I wish to return to a question I raised with the Taoiseach yesterday. The banking bailout strategy has been a continued failure, has cost the Irish taxpayer billions of euro and has brought our country to the edge of bankruptcy. Anglo Irish Bank has cost the taxpayer €35 billion, with a total recapitalisation of €60 billion not including the cost of NAMA. If that is included, the estimated cost increases to €100 billion in respect of a banking strategy that has clearly failed. Everyone respects the integrity of the Governor of the Central Bank, Dr. Patrick Honohan. He said on Monday that Anglo Irish Bank would be wound down in a matter of weeks. Does the Taoiseach accept the statement of the Governor of the Central Bank? Does he agree with that statement? If he does, will the Taoiseach explain to the House the strategy, the process and the timescale to have Anglo Irish Bank wound down in a matter of weeks?
Leaders’ Questions
The European Union has consistently stated in all of its statements that the policy approach we have been taking must be accelerated and deepened, not abandoned as has been suggested by Deputy Kenny. This involves difficulties for us as a country but we must deal with the situation as it is. The Governor of the Central Bank outlined the proposed strategy agreed on how to deal with the restructuring plan for Anglo Irish Bank. I refer to the interview with Mr. Chopra, who pointed out that the IMF has not sought a radical change in the direction of policy pursued by the Government but rather an intensification of the strategy. Regarding Anglo Irish Bank, it is envisaged that the deposit book will transfer from the bank but remain within the State. All deposits held by Anglo Irish Bank are safe and are covered by the deposit protection scheme for sums of up to €100,000. In addition, deposits are covered by the eligible liabilities guarantee scheme for sums above €100,000 for the full term of the deposit, up to five years, provided they are made prior to 30 June 2011. Any wind-down of the loan book of Anglo Irish Bank will be over a multi-year period, as in the current restructuring. The Government's primary objective at all times has been to seek to minimise the costs of this bank to the Irish taxpayer. It is intended to submit an agreed plan to the Commission by the end of January 2011, as the Governor indicated.
Does that mean "yes"?
The Taoiseach referred to the fact that any wind-down would be over a multi-year period. On Monday, the Governor of the Central Bank said this wind-down would take place in a matter of weeks. There is a divergence of opinion between the Taoiseach and the Governor of the Central Bank.
I was referring to the loan book. There is no divergence.
He said the bank would be wound down in a number of weeks. I asked the Taoiseach if he agreed with the statement. In September, the Taoiseach said the upfront costs of winding down Anglo Irish Bank, to the tune of €70 billion, would not be in the interests of the taxpayer. More than two years ago, Fine Gael pointed out that Anglo Irish Bank should be wound down. Before the banking guarantee the Taoiseach ignored warnings from Merrill Lynch that Anglo Irish Bank should be wound down. The Taoiseach ignored the signals from the European Commission one year ago that it was opposed to the rescue plan of Anglo Irish Bank. I do not want to impute anything but the best motives to the Taoiseach but I ask him to explain the relationship of the Taoiseach and the Government to Anglo Irish Bank in refusing to accept that it should be wound down. Can he explain why the Governor of the Central Bank says this could be wound down in a number of weeks, with the name removed and this toxic bank removed from business?
There is no source of confusion whatsoever. I was simply making the point that the wind-down of the loan book takes a number of years. The Governor of the Central Bank has indicated the need to wind down its deposits and this has been agreed in respect of deepening the restructuring and reorganisation that must take place. Finding a safe location for the deposits within the State can be done quite quickly, by the end of January 2011.
A very big price will be paid by the Irish people for the bad deal the Government negotiated at the weekend to bail out the banks. Among the first who are being asked to pay the price for this bad deal are people on the lowest levels of pay in the country, those at or below the national minimum wage. According to figures released yesterday, there are 52,000 workers in the country at or below the national minimum wage — just over 3% of the entire workforce. They are paid €8.65 an hour. The Government intends to cut that pay by €1 an hour. That means someone who is working a 40 hour week will have their pay cut from €346 a week by €40 a week. Someone who is on less than €18,000 a year will suffer a pay cut of more than €2,000 a year or 11.5%.
The last time the Labour Party asked about the Government's intentions for the national minimum wage was a couple of weeks ago. At that stage the responsible Minister, Deputy Batt O'Keeffe, said that the Government was waiting for a Labour Court recommendation. The Labour Court never made any recommendation to cut the national minimum wage. The cut in the national minimum wage will not save a single cent for the public finances. In fact, arguably, it will cost money. First, will the Taoiseach confirm to the House that the cut in the national minimum wage will not save a single cent for the Exchequer? Second, can he tell us what estimate, if any, the Government has made as to what cutting the national minimum wage will cost the Exchequer, since presumably people who have their national minimum wage cut will be entitled to a higher family income supplement, more secondary social welfare benefits, and there will be an impact on local authority rents? Can the Taoiseach explain to us why it is being done in the first place? What is the reason for cutting the national minimum wage? Finally, can he tell us who asked the Government to cut the national minimum wage?
First, the agreement that was concluded last weekend is primarily about making sure there is sufficient funding for the State. A total of €50 billion of the drawdown will be for the funding of the State in the coming years as we reduce our deficit and get our public finances back into order. A total of €25 billion of the €35 billion drawdown facility is available on a contingency basis for the banks and €10 billion is for recapitalisation. The majority of the agreement relates to the funding of the State but obviously the banking issue must be resolved as well.
Second, on the question of the minimum wage, the issue is that it also forms a base for other wages further up the line. We have seen an increase in the minimum wage beyond the level of inflation since it was introduced. It was increased by 55% during a period when inflation was 28%. We must try to ensure that we have a competitive economy. It is difficult. We have seen reductions in wage rates across the board in the public sector and in the private sector as well. The brunt of adjustments in the private sector has been on the basis of redundancies and increased unemployment. We have had to also ensure there is full flexibility within the system as well. Therefore, in labour intensive sectors such as retail and tourism where many jobs have been lost, there is a need to try to ensure that we have flexibility in that area. The reduction in the minimum wage is about making sure that we have a competitive economy. It is part of a wider range of adjustments that is taking place throughout the economy. It is important we also recognise that we will still have one of the highest minimum wage rates in the European Union as a result.
That does not answer any of the questions I asked the Taoiseach about the minimum wage. I asked him first of all if he would confirm that it will not save anything for the public purse. Clearly, it does not. This saves nothing. Second, I asked him what calculation the Government has done on what it will cost the public purse. I outlined ways in which if one cuts the minimum wage family income supplement will go up, people who are working part time will have a higher entitlement to social welfare payments, secondary benefits, possibly medical cards, housing and rents. There is a range of areas where there will be a cost to the Exchequer for cutting the minimum wage. Has any estimate been made of what the cost will be?
Third, I asked the Taoiseach to give a reason for cutting the minimum wage. If that is the best reason he can give, I am afraid it is a pretty pathetic reason. How many jobs does the Taoiseach think were lost in retail and tourism as a result of the minimum wage being as it is? How many additional jobs does he think are going to be created by reducing it? The Taoiseach has not told us anything about that. When he says that it is a base for other wages in the economy, does it follow that the strategy is first to cut the minimum wage and then to see a follow-on cut in wages right through the economy? Is that the strategy? If it is, then the Taoiseach should set it out clearly. Finally, where did the idea of cutting the minimum wage come from?
The Greens.
It did not come from the Labour Court. As recently as a couple of weeks ago the Government did not seem minded to cut the minimum wage. There are few, if any, bodies in this country of which I am aware that were actively seeking a cut in the minimum wage. I accept there has been comment about the minimum wage from time to time but I am not aware that people were lobbying Government to cut it. Did the request to cut the minimum wage come from outside the country? The Taoiseach should tell us where the notion of cutting the minimum wage came from. It seems to be a peculiar form of Fianna Fáil economics, that one pays people less in order to incentivise those who are on low pay and who are poor, but in order to incentivise the banks one throws more money into them.
Deputy Gilmore is aware that that is not the basis at all, but it was a nice populist throwaway. The issue is as follows. It is not a question of saving money to the State in terms of the wage rates. The whole idea of wage rates is to try to make sure that we get the maximum level of employment we can and the maximum flexibility in the labour market in labour intensive sectors such as the hospitality and retail sector, for example, who have been saying for some time that they would like to see changes on these matters.
Changes in the JLCs. That is what we are talking about.
That has been an obvious case. They have probably been lobbying the Labour Party on the issue as well. An independent review will take place on employment regulation orders, EROs, registered employment agreements, REAs, and joint labour committees, JLCs, as well, which is at a level above the minimum wage. All of those issues are about adjustments in costs, including labour costs, in order to ensure that we maximise the number we keep in work at a time when the trading environment is very difficult and that over time we will see wage rates rise again when our prospects and the economy improve again. That has happened in many parts of the economic cycle. It is a question of making sure that we have maximum flexibility in the labour markets.
Live horse and you will get grass.
The OECD and others have been referring to this issue as a structural issue within the Irish economy generally. The Government took the view that this would assist removing some barriers to employment in labour intensive sectors. Deputy Gilmore is aware of the experience people have in a whole range of areas where people who are less skilled and who are anxious to take up employment are able to take up employment being provided by employers at affordable rates. One must examine all of those questions at a time when we have 13.5% unemployment. When, thankfully, we had much tighter labour market conditions, when we had almost full employment, a different policy was pursued. We introduced the minimum wage. It was raised on a number of occasions, by 55% at a time when inflation was 28% during that period. By keeping it out of the tax system that had the effect perhaps of narrowing the tax base but it was a good thing to do. It was broadly supported in the House, as one of the ways in which we could ensure that people on lower wages would have as much disposable income in net terms as possible. That was not the case ten or 15 years ago when the entry rate, as the Deputy knows, for taxation was about £7,500. It has since been raised to about €18,500. There has been a huge effort and progressivity in taking people on lower wages out of the tax net. When Deputy Gilmore was in government, we did not have a minimum wage and many of those people were taxed. We saw huge progress throughout that period.
Now we are in a totally new situation. We have to have flexibility in our labour markets and more competitive labour costs. We have to do it. It has been done in many areas of the private sector in terms of increased unemployment. We have to address this issue. It is not a question of saying that this is the way it has to be for the foreseeable future. It has to be this way in the immediate future. Over time as things improve, obviously we will look to see if people's remuneration levels can be raised again. That is the whole purpose and is how we must react to the very difficult situation that we face. It is not about trying to save money for the Exchequer. It is about trying to ensure there are as few barriers to employment as possible and that people can be taken on at rates which are €1 less than the current minimum wage. If this can create some jobs for people in the semi-skilled and unskilled categories, all the better for them and society in general. We must look at the issue that way, not because one welcomes the fact that this structural reform must take place, but because it is part of the adjustment that is taking place throughout the economy currently. As things pick up, we can look to better times again.