I thank my colleague, Deputy Burton, for proposing this Labour Party motion. I thank all Members of the House for contributing to the debate. However, I regret somewhat the rather half-hearted engagement by the Government in this debate. It shows a lack of willingness on the part of Government to engage in the House on economic debate and have the Government's economic policies subject to scrutiny.
This motion deals with a core task of modern Government, namely, competent management of the economy. As leader of the Labour Party, I have always taken great care in what I state both at home and abroad about the Irish economy. I believe it is never wise for any of us to talk down our economic prospects. I also believe the Irish economy has significant underlying strengths which can outlast the present short-term difficulties.
In this context, I welcome the ESRI medium-term review, which sets out a positive picture for the decade ahead, despite short-term problems. As the economist John Maynard Keynes stated, "In the long run we are all dead". The people of Ireland live in the here and now. We need jobs and a decent standard of living right now, and we need to know that the Government is capable of managing the transition from where we are now to the rosier days that may be further down the line.
What bothers me about the ESRI report is not so much its content but rather that the Government will seize on it as another excuse for complacency and inaction on the economy. Last night, Deputy Burton went through many of the facts about the Irish economy at present and the extent to which a downturn is taking place. That we are in an economic downturn is not in dispute. The core questions that must be addressed are what is causing it, what to do about it and who carries the cost of it.
How do we get through the present difficulties to exploit the opportunities described in the medium-term review? After all, economic forecasting is not a form of soothsaying. Economic forecasts are of their nature conditional and significant conditions are attached to the prospect of getting from where we are now to where we want to be.
On the first question, let us nail the myth that all of our current difficulties are somehow imposed on us from outside. Let us stop blaming somebody else. There is a crisis in global capital markets. Serious threats to the Irish economy arise from the credit crunch and from the appreciation in our real exchange rate consequent on the rise in sterling and the dollar. Inflationary pressures arise from the increase in global commodity prices, not least the cost of basic foods.
However, the slowdown in economic activity that Ireland is now experiencing is the direct result of the collapse in a domestically-generated construction boom over which the new Taoiseach presided as Minister for Finance. Moreover, a pattern of rising costs and deteriorating cost competitiveness has been evident for some time, just as merchandise export performance has been weak for some time. As a result, the Irish economy now faces into the changed global conditions of which I spoke in a disadvantageous position.
The property market is central to what has been happening in recent months. For years, the Labour Party has warned the Government that its refusal to address the house price spiral would eventually cause severe problems. However, it ignored these warnings and allowed both job creation and Exchequer revenues to be overly dependent on construction.
It made a complete mess of the stamp duty issue, allowing one Minister to propose the abolition of the tax, then refusing to address it, then addressing it in a half-hearted manner and then coming back six months later for another bite at the cherry. It is little wonder that buyers fled the property market. Activity remains very low, as buyers wait to see when prices will bottom out. The result of this crisis of confidence has been a collapse in residential housing starts, with knock-on consequences for jobs and tax revenues.
What can be done about this situation? I believe the Government faces a genuine policy dilemma. As the ESRI medium-term review makes clear, its pro-cyclical approach to fiscal policy in the boom times means it has nothing left in the armoury when things are not going so well. The fiscal position is deteriorating and sooner or later the public finances will have to be restored to a more sustainable path. At the same time, precipitate action on the part of the Government at this point risks making matters worse, potentially lengthening and deepening the downturn.
I have no intention of making the political aspects of this balancing act any more difficult for the Government. However, as I will spell out in a moment, neither will I stay silent if the burden of adjustment is imposed where Fianna Fáil and the PDs generally impose it. There are significant problems in fiscal policy, but this does not mean that the Government is impotent. Important supply-side steps can be taken and measures can be taken without exposing the Exchequer to undue risk to lessen the immediate impact of the construction slowdown.
In particular, it is important that people who are losing their jobs, particularly in construction and manufacturing, are able to avail of suitable educational and reskilling opportunities. Otherwise, we will see a build-up of people on the live register who will find it difficult to move back into employment when the economic environment improves. It is important to bear in mind that employment in construction increased by 100,000 between 2001 and 2006. Many of those people were migrants, but many were not. I am particularly concerned that construction may have been providing reasonably well-paid employment for people with very limited skills, who will now find it very difficult to find work.
What can be done is to provide training opportunities for people who are leaving the house-building sector to facilitate them finding work in other areas of construction and in the broader economy. Given the scandalously poor building standards in force for most of the boom, there is plenty of work to be done in retrofitting Irish homes to meet better carbon standards and the Government should take the opportunity to train people for this type of work.
It is also important to cushion the immediate blow to employment in the construction sector so as to smooth the adjustment path to lower output levels in house building. The skills involved in building houses are very similar to those involved in building schools, particularly where a small number of classrooms is being added. The Government has been promising since 1997 to provide every Irish child with a world-class school, yet we know it has utterly failed to do so.
Now that there is spare capacity in the construction sector, the State has an opportunity to avail of more competitive tender prices and deal with a long-running educational need. All that is required is a little imagination and some administrative agility. Instead of paying people to be on the live register, we should get people to work building schools that are urgently needed.
I also believe that now is a good time to introduce a "begin to buy" shared equity scheme in housing as suggested by the Labour Party some time ago. House prices may well have dropped, but people still need homes and cannot afford to buy them. Introducing a shared equity scheme has the potential to restore some level of the lost activity in the housing market. Again, this is an opportunity to obtain better value for money for the taxpayer and for people who want to own their own home. The financial markets will not step into this breach, because the banks are anxious to curtail their exposure to the property sector. However, the State can take a longer-term view.
In the short term, it is not hard to predict what the Government is likely to do. Up to now, it has adhered to the Corporal Jones school of economics, shouting "Don't panic, don't panic" in ever more nervous tones and doing nothing. It has not brought forward a single constructive policy idea, and it is clear from the Government amendment that is has no intention of doing so. It will, I hope, stay the course in maintaining high levels of investment though it can afford to be flexible about the composition of that investment.
However, this is not an adequate response to the needs of the moment. Managing the transition from a short-term downturn to a medium-term growth path is a key policy challenge which will not be met by the usual response of blaming somebody else. What the Government should not do is revert to form and impose the full burden of adjustment on to the weakest in our society. We have been here before. We know the pattern — cuts in health services and in home help hours, the "savage 16" welfare cuts championed by the present Tánaiste and cuts in active labour market programmes, all the while maintaining tax breaks for the wealthy and the well-connected to which Fianna Fáil is addicted.
Let me be quite clear. The Government should not come into the House looking for sacrifices from hard working people and their families and from the vulnerable in our society while maintaining stamp duty holidays for wealthy property developers. If social partnership is to mean anything, it means those who have done best out of the boom can afford to take a fair share of the burden of the adjustment. I hope the motion, notwithstanding the likely outcome of the division on the Government amendment, will at least cause the Government to focus more attentively and actively on what needs to be done to address the new economic problems we face.