Seanad Éireann díospóireacht -
Thursday, 1 Jun 2000

Vol. 163 No. 13

Economic Performance and Inflation: Statements.

Minister for Finance (Mr. McCreevy)

I am happy to be given the opportunity to discuss our current economic performance and the Government's role in it. We have a proud economic record and I hope to outline some of our achievements here. I also want to talk about the future. This country faces a period of great opportunity unprecedented in our history. We also have problems and concerns, but I believe that we are implementing the correct policies to address these.

The economy remains strong. The latest indications point to a continuation of the economic expansion which started in 1993. Recent provisional estimates by the CSO show that the economy grew by over 9% on a GNP basis in the year to the third quarter 1999. In the same period all components of demand were growing strongly – exports of goods and services grew by 17% in real terms, with personal consumption growing by over 9%. Most encouragingly, new investment is strong. Investment has increased by over 25% in real terms. This is investment in the country's future and a vote of confidence in our economic management. People involved in business, both large and small, all over the country are putting their confidence in this country's future. They are investing on the basis of a continuation of sustainable economic growth and this investment will, in turn, provide the basis for future growth.

Meanwhile, the Government has continued to manage the country's finances prudently. There was a record Exchequer surplus of almost £1.2 billion in 1999. This is equivalent to over 3% of GDP and is one of the highest in the EU. As a result of our efforts the national debt has fallen to 52% of GDP.

As well as paying past debts, we are also looking to the future. The Government is setting aside a sum equivalent to 1% of GNP annually to fund future pension liabilities. In this way we are ensuring that some of the benefits of today's growth will ease the burden for future generations.

This growth performance is also being reflected in the buoyant jobs market. When the Government came into office we gave a commitment to reduce unemployment. We have delivered on this; the number of people on the live register has fallen by 93,000 since June 1997 and the unemployment rate is now under 5% from about 10% in 1997. The fall in the long-term unemployment rate has also been substantial and it now stands at around 2%, down from 9% in 1994. From a situation where the unemployment rate in Ireland was well above the European average, we now have a rate which is about half the European average and on a downward trend. It is clear that the Government's economic policies are continuing to work. The latest figures show that last year the numbers employed grew by more than 100,000 or over 6%. This compares very favourably to average employment growth of around 1% in the European Union. This is a remarkable achievement.

We also want to ensure that those in work are receiving a fair wage. The Government is proud of the national minimum wage introduced last month. Promoting social inclusion and ensuring that everybody is benefiting from our economic success is at the centre of our policies. We need to balance social, tax and fiscal policies and I believe we are getting this balance right.

I want to say a few words about our taxation policies. The Government believes that a high tax burden is detrimental to economic activity, it reduces work incentives and deters innovation and risk taking. In short, it damages economic prospects and our capacity to address our social problems. This is the lesson from our own history and the experience of other countries.

This Government believes that the tax burden on incomes must be lowered and in the programme for Government we gave a clear commitment to do this. We are delivering on this commitment. In my three budgets to date I implemented significant tax and PRSI reductions. These policies are aimed at rewarding work and effort. Over £2 billion has been spent on personal tax and PRSI reductions since 1997. Increases in the personal and PAYE allowances over the period 1997-2000 have removed approximately 176,000 low paid persons from the tax net, which ensures that no income tax is paid on incomes of less than £110 per week. As part of budget 2000, the standard band was expanded to £17,000 for single persons and £34,000 for a married two earner couple, with maximum transferability between spouses of £28,000 – equal to the standard band for married one earners. As a result 125,000 taxpayers no longer pay tax at the higher rate. The age exemption limits for those aged 65 and over have been increased to £7,500 for single or widowed persons and £15,000 for a married couple, removing approximately 32,000 elderly from the tax net. I cut both the standard and top rates of tax by 4% over my three budgets to date.

We have also lowered other taxes to encourage investment, innovation and enterprise in the economy. Capital gains tax was reduced from 40% to 20%. The Government also reached an important agreement with the European Commission on corporation tax. By 2003, a tax of 12.5% will apply to all tradable profits. Thus, our policies reward work, enterprise and initiative. This approach has been successful and it is our intention to continue with these policies.

I am aware that our exceptional performance is leading to pressures in some sectors of the economy. As the House will be aware, there has been a significant increase in inflation in recent months. The most recently published inflation figures for April 2000 show a year-on-year increase of 4.9% in the consumer price index and a 5% increase in the harmonised index of consumer prices.

As I mentioned on a number of occasions, this increase has been due to a number of factors which include the sharp increase in international oil prices, the fall in the value of the euro and the budget increase in excise duty on tobacco. Obviously we have no control over changes in oil prices. As a small open economy with a large dependence on imported fuel, we quickly feel the impact of higher oil prices.

Over time the increase in prices associated with these factors will fall out of the consumer price index and this will lead to a fall in inflation. Moreover, if there is an actual fall in oil prices or an appreciation of the euro, inflation will fall faster and by more. Thus the inflation rate should moderate in due course. Of course this is not to suggest that we are complacent about our inflation performance. This is a criticism I reject. To point out the reasons for the increase in inflation and to remind people what mainly determines inflation in an economy such as ours is not to be complacent.

As I stated last week in the Dáil, average inflation for 2000 will be higher than the 3% for the year forecast on budget day. Depending on developments on the oil and euro fronts especially, inflation may average of the order of 4% for the year as a whole, though the headline rate will be less than this by December.

For some time I have been concerned about the increase in underlying domestic inflation. Last month services inflation reached 6.5%, and over 7% if the cost of telecommunications is excluded. This is a worrying development and to some degree must reflect an acceleration in wage inflation. It may also reflect some margin building for higher profits. Excessive cost developments represent a serious threat to our economic prospects. I am as concerned about this as any of the domestic or other commentators who have raised this issue. We must do all we can to contain these pressures. In the first instance, this means we must strictly adhere to the pay terms of the Programme for Prosperity and Fairness. Otherwise, we could find ourselves in a damaging wage-price spiral from which nobody would benefit. In addition, we must continue to foster competition throughout the economy.

I acknowledge that inflation this year will be higher than expected when the terms of the PPF were being negotiated. However, this agreement is for three years and inflation will fall back from current levels. I am confident that the agreed pay increases combined with the promised tax reductions will provide for continued gains in real disposable incomes. Over the 33 months of the agreement the take-home pay of workers will increase by up to 25% or more, when the taxation and pay elements are taken into account. This is a considerable increase.

I believe that the PPF, like its predecessor agreements, can contribute to providing a stable cost environment over the programme period. This will help to promote positive industrial relations and confidence in the Irish economy, particularly among investors. The Government intends to honour fully its commitments. It is vital that each of the social partners does likewise and, in particular, that the pay terms are adhered to.

The PPF is one of the most ambitious and comprehensive of the social partnership agreements to date. The programme incorporates the pay agreement in both the private and public sector. It attaches great importance to the ongoing public service modernisation programme. On a wider front, it sets out a broad range of actions on economic and social priorities. Special emphasis is placed on initiatives in favour of the low-paid, including the implementation of the national minimum wage and the removal of increasing numbers of low-paid persons from the tax net.

The programme also aims to provide new responses to the new challenges that we face. There is a particular concern in the PPF to tackle supply-side constraints in the economy. These include infrastructural deficiencies and labour supply and skills shortages. There is also a focus on quality of life issues such as housing, public transport, child care and family friendly policies in the workplace.

As a result of our rapid economic growth, labour shortages are emerging in a number of areas. Shortages are arising in both skilled and unskilled areas such as information technology, construction, pharmaceuticals and the hotel and catering industries. We have implemented a number of measures which will alleviate these shortages.

A proactive immigration policy has recently been put in place to allow people from non-EEA countries to take up employment in Ireland. The scheme applies initially to people in key sectors such as nursing, construction and information technology. Promotional activities are being undertaken to ensure that opportunities which exist in Ireland are brought to the largest possible audience.

Valuable work continues to be done by the expert group on future skills needs. This group allows us to plan our future manpower requirements. The Government has responded positively to the recommendations which have been brought forward by this group. Increased investment has already led to substantial improvement in education and training. This will allow us to maintain our progress in developing a highly productive workforce which can successfully compete in the global marketplace.

Despite these initiatives, growth in the supply of labour will be slower in the future than in the 1990s. This can be expected to lead to a period of slower economic growth. Over the medium-term we can grow faster than other EU and OECD countries. My Department estimates that growth of about 5% per annum can be maintained on the basis of reasonable assumptions. Demographic forecasts suggest sluggish labour force growth in the longer term. At that stage our growth rate should converge with those of the advanced economies of between 2% and 3 % per annum, approximately.

The Government is acutely aware of the problems now faced by young people entering the housing market for the first time. Prices have increased dramatically over the past four years and many people are being excluded. This is an unacceptable situation. There are no easy solutions to our current difficulties. The Government has three key objectives in relation to hous ing – to secure sustained house price stabilisation as quickly as possible through accelerating housing supply, to target particular key issues, notably housing affordability and the role of the private rented sector and to provide an effective strategy for housing development in the medium and long term.

There has been progress in a range of areas, including the serviced land initiative, major water and sewerage schemes in the greater Dublin area, road access schemes, and additional resources for An Bord Pleanála and local authority planning departments. A housing supply unit was established in the Department of the Environment and Local Government at the end of 1999 to ensure urgent and effective delivery of the supply measures, identify and remove bottlenecks to housing provision and ensure that the needs of new housing developments are recognised in other key infrastructural programmes.

There is strong evidence that the measures being taken by the Government are working. House completions in 1999 reached a record of over 46,000 units nationally, up nearly 10% on 1998. This was the fifth consecutive year of record housing output with output more than double that achieved in 1993. Output in Dublin was up 12% on the previous year and exceeded 10, 000 units for the first time. Increased supply of serviced land, arising from the serviced land initiative and other measures, should underpin continued increase in output and should also moderate the effect of land costs on new house prices.

The indications are that the measures taken are helping to stabilise house prices. In 1999, according to Department of the Environment and Local Government figures, national new and secondhand house prices increased by 16% and 18% respectively, with houses in Dublin increasing by 22%. Of course these increases are still too high and we need to consider additional measures to help resolve the situation. The Government is awaiting a further report from Peter Bacon. We will consider what further actions to take on foot of the publication of this report.

Let me summarise the economic achievements of this Government. We have reduced unemployment to its lowest level in decades, employment is at its highest in the history of the State, we have delivered on our commitments to reduce taxes, we have introduced a national minimum wage, we have allocated additional resources to improve our health and education services, we have successfully negotiated a new partnership agreement designed to maintain stability and with the national development plan we have announced the largest investment plan in the history of the State.

Despite our successes there are still many challenges. I am confident that we have the right policies to meet them.

Mr. Coghlan

I welcome the Minister to the House. The Minister is always interesting and worth listening to. He can be very entertaining, as he was yesterday when I heard him speak at the multimedia centre. He has great wit and charm. Given these qualities, no member of the Government is better equipped to do a good selling job than the Minister and he does just that. To paraphrase Milton, the Minister has, with words clothed in reasons garbed, endeavoured to make the worst appear the better reason.

The economy is delicately poised. With inflation at 5% and rising, we are at the top of the European inflation table. We have been warned by the governor of the Central Bank, Mr. Maurice O'Connell, and the European Economic and Monetary Affairs Commissioner, Mr. Pedro Solbes Mira, that there is overheating in our economy. What steps is the Government considering to bring down the rate of inflation? The trade union movement has warned that unless inflation is brought under control the Programme for Prosperity and Fairness will be under threat and could collapse. The Minister agrees that many costs are rising excessively. Housing and child care costs are two of the more noticeable. Surely the Minister and the Government will not want to put our economic prosperity at risk? However, there is a definite sense abroad of letting it rip – as the Minister put it recently, "Let's party".

The Government must take all appropriate action to combat rising prices. The European Union's average rate of inflation is 1.7%, significantly less than half the Irish rate. Our rate of inflation of 5%, must undermine the wage agreement. As the first instalment of that agreement increase is 5.5%, which will be subject to income tax, the net increase will be less than the annual inflation rate. The Minister must agree that is most unsatisfactory and undesirable. At the very least will the Minister reduce the excise duty on petroleum, which would relieve some of the upward pressure?

Mr. Maurice O'Connell has warned that wage and public spending restraint are absolutely essential if inflation is not to get out of control. The Central Bank is very unhappy with the growth rate of inflation, which has hit a 14 year high, and the Minister's Department has revised upwards its estimate for price rises this year. Like Mr. Solbes, Mr. O'Connell has warned of the signs of overheating in the labour market, house prices and services. The present level of growth cannot be sustained and the Central Bank believes that the level should be only around 4% to 5% in the long run, not 8% to 10% as currently.

Mr. O'Connell also warned that the conditions set out in the Programme for Prosperity and Fairness must be the norm, not a base line, and fiscal discipline must be adhered to. He forecast that this would be very difficult politically. In that regard we can have a lot more faith and confidence in the Minister than in the rest of the Government, but what will happen around the Cabinet table when crucial decisions must be made is another matter. Mr. O'Connell warned of the possibility of a hard landing and said that if the world economy went wrong we would suffer more than most. The timing of any slow down would depend on when productivity, immigration and foreign direct investment start to slow and drop. At present there are no signs of a slow down on the horizon.

The Central Bank has identified the main causes of our inflation as the 50p increase the Minister put on cigarettes in the last budget, oil prices and the low value of the euro. The pressure will be reduced when the exchange rate begins to appreciate again. I look forward to hearing the Minister speak on this point. Mr. O'Connell believes the euro is undervalued and that the exchange rates do not reflect our improved economic environment.

The Central Bank is right to have major concerns about the cost of housing and the high rate of credit growth in the economy. Credit has been growing at a rate of between 25% and 30% compared with a euro zone average of around 10%. If this were to continue we would be the most borrowed of the lot. Mr. Jim Power, chief economist at the Bank of Ireland, has said that another few years of growth at around 10% would put intolerable pressures on the system. He maintains the economy is simply being allowed to run free, that people have got that impression abroad and that the Government is making no effort to control it. He believes that this will lead to serious consequences for our economy, the environment, congestion – particularly traffic – labour costs, air pollution and infrastructure. He even argues that the £1 billion in tax cuts in the last budget would have been better directed at improving infrastructure more rapidly than at its current rate. He also argues that growth for growth's sake is no longer enough. More growth in the economy will naturally lead to more borrowing by consumers and businesses and the more vulnerable the whole edifice will be in the event of a shock. Unfortunately, shocks are rarely seen coming.

One of the main factors undermining the wage agreement is the inflation of house prices. What, if anything, is the Government doing to stabilise house prices? The Minister mentioned increases of 16% and 18% in the rest of the country and 22% in Dublin. What is the Government doing to make houses affordable for young people? Many of them despair of ever being able to purchase a family home.

The Bacon reports seem to have had little, if any, impact. The Minister mentioned that there will be a third Bacon report. Can he tell me what its terms of reference are or will be? What does he expect will happen after the promised third Bacon report?

The elderly in our society have been seriously neglected. This Government pays much lip service to tackling and combating social exclusion and marginalisation. Recently I was shocked, as I am sure everyone was, to read the ESRI statistic that six out of ten elderly people, our pensioners and the people who built this society, are eking out a living on less than £100 per week. That is a shocking indictment of us all and the political system.

Confidence is a very nebulous and intangible thing that can only be nurtured by the right mix of policies. It is not for me to lecture the Minister about it. I am sure he is very aware and, I hope, very concerned. Business confidence could be lost overnight if firm corrective action and appropriate measures are not put in place. Everything that has contributed so much to our recent success could be lost and set at nought.

The OECD warned us about the overheating of our economy. According to a newspaper article it has stated:

Ireland is an economic policy-free zone. The danger is that if prices spiral so high as to force up wages – both through excess demand for building labour and the excessive cost of housing – the economy could burn out in the stratosphere and come back to earth with a bump. This could be the point we are approaching now.

Apocalyptic warnings such as these have been dismissed by many Dublin-based economists, who accuse foreign observers of misunderstanding the economic situation. Some home-grown economists are very concerned. Jim O'Leary, chief economist at Davy Stockbrokers, has said that headline inflation will rise further to 5.5% or 6%. There are very loud and serious warnings all around us.

I want to refer to the comments made by the National Competitiveness Council in its annual report about which Mr. John McManus, a journalist, wrote a newspaper article which stated:

The most serious constraints on economic growth include skill and labour shortages. Inadequate transportation infrastructure and public transport are also identified by the council, along with the lack of affordable housing and gaps in the telecommunications infrastructure.

Among the measures recommended to combat these problems are an easing of the labour and skill shortages by introducing an appropriate immigration policy, facilitating the return to work of the unemployed and encouraging female participation in the work force.

There should also be a significant investment in education and training to ensure lifelong learning and in-company training . . . . .

Remedial measures suggested by the council include additional staff and resources at planning bodies including An Bord Pleanála.

I was glad to hear the Minister refer to this matter. Every one of us knows how seriously undermanned all our planning departments and local authorities have been. This bad situation could lead to scandal. A lack of resources could lead to bad decisions.

We are all aware of how legalistic planning has become, of the dire warnings which perhaps have been rightly issued, and of the Supreme Court judgment in the famous benchmark case decided by the former Chief Justice, Tom Finlay, in which he imposed a quasi-judicial function. It is very difficult for elected representatives to handle this. The prime pressure in recent years has been caused by the lack of resources and staff in planning departments to deal with the growing number of applications. The report encourages the use of more public private partnerships to provide more serviced land and higher housing densities. I hope these matters are being seriously and properly addressed.

The issue of whether developers are hoarding serviced land should be examined, as should the possibility of local authorities compulsorily purchasing land to ensure availability. In the Dublin area especially where prices have risen excessively – the Minister quoted the shocking and unacceptable figure of 22% – evidence exists that a small number of builders and developers control vast tracts of land and time its arrival on the market for reasons of the bottom line – their profitability. According to the report, this issue is being addressed in a third review of the housing market being carried out by Peter Bacon and Associates for the Government. The Minister might confirm that and perhaps we could also entice him to say something further about the third Bacon report.

The council also believes that the powers of Ms Etain Doyle, the telecommunications regulator, should be enhanced to ensure that Irish telecommunications costs are competitive. The report notes that local calls in Ireland are among the most expensive in Europe. That is a serious matter which must be addressed with a view to bringing prices to an acceptable and competitive level for the consumer.

I am glad to have had the opportunity to contribute to these statements on the economy and inflation. I appreciate the Minister's contribution, but unfortunately it did not indicate that it is intended to take firm action to reduce the crippling rise in the rate of inflation. I look forward to hearing the Minister further.

Mr. Bonner

I welcome the Minister to the House. I am glad to see that he is looking well and is as enthusiastic as ever after his little skirmishes in recent weeks.

Mr. McCreevy

Nothing a Gormanston man could not handle.

Mr. Bonner

We can put up with anything. No one can dispute that the economy is performing strongly at present. This is due primarily to the sensible economic policies being pursued by the Government. It is expected that the economy will grow this year by as much as 10%, which gives credence to Ireland's classification as the Celtic tiger of Europe.

Since the Government took office in July 1997, it has been instrumental in ensuring that sensible tax reductions primarily targeted at the lower paid and middle income earners have been implemented. There have also been sensible reforms of other taxation codes, most notably in capital gains tax and capital acquisitions tax. The reduction of 20% in capital gains tax has helped generate hundreds of millions of pounds for the Exchequer while assisting in the process of encouraging people to develop land and buy and sell more assets. While the reform of the tax code has been beneficial in terms of contributing to the development of the economy, it is only one cog in the economic wheel of Government policy. However, it has been an important one, and I congratulate the Minister on taking the initiative in reducing various forms of taxation. His actions have been validated by the increase in economic activity and by the increased funding to the State.

Other important policies which contribute to the strong economic performance are the implementation of the new Programme for Prosperity and Fairness and the National Development Plan, 2000-2006. The PPF is balanced and guarantees that low paid workers will receive sizeable pay increases over the next three years. It is recognised within the European Union and in the broader world that social partnership agreements between trade unions and employers lay the groundwork for strong economic growth. The benefits of social partnership are many. It reduces the number of days lost through industrial unrest, gives great confidence to both indigenous and foreign investors and assures them that Ireland is a good place in which to locate industry because they know how much must be paid in wages in a specific timeframe. It is very different in many other EU member states. For example, in France, bilateral talks take place between specific unions and the French Government on a monthly basis. If bilateral talks were to take place here between specific trade unions and the Government on a monthly basis, there would be total industrial unrest.

The new Programme for Prosperity and Fairness will mean that everyone will receive a fair share. The new programme offers cumulative pay rises of up to 20% and tax cuts of at least 10% by 2002. Besides the tax cuts worth at least £1.5 billion over the next three years, the Programme for Prosperity and Fairness will also provide £1.5 billion in social inclusion measures. Those who will gain most will be those who earn less than £200 a week, because they will not have to pay PRSI, and public service workers, such as teachers, who will receive a 3% early settlement pay increase. The ICTU general secretary, Mr. Cassells, described the PPF as the best deal which could be obtained from this process for workers and people on low incomes. In real terms, a person earning £200 a week at present will see their income rise to £212 in the first year, to £223 in year two and to £232 in year three. A person earning £400 a week will see their income rise to £422 in the first year of the agreement, to £445 in the second year and to £463 in the nine month phase three of the agreement.

While the pay deal will pour extra money into the economy, our competitiveness will not be lost. This is because our annual growth rate could be as high as 10% this year. This growth rate should ensure that these pay increases will be consumed within the overall working of the economy. It should be remembered that many countries within the European Union look with envy on the manner in which consecutive Irish Governments have secured social and economic agreements. Economic wage agreements give stability to an economy, which is one of the most important prerequisites if we are to entice new industry to the country and create more long-term sustainable jobs.

Mr. Ross

On a point of order, Cathaoirligh, could you ask Senator Bonner to read his script more slowly so that I can understand it? It is a bit too fast.

An Cathaoirleach

I understand that Senator Bonner is speaking from notes, not from a script.

Mr. Bonner

I apologise. I will try to accede to the Senator's request. Competitiveness is a core theme of the Programme for Prosperity and Fairness. It identifies some key competitiveness challenges for Ireland. To meet these challenges, we must secure a leading position in the emerging information society, promote lifelong learning as a national priority, and move up the value chain of economic activity by investing in research and development, innovation and upskilling.

Some critics of the programme have argued that it does not deliver enough and that inflation will erode the gains promised in the programme. This is not the case. Inflation will decrease from its current high level as the effects of certain exceptional factors work through the system. The last thing we need is a return to the bad old days of pay increases chasing inflation. The focus should instead be on keeping inflation under control to maintain our competitiveness and protect our living standards.

The Programme for Prosperity and Fairness is not simply about pay. Other key social problems are addressed within this programme, which supports the tackling of the growing need for new social and affordable housing as well as the need to improve the existing social housing stock. We must consolidate and underpin progress made to date. The Government has brought forward the national development plan outlining our key economic and social investment priorities for the seven year period up to 2006. I am confident the European Commission will shortly approve the key provisions included in the plan. In its simplest terms, £40 billion will be spent over the seven year period on programmes ranging from improving our primary, secondary and county road network to the implementation of social programmes which will target the problems of youth and unemployment.

From the perspective of a county like Donegal, I welcome the fact that £13.5 billion will be spent over the period in the BMW region. The national development plan was designed to redress key regional imbalances which exist currently. Balanced regional development is a core theme of the national development plan. In this regard I welcome the commitment of the IDA to ensure that half of the new greenfield projects will be located in the BMW which still has Objective One status as opposed to 27% in Dublin and 30% in other parts of the country. If investment is to be secured in the Border region, the necessary infrastructure ranging from roads and sewerage services to the upgrading of our telecommunication networks must be put in place. The NDP ensures this will be the case and I hope the European Commission will approve the plan in the immediate future so that spending can commence on the key aspects of the programme.

The second part of the statements in the House today is on the worries we have about inflation. Inflation this year to date, as the Minister said, has risen to 4.9%. The forecast for the year was originally in the region of 3% to 3.5% but now I understand the Minister has revised this to a figure of up to approximately 4%. The increase has been blamed on many outside influences and not on those from within the economy. The rise in the price of crude oil has fuelled inflation and the decrease in the value of the euro, particularly against the dollar, has not helped. Probably the only domestic influence was the Minister's increase in tobacco taxes in the budget. There will possibly be further reasons for inflation to rise with the increase in interest rates and the consequent mortgage rate increases.

The Taoiseach has indicated that the Government will consider cutting taxes on cigarettes and fuel if necessary but he would like to see other measures tackled first. Many price increases are not justified. Consumers should be more vigilant in respect of unjustified price increases. At a time of high economic activity, this practice happens more frequently. Every time there are changes such as decimalisation and so on, unscrupulous commercial dealers such as shopkeepers or retailers add on unjustified price increases and until recent years nobody has tackled it. The public should be aware and should watch and question. The Taoiseach suggested in the past few days that the Tánaiste and the Minister of State at the Department of Enterprise and Employment, with special responsibility for consumer rights, Deputy Tom Kitt, should investigate these unwarranted prices.

Many companies have used the minimum wage as a reason for claiming price increases of anything up to 10% or 20% when the actual increase in the minimum wage should only have added approximately 5% or 6% to prices. Price stability should be an important ingredient of the Government's economic policy. Social partnership has come under threat due to the record growth in the economy with possible further increased wage demands outside the Programme for Prosperity and Fairness. The Government must hold its nerve.

The euro may appreciate significantly against the dollar this year. The Minister said that price inflation will fall, which I believe. Growth rates of 9%, mentioned by the Minister, for the three months to 30 December, underpin the prospect of a long-term boom. Our growth rate is approximately four times the European average of just over 2%. The European Union has warned against the economy overheating. It suggests that the Government should have deferred the tax cuts in the budget in December. Many people argued that tax cuts should have been postponed until such time as the economy slowed down and that workers could then receive those gains. I do not believe this is correct and I appreciate the Minister's comments that it is time for the Irish people to receive a payback on the taxes they have been paying over the years.

One of the biggest difficulties for many years was the high level of tax which was a disincentive to employment. In particular there was no incentive for people who were prepared to work long and hard hours and who had to pay high rates of tax on the extra money they earned. If we were to wait until the economic boom in this country slowed down, we could be waiting a long time for tax cuts because the economic boom lasted nearly 30 years in Asia and in Korea. A rate of 8% growth lasted over a period of 40 years. The Minister is being balanced in his actions.

Moderate wage demands can control the situation rather than postponing tax cuts. Tax cuts are a better way to put money into the pockets of workers, particularly low earners, rather than this constant spiral of wage demands, particularly in the public service. Senator Ross would agree that the wage demands of the teaching profession only fuel the problem. To give extra wages, when the tax cuts are lost, more and more has to be given. This has been going on for years.

Senator Coghlan referred to the price increases in the housing market. This is a problem with which I, as a member of the Government party, am not happy. I do not see that some of the changes suggested in the Bacon report have had any great effect. A home is the primary requisite for any young person. I would not like to be living and rearing a family in Dublin and wondering where they were going to be housed. Even in the countryside, as far away from Dublin as Letterkenny, the housing market has jumped. This must be tackled. Unscrupulous builders and developers are gaining.

I won a house in a GAA draw about three or four years ago—

Mr. T. Fitzgerald

We all had to build our houses.

Mr. Bonner

I contributed to the draw for it. The semi-detached house in Letterkenny was worth £50,000 about four to four and a half years ago. A young person came to me last week, having had great difficulty after paying a booking deposit of £1,000 on a house nearly two years ago, who could not have the contract finalised. Eventually, the contract came up for finalisation last week and the house price had jumped to £79,000, an increase of £27,000 on the price agreed over two years ago. I do not believe that building materials have increased in cost or that wages have increased in the building industry. It is just due to developers and speculators. I have nothing against developers or speculators but practices such as this are an immoral exploitation of people. I would like to see some other way of tackling the problem. I did not agree with suggestion in the Bacon report that people should not be able to claim tax relief on interest paid as a legitimate business expense by anyone building a property for rental. People who built one or two extra houses for rent were fulfilling needs in the property market. They should have been allowed to continue. It was a legitimate business expense in that they borrowed money to build the property but that was cut out. It is an area about which I think a lot and I worry about future generations of young people and where they will be housed.

Many of the other aspects the Minister mentioned indicate how well the economy is doing. Although the measures began in 1987, the boom really only started in 1993. The Minister mentioned the increase in investment of up to 25% in real terms. He referred, in particular, to the budget surplus and I note he did not include the funding received from the sale of Eircom shares. We will have a surplus of anything up to £2 billion this year. The Minister has been prudent in the way he has dealt with it. He has given low paid workers a share and, hopefully, he will continue to give the needy people, those on social welfare and the disabled, a further share. At the same time, the Government is investing in many public services which are needed.

As an accountant and someone who is prudent, the Minister realised Government expenditure has, for years, been done on a cashflow basis. In recent years we have tried to get to the actual account basis, as we accountants would see it. This is the first Minister to set aside funds to provide for future State pensions. Before the pensions regulations came in, some companies were paying pensions out of cashflow and that was going to cause a difficulty for people some day. The State, or rather the taxpayer, was also going to be faced with that difficulty because they would have to fund pensions. The Minister was very prudent in providing for future pensions.

The Minister also reduced the national debt in real terms but, as an accountant, I would like to see more coming off it. I do not look at the situa tion in terms of present day valuations or in real terms; I look at the amount. I hope we will continue to have surpluses and that the Minister will be able to reduce the national debt not only in real terms but in actual terms.

The live register has been reduced by over 90,000 since 1993. The Minister said unemployment has been reduced to its lowest level in decades. When unemployment hit 100,000, 200,000 and rose to nearly 300,000, everybody thought it would eventually reach 400,000 but it is now decreasing. Unemployment is at its lowest level. We really have full employment in the country as a whole, although there are certain areas, possibly in County Kerry—

Mr. T. Fitzgerald

Thank you.

Mr. Bonner

—and County Donegal, which still have high levels of unemployment. I do not know how we will tackle that. Even in those areas, it is sometimes very difficult to get somebody to work and yet we have up to 20% to 21% unemployment. I would like to see research done on that to establish the underlying factors. Do we need employment or is something else wrong?

The Minister mentioned that a higher tax burden is detrimental to economic activity. He has proved that by reducing the tax rates. When I came to this House three years ago, one of the first things to which I referred in my contribution to the statements on the budget was the fact that the higher rate of tax in Northern Ireland was 40% and that the lower rate was 20%. We in Donegal had a difficulty in that our neighbours who crossed the Border to work were paying this lower level tax, although they have now gained with the higher rate of sterling and are getting 30% more for their pound when they cross the Border. I hope that after the Minister's next two budgets, the rates will come down further.

Years ago when practising as an accountant, I saw the rates of tax fellow citizens, some professional people who were crossing the Border, were paying because of the residency issue. I know the Minister corrected the cross-Border issue which was most appreciated. However, many professional people and people with businesses in the North but who live in the South are still caught. I know somebody who pays twice the average industrial wage extra in tax to the Irish Government for the benefit of living in the South rather than the North. I always tell him he is mad. Tax rates have dropped substantially and we are now competing with Britain. In fact, the situation has reversed and employees are coming here.

Since 1989 the percentages or the points between the low and the high rates of tax have dropped by 24%. The parties in this Government were in power when 23 of those points came off the tax rate. That is a colossal reduction in tax rates in the last ten or 11 years. As the Minister said, over 176,000 people have been removed from the tax net and 125,000 no longer pay the higher rate of tax. I know that as long as the Mini ster remains in Government, he will give further tax cuts which will be geared to help productive activity and those who need it most – those who are unemployed, on disability pensions and so on and who have got huge increases since this Government came into power. Nobody should receive less than £100 per week in their take home pay or in their benefit. While the contributory old age pension will possibly hit over £100 this year, I hope this can be further addressed and that non-contributory pensions and other benefits will be a minimum of £100 per week.

Some of the structural items have been addressed. Yesterday I got a letter from somebody on one of the offshore islands in my constituency after the Minister of State, Deputy Ó Cuív, announced infrastructure grants of somewhere in the region of £400,000 for the Donegal islands. She wrote to me because only £30,000 was being spent in the area in which this lady lived as against maybe £100,000 in another area of the island, yet they all live on the one small island. It shows the mentality of the people that the more that is done, the more people will look for. Those who are getting small amounts of money are comparing it to what others are getting. I do not subscribe to that.

The Government is providing considerable funding – although not enough in that we will need more over the duration of the plan – for national roads through the NRA. This year non-national roads got an allocation of £264 million which was up 11% on last year's figure. That is a 50% increase on what was provided when the rainbow coalition left power in 1997.

There are many other infrastructural needs, such as sewerage and water. I have only been involved in politics for the past three years, although I was associated with the party and other politicians. For years there was no investment in water and sewerage schemes. Now every area is looking for a new sewerage treatment plant. There has been much progress over the past three years but we must continue to make progress. Given the prudent way in which the Minister is managing the economy, many deficiencies which have built up over 30 to 40 years will be eliminated, if not in the period of this national plan, certainly over the next ten to 15 years.

There will possibly be motorways to every section of the country, including Galway, Limerick and Waterford. The N2 will only be upgraded as far as Ashbourne and there will be bypasses of Carrickmacross, Monaghan and Castleblayney. Something other than upgrading should be done. When I was young the roads were so bad in the Twenty-six Counties that we always thought the A5 from Strabane to Omagh to Aughnacloy was a motorway but it is now one of the worst roads in the county because it is so narrow. Something should also be done about that in co-operation with the cross-Border bodies.

Housing is a great problem for young people. Most counties are adopting new development plans which must be updated every five years and, hopefully, the Planning and Development Bill, 1999, will also help. The biggest problem created by the high house prices is the dependence on local authority housing. In my county the budget for such housing has increased from £5 million in 1997 to £11 million this year but many people still depend on local authorities, which can only do so much. I welcome the Government's initiative to support voluntary housing together with groups, such as the Society of St. Vincent de Paul, St. Pancrais, etc., and Turnkey Developments, where the local authority has little work to do other than to source funding.

During the budget debate in this House I raised the town renewal scheme with the Minister and I am sure the Minister of State will take it on board and push it in the Department. A Bill in this area was only published last week. I hail from west Donegal and the scheme is of absolutely no benefit. Economic activity needs to be generated in west Donegal, not residential property development. I called for a rural renewal scheme in the area, such as the upper Shannon scheme, and the Minister was appreciative of that when I raised it. The upper Shannon scheme is a pilot project which eventually got off the ground with the blessing of the Europe and it has proved successful. Such a scheme would regenerate west Donegal. It has beautiful scenery and beaches but there is no tourism infrastructure. The roads are being improved but we do not get the weather to attract tourists and give them anything to do apart from golf.

A rural renewal scheme would give an economic kick to the tourism industry in west Donegal. Such a scheme could also benefit Mayo. It would generate revenue for those with money to invest allowing them to avail of tax breaks and it would create economic activity and employment whereas schemes, such as the urban renewal scheme, will create no jobs in the long term; they might upgrade towns and provide jobs in construction.

Given the economic boom and the available funding the Government will look after less well off people who are socially excluded, particularly people with disabilities. There have been a number of calls recently in the House to increase the disability allowance to £100 per week. There have been huge improvements for carers but it is totally off the wall that a widow living on a small British pension should have her carer's allowance stopped because sterling is strong. People are struggling to survive. One cannot generalise or provide total relief where everybody would be entitled to the allowance. There should be a means test but it should be pitched at a reasonable level, certainly above the average industrial wage, because in most cases the allowance is paid to people who are not dumping relatives in nursing homes at a greater cost to the State. Different Departments are involved and that is not always the way it works but a great deal of thought should go into that.

Ministers are performing and supplementing the current boom. They are listening to the requests of public representatives, particularly the Ministers for Finance and Social, Community and Family Affairs and the Minister of State at the Department of Finance. Various issues which have been raised at parliamentary party meetings have filtered through the system and this has resulted in changes which nobody would countenance for years. Even the Minister of State at the Department of Arts, Heritage, Gaeltacht and the Islands listened to my complaint yesterday and in turn the Minster for Finance listens to him.

I have great difficulty with the road network in Donegal, particularly west Donegal. Substantial funding has been allocated for national roads funding in Donegal because of the economic boom, particularly for the Donegal bypass and the three national roads passing through the county. However, many regional roads lead to west Donegal and Gaeltacht areas and the Minister of State at the Department of Arts, Heritage, Gaeltacht and the Islands was successful in getting £35 million from the Minister for Finance a few weeks ago to spend over the next five years improving roads leading into Gaeltacht areas. We are pushing for these little things and the Ministers are listening. Thankfully, the economy is booming and funding is available.

Substantial tax cuts and the implementation of the PPF and the NDP are key reasons the economy is performing well. However, the key is to consolidate and underpin the progress to date and that is the kernel of the provisions in the NDP which is designed to consolidate the economic success of recent years. However, recent economic success has not filtered through to all sectors of society. It is also important that substantial programmes are implemented to guarantee that the less well off in our society are assisted at every turn. The Minister referred to the great opportunities which can be consolidated by implementing the right policies. The Government has been and will continue to implement the right policies.

Mr. Ross

I wish to share my time with Senator Quinn.

Acting Chairman (Mr. J. Cregan)

Is that agreed? Agreed.

Mr. Ross

It is easy in a debate of this sort to be critical and to opt for special pleading for certain areas which all of us have to look after. I am critical of certain things the Government is doing. However, Deputy McCreevy is possibly the finest Minister for Finance in many years and basically the philosophy behind what the Government is doing is something we should all applaud. We see the fruits of it in the booming economy and the Minister has demonstrated a refreshing prepared ness to take decisions which are not popular and which often received unfavourable responses initially but were proved right eventually. That is a refreshing characteristic of the Minister for Finance.

Since he took office he has taken decisions which are not popular with his civil servants and are contrary to the Department of Finance culture but which have in the long term proved to be good for the economy. We should encourage him to continue with that approach and not to listen to the particularly over-cautious and careful advice he gets or consider in too much depth the short-term difficulties he may encounter on decisions such as those he has made. For instance, Senator Bonner mentioned capital gains tax. It was a courageous decision which proved to be a particularly good one in the long term but it caused a huge furore at the time.

It is appropriate that we should debate the economy now because this is an unprecedented period of prosperity for us all but it is obviously in some danger. There is no doubt from the figures and from anecdotal evidence that the economy is overheating. It is not possible to run an economy at an 11% growth rate – or 9% according to some economists – without overheating when that economy's neighbours and competitors are running at such low growth rates.

The danger is not overheating, because mild overheating is curable, but that the economy is out of control. The signs are there to indicate this. By being out of control I mean that we are booming away at a rate we do not understand and we cannot do anything about. We are helpless in the face of such incredible prosperity. The world and his wife, including the OECD, the Central Bank and the Government, know we are overheating and the Government can do nothing about it. That is the problem we face. We would like to see lower growth rates and lower inflation but, apparently, we can do nothing about it. The Minister gave no indication of how he proposes to reduce inflation. We would like to see higher interest rates, but, once again, there is nothing we can do about it.

What does this mean? It means we are not masters of our destiny, which is not necessarily a bad thing because we might be very bad managers of the economy. However, if we were good managers we could not do anything either. That is the reality of the economy. We are booming away – I do not know if there will be a bust or not – in a way that we cannot moderate at all.

The Minister has told the House all the good things about the economy, as is right for a politician, but he offers no remedies for any of the dangers. On the question of housing, which is the great problem for young people, he said he was waiting for another report. That is a terrible approach for a Government because it means it has no ideas. It has shuffled the problem off to what it calls an expert. Peter Bacon knows more about housing than anybody in Ireland, but an "expert" is a wonderful word to use. It is like referring problems to "expert groups", which are usually full of political hacks, and then saying the problem will be considered when it produces a report. It defers the problem.

Even in the case of housing, where we may be able to do something, there is too much of a laissez faire attitude from the Government. Many people, me included, are unapologetic believers in the private enterprise ethic, yet there is a case for State intervention in certain instances where social problems have gone out of control. It is possible to have a basic philosophy and to moderate it along the way, but the problem is that we do not appear to have the tools to stop the economy overheating or to stop an economy that is out of control.

It is interesting to reflect – it is indicative of the boom – on how difficult it is to know what started it. I am sure the Minister of State has, like me, attended innumerable conferences on this rather boring academic subject, where everybody claims different reasons for the boom and where nobody is right and nobody knows. It is one of the great mysteries. People visit the country from all over the world to do case studies to find out why Ireland is so prosperous and they go away puzzled. They meet many people who offer them solutions but they are all different.

It is convenient politically – we heard it from the other side of the House – to say the reason for the boom is social partnership. There is no evidence for that except that the two events appear to have coincided. Social partnership happened, the boom happened, QED social partnership is responsible for the boom. That is nonsense. It might equally be said that because the economy of South Africa was booming at the time our economy boomed. There is no evidence for the social partnership explanation, but it is a theory and a possibility.

There are those who say it is because we have a young, educated population – a process started in started in the late 1960s when Donogh O'Malley decided to provide for free secondary education and we are reaping the benefits of it now. That is possible because the foreign direct investors saw what was happening and decided to invest here because we had all the human resources they needed. There are other explanations, such as those deriving from the anti-bubble mentality, which say it arose because of EU funds. They argue that because we were subsidised for so long it gave us the structural base to develop the boom. That is unlikely, although it may be part of the explanation. Others argue that it was due to devaluation in 1993, which started an export led boom. That is possible.

There are other arguments. The most likely is that the boom is multinational led. That is something we must be careful of. The Minister of State attended a debate here last night on an issue peripheral to this. He will shortly tire of attending the House. If the multinationals saw that wages were becoming uncompetitive they might with draw and without them the boom would probably end very quickly.

The first message is to look after the multinationals. They should be encouraged to stay here. They are the vibrant part of the economy. We should forget about the old economy and start to look at the new economy which is what matters. It is where young people are being employed and it is where we need more people. While it is very well to talk of the old economic statistics, which the Minister enumerated, but it is the future that is encouraging. We should look at the new economy because it is where we can control our destiny. We should forget about the past because we do not know what happened or why. I have yet to hear a definitive reason for the economic boom from the Minister, but let us enjoy it while we have it.

It would have been preferable to have heard the Minister's priorities for the future. It is very well to say "steady as she goes" when one can not do very much about it and when one is not in control of the economy. However, we have a lot of money at our disposal. As Senator Bonner said, it would be prudent to recognise that prosperity will not last forever. This is a very vulnerable economy. The Minister recognises that. A downturn in the US could disastrously affect the economy, as could a world-wide knock to agriculture. Any unexpected events could have such an impact and, by definition, we cannot predict them. Yet, nothing is being done to prepare the economy for such an eventuality.

Given the surplus of £2 billion, we should look at the national debt. We probably should have a programme for paying if off over a certain number of years. There appears to be a dangerous and almost certainly wrong consensus view that the national debt does not matter anymore on the basis that it is too low a percentage of our GNP. That is the kind of nonsensical statistic that people who feel satisfied in Government spin out to keep the public happy because there is a gnawing feeling that the national debt should be paid off.

They also say the national debt is not a problem because interest rates are so low and paying it off is not a problem because we are booming. There is also an assumption that interest rates will stay low forever. That is nonsense. I do not know if they will stay low forever or not, nor does anybody else. It would be prudent to use a large percentage of the annual surplus to pay off the national debt in case at some time in the future interest rates rise again to 11%, 12% or 13%. It does not seem likely now and all the wise guys say it is not going to happen, but they would not have predicted the extraordinary interest rate rises in the 1970s and 1980s. If we had no national debt when interest rates increase, as they undoubtedly will – I am referring to far more dramatic rises than the small ones that have happened recently – we would be in a very strong position. We are not doing very much about that.

The national debt, health, overseas aid and other matters should be prioritised by the Minister. I do not know why more is not given to overseas aid. There are crises in Ethiopia, Mozambique and elsewhere. Although Ireland is extremely prosperous, its contribution to overseas aid is pitiful. It takes more than Ministers going to visit these places and returning. Ireland should take a lead in this area because it is one of the fastest growing economies in the world.

We also have a social obligation to ensure that people do not starve and not to feather our own nests. However, we hear little about this from the Department of Finance because it is in the business of keeping money in the country and getting a return from it. A strong Minister or Minister of State would be able to tell his officials what is Government policy and what is to be done. It is a pity that we did not hear more from the Minister along those lines.

It was almost an accountant's speech but I do not expect much else from the Department of Finance because that is its job. However, the Minister could have produced a speech which was more about how he intends to spend the money and the social obligations of the Government in these circumstances. Irish people are generous and they would not mind if the Minister said he intended to allocate a larger amount to overseas aid or other projects of that nature undertaken by reputable organisations such as GOAL and Concern.

Although the Government has pursued a philosophy and an ideology which are very much in contrast to those of its predecessors, and which have paid off and are in tune with the current philosophy of the global economy, it made a fundamental mistake. I touched on this matter previously but it was interesting to hear Senator Bonner say that the euro will possibly increase against the dollar in the coming year. This sounds a little like a Government policy, but it is dangerous to say to people that they should not worry because the euro will possibly increase against the dollar in the coming year. The Senator is correct; it may increase. However, it may not increase. It is indicative of the hopelessness of our economic situation that we are praying for the euro to increase against the dollar and sterling in the coming year.

I remember the debates in the House about the euro when every speaker welcomed the strong currency. They said it would reduce and squeeze inflation out of our system and keep interest rates low. All the Members remember it because that is what they said. I do not blame them; I get it wrong 50% of the time like everybody else.

Mr. Dardis

The Senator also gets it wrong when he interprets what we said.

Mr. Ross

I do not hold a large number of Bank of Ireland shares, and I am not still buying them. However, there was an extraordinary consensus in the House that believed for some reason that the euro would soar into the stratosphere and Ireland was tying itself to a strong currency. As a result, there would be low interest rates forever and little or no inflation. However, we should consider what happened.

Everybody knows that the euro has been the sickest currency in the world. Its performance has been worse than the Indian currency and some of the worst South American currencies. Some of the basket cases have outperformed it. It sank like a stone, although it has recovered a little in the past two days. However, at the time, all the Members reassured themselves that the country was doing the right thing. The great economic decision of the last century has so far proved to be wrong. It has been bad for Ireland and its economy.

Mr. Cullen

It has not.

Mr. Ross

Interest rates have increased a little in the euro zone and inflation in Ireland has risen to 5%. The rate in the euro zone is 1.7%. The hope now is that, as Senator Bonner said, our membership of the euro will bring down our inflation rate. However, being part of the euro has increased our inflation rate because of our relationship with the UK and the dollar. As so much is imported from there, inflation is increasing and the Government is using this as an excuse. It says it is not its fault, that it is due to our membership of the euro. It also suggests that increased inflation is due to the price of oil. However, every other country must buy oil. I do not know from where this excuse comes. It has the same inflationary effect elsewhere, but for some reason it appears to affect Ireland more.

Mr. Cullen

It does.

Mr. Ross

It affects it a little more and the Minister also increased the tax on cigarettes. The Minister said earlier in the year that inflation would run at 3%, but he had to revise that figure. The rate will be at least 4% in the year. The Minister was wrong. The reasons for that are debatable but, as he stated correctly, it is outside our control. All the excuses, bar the increase in tax on cigarettes, are external so the euro has increased inflation. This is unfortunate but, as Senator Bonner said, it will possibly increase against the dollar and inflation will come down, let us pray, but it was a bad decision. The euro has gone down.

One of the reasons the economy is overheating is our interest rates. I am sure the Minister will not deny that the Government and the Central Bank would prefer an interest rate of approximately 8% or 9% at present, which would be approximately 2% or 3% above the rate of inflation. However, that cannot be done. This is why the economy is out of control. Mr. Peter Bacon is sent off every year or two to find a solution to the great housing boom, but it is fuelled by low and totally inappropriate interest rates. The housing boom cannot be controlled with a report. Senator Bonner said that it did not solve the problem the last time. However, it cannot solve it. Supply can be increased but the problem will not be solved until interest rates increase, and they will not go up until the European Central Bank says so.

Everybody knows the bank does not give two hoots about the Irish economy because it only forms between 1% and 2% of the entire European economy. It will not even get a look in and presumably the economy will continue booming out of control until Europe says stop. However, it will not say stop because it needs its economy to grow. When it says stop, it will be to a small extent. It is noticeable that the European Central Bank only puts up interest rates by 0.25% each time. In terms of the Irish economy, that is much too little; it is almost negligible.

European economies are in a fragile state of growth and they have a real problem. They must increase interest rates a little to keep inflation down, but they do not want to stultify the growth. Ireland does not rate in that equation and it is suffering as a result. At present, we do not feel we are suffering; we feel we are benefiting from it but, ultimately, the economy is getting out of control for that reason. It is not only a case of overheating. This does not necessarily mean it will have a hard landing, but there is little we can do about it. Debates of this nature are noticeable for the lack of solutions to the fundamental problems we face. There is only one solution, but it is unmentionable and heretical. Nobody will do it because it would involve admitting one was wrong. In addition, untangling a situation, such as the current position, is extremely difficult.

The first economic policy of this and every Government is to pray that the euro will go up against the dollar and sterling and the second one is to pray that the UK will join, which is totally outside our control. We adjusted our rate before we joined the euro on the assumption that the UK would join within a year or two, all would be well and we would not face the types of problems we now have. However, that is not happening. It appears the British Government has let us down and has not answered our prayers. It will stay out of the euro because it does not like it and it has seen the problems associated with it.

Our currency will be tossed backwards and forwards against sterling and the US dollar in a way which is completely unacceptable and difficult for our exporters. While our exports are booming at present, if Senator Bonner's prayers come right and we suddenly bounce back against the dollar and sterling, what will happen then? Exporters who fixed at lower rates or based their projections at lower rates, although some have not done so, will scream at the Government that they cannot export any more because the euro is so strong. We are in an awful bind. I have not heard anyone suggest a solution to this except Deputy Dukes who, with his normal disregard for the realistic, said we must learn to diversify our exports.

Mr. Dardis

At least the Senator has something in common with him.

Mr. Ross

That is the solution but it will not happen because people will go where they get the cheapest and best market at the time.

The flagship of the Government's economic policy is the pay deal. It is the one fig leaf which protects the Government from saying it is not doing anything to curb inflation or to guide the economy through the present turmoil. I am sorry the Minister for Finance is not present to hear me say the pay deal is dead – it does not exist. The Partnership for Prosperity and Fairness is beautifully named. If we say it often enough, people will believe that is what it is. It is wonderful and brilliant. All the newspapers and media, including RTÉ, and everyone here calls it that so it is apple pie and ice cream.

The Minister knows the pay deal died the week it was introduced when the bus drivers went on strike. The NBRU is not a member of the wretched ICTU organisation. It has more sense because it realises the pay deals are only used as an umbrella to rein in a few unions and employers and to keep them happy. The bus drivers drove straight through the pay deal in the first week. They got more than was allowed under the pay deal. I cannot remember whether it was for benchmarking or productivity because I am tired listening to the same spiel from Ministers but they will get more later. The pay deal does not exist.

Senator O'Toole's boys will run riot through the pay deal in the next two or three years. He has already announced they are looking for 30%, as is the ASTI. One cannot blame them for that. It will be great fun seeing the Government dressing up the pay deal and saying it was not broken because there was productivity or benchmarking. There is no pay deal. The Minister knows the 5.5% granted under the pay deal this year is just a starting point. They will run riot through this pay deal and most of them have done it already. We know from the last pay deal that the Government will say it is an exception or a special case or it will use another excuse. The gardaí and the nurses broke it and the public service ignored it. I am glad it ignored it because these pay deals are ridiculous.

Let us not hear the Partnership for Prosperity and Fairness being wheeled out time after time as a solution to the economy's problem. It does not exist. Nobody will take a blind bit of notice of it in six months' time and those who do will look extremely foolish. Virtually every private sector public limited company is ignoring it and if they are taking notice of it, it is only nominal. It is only a nominal pay deal and most private sector employers are happily finding ways around it by putting people on bonuses and incentives and creating new jobs. There are 150 ways around this. It is supposed to be an umbrella which fools one or two people into believing there is a pay deal, although there is no such thing.

Pay deals do not apply to the sector we mentioned as being important to the economy, the multinationals. They do not take any notice of ICTU and I am glad they have not heard of it. Private enterprises which must get on with their business without swanning around IBEC conferences have not heard of IBEC. The pay deal is old economy. It is only taking notice of those who are dinosaurs and have not adapted to the new world. The new high technology companies do not know what the Minister is talking about. They do not have time to go to IBEC conferences or ICTU annual jamborees. It is a different world from the one operating at present.

We must remember the days when things were bad. I congratulate the Government for taking us out of it but I warn it that it does not seem to have any vision of anything like that happening again. Credit must be given to every member of the Government for the determination with which it has, almost ruthlessly, pursued a private enterprise policy which has created employment and prosperity. However, we should also look back at those days in the 1980s when we had high unemployment. While a lot of it had to do with the world economy, some of it had to do with the prevailing philosophy which was high public spending and high taxation. Those days are gone and it is right to congratulate the Government on having the necessary courage and philosophy.

I encourage the Government to go ahead with the privatisations in the pipeline. We heard nonsense recently from the Opposition about Eircom and it wanted a debate on the private sector company. I understand it wants the votes of a few discontented shareholders. The Government is rightly committed to privatisation, not because of the money it will raise – that will be an issue in the future as it always is but I am sure it can live with that – but because it has no business in these areas.

The Minister for Finance has made a determined effort to get the Government out of banking. I do not understand why the Government owns the ACC Bank, the ICC Bank and the TSB. All the Government is doing is fettering these banks, damaging their activities and interfering in an area which it does not understand. The State banks have been a problem for successive Governments because they have not known what to do with them. These banks have not been run properly because there has been too much political interference in their operations. The Minister, quite rightly, is committed to selling off these banks. He should do so quickly and not be concerned about the amount of money he receives in return. The State has no business being involved in the semi-State banking sector and it should sell off these institutions as soon as possible. In addition, no further reports on how to achieve this should be commissioned.

Likewise, the State has no business being involved in the operations of Aer Rianta and it should sell off the entire entity. The State also has no business being involved with Aer Lingus. I accept that this suggestion will lead to controversy. Political opportunists on this side are already saying – one cannot blame them because that is the nature of politics – that the Government will not be able to sell Aer Lingus because the price of Eircom shares has fallen. Of course it will be able to sell Aer Lingus, it is only a matter of the price it gets on the day the sale is made. That is why Eircom shares were cheap. It is only a matter of pricing shares in Aer Lingus against those of other international airlines on a particular day, launching them at a slightly lower value and watching them fly.

Mr. Quinn

That is a good term to use.

Mr. Ross

That is what will happen. Let us have the courage to proceed with the sale of Aer Lingus. If shares in the company are slightly cheap on the day, it will not matter because we will reap a huge dividend from the Government's ending its involvement in this sector. Once this happens the Government will be in a position to proceed with the business of running the country. This should have been the case all along and it will be good for the economy because it will be obliged to compete in the open sector without the State acting as its nanny.

I wish to sound a final word of warning before I conclude.

Mr. Dardis

Is that a promise?

Mr. Chambers

The Senator should return to the script.

Mr. Ross

I am providing Senator Dardis with a great deal of material which will allow him to dispense with his script.

I am concerned about private sector credit figures which are increasing at an incredible rate. These figures relate to money which the banks lend to people to allow them to do various things. The rate of increase in those figures is a warning sign and an explanation is required from the Government in respect of it. Reports emerge from the Central Bank on a regular basis which show that these figures are rising at an alarming rate. The figures to which I refer show that people are constantly spending money they have borrowed at low rates of interest. They also show that it is borrowed money which is being invested in the economy, in housing developments and other areas. This could be dangerous because how will people pay this money back if there is an economic slump or an increase in interest rates?

I am puzzled by this matter and I have not received an adequate explanation as to why there is such a high rate of private sector borrowing. Where does the money to which I refer go? If a huge amount of it is being spent on consumer goods – as the Minister indicated there has been a major increase in spending in this area – then the economy could be in danger. Difficulties might also arise if much of this money is being spent on assets such as houses because, in the event of an asymmetric shock, people may not be able to pay off their debts. I do not know how to solve this problem but it should be the subject of detailed analysis.

I am aware that the banks carry out what are called "stress tests" in this area, but I am not convinced that they are carried out by a sufficiently independent body. I do not believe these tests are carried out with the purest of motives because it is in the interest of the banks to carry them out and state that the stress imposed is not very great and that everyone will be in a position to pay off their loans. History indicates that this is not the case.

I congratulate the Government on many aspects of the philosophy it has adopted. I condemn it for making possibly the greatest mistake of the 20th century in economic terms by joining the euro without even considering the consequences. I presume it did so, however, because this country has held a pro-European stance for so long. I wish to warn the Government that, despite our current prosperity, the economy faces real dangers particularly in terms of competitiveness. The Minister for Finance should enjoy the good times but he should also draw up a plan to deal with the consequences of the economy taking a downturn.

Mr. Quinn

I thank Senator Ross for sharing time. I could have sat here and listened to him for a further 20 minutes but I am not sure whether Senator Dardis would have done so with the same enthusiasm.

I agree with Senator Ross that the Minister for Finance has done a great job. To a great extent, the Minister has helped to create the current climate of prosperity. Any word of criticism I utter will not be directed at what occurred in the past because I am more concerned about the future. At the beginning of his statement, the Minister stated that he wanted to discuss the future. I waited and waited but he failed to do so; he spoke about the past instead.

I spent the last number of days at a food conference in the RDS which is being attended by 1,000 people from 40 different countries. We had many interesting debates because many of these people were unaware of the great success the Irish economy is enjoying. During yesterday's debate between economists and representatives of Bord Bia, people stated that they were envious of our achievements. We were asked how Ireland's new found prosperity had come about and we were able to list the various factors involved, including the contribution played by system of social partnership.

Like Senator Ross, one individual stated that he does not see a link between social partnership and Ireland's economic boom. To support his argument, he indicated that statistics relating to the growth of cancer in the United Kingdom between 1900 and 1970 corresponded exactly with those relating to the increase in cigarette smoking and that, therefore, cancer is caused by cigarette smoking. He further stated that the growth in Labour Party support in Britain for the same period was exactly in line with the growth of cancer and that, therefore, the Labour Party causes cancer. This shows, perhaps, that Senator Ross's argument about social partnership is correct.

It was interesting to hear so many people at the conference asking what will happen in the future. I waited to hear the Minister refer to the future today but he did not do so. Senators Coghlan and Bonner spoke, to a large extent, about the past and only referred in passing to what will happen in the future. However, neither Senator offered solutions to the type of difficulties we have been discussing.

I wish to focus on what I perceive as the key to the problem the economy will face in the future. I refer to our blind pursuit of growth, for its own sake, long after it ceased to be an effective means to a desirable end. We have made the classic mistake of confusing the means and the end. We are now pursuing the means as if they were a desirable end in themselves but that is not case.

Let me remind Members about the reason behind encouraging high economic growth. There is no mystery about what that growth was intended to achieve. In the 1980s, all we were concerned about was the creation of jobs. Since the foundation of the State there had been high rates of unemployment and emigration. On occasion, emigration helped provide a partial solution to the problem of unemployment because people could go elsewhere in search of a job. Until the advent of the last decade, job creation was the main driver of our economic policy. If some other desirable development such as protecting the environment became an obstacle, the desire to create jobs swept it aside. With hindsight, we may have swept too many of those obstacles out of the way.

Nobody could question the single-mindedness we displayed during those years in wanting to create jobs for our citizens and keep them at home. We focused on that singular target very successfully because the need for economic growth was seen as a means of future job creation. We arrived at the conclusion that the only way we could create sufficient jobs in a changing world was by stimulating a level of growth above that which was normal in more advanced economies. Ireland needed a certain level of growth just to stand still.

Due to the changes in productivity in many industries and because many old style industries were going to the wall and relocating to other parts of the world, we found that we needed a growth rate of 3% in the 1970s and 1980s if we were to have any positive effect on the overall number of jobs. For us, a level of 3% growth was virtually the same as standing still in job creation terms whereas a 3% growth rate was fine in other countries. We aimed for very high growth because, without it, we would not have achieved the end of job creation.

The dream came true. In the debate held in the RDS yesterday, one economist outlined ten reasons for our economic growth over the past 12 years. We have created jobs for everybody in an incredibly short space of time. Some people have been left out of the cold because of a skills rather than a jobs shortage and we must address that problem. Senator Bonner referred to the people who are not included in our economic growth and we must find a solution to that phenomenon.

The balance has been suddenly and decisively tipped in the direction of jobs chasing people rather than people chasing jobs, as was the case for many years. We can now stop doing some of the things we were doing in order to create jobs. We could stop pursuing a super level of growth, although it is almost heretical to say that. We could wake up to the fact that growth is not an end in itself, something I have not said previously. The blind pursuit of growth at all costs made sense when we were harnessing that growth for the purpose of job creation. However, we no longer need to create jobs and we should ask ourselves why we are still aggressively pursuing growth.

As we have started to learn, too fast a level of growth has many disadvantages, for example, it leads to congestion in our infrastructure, particularly in the housing market. Excessive growth has a multiplier effect on the housing market, traffic congestion, etc. The number of cars on our roads and the price of houses have a detrimental effect on each other. Some people pay more for houses close to the city to escape congestion on the roads while others buy houses far away from the city and add to the congestion on the roads. Too many people chasing too few goods will always have that effect. As long as they have the money, people are prepared to pay more for what they would not otherwise get. This factor is at work in regard to the price of houses, of which there is an inadequate supply. Adding to the pressure in this area is the ready availability of credit which means that the sale will always occur, even if the price goes up. Senator Bonner spoke about the effects of that in his area.

When we consider our current economic situation, nothing should worry us more than the continual spiral in house prices. Earlier this year, the Government congratulated itself on the fact that the rate of increase in house prices had dropped to 17%. The rate has bounced back to 20% and looks as if it is going to continue to increase for years to come. I do not envisage it slowing down unless decisive action is taken to increase the supply of houses and cut back on the never-ending levels of credit available to people. When we look for evidence of unsustainable overheating in the economy, we need not look any further than spiralling house prices.

We should remember when we discuss inflation that the cost of housing only shows up partially and indirectly in the consumer price index. Those of us old enough to have houses are not affected but young people seeking to buy a house for the first time are. If inflation stood at 1% per annum and house prices were to increase by 20% per annum, we would still have an overheating problem which it would be very foolish to ignore.

House prices are increasing as if there were no tomorrow. However, only in the past few weeks, we have had an uncomfortable reminder of how close tomorrow could be. The rate of sterling has now detached itself from the dollar and is beginning to come back down to earth, falling by 10% against the dollar in just a few weeks. While that is good for us on the inflation front, it is bad for companies which export to the UK. Such companies face the two-way squeeze of seeing their costs rising on the one hand and their sales yield falling on the other. They will be the first to go to the wall if there is a shake-out. We should be aware of this problem as we have spoken about what happened in this regard in the past. Companies will go howling to the Government for help because their businesses were built on the basis of current evaluations. This writing on the wall is an indication of the risks we take by continuing to pursue the Holy Grail of exceptional economic growth long after it has served any useful purpose and when its consequences are no longer beneficial.

We have not been honest with ourselves. The Government must be honest with its citizens. It does not do them any service by attempting to cover up the risks involved with the path we are pursuing. On the contrary, by covering them up the Government makes the risks even greater because people are encouraged to behave in a manner which makes an unhappy ending much more likely.

Due to his success and that of the Government, there is almost an air of cockiness about the Minister for Finance and he almost insults those who disagree with his approach. The Minister and the Government should adopt a tone of moderation and calmness. Rather than fanning the flames, as it has done recklessly in the immediate past, the Government should aim to act as a cooling influence. If the Government persists in leading this country on a blind surge to the edge of the cliff, it will have to shoulder the blame for it.

We have done well over the past ten years. I congratulate the Minister and the Government but we must ask whether we have been honest with ourselves and whether we should continue to pursue the growth rates we pursued in the past when job creation was our main objective. Now that jobs are not the objective, the Government should consider whether it is right to change direction and no longer seek the high rates of growth which we sought for many years.

Mr. Dardis

With the agreement of the House, I propose to share my time with Senator Chambers.

An Cathaoirleach

Is that agreed? Agreed.

Mr. Dardis

How much time is available to us?

An Cathaoirleach

Senator Dardis has an hour.

Mr. Dardis

That would be more than adequate for the two of us.

An Cathaoirleach

Senator Chambers in his own right would be entitled to 30 minutes. I am sure we will reach an acceptable compromise.

Mr. Dardis

I certainly was not going to take an hour, although as Senator Ross is present I might be tempted to go on for some considerable time.

Mr. Ross

He will run out of steam far too early for that.

Mr. Dardis

I am a little puzzled by some of what I heard from the opposite side. Incidentally, I thank Senator Quinn for analysing the genesis of the economic boom for Senator Ross, who seemed to be confused about the reasons for it.

Mr. Ross

Are we getting the unscripted bit first?

Mr. Dardis

Yes. In fact, if the Senator wants it all unscripted, I can do that also.

Mr. Ross

Yes. Let him do that.

Mr. Dardis

As in the case of Senator Bonner, however, Senator Ross would probably live to regret it.

Mr. Ross

Will the Senator speak first next time? That would be really tough for him, would it not – nobody else before him?

An Cathaoirleach

Senator Dardis without interruption. Perhaps Senator Dardis would address the Chair.

Mr. Dardis

I shall endeavour to do that. Dialogue is always useful, a Chathaoirligh, as you will be aware.

Something puzzles me about all of this. I do not want to underestimate the potential difficulties for the economy and the fact that we must try to sustain the benefits which have accrued to the people over a period, but I have some difficulty with the Cassandras, the prophets of doom. There is a great deal to celebrate. We must acknowledge that we have made remarkable achievements, whatever the reasons. I agree with Senator Ross in that we could argue about the reasons. I think there are a combination of reasons. Social partnership is a reason for the success, although it is not the only reason. Reduced taxation has been a major factor in generating employment, in making it profitable for people to go out to work and in making them feel that there is an incentive to go out and work.

We should celebrate what we have achieved because there is a great deal to celebrate. It is not so very long ago that we were looking at unemployment rates of 15% and serious difficulties. Thankfully, many of those difficulties have been overcome. That is a matter in which we can take a great deal of national pride. It is important to say those things because, frequently, they seem to be forgotten in debates on the economy in academic circles. The economy is enjoying unprecedented success and that should be celebrated and applauded.

Senator Quinn made an important point, that the need to create employment was the spur which created the growth. One of the aspects I recall vividly from not so long ago was the perplexity in economic circles that when growth reached levels of 3% and 4%, it was not reflected in the declining unemployment rate. According to the orthodox theory, once the rate of growth went past 1.5% or so, for every 1% increase in growth there should have be a similar 1% decrease in unemployment. However, that did not appear to apply to this economy and it took some time for the growth in employment to catch up with the growth in the economy generally.

It is good to see that the number in employment is rising and the number of unemployed is falling, and that incomes are rising and taxation is falling. Little more than a decade ago, Ireland was on the verge of bankruptcy. We can remember a time when the World Bank was seriously thinking of coming in and taking over because it was felt that we could not run our own affairs. I accept the strictures which apply now in the reduction of the number of levers available to us to regulate the economy. As Senator Ross stated, it is not altogether a bad thing that some of those levers have been taken out of our control and we are part of a larger picture in terms of the European Central Bank and the European way of managing many aspects of the economy. Thankfully, we are enjoying one of the highest growth rates in the developed world.

We have identified the ingredients for economic success and, as I said, they are not one or other of the things mentioned by Senator Ross, rather they are a combination. We recognise that lower rates of corporate tax encouraged investment and that also has to do with the advent of the multinationals and the amount of the employment which they created. I would not disagree with the analysis that in the event of them decid ing for some reason they had to relocate elsewhere, there would be serious consequences for the economy. However, we created the growth in inward investment. We created the environment which made it attractive for those companies to come here.

We also recognise that lower rates of capital tax encourage risk-taking. The reduction in capital gains tax from 40% to 20% had a significant effect in taking into the economy money which was lying idle in banks and elsewhere. We also must recognise that lower rates of personal tax encourage people to work.

Before the Progressive Democrats were founded in the mid-1980s, it was hard to find anybody in Ireland who agreed with that formula other than the Minister for Finance, Deputy McCreevy, whose record bears up to scrutiny in that regard. Today it is hard to find anybody in Ireland who disagrees with that analysis. The Minister for Finance accurately reflected this when he said

The Government believes that a high tax burden is detrimental to economic activity, it reduces work incentives and deters innovation and risk taking. In short, it damages economic prospects and our capacity to address our social problems. This is the lesson from our own history and the experience of other countries.

There remain some who criticise the Government's strategy but one must ask how sincere they are in that criticism. The proof of the pudding will be in the eating. I wonder will any of the major parties go into the next general election calling for an increase in the higher rate of income tax, for instance. I think we can readily say they will not.

I note that the Government's policy has also now been blessed by the OECD. The OECD appreciates that the reductions in personal tax have played a key part in freeing up the labour market and moderating wage pressures. So much for the view that the Government's tax cuts are fuelling inflation. I do not believe they are and there is evidence to support that point of view.

There is no reason the economy cannot continue to grow at an impressive rate for another decade or more. Senator Bonner quoted the example of Asia and there is also the example of post-war Germany and the length of time for which they could sustain serious and positive economic growth. If we are to close the gap in living standards which still exists between us and our wealthier European neighbours, that growth will be necessary. That is another reason for wanting to see the growth continue.

I cannot understand a philosophy which would seem to imply that there should be no further growth and there should be a recession, in which we would wind up with a rise in unemployment and negative equity. I would also not disagree with Senator Ross's analysis on the amount of private borrowing from the banks and the implicit dangers therein, but there seems to be an implied suggestion that we should throw away all the gains and return to recession. Nobody wants to see that.

There are, of course, problems on the path to prosperity and these are some of the issues with which we have been dealing this morning. We need to improve the infrastructure, for instance. We need to improve the skills within the workforce. We need to increase the supply of affordable housing, a matter to which several Senators referred. These problems can be overcome. The Government has taken action on all these fronts. Thankfully, we are generating Government revenue to enable us to address those issues, something we had not thought possible five years ago. We are now talking about surpluses of an order which allows us to make the investment for which we looked to Europe in the past. We are able now to address those issues from our own resources. If Senator Bonner needs a motorway to Donegal, at least we can build it now, whereas five years ago we could not have dreamed of doing so.

Mr. Bonner

I hope Senator Dardis does not forget the county roads.

Mr. Dardis

I do not forget the county roads, secondary roads and bog roads, of which we have many in County Kildare.

I accept that the most serious threat to all of this is the problem of inflation. We face two aspects of inflation, imported inflation which affects the price of oil and so on, and domestic inflation, which is within our control. We must ensure that there is enough competition within the economy to ensure that profiteering, which is happening at the moment, stops. Because of relative wealth, there is a degree of profiteering in areas where there is not good competition. It is up to us to ensure that competitive forces apply within the economy so that we can ensure that profiteering and self-induced inflation are restricted.

We have seen a steady rise in the rate of inflation, as measured by the consumer price index over the last few months. Our inflation rate is now at 5%, the highest in the euro zone, and is potentially a serious difficulty for the economy. I say potentially, because all depends on how we respond to the threat of inflation. The recent surge in the CPI can be clearly traced to a number of factors: the fall in the euro; the rise in oil prices; and the budget decision – entirely justifiable on health grounds – to put an extra 50p on a packet of cigarettes.

In such a situation we would, historically, have looked to the exchange rate as the main mechanism for reducing inflationary pressures in the economy but as members of the single currency that is not an option. I accept this reality, and we must ask what options are left to us. Various suggestions have been put forward. There have been calls for cuts in petrol duties, Fine Gael has called for a reduction in VAT rates and others have called for increased subsidies as a way of reducing prices to consumers. None of these options offers a real solution to our current inflation problem. However, we cannot fight inflation with more inflation.

There are already rumblings that the new national agreement will have to be revisited because nominal wage gains are in danger of being negatived by price inflation and there are calls for higher wage settlements to compensate workers for the impact of inflation. That would be an extremely dangerous course of action for a host of reasons. The first of these is that the worst of the inflation problem will soon be over. It is not wishful thinking, as has been suggested, for the Minister to point to lower inflation towards the end of the year. The price of oil will not keep on rising and the value of the euro will not keep on falling. There is some evidence that this fall is already ceasing. One or both of these factors is likely to move in a favourable direction, from Ireland's point of view, with a consequent easing off of inflation. That is not wishful thinking.

Second, a wage spiral would only exacerbate the price pressures which are already apparent in the economy, pushing the rate of inflation even higher. We would then be in a vicious circle, with wages chasing prices ever upward with disastrous consequences for employment. Third, the main losers in such a situation would be the most vulnerable groups in Irish society, those on fixed incomes. Inflation is the thief that can steal your savings, it is the enemy that can slash the value of your pension. If we are serious about the concept of social inclusion, we must ensure that inflation does not take hold. I recall the late 1970s when inflation reached very high levels. I remember people in my own area who were living on fixed pensions – some of them from the old British civil service – who were so damaged by inflation that they had to sell their homes. What had been a good income, within ten years became one that could not sustain them and they did not have recourse to social welfare payments.

There is now support for the views I am stating from no less an authority than the World Bank. A recent study from that organisation called, Growth is Good for the Poor, by David Dollar and Aart Kraay, shows that inflation hits the incomes of poor people more heavily than the incomes of the better off. Anyone who suggests that a wage spiral is a way of tackling inflation should bear that very firmly in mind.

Responsible income growth is the key to controlling inflation in the Irish economy. By this I mean reasonable and affordable increases in nominal wage rates which do not seriously erode our international competitiveness; I mean top-up increases in return for genuine improvements in productivity and generous tax reductions which give a real boost to net take home pay. That is not a revolutionary model. It is the model of social partnership which we have successfully followed for the past 12 years, which has served us very well and which has been an element in generating the growth we have achieved. It can serve us well into the future. If we keep our heads and abide by the terms of the Programme for Prosperity and Fairness we can look forward to a stable future.

We have achieved spectacular economic success. The number of people at work is at an all time high and the number unemployed continues to fall rapidly. We are within sight of eliminating long-term unemployment completely. It is remarkable to think that we had 9% long-term unemployment in 1994 and we are now down to 2%. There has been a massive impact on that very intractable problem. The unemployment figures themselves have fallen from 10% in 1997 to 5%.

Something in our national character requires us to talk ourselves down rather than up. This may have something to do with our history. I do not understand the béal bocht attitude which sees economic growth and prosperity as slightly undesirable things to which we should not have aspired. We have had major achievements and we should be proud of them. We should now ask ourselves what we want to achieve in the next few years and what new goals we will set ourselves.

In that context, a coherent policy to achieve balanced regional development must be one of our top priorities. The work currently proceeding on spatial development in the Department of the Environment and Local Government is of vital importance in that regard. I also welcome the remarks made by the Minister for Finance to the Joint Committee on Finance and the Public Service, about the Government's plans for decentralisation. I also welcome what the Tánaiste and Minister for Enterprise, Trade and Employment and Enterprise Ireland are doing to ensure that investment goes to locations outside the greater Dublin area. We must address the disparity in income between the Dublin area and the periphery and between urban and rural areas. Without such a policy Dublin will continue to sprawl outward like a European version of Los Angeles. The city will develop into a vast conurbation of up to two million people, spreading to a radius of 20 miles from the centre. At the same time, in the absence of proper planning, many rural areas will continue to suffer. It is a remarkable fact that in ten counties – Cavan, Donegal, Kerry, Leitrim, Longford, Mayo, Monaghan, Roscommon, Sligo and south Tipperary – the population at the last census was less than in 1951. This underlines the need to reverse the trend and for the initiatives of which I have just spoken.

Balanced regional development would enable all parts of the country to share fully in our new found national prosperity. It would bring new life into communities across the country which have been ravaged by emigration and depopulation over many years. The essential requirement for balanced regional development is a top class national transport infrastructure. Even though this is a small island, it can take four or five hours to drive from Dublin to other major towns and cities. Most of us see the poor quality of our road network as merely a barrier to the free flow of traffic but it is much more than that. It is also a major barrier to the free flow of investment – we all know that companies are reluctant to locate in certain places because of the difficulties in transport – and it is also a barrier to the free flow of employment because of the difficulties people experience getting to work. Furthermore, there is an economic consequence to the State. One needs only sit in a traffic jam for half an hour at Newlands Cross to realise how much fuel and money is being wasted because of the absence of adequate infrastructure.

I am pleased that the Government is about to tackle this issue in a serious way. A key component of the national development plan is the construction of a national motorway network to link Dublin with all of the other major urban centres. Whether that would include Donegal I cannot say. Along with that, work will proceed apace on the upgrading of the rest of the national primary road network. The real impact of these developments will be to make Ireland a smaller place, a country in which no area is really remote from the centre of action and where every town and community can access the opportunities presented by prosperity.

The geographic distribution of prosperity must be one of our national concerns while social distribution of national prosperity must be another. One of the most serious worries in the context of economic growth is the disparity between farm incomes and other incomes. For two years farm incomes fell. Everything that happens in the rural economy moves at a much slower pace than in the urban economy, which results in a growing divergence. The Minister of State, Deputy Dan Wallace, will realise that from his own experiences in Cork. Many commentators have complained that increased prosperity is leading to increased inequality. There are inequalities between urban and rural communities but these are related to geography rather than the growth in the economy.

Earlier I referred to the World Bank study. According to its study the rising tide does raise all boats. Anyone who is in touch with the economy would not need the World Bank to tell them that. More Irish people are benefiting from our economic growth than ever before in the history of the State. The study stated that growth is good for the poor. It also made the point that if incomes rise at the top of the scale they will also rise at the bottom end. Serious social issues still need to be addressed. Benefits accrue throughout the economy. The World Bank described it as a one to one issue between the growth in personal incomes at the top and bottom levels. There are some positive aspects to be learned from this study.

The best way of sharing wealth is by sharing work as widely as possible. By that yardstick the Government has been spectacularly successful. It has also been argued that a job is the best way to combat poverty and I subscribe to that view. There are 300,000 more people at work here than when the Progressive Democrats and Fianna Fáil took office three years ago. If that is not sharing wealth then I do not know what is. The Minister for Finance has told us the investment figure and it shows a very substantial increase. Growth is good.

We have now got to the stage where people are beginning to question whether we need economic growth at all. If growth is good then we need economic growth. It is economic growth that provides us with the resources to look after our pensions better. It gives us the money to build new hospitals and improve our health service. It enables us to fund training programmes that will help get unemployed people back to work. We should be clear about our national objectives and continue to promote economic growth.

Problems do exist but we are aware of them. Senators outlined several of them today. There are problems in the labour market, transport and housing. We have the capacity and imagination to deal with them and we have shown in the past that we can do it.

Reference was made to the national debt, which is now at manageable proportions at 52% of GDP. Senator Bonner, as an accountant, made a point about the absolute figure and the percentage figure. Obviously I would like to see the absolute figure addressed. The percentage figure has declined because of the growth in the economy and that should be applauded. Several years ago I would have been one of the people who was adamant that the national debt should be reduced. It is sustainable and manageable now because of the percentage that it has reached. Provided that growth continues in a positive way then the national debt will decline as a percentage of GDP.

Pensions are very important and the Government has dealt with this matter well. There was a degree of controversy when the Minister for Finance, Deputy McCreevy, set aside 1% of GNP to fund pensions. I listened to a radio programme this morning and I heard about the difficulties that will arise as a result of an ageing population. There will be a smaller proportion of people in the workforce sustaining a larger proportion of retired people who depend on pensions. It was entirely sensible, reasonable and prudent for the Minister to adopt the approach that he did.

We have the creativity to find novel ways of addressing these problems. We also need to raise our horizons in terms of the use of technology, the ability of people to work in the home rather than commute to their workplace. We are only beginning to grapple and deal with some of these issues. They can be dealt with. It is all a question of technology, both IT and biotechnology, and how we deal with them. We have the creative and educational capacities to do it. The Government has the capacity to benefit from these technologies and to harness them to our advantage.

I have mentioned before in this House the valuable lesson I learned about why some of the inward investment came to Ireland. While on holidays I met an executive from Hewlett-Packard. I asked him why his company set up in Leixlip, County Kildare. I also reminded him that wage rates are much lower in other economies such as the Far East. He said they were but that productivity is much higher in Ireland. He also said that their unit costs are lower and that is why they can compete. Ireland must maintain its competitive edge through its education system, our ability to be producers and through productivity.

There has been much debate on the housing problem. The figures the Minister quoted speak for themselves. This issue is still being addressed. It is extremely serious that people are still struggling to find the money to buy a home. It is very difficult for first time buyers to get on the first rung of the housing ladder. The strategic planning guidelines for the greater Dublin area and other initiatives show that this matter can be dealt with. It is not true, as has been suggested, that we are simply waiting for another Bacon report. It is important that we analyse the position and that we have reports on an ongoing basis. There is far more being done than that, as the Minister revealed in his speech.

I agree with Senator Ross's comments about the danger of a private sector credit boom because I can recall what happened in 1970. Overnight the inflation rate went up and there was a huge credit squeeze by the Central Bank. It no longer has the same amount of leverage that it had in 1979. If there was a slowdown it would be at a slower rate. In 1979 the Central Bank intervened, there was a credit squeeze and people were suddenly confronted by negative equity. I sold land in June 1979 and six weeks later it would have made only half the price. That was the speed at which things turned around. I do not see that happening again but we need to be aware of it and be careful. We are careful and the Minister has shown in successive budgets that he is prudent. The Government is aware of these issues and they will be addressed.

I am confident that we will continue to enjoy prosperity for a considerable time to come but I wish people would stop talking down the success that we have had. I wish they would enjoy and celebrate it instead.

Mr. Chambers

I thank Senator Dardis for sharing his time with me. I welcome the Minister of State at the Department of the Environment and Local Government, Deputy Dan Wallace.

I wish to recognise the achievements of this Government and the way that it has shaped and managed the economy since it came to power. Recent economic performance figures indicate that the economy grew at an annual average of 8% between 1993 and 1998. This compares very strongly with the rest of our European partners who have an average growth rate of 2% per annum since 1990. As a result of our economic performance employment figures have increased by approximately 50% since 1993.

Unemployment in Ireland has now fallen to below 5% from almost 16% in 1993. This brings our unemployment level below the European average. Long-term unemployment, which was endemic in the economy, has fallen to 2.1% from over 8% in 1993. The increase in employment levels affects every town and village throughout the country. I spoke with a person who had emigrated and whose family had before him, and he outlined to me the tremendous choices and opportunities which exist for young people, even in rural areas along the western seaboard, to seek and obtain work and successfully change their positions in the construction, health care and information technology sectors. Tremendous opportunities exist and, while young workers have not experienced the high inflation and interest rates of the past, those who have, especially their parents, are conscious of the great achievements which have taken place in recent years. They are welcome and we should maintain them. We should be proud of what we have achieved with the economy in such a short time and we should manage it carefully within the structures we have laid down so that it can be sustained on a long-term basis.

The success of the economy can be identified under several headings. Price stability and competitive wage increases delivered by social partnership are two examples. While concerns exist about the Programme for Prosperity and Fairness, the two previous agreements between the social partners played a strong part in the successful growth of the economy. The Government has, in its social partnership agreements, successfully reduced the tax burden on wage earners and, under the Minister for Finance, has lived within the constraints of the agreements. This has greatly helped to encourage job creation in the State. It is recognised that the investment in education initiated in 1968 has borne fruit by providing good young entrepreneurs and well educated young people which international companies have seen as an advantage and of whose abilities they have availed by providing work for them within the State.

The creation of a suitable business environment by reducing corporation tax has played a tremendous role in attracting inward investment, especially from multinational and American companies, some of which employ up to 3,000 people. They play an important role in our exports and in the success of the economy. It is recognised that the huge increase in the numbers at work is paying dividends in terms of the economics of the country and the moneys returned to the Exchequer. It has given the Government an opportunity of investing in and dealing with certain needs and provides it with an opportunity to tackle problems which still exist in the economy.

Despite economic success, there are many problems and challenges which must be tackled for the future. We are now a member of the euro zone and this presents us with a major challenge of maintaining price stability. The demographic conditions of the population will change substantially in the next ten years and this must be provided for within the long-term strategy for the economy. The Government has provided for this by putting aside 1% of GNP towards pension costs. This is welcome and we should recognise it as such. There is still a need for substantial investment in public infrastructure if we are to sustain economic growth and continue to create jobs, especially in the construction industry, and promote regional development. The Government has made provision for this investment in the National Development Plan, 2000-2006. The drawing up of a national spatial plan and the Government's commitment to decentralisation means that, in the success of the economy, there will be greater delivery and decentralisation of resources to the regions. I am satisfied the Government recognises this and the plan will have a great effect on the economy.

A recent OECD report praised the economic strategy of the Government and the Minister for Finance which involves the reduction of taxation and greater encouragement and training for the long-term unemployed to participate in the economy. In the previous budget, the Minister for Social, Community and Family Affairs introduced a pilot scheme in two regions, Longford and Drogheda, which examined the status of 18 year olds who had fallen through the education net without having achieved what they would like to achieve, and identified that sector where there is a need for focus and attention to give those within it a chance to play a greater part in their own achievement and find and participate in some sector of the economy.

Competitiveness in the marketplace is regarded as a fundamental factor in the long-term sustainability and development of the economy. The Government must play its part by ensuring that reforms and the administration of its affairs are effective and efficient and are carried out with speed. I have noticed the substantial change in local government and it will have to play a greater part in dealing with the provision and control of land to reduce the cost of housing. It is a sector which requires direct intervention and I see that being done in the long term by local authorities playing a greater part in the context of the national spatial policy for development. The crucial balance between wage costs, productivity and taxation are important in achieving long-term sustainability.

We must invest heavily in education for the future. It will ensure lifelong training in the workplace and will help create wealth and social cohesion in a balanced and open economy such as ours. I recently heard the Provost of Trinity College speaking in Mayo about the economic boom. He never gave credit to politicians or political parties in his speech and did not recognise what had been done by Governments to the financial affairs of the State to bring about the boom. He identified a number of factors which led to the economic boom. While Senator Ross said we had little control of the situation, my understanding is that we have managed to effectively harness the energy of the young population. The assessment of the Provost, Mr. Mitchell, was that it has been a combination of the baby boom in the 1960s, substantial inward investment and investment in education initiated in 1968 which has contributed to the growth and prosperity we have today. If we invest in education for the future, it will provide the cohesion of a balanced and open economy and will underpin and augment long-term sustainable development within the country. This should be a benchmark for the future of the economy and the people.

Mr. Caffrey

I welcome the Minister of State and all the Ministers and Ministers of State who have come and gone in the course of this important debate. When the motion was tabled for debate, I said to some of my colleagues that the Government side would have a field day claiming credit for the growth in the economy and our economic expansion. They did not resist the temptation, although it was a difficult temptation to resist.

I recently got a lift from a taxi driver in Dublin. We were discussing the economy and he said that the country would run on its own at the moment, that it is going so well we do not need a Government at all. There may be some element of truth in that but if the bubble of this economic miracle is going to burst, Government policy will contribute to its bursting.

Some of the major questions now being asked are how long this growth can be sustained and whether inflation will be the bugbear that will bring it down. It seems, as Senator Dardis said, there is some idea in the public mind that sustained economic growth in Ireland is not possible. I do not subscribe to that idea. We should look to history and for those of us who are not well versed in economics, history is a great teacher. We have only to look at what has happened in Europe over the past 30 to 40 years. Germany continued to expand at our present rates for many years and there was never a question of the bubble bursting. Economic growth has slowed in Germany over the past few years since the mid-1990s, nevertheless, economic growth continues there. I remember speaking to a German industrialist in the 1970s. At that time, workers were leaving this country and going to Germany and they were receiving three to four times the hourly rate they could have earned in Ireland. I asked this industrialist how they could give such levels of pay and at the same time be competitive. Ours was a low cost economy yet it was in the doldrums. He said that Ireland had a low wage economy but productivity was too low.

Senator Dardis referred to an executive he met recently from Hewlett-Packard and that he said the productivity of the Irish workers was one of the reasons they came to this country. No one in this debate, most of which I was here for, mentioned the Irish worker and his contribution to our economic success. We owe a debt of gratitude to the Irish workforce for the way they have advanced our cause, increased our levels of productivity and attracted multinationals to this country. Multinational companies were the basis for our economic success. The Hewlett-Packards came and set up in this country for some of the reasons outlined in this debate and we must ensure that they stay here. We should focus our minds away from some of the ideas on which we are focusing currently, such as inflation, and towards widening our industrial base and ensuring that the multinationals stay and sustain our economic growth.

I am not hung up on inflation increases. The level of inflation and the level of interest rates usually coincide. History teaches us that as well. If we look back at the 1970s and 1980s, every time there was an increase in inflation we pegged on a percentage point to the interest rate. We ended up with 22% or 23% inflation and 22% or 23% interest rates. I am a firm believer in the concept that interest rates and inflation rates are the Siamese twins of the monetary system and that they will invariably be linked together, no matter what instrument we propose or how we work to separate them. Our current inflation rate is closely linked to our interest rates again at 5%. If inflation rises to 8%, we will find that our interest rates will be at a similar level. We now know that out of control inflation can be a serious factor – and possibly anything out of control is a serious factor – within our economic structure. In the key areas of food, clothing and other areas where it would impact on lower wage families, inflation is not as significant as in other areas. It is feeding from the spiralling inflation in house price increases. It is one of the key areas that is fuelling inflation here.

I do not know whether I am right or wrong but I have a firm suspicion that house prices will stabilise inside the next year. Especially in the rural areas from where I come, the supply of new houses coming on stream in some of the provincial towns is unbelievable, with some 400 and 500 site developments in small provincial towns. It will have to meet the demand sooner or later. Possibly in the Dublin area there will be a longer lead into stabilisation but I am sure it will come. I do not subscribe either to the idea that developers and contractors are currently sitting on large landbanks. If a developer has a landbank of 100 acres he can only develop so much of it in one particular year. He has only a limited workforce and facilities. He cannot develop a 300 or 400 acre landbank in one year. There must be something in reserve and I do not subscribe to that idea.

If the Government and the Minister want to really tackle what is happening to house prices and the planning process, let them look at the planning offices in the Twenty-six Counties and note the interminable delays in planning procedures, with county councils and local authorities using every device possible to extend the limits. Planning permissions applied for are only granted two or three years down the line with local authorities using whatever device they can legally and within the system to delay planning applications. The result is that land which could be developed is not being developed.

Planning authorities give us the reason that they are short of staff, which they are in many instances. Most of the planning authorities are not able to deal with all the applications because of the dramatic increase in the level of applications. As a result we are using every conceivable device to extend the period. An Bord Pleanála is not helping where decisions are awaited for six to eight months.

There are other areas with which we could be dealing. We will have obvious labour shortages which are possibly a bigger threat to the economy than an increase in inflation. We must focus on these areas and speed them up. Planning within all local authorities is in a hopeless mess. I have called for a debate on planning because it is an urgent issue. It is creating many of the shortfalls within the housing and construction industries.

I believe our economic boom with a growth rate of 8% or 9% is sustainable. The fundamentals are right and our job and that of the Government will be to sustain it. That is where the problem arises. If the Government fails to sustain the present level of growth, the electorate will respond.

Mrs. A. Doyle

I agree with much of the Minister's contribution. Our economic performance is a matter of pride, all the more so for one who is out of the country a great deal. I am continually asked how the transformation has come about over the past seven or eight years and what are the most important contributory factors to the economic turnaround. At the European Parliament we meet more and more delegations from the accession countries, which are lined up to join the EU, and they look towards the Irish example to see what they can learn in the hope of replicating our economic success story. There is no doubt we are all proud of our economic performance over the past eight years or so.

I am not as confident as my colleague, Senator Caffrey, that a continued growth rate of 8% or 9% is in our best interest. Would that it could be so. It could be sustained if we had the people to take up jobs and infrastructural development kept pace with economic growth in terms of housing and so on. However, I fear that such a continued growth rate would stretch economy to the point that it would seriously overheat and rebound which would result in pressure on wages, the collapse of social partnership agreements and more industrial unrest. It could spiral downwards. I would be happy if we achieved a growth rate of 3% or 4% through a soft landing process. We will not fall out over 5% but we should gradually try to achieve a growth rate of 3% to 4% over the next five years without overheating the economy and destabilising the factors which have led to our success.

A sustainable level of growth augurs best for the medium to long term. The current growth levels have been a tremendous boon and have made a major impact. I am not sure and the jury is out on how long such a high level of growth per annum can be sustained. Economists differ on this both nationally and internationally. How is it Commissioner Solbes and the Central Bank are issuing dire warnings about overheating in the economy, as if it will all fall in around our ears over the next 12 months, and are wagging the finger at the Government? In Europe the media have reported the Commissioner's cautionary comments and concerns about our rate of inflation and the risk of overheating in the economy. On the one hand, the Central Bank and the Commission are worried about Ireland's rate of inflation and the budgetary strategy of reducing taxation, fearing that it will further fuel and overheat the economy while, on the other hand, the OECD report was much more favourably disposed towards the policies that have led to our success in recent years, although it contained some caveats.

The Commission and the Central Bank are on one side while the OECD and other economic commentators are on the other. It is hard for the lay person to know whom to listen to in this regard. The truth probably lies in the fact that the traditional economic models by which inflation and the risks of an economy overheating were judged are no longer applicable in Ireland or countries in the euro zone. Interest rates determined by the ECB are more relevant than national fiscal policy to countries, such as Ireland, which have relinquished the right to control such policy except in terms of public spending and taxation.

I am not sure whether we have hit on the economic model that represents Ireland's present cir cumstances or whether the economic models used by some commentators are just out of date. The truth in terms of the conflicting reports in regard to the risks of the rate of growth in our economy might lie in the fact that the traditional models are no longer applicable. One cannot crunch the numbers as before and come up with an answer. There are so many other variables and external factors on the world stage, not just the European stage, that are not read correctly when they are factored in.

The fact that sterling is outside the euro zone is an issue for Ireland but if one had said some years ago that Ireland would be part of the single European currency and that its main trading partner, the UK, would be outside, one would have expected the impact on the economy to have been horrific and that it would not have been possible. At the time Ireland decided to enter the single currency and Britain looked like it was staying out there was a great deal of debate about the dangers of doing so. At that stage, Ireland's focus, in terms of trading partners, was completely anglocentric. Raw materials were sourced in Britain and we exported mainly to Britain. If Ireland was not on side and the sterling/punt exchange rate was not favourable or as close to parity as possible there was uproar among exporters and the production sector. When the Taoiseach was Minister for Finance a few years ago, he had to introduce special export aids for some producers such was the problem with the sterling/punt exchange rate. It is not an issue today, although it hurts.

Britain is not the ideal place to source raw materials and there is a cost in terms of exports but, on the other hand, Ireland's focus is now mainly eurocentric. Britain is an important trading partner but it is no longer our main trading block. Irish producers can source raw materials in Europe. They are doing so more and more but not sufficiently, although they are looking to sources of supply other than in the sterling zone. The 770 million consumers in the European market have been the target of an increasing proportion of our exports. As a country which exports up to 80% of what it produces the most important factor in our economic success, with respect to successive Governments and their policies, has been access to the Single Market. If Ireland did not have free access to the 15 member states through the Single Market it would not have had an alternative to Britain. It has changed our focus from Anglocentric to eurocentric.

The social partnership agreements follow in terms of importance as they have led to industrial and wage stability to allow Ireland to become more competitive. Our products can make it on to the supermarket shelves of Europe and match the best in Europe in terms of competitiveness.

Free education has provided us with an educated young workforce and has given everybody the option of staying in school until their leaving certificate and, more recently, through third level. I acknowledge the contribution of the former Minister for Education, the late Donogh O'Malley, to the provision of free second level education, which has been a critical factor in providing us with the educated workforce to take up the growth in the economy and to provide the skilled jobs that were necessary to attract industry, especially in the high-tech, software, financial services and other areas.

EU transfers since we joined the then EEC in 1973 have been important, but I place them fourth or fifth on the list of factors. Their proper management was essential to providing a catalyst to the economy in terms of spending on infrastructure, training and other areas. We did not spend the money on short-term projects but on those that would give a lasting return to successive generations.

We must not forget that being an English speaking nation has been very important to us in Europe. Those few who like to wave their Anglophobia should occasionally remember that. My experience over the last year has shown me that English is the international language of Europe and the world. The Americas, Australia, New Zealand and ourselves speak it and it is taught as the second language in all of Europe. They shame us because they also teach third and fourth languages, starting at primary level. English is the passport to communication throughout Europe and in the business world.

Government policy has also been important. Reductions in what were penal personal rates of taxation have been very important in allowing the social partners to make successive agreements on wage policy. That has brought industrial peace.

Successive Governments have contributed to the present position. I broadly agree with what the Minister said. Our economic performance is a source of pride to us all, with the caveat that it is very hard to know which economic commentators to trust in terms of analysing the risk of overheating and thereby encountering a hard landing. Is Commissioner Solbes or the Governor of the Central Bank wrong? Which economic commentator do we listen to? The jury is out. On the one hand there are apocalyptic warnings from prophets of doom. On the other hand, perhaps the Minister occasionally sins in this area by overselling the good news. We are all politicians and we must all sell ourselves and our policies at times, but perhaps he is a little over-enthusiastic and ebullient. Nevertheless, I understand his position. It is part of his personality. The lay person has difficulty knowing whom to listen to and whom to accept.

Through the reductions in personal taxation and a rather benign corporate taxation regime, we are at last in a position to reward work, enterprise and initiative and to encourage employment. For too long employers found it was penal to increase employment in terms of the gross cost of taking on one extra employee. That has become much more benign and profitable. With good competitive practices and production throughout it has meant that, at last, everybody can be rewarded for their hard work, initiative and risk taking in terms of investment in industry.

We are all proud of what Ireland has achieved, but mention must be made of the health service. It is a source of shame to us all across the political spectrum that at a time when the wealth and economic performance of the country is being lauded throughout the world and held up as an example of how to get things right and get on one's feet as a nation, we still appear to have a health service that, while it is not a Third World service, does not reflect the wealth and status of our nation at this time.

It is a matter of shame to us all that waiting lists continue to grow, that children do not have immediate access to essential services, that the elderly who have worked and contributed through their productive years are denied indefinitely or wait far too long for essential health services and that they cannot get geriatric beds when they need care because there is no longer an extended family to look after them. Our demographic profile reflects a reduction in the fertility rate and an increase in the number of women at work. Women are still mainly the carers, although this is not always the case. There are some wonderful examples of husbands caring for wives who are bedridden or in wheelchairs or who are suffering from Alzheimer's disease.

Mr. T. Fitzgerald

I am sorry to interrupt Deputy Doyle. We probably will not have a Minister in the House after 2.25 p.m. Will that suffice for the Senator?

Acting Chairman (Mr. Dardis)

The Senator will have concluded by that time.

Mrs. A. Doyle

I will be finished before then.

Mr. T. Fitzgerald

We do not wish to be discourteous to the Senator.

Mrs. A. Doyle

The Senator is lucky I am not in attendance too often.

There is a lack of sufficient beds for the elderly. They must take up acute beds because there are an insufficient number of convalescent or geriatric beds. Given the demographic profile of the country and the fact that most women today are working, there is often nobody to care for the elderly.

We must look urgently at how we fund our health services and how we provide for our increasing proportion of the elderly, especially the very old who will need care. It will not be long before some of us might reach that point. When speaking on the Health (Miscellaneous Provisions) (No. 2) Bill yesterday, I referred to what has been termed an inter-generational contract between the productive and non-productive elderly generations. Those of us healthy and well enough to pay our taxes to the Exchequer should do so on the basis that we will pay sufficient to look after those who are no longer productive or who cannot contribute themselves. As the productive base of the economy gets smaller because of the demographic profile and the proportion of the elderly increases, not just by comparison with the productive base but because of extra longevity due to better health and medical science, we will have more very old people who are more likely to need care rather than be cared for at home.

We must get the sums right. The Minister said an extra 1% of Exchequer funding has been allocated to top up the pension funds. Pensions alone will not sustain proper health care for the very elderly who need institutional care. We have no proper relationship between the voluntary, community, private and public sectors.

The organisation of our health services is a mess. The percentage of GDP we spend on health is far too low given the economic status of the country. Last week a group of people from Leinster visited me in the European Parliament. On the Monday evening one of them went for a walk and had what appeared to be a stroke. He was immediately taken to the local St. Pierre hospital in Brussels. Within a matter of four hours he had been seen by consultants, he underwent the full range of medical tests that were needed and he had an MRI scan. When he came to 24 hours later and when the slight paralysis he suffered in his arm at the time he collapsed had eased off – it looked like a very bad warning at the pre-stroke stage – he could leave hospital to travel home to his GP with his MRI scan, the results of his tests and a consultant's report. Such a patient in this country would not have got an MRI scan with anything like that speed and efficiency, never mind the full battery of tests needed to assess how acute was his situation. It turned out that it was not as acute as it first appeared, but the rate of access to state of the art medicine was extremely impressive. This opinion was shared by the 40 people who were also present, who represented the 11 constituencies in Leinster, not only my area.

We should be able to provide a state of the art medical service to all our people. Those who can afford it should be encouraged to have private medical insurance. This would relieve the pressure on the Exchequer in terms of the funding of the system. However, I feel strongly that level of ability in financial terms or disposable income should not determine access to state of the art medicine. Given the success of our economy, there is an urgent need to examine spending on health services. Money should not be thrown around or services duplicated, but it must be structured in a way that ensures that everybody has access to state of the art medicine and people in pain do not experience unacceptable waiting times for elective surgery of any kind.

Regarding the detailed plans which are expected shortly from the Minister in relation to the national development plan, some weeks ago I tabled a parliamentary question in the European Parliament to Commissioner Barnier. I asked whether, bearing in mind that the south east region of Ireland has been classified as an Objective One in transition area, the Commission would pay special attention to the region while negotiating the disbursal of the various funding programmes in the light of recent figures published by the Central Statistics Office for Ireland which show that the south east region is not benefiting from the growth in the Irish economy as much as many other areas hitherto classified as more needy.

The south east region is in the southern and eastern region classification of Objective One in transition. The per capita income in the south east, which includes Waterford, south Tipperary, Wexford, Carlow and Kilkenny, is 3% to 4% below the national average. It is way below the average in the eastern counties of Dublin, Kildare and Meath. It is also well below almost all the main Objective One region, the western and Border region.

For some reason which requires much analysis, there is an urgent need for catch-up moneys in terms of particular investment under the national plan in the south east. There is no obvious reason that is the case except neglect under the last national programme. I ask the Minister to give a commitment to the south east area. We are aware of the gross spending that will take place over the next six years, but the south east should be targeted in terms of catch-up moneys so that the region will reach the national per capita income level.

I ask that with some conviction because Commission Barnier's reply was that the classification of the southern and eastern region of Ireland as an Objective One region in transition provides scope for more balanced economic growth across the region. He said a dedicated operational programme, the southern and eastern operational programme, with planned expenditure of almost 4 billion will complement expenditure through the inter-regional operational programmes of in the region of 31 billion.

The important point in Commissioner Barnier's reply is that sub-regions, such as the south east region, found to be lagging behind in terms of infrastructure and industry or services will be targeted with differentiated assistance according to the need with a view to eliminating imbalances within the region as a whole. Effectively, this is a guarantee from Commissioner Barnier that any sub-region, such as the south east, that is lagging behind in terms of economic development and per capita income will be targeted in terms of extra spending from the money allocated to the southern and eastern region, of which the south east is a sub-region. I ask for a guarantee that the Minister for Finance, Deputy McCreevy, and the Government will ensure that the south east region is specifically targeted for catch-up moneys, as Commissioner Barnier told me would happen.

Another downside of our economic success story is the management of waste, although I do not know how one can do justice to this matter. It is almost impossible to expect local councillors to make a decision on where incinerators should be located, whether incinerators are needed in Ireland or where super dumps or major landfill sites should be located. There is a need for a national waste management plan with leadership. The relevant Minister should indicate what Ireland needs in terms of waste management.

There is a need for major investment in subsidising recycling and waste reduction programmes generally. This should be the starting point. We should reduce the amount of waste that will cause a problem and we should reuse and recycle. Recycling should be subsidised because it is uneconomic at present. It may become economic but that is not the case at present because of energy prices, etc.

Major investment in recycling, waste reduction and minimisation and education programmes in that regard would save a fortune in terms of high-tech answers when waste has accumulated. The current landfills cannot continue. In my view, they are even more dangerous than incinerators because they are not state of the art operations in most cases. We are leaving a hostage to fortune for future generations to resolve the problem. Where are we going and where is the leadership from the Government on this issue? Is incineration the answer? Is it necessary to take that road? New Zealand, a country which is similar in size and population to Ireland and which also has an agriculture based economy, did not take the incineration route.

What is the Government's plan? It must show leadership on this crisis issue of waste management because, if that does not happen, we will be buried in our own waste and dirt in a few years. It should invest in subsidising the reduction of waste to encourage people to minimise and separate waste and reuse and recycle items. We must increase the consciousness of our people in terms of the crisis that faces us and the fact that an answer must be found. However, the Government has been ominously silent on this matter and it is reneging on its responsibilities if it thinks local councils can answer the nation's problems in this matter.

One could not fail to mention the crisis in the cost of housing in Dublin. The third Bacon report is awaited, but will it be possible to consider special tax treatment regarding rental costs in the Dublin area? The cost of houses has increased but so too have rents. Renting a house puts an intolerable burden on a good salary today. Perhaps there should be an allowance for rental costs if one works in Dublin because we want people to live near where they work to avoid transport congestion and problems generally. People with good salaries are being priced out of the housing market in Dublin and there is major traffic congestion.

These are other areas of huge neglect by the Government and where it has reneged on its responsibilities to the people. Leadership and answers are required to deal with the traffic and waste problems, but they have not been forthcoming to date. The issues of the elderly and how they are looked after, our health services, housing, the traffic problem and waste management are the hidden difficulties and where the Government has failed the people completely.

Those of us who travel abroad are particularly proud of the economic success and growth record of Ireland. However, we are not sure to whom we should listen because prophets of doom are lining up on one side while, on the other, some commentators say it could continue indefinitely. We will have to watch the space carefully. I would not mind a reduction in the rate of growth, although I do not suggest recession. Other Senators have said it is a case of all or nothing, but a reduction in the rate of growth does not mean recession. Nobody would wish that on the people; we have lived through such times in the past. A slowing down in the rate of increase of economic output would not do any harm as long as it is properly managed so we can get young people out of school and into third level colleges and good jobs. That is what we need so the infrastructure services can be put in place to service our economic growth. A balance must be struck.

I am nervous about the 8% to 9% rate. I would love to see it settle at 4% to 5%, but with a soft landing. I do not want a recession. I do not want this or any Government to jolt us into a hard landing through its policy decisions. There was too much hard work and suffering in the difficult years of the 1970s and 1980s in terms of fiscal management. There was also fiscal restraint thanks to the workforce, the social partners who accepted Government policy, Fine Gael who supported the 1987-91 Fianna Fáil led Government and the Tallaght strategy which was sneered at but which was probably the most responsible piece of Opposition politics we have witnessed in decades. I would put that, together with our support for the Government on Northern Ireland, high on the list in terms of responsible Opposition. It is not often accepted as that but the Tallaght strategy was a major contributing factor in our economic success.

We said we would not play politics with or be adversarial about proposals the Minister for Finance, Ray MacSharry, felt he had to put in place. We accepted that pain and restraint were needed and we supported the Government. That should be acknowledged when lauding our economic success and the increase in economic performance in recent years. We must recognise the important factors which had an input into that.

Acting Chairman

When is it proposed to sit again?

Mr. T. Fitzgerald

At 2.30 p.m. on Wednesday.

The Seanad adjourned at 2.25 p.m. until 2.30 p.m. on Wednesday, 7 June 2000.