can do immediately to bring down the cost of energy to both domestic and commercial customers. We need an emergency response for the recession — perhaps a temporary response for the next two years — in order to bring some relief to business people and home owners. We should be considering taking the carbon cost out of electricity pricing altogether. We put this in place on a voluntary basis up to the end of 2012. We could reduce energy bills by between 5% and 10% overnight for all customers. Last year Irish businesses and consumers paid about €220 million in carbon charges to meet the cost of carbon credits that were actually given free by the Government to the energy generation industry.

We could consider allowing the ESB to compete for electricity supply to home owners. Bord Gáis and Viridian are offering attractive pricing packages of 10% to 15% below those of the ESB but we do not allow the ESB to respond. We are deliberately preventing price competition in the energy market in an effort, supposedly, to allow competitors to get a foothold. Bord Gáis is going nowhere. It is well able to fight a price war with the ESB on electricity if necessary, and consumers would benefit from that, but we are not allowing it. Ireland must be the only country in Europe that is artificially keeping energy prices high in an effort to encourage more investment into the energy market.

We should consider freezing transmission charges. Ireland is at war with recession and we need to take strong, decisive action for a temporary period to allow our companies to survive and start growing again. We can do things on a temporary basis, such as freezing charges, in order to make that happen. We have a Minister for Communications, Energy and Natural Resources who is doing much in terms of trying to switch the emphasis from carbon-based fuels to more sustainable sources of power. We are trying to transform our grid to facilitate that. However, he is doing nothing to bring down the cost of electricity, which is killing businesses on a day-to-day basis. In the last two days alone, 140 jobs were lost in a business in Cork and 27 more in another company. All these collapses are partially due to the cost of doing business in this State, of which energy is a major factor. The Minister for Communications, Energy and Natural Resources and the Government are directly responsible for contributing to this problem because they are not taking the type of decisive action on a temporary, emergency basis that could bring the cost of electricity down next week.

The same applies in regard to gas pricing, but that is more of a regulatory problem. The reduction in gas prices of 10% last month is an absolute scandal when one considers that the wholesale price of gas in the United Kingdom has collapsed by some 60% since January. Yet the Commission for Energy Regulation tells us that 50% of the price of gas is directly related to the wholesale cost of gas in that country, from which we purchase all our gas. Therefore, a basic mathematical calculation suggests we should have seen a 20% to 25% reduction in the price of gas to households in the State. Instead we have had a reduction of only 10% with an indication that there may perhaps be a further cut of 12% in September. Why must consumers wait for price reductions when such reductions are already justified?

If we are to be competitive in the economy of tomorrow, we must build a new and modern infrastructure. Fine Gael has a plan to deliver this infrastructure through restructuring State companies and raising capital through those companies independently of Government. The State does not have the capacity to raise funds of the scale required for this infrastructural investment. That is what our NewERA package is all about. It is not simply a case of job creation; that is a by-product of the core vision. It is primarily about bringing about the same type of reform in the semi-State sector as we require in the public sector. Semi-State companies, which are owned by this country, must put in place a strategic plan for recovery by investing cleverly and commercially in new infrastructure such as broadband, water and the electricity grid. The State, via its companies, owns a substantial amount of broadband and information technology infrastructure through the metropolitan area networks, MANs, Iarnród Éireann, Bórd Gáis's pipelines and the National Roads Authority's ducting. However, it is managed in an entirely disjointed way, with some of it not used at all. Some €120 million was spent in rolling out MANs, but 59 out of the 80 networks are not being used. This represents a wastage of some €80 million of capital investment because of sheer incompetence in terms of failing to allocate responsibility to a single entity with expertise in information technology and infrastructural management.

There are many positive actions we can take to assist our economic recovery, but we are being distracted because of the enormity of the challenges relating to the banking sector and deficit management. The Government must find a way to take all these positive initiatives while also resolving those problems. We must restore some degree of optimism to the economy.

Deputy Olivia Mitchell

Whenever the Taoiseach and Minister for Finance speak about their plans for the economy, they claim to have three objectives, namely, to stabilise the finances of the State, stabilise the banks and promote employment. That is very laudable but the reality is that those objectives will not be achieved because everything we do must be concentrated on keeping the banks afloat. The reason for this is that the Government has boxed us into a corner by extending the financial institutions guarantee scheme to the bank bond holders. That was a great mistake and all our current difficulties flow from it in a way that is entirely limiting our options. We were well and truly screwed as soon as the Government took that decision.

Until September 2010, we must pray and we must borrow all we can to ensure none of the guaranteed banks collapses. If one of them goes under, so does the country. That is the situation in which the Government has placed us. The unpayable bill of €440 billion will be due for payment if any one of those banks collapses. Government Members repeatedly insist that we cannot possibly renege on the international bond holders. That is rubbish. These are the people who funded the property bubble in this State, expecting to do well in the good times, as they did. They were aware of the dangers of a crash but were prepared to take on those high stakes. They could never have expected that the Government would come to their rescue and take on their debts. The Government says we cannot renege because this is senior debt. The reality is that these are private loans, not sovereign debt. Most countries have reneged on this debt; what Ireland has done is the exception, no matter what the Government claims. Ministers point to what happened when the United States Government let Lehman Brothers go to the wall as justification for its stance. However, that institution was the nerve centre of the financial sector not only of the United States but of the world. Anglo Irish Bank is not comparable with Lehman Brothers, which was the custodian of large quantities of hedge fund assets.

The problem is that the Government listened only to the banks in the early stages of this crisis. It was led by the nose and we will pay the price for that in the next ten to 15 years, with taxpayers obliged to pour money into keeping afloat what is effectively a failed banking system. By guaranteeing bond holders, the Government converted bank debt into Government debt, with the result that if any of the guaranteed banks goes broke, the State will also go broke. That is the difficulty we face.

The Government has certainly succeeded in making it cheaper and easier for banks to borrow money, but the price for that is that it is more expensive for the State to borrow money at a time when we never needed it more. We do not even know how much we need to borrow, whether €35 million or €440 billion. In what is a massive understatement, the IMF stated that the risks we face remain significant and that any further financial crisis of any description, including any type of global shock, and the accompanying loss of faith by the financial markets in the Government's ability to repay our debt will place us in major difficulty. If the Government cannot borrow, it cannot guarantee the banks, in which case we will truly be finished.

The CSO figures, the Exchequer returns, the unemployment figures, ratings by ratings agencies, the GDP figure — all of these are going inexorably in the wrong direction. Even worse, they exceed within weeks the most pessimistic predictions of so-called experts. That does not inspire confidence. All the global evidence of previous recessions where property bubble bursts were accompanied by a financial crisis show that it took ten to 15 years for recovery to take hold, with employment being the slowest element of recovery. We are not at the bottom of the crisis in terms of unemployment. In the construction sector, for example, the loss thus far of some 20,000 jobs is merely the tip of the iceberg because many contracts still have some way to run and there is nothing to replace them.

When it comes to tourism, 50,000 jobs have already been lost with more expected to go by the end of the year and in the course of 2010. Incredibly, however, there has been total silence from the Government on this matter. If any other sector were in similar difficulties, there would be rescue packages, task forces, Cabinet sub-committees and so on in an effort to reverse the trend. Instead, the tourism industry has received not aid but additional taxes. The argument was made in an article in one of the newspapers today that a departure tax is a good idea because it keeps people at home. That may be the case but those people are not holidaying in Ireland. It would be good if money earned in Ireland were circulating within the State, but it would be even better if French, German or British money were circulating here, paying Irish wages, keeping Irish hotels open and putting money into the Exchequer. What an island economy least needs is a self-imposed disadvantage by way of a tax which may discourage visitors from other countries.

The one recommendation I would make in regard to the €250 million rescue package the Government has agreed with the social partners is that the money be put into subsidising local government rates. It should be given to local authorities so they can reduce rates. I spoke to a hotelier recently whose weekly rates bill is €10,000, and that is before he puts a meal on the table or pays a wage. This is unsustainable and our competitiveness has been shot completely. It is no wonder we have lost 50,000 jobs. If we lose the tourism infrastructure here, we will never get those jobs back.

An Leas-Cheann Comhairle

Deputy Bannon has four and a half minutes.

Deputy James Bannon

The IMF and OECD reports are an indictment of a Government that squandered the wealth of this nation. Before their publication, the Fianna Fáil-Green Party Government went on trial before the electorate on 5 June and was found guilty. This is still a Government in denial, and we had an illustration of this today.

There were two major admissions by the Minister for Finance last week. First, he gave way under pressure from the Opposition and conceded time on the schedule to discuss the OECD and IMF reports on the Irish economy. Second, and perhaps more important, the Minister admitted the economy had overheated and the Government must take responsibility for contributing to that.

This may not sound like the abject apology due to the Irish people but for the Minister and his Government it is a major step forward to state that they got it wrong, emerge from the protective veil of the global downturn and face the anger of the people. These reports told us nothing new. According to the IMF report, since the start of the decade and especially from 2005 to 2007, easy credit fostered a property bubble and bank exposure to property lenders soared, while reliance on wholesale funding intensified. Wages rose rapidly and international competitiveness was compromised.

There can be no excuses from the Government as Fianna Fáil and the Green Party failed in their job. The overheating of our economy, which made the crash more severe in Ireland than anywhere else, comes back to haunt us day after day. The collapse of tax revenue, despite two tax-increasing budgets, will potentially push our deficit to 12% of the national income, and Irish banks face losses of €35 billion by next year. Rash and ill-thought out Government expenditure, allied to a drop in tax revenue, has led to a major financial crisis.

Prior to the publication of the IMF report, we saw self-justification from the Minister for Finance, Deputy Brian Lenihan, as he sought to shore up his own position by blaming his predecessor. The Minister landed the Taoiseach right where the Opposition put him all along, at the epicentre of the creation of our economic problems. What confidence can we have in the Taoiseach when his Minister for Finance has none in him?

Ireland's vulnerability was built up during the boom years with an openness to global shocks. Critical macro-economic imbalances emerged as credit supply accommodated an unsustainable rise in property prices, and bank exposure to property lending soared while the reliance on wholesale funding increased and rapidly rising wage bills resulted in declining international competitiveness. As it currently stands, Ireland Inc. is viewed internationally as a sinking ship and it is very much a case of how the mighty have fallen, with the roar of the tiger becoming the mew of the tabby.

Four short years ago Ireland was ranked as the second-wealthiest country per capita in the world ahead of the US and Japan. With this supposedly enviable position came stigma and shame as a UN development programme found that despite our wealth, Ireland was one of the most unequal societies in 18 industrial countries surveyed, with the third-highest level of poverty.

The Taoiseach tells us day after day in this House how essential it is to impose tax increases, levies and cutbacks but he has not told us where our money went, which is what people want to know. He is not telling us the way in which his Government squandered the money. We had it but he lost it. Who will now pay but the most vulnerable and needy? It will certainly not be the Government or protected elite, many of whom turned up time and again at the tent in Galway and slapped those in Fianna Fáil on the back over the years.

Deputy Frank Feighan

Hear, hear.

Deputy Bernard J. Durkan

Hear, hear.

Minister of State at the Department of Education and Science (Deputy Seán Haughey)

I wish to share time with Deputy Michael Kennedy.

An Leas-Cheann Comhairle

Is that agreed? Agreed.

Deputy Seán Haughey

There is no great expectation in the wider community about the quality of this debate but we should put on record the constructive contribution from Deputy Bannon. I would be the first to acknowledge that it was a very positive contribution.

Deputy Bernard J. Durkan

Hear, hear.

Deputy Seán Haughey

The IMF report, by and large, endorses the Government's planned response to our problems in public finances and the banking sector. The IMF and the Government are in broad agreement on the corrective action needed on the budgetary position and the IMF analysis is in line with the Government's view that primary consideration should be given to expenditure reductions rather than increased taxation. Whereas a readjustment of at least another €4 billion is likely to be required in the forthcoming budget, the scope for increased taxation, at least under existing guises, is limited so cuts in expenditure must be seriously considered.

It is facile to argue with the benefit of hindsight that we should have acted differently in the past. Once those decisions were reached on the basis of the best available evidence and all the material facts, nobody predicted the severity of the current economic meltdown that has included the demise worldwide of once-considered impregnable banking and other corporations. In any event, we have our current problems and it would be far more productive to focus our energies on tackling them instead of trying to assign blame for what, in effect, is an international and worldwide crisis.

The comments the Opposition parties made in the period leading up to and during the 2007 general election are noteworthy for their absence of any forecasts of the severity of the storms which would impact heavily on this island in a short time. The value of hindsight is always tempered in that one is dealing with past events. Even the worst weather forecaster can, with certainty of hindsight, correctly tell us today whether yesterday we should have applied sun cream or carried a brolly.

Cuts in public expenditure are painful but with a dramatic fall in tax revenue, every aspect of public expenditure will need to be reviewed, no more so than in my own Department of Education and Science. The IMF has drawn attention to the disparity between the growth in labour costs and overall productivity. The loss of competitiveness, in particular, has been highlighted. Wages and prices must be adjusted to reflect the changed circumstances and necessary adjustments are already in train.

For example, the Government has taken steps to improve competitiveness with a reduction in energy prices, despite what Deputy Coveney contended earlier. The IMF has also acknowledged the important steps taken to stabilise the financial system through the bank guarantee scheme and endorsed the establishment of the National Assets Management Agency.

The concept and reasoning behind the NAMA proposal is simple, even if the operational mechanics are a little more complex. The primary concern in setting up NAMA is the restoration of a functioning system and any other suggested motive is spurious and misleading. Why otherwise would the IMF have stated that NAMA will be pivotal to the orderly restructuring of the financial sector and that it offers the prospect of extracting distressed assets from the banks, a precondition of their return to health?

NAMA presents a better option than nationalisation, whether on a temporary or a permanent basis. Nationalisation tends to be seen as the last resort wherever in the world it occurs. The message sent by the nationalisation of our two major banks would be extremely damaging for this country. At least one well respected businessman and entrepreneur has publicly stated his opposition to nationalisation, stating that it would undermine rather than promote confidence in Ireland. Another commentator has warned that banks might be pressured into providing loans to failing firms which have no prospect of repayment, thereby compounding existing difficulties.

In their more outrageous moments, the Government's detractors have suggested that switching impaired assets to NAMA somehow bails out vested interests, namely, builders and developers. Nothing could be further from the truth, however, and the suggestion is merely cheap political posturing for short-term gain. The transfer of bad loans to NAMA as a holding management company will mean that it will be separated from developers and bankers. Its only vested interest will be the taxpayer. International evidence indicates that Government owned banking systems serve their economies poorly and tend to result in greater interest rate spread, less private credit and preferential treatment of larger firms.

The IMF has noted that the approach and basic elements of Ireland's budgetary plan are appropriate. Its forecasts are largely in line with the recent supplementary budget and it concurs with the view that an improvement in our competitiveness will put us on a sounder basis to avail of increased growth. In these difficult times, it is encouraging that the IMF has added its name to the list of independent organisations which support the Government's budgetary policies. The European Commission has stated that our strategy was correct and we have received praise from the finance Ministers of other European countries. The ESRI and some economists believe we are now following the correct strategy on the public finances. Worryingly for the Opposition, there is not a united front regarding alternative means of addressing the twin problems of correcting the public finances and resolving the banking crisis. However, independent commentators support the actions of the Fianna Fáil-Green Party coalition.

Ireland has benefited greatly from the safety provided by eurozone membership. This should not be understated in the forthcoming debate on the Lisbon treaty. Next week we will debate legislation providing for a referendum on the treaty. Given the serious financial situation in which we find ourselves, surely the electorate will see the wisdom of voting "Yes" and the importance of eurozone membership in recent months.

Our decisions may be difficult or unpopular but never let it be said this Government has shirked its responsibilities. The IMF agrees that we are taking the necessary measures to protect our collective future. Our policies, and particularly those on NAMA, are the correct ones and we will not be deflected from implementing them. The IMF has commended us on the scale and speed of our response thus far. I welcomed the comments by the Taoiseach earlier today regarding his role as Minister for Finance and I fully support the current Minister, Deputy Brian Lenihan, as he deals with the difficult economic situation we currently face. I also congratulate him on his excellent performance on yesterday's "Nightly News with Vincent Browne".

Deputy Bernard J. Durkan

That was so moving.

Deputy Michael Kennedy

I welcome the opportunity to speak on this debate and thank the Minister of State, Deputy Haughey, for sharing his time with me. I will focus my comments on the issues raised by the IMF, which appear to have been missed by many speakers thus far.

Deputy Kieran O’Donnell

Let us accept where we are now. All parties should recognise that the IMF is determining the situation as it sees it. As regards how the Labour Party would handle the situation, the IMF's recommendations are in direct contradiction to that party's desire for pre-emptive bank nationalisation.

I was confused last week. I knew about the IMF report so I spoke to a friend of mine in international finance, and he felt that such reports can be watered down when Governments are in power for so long. Many drafts go back and forth between different Departments and eventually the Government of the day will settle for the worst case scenario, or at least to have it watered down to make the Government look quite good. I listened to the radio interview with the Minister for Finance and I was delighted because I thought the Government might be doing a good job and that the IMF report was more or less endorsing our way out of this terrible crisis. I take no pleasure from that crisis. The Irish people need leadership. They need a plan and the IMF report seemed to endorse the way out.

That was the case until I read the report and I listened to other political commentators. These commentaries are damning of the report and feel that the Government has no way out of the crisis. Is it not extraordinary that the Government is taking credit for trying to retrieve a disastrous situation and that it claps itself on the back? It is a bit like an arsonist who causes a forest fire, sees the fire brigade and tells them where the fire is located. The Government has caused this problem by the reckless mismanagement of the Irish economy. We must find a way out of it, but I do not think that the IMF report is endorsing the Government's action.

The penny has not dropped with this Government. The party is over and the money is gone. People out there are unemployed and they need leadership. The Government blamed the Opposition two weeks ago for not persuading it to ease up on its reckless spending habits. It also blamed the people for the property bubble when the Minister said that we, the people, collectively decided to have this housing boom. Governments are there to govern. The Government led the way and unfortunately, many thousands of young couples followed, and they are now in negative equity and without jobs. It is not right to blame the innocent people who followed the Government. Sometimes we have to take collective responsibility and admit we made a mistake before we move on. It can be difficult in politics to say that we have made a mistake, but the people would like to see a bit of humility before we can move on. For the past 12 years, every Government Minister, Deputy and even councillor took credit for everything. After 12 years, I will not take the blame on this side of the House for Government incompetence.

Our unemployment is the second highest in Europe. We want the taxpayer to pick up the tab for the banking crisis. Billions of euro of taxpayers' money will be poured into NAMA in order to bail out the banks. One of the Government's chief aims is to get credit flowing again, but small businesses and farmers are not getting finance. Small businesses are the life blood of the economy, employing thousands of people, yet hundreds of businesses are on the verge of bankruptcy and have already gone to the wall. If the banks do not start lending again, many hard working business people and their employees who keep the economy going will not be there. I ask the Minister to get on to the banks. He has given them terms of reference, but I believe they are abdicating from those terms. I call on business people and small farmers to remind the banks that they have terms of reference and to make sure that they adhere to those terms of reference to get business moving again.

Deputy Andrew Doyle

If I was an international investor listening to the contributions of the Taoiseach and his senior Ministers, I do not think I would have any great confidence in restoring some of our credit rating. Unfortunately, too much time has been put into spinning this as a positive thing, and looking to blame others such as the banks, the Opposition and the people of Ireland.

The IMF stated that Ireland needs new sources of economic growth for the future. We should look at re-examining some of the things at which we traditionally did well. Two examples are the food and fishing industries. We have a food industry that is currently worth €8 billion. It contributes to 230,000 jobs, 20% of our net exports, and 80% of all the raw material that is bought in this country. Over the last two weeks we have seen that industry under serious threat due to an unregulated domestic groceries retail sector. We have heard the Tánaiste state that she will establish a code of practice for the retail sector but she has made no commitment to putting in legislation to underpin that, or to appoint the Ombudsman, the Director of Consumer Affairs or whoever to implement and enforce these regulations. We recently had a graphic presentation from the economist Jim Power, who said that unless we do something shortly, 100,000 of those jobs will be lost.

We should re-examine the areas in which we can do best. A total of 85% of all our fish catch is untouched or exported for processing. We could produce much more fish by way of conventional and farm fish if we got serious about trying to do it. The groceries sector is 70% controlled by three major multiples. We have no fair trade legislation and no genuine effort to legislate for a policy of labelling. Professor Pat Wall pointed that to label the country of origin as Irish does not represent a "buy Irish" campaign, but rather an information campaign.

I would agree entirely with what other Deputies have said about banks and finance. Small businesses cannot get finance. Members opposite have made accusations that this side of the House is not capable of governing. Between 1994 and 1997, the Exchequer balance as a proportion of GDP was plus 1.5%. Between 2004 and 2008, it is minus 5.2%. The debt ratio as a percentage of GNP between 1994 and 1997 was minus 23.5%, but between 2004 and 2008 it is plus 0.4%. I am trying to be helpful, so that people can draw their own conclusions.

Deputy Kieran O’Donnell

I am delighted to contribute to this debate and wish to be as constructive as possible in the limited amount of time I have. This report is very well written, straightforward, easy to understand, striking and quite qualified in its recommendations. In terms of getting the economy back on track, we cannot make the mistakes of the past which were that we became over-reliant on the construction sector and our budgeting system put nothing aside for a rainy day. We must have contingency funds built into our budgetary system.

Deputy Ruairí Quinn

The National Pensions Reserve Fund.

Deputy Kieran O’Donnell

That was for a specific purpose, for pensions. We had nothing available to provide a stimulus to our economy. Unlike other countries, our fiscal position did not allow us to that. It is worth noting that we have no leverage in that area. The financial position makes it very difficult to provide any form of stimulus to the economy.

The National Pensions Reserve Fund is welcome but it is being depleted basically to bail out the banks. It is not being used for the purpose for which it was set up. It is effectively being used as a slush fund by the Government to bail out the banks. We must take that on board.

In terms of getting our finances and the economy back on track, we must deal with unemployment. Some 413,000 people are now unemployed and we meet unemployed people every day in our clinics. There is nothing to encourage employers to look at ways to retain employees. We must look at our social welfare system and at ways to remodel it and to use it to ensure people are kept on in jobs. For every person let go, it costs the taxpayer €20,000 per year.

I refer to the banks and the National Assets Management Agency. The Government always refers to the Swedish model. The Swedish model was 8% of GDP and it was worth €9 billion. It made a 50% loss and lost the taxpayer almost €4.5 billion to €5 billion. NAMA will cost €50 billion to €80 billion. It is half of GDP. How will NAMA restore credit in the immediate term? What we propose provides it.

The key feature in terms of the economy getting back on track is that the banking system must function and credit must flow. Small businesses cannot get access to credit. The interest rates on the overdraft facilities are being increased. It is prohibitive. This is about the real world. The role of Government is to put in place structures so that private enterprise flourishes and to ensure we have infrastructure, look after the most vulnerable, do not have a punitive tax system, the economy functions and to allow people in business to provide jobs. The private sector cannot do that currently because the system in terms of how business operates is unwieldy and they cannot access credit. That slows growth and competitiveness.

The Minister will agree this is the least competitive country in the eurozone.

Deputy Brian Lenihan

That is not true.

Deputy Ruairí Quinn

It is the second least competitive.

Deputy Kieran O’Donnell

The IMF report states that we have the highest costs in Europe.

Deputy Brian Lenihan

It has improved in recent months because of decisions taken by Government.

Deputy Kieran O’Donnell

We are splitting hairs. We are extremely uncompetitive.

Deputy Brian Lenihan

We are moving in the right direction.

Deputy Kieran O’Donnell

In 1996-97, this was probably the most competitive economy in Europe. Over the past ten years, the Government fuelled inflation. It basically abandoned exports in 2002, which the IMF report effectively states. It relied completely on construction. It was short term and brought in tax revenues which could not be sustained.

How many times did this report go back and forth between the Government and the IMF? The people are entitled to know.

Deputy Brian Lenihan

The Government never saw it.

Deputy Kieran O’Donnell

We understand the Department officials did. The Department officials represent the Minister for Finance. How many times did Department officials see this report? People are entitled to know.

The key thing we must learn from the IMF report is that we must get credit flowing and sound public finances. The IMF stated that it wanted to see the detail of what will be done over the next couple of years. We await that with great interest as well.

Deputy Thomas Byrne

I am delighted to have the opportunity to discuss the report. I hope the media reports on this debate. They would report on a row about a debate but would not actually attend it. I urge the public, the voters, to go to imf.org and read this report. As someone said, it is a very readable and understandable report. Instead of listening to someone picking a sentence for his or her argument or to speak against the Government, people should read the report to get a full picture.

A challenging picture is portrayed in this report. Nevertheless, the IMF is very clear that in the two areas that matter most for the economy, namely, public finances and the banking system, the correct actions are being taken. The report states that the Government is showing resolve.

Our competitiveness is a huge challenge, as speakers have said. Part of that is currency, over which we have no control, and another is wages. When we speak about competitiveness, we must state that we are speaking about people's wages. There are other parts but wages is a large part of it.

Deputy Kieran O’Donnell

What about energy?

Deputy Thomas Byrne

Energy is another part of it but wages is a very significant one along with currency. When speaking about it, we should let the people know exactly what we are speaking about.

Another challenge in this report and for the economy is foreign direct investment. There are indications that our exports are not doing quite as badly as those in other countries but that is a challenge on which we must work harder.

I refer to social welfare. People are reading selectively from the report and are reading the executive summary which speaks about the possibility of reducing entitlements. However, the IMF also states that the social welfare system must protect and be focused on the vulnerable. Surely, that is the policy of every party in this House, namely, that we do not just spend money willy-nilly and that we protect and better target the vulnerable. The report does not mean target the vulnerable the way the Opposition does when it says we target the vulnerable.

The Labour Party's reaction to NAMA initially was slightly hysterical but it has calmed down a lot, which is very welcome. The nationalisation proposal is a serious one, although it is not one with which the Government agrees. The Labour Party always says nationalise and then clean up but it never says what cleaning up is. Cleaning up is the NAMA proposal; it will clean up the banks.

I am delighted the debate on NAMA is becoming a bit more rational. The Opposition will have points on, and criticisms of, it. Some Labour Party spokespersons spoke about builder bailouts, banker bailouts and aeroplanes flying all over the world for NAMA. That was pure hysterics. It is one of the most serious issues facing the country but it is clear that most are of the opinion that this is the right thing to do, and perhaps the only thing we can do.

I refer to the structural deficit about which we are getting much criticism — that it was appallingly high in the past year. It was too high if one looks at this report and the figures contained in it. We were called a disgrace by one Deputy opposite for having such a high structural deficit. Again, it is like the competitiveness issue. The Opposition Members do not explain the structural deficit. It consists of entitlements, benefits, spending on schools and so forth. I do not want to be harping on about the Opposition but its general criticism during the boom times was that the Government was not spending enough, hospitals and schools were failing, there were not enough teachers——

Deputy Kieran O’Donnell

The criticism was how the Government spent the moneys.

Deputy Ruairí Quinn

We did not ask for electronic voting machines.

Deputy Kieran O’Donnell

What about PPARS costing €160 million?

Acting Chairman (Deputy Charlie O’Connor)

Deputy Thomas Byrne without interruption.

Deputy Thomas Byrne

A structural deficit of 10% is much more than the cost of the voting machines. It is about the entire social welfare budget.

I know Wikipedia is not the be-all and end-all of source material but I looked up the term "structural deficit" on it. Its definition stated: "Structural deficit issues can only be addressed by explicit and direct government policies: reducing spending (including entitlements), increasing the tax base, and/or increasing tax rates."

Deputy Kieran O’Donnell

How did the structural deficit come about?

Deputy Ruairí Quinn

It is government by Google now.

Deputy Thomas Byrne

It is not. Anyway I recall we had legislation by Google by the Opposition on a family law provision from New Zealand.

Deputy Kieran O’Donnell

It was the Government which created the structural deficit.

Deputy Thomas Byrne

Deputy Thomas Byrne

No one likes to pump money into a bank in such a situation. If we were to fail on Anglo Irish, the cost would be so much higher. Those institutions that Fine Gael wants to default on are the very ones lending us the money to keep our deficit going this year and to pay for social welfare and public spending. If we default on them, we would find it difficult to borrow to keep the country going. We are trying to keep the show on the road.

People need to read the IMF report. It is a challenging report of the Government. The idea the Government stitched it up with the IMF is not true. While it would not be happy reading for any Government, it stated the right and difficult decisions are being made. While the IMF does not agree with all of the Government's moves, it acknowledges the Government has a plan and in the two areas that matter most we are getting them right. That is what will bail out the ordinary taxpayer and the economy. We must keep giving people hope as best we can in these difficult circumstances.

Deputy Kieran O’Donnell

The banks are sitting on the fence waiting for NAMA to be established.

Deputy John McGuinness

For example, I am all for protecting employment rights. However, legislation to establish NERA with 131 inspectors is on Committee Stage which will bring further policing of small businesses. While I accept in the current economic situation employment rights must be protected, some respect must be shown to the small and medium-sized enterprises, hanging on by their fingertips.

We are up against the wall in terms of keeping jobs in this country. Job maintenance in the social welfare package should be examined.

Deputy Kieran O’Donnell

How will NAMA solve this?

No country needs that to happen as much as Ireland does. We should be leading Europe in demanding the change that is needed at WTO level to enable our exporters to access all the markets more easily. That would make such a difference to all our companies at home and help to sustain jobs in this country. If we do not lead the innovation in that area, we will fail Irish exporters.

We need to get together in relation to the smart economy. It is not good enough merely to talk about it. Rhetoric will not create jobs. We need to understand clearly what is meant by the smart economy. We need to commercialise and internationalise our products, from county enterprise board level to Enterprise Ireland level and overseas. If we do not invest in such products, we will fail to invest in tomorrow's companies and tomorrow's jobs. I firmly believe it would be a mistake to fail to invest in the most important part — the central piece — of the economy — which is the creation of jobs in Ireland by indigenous companies. As I have said previously, Bord Bia, Enterprise Ireland and IDA Ireland should be amalgamated. We need to send a single effective and disciplined body abroad to sell every product from this country. We need to change. We should not be afraid of change. If we can find consensus in this House, we can bring about that change in the interests of those companies and the people we represent.

Deputy Ruairí Quinn

I would like to share time with Deputy Rabbitte.

Acting Chairman

Is that agreed? Agreed.

Deputy Ruairí Quinn

I compliment the last speaker on his contribution. We would love to find consensus in this House. We would love to work with the Government parties on finding a solution. Every time we have offered something, we have been repulsed and repelled by a tribal Taoiseach who sees anything that comes from anyone other than a Fianna Fáiler as unworthy of consideration. We are in a bad place. The road to recovery starts with recognising that the whole country is in a bad place. As with an alcoholic, the Government must start by recognising that it needs to heal itself.

For me, this is a nightmare being repeated. When I came into this House in 1977, the economy had just recovered after the first and second oil crises. The landslide that returned Jack Lynch as Taoiseach in that year turned a recovering economy into a basket case within four years. I will not waste my time by giving Members a history lesson with which they are already familiar. Fianna Fáil brought this country's economy to its knees at that time. The Minister of State who is sitting on the Front Bench as I speak knows all about this, as he was heavily involved in Fianna Fáil at that time. He recognises that he was a victim, in part, of the shafting of Martin O'Donoghue during that era. We are here again, 30 years on. For the second time, Fianna Fáil has brought this country's economy to the brink of bankruptcy. As a young Deputy at the time — not unlike the Deputy from Meath East who spoke earlier — I can recall sitting at this side of the House during George Colley's inane first budget. I was appalled by the economic illiteracy of the Fianna Fáil Deputies who cheered and applauded the budget, in which Mr. Colley boasted that the combined spending measures he had introduced represented a deficit to GDP ratio of 13%. The ratio permitted under the Maastricht criteria is 3%.

When the rainbow Government left office in 1997, this country had a vibrant, competitive and consciously focused economy that was creating more than 1,000 jobs a week. It was heading for the eurozone. At the time, its bond spread was close to, if not aligned with, the deutschmark. We were exporting services and goods of the kind about which Deputy McGuinness spoke. Ireland was seen as a country with a stable economy and as a good place in which to invest. We were export-led and competitive, and we were producing goods and services. Before I explain why that is no longer the case, I will explain why Fianna Fáil needs to recognise that it is not possible to get where one wants, with the support and respect of the public and this House, if one does not start by saying one is sorry. The Government needs to say "okay, we screwed up". The Taoiseach needs to admit that as Minister for Finance, and previously as Minister for Health and Children and as a senior Minister in the Cabinet, he was part of an inner leadership group — in so far as anyone could be part of such a group with Deputy Bertie Ahern — that screwed up. He should apologise for that before setting out what he and his Government will do during the three years between now and the next general election. I have not once heard an admission of a screw-up, or a word of apology, from the Taoiseach and his colleagues. If they do not recognise the need to act in such a manner, they will not succeed with what they are trying to do at present.

I would like to tell the House an anecdote to show how the Government screwed up. In the spring of 1997, in the run-up to that year's general election, I was in Carrick-on-Shannon, County Leitrim, with the then Labour Party Deputy for the area, Mr. Declan Bree. Front and back bench Deputies will be familiar with the usual sort of thing that happens when one of the Ministers of the day comes to visit. On the occasion in question, I met some of the members of Carrick-on-Shannon Chamber of Commerce. As we all know, Leitrim is not a heavily urbanised county. Although it has a land mass twice the size of County Louth, it has a population of fewer than 27,000 people.

Deputy Pat Rabbitte

And more than 26,000 houses.

Deputy Ruairí Quinn

I am coming to that very point. They said, "We want section 23" and I asked what part of Carrick-on-Shannon they wanted it for, to which they replied, "Oh no, we don't want to make a selection". I asked what other places they wanted and was told: "We don't want to be competitive between one town or one village and another." I asked them what exactly they would like and they said, "We want you to give section 23 to the whole of County Leitrim."

My reaction was not unlike that of the Minister of State opposite, except I was trying to win votes for a man who repulsed votes, Mr. Declan Bree, and it was not easy. However, that was precisely my reaction. Some 15 months later, the then Minister for Finance, Deputy Charlie McCreevy, gave the entire upper Shannon basin section 23 status. Four years ago we were building 90,000 houses because of the McCreevy madness that turned the productive export driven economy — precisely the one about which the Deputy is talking and which took us a long time to get to — into a gambling casino, an adjunct to the ATM of the Galway tent one might say, where people were built houses. Go through Carrick-on-Shannon now, or Keshcarrigan or Dromad and a host of other areas and one finds empty houses. The poor devil left holding the lease on the ownership of them is now at the end of the poncy sale into which Fianna Fáil turned the economy. That is what has happened. Anglo started it and it went on and on.

We in Opposition are accused by the Taoiseach and others to the effect that nobody shouted stop or said anything, and that we were all in it together. It happened, and Lehman Brothers brought it all down, etc. This time last year, as the Dáil was rising, the Taoiseach was saying, in effect: "Stop talking down the economy, wake up and smell the roses, there is no problem."

I gave a radio interview at the time and was asked by the Sunday Independent to turn it into an article, which was published on 13 July, almost 51 weeks ago. I said the following:

The economic and financial crisis facing Ireland is much greater than the Government will admit. The Taoiseach Brian Cowen was Minister for Finance when the storm clouds began to gather. But he ignored the warning signals and the advice from independent commentators.

Decisive action is required immediately — above and beyond the timid measures which were put through the Dáil on Thursday. Honest leadership is now needed. This government has been basking in the sunshine of the economic success which it inherited 11 years ago. I am not sure it has the experience or management skills to get us out of the crisis

But here is what has to be done. The Government needs to drastically cut current expenditure so as to bring it into line with the tax revenues which our declining economy is generating. That will ensure that we will operate within the budgetary rules of the eurozone currency. But it must also generate confidence and hope that our economy starts to grow again. This means substantial investment in our productive infrastructure.

Let's start at the top. The Government must unilaterally repudiate the recent pay increases for itself, top civil servants and the judiciary and not merely postpone them as it has announced. In addition the big pay increases to chief executives in the commercial semi-state companies should be cancelled. Dáil deputies and senators should take a cut in salary and allowances.

Time prevents me from reading the rest, but it is in the records. Incidentally, the Government has never repudiated those increases. They will be collected by Ministers when they retire.

We were saying those type of things this time last year. The Government side said there was no problem and went off and played golf. They came back in September before Lehman Brothers went down and thought there was a problem and something should be done. The spin budget was called in by the Minister for Finance, Deputy Brian Lenihan. It was a fiction and a farce that had to be corrected early in January and subsequently. If the Government wants co-operation from this side of the House, listen to what we are saying. We and Fine Gael have been saying it consistently.

I knew the Acting Chairman would. That, of course, was a joke.

To deal with this systematically, the first thing the Taoiseach said was that the Government's strategy "has been broadly endorsed by the IMF". The IMF actually said: "The Irish economy is in the midst of an unprecedented economic correction. The stress exceeds that being faced currently by any other advanced economy and matches episodes of the most severe economic distress in post-World War II history."

Deputy Kennedy, commenting on that, said it was a wake-up call for the Opposition. We are to blame for many things, and properly for some things, but by God we are not to blame for the way the economy has been crash dived by Fianna Fáil or even the Lenihan brothers. The Taoiseach pointed out that the IMF prediction as recently as 2008 was for 3% growth this year. He wanted to draw attention to the fact that we were, instead, facing a contraction of some 8%. However, the interesting thing is that he did not refer to the IMF report for 2004, which warned about the extent, scale and duration of the property boom and said we had the biggest risk in Europe in an overheating housing market. That was in 2004.

The Taoiseach's third point is really interesting. He said: "Regarding these aspects within my control as Minister for Finance, I moved to end the tax incentives that then existed for the property market. In budget 2005 I announced a review of tax incentives. In budget 2006, in line with the recommendations I announced a termination date of 31 July 2008." Therein lies the problem. I remember very well why he made that announcement in the budget of 2005. It was because of the pressure on him from this side of the House. We had spent so long hammering away about the tax breaks and tax incentives that were there for property. I recall pursuing the Taoiseach at Question Time about the Kenny report. I remember the battle with the then Taoiseach about his referral of the issue to the All-Party Committee on the Constitution — because he thought there was something in the Constitution impeding intervention by the State in the land question. I remember Deputy Burton speaking on the tax shelters and tax breaks for property at virtually every Question Time. That is why he announced it in 2005 but he did nothing until 31 July 2008, and the damage was done.

The analogy is with the economy and the Taoiseach's script. When one asks the alcoholic how he is getting on he says he is great, he is taking the water, exercise and tablets. That is what the Taoiseach says about the IMF and the economy, that he is now doing the right things. Fair enough, the IMF broadly says that, but the damage is done. The economy's liver is in terrible shape. I agree with a great deal of what Deputy McGuinness said. The merit of this debate was that before the House rises, as Deputy Quinn said, we would begin to see the cross-fertilisation of ideas, for what they are worth, in this House about how we get out of the situation we are in.

Acting Chairman

I am sorry Deputy Rabbitte has only a minute left. I regret that.

Deputy Pat Rabbitte

The Taoiseach goes on to articulate his three-step mantra. He says we must fix the banks, stabilise the public finances, and then we will get around to the economy and getting jobs moving again. I do not deny we must fix the banks. Fixing the banks up to now has meant pouring huge amounts of taxpayers' money into them. While I accept we must have a functioning banking system and that we must get the public finances back into some kind of kilter, I do not accept the chronology that comes with the Taoiseach's recipe, that we must implement steps 1 and 2 before we start to think about step 3.

I also agree with Deputy McGuinness about the remarks he makes about public sector reform. We have paid lip service to it in this House for years. On the day the Taoiseach took office he said it was his first target. Deputy Bruton earlier referred to Whitaker and Lemass. In the 1950s Whitaker and Lemass had a project, namely, the modernisation of Ireland. We were going to open up as a trading nation and do business with the rest of the world. We were going to mainstream mass education and join the European Economic Community. This Government has no project. Its only aim is to hang on and, like Mr. Micawber, it believes something will turn up.

Deputy Kieran O’Donnell

Yes.

Deputy Pat Rabbitte

As Mr. Whitaker said at a recent event that Deputy Quinn and I attended, the reason Seán Lemass never went into the Department of Finance was that he felt there was an inverted Micawberism at work there, by which he meant that the attitude in the Department of Finance was "something will always turn down". Looking at this clapped out Government I have the same feeling of despair. I am worried.

Fine Gael made a serious mistake. Moving a confidence motion here the day after the calamitous election results was politically wrong. It has shored up the many disquieted people on the Government backbenches and the unfortunate Green Party members who were wobbling. It was a mistake in terms of getting them out. As the man said, "In the name of God, go."

Minister of State at the Department of the Taoiseach (Deputy Dick Roche)

I wish I had sufficient time to engage the Deputy on the goings-on in the Department of Finance over those years and how correct and accurate the observations by Mr. Whitaker were. I also thank Deputy Quinn for his recognition of my modest efforts in the former Department of Economic Planning and Development but more for his recognition of the need to be generous to former Minister and Deputy, Martin O'Donoghue, who has been blamed for many problems for which he should never have been blamed.

We are in uncharted financial and economic territory. I, as much as every Member of this House, am concerned about this economic situation. I wish simply saying "sorry" would resolve it.

Deputy Ruairí Quinn

It would be a start.

Deputy Dick Roche

It is a start and I am sorry about the misery attendant on our economic downturn.

Deputy Kieran O’Donnell

Is the Minister of State sorry for causing it?

Deputy Dick Roche

I am very sorry about the thousands of people who are out of jobs. However, we do not come in here simply to engage in rhetoric or abuse. I agree with the point Deputy Rabbitte finished on. We have a responsibility to come in here and try to agree the best solutions to this situation. I agree with Deputy McGuinness's point, which Deputy Quinn took up. There is a responsibility on everybody in this House to realise wisdom does not reside on any one side of the House. That is patent hubris. Wisdom is to be found in every part of this House, in the humblest, newest member of this House as well as those who think they are here by dint of ownership of the place.

We all have a serious responsibility. There is a distortion in public debate in this country and it is not confined to those of us on the political benches. It is to be found in the distortion of academic commentary. If anybody wants to examine that point further they should read an article by a Trinity College academic in today's The Irish Times. I do not know if the best possible solutions are the solutions the Government is putting forward, but I believe they are honest efforts. To suggest as has been done time and again in rhetoric across this House that they have been done to bail out friends is disingenuous and demeans political debate. However, at the end of the day it does not move us any closer to a solution. For example, when dealing with the NAMA legislation we will need all the ingenuity of all the Members from all parties and none in this House to ensure it is right. Perhaps for these few urgent weeks we could leave some of the rhetoric behind.

Deputy Rabbitte accurately quoted from the IMF report. He did so in a way that was amusing and apposite because he wanted to make a specific point regarding the Taoiseach's speech. It is equally true that the 2009 IMF report is striking in the endorsement it gives, particularly on the NAMA issue. It is well worth our while being accurate as to what that says. The IMF analysis on future fiscal adjustments that we should focus more on expenditure than on taxation is also in line with relevant thinking on all sides of the House. I was fascinated by and must look up the article the Deputy read into the record. I suspect I will be able to quote it against him into the future. How right he is. We need to consider all aspects of public policy. There is not a simple solution or magic powder. Tempting as it is to score political points against each other, we are in a more serious place than that.

They made significant losses.

Deputy Dick Roche

We will need to change as well.

I wish to make a final point on NAMA. The suggestion that NAMA has been proposed simply as a way of bailing out friends, cronies or people who attended the Galway Races tent — thank God I never did — is disingenuous. It also devalues political debate. While, as all those present know, I am not shy about scoring political points and am the first to admit it, we have gone past the point of having a bit of fun and games with each other. We will need to make NAMA work. Deputy O'Donnell asked when NAMA would be in operation. The sooner the better is my answer.

Deputy Kieran O’Donnell

That is not the point.

Deputy Dick Roche

If we needed to sit every day of July and right through the summer we should do that. The reality is that the Minister has outlined a timetable.

I wish to conclude because I am taking the indulgence of the Chair. It would be wrong if I, as Minister of State with responsibility for European affairs, did not make a few comments on the importance of Europe to us and where we are. In 12 or 13 weeks we will face another referendum. It is more critical than any decision we made in any previous referendum other than the decision the people made to jump into the dark and join the European Economic Community in 1972. If there was ever a time when Europe needs to be strong and focused, this is that time. The world faces remarkable challenges and not just the economic challenge or global warming. Later this year Europe will face a major energy crisis. We need a strong Europe that is fit for purpose. The only people in Europe of the 500 million citizens that can make Europe stronger now are the Irish people. The Irish people have shown great perspicacity and extraordinary courage in the past in taking decisions.

I do not know why and what failure on our part encouraged the people to be timorous on 12 June 2008. It was temerity allied to considerable misleading propaganda that forced people to say they did not know enough about Europe. We have a combined responsibility. We all made mistakes during the last referendum campaign. There was sniping on different sides in this House and we were all culpable. On this occasion we really must work together. It will not be easy to get it over the line and it should not be taken for granted. We should never take the people for granted. An honest effort to address the concerns of the people was made. Those concerns were really well recognised by a committee of both Houses. We should now have the courage to lead. We are elected not just to be followers but also to lead and to make certain the people take a decision that is informed, focused and right. They will do that by voting "Yes".

I will say goodnight at that.

The Dáil adjourned at 9 p.m. until 2.30 p.m. on Tuesday, 7 July 2009.

Dáil Éireann debate - Friday, 3 Jul 2009