Economic Policy: Statements (Resumed).

Senator John Hanafin

I welcome the Minister of State to the House.

There is no doubt that international events have impacted on Ireland's economy, not least the high price of food, the fact that the prices of commodities have risen by up to 40%, and the rise in the price of oil, which is now $137 per barrel, despite a 12-month low of $58 per barrel. We have seen significant changes. The American economy is heading towards a recession and the British economy is in recession. There have been difficulties here in the building sector. Recognising the difficulties, ours is a remarkable economy that has grown and will grow this year in what our finance spokesperson called a perfect storm. The economy will grow at a rate of 0.5% in the most difficult of times.

This economy is well managed, though the Opposition has often asked what we did with the good times. In the good times, we manage very well. Our Government debt is now 25% of our gross domestic product. In 1990, it was 95% and in 1993 it was also at this level. We have made remarkable strides in reducing the Government debt ratio. Similarly, we have remarkably improved our financial prospects in that the National Pensions Reserve Fund has grown to €19.379 billion this year. Not only have we reduced debt significantly, we have also put money away for the rainy day.

There are others who believe we are managing the economy well. One group, Moody's Global Sovereign, which gives no hostages to fortune whatsoever, rates the banks and does not give any pluses unless they are deserved. Its credit analysis of February 2008 states:

Ireland's Aaa government bond rating is supported by successful macroeconomic management and a competitive economy. Economic development has been characterised by strong growth which, supported by a favourable demographic profile and outward-oriented policies, contributed to a substantial rise in wealth levels over the past two decades. Deregulation and structural reforms played a key role in Ireland's efforts to make growth sustainable and the economy much more resilient to shocks. Strong investment spending and foreign direct investment (FDI) remain catalysts for the Irish economy's capacity to grow amidst the dynamics of population ageing, helped by immigration and the baby boom of the late 1970s. The success of the Irish government and the National Treasury Management Agency (NTMA) in consolidating public finances resulted in a marked drop in spending ratios and large fiscal surpluses between 1995 and 2000. Continued fiscal discipline in subsequent years helped to substantially reduce gross debt to about 25% of GDP at present.

We have been talking about continued fiscal discipline this week in respect of cuts of €440 million. These cuts could be made easily because they are in the context of a total spend of €543 billion. Therefore, they amount to less than 1%. If Ministers must forego their pay rises, they will do in the service of the public, as they do in respect of so much else.

The Moody's Global Sovereign report also states:

Strong economic growth, supported by the booming property market, has led to consistently higher tax revenues in recent years. However, higher interest and recent tensions in credit markets have started to slow growth in what had been the most dynamic sectors of the economy.

Moody's Global Sovereign states consistently that Ireland has been well managed, continues to be governed well and has made the correct decisions. The recent ESRI report indicates there will be a slowdown for 18 months, after which we are to return to growth rates of 3.5%. The documentation states we have a well-managed economy and implies we should not be concentrating on the few difficulties we must and will deal with but on how circumstances will change and how the Government will manage through the difficulties.

If oil prices are to remain at their current level, many economies will continue to experience difficulties. The reality is that there is no shortage of oil but a shortage in production capacity. If there is no world shortage of oil, one can increase production capacity, as is occurring. New refineries are opening in India, Canada and elsewhere. One problem associated with the high price of oil was the fact that hurricane Katrina ripped through two of the United States' major refineries in the Gulf of Mexico, thus cutting off 6% of US production. I would like to see a return to more sustainable oil prices. With a 2% shortage, prices can reach any height, and with a 2% surplus, they can fall to any level. I would much prefer to see a sustainable rate of $60 per barrel rather than $138 in the shorter term.

The reality is that the shortage of oil is a misnomer. Large areas have yet to be explored and the reality is that, for years, it did not pay people to take the oil out of the ground. Marginal fields were passed over and before the period to which I refer, the Brent oilfield was marginally profitable, at $5 per barrel. We witnessed this within the past two decades.

We are facing a short-term fillip, as we saw in the wake of the events of 11 September 2001 and the dotcom boom. The Government will get over it and will continue to manage finances in a prudent and positive manner, as it has done heretofore and as it demonstrated yesterday.

Senator Paudie Coffey

I have listened with interest to some of the contributors and heard them refer to a "well-managed economy". When I hear this, I wonder whether we are living in the real world. The economy has enjoyed great growth over recent years and I acknowledge international factors, such as the price of oil, will affect it, but I would not go so far as to say it was well managed. In this regard, the facts speak for themselves. We have just experienced the greatest deterioration in public finances in the history of the State, amounting to €10 billion. In the past five years we have gone from a high to an all-time low. This certainly does not indicate that the economy is well managed.

Having listened to the Government spokespersons, I believe they are in denial. They, as public representatives, know the reality on the ground is that people face serious challenges and are experiencing hardship in regard to front-line services. Some Members have referred to these, be they in respect of education, health or other areas. Given these genuine challenges, we should not be in denial. The Government propagated over-dependency on the construction industry for the past ten years, despite warnings from independent economists, the media and members of the Opposition, who were all called prophets of doom.

We welcomed the construction boom but felt it needed to be better managed. All the while, the Government neglected our competitiveness, export markets and manufacturing industry. Our traditional indigenous industries, which have stood the test of time, are now falling by the wayside. This is not the result of having a well-managed economy.

I come from Waterford, where two flagship manufacturing industries, Waterford Stanley and Waterford Crystal, which have exported all over the world, are experiencing serious difficulties in the present economic climate. These companies, which are bigger than average, have received no help from the Government. Hundreds, if not thousands, of smaller manufacturing companies are going to the wall by the day. I refer to companies employing four and five people. The employers were willing to put their necks on the line, acquire skills and take out loans on the strength of the value of their houses with a view to creating jobs. They are being neglected by the Government, yet we are carried away by the great idea that we have had a well-managed economy. I ask the Government spokespersons to enter the real world.

Thousands of young construction workers and apprentices, trained over the past five or six years, have no prospect of work. The hated word with which I grew up in the 1980s, "emigration", is now being used again. Young fellows from my area are talking about it because they cannot get work. People of my own generation, who have made personal commitments and who have taken on mortgages to buy very costly houses, now face the challenge posed by negative equity. Let us not be afraid of facing up to this if we are to manage the economy properly. The people to whom I refer will be exposed over the next generation and have job insecurities because of the way the economy has been managed and because the Government put all its eggs in one basket. Any financial commentator, economist or adviser will tell one that one should not put all one's eggs in one basket, be it in respect of personal savings or otherwise. However, this is essentially what the Government did and that is why we are so exposed at present.

On the view that we have had a "well managed" economy, I draw attention to the overruns of recent years. Some €52 million was wasted on electronic voting, €160 million on PPARS, €37 million on the Kilkenny flood relief scheme, €99.5 million on Campus Stadium Ireland, €471 million on the Luas and €350 million on the Dublin Port tunnel. Bearing in mind these figures, we must ask what planet we are on if we argue the economy was well managed. Any compliant taxpayer should be appalled. I make no apology for becoming passionate because I am a hardworking member of the tax-paying community and I meet people on a daily basis who have worked hard to build this economy. However, I have no difficulty in stating the Government has put the money down the tubes and has squandered the good times.

We now face serious and challenging times. I refer to national development, regarding which the Government gave clear commitments to the effect it would continue to invest in infrastructure. However, Ireland has almost the lowest broadband penetration in the EU, despite being a country that describes itself as being at the leading edge in technology. Northern Ireland, which is on the same island as this State, has almost 100% penetration in both urban and rural areas. Although Ireland describes itself as a leading economy, our broadband penetration is below 25%. This is a joke.

We also face the serious challenge of climate change in respect of which significant targets have been set. Ireland has committed itself to reaching those targets on a cross-party basis. However, serious financial implications arise in respect of such challenges. How will they affect the Exchequer and how will we meet such targets? My questions pertain to front-line services, cuts to resources and the various challenges regarding the costs of living, food and fuel. Such challenges must be met over the next five to ten years.

Accusations have been made across the floor that Fine Gael is unwilling to stand up and be counted. When my party was called on previously, it stood up and was counted. Fine Gael always has stood by this country and will do so again. We will make serious contributions on how to overcome the problems afflicting this economy and how to bring it back to its desired state. Deputy Richard Bruton, who is Fine Gael's spokesperson on finance and the economy, has made suggestions with the requisite level of detail. However, neither the Taoiseach nor his Ministers are providing such detail. Instead, one hears bland and overscaled suggestions as to how he intends to turn around the economy. Members will see how this will take effect in the years to come. I will pay close attention to how this will affect front-line services, particularly given the waste that has taken place in recent years.

Senator Larry Butler

I must disagree strongly with what Senator Coffey considers to be waste in the economy, such as the port tunnel and the Luas, both of which were important items of infrastructure.

Senator Paudie Coffey

I referred to overspending, which constitutes waste.

An Leas-Chathaoirleach

Senator Butler, without interruption.

Senator Paudie Coffey

The Senator should get his facts right.

Senator Larry Butler

I did not interrupt Senator Coffey while he made his contribution.

Over the past decade, Ireland has experienced economic transformation. It is the envy of the world in respect of how we have conducted and managed the economy. The enterprise of the citizens has been guided and led by sound economic policies of successive Governments. I give credit to all Governments that have been in office in recent years. However, the present Government in particular has managed an outstanding economy. This has been achieved while delivering budget surpluses in ten of the past 11 years. The record speaks for itself and the public can be assured of the Government's determination to build, further and achieve the correct conditions for sound growth in the years ahead.

Ireland faces a shortfall of approximately €3 billion in its tax revenues. This is the equivalent to the VAT that would come from 40,000 houses, which is the present level of construction and continues to be invested in our economy. A total of €1.4 billion could come from the 13% VAT rate on such construction, which would leave us with a shortfall of approximately €1.6 billion. I believe that within the next year or a year and a half, a total change in revenue in this regard could take place.

Capital investment must remain a top priority and will ensure that Ireland will continue to have proper infrastructure in the future. As for pension investment in the National Treasury Management Agency, capital should be invested in energy, roads and water. I believe an opportunity exists to invest the pension funds there. The Government should support a national housing agency to provide affordable, social and ownership schemes. I believe an opportunity exists to put affordable housing to the forefront.

I have heard Senator Twomey refer from the Opposition benches to frenzy, developers and greed. Members should not forget that frenzy, developers and greed have put €2.14 billion into the local authorities' coffers from 2000 to 2006. This constitutes an enormous investment at local level, which has given great impetus to local services and should not be overlooked.

In the past 11 years, the Government has invested the fruits of our economic success in schools, roads, public transport and other environmental infrastructures.

Senator Larry Butler

An Leas-Chathaoirleach

Senator Buttimer should allow Senator Butler to continue.

Senator Larry Butler

Senator Shane Ross

I am glad not to have been caught in that crossfire and I hope to be able to keep out of it in the next few minutes. I have a view on the economy and the political battle that goes on, that nothing is as good or as bad as both sides are saying and not all of it is particularly relevant. I am a long time on record as stating that the stewardship of Mr. McCreevy, while it may have been an easy time, was superb in that he was prepared to take the economy in a new direction, which might have been at a political cost to himself — it may be why he is where he is now — but which was radical and introduced a new philosophy into the running of the economy which has worked extremely well.

In having set us on a sound course, it is a little strange that it appears this week that the Government has suddenly woken up to the fact that it could not last forever and that the kind of prosperity it created was not eternal. The reaction and the statement yesterday would make those of us who are great supporters of the fundamental thrust of the economic thinking wonder whether there was any other thinking among Ministers in the Government up to a few weeks ago, when they suddenly realised that the economy was in trouble.

The economy is in trouble. Let us face it, it is a crisis. No one element, but a mixture, is to blame. It includes lack of Government foresight and preparation, Government smugness and electoral timetables. There are the international forces as well.

It is up to the Government to take action, which it should have recognised a long time ago, to bring us back on course, not for the sort of prosperity to which we have been used because that is not likely to return, but to steady, moderate and encouraging growth.

For the Government to now state that the fundamentals are sound, which Senator Coffey rightly touched on, is not true. The fundamentals were sound but not any longer.

It depends to some extent on what fundamentals one chooses, and one can be as selective as one likes. One can take, as the Government side is taking, and as Senator Hanafin took, the NTMA, the National Pensions Reserve Fund and other areas, and state that they are sound and we have done well. However, on the other side are the sudden downward spiral in the budget deficit, the worrying inflation rate, the soaring unemployment rate, the reaction in the stock exchange, which has knocked billions of euro off the value of our companies, and other such elements. It depends which one chooses, but we know that all those I have listed as on the minus side were not there a year ago. Therefore, things are bad, worrying and getting worse. It is a question of how bad they are and whether the Government is prepared to do anything about it.

It would be unfair at this stage to state that the problem has not been recognised and it would be unfair to state that the remedies have not been taken, partly because we do not know what the remedies are. The problem has been recognised in terms of rhetoric but we do not know whether the remedies are specific. In this regard, in terms of the principle of what the Minister spelt out today, I have little quarrel with him but in terms of implementation, I am very doubtful that it will happen because I do not understand why the specifics could not have been spelt out already.

However, I was encouraged. As there is little time available to me, I will concentrate only on one or two matters. I was encouraged to some extent by what the Minister's aspirations and intentions appeared to be. He stated specifically there would be a review — not an encouraging word — of State agencies. I would have thought that if the Minister was trying to save €450 million this year, he would not have to look any further than State agencies. I would have thought that he need not worry about all the Departments saving small amounts of money. State agencies would save him €450 million in no time. In fact, he might not even have to look much further next year.

I would have thought that if he was looking at State agencies for €450 million, the Minister would not have to look any further than one of them. What will he do about FÁS? I do not know whether the Minister of State, Deputy Mansergh knows that the budget of FÁS is €1 billion a year, which comes straight out of the State coffers.

FÁS is a State agency which has attracted a great deal of unwelcome attention recently, not just because of the press publicity, which was attracted by extraordinary activities which involved an enormous and questionable waste of money and, therefore, serious question marks about the culture in FÁS, but because it was found by the Government's own auditor, the Comptroller and Auditor General, to be wasting huge sums of money. It is an open goal for the Government. Its own auditor has found that FÁS is wasting money. There is a need, therefore, to review its €1 billion budget.

Although this is back of the envelop stuff, it is my guess from reading the FÁS annual report, which is fairly incomprehensible and totally uninformative about where the money is spent, that the €1 billion budget could be chopped by half and nobody would notice. I do not know what FÁS does. When I spoke about FÁS previously it showed me around and all I saw were empty offices, massive equipment and nobody there.

I do not doubt that FÁS does a certain amount of good work, but in terms of value for money this is a State agency which is in crying need of being drastically cut. It has become close to being a political slush fund. Nobody knows where the money goes, nobody knows where it is spent, nobody knows what the priority is but, because it must produce accounts, we know it receives €1 billion in funding and that it got more than €1 billion when unemployment virtually did not exist and it was meant to be sorting out the unemployment problem. Some of the money came from EU funding. If I was part of the Government I would be worried that the European Commission would shortly ask where its money was going because there are questions being asked by the Comptroller and Auditor General.

The Government should look at FÁS, state that it does some good work but that it knows money is being wasted and that its budget should be cut by half. That would solve the Government's €450 million difficulty, but it will not do it because there are too many political implications. Let the good work go on but let the wastage stop. I do not know what FÁS does but we know it is wasting money.

I would make one appeal to the Government, and Senator Coffey touched on this. When it is making cuts it could give a commitment, not only with regard to the NDP, to which it has responsibly made a commitment and with which all agree, but also to not cut the budget for the roll-out of broadband. This is the biggest infrastructural issue facing the Government and Ireland at present. It has the potential to do the maximum amount of damage to this country if we do not get it in order.

Senator Paudie Coffey

Hear, hear.

Senator Shane Ross

It is all very well for spokesman after spokesman to state we are well positioned for the next upturn — this is a kind of mantra one hears from every company in trouble. It is an untruth. We are not well positioned for the next upturn. If we do not have broadband, for which I do not care whether the Government gets the money from current or capital expenditure, or whether from borrowing, we will not be positioned at all for the next upturn and we will be on a downward slide where our competitors will overtake us in Europe and overseas. Let us get a commitment from the Government that, whatever happens, investment in that element of infrastructure is sacrosanct and will be maintained. Otherwise we will be on an inexorable slide and the Celtic tiger will be a distant memory.

Senator Fiona O’Malley

I was glad when Senator Ross spoke, I began to see the value of Independent Senators. He promised he would take a measured and temperate line and acknowledged that the Government has not wasted all the money at its disposal. There are some 2 million people — the Minister referred to this in his speech — now employed in the country. This is an important point which the Opposition tends to forget.

Senator Paudie Coffey

The Senator should not rest on her laurels.

Senator Fiona O’Malley

I do not necessarily agree with Senator Ross's points about FÁS. It is easy to take a swipe, as he has done, but we should not forget the many people trained and re-trained within the organisation. A review of the work of FÁS is to be welcomed, as it would tell us where we need to make changes and where services are no longer required or no longer performing the function for which they were first established.

I agree with Senator Ross's remarks on broadband, the provision of which is fundamental. The Minister for Communications, Energy and Natural Resources, Deputy Eamon Ryan, indicated this week that broadband roll-out is progressing very quickly.

Senator Jerry Buttimer

Not quickly enough.

Senator Fiona O’Malley

It started this week. Senator Buttimer wishes everything happened yesterday, but it does not work in that way.

I refer again to the figure of in excess of 1 million people who——

Senator Paudie Coffey

The Senator is in denial.

This Government is the master of overspending, overruns and lack of timeline planning and it is discredited. It ran a €2 billion surplus and there is now an €8 billion deficit. Where is it all gone? The Minister of State, Deputy Mansergh, will attend the House in the autumn and tell us he will save €50 million. This is a fairy tale like Alice in Wonderland. The champagne days are over. Senator Ross spoke of the former Minister for Finance, Mr. Charlie McCreevey. This situation is the product of a Government without joined-up thinking. This is a Government, as Senator Ross said, that lacks foresight and planning. It is arrogant and has treated the people with contempt.

We welcome action, reform of waste and a recognition that the Government needed to address the direction in which it was headed. We were on a train-wreck and, in many ways, we still are. Despite the comments of others, Oppositions do not talk countries into recessions, whereas lack of Government leadership and action does.

The fundamentals of this economy are headed in the wrong direction. Unemployment is up, growth has collapsed, the tax intake is down and housing sales have plummeted. Let there be no turning with the national development plan. Let us make Ireland more competitive, as Senator Coffey said, in the area of broadband. We have seen no meaningful action in this area. We must examine the way we train and upskill people.

I listened to Senator MacSharry's spirited defence and I admire him for coming to the house with some bottle to defend his team, as he must. However, I remind the Senator and the Minister of State, Deputy Mansergh, of the slogan, "Health cuts hurt the old, the sick and the handicapped". The Government has said nothing of what the fine print contains or how people will be affected.

Dr. Alan Barrett, an independent commentator and author of the recent ESRI report, has stated: "Everyone knows the downturn in the public finances is because the Government blew the finances from the boom which everyone knew would be temporary". Some 19,000 extra people signed on the unemployment register between May and June, which represents 635 people losing their job every day. At least an extra 54,000 people have lost their job and the live register has risen by one third. It amounts to a rise of 6% in unemployment since the Government was returned to power.

Will the Minister of State outline where the cuts will be made? Although the Minister of State can use fancy lingo, they are cuts. Who will be responsible for a failure to meet the 3% reduction in the public payroll? Who will make the 3% payroll cut in city, county and town councils, State agencies and all local authorities? Who will direct the directors of services and county and city managers? Will the Minister of State give us a cast iron guarantee today that front line services in the Departments of Health and Children and Education and Science will not be affected? We must hear it.

We are talking about Irish men, women and children being affected by the Government's inability to manage the economy.

Senator Marc MacSharry

If he does not, he is on the bike. Perhaps the Minister of State is the first to feel the pay freeze, which I welcome.

Never before has a Government drunk champagne and spilled it. The ordinary people, our neighbours, are suffering. The Minister of State may think I am being dramatic and throw his eyes to heaven but the reality is the Government and its cuts are affecting people. I hope the people will wake up and realise the Government has mismanaged the economy for 11 years.

Senator Mary M. White

I was very pleased to read today in The Irish Times the statement by the Taoiseach, Deputy Brian Cowen. One of his points was that we will examine measures to reduce the cost of doing business in Ireland to stimulate export-led growth and enhanced productivity.

This is very satisfying to me as I have sat here for years as part of a team that created a company with jobs for 150 people. Builders, developers, banks and the burgeoning property development companies were the sexiest and most appealing factors for the political drivers of the Irish economy. I was very conscious as a business person that the people out there fighting morning, noon and night to get their businesses to survive in a highly competitive global economy had very little respect from the leaders of Government. The Taoiseach's statement is very satisfying.

I hope I am getting the point across to the Minister of State. Sitting here, I listened to the lauding of property developers and the oversupply of housing stock and apartments but I knew that no economy could sustain growth from that kind of economic activity. This has led to a rediscovery of the traded sector. Anybody who has listened to me over the years knows that the only reason we go anywhere with regard to jobs is when people make manufactured goods or services that are sold for export. Somebody will buy them and send money back to this country. We do not exist as a country unless we are making goods and services which somebody else in the wider economy wants to buy.

We are at long last back to appreciating that the bedrock of our economy is built on the drive of the Irish and foreign-owned companies that export in the teeth of international competition and create added value, purchasing power and tax revenues in this country.

It is such companies, supported by Enterprise Ireland, which exported more than €16 billion of goods and services from our shore last year, up €1.5 billion on the previous year. The Irish-owned companies backed by Enterprise Ireland directly employ 150,000 people. Another 160,000 people are employed by IDA-backed companies and foreign-owned companies directly employ 136,000 people, and at least as much more again indirectly. Foreign companies spend €16 billion directly on the Irish payroll a year. Of that €16 billion, €7 billion is wages. The other €9 billion goes to purchasing services.

Having built up a company from nothing and been out competing in the global economy, I know the work is relentless and sustaining a business is an experience covering 24 hours a day, seven days a week. I am glad that we are now recognising this.

I will finish by referring again to the Taoiseach's statement. He indicated that we will examine measures to reduce the cost of doing business in Ireland to stimulate export-led growth and enhanced productivity. We only survive as a country because we have people producing goods and services others want to buy.

The levy charged by local authorities on manufacturing and service industries is a disgrace. Local authority development levies should be eliminated as the same levies are applied to the manufacturing and service sector as the retail sector. Anybody who knows the basics of economics will realise the only reason retail sectors exist is because people are making goods and services for export. If we do not have people employed in these indigenous Irish-owned companies, people will not be able to go shopping or have money to purchase goods. Why should the local authorities apply the same developmental levies to the manufacturing sector as those who are trading? We should move on the issue.

I thank the Minister of State for coming to the House. It is a great day for me as a business person. I have sat here, pained at hearing how the economy was doing brilliantly because of the construction industry. We were just putting up buildings. Anybody who knew anything about economics knew in their heart and soul that could not be sustained. We should return to encouraging more people to start up businesses.

This morning I heard on a programme that the EU is asking what it can do to encourage people to set up businesses and improve medium-sized businesses. I put on record my appreciation of Enterprise Ireland and IDA Ireland and what they have done for this country.

Senator Alex White

My namesake, Senator Mary White, is correct when she says anybody could have seen that the construction boom could not be sustained, and that anybody could see the necessity to take other measures and plan for the future success of the Irish economy by promoting innovation. If she is correct, then her colleagues in Government are guilty of the most serious dereliction of duty to be possibly imagined. If it was evident to anybody in his or her right mind that the construction boom would not be sustained, why did the Taoiseach, Minister for Finance and Minister of State, Deputy Mansergh, all of whom are presumably in their right minds, not see this, just as the rest of us did in recent years? Senator Mary White is correct in this respect and the Government has a case to answer.

Last week, when Senators briefly debated these issues on the Order of Business and several other occasions, a number of speakers promised that a set of visionary, forward looking announcements would be made this week in both Houses. This is not what transpired. Rather than a vision or plan, we have nothing more than a list of cuts which are euphemistically referred to as savings.

The Government believes it is necessary to take quick action to address what it perceives to be an immediate problem in the public finances. There is an air of unreality in the attempt by Senator MacSharry and other Government speakers to turn the debate around by asking what the Opposition would do in these circumstances. Is the Senator asking the Opposition to produce a list of cuts? Is that the level at which he wants to have a debate on the future of the economy? I will not play that game. Instead of producing a sterile list of cutbacks, we need the Government to show the vision we were promised. My party will not congratulate Ministers or the Government on sitting down with officials and devising a list of cuts when they failed to act quickly or with sufficient skill to prevent this state of affairs from arising in the first place. Congratulations and commendations are not called for in these circumstances. On the contrary, the most serious criticism must be levelled at the Government's door.

It has been repeatedly claimed that our current economic problems are internationally generated. The Minister of State, Deputy Mansergh, takes an interest in language and, I expect, in the precise meaning of words. Senators MacSharry and Hanafin may point to examples of economic difficulties in other countries but this is not evidence of cause and effect, as the most basic economics would demonstrate. One must examine the factual basis for what has occurred rather than making a spurious argument that economic difficulties being experienced in other countries are the cause of our difficulties.

Mr. Paul Tansey, an independent economic journalist, has not been taken to task by any other serious commentator for soberly and solemnly stating the following:

The recession has not been triggered by the global economic slowdown or even by the surge in world prices for energy and food. Its origins are closer to home. The recession is the result of a fall in domestic demand.

As Senator Buttimer pointed out, serious commentators, including the authors of the ESRI report, and anyone else who examines and analyses the facts before us, will clearly and fairly conclude that the economic problems we face are domestically generated, albeit against the background of difficulties on the world stage. It is not the case that these difficulties are causing our economic problems. For this reason, I repeat the call I made last week that speakers show care and precision. Senator Hanafin and others who use the Moody's report or other reports they manage to find using Google or some other means to suggest the economic problems we are experiencing are beyond our control and comparable to some sort of rain shower are trying to pull the wool over our eyes. We could control them.

Senator Mary White is correct. Over the years the Government has been party to knowingly and deliberately over-priming the construction sector as the repository of our economic prospects. It failed to address issues such as those raised by the Senator and instead set its store by construction. In development after development, whether large or small or in urban or rural areas, it massively over-incentivised the construction sector and failed to direct prudent investment into areas which would have yielded long-term results for the economy.

To paraphrase Senator Mary White again, anyone in his or her right mind could see that setting all of our store by the construction industry was not going to work. I criticise the former Minister for Finance, Mr. Charlie McCreevy, for introducing many incentives for construction. Are such incentives not in stark contrast with the collapse of public-private partnership projects to replace old housing stock in Dublin with State assistance? All over the country housing units are lying idle. Perhaps the Department has carried out a survey to determine how many housing units from the great boom are unoccupied. Is it not an extraordinary imbalance that thousands and perhaps tens of thousands of housing units are lying idle, perhaps as a result of some speculative adventure or due to uncertainty on the part of builders and developers about what they will do with them, while at the same time people are crying out for the provision of proper housing and accommodation in areas such as those which were supposed to be served by the collapsed public-private partnerships? The reality facing some people is in stark contrast to the position in which others find themselves.

A breakdown has not been provided in respect of from where the €1 billion in savings to be made in 2009 will come. No detail has been given regarding the cutbacks that will be introduced in the areas of health and education. There is no guarantee that front-line services will be protected. There is no breakdown regarding the current-capital savings that are being proposed and there is no indication that Ministers will be held responsible in the context of meeting targets in respect of such savings. The latter is a key point where the Government is concerned because no one is prepared to accept responsibility. There has been no accountability on the part of the Government for the past ten years. How can we believe that it will suddenly become responsible and accountable?

What we needed from the Government yesterday was the introduction of a strategy to reduce inflation, tackle matters relating to competitiveness and bring about real reform. Instead, it failed to introduce anti-inflation provisions and has done nothing to assist those who are out of work or the property market.

A spin was put on matters to the effect that there would be no cutbacks in health or education. However, today's newspapers refer to €144 million in cuts in the area of health. It appears that this is only the tip of the iceberg. It has emerged that the HSE plans to introduce cuts totalling over €190 million. These will have an impact across the board, including on patient care. Some €38 million was allocated in the budget in respect of cancer care developments, disability care and services for the elderly. However, action in respect of these matters has now been put on hold. That is the legacy of this Government.

It was announced yesterday that there will be a €45 million reduction in the figure for overseas development aid. This represents another attack on the most vulnerable and poorest people on the planet.

Those on the Government side have indicated that the fundamentals of the economy remain strong. The greatest problem relating to the economy is the fact that the Government allowed Irish people to become the most indebted in Europe and allowed Ireland to become the most expensive country in which to live and do business. That is another aspect of the Government's legacy.

The Government must live with the mistakes it made during the 11 years in which it has been in power. The chickens have come home to roost. If those opposite think we are going to bail them out, they have another think coming.

Senator Pearse Doherty

It is particularly disappointing that yesterday's much-hyped announcements do not deal with the wider problems the economy faces. Instead, the Government has outlined an extremely limited plan which will not go very far in addressing the unprecedented shortfall in the public finances. Little detail was provided with regard to the Government's announcement that it is seeking to achieve €440 million in savings. How will the 3% cut in payroll costs be achieved by the various Departments and what impact will this have on service delivery? I carried out a quick calculation in respect of Donegal County Council and discovered that what is proposed will result in 40 positions either being lost or not being filled when they become vacant. Will it be our litter wardens, our planners or those who work on our roads who will be affected in this regard?

Assertions on the part of the Government that front-line services will not be affected by cutbacks is simply not credible in the absence of detailed data. Prior to yesterday's announcement, there was growing evidence of cuts in many public services — including those relating to health and education — which are already beginning to hurt the most vulnerable. The Government is trying to spin matters in such a way as to make people believe that these cuts will not affect the health services. The reality is, however, that patient care has been affected by cuts since last September when the HSE imposed a recruitment ban.

Hospital wards and units are being closed and services are being reduced or removed completely. In that context, one need only consider this week's announcement regarding what will happen at Letterkenny General Hospital. For the month of August, the hospital will lose 20 beds and day care services will be shut down. Other cuts are pending and they will be introduced by those who stated that they are trying to "stay within the budget".

It is becoming increasingly clear that further and more drastic cutbacks will form part of December's budget. It appears that, in dealing with the shortfall in the public finances, the only option under consideration is cutbacks in public spending. The Government is approaching the current economic and fiscal problems in a short-sighted manner. Measures to stamp out waste and inefficiencies are to be welcomed. However, we must ask why it took the Government so long to take action in this regard. Why were the waste and inefficiencies to which I refer not stamped out during the past ten or 11 years? However, Sinn Féin welcomes these measures and those relating to the tribunals and the use of consultants and public relations companies.

Sinn Féin has a clear idea with regard to what is needed. The Government must outline the measures it will introduce in the short term in order to stabilise the economy. In addition, it must put forward a medium-term recovery plan which should include mechanisms designed to help us regain competitiveness and retrain and upskill workers. Such a plan is particularly important in the context of counties such as Donegal, which, even before the current downturn, experienced levels of unemployment far in excess of the State average. In this regard, one need only consider the figures provided by the Central Statistics Office which show that from May of 2007 to May of this year, an additional 2,000 people were signing on for unemployment benefit in County Donegal. The most recent figures for May and June of this year indicate that there was a 10% increase in the numbers signing on in the county. That increase was far in excess of those relating to other counties.

The downturn cannot be used as an excuse for the State to, once again, turn its back on the west. It is absolutely crucial to the future viability of the region that social and infrastructural projects in the west — such as the dual carriageway to the north west and the western rail corridor — be committed to and progressed. Earlier today I attended a briefing in the Department of Transport at which I spoke to representatives of the NRA. I was informed that only certain sections of the Atlantic road corridor are to be completed by 2015. That is not true. It is indicated in Transport 21 that there would be a full and seamless upgrade of the Atlantic road corridor. Again, however, cuts are being introduced in respect of infrastructure in the west.

It is not the case that we will not be in a position to be competitive in the future or to ensure that much needed jobs are created in the region. However, we must invest in the infrastructure projects to which I refer. Pressing ahead with these projects and the schools building and social housing programmes will ensure the creation of much-needed employment as the dramatic downturn in the construction industry continues. The Government must outline clearly the action it intends to take in order to stem rising unemployment and ensure that new jobs will be created. A package of measures is needed to support the development of indigenous enterprise.

The Government must accept some of the blame for the extent of the problems we face. It ignored warnings regarding over-dependence on the construction sector and the implications this could have on the wider economy and public finances. One of the key lessons for the Government is that it must proactively plan for the future of the economy. Its claim that we are facing the current economic and fiscal challenges from a position of strength is blatantly untrue. Arguments to the effect that the fundamentals of the economy are sound do not stand up to scrutiny.

We must ensure that cutbacks in public services and the delaying or abandoning of many infrastructural projects do not come to pass because these will only result in the recession being prolonged. The Minister for Finance should come forward with a detailed plan to replace the three and a half page statement with which we were presented yesterday.

Senator John Paul Phelan

I welcome the Minister of State, Deputy Mansergh. I also welcome the opportunity to contribute to the debate on the economy.

I wish to make a number of points in respect of this debate. I did not hear the start of the debate but heard a number of the contributions. It is interesting that so few from the Government side contributed to this debate and to yesterday's debate on housing. That tells a tale in itself about the Government's thinking on this issue or the realisation that it has handled matters badly in recent years.

Everybody on this side of the House will admit that there are external forces at play in the economy. It is an small open economy which is very vulnerable to what goes on in other parts of the world. However, the Government can no longer deny that it has played a significant part in creating this situation.

I agree with the sentiments expressed by Senator Mary White. She has been a defender of small businesses when we have had debates on financial issues. As Senator Alex White pointed out, she saw there was over-dependency on the housing market and on construction in general. Why did the Taoiseach, who was the Minister for Finance for several years, and other Ministers fail to recognise that over-dependency and not to try to address it before it was too late? Very little was done.

Senator Mary White mentioned development charges and their negative impact on small businesses. That tax was introduced by Fianna Fáil and the Progressive Democrats in government. Development contributions existed up to several years ago but they were only a small amount. However, because of the continuous under funding of local government, they have become a very large and significant cost on small businesses and on anyone who wishes to undertake any development. It is ironic being lectured by the Government side on that point.

During my four years as finance spokesperson in this House I have continuously pointed out our reckless dependence on construction but I was virtually laughed out of the Chamber each time by the Taoiseach, when he was Minister for Finance, and by Tom Parlon, who was a Minister of State in the Department of Finance. They are both in very different positions now.

It is also clear that in recent years, the Taoiseach, in his role as Minister for Finance, embarked on a series of reckless inflationary budgets. All eyes were on the political cycle rather than on the economic one and the chickens are coming home to roost. We have seen huge increases in current expenditure based on tax revenue from construction, which could not continue. There was no plan B or realisation that the day might come when we would not build 90,000 units per year. We all knew it was unsustainable into the future but there was no realisation on the part of Government that when construction went down, money would have to be found elsewhere.

Yesterday's launch was a joke. The Minister for Finance and the Taoiseach outlined €440 million in cuts but they gave no details on where those cuts would be made. Even the figures they gave in respect of a 3% reduction in payroll costs in all Departments except the Departments of Education and Science and Health and Children do not make sense. The sums do not add up. We need clear indications from the Minister for Finance rather than hand-wringing and him saying "Poor me. I am the Minister for Finance when the country faces recession". He needs to face up to his responsibilities.

As Senator Mary White said, we are an exporting nation. In recent years we have seen a huge deterioration in our balance of payments and in our competitiveness. We were competitive for many years when the economy was growing. The Taoiseach and the Minister for Finance should insist on a vigorous programme of public sector reform and of improving our competitiveness into the future. That is the key to the development of the economy. It is not the Opposition talking down the economic situation.

We must be realistic and put forward real proposals. That is why I am delighted Deputy Richard Bruton has outlined detailed proposals in the finance area. I hope the Government takes up some of the good ideas he has suggested.

Senator Feargal Quinn

I am reminded of the story of a hot chestnut seller in New York who, for many years, ran his business from a stand. He did it so well that he was able to send his son to college. His son asked him one day if he knew a recession was coming and told him to cut back on the chestnuts on display. The father said thank you to his very intelligent educated son and cut back because a recession was coming. He sold less each week and by the end of the year, his business was gone. His son said he was right all along that a recession was coming. It is a lovely story if one gets it right but the point is that we can talk ourselves into recession.

In the time I have to speak I will not look back but will look to the future. We heard today about some steps that could be taken. I am concerned about those running businesses of any kind who have never had the experience of worrying about where they will get the money to pay the wages at the end of the week. When in business one must watch those costs which one can afford to reduce and those which one must reduce. However, one must go out of one's way to ensure one grows the business. From that point of view, there is a real danger that the negativity I have heard in recent days could undermine the confidence of investors in the future.

When we look to the future, let us ensure we cut costs. A cost which must be cut is pay in the public sector and everywhere else. I am not too sure how we can do that.

Two years ago when I had to speak about the successes of the Celtic tiger I did my homework to see why it had succeeded. There were six reasons. We invested in education over 40 years. We had access to the market in Europe and we ensured we concentrated on those sunrise industries. We had a low tax rate to attract people here. We had social partnership which meant there was agreement on where we were going. I am not sure how the Government will convince everybody but we must find a way to convince the nation that we must cut costs because it is in our interests to do so. That was done in 1987. The sixth reason was that the Opposition of the day, led by Alan Dukes, said that if the Government did the right thing, it would support it.

On that basis, I call for a national drive saying that we will look at this in a positive way, that we will succeed, that we will not talk ourselves into a recession and that we will get our sums right, reduce our costs and get the backing of all sides in the community.

Senator Paddy Burke

It is a pity there is not more time for the debate. The only thing this Government has managed to do is to burst the boom. There has been no real management of this economy in recent years because on several occasions in the past ten years, this side of the House has raised some very serious issues but we were laughed at and told we were trying to talk down the economy.

This Government never got the end of year figures right and was always €1 billion short or €1 billion or €2 billion over. The former Minister for Finance, Charlie McCreevy, raided the Central Bank of Ireland and sold the TSB and Eircom. All of that money is gone. The gap between rich and poor is the widest ever. There are many rich people and many poor people. Our manufacturing and cottage industries are gone. The pressure on small businesses is unprecedented because of stealth taxes and massive burdens from local authorities.

Senator Frances Fitzgerald

We could have done with more time for this debate on the economy. To take up Senator Feargal Quinn's point, confidence is important but it comes from clear leadership and from facing up to the problems. Yesterday, there was no breakdown of where the €440 million in savings in 2008 would come or breakdown of where the €1 billion in savings in 2009 would come. There was no detail on what cutbacks will be enforced in health and education, no guarantee that frontline services will be protected and no answer to how much money might be saved by a review of agencies and quangos. Fine Gael targeted €50 million in the plan it put forward last week. No responsibility has been assigned to individual Ministers to ensure savings will be achieved.

I could elaborate on the deficiencies in the plan announced yesterday, but in the short time available I want to point out that one third of the proposed cutbacks for 2008 will be in the health area. These cutbacks consist of an €85 million cut from the supports for elderly people trying to meet the cost of nursing home care, €38 million from the slower roll-out of health projects and, most worrying, €21 million from what is described dubiously and worryingly as other savings. I wonder whether the Minister of State can tell us what are those other savings and how they will impact on frontline services. These are the concerns of the people whose houses are being repossessed and who are trying to gain access to proper health and education services.

Acting Chairman (Senator Maurice Cummins)

I call on the Minister of State to respond. I ask him to conclude briefly and if there is time, we will allow a round of questions. We must finish by 5 p.m.

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

I thank Senators for their contributions to the debate. Economically and socially, we have just had the best 21 years in our history. The credit for this goes to the people, to social partnership and the contributions of the different governments in that period. As the previous Minister for Finance, the current Taoiseach deserves credit for prolonging our economic growth for a further four years.

Naturally, we did not and could not succeed in entirely suspending the laws of economic gravity nor in suspending the economic cycle. Neither are we in any sense the only country in that position. In the past days the headlines in the British papers pointed out "Brown's £7.5 billion black hole" and "Britain at serious risk of recession as orders fall sharply". However, we still have positive, though reduced, growth prospects this year. The figures just published show that in the first quarter we had a 0.8% increase in GNP. The current revised growth forecast is 0.5% for this year and a growth figure of approximately 2% is projected for 2009. There is no question of us being in recession.

From a Government viewpoint, we are in the strongest financial position that we have been in for 40 or 50 years, with net Government debt at 12% of GDP. In the course of this debate, one Senator said Ireland was the most indebted country in Europe. I do not know where he got that idea. Some 20 years or so ago, in 1986, the level of debt was 122% of GDP. Therefore, there has been an enormous improvement.

Savings are, undoubtedly, necessary. The measures being taken now are interim measures. There is no point in asking now the exact details of the Estimates for next year as those details must be worked out over the next six months. Senators also raised the matter of the enterprise sector of the economy. People must be reminded that companies here enjoy one of the most favourable taxation rates in Europe, at 12.5%, and face some of the lowest charges in terms of PRSI compared to other European countries. Many conditions here are, therefore, favourable.

There has been significant exaggeration of the facts with regard to claiming our booming economy was dependent solely on construction. The latest ESRI quarterly report, for example, pointed out that we had a robust export performance, up 8.2% in 2007 and that overall export performance, including services, was in double figures, which was better than in 2006.

Acting Chairman

I ask the Minister of State to conclude as soon as he can, as we hope to get in a round of questions before 5 p.m.

Deputy Martin Mansergh

I would be happy to continue for another five minutes, if that is all right.

Comments were made about waste of resources. The Luas is one of the best public transport systems in existence. I agree there was an overrun on the spending on it, but it is a great system and costs nothing in terms of subsidies.

Inflation was also mentioned. The ECB has, rightly, put an emphasis on preventing second round inflation. I read an interesting article in Le Monde which said that second round inflation was when inflation goes above the 4% to 5% level. At a Europe-wide level, we are fairly close to that. The European-wide inflation rate is approximately 4%.

I agree there has been a large increase in the number of housing repossessions, but this increase comes from a low base. On the question of negative equity, as against that, the fall in house prices has made houses more affordable for those who want to enter the housing market. Reference was made to local council employment. The significant burden placed on planning departments up to a year ago has been considerably lightened.

There is something many people do not understand about decentralisation. The cost so far has been approximately €100 million, but that has enabled disposal of sites resulting in a contribution to the Exchequer of approximately €500 million. Not without reason, Senator MacSharry's father introduced decentralisation in the late 1980s as a saving. It is a saving today, but this is something that needs to be better understood.

Confidence is very important. I deeply regret the result of the Lisbon treaty referendum, because the result did nothing to help confidence. I am in the position of heading up the office which has probably contributed the most savings, over 10% of budget this year, mainly as a result of decentralisation but also as a result of some flood relief that is not yet ready to come on stream.

Issues were raised with regard to FÁS. The organisation provides much valuable social and community employment throughout the country. Many voluntary organisations would be in grave difficulty if FÁS did not exist. Therefore, I could not agree with the suggestion by Senator Ross that it should be abolished.

There is a sound philosophical basis for local authority levies within reason, namely, that developments impose costs outside their own. When I established a constituency office in Tipperary town, I had to pay a substantial development levy.

Overseas development assistance is measured by the UN as a percentage of GNP. Our contribution will be maintained at 0.54% in 2008. We are well ahead of most other countries in that respect.

Acting Chairman

As it is now 5 p.m., we cannot take any questions. We must move to the next item on the agenda.

Seanad Éireann debate - Wednesday, 9 Jul 2008

Economic Policy: Statements (Resumed).

Seanad Éireann debate -
Wednesday, 9 Jul 2008