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Dáil Éireann debate -
Wednesday, 10 Oct 2012

Vol. 773 No. 13

Fiscal Responsibility Bill 2012: Second Stage (Resumed)

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

I thank the Ceann Comhairle for giving me the opportunity to speak on this very important Bill. When the electorate went to the polls on 31 May, it endorsed the contents of the fiscal compact treaty and the Bill marks the enactment of its wishes. Since the vote at the end of May, the need for Europe-wide agreement on budgetary rules has become even more apparent. It is only through greater budgetary discipline that the European project will be steered through the current impasse. Passing the Bill is crucial if the country is to meet its obligations under the treaty before the deadline of the end of the year. I am, therefore, heartened by the Government's commitment to enacting the Bill at the earliest possible opportunity.

The Bill imposes a duty on the Government to stay within the budgetary rules and if there is a deviation from any medium-term budgetary objective by more than 0.5% of GDP, the Government will have to introduce corrective mechanisms, as agreed in the common principles adopted by the European Commission. It will be difficult for Ireland to meet all of its budgetary objectives in the coming years, but the upside of the Stability and Growth Pact is stability, the key factor in creating the conditions in which the country's economic fortunes can be turned around.

Unprecedented shocks to the economy prior to the Government taking office created a precarious financial position which eventually led to the institution of a deficit procedure involving the troika of the European Central Bank, the European Commission and the International Monetary Fund. I note that the debt rule provisions of this Fiscal Responsibility Bill will require Ireland to reduce debt in excess of 60% of GDP by one twelfth each year. This will apply for the three years after Ireland has exited the deficit procedure.

The Bill will assign monitoring and assessment functions to the Irish Fiscal Advisory Council. My only regret is that the council was not instituted ten years ago because perhaps then we might not have plummeted to the economic depths experienced in recent years. This independent body will be tasked with assessing the official spring and autumn macro-economic and budgetary forecasts produced by the Department of Finance. It is also welcome that if the Government does not accept the assessments of the Irish Fiscal Advisory Council, it must explain its reasons publicly, a necessary underpinning of the principles involved.

The Fiscal Responsibility Bill represents a growing acknowledgement at European level that the structures in place were inadequate. They allowed the current impasse to develop by permitting some countries, including Ireland, to incur massive debt which now must be addressed if the European Union is to move forward. The coming months will see the debt issue addressed properly. Addressing the debt legacy is the obvious next step in the process, as the European Union acknowledges the mistakes of the past, decides on the structures necessary to ensure there will be no repeat of these mistakes and puts the structures in place.

It turns its attention to the problems already created and comes up with a solution that is both pragmatic and practical.

The Bill marks the completion of a number of phases in dealing with the economic crash and it behoves all of us to leave behind recriminations about the reasons for the mess the Government inherited in order to focus on the task of securing a deal on the banking debt incurred to date. The Minister for Finance has indicated that a statement of intent from the ECB on the Anglo Irish Bank promissory notes would help him to frame December's budget. He has also noted that the political timeline for a deal is from now to March 2013, when the next tranche of promissory notes is due to be paid. Last June the Heads of Government in the eurozone agreed in principle to allow the ESM to recapitalise Irish banks in term of legacy debt. The Government must focus its full attention on supporting the ongoing efforts of the Minister and his officials as he seeks to secure the details of a deal at the earliest opportunity. As we face into what is likely to be one of the most difficult budgets in the history of the State, the Government deserves to be provided with crucial information on the country's finances. A statement of intent from the ECB on the likely parameters of such a deal would greatly assist the Minister in determining the extent of the cuts required. Cuts that prove unnecessary will only damage the economy further, create unnecessary fear among the public and dent economic confidence. Our key task in 2013 will be to restore a measure of confidence in the economy. That is why a statement of intent from the ECB is crucial.

When we passed the fiscal compact treaty, we proved to Europe and the rest of the world that we intended to sort out our own financial problems. We now need the European Union to step up to the plate with a deal on banking debt. With this Bill, we are taking on a level of fiscal responsibility that will go a long way towards ensuring greater equality in the economy of the European Union. I hope the determined efforts of the people to reduce the budget deficit will be supported in every way by our colleagues in Europe, including with a statement of intent on the promissory notes.

I had an opportunity last night to listen to the contributions of Deputies Pearse Doherty and Seamus Healy. Deputy Pearse Doherty gave us more of the same populist rhetoric we have heard from Sinn Féin since I was elected to the Dáil 18 months ago. Given that he has been finance spokesperson for his party for some time, one would expect him to have acquired at least a basic knowledge of the way the Department of Finance operates and how the budgetary process works. He argued out of both sides of his mouth, on the one hand, opposing increases to direct taxation and cuts in expenditure, while, on the other, claiming that the debt-to-GDP ratio has increased since the Government assumed office. He cannot argue against measures aimed at reducing the deficit, while at the same time complaining that the debt-to-GDP ratio is increasing. He criticised the Government's performance since the European Council of 29 June, but he had previously argued against the creation of the ESM and the fiscal compact treaty. If he had his way in the referendum in June, we would not even be in a position to negotiate on these matters.

The Fiscal Responsibility Bill 2012 stems from the resounding endorsement of the stability treaty by the people earlier this year and represents a watershed in our economic history and a vital building block in the foundation of our future economic prosperity. With our European counterparts, we will be bound by common principles of good governance and fiscal responsibility in order that no Government will ever again be at liberty to perpetrate such cynical economic mismanagement as that witnessed in the recent past. Basic principles of budgetary discipline will be given a statutory basis and overseen by the Irish Fiscal Advisory Council. This independent body which was established on a non-statutory basis in July 2011 will monitor compliance with fiscal parameters and key economic indicators. Its role will be integral in preventing the calamitous circumstances of the past from recurring. It will ensure transparency in the budgetary process through public, independent analysis of Government decisions and the underlying fiscal policy assumptions on which they are based. Crucially, it will provide expert opinion on the long-term fiscal implications of revenue and expenditure measures, which we lacked to our grave detriment in the past.

There is a growing appreciation internationally of the value of such independent advisory bodies. In 2008 alone, 27 such institutions were established in 17 EU member states. Similarly, there is an increasing awareness of the importance of having a framework of enforceable fiscal rules which are adequate to ensure sustainability but flexible enough to take account of exceptional circumstances and cyclical change. In predicting the value of economic oversight and fiscal parameters in the future, it is a useful exercise to look to our past. The six pack reforms introduced last year included an early warning system to monitor ten key indicators of macroeconomic imbalances. Had this warning system been in place between 2001 and 2006, there was no year in which Ireland would satisfied all of the indicator thresholds. The Fiscal Responsibility Bill will ensure sources of macroeconomic imbalance are promptly detected and addressed in the future. The Bill presents an opportunity to ensure no future Government can perpetrate the economic misdeeds of previous Fianna Fáil-led Administrations.

I welcome the opportunity to discuss the Fiscal Responsibility Bill 2012 which provides for the implementation in national law of certain fiscal rules contained in the Treaty on Stability, Co-ordination and Governance in the Economic and Monetary Union. It continues a programme of reforming Ireland's budgetary framework in line with developments at national and EU level. It is aptly named if one considers the definition of the word "responsibility" as the obligation to carry forward an assigned task to a successful conclusion, or reliability or dependability, especially in meeting debts or payments. This the job that the people have asked the Government to perform. Last May they endorsed the Government in this task with a strong 60% vote in favour of the referendum. The first definition refers to carrying out a task to a successful conclusion. That is what the Government will do. We were given the task of putting the country back on the road to recovery through thick and thin. The Government will carry out this task, even though difficult decisions will have to be made.

The Bill imposes a duty on the Government to comply with the budgetary and debt rules. The budgetary rule requires that the budgetary position must be either in balance or in surplus, with the annual structural balance at the medium-term budgetary objective, MTO, figure or else the annual structural balance must comply with the adjustment path toward the MTO as set out in the Stability and Growth Pact, unless exceptional circumstances as defined under the pact apply. If there is a failure to comply with the budgetary rule and the deviation from the MTO or the adjustment path is more than 0.5% of GDP, the Government will be required to implement a correction mechanism, the provisions of which have been drafted in the light of common principles adopted by the European Commission. If these parameters are adhered to, Ireland's path to recovery will be shortened and, as such, they should be embraced. The Government has agreed to them and can now use them as a roadmap and platform for future targets. It is worth remembering that fiscal rules are not a new phenomenon, with a variety of fiscal policy rules already in place across the European Union and the OECD.

Many in this country were not happy with the way Ireland was allowed to fall into the depths of economic stagnation and regression. We were given a mandate by the people to redress our economic stagnation. When it comes to fiscal responsibility, the Government will carry forward its assigned task to a successful conclusion. The Bill is part of that ongoing work and as a result I have no hesitation in commending it to the House.

I am delighted to have an opportunity to speak on this important Fiscal Responsibility Bill. As we know, the people voted last May in a referendum to pass the stability treaty. Stability in this context means fiscal responsibility or, in simpler terms, good housekeeping. The stability treaty comprises many elements of international law, but also three or four articles of national legislation. These require this Bill to be passed through the Oireachtas in order to give effect to the treaty. Considering the support we receive from other countries and the ECB, it is appropriate that we give a pledge in this Chamber on financial responsibility. Therefore, the introduction of this national legislation is required to give effect to the stability treaty.

The Bill gives a commitment to a balanced budget, as required in Article 3 of the treaty. Everyone would agree that it is right and proper we have a balanced budget in the interest of the country. If, however, a Government fails to enact a balanced budget, a correction mechanism will come into play. If these rules had been in place in previous decades, our economy would be in a much better place. Fiscal rules are not something new. For many years we have had rules, targets and expenditure ceilings and constraints. Now, under this Bill, we will have specific definable and measurable rules for our budgets. Article 3 also recognises that despite the best efforts of a government, exceptional or extraordinary events may take place from time to time that could hinder the capability of a government to balance its budgets and provides that temporary deficits will be permitted.

The Irish Fiscal Advisory Council was formed in June 2011 and it will now be put on a statutory footing. It will be an independent watchdog and will ensure that sound financial measures are enacted and that the Government complies with the terms and conditions of the stability treaty. The advisory council is already producing reports and assessing the Government's budgetary targets. It published its most recent report in September and it has reviewed the accuracy of previous Governments' financial forecasting and projections. The council will act as a watchdog that will keep an eye on the Government to ensure it complies with and abides by the terms and conditions of the stability treaty. This is important. This week, the council called for greater transparency and openness from the Government in budgetary and financial planning. It is hugely important the council has a statutory basis.

Conducting budgetary planning in public creates certain difficulties, because while there is a need for freedom to express and espouse ideas and measures, irrespective of whether they are popular or not, there should be balance between that and discussion by the media, whether in print or over the airwaves, of what may or may not happen. Such discussion creates an element of fear and concern among certain sectors of the population. In terms of confidence, it is important we limit that to a certain degree, while allowing some discussion. There is a fine balance between doing the right thing and not scaring people while putting out in the open what is being considered.

In section 6 of the Bill the Government commits to outlining its plan of action in the event of a deviation from its targets. Where targets are not adhered to, an early warning system will operate. The public will be informed that the Government is in danger of not meeting its targets and will be made aware of the attempts to rectify the problems presented. Last week, Martin Schulz, President of the European Parliament, made a very impressive speech here in the Dáil. He spoke about a number of issues, including the connection between national and European parliaments. He stated it was very important that we continue the prerogative that national parliaments enact their own budgets. It is hugely important now and in the future that this Chamber rather than the European Parliament retains control over our budgets.

This Bill and the Irish Financial Advisory Council provide safeguards against reckless spending and economic mismanagement. I welcome the Bill. If these targets had been in place and if we had had a watchdog to ensure they were adhered to by Governments, we would be in a better place than we are now.

I am pleased to have an opportunity to speak on this Bill. The Bill's aim is to ensure that governments follow good fiscal practice. However, I am not sure the remedy to the problems we face as a country is in this Bill. The history of the past ten years and the lack of definition of a structural deficit demonstrate, based on analysis done by independent international bodies, that during the boom years we would have complied with the terms of the new fiscal treaty. The Bill does not deal with the problem that arose in this country and in Spain, for example, where the transfer of huge funds within the European Union, due to the free market and open banking situation, led to a huge growth in the amount of credit available. This credit did not only come from Irish banks. It is a myth that it was all from Irish banks, but there were other major players in the market here. If the Irish banks had not lent money, the other international banks would have lent even more.

This situation led to a huge growth in tax revenue, which meant large surpluses were created. For example, the National Pensions Reserve Fund was largely funded from the surpluses, other than the Eircom money put into it. It was very difficult to calculate the structural surplus and the surplus due to extraordinary events. All of the economic commentators said we had a structural surplus and did not have a large structural deficit. Therefore, as with many other situations in Europe, the job is only being half done. It seems to me that Europe is reluctant to tackle some of the creations to which it is attached. One of these creations is this god it has made of competition and the free market. It loves hamstringing governments, but controlling the private sector seems to be anathema to it. It seems to believe that by definition, if there is competition, everything will work correctly.

However, as in human activity, what might be a good thing in reasonable measure can become a huge ill in society when taken to illogical extremes. For example, the belief that seems to pervade European thinking - that as long there is competition, business people will make money all the time - has been shown in the banking sector right across Europe to be spectacularly untrue. To be honest with ourselves, if someone had said ten years ago that organisations such as Bank of Ireland, AIB, KBC, Bank of Scotland and others right across Europe could not manage their own businesses, nobody would have believed it. If it had been said that German and French banks were potentially bust if they did not ask Irish and Spanish taxpayers to bail them out, nobody would have believed it, but that is what has happened. Despite all of these new rules, until we control this properly, what happened can happen again.

I do not believe that the European Union came to the aid of Ireland.

The actual reality is that continental banks loaned into Ireland and other peripheral economies. If I lend money to somebody who then lends it on, I am unlikely to expect to get paid if the people they lend it onto do not pay them. The countries in the centre of Europe that loaned to the peripheral countries are basically saying they did not look after their business rightly when lending to countries that then loaned to customers who could not pay those countries back. Despite this, they are insisting on getting paid and claiming to be generous by lending money at a good percentage rate to the reckless ultimate lenders in the centre. If that is generosity, it is a new definition of it. In other words, money is being loaned to the Irish people to pay back the reckless lenders from the centre. That is something that needs to be dealt with. If we do not deal with these issues, we will face a lot of problems coming down the track.

I welcome this Bill as far as it goes. It is time for people in society to understand that one cannot go on forever spending more on a daily basis than one is taking in. That basic principle is understood by every household in the country. I do not think it needs to be written in law. It seems to be common sense. I am not sure the absolute passion in Europe for a rules-based approach solves anything. When one takes a rules-based approach, one normally encounters consequences that were not intended by those who designed the rules. I welcome the effort in the Bill to refocus the minds of people in society on the basic fact that one cannot spend more than one takes in. We have to stress time and again that if somebody wiped out the total national debt tomorrow and the whole lot of it disappeared, we would still be spending more on voted expenditure - the basic services of the State that have nothing to do with borrowings or interest payments - than we would be taking in. If the bank guarantee also disappeared, one would not get the substantial revenue from it that has often been overlooked. I have argued that the difference of approximately €15 billion between expenditure and income, on a day-to-day basis, consists of €5 billion to be raised in tax or cutbacks in expenditure, €5 billion to be raised by getting the economy to grow and €5 billion to be raised by borrowing for capital expenditure on a sustainable basis, as allowed under the famous 3% rule and the 0.15% structural deficit requirement. We have to get growth. We cannot do it through tax increases and expenditure cutbacks. There needs to be growth. We do not actually have to reach 0% borrowing. We can borrow on a continuous basis. There will always be money coming into the system. In particular, we can borrow for capital expenditure to create a productive economy.

As Deputy Kyne pointed out, it is proposed that exceptions to these rules will be allowed in extraordinary circumstances. The problem with that relates to the process involved. I am worried that if what happened in 2008 happens again, by the time agreement is reached in Europe for an exception to the application of these rules, which would involve an extraordinary process involving all the other countries, we would have run out of cash a long time earlier. Europe moves at a slow pace, even in times of crisis. We have seen time and again the reluctance of European leaders to take urgent action when it is needed.

I wish to mention another problem that is not addressed in this Bill. The existing debt to GDP ratio will have to be reduced to 60% at a rate of one twentieth of the difference each year. If the Anglo Irish Bank debt is included, we can take it that the national debt is approximately €160 billion. If that debt is excluded, the national debt is approximately €130 billion. Our GNP is between €150 billion and €160 billion as well. We know that 60% of €150 billion is €90 billion. If one subtracts €90 billion from €160 billion, one gets €70 billion, which is what will have to be reduced by one twentieth. If one subtracts the same €90 billion from €130 billion, which is the figure if the bank debt is not taken into account, the figure that will have to be reduced by one twentieth each year is €40 billion, which almost halves the reduction that will have to be made. The effect on the Irish economy of the 60% rule that involves a reduction of one twentieth each year will differ significantly depending on whether the Anglo Irish Bank and Irish Nationwide debt is in the equation. I reiterate the point I have made previously that we should get the bank debt dealt with before we sign up to that clause. Otherwise, there will be a considerable difference in the level of austerity required down the road to comply with that rule.

I do not believe it would be an act of generosity on the part of the European Union to allow the promissory note to be written off. If one does the calculation, one will find that the inflation it would create in the European economy would be so minuscule that it could not be measured. As there would be no question of bondholders not getting paid, the hazard of creating jitters on the bond markets would not apply. In practice, one would be creating a bit of quantitative easing - the same thing that has been done by Britain and the United States, which have not been locked out of the bond markets. The Government must insist on the promise it says it got in June being acted upon. In other words, that debt should be written off. It is purely a paper exercise. As the money is owed to the Central Bank, this would not have any of the effects that the writing off of bonds would have. When we were in government, we tried to explain that it is difficult, for legal and other reasons, not to pay bonds. I think the Government has since found that out. The promissory note was created in a way that ensured there would be no difficulty in dealing with it over time.

The issue of the calculation of the promissory note in the national debt - the Minister for Finance has said it is counted as part of it - is of crucial importance for fiscal stability. As long as it is on our books, we will have to reduce our structural deficit and take account of the difference between our national debt and 60% of our GDP, even if we get a long-term write-off at an absolutely nominal interest rate.

Therefore, it is not sufficient to get a 50 year write-off, or any other length of write-off, as it will not affect the sums one bit in terms of having to adjust that figure.

I do not know why we are setting up the Fiscal Advisory Council. It seems to me it publishes reports and they are dismissed by the Government and the Taoiseach as being irrelevant. There is not much point in setting up a body if we keep ignoring its advice. It seems we are not even debating what it is saying in detail in this House and that, before we even examine the merits of its arguments, its reports are being dismissed with one wave of the hand. If we are going to have an Irish Fiscal Advisory Council, the Oireachtas should at least go through its analysis line by line, and should then advise as to what is the view across the House of its advice. Only then should the Government finish its consideration of its proposals. Anything less is only window dressing and does not serve any useful purpose except to have more paper gathering dust and to have more staff being paid but no heed being paid to it.

The other issue I am disappointed about is that I thought the Government was making a change to the way we prepared the budget. We were told in early summer that by July the Ministers would come in and discuss next year's budget. It was a small step in the radical reform we need to have on how we do budgeting in this House. However, it never happened and it is now intended it will happen in the next two or three weeks, at the end of October. That is too late.

The second idea we have had over many years concerns the Estimates debate in the committees, in that every Minister used to come to the Estimates debate post factum and the intention is that we would now have this debate pre factum. By doing it on a committee by committee basis, however, each committee will ask each Minister to dig in with his or her Department in order to have the cutbacks made somewhere else or to get them from some mythical tax, and so on. When we were in government, although it did not happen and I regret that, I was in favour of having a budgetary or finance committee which would actually consider the Estimates as a whole and, therefore, it would have to take a holistic view of expenditure. What happens at present is that every committee will make the case for a particular Department and will not have to concern itself with whether more for one Department means less for another.

I put this forward as it would be helpful for Government that those on the Opposition side would also have to take a holistic view, as one does around the Cabinet table, as to the total amount of cake and how one is going to divide that cake. The structures of our House do not force us to face up to reality at times. Often, when we create good structures in committee, we get more consensus than people might have expected. When we were in government, I remember that the members of the present Government used to have all of these suggested savings - I believe there was a €4 billion saving in health that used to be tossed around, but some of us have too good a memory.

That was just Deputy Ó Cuív's Department.

No, it was €500 million for my Department but it was a €4 billion saving in health. I used always ask my colleagues to get them into the committees, get them at page 1 of the Estimate and then say we are going to go through every page of the Estimate and ask them under which subheads they can find the savings. I recommend that the current Government would do this too.

I look forward to seeing it.

Between us, and in terms of the public dialogue, it would force all of society to face up to the facts and to get away from the wizzy-woo figures that tend to get tossed around the place which, in my view, do not serve either the Oireachtas, the Government or the country well. We have to change our structures. We have to involve more Oireachtas Members in a holistic way, not in this fractionalised way, on the money issue.

Up to a point, there is no need for the Bill because if we keep spending more than we are earning, we will not be able to borrow the money. We will just not get it on the markets and, therefore, we will be forced to face the hard decisions. With regard to some of the Deputies around this House who always have easy answers to everything, my view is that a more interactive system would make them face the realities of money.

I wish to share time with Deputy McHugh.

Is that agreed? Agreed.

A part of this Bill I was drawn to, and on which I might agree with the previous speaker, concerns the Irish Fiscal Advisory Council, not necessarily the mechanics of setting it up but what the council has been saying and what has happened as a result. The Bill puts the advisory council on a statutory basis and it limits the Minister for Finance's power to fire members of the council, thereby strengthening its independence. "Independence" is the key word here. The council provides independent assessments of fiscal policy but the truth is that, so far, it has more or less been ignored and, ultimately, might always be ignored. The key point is that, to date, it has urged greater budget adjustments or, in other words, a front-loading of cuts in the last two budgets. The interesting point for me is that it has not been the only group to have done this.

Last Friday I noticed the Central Bank again cutting its growth forecast, which is something we are getting used to. I thought it would be no harm to take a look at the area of growth forecasting - who has been saying what, who has been most accurate and the usefulness of this exercise, particularly when it comes to the budget and the assumptions that are made and what we base budgets on. To start with the Department of Finance, in December 2010 the Department said we would have a 1.8% growth rate for 2011 but, by April 2011, that figure was down to 0.8%. At that time, it was probably the most upbeat of any forecast. In late May 2011, it was calling for a 2.8% growth rate for 2012. In July, Mr. Kevin Cardiff came into the Committee of Public Accounts and reiterated that figure. By November 2011, that was down to 1.6%, the following month it was down to 1.3% and by April of 2012 it landed at 0.75%. The reality is that in 2012 the Department was forced to lower its GDP forecasts three or four times.

As far as the Central Bank is concerned, in July 2011 it forecast a 2.1% growth rate for 2012. An important point is that around that time it advised the Government to make expenditure cuts rather than increase tax. One year later, it is advising the Government to increase the overall scale of fiscal correction, making the case for getting the adjustment over with more quickly. It is still doing this, which is a key point. To return to the projections, by October 2011 the 2.1% growth figure for 2012 was 1.8%. The Central Bank's explanation for this was a darkening international outlook. This was not atypical at the time and many groups were saying the same, and this sounds ominously like the IMF's position yesterday. Again, the Central Bank recommended an aggressive approach to deficit reduction and explained it was worried about the risk of negative shocks to the domestic economy.

By February 2012 the 1.8% was down to 0.5% and at that time it was projected to be 2.1% for 2013. Last week the figure for 2013 was down to 1.7%. The IMF said yesterday it would be 1.4%. I took a look at some other organisations and sources for growth forecasts. A similar picture emerges. A reasonable sense of optimism at the start of 2011 slowly ebbed away in recent years primarily due to the eurozone economy contracting, along with the global economy, which the IMF, unfortunately, reiterated again yesterday. In May 2011 the OECD announced a 2.3% growth rate for 2012, stating a global recovery was firmly on the way. Within a month it changed its tune saying the economy would stagnate. At the time I remember a Government spokesman saying it was out of line with our thinking and that of the consensus. It turned out to be the consensus very quickly. EU Commission figures were as follows: In 2010 it said the economy would grow by 3% in 2012; by May 2011 the 2012 figure was put at 1.9%; by December it was down to 1%; and, by February it was down to 0.5%. The 2013 figure has gone from 1.9% to 1.4%, which is a lot more pessimistic than others. Two months ago it was said that the outlook for external demand was deteriorating badly. That now appears to be the consensus. One can see where the optimism was coming from. The year 2011 was the first year in three that the economy grew on an annual basis. The Minister for Finance, Deputy Noonan, said yesterday that what the IMF said is not all doom and gloom. We are growing not contracting. That is a fair point and must be repeated. It is a small figure but we are growing. Unfortunately, as Moody's put it back then, there was a deceleration of European economic activity in particular and it has affected us badly. The troika, the IMF, the ESRI, Bloxhams – everybody got it wrong. It is an imperfect science at the best of times. I will make a point later about the budget and growth forecasting.

One could ask where that leaves us. It leaves us in an extremely vulnerable situation for a number of reasons. The first is exports – export figures and the export trends. The second is our potential debt deal and the ESM. The third is the current political environment in the Chamber and outside it. The only source of growth in the economy since 2008 has been exports. The truth is that even though we have become far more competitive, this country’s share of goods and services exports on a global scale has been reduced by approximately one quarter in the past ten years. We are massively reliant on the pharmaceutical sector and would suffer greatly if any changes to patent arrangements were made globally. Our corporate tax regime has served us well but countries such as the United Kingdom and the Netherlands are changing their tax codes and, in effect, becoming far more competitive with us. We cannot rely on that approach forever. We found that out again yesterday with the effort by 11 countries to change the eurozone tax regime in particular areas. In the 1990s this country was the global manufacturing centre for computers. In 2001 the value of IT goods shipped abroad from this country was €38 billion. Last year the figure was down to €10 billion. Things change dramatically and quickly. A total of 75% of all Irish exports come from multinationals in the IT, tech area and life sciences area, which means pharmaceuticals. Some would say we are massively over-reliant on those two sectors.

The second issue is our debt deal. The facts are as follows. The ESM board held its first meeting last week. We have €64 billion in bank debt. That is our burden. Our bailout expires next year. The October deadline for a bank debt deal is gone. In the June EU summit the issue of “retrospective debt” – according to German, Finnish and Dutch gentlemen from the AAA rated countries – was not set down precisely. We still do not know if Germany in particular will insist that national bodies should remain liable for legacy bank losses. The important fact is that the German elections are approaching. We are now exploring the conversion of State debts in regard to Anglo into a 40-year bond. On the question of whether we will get a debt deal, of course we will. The scale and effect of the deal is akin to guessing GDP figures and growth forecasting. I still foresee major employment contractions in retailing, property, banking and construction. If the economy flattens or shrinks any further even the most generous deal on bank debt will not dramatically change the debt sustainability situation. We must remember that €198 billion of Greek public debt was written down this year alone and the riots are still continuing there.

The Government must take a long-term approach when it makes decisions in the next couple of months. Decisions were made by the previous Administration on the basis of keeping the show on the road for a few days or a few weeks. It was a case of short-termism on a repeated basis in recent years in particular. That kind of political culture is doomed to failure. One must take a longer-term view. Based on my conclusions, one might be better off saying one does not trust the growth forecasts and that one cannot base everything on them when it comes to the budget. In response to the retort that one must base some figures on growth assumptions, my view is that the assumptions to date have been optimistic to say the least. Some might say they have been aspirational. What we can say is that recent budgets, not just this Government’s budgets, have been based on overly optimistic growth assumptions. That gives rise to questions. Generally speaking, the consequence of that is it allows Governments to keep spending and avoid taking hard decisions.

The final reason for our current vulnerability is the political environment. There will always be personal casualties when two Ministers clash and one resigns. The other more serious potential casualty is the decision-making process between two coalition partners. We are not out of the woods yet. Tough decisions still need to be made. When the grassroots of a particular party start feeling aggrieved and accuse the other party of dominating it or say that one party has impressed its views on the other, there is a natural political tendency to cool things down by avoiding controversy that would stoke up the grassroots of one party or the other. In such circumstances, caution seeps in and a 'safety first' approach is adopted. That is the danger but it must not be allowed to happen. If there has been fallout from the recent affair and there is now more emphasis on keeping harmony between the coalition partners within the Government it must not be done at the expense of making hard decisions such as on public sector pay.

The public wanted a Government it believed would do what was necessary regardless of petty, political considerations after a lifetime of Fianna Fáil Administrations and short-termism. The public still want that. Last week the Central Bank said the Government should accelerate the pace of its austerity programme to eliminate the uncertainty that has plagued the economy. It said that again and it has been saying it for two years. In effect, it is saying the economy is crippled and that we must make the adjustment more quickly. The economist, John Maynard Keynes, was asked to explain his change of position on economic policy. He responded by saying that when the facts change he changes his mind. The facts have changed when it comes to the Irish economy, not necessarily for the better. What has not changed is the attitude of the public. They know what the situation is and want the Government to do what is necessary for the long-term benefit of the country.

Unfortunately, the IMF confirmed the trend yesterday that there is no great lift. The Minister for Finance made an important point when he said we had to remember we are still in growth and have been for some years. Although the growth is small it is significant that we are in growth. The stewardship by the Minister of this portfolio has been amazing in recent years. In my view people want him in the job, believing he is the person who understands the issues and knows where we need to be in a couple of years. The Minister has not yet been on the cover of Time but, as I keep telling him, if he was a Minister in China he would be only at the start of his political career. He still has time. The IMF stated that Ireland's economy was in a bumpy recovery and would achieve 1.4% next year. It also stated the global economic slowdown is worsening, with the eurozone area contracting this year and, at best, flatlining next year.

I refer again to the Central Bank report published in August which stated: "Consolidation episodes that focus on expenditure reduction appear more successful at reducing deficits in a sustainable and structural manner that is least damaging to growth." To my mind, that is the bank's way of saying that government needs to get smaller - and smaller again. I agree with that and do not believe we can shy away from it.

I wish to focus on growth. Within any budget, be it at household or government level, one needs rules. Enough conversation has been had on the actual Bill: now conversations will continue around the type of strategy the Government is employing. However, bringing it back to a household level, the general consensus is that it is not an ideal situation if one spends too much.

On a more geographical or parochial level, within the eurozone set-up we sometimes focus, as we must, on rules around a currency and think in terms of France, Germany or our eurozone partners. However, sometimes we take for granted our closest political friend and ally, Britain, which takes 42% of our exports. If I am correct, Ireland is the fifth largest trading partner with the UK. That is something we must be cognisant of when we talk about growth strategy and how we can get out of the economic mess we are in, but we should not take it for granted. Constituents tell me there still is a scepticism about the EU strategy, the eurozone and the euro and say we would be better off with Britain. Speaking politically, I believe we can have both. We can employ a very coherent EU strategy in the protection of the euro while, at the same time, not ignore the good and harmonious working relationship we have with the UK.

In this House we can work on this. We have a backdrop in that in March 2012 the Taoiseach and Prime Minister David Cameron signed a bilateral agreement between Britain and Ireland to have a working relationship. From a historical point of view, this was the first time since we won Independence that such a document was signed without Northern Ireland being in the background. That is good; we have moved on and the maturity of the relationship between the UK and Ireland has moved to a heightened level where we can work on mutual ground. Take, for example, the Minister for Communication, Energy and Natural Resources, Deputy Pat Rabbitte, who is working very closely with his counterpart in the UK on a memorandum of understanding in the energy sector.

We in this House must work with the backdrop of so much happening on a UK-Ireland basis. From a growth perspective we need to work more closely with our UK counterparts. This is working well on a North-South basis. Next Friday will be a historic day when the North-South interparliamentary association will have its inaugural meeting in the Seanad. I wish to put on the record of this House my welcome for the event. At the same time, however, we need to work closely with our UK counterparts. If politics are to work for the citizen we must lay out a long-term plan. The previous speaker, Deputy Deasy, alluded to this.

There will be projections and many narratives. Those economists are still around who helped and aided us to get into this mess and they will continue to make projections and predictions about the future. The only future in politics is the present. We must consider our citizens, get into their households and mindsets and look at what is going on in their lives. Let us take the lowest common denominator and consider, for example, a bill for electricity in a household, a bill which is paramount for that household's budget. If we take that to a bigger and heightened level, the political, we must examine how we as politicians on an east-west basis, in Britain and Ireland, can work towards decreasing that electricity bill. In Britain at present the conversation about energy is about the depleted reserves of coal and nuclear power. In this country we have an opportunity in terms of offshore energy and renewable green energy. We can export our energy, not only to the UK but into the European grid.

The Acting Chairman is putting me under some pressure timewise to bring this to a conclusion. In my opinion, we are not doing enough on a British-Irish basis. As in any relationship, we take our closest partner for granted. Maybe that is something we should all think about - our closest ally and friend. This is not plan B in regard to the euro, not about choosing to be part of the eurozone or part of Britain. We can do both. It is not about having an affair with Britain but about not taking it for granted.

I take it from Deputy McHugh's remarks he is likening Anglo-Irish relations to the relationship between the Labour Party and Fine Gael. May we offer our services in the event the parties need to strike a Good Friday-type arrangement? I hope the Labour Party's better instincts would win out in that particular encounter.

We have an agreed programme for Government.

Maybe we are just taking each other for granted.

As other speakers noted, this week the IMF admitted it had been wrong about the impact austerity would have on the Irish economy. It told us it had not foreseen the massively damaging impact tax hikes and cuts to expenditure would have on jobs and spending. It is very hard to believe that the IMF, or indeed any economist or commentator worth her or his salt, could have believed that taking tens of billions of euro out of an economy over a short number of years was a good idea. Certainly the citizens to whom Deputy McHugh referred knew that from the absolute get-go. A contractionary approach was never going to work or bring about growth; it will never bring us to recovery.

The Government's decision to continue socialising private debt is not only deeply unjust but is deepening the crisis and condemning in particular a generation of young Irish people to joblessness and emigration. Government failure to secure a real and substantive deal on the Anglo Irish Bank promissory note and its refusal to end the obscene payments by State-owned banks to unguaranteed bondholders makes this Bill almost laughable.

The Stability and Growth Pact rules, as amended by the austerity treaty, or the fiscal responsibility treaty, are neither achievable nor prudent in an economy that is experiencing a protracted recession. The question to which the debate on this legislation gives rise for all of us, particularly those in government, is why should we legislate for a fiscal strategy that has already failed. That is the nub of the issue.

When the comments of Joseph Stiglitz on the failure of austerity were put to him last week, the Taoiseach corrected the speaker and stated Professor Stiglitz had not said austerity never worked but rather that it rarely worked. Whoopee. It is reassuring that the Taoiseach is pursuing a strategy which, in his words, rarely works. While austerity is failing in economic terms, it is also causing untold hardship for the very citizens who rely on Members elected to this House, particularly those in government, to serve their best interests. It would be in the best interests of the economy and society if there was real, hard-cash investment in the people. We need this to happen now.

There is a need for real reform throughout the public service, rather than a slash and burn policy which leads to the haemorrhaging of numbers. There is a need for a real vision for society and real political bravery in order that the economy will be brought to recovery and sustainability. Difficult choices must be made. However, it must also be recognised that there are choices. The choices pursued by this Administration to date have disproportionately harmed low and middle-income workers and their families, left the domestic economy as flat as a pancake and do not encourage growth. In fact, they hamper and damage growth.

Among the provisions included in the Bill is one - this is arguably the centrepiece of the legislation - to establish the Irish Fiscal Advisory Council on a statutory footing. It is worth remembering that those who serve on the council have suggested an additional €1.9 billion be taken out of the economy during the next three years. This would be on top of the almost €9 billion the Government will be seeking in cutbacks. The council has no remit - nor has it sought one - for the domestic, economic or very real human and social impact of the policies it proposes. There is no jeopardy for its members in proposing additional cutbacks to the tune of €1.9 billion. Of course, there would be a great deal of jeopardy for those on the receiving end of these cutbacks.

Those appointed to the council come from organisations which do not have a great record in getting economic forecasts right. Rather than providing the Minister with figures from the recession, I will rewind the clock to 2007. In that year the ESRI projected a budget deficit of 2.7% in 2008. At the same time the IMF predicted that there would be a surplus of 0.04%, while the OECD stated there would be a deficit of 1%. What happened in 2008? The budget deficit was 7.3%. If we could not rely on these organisations and individuals for sound fiscal projections and advice in the good times, as they were known, I do not understand why we are now relying on them in the very bad times. When the council was originally established, there was an opportunity to bring on board progressive economists from outside the cosy circle who would challenge the status quo in fiscal planning and budgetary oversight. It is no surprise, however, that Fine Gael and the Labour Party sought out the usual suspects, namely, those who view society through the prism of fiscal data and economic modelling and whose mindsets reflect that which, in large measure, created the crisis in the first instance. The Department of Finance intends to provide the council with an annual budget of up to €650,000. To be honest, I can think of at least a dozen better ways to spend that money in the public interest.

It must be noted that the Minister for Public Expenditure and Reform, Deputy Brendan Howlin, has hired a number of economists for his Department and the Department of Finance and the Office of the Taoiseach. According to the Secretary General of the Department of Public Expenditure and Reform, Mr. Robert Watt, the Government's new economic and evaluation service which is overseeing these recruitments will change the culture within senior levels of the Civil Service which contributed to the crisis. There is no evidence of such change in perspective or practice to date. In real terms, things remain unchanged within the upper echelons to which I refer.

The Bill will do real damage to the economy. There is no doubt that the strictures it will impose will undermine the delivery of front-line services which will push more families into debt. The overall impact of the legislation will be felt for many years to come. We do not need lip service; what we need are public services. They must be first class and First World in nature and adequately resourced. There is no question that reform is required. However, I do not see the Bill as being part of a reform agenda. It will instead facilitate the institutionalisation of poverty traps.

The economic crisis is deepening. Long-term unemployment has risen to 8.8%. This means that 184,000 people are going to find it extremely difficult to obtain employment, even when job opportunities arise. The current employment prospects for citizens under the age of 25 years are 50:50. When he addressed the House last week, the President of the European Parliament, Mr. Martin Schulz, correctly stated the biggest problem was the level of unemployment among young people. He placed a very heavy emphasis on this fact and why would he not do so, particularly when one considers the data available not just in the State but across the European Union? His assessment is correct, but what he said is difficult to tally with his support for the austerity treaty and the policies being pursued by the European Union and the IMF. In that regard, he is very much singing from the same hymn sheet as the Government which talks about growth and jobs but which delivers austerity and cutbacks.

Young people and the long-term unemployed require fully resourced access to education, training and reskilling. They will then require real jobs with decent wages. This is not a radical proposition, rather it is the stuff that makes an economy and a society work. If the Government continues to pursue policies that attack low and middle-income families, that cut away the most basic social provisions and supports for carers, the disabled and children, that make lessen any chance of growth and recovery possible, for many the human cost will be real and long-lasting. The real reform we need is to place equality at the heart of our legislative and decision-making processes. We need to start putting the people first.

It has been stated recessions provide opportunities for change. This is true. Some of the rnost progressive social policies were put in place by governments throughout Europe both during and after the Second World War. The response at the time was to put the people first. Universal public health care provision in Britain and massive investment in adult education and job creation in the United States built the middle classes. The result was that standards of living improved across classes and economies recovered. Make no mistake: we will not recover without real and radical reform based on equality and justice, yet the Bill and the policies it embodies fly in the face of this approach.

That is the reason Sinn Féin will not support the Bill. It makes no sense whatsoever to enshrine austerity in law. It makes no sense to set targets that cannot be met except by inflicting very great pressure and damage on the domestic economy and on the citizens who rely on services within it.

The enshrining of austerity in legislation is wrong and it is stupid. It makes no sense to continuously proceed with a policy that is not working. The talk about export figures or any talk about a minimal amount of growth which is job-free growth, does not take from the fact that the big challenge for this economy is to revive the domestic economy, get people back to work and secure a debt on that toxic banking burden which was not the people's to begin with.

I regret very much that this Government, rather than carving out a policy space and a set of demands that would act in the real interests of this State and her people, has instead gone along, almost sleep-walking, with a failed agenda championed by the IMF and the EU institutions. The people will give the Government no thanks, not just in the short term as they bear the brunt of the cutbacks and austerity, but also in the long term.

Debated adjourned.
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