Dáil Éireann debate -
Tuesday, 9 Oct 2012

Vol. 777 No. 4

Fiscal Responsibility Bill 2012: Second Stage

Minister for Finance (Deputy Michael Noonan)

I move: "That the Bill be now read a Second Time."

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

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

I would like the House to note that, as per our programme for Government commitment, I established the Fiscal Advisory Council on a non-statutory basis in June 2011 to assess the official macroeconomic and budgetary forecasts and the fiscal stance. Now, as part of the Fiscal Responsibility Bill, I am continuing the process by putting it on a statutory basis and assigning it additional responsibility for monitoring and assessing compliance with the fiscal rules to which we have signed up under the stability treaty. These enhancements of the council's status and roles are important reforms, which will assist in rebuilding the State's financial market credibility.

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

The EU has already fundamentally strengthened the economic rules that apply, particularly in the group of countries which use the euro, through reforms included in the six-pack, consisting of five regulations and one directive, which covers fiscal surveillance and macroeconomic surveillance. The reforms strengthened the Stability and Growth Pact, reinforcing its corrective elements. Other major steps were taken to strengthen the euro area economy. Rescue mechanisms were put in place from which member states that experience difficulties, such as Ireland, could receive loans when they could not raise money from the markets at a sustainable cost. The EU has worked to stabilise Europe's banks and has refocused its efforts to ensure that economic growth and job creation are its top priorities. Ireland has participated fully in this work. These aims were clear in the stability treaty. According to its first article, its aim is to "support the achievement of the European Union's objectives for sustainable growth, employment, competitiveness and social cohesion". It contributes to these objectives through budgetary rules and arrangements for countries using the euro to work closely together and to support each other.

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

Before I turn to the specifics of the stability treaty and the Fiscal Responsibility Bill 2012, I would like to say a few words on recent developments. The ESM treaty, which was related to the stability treaty, has now been ratified by all euro area member states, representing the full subscriber capital base, and entered into force on 27 September. This contributes to restoring confidence in a stable euro by ensuring a permanent rescue fund is in place for euro area member states, should it be necessary.

In other measures to improve the quality and control of expenditure, the Ministers and Secretaries (Amendment) Bill 2012 was published at the end of September. The purpose of this Bill is to provide for medium-term expenditure management through the provision of multi-annual Government expenditure ceilings and multi-annual ministerial expenditure ceilings. It will amend section 17 of the Ministers and Secretaries (Amendment) Act 2011 and provides for the Government, following a proposal from the Minister for Finance, to approve an upper limit on Government expenditure, which includes the aggregate amount of voted expenditure and the expenditure of the Social Insurance Fund and the national training fund, for each of the following three financial years. It also provides that the Government shall, following a proposal from the Minister for Public Expenditure and Reform, approve the amount of Government expenditure to be apportioned into "ministerial expenditure ceilings" for each of the three financial years concerned.

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

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

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

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

Section 3 outlines the budgetary rule required by Article 3 of the stability treaty. One of two conditions must be satisfied. These conditions require that the budgetary position of general government is in balance or in surplus, and this will be deemed to be the case if the medium-term budgetary objective set under the Stability and Growth Pact is achieved or, if it is not, that it is on the adjustment path towards adhering to our medium-term budgetary objective. In line with the stability treaty, the section allows for neither requirement to be met in the event of exceptional circumstances. The definition of exceptional circumstances as per the stability treaty means an unusual event outside the control of the State which has a major impact on the financial position of the general Government or a period of severe economic downturn, provided that the temporary deviation of the State does not endanger fiscal sustainability in the medium term.

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

Section 4 deals with the debt rule specified in Article 4 of the stability treaty. The requirements of the debt rule are already law under Council Regulation No. 1467/97, which was amended by the EU six-pack of reforms.

However, as it is specifically included in the stability treaty, we are providing for its implementation in domestic law through this Bill. The text accomplishes this by direct reference to the relevant EU regulation. This eliminates the possibility of drafting a provision that could be inconsistent, and ensures better adherence to the regulation. The EU regulation states that debt in excess of the 60% debt-to-GDP ratio must be reduced by at least one twentieth per year based on changes in the past three years. It goes on to provide for a transition period for member states, including Ireland, that were subject to an excessive deficit procedure on 8 November 2011. This transition period means that the general rule will only apply three years after the correction of the existing excessive deficit. Our existing excessive deficit will be corrected in 2015 when our general Government deficit is targeted to be under 3% of GDP. This means that the one 20th rule will fully apply in 2019. In the meantime, it is required that there is satisfactory progress in reducing the debt-to-GDP ratio and this will be assessed by the Commission and ECOFIN.

Section 5 provides for the requirements in Articles 3.1.a and 3.1.d of the stability treaty on the setting of the medium-term budgetary objective or MTO under the Stability and Growth Pact. The MTO results from the requirements of Council Regulation No. 1466/97. It is a calculated figure and what the stability treaty, and this section, state is that notwithstanding the result of the calculation, the lower limit of the MTO is an annual structural deficit of the general government of minus 0.5 % of GDP. In line with the stability treaty, the section provides that when the debt-to-GDP ratio is significantly below 60% of GDP, the lower limit is changed to minus 1% of GDP. In most countries, this situation will not arise for the foreseeable future. Ireland's current MTO is minus 0.5% of GDP.

Section 6 has been changed substantially from the general scheme, as it provides for the correction mechanism that member states are required to put in place under the stability treaty. The correction mechanism has been drafted in light of the now-available common principles from the European Commission. This section provides that the Government shall present a time-bound plan that specifies the corrective revenue and expenditure measures it will take if fiscal performance significantly deviates, or is projected to deviate significantly, from the medium-term objective or from the agreed convergence path towards that objective. Reference is made in the section to Article 6.3 of Council Regulation No. 1466/97, which defines a significant deviation as 0.5% of GDP in a single year or 0.25% of GDP in two consecutive years.

The correction plan must be consistent with recommendations made to the State under the Stability and Growth Pact. Provision has been also made in this section for the Government to lay a statement before the Dáil outlining the steps it intends to take if a significant deviation is likely to occur in the future. This was added into the Bill as the common principles allow for an option for either ex ante or ex post activation of the correction mechanism. Credible fiscal management suggests that it would be prudent to address both circumstances. This is a sensible and prudent measure, as it would be very difficult for the Government to refuse to take action on an ex ante basis if, for example, its own forecasts projected a significant deviation.

Section 7 provides for the establishment of the Irish Fiscal Advisory Council or Fiscal Council on a statutory basis, which will operate in accordance with the Schedule. Section 8 provides that the Fiscal Council shall be independent in the performance of its functions and assigns it the function, as required under the stability treaty, of monitoring compliance by the Government with the duty imposed on it by section 2 of the Bill. In light of the finalisation of the common principles, some further clarification was required in the Bill on the duties of the Fiscal Council in relation to the stability treaty. The common principles require that the Fiscal Council's monitoring and assessments should cover whether there has been a significant deviation from the agreed fiscal targets; exceptional circumstances have begun or ceased; and if a correction is proceeding in accordance with the corrective plan.

The common principles also require governments to comply with those assessments or explain publicly why they are not complying. Provision has been made to fulfil this requirement. Provision must be also made for the other functions already assigned to the Fiscal Council by Government. These functions, which were included in the general scheme, are to assess the official macroeconomic and budgetary forecasts of the Department of Finance and assess the appropriateness of the fiscal stance of each budget and stability programme. The Fiscal Council is required to publish its assessments, within ten days of giving a copy to the Minister for Finance.

Section 9 provides for the regulation-making powers required by the Bill. A residual power to make regulations if the common principles change has been retained but it can be used only if the resulting changes are not substantive. Section 10 is the standard section for expenses incurred in the administration of the Act. Section 11 provides for the Short Title and the commencement provisions.

The Schedule sets out the provisions with regard to the establishment and operation of the Fiscal Council, including membership, terms of office and staffing. These measures are to ensure the Fiscal Council's independence is protected and guaranteed, which is vital to the performance of its role. In addition to measures which I will detail further, the Fiscal Council's mandate is also protected, and cannot be altered without legislative action.

The Fiscal Council will have five members appointed for staggered terms of four years. That does not include the current members, some of whom will serve shorter terms in order to rotate their end dates. The Schedule also sets out the details of appointment of members of the Fiscal Council. These members will be chosen with regard to the desirability of their having competence and experience in domestic or international macroeconomic or fiscal matters and, to the extent practicable, ensuring an appropriate balance between men and women in the membership of the Fiscal Council.

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

The purpose of the Bill is to give full effect to the decision made by the Irish people in the referendum on the stability treaty. The Bill will facilitate stable economic governance in Ireland and ensure more controlled fiscal structures going forward. The Bill will also allow us to ratify the stability treaty, in line with our fellow euro area member states, which is in the interests of this country and the euro area. Therefore, I urge Deputies to support the Fiscal Responsibility Bill 2012.

I commend the Bill to the House.

Deputy Michael McGrath

I thank the Minister for his Second Stage speech on the Fiscal Responsibility Bill. I welcome the positive jobs announcement by the Kerry Group of up to 900 jobs in Naas, County Kildare, plus construction jobs, which is a tremendous boost for the economy. We all want to hear many more such announcements in the weeks and months ahead. It underlines the point that must be borne in mind in the lead-up to the budget, that we should not make any decisions that damage those sectors and companies that have the potential to create employment and bring about growth in the economy. The Minister must consider carefully the implications of decisions such as the proposal of the Minister for Social Protection, Deputy Joan Burton, on the introduction of a statutory sick pay scheme or that employer's PRSI would be increased. If such decisions were made they would impact on the ability of companies such as the Kerry Group and many others to bring about the job creation which was confirmed today, which I warmly welcome.

It also confirms that if we nourish our enterprise sector anything is possible. We all know the very humble beginnings from which the Kerry Group developed. There are other Kerry Groups out there, other companies now laying down foundations, enterprising people who are taking risks, investing in business and creating employment at an extraordinarily difficult time in our economy. We should give those people every support possible. We all know that employment across the public service will continue to reduce, contracting by probably another 10,000 jobs in the coming years. The only area for potential growth in employment terms will come from the private sector. We should listen very carefully to what that sector tells us about issues such as the introduction of a sick pay scheme and the mooted increase in employer PRSI contributions.

During recent days the Minister has continued his efforts to negotiate a deal for Ireland on the banking debt, the two main streams of the promissory note and the direct recapitalisation by the ESM. Yesterday he said he hoped for a statement of intent from the President of the European Central Bank, Mario Draghi, in advance of December's budget. I assume he hoped for a positive statement, although in response today to the Minister's party colleague, the MEP Gay Mitchell, Mr. Draghi's comments were less than positive. If one analyses what was said, he was essentially restating the position of the ECB and ruling out any possibility of a write-down of the debt because that would represent monetary financing in terms of the ECB. If there were to be a write-down of the promissory note on the balance sheet of IBRC there would have to be a corresponding write-down on the liability side, namely, a write-down of the exception liquidity assistance which that bank owes to the Irish Central Bank. If there were to be such a write-down, that would represent monetary financing in the eyes of the ECB. It has the power to prevent that from happening by exercising the power conferred on it by a vote of two thirds of the governing council. We can take from Mr. Draghi's statement today that if we were to undertake a bold move of that nature the ECB would invoke that power and would prevent such a write-down. Therefore, what we are looking at, which is consistent with the Government's stated position for some time, is a re-financing of the promissory note arrangement.

Progress has been slow, however. As I stated in the House last Thursday, I accept that next March is the real deadline. I also agree with the Minister that it would be desirable to have greater clarity on the intentions of the ECB in the lead-up to December's budget. After the interest holiday on the promissory note has expired, there will be an impact on the general Government deficit next year, arising from the interest element thereof, which will be there for many years to come. I agree there should be clarity on that point in advance of the budget even though the actual cash amount does not have to be paid until next March. Mr. Draghi's comments today will be seen as a set back to our efforts to get a deal on the promissory note. That deal is important and I wish the Minister well in his ongoing efforts to achieve it.

It is essential we get progress not only on that point but on the other aspect of the ESM recapitalisation of banks and revisiting the direct recapitalisation made by the Irish State. I realise Ireland was not on the formal agenda of the inaugural ESM meeting today and I also note the comments of Klaus Regling who stated that no European body has yet discussed the question of whether the summit statement in June takes account of legacy debt. That issue has not yet been decided. There were comments from the German Finance Minister, Wolfgang Schäuble, clarifying that the use of the ESM for direct recapitalisation would involve additional conditionality, an application by the member state, an adjustment programme and a memorandum of understanding. The deadline, or target, of October, imposed by the Commissioner, Olli Rehn, will now be missed, probably by a substantial period. The very least the Taoiseach should be looking for at the European summit later this month is for his colleagues to reaffirm their commitment to a June summit and to go further by laying out a road map and timeline for its implementation, not just for Ireland but for the other member states affected.

As the Minister observed, the Bill before us tonight is essentially to give legislative effect to the rules in the fiscal stability treaty and to establish the Fiscal Advisory Council on a statutory basis. There is little point in spending the time we have rehashing the debate on the rules which formed the core of the arguments in the referendum last May. My party actively supported that referendum, which was passed decisively by the people on 31 May. We support the Bill before us although we are considering the need for amendments. Such amendments would have to be submitted by Friday, in advance of the Committee Stage debate on the Bill.

It has long been recognised that the Stability and Growth Pact rules need to be updated and strengthened. The rules were flouted by many countries; Ireland was not the first country to be in breach of them. As we know, the medium-term objective for Ireland in terms of a structural balance, even prior to the referendum last May, was a structural balance of minus 0.5% of GDP. We are now required to work towards that although there is an interregnum period, as the Minister outlined, given Ireland is a programme country. The second element is the debt brake rule, the reduction of the debt-to-GDP ratio, to 60% over a maximum period of 20 years. These are strict, tough rules and they will have an impact on the preparation of budgets for many years to come. They are rigid, too, but I would hope, as we were given assurances during the referendum campaign, there would be flexibility in their application. In his speech, the Minister referred to the "exceptional circumstances" condition, which is in the actual treaty. If the need arises for that to be invoked I would expect our colleagues in Europe would understand this and that the authorities would make the necessary adjustment so that we are not chasing targets for the sake of it, however counterproductive, given the state of the economy. That needs to be front and centre.

The rules we are now enshrining into domestic law build on the six-pack rules of 2011, the five regulations and the directive. The bottom line is there is no getting away from the overall principle enshrined in the treaty, which we are now putting into legislation, namely, the overriding requirement for a balanced budget over a period of time. As a country, we must spend no more than we take in in income. It will take Ireland time to achieve that position but it is one towards which we must work. There is no point in misleading people or giving them the impression there is an easy way of doing that; there is none. We all accept the centrality of economic growth in achieving these targets, particularly the debt brake rule. A modest amount of real GDP growth coupled with inflation will achieve the targets for Ireland over a period, which is the most painless way of doing it. For that reason, I refer to my opening remarks about the need to support the enterprise sector and those in the private sector who are ambitious and want to develop and grow their companies, build on the strong export base we have, and who wish to bring about additional employment in this country. That is the best way to achieve our fiscal targets.

Most people at home are not interested in debt-to-GDP ratios, structural deficit, general Government deficits or primary balances. They measure the strength of the economy by the amount of money in their pockets at the end of the week or month. It is essential we create the conditions that will allow the sectors with potential to grow. There were some positive measures in the budget last year which targeted particular sectors. We need to build on that and give the private sector every support possible rather than strangle the undoubted potential that exists.

In an effort to prevent a recurrence of the eurozone sovereign debt crisis, the fiscal treaty rules provide for some enhancement of the Stability and Growth Pact rules that are already in place. As we are aware, however, rules do not solve or entirely prevent crises. The design flaws in the euro and the weak aggregate demand in Ireland and across the European economy remain to be addressed. The original Stability and Growth Pact proved to be unenforceable in the case of large countries such as France and Germany, in particular, which were its strongest promoters when it was first agreed. The failure of the original pact was largely due to its soft-law nature. Enforcement was inconsistent and patchy. When efforts were made to enforce its rules, these were simply inadequate. The recent change in thinking among the European political elite, specifically Germany, has been striking. There has been a rush to introduce far-reaching, hard-law provisions as part of the Stability and Growth Pact. The result has been the introduction of a stricter set of rules, which are outlined in the fiscal treaty and which we are now proposing to enshrine in Irish law in the form of the Fiscal Responsibility Bill.

Putting in place a credible commitment to responsible budgeting will help to reduce bond yields further and unlock credit for investment and job creation. There is a direct correlation between sound, sustainable finances at national level and the stability of the euro currency. If all countries in the euro area comply with the two basic rules of balancing their budgets and controlling their debt levels, then the euro will become a stable currency over time and the economic foundations of the European Union will be made more secure. The implication of the balanced-budget rule is that the level of revenue or expenditure is a matter for national governments to determine. That is currently the case and will remain so. The one proviso is that revenue and expenditure should be brought into balance over a period. If we want to have high levels of expenditure, then we will need to have high levels of taxation. If we want low levels of taxation, we will be obliged to tolerate low levels of expenditure. It will be up to the Government of the day to make the policy choices in this regard. The one choice we will not be given relates to whether we should run a deficit and build up the national debt on a continual basis. It is good that the choice has been taken away from us in this regard.

It appears that in some respects the Government is in denial with regard to the true state of the economy and the public finances. There is a need to strike a careful balance in the context of the messages we send out in respect of the state of the economy. I accept that there are benefits to talking up the economy, particularly as this is of assistance in attracting the attention of overseas investors. For example, stories such as that which appeared on the cover of Time magazine under the title "The Celtic Comeback" can have a positive effect. However, any analysis of the economy must be grounded in reality. If we talk up the economy in the absence of proper facts and in a way that does not reflect reality, it could create an impression across the EU that Ireland is fine and does not require a deal in respect of its bank debt because it is meeting all of its commitments under the EU-IMF programme, is ticking all the boxes and has ensured that its public finances are on target. The Minister knows as well as I that this is far from the true position of the Irish economy. There has long been evidence of a two-speed economy. The domestic economy is shrinking, while exports driven by foreign direct investment have performed well. In light of the weak external environment, the latter are showing some signs of slowing.

Since entering office, the Government has introduced a jobs initiative, a job-friendly budget and an action plan for jobs. In the past 12 months, however, the number of people at work has fallen by 1.8% or 33,400, with the total standing at just under 1.8 million. I acknowledge the fact that this fall was driven by the number of early retirements in the public sector, but it has not been compensated for by any growth in employment in the private sector. There is no buoyancy in private sector job creation at present. A slew of recent economic reports show just how fragile is our underlying economic position. In its stability programme update last April, the Government was - in comparison to 2011 - projecting lower growth rates, lower GDP, lower job creation, higher unemployment, lower real wage growth and higher public debt.

In its recent report, the IMF pointed to significant risks to Ireland's economic outlook and revised downwards the growth forecast for the current year and also that for next year, from 1.9% to 1.4%. The Government is still stating that the Irish economy will grow by 2.2% next year. I suspect, however, the Department of Finance will revise that figure downwards later this month when the medium-term fiscal statement is published. The IMF also states in its report that a deal on Ireland's bank debt is needed in order to ensure debt sustainability. It further states that material investments in Irish banks by the ESM could transform the public debt outlook, cut the bank-sovereign link and cement a much-needed win for Europe. We all accept that of the countries which are currently in programmes, Ireland has the best prospect of being such a win for Europe. Not that we needed to be told, but the IMF indicates that the banks are still not supplying credit to meet the needs of households and SMEs.

The recent report from the ESRI states that there is little appreciation of just how bad the country's finances are, and points out that further cuts in health, education and welfare are inevitable. The ESRI points to the need, in its view, for the public sector pay bill to be adjusted through either a voluntary redundancy scheme or additional working hours. Such a redundancy scheme has now been announced. The ESRI also highlights the rate of unemployment, at 14.8%, and predicts that this will fall only very marginally to 14.6% next year. In its stability programme update last April, the Government predicted that it would fall to 13.6%.

The Irish Fiscal Advisory Council, which will be placed on a statutory footing when the Bill is enacted, issued a sobering report last month in respect of the public finances and the state of the economy. It is a matter of concern that the council indicated that, in its opinion, there is a 40% chance that the debt-to-GDP ratio will fail to stabilise by 2015 under the current policy framework. The current forecast from the Government is that debt will peak at approximately 120% of GDP next year. However, the Fiscal Council has indicated that there is a 40% chance that in a further two years it will still not have been stabilised. What is driving that is a lack of buoyancy and economic growth. The council has also indicated that given the scale of the total adjustment required, all options - including tax rates, public sector pay and pensions and welfare rates - should be kept under close review. I know the Government disagrees with the council in this regard. The Fiscal Council agrees with the projected adjustment of €3.5 billion in the forthcoming budget. It advocates that an additional €400 million be taken out in the budget that will be introduced in December 2013 and a further €1.5 billion be taken out in December 2014. That is a sobering assessment. Overall, however, the council still gives a relatively positive report in the context of our hitting the percentage deficit targets we are required to achieve. We all accept that this year's target will be met and I am of the view that next year's is also eminently achievable. However, these are not the measure of where the economy actually stands.

As the quarterly national accounts indicate, GDP was flat for the second quarter of this year. In fact, the economy avoided slipping back into a technical recession by just €3 million of economic output in the second quarter. The quarterly national household survey shows that unemployment continues to increase. The Comptroller and Auditor General's report indicates that general Government debt increased by €25 billion in 2011 and now exceeds 100% of GDP. The report also states that almost 50% of income tax is now spent on servicing the national debt.

The reason I highlight these issues is to reinforce the need to present a sober picture of where we stand. I accept that there are areas of the economy which are doing very well; I refer in particular to the export sector. Inward investment also continues to be strong and the pipeline remains pretty robust. This is all very welcome, but the domestic economy is extremely weak and continues to contract. In the absence of an overall deal on our bank debt, we are going to encounter difficulties in the context of our debt sustainability in the coming years. More importantly, the preparation of forthcoming budgets could well result in a need to increase the level of adjustment. This would place an intolerable burden on citizens.

Only a very naive individual would believe that the rules set out in the legislation will be a major game changer in terms of Ireland's recovery.

While they will help somewhat, the real issue for this country is to follow up on the June summit. An incomplete currency union remains vulnerable to asymmetric shocks, regional credit bubbles and sovereign defaults. The elements of a solution have been outlined a number of times; one of these is closer fiscal integration, including the introduction of a banking union involving key elements of centralised bank supervision, common rules for dealing with insolvent banks, a banking resolution fund and a common deposit insurance scheme. These issues remain to be resolved, and we do not know when the single supervisory system, which is a precondition for the overall deal on banking debt, particularly with regard to the question of pillar banks and the use of the ESM, will be in place.

I welcome the establishment of the Fiscal Council on a statutory basis as this should help to improve the overall budgetary process. The resources being allocated are limited and I hope this does not hamper the work of the council. For the council to be successful in the longer term, it will need to be trusted by the general public as a clear and objective voice on budgetary issues. It will be required to provide crisp, concise reports which are accessible to the engaged and informed citizen. We had a good discussion with the members of the council about their report. They are impressive people, and I commend the Minister - as I did previously - on his choice of individuals for the board of the council. We are fortunate that people of such calibre are willing to give their time to the State for no reward. Such is the importance of their work that I would not object if the members of the council were paid a reasonable retainer.

The budgetary process needs to be reformed. Thus far, the Government has not lived up to the programme for Government commitment to reform how the budget is prepared. The programme states: "We will open up the Budget process to the full glare of public scrutiny in a way that restores confidence and stability by exposing and cutting failing programmes and pork barrel politics." I do not know what that means. I am in favour of having a debate about the budgetary process before the budget but this should be carried out in a structured and co-ordinated way and not on the basis of Ministers or officials leaking decision options, thus provoking a public debate which is not desirable. A proper debate on the property tax can take place only if the Thornhill report is published. A more open budgetary process would achieve a better economic outcome and greater public support for the necessary adjustment process. I do not blame the members of the council if they feel abandoned at this stage because their recommendations have not been supported. They support the €3.5 billion in December. The pace of change in the economy and the wider eurozone issues are such that it is difficult to look beyond that date. We need to keep an open mind as to budgets beyond December.

The members of the council have an important voice. While I commend the Minister on his appointments, the committee system should be given some input into the future selection of members to serve on the council. I would like their reports to be sharper and more pointed. They should not be afraid to criticise the Government or the Opposition. Their conclusions should be firmer, as they are nuanced with conditionality and caveats. They would contribute more to the debate if their conclusions were more clear-cut. It could be that they are finding their feet, as the council is a body in its infancy. They should not be afraid of a bit of cut and thrust in their reports, as this would be in the public interest. I hope to see the council develop a higher profile over time to give citizens the opportunity to robustly question why the Government does not act on the recommendations.

I welcome this Bill and Fianna Fáil will support it on Second Stage. We are considering a number of amendments on Committee Stage and I look forward to a full debate on the Bill in the weeks ahead.

Deputy Pearse Doherty

The impression was given in an earlier contribution that we should be grateful this Bill has been published and that the austerity referendum was successful because we lost the run of ourselves and the budgetary and debt rules in this legislation will save us. I agree with the point that we should base our arguments on facts. We should look at the facts to support that earlier comment. These rules would not have saved the State from the economic turmoil we face.

There are two key rules. The first rule for a balanced budget is the structural deficit rule of 0.5% in our case. The second is the debt ratio rule, which states that debt should not exceed 60% of GDP. If a country does not abide by either one of these rules, it must go into a European Council economic adjustment programme. How badly did the State break these rules in 2007? If we had passed this Bill in 2007, one year before the economic crash, would we have broken the first rule and run a structural deficit in excess of 0.5%? The Minister has informed me and the House, in reply to parliamentary questions, that we did not have a structural deficit in 2007; rather, we had a structural surplus of 2.3%. Therefore, the rule would not have come into play. Similarly, where were we with regard to the debt-to-GDP ratio? Did we breach the 60% rule, which would have forced us, had these provisions been in place in 2007, to outline a plan to bring the gap down by one twentieth per year? The answer is "No"; in 2007 our debt-to-GDP ratio was 27%. These rules would not have prevented the crisis which came in 2008.

The legislation states that none of these rules will apply in exceptional circumstances. Ireland is not currently going through exceptional circumstances on the basis of the rules of the European Council. What happened in 2008 was exceptional circumstances, with the financial sector on the brink of collapse and the Government forced to intervene by bailing out the banks and increasing the national debt to levels beyond anyone's wildest imagination; therefore, we could have subverted the rules. We need to be clear: this legislation would not have prevented what happened to our country. In my view, this legislation will make future economic recovery a lot more difficult.

We know our debt levels will increase to 120% of GDP next year. Much of that is made up of banking debt. This legislation will be a legally binding mechanism to reduce that debt each year, but we must deal with the fact that a large proportion of it consists of banking debt. The Minister may be able to shine some light on this. I argued with the Minister about the June summit statement and asked him about the issue of legacy bank debt. The Minister told us this was a seismic shift and said it was a game-changer. He said it secured the separation of sovereign debt from banking debt and it secured the fundamental issue of legacy debt. On the question of whether the ESM could be used to recapitalise legacy bank debt, Klaus Regling, head of the European Financial Stability Facility, stated that this aspect had not been discussed by any European bodies.

Did nobody tell the chairman of the European Stability Mechanism that agreement was reached at the meeting attended by representatives of this Government that legacy banking debt would be recapitalised? Why is this individual being kept out of the loop? The Minister referred to one aspect of the agreed statement last week - which made no sense - that if other well performing countries were to perform as well as Ireland, the same would apply to them. Will he inform the House of where the legacy debt issue stands in light of the June statement?

As I have said before, I genuinely wish the Government well in its negotiations. As an Irish person who wants to see this country rebuild itself, as a person who wants to see our young people in a position to stay at home and avail of the opportunities they should have in their place of birth, I want to see the Government do well in these negotiations. I reiterate, however, that the Minister and his colleagues are selling the country short. Spin simply does not cut it, but the problem is that we having nothing else. Last week I questioned the Taoiseach on the fund that was to be set up to encourage job creation, as a precursor to the investment bank that was promised as a central part of the Labour Party's general election platform. I was told that the legislation to amend the National Pensions Reserve Fund, which comes under the Minister for Finance's remit, is not even scheduled to be brought forward this year. As a consequence, the NPRF cannot invest in areas such as long-term capital for small and medium-sized enterprises. Instead of spin, we must deal with the facts.

I was amazed to see a picture of the Taoiseach, good luck to him, on the cover of the European edition of Time magazine with the headline "The Celtic Comeback". The article talks of the herculean efforts of the Taoiseach in rebuilding the Irish economy from the mess created by Fianna Fáil in the past. The author clearly got a little carried away. In an article responding to the Times report, the UCD economist Professor Karl Whelan, whose comments I have referred to on numerous occasions in this House, sets out some basic facts which undermine the claims made in the report. He points out, for instance, that while the debt-to-GDP ratio was 106.5% in 2011, it will increase to 117.5% this year and is expected to reach 120% in 2013. In other words, it will have increased by at least 14% under this Government.

Unemployment is also increasing. While the percentage out of work stood at 14.1% when the Minister and his colleagues in government took office, that figure is 14.8% today. Moreover, as we all know, the jobless rate would be much worse but for the safety valve of emigration. Between April 2010 and April 2011, 1,500 people left the State every week. Between April 2011 and April 2012, that figure increased to 1,600. Despite the return to GDP growth in 2012, we are heading back into official recession territory as real GDP in the second quarter of 2012 was lower than in the previous year. In fact, the domestic economy has never been out of recession and has contracted further since Fine Gael and the Labour Party took office.

By any social or economic measure, the Government has failed to turn the economy around. The reason is very simple, namely, that the Government is implementing the wrong policies. In fact, it is wedded, for some strange reason, to the same policies as its predecessor. Is it any wonder the situation is getting worse? At the heart of the Government's failure is its uncritical support for the policies of austerity that were introduced, drafted and designed by the Fianna Fáil Party and now actively supported by this Administration, the European Commission and the European Council. One does not need a Nobel prize in economics to know that austerity will only make our problems worse. Since the beginning of the economic crisis, a total of €26 billion has been wrenched from the Irish economy in tax hikes and cuts for low and middle income earners while cuts to vital public services have made the situation much worse. Yet, under the Government's plans, a further €9 billion in austerity measures are due in the next three years. Yesterday the IMF finally admitted what many of us have argued for many years, that these so-called adjustments are damaging economic recovery. Its world economic outlook report acknowledged that the fiscal multipliers underlining its growth forecasts underestimated the impact of austerity. Rather than €1 billion of austerity measures leading to a loss of economic output of €500 million, the IMF acknowledged that the true impact could be as large as €1.7 billion.

The lesson in all of this is that one can neither cut nor tax one's way out of a recession. Instead, we must focus on returning the economy to sustainable economic growth by way of investment in jobs. This is not to say there is no need for reform of the tax system and of public services. Of course there is. However, without sustained investment in saving and creating jobs, reform of the tax system and of public services will not produce the social and economic recovery we need. The problem is that investment in job creation is wholly absent from the Government, the European Commission and Council in response to the crisis. Despite all the talk of investing in job creation, both the Government and the European Union have failed to put their - or, more accurately, our - money where their mouth is.

I am conscious in making these remarks that we have a very good news story today. I welcome the announcement by Kerry Group, an Irish company, of the creation of 900 new jobs in County Kildare over a period of three years. This is tremendous news for people in that area. Perhaps some of those who have emigrated will decide to return and help to rebuild the Irish economy. Having said that, it is important to put this announcement in context. Last year our economy lost a net total of 33,400 jobs. Deputy Michael McGrath would like to claim they were all from the public sector, but that is absolutely not the case. There are 33,400 fewer jobs in the economy this year compared with last year. What would it take even to get back to where we were at the start of 2011? It would require an announcement of the magnitude of the Kerry Group's every eight days for the next year just to make up for the jobs lost in 2011. Last year the Government invested less than €500 million directly in job creation. It is no surprise the job crisis is getting worse. This year the European Commission, after all its talk of stimulus and investing in jobs, could find only an additional €10 billion to invest in EU-wide measures for job creation. Is it any wonder that unemployment across the European Union is at an historic high? It is important to compare these figures with the enormous sums given to financial institutions. In 2011 this Government - not the Fianna Fáil Government - poured €21.4 billion into the banks, including €3 billion into Anglo Irish Bank. This week the European Council formally launched the European Stability Mechanism, a fund with up to €700 billion for the purpose of shoring up the European banking system. Austerity is not working. Unlimited bank bailouts are not working and a failure to invest is jobs is not working.

All of this is relevant to the legislation we are debating. The core function of the Fiscal Responsibility Bill is to insert in domestic legislation the rules and enforcement mechanisms arising from the Government's ratification of the austerity treaty. Section 2 enforces the debt and deficit rules contained in that treaty. The impact of adhering to these rules will require austerity budgets up to and including 2020. Sinn Féin warned during the campaign leading up to the referendum on the austerity treaty that the new deficit rule would mean greater levels of austerity. We argued that the structural deficit of 0.5% could mean billions of euro in further adjustments past 2015. This will mean more taxes and further public spending cuts.

Our structural deficit is expected to be 3.7% in 2015, which amounts to almost €6 billion in monetary terms. Compliance with this rule will require either growth coupled with inflation or, where the necessary growth levels are not achieved, greater austerity. While it is fine to put on paper projections for economic growth in 2016, it should be noted that every growth forecast made by the Department has been subsequently revised downwards, as demonstrated in the Fiscal Advisory Council's analysis of economic growth and the report published yesterday by the International Monetary Fund. In light of regular downward revisions of future growth forecasts by the Government, Central Bank, IMF and European Commission, it is highly unlikely that the current growth forecasts for 2015 will stand.

Put simply, section 2 seeks to place in law a rule that will require all future Governments to comply with an arbitrary deficit rule. Based on the current course it is pursuing, the Government will attempt to comply with this rule by imposing greater austerity on low and middle income families and further cuts to front line services. That this rule refers to a structural deficit that many economists argue is difficult to define - it is not clear who will define it - is another issue. Greater levels of austerity will lead to even lower growth forecasts, trapping us in a lengthy period of economic stagnation. How anyone believes it is fiscally responsible to write this type of economic policy into law is beyond me.

Section 6 enforces the section of the austerity treaty that gives significant new powers to the European Commission to impose its detailed policy prescriptions on member states deemed to be in breach of the debt and deficit rules. During the austerity treaty campaign, Sinn Féin warned that the European Commission was being given significant new powers to enforce member state compliance with the existing and new deficit rules. Member states that have ratified the treaty have signed up to legally binding obligations to enter automatically into an economic partnership programme when they are deemed to be in breach of the rules. The content of the programme, which will be determined by the Commission, will be similar to that of the current EU and IMF austerity programmes. The powers of the Commission have been increased substantially at the expense of democratically elected parliaments and governments.

When Sinn Féin made these arguments during the referendum campaign, the "Yes" side accused us of misrepresenting the treaty. Anyone reading sections 6(2) and (3) of the Bill will see that we were correct. They provide that if a country is deemed to be in breach of the deficit rules, the Government of that member state, on instruction from the European Commission, must outline a plan detailing how it intends to meet the rules. Let us consider what is provided for in the plan. We are all used to Ministers stating they want to bid farewell to the troika or shifting responsibility for various measures to the troika. The plan the Government is asking us to sign into domestic law includes a requirement to "specify the period over which compliance with the budgetary rule is to be achieved". This is the same as the troika plan. Moreover, if the period is longer than one year, the Government must "specify annual targets to be met". This, too, is the same as the troika plan under which annual targets must be provided for reducing the deficit. The plan also requires the Government to "specify the size and nature of the revenue and expenditure measures that are to be taken". This provision is also the same as the provision in the troika's programme under which the Government must specify the value of tax increases and public expenditure cuts that are to be made. Under section 6(2)(d) the Government must "outline how any revenue and expenditure measures that are to be taken will relate to different subsectors of the general government". This, too, is the same as the troika plan in that the Government will be required to specify whether the measures will be in areas such as social welfare and household taxes.

The Minister is proposing to replace one troika with another. Worse still, section 6 also places a legal obligation on the State to implement any recommendations made by the European Commission on the details of the plan. The Commission's ability to impose its policy prescriptions and adjustment timeframes on our democratically elected Government will be given the force of law. Section 6(3) requires that the plan must be consistent with "any recommendations made to the State under the Stability and Growth Pact in relation to the period over which compliance with the budgetary rule is to be achieved and the size of measures to be taken to secure such compliance". It is astonishing that, having been bound into a troika programme, the Minister is asking Parliament to sign and adhere indefinitely to a set of rules which could result in the country entering a similar programme in future.

One of the strange aspects of the Bill is the suggestion that there are exceptional circumstances during which the rules and enforcement mechanisms may not apply. We are agreeing to these rules while engulfed in a set of circumstances which, by any ordinary assessment, are clearly exceptional. Despite clear evidence of exceptional circumstances, the debt and deficit rules are being applied to Ireland. While I acknowledge that some of them will not come into effect until 2015 and 2018, it is strange that the current exceptional circumstances, for example, bailing out the country's banks, are not considered exceptional, as defined in the legislation.

As with the austerity treaty, the Bill is bad economics and bad politics. It would be better to rename it the "Fiscal Irresponsibility Bill" as it impacts may result not only in damage to the fiscal stability of the State, but also to social and economic stability, not to speak of the political legitimacy of the institutions of government. The Bill also provides the statutory basis for the Irish Fiscal Advisory Council. Sinn Féin does not have any difficulty with the establishment of a body of this nature. The more independent, evidence-based advice that is available to the Government and Opposition, the better. Unfortunately, section 8 gives the council a narrow remit, defining its role as monitoring the State's compliance with sections 2 and 6, the debt and deficit rules and the enforcement of these rules. This does not make sense. Fiscal policy does not exist in a vacuum. Issues of taxes and expenditure are bound up with the type of society we are trying to create, the type of economy we are trying to construct and the type of public services we are trying to deliver. For this reason, any advice to the Government on fiscal policy must be placed in the broader social and economic context. It is meaningless to advise a particular course of fiscal action without a parallel assessment of the impact of such a course on social and economic development.

This narrow focus will make the Irish Fiscal Advisory Council a very limited tool. To date, as has been noted, the Government has chosen to ignore the council's advice to implement significantly higher levels of adjustment than agreed under the troika programme. While I do not object to the Government's decision to ignore this advice - it is the prerogative of all Governments to take or ignore advice - where such advice is ignored, the Government should publicly explain the reasons for its decision. Unfortunately, it has not done so thus far and it is clear from the Bill that it does not intend to do so in future. Section 8 places a limited obligation on the Government to respond in future to the council's advice, namely, only in respect of meeting the debt and deficit targets and compliance with enforcement procedures. This section should be expanded to include responding to the council's budgetary proposals and growth projections.

The Government proposes to establish on a statutory footing a fiscal advisory council which will have two roles. First, it will monitor the Government's compliance with the debt and deficit rules and if, in this area, the Government chooses not to heed the council's advice, it must, within two months, present the arguments for choosing not to accept the advice. Its second role is to examine budgetary matters and fiscal projections. However, when the Government chooses to ignore the council's advice in this area, as it has done in respect of all reports done so far, it is not obliged to state its reasons for doing so. This is a major flaw in the provision and it should be amended.

Over the weekend, I re-read a report done in 2011 on the advice the Department of Finance offered to the previous Government. The report included a number of proposals, including a recommendation to establish a fiscal advisory council. It recommended, however, that where advice is not followed, an acknowledgement and rationale for choosing not to adhere to it should be provided. We know from the report that during the period of the artificial boom advice was being given by the Department of Finance to the then Minister, Deputy Martin, and his colleagues around the Cabinet table but they decided to ignore it without providing any rationale for their decision.

It is important the Minister looks at this section. He has already agreed the principle in relation to the debt and deficit rule that he will make a public statement to the Houses as to why the advice has been ignored and it is important he does the same for the budgerary proposals and for the economic forecasting advice.

Sinn Féin is in favour of fiscal responsibility. We want the Government to get the deficit under control but we are convinced the policies the Government is implementing are actually making the crisis worse. Even where they have an impact on the deficit, it is at great cost to the economy and society at large. It is easy when looking at forecasts, quarterly Exchequer accounts and GDP percentages to get wrapped up in figures and lose focus on the bigger picture. This week the Government began implementing €8 million worth of cuts in home help services. This is one of the cruellest cuts the Minister for Health could implement. I know elderly people in receipt of home help who have seen two world wars; some have even seen the 1916 Rising. At this stage in their lives they are just looking for a helping hand from the Government, but it is being taken away. It might be fine on paper when the Minister for Health, Deputy Reilly, has to balance his budget with the troika, the Minister for Finance and the Minister for Public Expenditure and Reform breathing down his neck. What is missing in this judgment is a realisation of the social consequences of such cuts. Home help is just one example but there are many more.

Is it fiscally responsible to have a debt-to-GDP ratio of 127%, 440,000 people on the live register and 87,000 emigrating each year? Is it fiscally responsible to depress domestic demand by reducing the disposable income of low and middle income families? Is it fiscally responsible to have over 100,000 households in mortgage distress while paying out billions of euro to dead banks? The answer is obviously “No”, but these are the consequences of the policies pursued by the Government with the support of the European Council and the Commission. The measures contained in this Bill will simply serve to further deepen the levels of austerity imposed on the people. They will increase financial hardship, undermine public services and add yet another block to our economic recovery. We urgently need a new approach. At the centre of it must be investment in jobs. On Thursday, Sinn Féin will launch its detailed job creation package and next month its alternative budget. These two documents will outline our alternative to the failed policies of austerity and bank bailouts pursued by Fine Gael and the Labour Party, the European Commission, the European Council and Fianna Fáil before them. These are the very policies being written into this Bill.

While I will table amendments on Committee Stage, Sinn Féin clearly opposes the Bill in its current form. It is bad for the economy and society, and it is bad for the hundreds of thousands of low and middle income families who are struggling under the weight of five years of austerity and are saying they simply have no more to give.

Deputy Seamus Healy

I welcome the opportunity to speak on the Fiscal Responsibility Bill 2012. I ask the Minister to withdraw it, as it effectively enshrines permanent austerity in this country. The Bill’s proposals and measures, if implemented, will continue to destroy the domestic economy, increase unemployment and emigration levels and put pressure on low and middle income families - the coping classes or the squeezed middle, as they are called. The Bill encapsulates the Government’s austerity policy to target low and middle income families, a continuation of the previous Government's, with no stimulus for growth. Neither does it contain a demand that significantly wealthy people pay their fair share of taxation.

The legislation is bad for the economy, for families and for business. One only has to look at the main streets of our villages and towns to see the effect of the austerity policy that the Minister is now proposing to put into law. We see closed shops, less footfall and more unemployment while the domestic economy is left reeling by the withdrawal from it of up to €26 billion in recent years. A further Government target amount of €8.6 billion will be taken out over the next three years, and the 0.5% structural deficit rule and the 60% debt-to-GDP rule will add another €10 billion per annum to this figure. This will simply draw the lifeblood out of the economy, resulting in company closures and unemployment as well as hardship for families.

Ireland’s debt-to-GDP ratio will peak next year at 120%. With the 60% debt-to-GDP rule contained in this Bill, it will take 20 years to reduce Ireland’s current ratio, which, it is estimated, will lead to further cuts of more than €4 billion per year. This will destroy the economy and make matters worse. With Ireland’s structural deficit at 3.7% next year, the rule in the legislation specifying that this should be no more than 0.5% could lead to additional cutbacks of €5 billion per annum. We are enshrining perpetual austerity in law and targeting low and middle income families who are already stressed, stretched and under severe financial pressure with more taxation.

The background to this issue is the fact that through the EU-IMF deal Ireland and its people have effectively been made subordinate to Britain, Germany and France and the bankers and speculators of these countries. The treachery of the previous Government and the self-serving greedy behaviour of the Irish elite continue to lead to savage attacks on poor and middle-income earners. There is no doubt that this is a real national, economic and social emergency. The crisis is resulting in an unprecedented onslaught on living standards, spiralling mass unemployment and a dramatic rise in poverty levels. Meanwhile, we are paying out billions of euro which are being taken from working people and given to bankers, developers, international speculators and finance houses. We were told by the new Government that there would be a new beginning, that it would ensure all would change and that we would put behind us the policies of the previous Government. Of course, that did not happen. We were told that the bondholders would be burned, that there would not be another cent for the banks and that it was going to be "Labour's way, not Frankfurt's way". We were told that the vulnerable would be protected. Of course, nothing like this has unfolded. Some people in the country are under serious pressure from cuts and increased taxes. We are far from the promises and commitments made during the general election. What happened subsequently - it is still taking place - was that the banks received billions of euro; the bondholders were paid; there were closures of health facilities and beds in hospitals and homes for the elderly; military barracks were closed; higher taxes were imposed; and there were various cuts throughout the education system.

I reject solutions to the economic crisis based on slashing public expenditure and cutting welfare payments and workers' pay and pensions. There can be no just or sustainable solution to the crisis based solely on market circumstances. Instead, there must be democratic and public control of resources such that social need is prioritised over profit. We must end the bailout of banks and refuse to pay the private debts of banks to international speculators and finance houses. Allowing private banks to borrow €90 billion abroad between 2003 and 2007 was an act of treachery by the then Government and the Irish Establishment generally. We must stop it, call a halt to it and say we are not responsible for the private debts of bankers. Naturally, it will be said this would be a risky strategy, but the riskiest would be continuing along the path taken by this Government and the previous one. That is the path of robbing people to pay off the debts of private banks and developers and it will end in a devastated country.

It has been suggested the country is being bailed out, but the fact is we have bailed out the European Union and foreign banks. There is no doubt that the European Union and the banks are not good Samaritans. They are not helping out a neighbour in trouble; rather, we have been ripped off by the European Union and the banks. Europe's major banks were owed tens of billions of euro by Irish banks and hundreds of billions of euro by the banks and the governments of Greece, Portugal, Spain, Italy and other countries. Every cent was private debt, but the European Central Bank feared contagion if an Irish bank defaulted. It, therefore, decided that every bond would have to be paid in full. Its solution was to use its financial muscle. It coerced a weak Irish Government into converting private debt to sovereign debt, a policy which it now accepts was wrong. It is clear that the austerity programme which has resulted from this policy has failed. We need a new direction. We need to set aside the policies we have been pursuing during the term of the Government which amount to a continuation of the policies of previous Governments. We need to set them aside because austerity is driving down domestic demand. It is creating mass unemployment, high welfare costs and lower tax revenues. This is being done to divert borrowed moneys into bank, bond and interest repayments. The wealthy are being protected, while working people are suffering as a result of a policy that is deepening the recession and making the economic crisis worse. Vast amounts of money have been taken out of the economy and it is proposed to continue in this vein. The inclusion of these two rules and making them legally binding in Irish law will perpetuate the problem, take further money out of the economy and depress it further, increase unemployment and create major problems for ordinary families.

Some 12 months after the Government entered office there were approximately 440,000 people unemployed, giving a 14.8% unemployment rate, up from 14% when it took power. There are fewer jobs in the economy now, although there have been several so-called initiatives taken. The most recent Central Statistics Office figures show that for the year to June 2012, which coincided with the Government's first year in office, there was a net decrease of 33,400 jobs.

This is the result of the austerity which the Government has been pursuing. It is also the result of the austerity being imposed by the EU and being accepted by the Government. Despite what was stated in these so-called initiatives, if money continues to be taken out of the economy and if austerity is to be effectively made permanent, as this Bill will do, there will be further job losses.

The austerity has also created emigration, as has been covered by previous speakers. Health cuts have resulted in hundreds of thousands of home-help hours being cut. Those with disabilities have been targeted. Child benefit has been targeted. In that regard, I recently read an article in a newspaper which showed a poster in the most recent election in 2011 by the Labour Party, stating "Protect Child Benefit. It has been cut too much already. Labour is against Fine Gael's latest proposal to cut Child Benefit by €252 p.a. for the average family. Families Need Labour in Government." However, we all know where that has got us - promises made but promises broken. There have been more child benefit cuts and now there are kites being flown and promises of additional cuts. The elderly have already been targeted with reductions in the fuel scheme and the electricity scheme. The numbers of special needs assistants in schools have been reduced. Guidance counsellors have been put into the quota and, effectively, their numbers have been reduced. College fees, which the Labour Party promised would not be re-introduced, are now effectively being introduced by the back door.

An Leas-Cheann Comhairle

The Deputy is straying a little from the Bill and I ask him to refer to it.

Deputy Seamus Healy

I thought the other speakers strayed as well, if that is the case.

The question of austerity is an important one. One of the reasons I say the Minister should consider withdrawing this Bill is that today the IMF accepted at last what many of us have been saying for some time, that austerity is not working. According to both the Irish Examiner and the Financial Times today, and in its own report presented today, the IMF has now accepted that austerity has created further difficulties for the Irish economy. The IMF now states that for every €100 taken out of the economy through spending cuts and taxes, the effect has been double what it believed it would be, resulting in a reduction in economic activity ranging between €90 to €150 for every €100 taken out. Apparently, the IMF had believed that the reduction in activity would be perhaps €50 but it has now accepted that austerity is taking out double, if not treble, what it originally thought. Surely it is food for thought for the Government that even the IMF has accepted that austerity is not the answer to our problems.

There is need for a new direction in economic policy in this country. We should put aside the austerity and the targeting of middle-income and lower-income families and embark upon a policy of stimulus and growth, ensuring that the very wealthy in this country pay their fair share of taxation.

It has been said that this is not a wealthy country but it is a very wealthy country. It is still probably the second wealthiest country in Europe. There is significant wealth here and various reports, including reports from the Central Statistics Office, confirm that. For instance, the Central Statistics Office confirmed that the wealthiest 5% in this country had increased their assets by €46.9 billion over the two years, 2009 and 2010. A report in the Sunday Independent in March of this year, by its financial correspondent Mr. Nick Webb, confirmed that the 300 wealthiest people in this country had increased their wealth from €50 billion to €62 billion in the previous 12 months. There is significant wealth in this country and there is definite need for a wealth tax.

A wealth tax is operated in other European countries and in states in the United States of America. No doubt a wealth tax should be introduced here. It would bring in significant income for the Exchequer. That needs to be done urgently.

There is also need for a new direction on job creation. We need a State-led job creation programme because the private sector will not create the jobs. The figures from the Central Statistics Office to which I referred confirm that far from increasing jobs in the industries in the private sector, there has been no such response. The State needs not only to create the environment for job creation but also to create jobs. It needs to lead the way in this and only in that way can we ensure that there will be job creation. There is, in fact, an investment strike by very wealthy people in this country and, indeed, internationally. The State needs to lead the job creation drive and to ensure that people go back to work, that there are savings on social welfare and that families of middle-income and lower-income workers are not targeted, as has been the case.

I believe that we are on the wrong road. I believe that the Minister should withdraw this Bill, change direction and ensure that there is a stimulus in place for growth and for job creation. The State should get involved in job creation and the very wealthy people in this country should be made pay their fair share of taxation. That is the only road to recovery. Austerity, as we all know and as the IMF has admitted today, has failed and will fail in the future.

Debate adjourned.