Irish Economy: Motion.

Deputy Joan Burton

I move:

That Dáil Éireann,

seriously concerned at the recent poor performance of important economic indicators, including:

the cost of living increases, reflected in the latest Consumer Price Index figure of 4.3%, and the even greater increase in food prices which have severely impacted on families;

the increase in the live register by 1,600 persons per week in the first four months of 2008;

the fall in the CSO construction employment index by 11% in the 12 months to February 2008;

the fall in the ESRI consumer confidence index to its lowest level since the index was first introduced;

the first fall in retail sales since 2004; and

the poor performance of tax revenues which are running €736 million below target in the first four months of the year;

alarmed at the job losses in recent weeks in construction, manufacturing and services;

noting:

that the most immediate cause of this downturn is the collapse of the domestic property boom, with housing construction likely to fall by approximately 50% when compared with 2006;

the deterioration in international trading conditions for Irish firms;

the failure of importers from the sterling and dollar areas to pass on price reductions to both commercial and retail customers;

the deterioration in cost competitiveness for Irish firms; and

that the Government has brought forward no positive policy proposals to deal with the downturn or any of its consequences;

calls on the Government to introduce targeted measures to address the downturn in the economy, including:

give a direction to the National Consumer Agency to insist that all goods are priced in euro and requesting the agency to more actively monitor pricing to ensure fair play for consumers and to protect against rip-offs;

develop a major programme of education, training and re-skilling for people losing their jobs in construction and in manufacturing;

proceed with a substantial programme of school building, to absorb some of the spare capacity in the house building sector, to deliver modern schools for students, good value for money for the taxpayer, and to ease the immediate burden of the slowdown in construction;

the introduction of a ‘begin to buy' scheme to restore activity in residential construction; and

to shift the balance of advantage within the tax code from property based investment to high-tech, high-risk ventures.

It gives me great pleasure to move this Labour Party motion on the economy. I wish to share time with Deputies Higgins and Ó Caoláin. I congratulate my constituency colleague on his appointment as Minister for Finance, although I confess I am disappointed he is not available to be here in the Chamber for this first debate on the economy for the new Government. On a personal level, I wish him well and obviously any constituency would love one of its TDs to be Minister for Finance and Dublin West is no exception.

The House devotes far too few hours to economic matters. We are thankfully coming to the point when policy makers are, however belatedly, responding to repeated wake-up calls from home and abroad about the state of the economy. It is true our economy has many strong points built up by workers, business people and the public sector. We have a young, educated and hard-working workforce. We have a can-do entrepreneurial spirit in this country that has served us well in the past and which will serve us well again in the future.

We must stimulate innovative indigenous entrepreneurship. We can and must re-orientate our economy towards high-tech, high-value-added activity. We must invest in the infrastructure of education and public transport we need to support this vision of the knowledge society.

This Government has been in denial about the impact of the economic downturn on tens of thousands of people across this country. But the thousands who are losing their jobs, the businesses that are finding the going rough and the home buyers in negative equity know how difficult is the current situation. Already this year, we have seen the largest monthly increase in the live register since 1967 while 1,600 people are losing their jobs every week and this has happened on Deputy Cowen's watch. Economic growth is at its lowest level since 1988. The cost of living is increasing at 4.3%, and three times the rate the Government inherited in 1997. This is happening on Deputy Cowen's watch. The ESRI consumer confidence index is at its lowest level since the index was first introduced. Retail sales are falling for the first time since 2004 and on Deputy Cowen's watch. The CSO construction employment index is down by 11% in the past 12 months. Cuts in hospital budgets being imposed this year are, in real terms, the most severe since 1988, all on Deputy Cowen's watch.

Four months into the year and the budgetary arithmetic is already under severe strain, as tax revenues have come in €736 million below target, down 6.5% on the same period last year, even when inflation was running at nearly 5% for the year. The Minister for Finance is praying he will be rescued later in the year when corporation tax and income tax from the self-employed is due.

If we extrapolate the latest Exchequer figures for the full year, we could see tax revenue coming in much lower than the target of nearly €49 billion, the revised downward target which Deputy Cowen set on budget day. Such is the deterioration in the Government's financial position that the Maastricht criteria now loom on the horizon as a further discipline in 2009. Who would have imagined this as Deputy Brian Cowen promised the world in the run-up to the general election? We need to see revised economic projections. I call on the new Minister for Finance to publish revised projections, both for the tax take and for expenditure, as soon as possible.

We have already witnessed from Fianna Fáil and the Government the five typical phases involved when a shock or a bereavement occurs. These are denial, bluster, bargaining, depression, and finally, reluctant acceptance. If a week is a long time in politics, then for this Government the denial phase lasted an eternity. Ministers, led by Deputy Cowen, buried their heads in the sand and pretended the problems would go away. They had a bad collective case of ostrich syndrome. I am sure many Deputies have read Charles Dickens's novel, David Copperfield. One of its characters is a loquacious character named Mr. Micawber, a man who owed much, and who earned less. He was always certain that, “something will turn up”. For the past year, Deputy Cowen has been more Micawberish than Dickens ever imagined.

After denial comes bluster. Fianna Fáil Ministers are like the New Orleans officials who denied there was anything wrong after Hurricane Katrina, until the water was up to their necks. These Ministers confidently predicted a soft landing and derided realists for talking down the economy. Bertie Ahern famously suggested that all the doomsayers should just go and top themselves.

Now they are telling us that the worst is over. Present events, they say, are no more than a necessary correction to an overheated market. They tell us there has never been a better time to buy, and so on and so on, in even more desperate tones. They tell us that all will be well in 2009 if only people would stop worrying. They seem to be waiting in hope for the Celtic tiger's third coming.

This Government was happy enough to ride the crest of an economic wave for a decade, taking all the credit when things were going well but are only able to point fingers when things go pear shaped. They create excuses in their heads as to why something is happening. There is always someone else to blame, never themselves. This is what is happening at the moment, but it does not wash. Psychiatrists could write a whole book on the way Ministers have reacted to the events of the past year. Now the truth can no longer be avoided. From the coal face, the redoubtable Owen O'Callaghan warns, "There will be blood". This is a hard lesson in economics for the many Fianna Fáil slow learners even if his choice of words is hardly very original. We all know how that film ended. Greed drove away everything that was dear to the Daniel Day-Lewis character.

Profit margins in the construction industry are down from 33% to 20%. There will be blood indeed. Let us hope it is the speculators who lose out, not the decent building firms and construction workers working in the industry for the long term.

To his credit, the Minister for the Environment, Heritage and Local Government, Deputy Gormley, recently proposed the introduction of windfall charges on speculative land purchases. This would strike the average person as a common-sense proposal. However, Deputy Cowen was not having that and he slapped down the proposal. He also refused to close the section 110 loophole used by property developers to avoid stamp duty and it is clear his priorities have not changed.

All economists forecast that things are on the downturn and all this happened on Deputy Cowen's watch as Minister for Finance.

We have a housing slump. Owen O'Callaghan has let the cat out of the bag, advising people to hold off buying for a while yet, so it appears we are not out of the woods. Thousands of people who bought houses on 100% mortgages over the past year are in negative equity. The first tremors in the housing market were seen when the Government fuelled speculation about stamp duty reform. We then saw not one bout of reform but two, a stark admission that the ill-thought out reform had been botched the first time around. In any asset market, the worst possible course of action is to introduce uncertainty. This is one part of the problem. Another part of the problem is that property development was treated by Government as a speculative get rich quick scheme, particularly the land speculation part of it. They pump-primed the housing market, egging on people to pay more and more for homes. They fuelled the hysteria about the race to get on the property ladder. It was a get rich quick scheme all right, for all the property developers who gather for their annual love-in at the Galway races tent. The people set to lose out are the thousands of mainly young people and families who are now faced with negative equity and years of worry and uncertainty. Soaring house prices boosted consumer confidence, consumer spending and the broader economy on the way up. We are reaping a bitter harvest for the Government's short sighted concentration on a purely bricks and mortar economy rather than more balanced economic development.

Falling house prices have seriously undermined consumer confidence, now at its lowest in a decade and still falling. This has hit consumer spending, particularly on big-ticket items like cars and household goods. Recently we saw the effect this is having, for example, with the closure of Habitat stores.

The fall-off in house building is not only leading to job losses in the construction sector, but to job losses across the wider economy. We have job losses on a scale that most young people have never witnessed and are an unhappy distant memory for everyone else. We see job losses all around the country and in all sectors, even in the previously robust financial services sector.

These cold realities are beginning to strike home and it is not a pleasant sight. People are beginning to feel the pinch and to tighten their belts accordingly. Yet, faced with this scale of crisis the Government has flinched from its obligations and has refused to take corrective action for entirely political reasons to do with the recent upheavals in Fianna Fáil. While the rest of the country was worrying about the economy, Fianna Fáil was worrying about the succession and taking its eye off the ball.

I worry about higher food prices. The price of flour is up 40% in the past year and milk is up 30%. That affects every family and less well-off families more than others. Those on low, fixed incomes and on social welfare find it more and more difficult to put dinner on the table. The Government should show leadership by considering whether its own salaries deserve to jump by up to €38,000 per year, more than many earn in a year.

People are worried about the price of fuel. It is costing more to fill the tank with petrol, the tractor with diesel and the central heating with oil. Not only are people spending longer stuck in traffic burning fuel, but it is costing them a packet. Fuel poverty is becoming more of a concern. Increases in fuel allowances have not kept pace with fuel inflation. Yesterday, we heard about the proposed increases in fuel prices by the ESB and Bord Gáis. It is the poor who will take the hardest hit.

When the currency is strong, one expects to see a dip in inflation, yet Irish inflation remains stubbornly above the eurozone average. At a time when our exporters are taking a hit from the weaker dollar and weaker sterling, our consumers are still faced with higher prices. It has become clear that many retailers are not passing on the benefits of cheaper imports to their consumers. In many British high-street chains the full extent of this rip-off is evident. Prices are often marked in sterling and euro side by side. This makes transparent just how out of kilter are the exchange rates being used. The remedy for many consumers is obvious. They go up the road, 90 miles to Belfast, spend their money there, convert to sterling and get much better value. That is what people from the North used to do when our economy offered value. Why should people from the South not do it in reverse?

The National Consumer Agency and the Competition Authority have key roles to play. The Government must direct these agencies to be more aggressive in protecting consumers from predatory pricing and rip off. They must insist that all goods are priced in euro, to actively monitor pricing policies and exchange rates to ensure fair play for consumers and to protect against rip-offs.

When Labour last left Government, we were creating 1,000 jobs a week. According to the live register, 1,600 more people lose their jobs every week. This year we have already seen the largest month-on-month jump in the live register since 1967. This is the legacy the Taoiseach, Deputy Brian Cowen, has left to the new Minister for Finance. The question is what the Minister will do about it.

Priority number one for the new Government seems to be public sector reform. I think all Members agree we need a more effective, efficient and citizen centred public service. Priority number one for any Government, however, must surely be to get the country working.

Our economy and our public finances became too dependent on house building as a direct result of Government policies. It was not sustainable that we were building nearly as many houses as the UK every year in a country only a tenth of the size. The question facing the country is what to do now. The Labour Party has a number of proposals to make. The Government may not like them all but we expect the Government to come up with some of its own proposals.

As an absolute priority we need to implement a programme of education, training and reskilling for all those coming out of the construction and manufacturing sector who have lost their jobs. Many young men, in particular, are at risk of falling into the unemployment trap if clear pathways are not outlined for them to acquire transferable skills. There must be a significant focus on retraining and educational opportunities for such workers. We want to see some of those workers getting a chance to go to university and compete for the high end jobs where there are vacancies particularly among some of the multinationals here. In fact, we should be ambitious that the people who have worked hard in the construction industry and in manufacturing have genuine alternatives to which to go.

An area that will become increasingly in vogue over the coming months and years is the so-called "green-collar" jobs, namely, improving the environmental standards of existing buildings, retrofitting and installing insulation and other energy efficient measures. This is another area where, particularly if the Government oriented some reliefs and incentives towards home owners, houses could be brought up to standard and made more energy efficient. In the process, as with Denmark, we could create much good quality employment from going green.

For years, there has been serious under investment in the Irish education sector, particularly on the capital side. It is testament to the quality of the teachers that our education outcomes are so good. From Donegal to Wexford and from Dublin West to Kerry South there are schools in serious states of dilapidation. We hear of children having to take classes in converted toilets and the like. This in a country which purports to have a knowledge economy.

We have an opportunity to end this disgrace and use the spare capacity in the construction sector to build schools to a standard of which we can be proud. With the current fall in the construction sector, the Government should be able to get better value for money through the tendering process in building and refurbishing schools.

This is an area where the Labour Party calls for the front-loading of national development plan expenditure for immediate investment in building and refurbishing our schools. Not only would this provide work for many people coming out of the house-building sector with the right skills, it would also help our education system by ensuring adequate capital investment.

Another measure which could have an immediate impact here is the restoration of the summer works scheme. These are not the long-term answers, but they would help smooth the transition to a more broadly balanced economy. Investment in education is imperative. It will be the foundation of our knowledge economy and of the opportunities for future generations.

At the weekend I saw that all the profiles of the new Minister of State at the Department of Finance celebrated the fact that he is a Cambridge man. I am sure the Minister of State in his Cambridge days enjoyed a pleasant punt on the Cann River. On a day trip to Cambridge, as a tourist, I recall seeing the people from Cambridge punting on the river. I saw many punters spend their time going around in circles and some going backwards. Punting can be fun and I am sure it is not as easy as it appears. It is not preparation for navigating the stormy seas surrounding the economy. The sea around us may be choppy but those on the Government benches who are in charge of the economy carry on as if they were at a summer picnic. That is not good enough, the country deserves better.

Over the period of the Celtic tiger we built an economy, of which we can all be proud, on the backs of the work of our people, including business people and public servants. It is a pity to see so much of that effort going down the drain on the watch of the Taoiseach, Deputy Cowen.

Deputy Michael D. Higgins

I am pleased to have an opportunity of saying a few words on this motion so ably proposed by my colleague, Deputy Joan Burton. It is deeply disappointing that so few Deputies from the Government side are present to debate our options as the economy reaches a turning point. In recent years, one of the most depressing aspects of discussion of the economy was listening to Ministers making statements in the House that were akin to hearing yesterday's rather than tomorrow's weather. Having reeled off gross figures of expenditure across various headings, their statements were regurgitated for backbench Government Deputies.

Many of those observing the economy are deeply anxious about the future and seek an economic debate. They are badly served by the media which do not comment on the economy but indulge in a type of forecasting of how bad the position will be. Thus one reads or hears what I describe as populist effusions which have nothing to do with economics. For example, we have discussions in which bookmakers refer to "breakfast roll man" at a time when serious issues need to be discussed.

I will use the few minutes available to me to raise some of these issues. It is time we spoke directly. The country is about to pay a horrific price for the close connection between the speculative section of the building industry and Fianna Fáil, the major Government party. The people who are skilled at building houses and know about space and costs and how to place one brick on top of another did not inform Fianna Fáil Party's policy on housing. Instead, on every occasion and in every budget more and more resources were made available to create almost a tax-free run at generating speculative wealth. The invitation from the republican party was not to be ambitious for the Republic or people in general but for oneself. Thus, conversations revolved around whether people had got a piece of this or that action. That is what one heard as people ate and drank more and indulged in a sea of excess.

As we approach the end of our longest period of economic growth, few commentators are able to make the elementary contrast between the five years of growth between 1995 and 2000 based on manufacturing exports and the five year period thereafter. The elementary feature of growth based on manufacturing exports is that goods must be made to be sold in a process that creates jobs. Economic growth during the period from 2000 to 2005, on the other hand, was based on the revaluation of the property base. Those who gain in that circumstance are those who have been speculating madly in a tax free environment for speculation.

Before the previous general election, the Fianna Fáil and Progressive Democrats parties engaged in blackmail, telling voters they were the parties which had provided the jobs carrying hods and applying plaster. The expense of the houses built did not matter, nor did whether nurses, gardaí and those on average incomes were forced to live miles from their workplaces. That is the madness that occurred and those are the unsavoury connections which were responsible for it. Dr. Bacon produced three reports but the Government threw away those it did not want, simply because they did not suit the speculative clique funding the Fianna Fáil and Progressive Democrats parties.

We must consider the role of the social economy as we enter into a threatening period with the second lowest level of protection in the European Union. The commentators and Government fellow travellers could not see the contradiction between claiming to be the second richest country in Europe or the world and having the second lowest level of social protection. Thus the most vulnerable are at the bottom of the pile and have been joined by those who have been made insecure owing to high mortgage repayments. The banking system, which colluded with this speculative racket that ran through Government policy, is threatening all sorts of people as it seeks repayments of loans.

I heard one of the most pessimistic forecasters among Irish economists assert that the engine of growth, the building industry, has disappeared and there is nothing to replace it. Deputy Burton outlined some areas in which replacements could be found. For example, a Government which took responsibility for politics would engage in debate on how to use capital expenditure under the national development plan to provide for the infrastructural needs of the social economy. Deputy Burton cited other examples, including schools.

We need jobs in the caring economy. In most versions of the social economy, one spends money in health not only to cure people but also to care for them to ensure they do not need high levels of expenditure on illness. Instead of a health strategy, the Government has offered an illness industry. There are many actions we can take, even with our low and threatened base, to turn the situation around. We must invest in infrastructure and devise strategies to ensure skills are upgraded rather than lost and new opportunities are created in other forms of the economy. We have had neither an analysis nor a policy. It is a disgrace that so many people are interested in publishing gossip about the economy rather than continuing the hard work of economic analysis done since the time of Lord Keynes.

I am pleased to note Government representation in the House has doubled with the arrival of the Minister of State, Deputy Mansergh, who will be aware of the contribution made by Lord Keynes. Politicians are elected to offer economic options and discuss, debate and choose between options for the connection between the economy and society. This debate is absent. Instead, we have a shabby betrayal of a republic. The alternative, which would come from a social economy, would be an inclusive republic with an equality of citizenship. What we got was bits and pieces with speculative ghosts haunting the Government in power. Occasionally the previous Taoiseach suggested that people volunteer for social purposes some of the shrinking time left to them in a country with the longest commuting journeys in Europe.

We can create jobs in many areas, not only in immediate transfer to the capital programme, the caring society and the great opportunities available in green industries, of which the Scandinavian countries have availed. The connection between society and politics is at the heart of democracy and a social guarantee must be given in health, education and elsewhere that there is a level below which people will not be allowed to sink. Such a guarantee is not available and thus one has the crude measure under which, for example, the Department of Health and Children has asked the Health Service Executive to recover €100 million, irrespective of from where it secures it. Thus right across the budgets, people will be threatened for such elementary things as home help. Do the republicans stand over the cuts in home help and the removal of respite care? Do the republicans say that people in this great developed republic, the second richest in the world, are not entitled to the most minimal care in their old age?

People should ask how they did in the great times when all became so rich. Who should people trust now when the guff is flying all around the place for the strategy which will enable us to simply survive? More important, people should vote for a politics which is republican, inclusive and based on equality. They should lay the foundations for the social economy and support a politics that will build it.

Deputy Caoimhghín Ó Caoláin

I welcome the opportunity to speak in support of this Labour Party Private Members' motion. There is very real and justifiable concern about implications of the poor performance of important economic indicators. However, we need to be realistic about the slowdown we are experiencing and pragmatic about what can be done to sustain the economy in these turbulent times as well as rejuvenate it for the future. What we need is action from the Government. We need to see hands-on economic management from the Minister for Finance and the Minister for Enterprise, Trade and Employment.

In recent years, the Government and the Taoiseach, when he was Minister for Finance, adopted what can only be described as a hands-off approach to managing the economy. No effort was made to put the economy on a sustainable footing. It was allowed to become grossly over dependent on the construction sector. For the past five years, growth has been driven by domestic consumption rather than exports and nothing was done to address this unsustainable situation. The Exchequer was allowed to become too dependent on tax both from construction and consumption. It is no wonder then that tax revenues have fallen sharply over recent months. The Government was warned about this very outcome, yet it persisted with proposing and implementing further tax cuts, including the reduction in the higher rate of income tax from 42% to 41%.

While the Government had the benefit of the largest Exchequer surpluses ever experienced, it failed to use them efficiently and effectively to improve capacity and quality in our public services. It failed to prepare for the inevitable slowdown in the construction sector. It did not deliver on time and on budget a fast, modern public transport system. It has left us as the poor relation in Europe when it comes to broadband provision and IT infrastructure. These failures have had serious consequences for competitiveness.

The increases in the cost of living are now hitting home for many for many families. Price levels are much higher than in every other European country bar Denmark, averaging at 23% for consumer services and 14% for consumer goods. Inflation is projected to remain high in 2008 and 2009.

Those on low and average income have come under particular pressure over recent years. The pay increases agreed under the last social partnership agreement Towards 2016 were outpaced by inflation. Workers are faced with increasing prices in essentials, such as food and fuel, while mortgage interest rates have also gone up significantly. The rise in food prices is a major concern for those on low incomes. While the average household spends one eighth of its income on food for lower wage earners, it can be as high as one quarter. Demands for wage moderation from these workers demonstrates a clear lack of understanding about the pressure they already face.

The Government needs to play a role in curbing inflationary pressures by greatly improving public services for workers starting with ending the need for private health insurance by providing a decent public health care service, by providing cheap and efficient public transport and by properly funding schools to take the pressure off hard pressed parents to raise funds for their children's school building needs.

The state of the public finances in the face of declining tax revenue is a real concern. It is important the Government acts responsibly to ensure that revenue is adequate to meet spending demands in the time ahead. Proposals for further tax cuts should be immediately dropped. In addition, as the social insurance fund comes under increasing pressure as the numbers of unemployed increase, plans to slash PRSI contribution rates must also be dropped. The Government must close all tax loopholes, including all those enjoyed by property developers.

The Government's greatest mistake over the past six to 12 months has been its total failure to act to protect those at risk of losing their jobs or to ensure increased participation in training and upskilling by vulnerable workers. It has sat back and done nothing as workers face the prospect of unemployment. No action was taken to protect the jobs of those in the construction sector. This could yet be done by embarking on a social construction programme to deliver the 70,000 social houses needed to clear the social housing list.

There needs to be a focus on building a sustainable economy. We should also begin to focus on indigenous enterprise as a means of creating and sustaining jobs in Ireland. Multinationals bring investment and it is welcome but they have no loyalty to Ireland and are always looking for the next country lower down the scale in wages and entitlements. That has been demonstrated month after month in recent years. We cannot compete in that kind of market anymore. We must attract foreign direct investment because we have the skills base suitable and we must create our own enterprise capable of competing on the international market.

It is apparent that Irish firms are struggling to remain competitive as the economy slows. It is important to note that labour costs are only one aspect of the competitiveness debate and that the cost of employing a worker in Ireland is the 22nd lowest of the 30 richest countries in the world. Our overall level of productivity is high, the fourth highest in the industrial world, but it can be improved. More investment in skills, transport and communications infrastructure and public services are key.

Ultimately, Irish firms have much to offer the international market but we need to ensure that all relevant business bodies and the Government are working in harmony to encourage, promote and market Irish business both at home and abroad.

The response of the Government in its amendment to the motion will not reassure those of us in the Opposition that it is serious about tacking the economic challenges about which I spoke. While commending itself on the state of the public finances, it gives us no indication of what it plans to do to ensure public finances are adequate to meet spending demands in the years ahead. Unsurprisingly, it does not mention the fact €927 million or 6.5% less in tax revenue was collected during the first four months of 2008 than in 2007. There is no indication as to whether the Government plans to drop its untenable plans to cut tax. In fact, the amendment gives the clear impression that the Government does not adequately comprehend the extent of the economic challenge we face either in terms of competitiveness or the pressure on workers in vulnerable sectors and the low paid.

What we need from the Government is a change in its approach to the management of the economy that would see a hands-on approach to managing same. We need to see real action to increase the numbers of workers being retrained and upskilled to allow them to access alternative employment should they lose their jobs. We need to see concrete action to improve competitiveness and support the development of indigenous enterprises. I happily declare my support for the Labour Party motion and oppose the Government amendment.

Acting Chairman (Deputy Seán Ardagh)

I call the Minister of State.

Deputy Michael D. Higgins

On a point of order, I would like to congratulate the Minister of State on his appointment, but before I do, there should be a quorum of the House to hear him.

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

I move amendment No. 1:

To delete all words after "Dáil Éireann" and substitute the following:

"—welcomes the Government's firm commitment to position the economy for sustainable development over the years ahead, while adapting to the reality of more moderate growth in the future;

welcomes the Government's commitment to improving national competitiveness, as demonstrated by its maintenance of a low burden of taxation on labour and capital and by the priority that it has given to investment under the National Development Plan in the economy's physical infrastructure and skill levels which will enhance Ireland's productive capacity and thereby lay the foundations for future improvements in living standards; and

commends the Government for ensuring that Ireland's public finances are in a strong position to meet the existing challenges with one of the lowest levels of General Government Debt in the euro area, General Government surpluses delivered in ten of the last 11 years, net debt forecast to be around 14% at the end of 2008 and a current budget surplus."

I am pleased to have the opportunity to contribute to this debate. I welcome especially the opportunity to set out clearly the record of the Government on the management of the economy and the public finances and to outline the prospects for the Irish economy in the short to medium terms. I welcome the subject put forward for discussion by the Labour Party and thank Deputy Higgins for his good wishes.

Over the past decade or so, we have witnessed unparalleled levels of economic success and prosperity. Ireland is now an international showcase of how a country's economic landscape can be transformed when the appropriate Government policies are coupled with stakeholder involvement, through social partnership. Since 1997, the rate of economic growth in Ireland has averaged 7.25% per annum. This strong rate of expansion has brought average incomes per head in Ireland, not just up to, but above those prevailing in most other advanced countries. Over this period the total number at work has risen by some 700,000, resulting in a fall in the unemployment rate from some 10% to about 5.5% now, although for the most of the past few years it was in the region of 4.5%. If we consider the situation 21 years ago, employment has doubled since then from just over 1 million to over 2 million, an enormous achievement. Involuntary emigration has been eliminated and Ireland is now a destination country for migrants, with non-Irish nationals amounting to almost one in every six in the labour force.

Over the past year or so, the economic environment has clearly become more challenging and the outlook less benign and more uncertain. This reflects a combination of both international and domestic factors. As a small and open economy, global economic developments play a key role in shaping Ireland's economic horizon.

The Irish economy is highly integrated into the global economy. In this context, therefore, the slower growth anticipated this year for our main trading partners, the euro area, the United States and the United Kingdom, will have an unavoidably negative impact upon our prospects. The difficulties in the United States stem mainly from the housing market and particularly from the sub-prime mortgage segment of that market. These developments have impaired the functioning of international credit markets and, it is fair to say, the problems have persisted longer than had been initially expected. Given the openness of our economy, recent exchange rate developments are also unhelpful with the euro appreciating against the dollar and, more recently, sterling.

On the domestic front, the residential construction sector grew in importance in recent years. For instance, roughly one third of the housing stock was built within the past decade. As recently as 2006, we were producing over 88,000 units on an annual basis and last year we produced 78,000 units. Given our rate of population growth, this rate of output was excessive and an adjustment towards more sustainable levels of output in new house construction was inevitable. At this stage, it is too early to say with certainty what the level of housing output will be for this year, with most commentators now saying it will be in the 40,000 to 50,000 range, but in any event, housing will exert a negative drag on economic growth. Also, it is not certain how long it will be before the medium-term sustainable level of activity is achieved. Where there is an inevitable and natural adjustment, there is no point in trying to behave like King Canute and trying to hold back the tide.

Another unwelcome economic trend over the past year or so has been an increase in the rate of inflation. This too, has largely been the result of external factors, over which we have little control. For instance, the wholesale price of oil rose to over $120 per barrel recently, while some food prices have reached all-time highs in recent months. It is worth pointing out, however, that the rate of inflation, as measured by the consumer price index, moderated in April, down to 4.3% from 5% in March. The general view is that a further easing is in prospect during the second half of the year. It is well to remember that in the domestic context we use a measure which registers higher than measures used in the European context. The stronger exchange rate and easing of domestic demand should lead to a further moderation in the rate as the year progresses. I expect that, over time, the stronger exchange rate should lead to a decline in import prices, especially for products such as food. On an EU harmonised basis, Irish inflation was 3.3% in April, in line with that in the euro area. In other words, real earnings in other advanced countries are also being affected by global commodity price developments. I propose to refer to the national pay talks later but it is important to make the point that it would be futile to try to compensate ourselves through wage increases for the fall in the terms of trade which these externally-generated price increases represent.

On a more positive note, I am happy to be able to say with confidence that the fundamentals of the economy remain strong. This will help us to absorb the housing adjustment and external shocks so our medium-term prospects should continue to be favourable. Among the pillars of this strength are that public finances are sound with one of the lowest levels of debt in the euro area, especially if one takes the net rather than gross figure; our markets are flexible, allowing us to respond efficiently to adverse developments; we have a dynamic and well-educated labour force; we have a pro-business outward-looking society; and the tax burden on both labour and capital is low. Not many countries anywhere in the world are facing the current global economic difficulties with such advantages.

On another positive note, the Government is giving priority to full implementation of the national development plan and provision for an increase in capital spending of around 12% this year has been made. In the short term, this will help to absorb some of the slack emerging from the new house building sector. Throughout the length and breadth of Ireland people are seeing real progress in terms of our infrastructure as the benefits are clearly there. Whether one lives in the greater Dublin area or further afield everybody is conscious, particularly those undertaking medium and long-distance journeys, of the major improvements in road and public transport. There is much more in the pipeline and as it comes through it is achieving major improvements.

Deputy Joan Burton

I invite the Minister of State, Deputy Mansergh, to visit the north side of Dublin. He is very familiar with the gold coast and the south side with the DART.

Dáil Éireann díospóireacht - Tuesday, 13 May 2008

Irish Economy: Motion.

Dáil Éireann díospóireacht -
Tuesday, 13 May 2008