I welcome the Minister of State at the Department of Finance, Deputy Martin Mansergh.
Economic Situation: Statements.
I am very pleased to have this opportunity to address the Seanad and to contribute to this discussion on the current condition of the economy. I look forward to listening to the views of Members.
For the information of Members, my colleague, the Minister for Finance, will introduce a Bill in the Dáil later this evening which will give powers to the measures taken earlier today to improve confidence in the Irish banking sector. He will give full details of the proposed legislation and the decision to safeguard the sector and the reasoning behind it. Members will, therefore, understand that in advance of the Minister's statement in the Dáil, I am somewhat constrained in what I can say on that subject and I will focus mainly on the current condition of the economy.
Considerable improvements have been achieved in recent years for the majority in society. Notwithstanding these improvements, it is important to acknowledge we are in the midst of an international economic and financial storm and we are far from immune from its effects. We must be realistic about what has to be done so that we safeguard the gains made and ensure we are well positioned to benefit from the global economic pick-up whenever it emerges.
In any debate on recent developments in the economy, it is instructive to consider our recent economic progress. Ireland has enjoyed unparalleled economic success over the past two decades. The economy has been transformed beyond recognition. More than 2 million people are now in work while Irish per capita income levels have converged with those in the rest of the developed world. In fact, since this Government came to office in mid-1997, more than 700,000 jobs have been created and since 1987, employment has practically doubled. This transformation has been achieved by the hard work and enterprise of our citizens and of those who have come to our shores and has been underpinned by Government economic strategy.
There have been very real gains but we must acknowledge that the short-term economic environment in Ireland has become much more difficult. Ireland is not unique in this regard. Prospects in virtually all the world's developed economies have deteriorated sharply over the past year or so. This international slowdown reflects a number of factors, including the continued fall-out from global financial market difficulties and rising commodity prices. Growth in our trading partners has slowed and combined with the appreciation of the euro exchange rate, this has created a difficult trading environment for the exporting sector in Ireland.
In Ireland, we have to cope also with the very sharp correction in the house building sector. Over time, output will return to more sustainable levels but there is a process of adjustment and a bumpy landing is not pain-free.
The level of economic activity remains at a very high level, as does the level of employment and income per capita. The underlying health of our economy remains robust. We have a dynamic, highly skilled labour force, together with a business environment which is supportive of enterprise and rewards work. We have flexible markets and a low public indebtedness. In other words, we are in the relatively fortunate position of being able to face the current stresses of economic adjustment from a position of strength.
The publication of the national accounts data last week has received widespread attention. These figures show that the economy contracted in gross domestic product terms at an annual rate of 0.8% in the second quarter of this year and -1% for the first half of this year on an annual basis. In other words, we have confirmation that we are in recession. While these figures are poor, they are not surprising. Other indicators such as retail sales, house completions and labour market data had indicated a contraction in the second quarter. They are in line with a sharp decline in tax receipts. In the context of preparations for the forthcoming budget, the Department of Finance is assessing these figures with a view to publishing a revised economic growth forecast for this year and the next three years.
The sharp slowdown in economic activity is having a considerable impact on our tax revenue and this poses challenges for all of us in terms of what public services can be delivered in the year ahead. Irrespective of the size of the shortfall in tax revenue this year, we must remember a considerable amount of revenue will be collected this year, and this will be spent on the various services and capital projects required for a modern society. The Government will address the funding gap in a measured and balanced manner in the forthcoming budget.
I refute assertions that the Government has taken no action so far. In recognition of known spending pressures, mainly reflecting the weaker labour market and the resulting increase in the live register, the Government in July announced a savings package of €440 million in 2008 and €1 billion in 2009. The purpose of these measures was to make certain adjustments within the overall expenditure amounts. They include €50 million in procurement savings next year, for which I have particular responsibility. We also made it clear that additional economies would be required in the event that the fiscal position deteriorated further.
Over the summer months, the poor performance of tax revenue worsened, and it is now clear there will be a substantial tax shortfall this year. Following analysis of the end-September tax revenues, the Department of Finance will set out its assessment in the normal manner at the end-quarter press conference on Thursday. September is a key month for tax revenue. While we do not have full month data yet, early indications suggest that the poor performance in tax receipts witnessed over the summer months is continuing.
We have brought forward budget 2009 to 14 October. The budget will reflect the necessary prioritisation of expenditure in light of expected tax revenues. Without going into details of the budget today, which have yet to be finally settled, it will set out steps to stabilise and restore balance to the public finances by, among other things, prioritising current and capital public expenditure to reflect the changed realities. The Government also intends to take decisive action now so as to safeguard our future sustainable growth.
Ireland is better placed than most economies to meet the challenges ahead with our low debt rate, our educated and young workforce, and our low tax environment for workers and business. We are also undertaking relatively the largest public investment programme in Europe. The Government will ensure that Ireland's economy is in the best possible position to resume trend growth as soon as international conditions improve.
The national development plan, launched in January 2007, set out a strategic and comprehensive strategy for investment in the economy over the period 2007 to 2013. The principal aims of the plan are to consolidate and enhance Ireland's economic competitiveness, to remove infrastructural bottlenecks which inhibit economic development, to educate our workforce, and to build a more socially inclusive society. The first annual report on the national development plan was published in July 2008 and gives a comprehensive picture of what has been financed and delivered under the plan in its first year. The total outturn for 2007, at €22.4 billion, was very close to the allocation envisaged under the national development plan.
A modern roads network and efficient public transport are absolutely vital for long-term economic and social prosperity. Under the Minister for Transport's ten-year investment programme, Transport 21, our major interurban routes, which link Dublin to Galway, Cork, Limerick, Waterford and Belfast, will have been upgraded in full by the end of 2010. We have already made significant progress along these routes. On the public transport side, important commuter routes into Dublin and Cork and between Dublin and the major cities have been enhanced, and further work continues on these.
The delivery of Transport 21, and the NDP in general, are dependent on the level of economic growth and the level of resources that are available to the Government over the medium term. In this context, the Government has indicated that, despite expenditure pressures which have arisen this year, capital expenditure will remain a top priority. In response to falling revenue pressures, and as part of the current budget and Estimates process, the Government has decided to review all capital expenditure proposals for 2009 to 2011 to ensure that constrained resources can be targeted at investment in core economic infrastructure that adds to our productive capacity. This should enable Ireland to recover quickly, when the current economic downturn abates.
As in many other countries, the pick-up in Irish inflation over the past year or so has been driven primarily by the global rise in food and oil prices. In Ireland, increases in interest rates have also had a direct impact on inflation. Recent inflation trends have been more positive. The annual rate of CPI inflation eased to 4.3% in August from 5% two months earlier. On the EU harmonised basis, annual inflation in August was 3.2%, significantly below the 3.8% increase recorded in the euro area, and the third lowest in the European Union over the past 12 months.
The Department expects to see an easing in the average rate of inflation in the latter part of this year and into next. Most commentators share this view. In addition to a moderation in commodity prices, the large increases in food and oil that occurred towards the end of last year will fall out of the annual comparison. The pass-through of the strong euro will also contribute to an easing in inflation, as will more modest domestic demand.
In pursuit of moderate levels of inflation, the Government is committed to implementing responsible fiscal policies and promoting competition and increased price transparency through the work of relevant State bodies. We are also continuing to prioritise productive investment in public infrastructure that the Government is undertaking as part of the national development plan which, over the longer term, will enhance our ability to produce more goods and services. By improving the economy's efficiency, this should also help to keep inflation in check.
Improving our competitive position is essential to facilitate a re-balancing of the economy towards more sustainable, export-led growth and to maintain our attractiveness as a location for inward investment. While the external factors referred to earlier, such as commodity prices and exchange rates, have an impact on domestic costs, these are beyond our control. Therefore, we must seek to control those costs over which we do have influence. We must also take steps to improve productivity. Recent months have seen Ireland's rate of inflation fall below that in the rest of the euro area, which is welcome.
In further support of our competitiveness objectives, the Government is committed to maintaining a low burden of taxation on capital and labour, and has implemented a range of policies aimed at improving competition in product markets and flexibility in the labour market. At the present juncture, improving our competitiveness position also means ensuring that we do not allow externally-driven price increases to be exacerbated by internally-generated second round effects. In this respect, the willingness of the various parties to compromise and adopt a realistic approach to wage determination in the recent pay talks is commendable.
We are also continuing to prioritise productive investment in physical and human capital under the national development plan. These measures will equip the Irish economy with the skills, infrastructure and operating environment needed so that we can take advantage of the global pick-up when it emerges.
As referred to in the Dáil last week, the Government and the social partners recently concluded a draft agreement as a successor to the first module of Towards 2016. I endorse the comments made by the Taoiseach when he remarked that a national pay agreement will provide a sense of confidence, certainty and stability in the challenging period ahead, while at the same time providing wider economic and social benefits. As Senators will know from my time as a Member of this House, I am a strong champion of social partnership. The cohesion it provides is needed more than ever in critical times. Here again the Government kept its nerve and played a key role in helping to bring it together and secure our future.
No doubt much will be said about the reform of the public sector, to which the Government is committed. This is an ongoing process which now has even greater importance. However, the financial turbulence which is a backdrop to this debate has developed within a part of the private sector, but it is the State everywhere that is being called on to provide a safety net.
A new balance must be struck, so as to try and avoid future disasters of Icarus proportions. We all understand the importance of markets, but some of the more exotic ones have led us to where we are, and the State on behalf of the citizens has been left with much of the responsibility for retrieving the situation, accepting forced priorities. It seems clear to me that we need not a weaker State that withers away, but a strong and resilient one that can protect without being overpowering.
The economic environment has clearly become more challenging, and the openness of Ireland's economy makes us more exposed to global economic developments. We have benefited substantially from positive developments in the global economy in the past but at present we are clearly being adversely affected by what is happening elsewhere, especially in the United States, and the difficult conditions in the house building sector are not helping. The Government has taken initial decisive steps to steer the economy through these difficult times and will take further substantial steps with the measures that are to be announced on budget day.
The Minister of State's speech was not very different from the one he delivered in this House prior to its adjournment for the summer. Yesterday, the Irish Stock Exchange crashed by more than 10%, an unprecedented collapse in its value. It is time the Government awoke to a crisis which is partly of its own making. Exchequer figures will be out by more than 10% compared with the previous budget, and we are discussing figures involving billions of euro rather than thousands or millions. The Government got its predictions completely wrong and it will have to do something about it.
The current buzzword in the financial sector is "toxicity", a condition which has crept into the Government. Ireland has the misfortune to have its own toxic trio, namely, the Taoiseach, the Minister for Finance, Deputy Brian Lenihan, and the Tánaiste and Minister for Enterprise, Trade and Employment, Deputy Coughlan, all of whom are out of their depth in terms of their responsibility for economic policy. They are contributing to the toxicity of the economy through their poor and slow judgment. The people will soon get sick and tired of this behaviour.
Why does the Government not acknowledge the unbelievable amount of bad debt that has arisen? Fianna Fáil, which has been in power for the past ten years, the banks and the property developers lulled themselves into this financial crisis. Irish bank deposits are safe for now but the crisis is not over. Developers across this city paid between €200 million and €800 million for land which in some cases is now only worth half that amount. Who is taking up the slack for this money which has to be written off on property?
The Irish taxpayer.
The developers will simply close their companies and declare bankruptcy. The banks have the clown that is this Government on which to fall back. The taxpayer had better not be pushed into another mess in a few weeks' time. The only evidence thus far that the Government understands the seriousness of the current crisis is its guarantee on deposits, a measure which has been proposed by a wide range of people over recent months.
Although I will not let the banks off the hook, the Government contributed to the crisis. Banking representatives told the Joint Committee on Finance and the Public Service that they did not believe a Northern Rock was lurking in Ireland and that significant sums of money were being provided through the interbank market to Irish banks. Given that the Minister of State does not give a hoot about showing courtesy to this House, I ask him to set out for the Dáil the source of funding for Irish lending banks. Irish banks get their money from deposits and interbank lending. Some Irish banks have reported that interbank lending was only a percentage of total lending. If overall lending in the Irish financial market is significantly down, have deposits also reduced significantly or is there something else we need to know? For some strange reason, investors have fled the Irish banking sector like swallows at the end of summer. They have simply disappeared and Irish bank shares are collapsing. Why were investors leaving the Bank of Ireland at the beginning of the summer despite yields of 12%?
People clearly are aware that serious problems exist. I will not accuse the Government of lying, but it is not telling the truth or letting the people know what is going on. The toxic trio are acting under the same delusions that affect many Fianna Fáil Members of this House. They are not telling the truth to the people but they cannot hide it forever. They will take the blame because they are not facing up to their responsibilities.
In regard to the economy, the Minister of State failed to discuss the reforms for which he is responsible. Government Members have been speaking ad nauseam about these since they were re-elected for their third term. What problems arise in terms of competitiveness? Is the Minister of State satisfied that all the issues pertaining to competitiveness are being addressed adequately and that they will not cause our economy to shrink in the future? In regard to the growth of Irish exports and foreign direct investment, currency exchange and competitiveness issues have arisen. Little can be done about currency exchange but a lot can be done to address competitiveness. However, the bland words we hear from Government representatives do nothing to assure us that something is being done. We want to know the concrete actions being planned.
At the end of the day, markets can handle both good and bad news but they cannot handle uncertainty or the press leaks and personal opinions which we get from Ministers with responsibility for economic policy. Is a redundancy package planned for the public service? Will medical cards be taken from patients over the age of 70? The Minister for Finance says he will not announce his decisions until budget day but he is adding to the uncertainty in the economy. Consumers are losing confidence because of the way the economy is being treated by this Government. It is time to address that issue.
Regard should be had for those facing negative equity because of what Fianna Fáil has done. The former Taoiseach, Deputy Bertie Ahern, claimed that anyone who talked down the property market was unpatriotic. These people are now left with massive negative equity because Fianna Fáil wanted to win the previous general election. The personal cost did not matter. How about doubling mortgage relief for the people whom the Government deliberately misled to win an election? That might reverse the belief that Government Members are merely a crowd of charlatans out to mislead at every turn.
The Government needs to start acting as if it is in power because toxicity exists in the Irish banking system and further problems are coming. If our own toxic trio, who have played an important role in causing these problems, do not act promptly, the situation in which we will find ourselves will be much worse. It is time to ask the banks how bad matters have become because we cannot help if we do not have this information. We may support the Government's legislative proposals but, like the people, we are becoming sick of being misled and hearing lies. When the Minister for Finance makes his speech, he needs to tell the people how bad the situation has become.
When the banks appeared before the Oireachtas committee less then three months ago, they could not have painted a rosier picture. One would never have believed that within three months the Government would be bailing them out of one of the greatest crises to have affected the banking sector in the history of this State. If the drip feeding of bad news continues for the next several months, the Government will send us back to the 1980s because consumer confidence will have disappeared. Business people and those who are financially aware know what is happening because they have been following events. That is why they have ceased to buy shares in Irish banks.
Ministers need to get off their high horses and start acting like a Government by being honest with the people. Fine Gael have put a number of questions to the Minister for Finance. There will be an expectation that when the Minister comes into Dáil Éireann he will answer those questions and that he will be a little more receptive to the views of those on the Opposition side of the House. Otherwise, we will have to be far more aggressive with the Government in persuading it to do what is right for the people. I have heard rubbish talk — I will use the word "bullshit" — from Fianna Fáil about a bipartisan approach. Fianna Fáil has abused every sort of bipartisan approach from those on this side of the House. I do not think it will be so easy this time. It is time for that party to start taking the hard decisions and to do the job it was elected to do.
Apart from the unparliamentary language, and one proposal——
I am sorry if my language offended the Senator. It is just that I feel for many of the people who are in difficult circumstances. I apologise for that.
Senator MacSharry without interruption.
This is the third economic debate we have had in the past nine months and again, I fail to see any real recommendations from the Fine Gael members of the Opposition. The Labour Party has its ten-point plan, to which I will refer later.
So has Fine Gael. The Senator is being very disingenuous.
Senator MacSharry without interruption.
This is an outrageous level of interruption.
Absolutely not.
It is outrageous.
Senator MacSharry without interruption, please.
The Senator is always the same when he responds. He should try a new approach.
There was one proposal Senator Twomey made I would recommend the Minister of State bring to the Minister for Finance, which was to double the tax relief for first-time buyers. I am sure the Government will reflect on that. I thank Senator Twomey for that long-winded single proposal, with unparliamentary language to boot, which I have never heard in my seven years in this House.
I utterly reject any suggestion that this Government has done anything but act in a measured and decisive way in dealing with the international crisis. There have been five interventions over recent years. The first, to which the Minister of State, Deputy Mansergh, referred in his own contribution in the debate on the economy last week, was fixed contracts for infrastructural projects to increase value for money. That is something to which I will return later. We have had social partnership, involving very difficult negotiations. As I am sure Senator O'Toole will know, because he was a champion of it in the past, the success of the past 15 years was established and built on the base of social partnership. We have achieved agreement on that. We have brought forward the budget to 14 October, which is to be welcomed. Also to be welcomed is the increase in deposit protection to €100,000 which was announced last week. These four things were followed by the announcement that legislation is being prepared to guarantee banks.
This is not a reaction, as I heard on the Order of Business earlier, to any television or radio show or to suggestions from journalists. I am glad to say the officials at the Department of Finance and the Ministers in our Government have the competence to be able to act in the interests of our economy. This is not bailing out the banks; it is a set of measures that is being introduced. I appreciate that we all look forward to hearing a little more detail about its various aspects, as I am sure we will in the banking Bill which is to be introduced in the Dáil later today and presumably in the Seanad tomorrow. However, we are assured it will represent value for money to the taxpayer who, as was rightly pointed out on the Order of Business today, may be taking on an element of risk, and that it will be based on commercial terms. This does not constitute a bail-out but a transaction. The banks will pay for these guarantees, and rightly so.
I do not have any pity for banks that have presided over reckless lending, but there is no indication that banks in Ireland have involved themselves in the "ninja" lending that was common in the United States, which was completely reckless and which involved lending to people with no jobs and no capability of paying back. For the most part that has not happened here, as far as we know. Yes, there is exposure to developers, and yes, there will be losses in that regard, but I am hopeful, if not confident, that our banks are capitalised to the extent that they can sustain such losses.
We need to know that.
That is business. If they are not, it will be reflected in their share prices.
What the Government has done today is to take decisive action. It has given an example to the rest of the world. That is the international sentiment on what the Irish Government has done. The British Government immediately stated it was watching what was happening here, and the Opposition in the UK has said the same. We have seen a bounce in the markets today. That gives certainty to the investor and it is also of advantage to our banks. As other speakers said, they get their funding from two sources: deposits and interbank lending. Banks throughout the world would like to lend exclusively to Irish financial institutions on the back of this guarantee. That is welcome.
Thanks to the taxpayer, of course they would.
Thanks to the taxpayer, yes.
Thanks to the people of this country——
——who are going to get paid.
We need to know that.
We will hear all the details, as the Senator well knows.
These are the details.
It is not a bail-out; it is, effectively, a transaction——
A rescue.
——and there will be a levy or charge for that, which we will hear about in due course. However, it will be at market rates.
As I said on the Order of Business, I congratulate the Minister on his decisive action. The officials who were up all night trying to prepare the legislation deserve our gratitude. In this regard we are unlike the United States where there has been dithering over recent months. The partisan wrangling that went on there yesterday was a disgrace and unhelpful to the world. The US, as well as many other countries, can look to what the Government here has done and take similar actions which, as I said on the Order of Business, I believe will help to establish a floor to this international crisis from which we can begin to stage a recovery.
Senator Twomey mentioned the appearance of representatives of the banks at the Joint Committee on Finance and the Public Service, of which I am a member. So much has occurred in the past three months. Last week the bank Wachovia was taken over by Morgan Stanley. Today it was itself taken over by Citibank, and Morgan Stanley by Mitsubishi. By lunchtime yesterday five banks around Europe had to be bailed out. Things are changing so fast that equal fluidity is required in dealing with them. States must be agile and flexible. Our Government has shown that in its actions since last night.
I have mentioned social partnership, the early introduction of the budget, which will contain a number of measures I will mention in a moment, and the developments of last night and today. We look forward to that legislation. As I said, this is not a bail-out of the banks.
We know that.
This is in the best interests of our economy and our people. It is not just in the interests of the banks.
The next two weeks, as we prepare for the budget on 14 October, may be the most important two weeks in our modern history. Given our changed economic circumstances, we must cut out all the fat — anything that has been allowed to develop — across all Departments, State agencies and areas under State control. All fat must be ruthlessly cut out. We must try to maximise income from all quarters during the next period without, if possible, increasing personal taxation. We must look after the most vulnerable, in the tradition of Fianna Fáil in government, and ensure that in these more difficult days, with high commodity prices internationally, we look after those who are most in need.
The Government is not doing that at the moment. It is cutting out disability allowance.
Really, a Leas-Chathaoirligh, this is an unusual level of interruption.
Not a bit.
Senator MacSharry without interruption.
As the Minister of State, Deputy Mansergh, stated, it is important we maintain a certain level of capital expenditure. We must try to maintain momentum to the greatest possible extent. There are positive aspects of the Labour Party ten-point plan, which I mentioned earlier, on which the Minister could reflect. We should consider the national development plan and prioritise the projects that will contribute to and enhance our competitiveness. In this way we will ensure that when the upturn comes, as the Taoiseach and other Ministers have been saying, we are positioned in the best possible way to take maximum advantage.
As the Minister of State pointed out, we have a low taxation base, high employment — although in recent times there has admittedly been a rise in unemployment, which is likely to increase in the short term — and a low rate of debt. This is positive in the context of having the right fundamentals when the upturn comes. If we need to increase borrowing, which clearly we need to do up to approximately €5 billion, I believe we should consider borrowing from our pension reserve. It would be better to pay interest to ourselves and for the benefit of the Irish people than to a third party. That should be considered and I ask the Minister of State, Deputy Mansergh, to take that proposal to the Minister, Deputy Brian Lenihan, and his ministerial colleagues.
Lorenzo Bini Smaghi, a member of the executive board of the European Central Bank speaking last week in Dublin likened the European Union at 50 years of age to an individual going through a mid-life crisis. It is in need of a diet and an exercise regime which should result in a slimmed down revived figure. This is an excellent analogy for our public services. With that in mind, I express the personal opinion that we should have a voluntary redundancy scheme across the entire public and Civil Service. It would be a positive move and could be financed by way of advanced profits from the Central Bank.
The next few weeks will be vital. I welcome the opportunity that this debate gives to people to put before the House their suggestions as the budget is being prepared in these most unusual times. The Government has the capability and determination to lead us through these crises and build the blocks that will lead to the next Celtic tiger. I thank the Minister of State for coming to the House and I wish him and his colleagues well as they prepare the budget measures on all our behalves in the weeks ahead.
I welcome the Minister of State, Deputy Mansergh, to the House. In all honesty, as one who has admired the contributions he has made, his speech today was one of his weaker contributions. It is not a day to come in and tell us we must also take steps to improve productivity or that we must be committed to implementing responsible fiscal policies. That is not today's business — it is everyday business and is always the business. I am sorry the Minister of State rejected a question and answer session, which was not intended to pin him to the wall on any issue. I know he is constrained as he said at the beginning. However, I wanted to hear him say the Government had come to a conclusion that was announced at6.50 a.m. this morning and to outline how it came to it. He should have outlined the options it explored and possible alternatives. All I wanted was the opportunity to buy into it. I am still listening to hear that and I hope I will hear it later this evening. In responding to the debate the Minister of State might open up some more and take us through effectively the pain the Government went through.
Having said that, I agree with the point the Minister of State made about social partnership. As he said, he has been a consistent champion of social partnership. The most important statement in his speech was when he said the financial turbulence, which is the backdrop to this debate, has developed within a part of the private sector and the State has been called to provide the safety net. That is the crucial point and explains why I am prepared to be open and supportive of the proposals coming to us. I would be happy if the Minister of State takes the following message regarding the public sector to the Department.
On the Order of Business I made the point that we owe a great deal to the Secretary General, David Doyle, and his team for working with this. This is a creative and progressive proposal. I cannot say whether it will work. However, I certainly welcome it as being mould breaking. As Senator MacSharry said, no other economy in the world has made such a proposal. In terms of the general principle, I want it to work and I hope it will work. I look forward to seeing the details later today. The Minister of State could have used the occasion — perhaps he still can — to open up somewhat more on his personal views. It is easy for him to speak before the Bill is published in terms of how he sees things and how he feels it would go and what led him to that position. The message today is that the banks have let us down. The free market just did not work. I would ask the Minister of State to do this every time we get this matter to debate. The free market has failed miserably. That does not necessarily mean the market fails. It is the free aspect, the unregulated unrestrained greed that drove it that has been the problem. It is a question of how we should regulate it. Towards the end of his speech the Minister of State said we needed to protect "without being overpowering" which is the key. It is light-touch regulating but it must go right into the heart of the matter.
The Department of Finance has handled the matter extraordinarily well in convincing its political masters to move this forward. I do not know on whose initiative this was proposed, but it is important that it is there. I have been quick enough to criticise the Department of Finance over the years. I hope I am also quick enough to give it credit, as I often do, when I believe it has taken such an important step. The proposal is unique and creative after the appalling decisions of irresponsible bankers. Senator MacSharry mentioned the sub-prime market. While it appears we have not been exposed to that market, it is really annoying that we still do not know — this is why I do not trust the bankers — the level of exposure. We do not know the level of risk or what we are buying into. Perhaps the Minister knows from his meeting last night.
Representatives of the banks appeared before the Oireachtas Joint Committee on Finance and the Public Service a few months ago and assured us. However, they are not to be believed. The Government needs to be absolutely sceptical of anything it hears from the bankers. These are the people who gave 110% loans to mortgage applicants and increased borrowers' credit limits. I had to contact my bank to advise it I intended to close my credit card account if it increased my credit limit again without asking me.
The Minister of State and I both spoke in a debate here a few years ago when the banks proposed a daft idea of inviting people to convert their mortgage accounts into current accounts in order that they could use them to extend their debt. That was an appalling thing to do. Although the consumer director of the Financial Regulator, Mary O'Dea, spoke against it at the time, it simply went ahead. The regulator did not have the power to block it. We need to remember this is exactly what they did to the farmers in the 1970s. They shovelled out money to them to build milking parlours and other things they did not need. When credit became tighter they threatened to take their land and took them to court. The same thing is happening all over again. It comes around and goes around. It always will be cyclical.
I do not agree with the proposal to improve the situation for first-time house buyers, who are not the issue here. Every time we have done anything for first-time buyers it has gone straight into the pockets of builders. I do not want us to do that. I thought the Minister of State might have mentioned the following in his speech. The most critical thing was the Minister for Finance getting clearance from Europe for borrowings over the 3% cap under theMaastricht treaty for buying into the euro system. That was an important anticipatory move.
I agree with Senator MacSharry's proposal. This is the first time I have said this. I have agreed with the position of the former Minister, Mr. McCreevy, in establishing the pension fund. I had been on the Commission on Public Service Pensions and had been very much in favour of establishing a pensions fund. When that was established it was done on the basis that we would hit a pensions exposure crisis in 2011. The demographics in the country have changed significantly since then and if we are to hit a crisis in pensions it will occur much later than 2011. It does not make sense to borrow if we have the money ourselves. We should consider taking it out. I know the Labour Party has held that position for years. I did not agree with it previously, but I agree with it on this occasion because times have changed and circumstances alter cases.
In that regard also, credit should be given to the Labour Party for its recent publication. It is the way forward to take those items from the national development plan and build the infrastructure we need to ensure we develop and not to sit back. We need to take a further risk in that regard to ensure those aspects of the national development plan that are crucial to the development of the economy are taken on board.
I begrudge every cent to the bankers. It is crucial that the decision of the Government should not be seen as a bank-rolling of the banks and of the bankers. On the Order of Business Senator MacSharry referred to the economy. The economy is the people, it is nothing else. My first lecture in economics said the economy was well-educated healthy people. That is why the point has been made by Senator Healy Eames and others not to pull on support for education and health. The economy is the ordinary person, the small shopkeeper, the farmer, the small contractor and people who can only operate if they can access credit. If the Government's thinking behind this morning's move is to ensure that Irish banks can draw down credit then that makes sense for them do it.
I do not want anything made easy for the banks. When we see the legislation I hope the charges will be penal. The bank charges for money at present are very high. I checked with a bank this morning and found that the APR for A level risk borrowers is 9% per year. The level of charge is extraordinary. In moving forward there is a need to distinguish between the market and the free market. We need to see a market which is active but regulated. As well as a penal charge we need to look at the boards. I said earlier that I assume the Government will demand a place on the board. I assume and propose that the boards of all the financial institutions which have had to be baled out will be dissolved. If they had any sense of honour they would resign.
Senators
Hear, hear.
The Government needs to call for a dissolution of the boards, re-establish them and put back on them the good people. We need to ensure that all bonuses, directors' perks and €1 million salaries per year are done away with immediately and the level of due diligence and oversight of the way the banks do their business is made clear. The Sarbanes-Oxley Act 2000 in the US makes chief financial officers of large companies subject to criminal prosecution and imprisonment in the event of their acting recklessly and carelessly. Significantly, we do not have such legislation. I have a vested interest in this as a member of the audit and accounts supervisory authority. We need to ensure that the directive on global accountancy standards is brought forward quickly and that the quality assurance demands in Commissioner McCreevy's recent speeches are included in that.
It is a fact that the Minister of State and I disagreed on an issue previously. I ask him to recall his speech on credit unions some years back and to read it again. He was not right. There was a run on a number of credit unions a couple of weeks ago and they almost closed down until the Government included them in the €100,000 deposit guarantee. That was the point we made. We did anticipate that. The Minister of State and I disagreed on it. It was bound to happen at some stage and it happened on this occasion. The Government's intervention on the credit unions has been hugely important but I want to know how it will work. At that time we said it could happen in two ways, either as a separate stand-alone system of support and guarantee or parallel to the one for the banks. It is an indication of what it is that can be done and what it is that can be anticipated. That was anticipated.
I began by praising the Department of Finance. The Department of Finance has known for almost ten years that there is a problem with the credit union legislation. It continues to promise to change it and to introduce a new Bill but it has not happened. It is a classic example of why procrastination can be a problem.
The Minister of State referred to the September tax returns. Those returns are important. The October and November tax returns for the self-employed are much more important. Every year at this time I telephone a couple of bosses of middle-size accountancy firms around the country and ask them what their returns will be. They have always been accurate. For what it is worth, I contacted two of them this week and asked what they expect their returns to be to the Exchequer from their self-employed people at the end of next month or early November. They both said separately, without one knowing what the other had said, that there would be a 25% drop. That is significant and a much greater drop than the Government expected. I hope it is not true but the indicators have been right previously. There is much work to be done. I look forward to seeing the legislation and discussing it later.
There is a possibility that legislation will be introduced in the Dáil today and this House will be called to examine it later. As it is likely to be on the content of the issue that exercised many Members on the Order of Business and in the debate to date, I would not like to contribute much to that until we have that debate. Given that we had been scheduled to debate the economy today, we should look at the wider applications and return to the issue of whatever Bill will be put before us later.
I was present on a radio programme last Sunday with Alan Dukes, the former leader of Fine Gael and Minister for Finance, who was introduced by the presenter as the last Minister for Finance who led this country into a recession. He quickly corrected the presenter by saying he was the last Minister for Finance who led this country out of a recession. I make that point because we can look at the same facts in different ways. The nature of politics and particularly the issue of economics within politics is subject to many interpretations.
As one who has been an Opposition spokesperson on finance since I was a Member of the other House and continue to hold that portfolio on behalf of my party, there are many things I have said since 2002 about which I do not take any joy on being proven correct. Our economy has suffered as much as many other western economies by an unhealthy belief in bubble economics, that because things were good that they always would be good and that what underlay the particular economic success had a sustainability into the future. We know now that is not the case and that a mythology has been built up not only here but elsewhere in the world about the nature of economics and the nature of wealth itself and we have to deal with the situation as it has transpired.
The reality of where we stand internationally has still to be worked out. Much of the Government's response is about dealing with many other governments and the day-to-day ramifications of what is happening elsewhere in the world. The decision of the US House of Representatives not to agree to its rescue package, whatever its rights and wrongs, indicates not only a financial system that is gone awry and whose influence in the world is far too heavy and has implications for all of us in other countries that should be less than what they are, but shows a political system that, as of now, is not willing to face up to that reality. I do not intend to get into political name-calling about the present political leadership of the US but it is clear that the lack of maturity in a country that has been a democracy since the late 1700s is impacting on the rest of us in a way that we need to take stock of and come up with our own common sense responses.
In regard to the specific issue exercising both Houses today, in a general way the approach being suggested is a more successful one. The US is proposing to get out of the hole it has dug for itself by buying toxic debts, the worst of the bad debts that exist from their financial institutions, debts that I believe are irredeemable and will never have a value again. The approach in the United Kingdom has been to buy each financial institution as and when those institutions get into difficulty, each of which carries a cumulative cost for their own taxpayers. The approach in Belgium and the Netherlands has been to adopt a bit of both — giving guarantees to one of its largest banking groups, the Fortis group, while at the same time claiming a significant shareholding in that bank. The Government's proposal — I do not believe it is a knee-jerk reaction — which people will see when legislation becomes available later today is one that has been given detailed consideration over a considerable time. The Bill to be put before Members later is weighty and detailed. It predates any changes that would have occurred as a result of falls in international stock markets and the actions of the US House of Representatives. On these grounds there must be recognition that an Irish solution to an international problem may be the one that actually works. In the first instance we must communicate the necessity to restore confidence within the economic make-up of this country.
One thing must be said about the economic growth generated in the past ten to 15 years. Much of that growth may have been built on sand and in economic terms there may have been too much emphasis on the construction industry, but the accumulation of the wealth instilled a national confidence and an ability to achieve an economic independence we did not have before. The difficulty in the present debate is the combination of factors which are largely global. If we succumb to a discussion based on lack of self-belief, the hole we are in will get deeper and much of what we gained through becoming a wealthy nation will be lost. I have an inherent belief in the ability of the Irish to achieve a valid society and economy. We should think not only of how we will get out of the current situation but how we can plan for a future in which there still is a strong Irish economy. It is stronger than many which are in difficulty and we should plan how it will become even stronger. The challenge for all of us as legislators is how we can use that strength for the benefit of the people.
Ireland has slipped into a technical recession. Our economy has decreased in value over the past year by 1% and the likelihood is that with current factors that it might go to 2.5% by the end of the year.
It is the first official recession in Europe.
Senator Boyle, without interruption.
I was about to address that point. That is a statistical quirk. As they release their second quarter figures I believe we will see half a dozen countries in the euro zone in recession within the next number of months.
That is the quickest turnaround.
Senator Boyle, without interruption.
I would argue it is about the difference between genders as to which one gets drunk first and who sobers up first. The reality is that we stand on the strength that we gained through our economic experience.
I appeal to all Members of this House to recognise that, given the global context of what we are involved in, we cannot rely on outside assistance to get us out of these difficulties. There is a need for cohesion and a degree of bipartisanship. I do not say that the Government should be above or beyond criticism regarding many economic decisions. Where these relate to the very fabric of how we operate as an economy, however, there is a responsibility on all of us to put our best foot forward. We must be honest with the people as to what we can achieve and how we can get to where we should be, under current circumstances. I look forward to a more detailed debate this evening on whatever legislation will be presented to us. It is an important first step in making that recovery.
I was going to do the Minister of State a disservice by saying that was probably the worst speech I have heard from him in his time in either House but I believe that my colleague, the leader of the Green Party in this House, has just surpassed him.
Senator Boyle, in fairness, is somebody who usually has a good commentary on finance even if I do not agree with him. Seamus Heaney's phrase "Whatever you say, say nothing" comes to mind, however, with the Senator's contribution of today. Senator Boyle's speech was generic, had no specifics and did not really contribute very much.
The situation in which we find ourselves is unprecedented. The Minister for Finance has acted because he had no choice. He was backed into a corner. Nobody has said this in the House but we know we are all thinking it. The reality is that if the Minister did not act there are certain institutions in this country that would be in trouble. It is as simple as that. We have all heard the rumours and the discussion on this, and that is the situation.
Senator Boyle said that perhaps this Government has found an Irish solution to an international problem. It is the "perhaps" bit that worries me. There were other options. The Government has decided to go down this road. It is a matter that concerns approximately €400 billion and it is a huge gamble. What if it does not work?
How did we get to this stage? I wish to look into the area of regulation and we must do this very quickly. We had a banking system that gave huge loans to developers across the country and lent sub-prime mortgages. There was a real change in the area of credit cards and people were encouraged to change their type of banking in order to maximise their type of exposure. It is as simple as that. We all watched when the banks were with the Joint Committee on Finance and the Public Service answering questions. I know I did because I was intrigued and one could not get into the room.
I propose that we all read the transcripts and go to the chief executives and chairmen of the boards of all those banks, take out what they said a few months ago and ask them to comment on what they stated that day. As far as I am concerned there are two options available. The first is that those bankers were not telling the truth, the second is that they were not competent enough to know what was happening. It is as simple as that. Either scenario is terrible.
All the institutions that are being bailed out should be brought in front of an emergency committee. I refuse not to use that phrase "bailed out". Whether that committee should be the Joint Committee on Finance and the Public Service is for the Houses to decide. Perhaps it should be that committee. The bank representatives should sit down and be interrogated again. They should be told they have an opportunity to explain how we got to this scenario. If we do not learn from this the possibilities will be much worse.
What are we going to do concerning this bail-out? How will the Government ensure that the Irish taxpayer is not exposed to a huge risk? The difficulties are endemic and something must be done. We must look seriously at the option of having someone sit on the boards of all these institutions. That condition should be non-negotiable and I do not believe we should even debate it. The Government should guarantee such an action. If there is some excuse for not doing so then legislation should be introduced to cover it.
There is a recent US model which deals with circumstances such as these, in respect of executive pay, and we should examine it. In that model the executives of banks are not allowed to pay themselves enormous salaries of $1 million, etc. It is outrageous that the banking sector can pursue strategies of the kind it has done over the past number of years, paying its members in this way. In similar fashion, we must find out what sort of dividends the banks propose to pay in the coming two years under this deal.
I hope that penal charges will be adopted for banks that are to come under this cover. It is absolutely essential that the banking institutions do not feel that they are getting away with some type of stroke. What methods has the Government put in place to guarantee that the banking sector and those banks involved will reform properly, will change their ways and will not take undue risk and gamble under the terms of this bail-out? We need answers to this today.
Hear, hear.
It is preposterous that we do not know this before we vote. Are we postponing the inevitable? We are guaranteeing deposits and I know that interbank lending is the other side of this issue. What will happen if a bank goes under?
What will happen across Europe and the world when different governments implement their own methods of bailing out institutions? What will happen, were the pitch to be levelled and a bank to fail? What will be the result? What will be the consequences for each taxpayer and member of the public, were one of the institutions that is being bailed out to go under? These issues must be discussed in the coming hours as these are unprecedented times.
As for the debate on the wider economy, Members have debated this issue a number of times. I will not go into the statistics again, except to note the comments of my colleagues on the Government side, such as Senator Hanafin, who is present, or Senator MacSharry, who also speaks on the economy. Each time they have spoken, they have predicted growth rates, unemployment levels etc. for this year that have been completely inaccurate, as the variables have risen or fallen. Although Opposition Members have been accused of talking down the economy, as Ireland officially is in recession at present, I cannot be accused of talking it down any more. Ireland is where I thought it would end up, were the Government's policies to be pursued. Unfortunately, taxes are down by €7 billion and unemployment has grown hugely to 285,000 people.
The phrase today used about the toxic trio by the Fine Gael Party probably is a little unfair, because toxicity gives the impression that such people cannot be touched. Unfortunately, the toxic trio must be touched because were they allowed to stay in their positions, Ireland would be left in a bad way. I refer to a Taoiseach who was the Minister for Finance who turned around the economy in an unbelievable manner within a couple of years, a Minister for Enterprise, Trade and Employment who does not appear to have any meas on her portfolio and a Minister for Finance who only reacts when he must. While huge international factors affect the economy, they are not solely responsible as many domestic reasons have caused Ireland to be in its current position. Bringing forward the budget does not solve anything and in many ways is a political stroke. I agree with previous speakers that an issue arises in respect of bringing forward the budget date to a time when the November tax returns and the self-employed tax returns, which it is likely will fall significantly, are not yet in.
When the Government speaks on the economy, it often focuses exclusively on public finances. From my perspective and that of the Labour Party, it is time to diversify from that practice, as it merely serves as a smoke screen from behind which attacks on the public service in particular are contemplated. A plan is needed for economic recovery. It is well-known that until 2001, Ireland had a growth-led economy and from 2001 onwards, a bubble in the construction industry was being built. We were eating our own flesh and it was not sustainable. We had an over-dependence that was interlinked with a loss of competitiveness and consequently, we must move on.
In this regard, my party has put forward a number of proposals. I note very few proposals have been put forward by the Government side. However, I will mention a couple that are available in a document that has been issued by the Labour Party within the last 24 hours to demonstrate it has been acting on this issue and to avoid accusations from the Government that it does not make such proposals. The national development plan in its entirety must be reconsidered. While it comprises many aspects, I suggest that if we are to develop the high technology and high value fields, the broadband infrastructure is one area that must be considered. I have been speaking on this subject since I entered this House. I worked in this sector and know people who have emigrated to the United States, who are known as silicon Paddies, because they cannot expand any further here. Ireland has a problem with the development of small and medium enterprises into larger enterprises. They cannot do so and are choking. While the educational standards are present, the requisite investment techniques and infrastructure are lacking.
Moreover, if improved value for money in respect of public spending is to be considered, although certain quangos should be examined, the issue of the tier of middle management that has been introduced by the Government also should be investigated. If Ireland is to pursue the correct economic strategy, there must be diversification from, and stimulation and redirection of, the construction sector. While it has concentrated on one sector, I argue it should be directed towards schools and a national insulation scheme as so doing will achieve several results. There will have been investment in education for the future and future energy savings will be made. Moreover, one will recover one third of what has been spent through taxation and in addition, approximately one fifth will be recovered through savings on social welfare payments to those who would be employed.
I welcome the Minister of State to the House. I was proud of the manner in which Deputy Brian Lenihan acted so quickly as Minister for Finance to deal with what was an emerging major difficulty. This was not the first time he has done so. His first act as Minister was to ensure that the €100,000 limit was extended to all account holders with the Irish banks. His second act took place last night when he underpinned the Irish banks' financial security and in so doing, underpinned the Irish economy.
Fianna Fáil has claimed successes in the past and in response, the Opposition often has ascribed to external factors the causes of the benefits accrued. That being the case, the present problems have been visited upon us by what happened in respect of sub-prime lending in America, particularly when one considers the abuse of the system by senior financial houses in the United States. Many of the questions that have arisen today pertained to what will be done regarding the pay of bankers and the highly paid staff. What will be done in respect of the bonuses that were paid to people who sold on assets and securities that clearly were not worth what they stated? The assets and securities in question amounted to trillions of dollars and have affected the world's financial security. It is as simple as that.
I occasionally receive an offer from Nigeria that is extremely hard to resist. The offer is that if I provide my account number, untold sums of millions, which are held up somewhere at present, will be deposited within my account. While I have not handed over my bank account details, had I so done I still would have lost less than these people who work in international financial services without accountability or proper regulation. These are the people against whom the Minister rightly acted to protect the economy. I refer to a catastrophic fall of 7% on Wall Street, the highest ever. However, the Irish stock market, which reflects confidence, had rebounded by 7% by 4 p.m. today. The Minister made the right choice. It is time for accountability for those who sold the aforementioned ninja mortgages, that is, mortgages to people with no income, no job and no assets because white collar crime is not victimless and jobs will be, and are being lost. Moreover, confidence and financial security also are being lost.
This is not the first time we have been obliged to bail out a bank in Ireland. I suggest that rather than bailing out the banks, they are being underpinned and people are being provided with a guarantee. In fairness to the Irish banks, none of the sub-prime difficulties that have caused this crisis have been experienced here. I mentioned 100% mortgages, which clearly were wrong, at a meeting of the Joint Committee on Finance and the Public Service. However, it was pointed out correctly that they represent only 5% of the total Irish mortgage book. The Minister received advice last night from both the governor of the Central Bank and the Financial Regulator that the correct action to take was that which he subsequently took to underpin the Irish financial markets and one can only state he did the right thing.
The Minister will make his Budget Statement next month. I am also certain that no matter how difficult that budget may be, the less well-off will be protected. I am also confident those in the greatest need will find targeted supports in that budget, which is a consideration today.
I suggest that in the forthcoming budget it is time to take a break from putting the 1% away for a rainy day. I support my colleague, Senator MacSharry, in stating we should look to use that fund to promote the national development plan. We must continue to be seen as an economy that will grow, invest and drive forward.
This goes back to the plumber on his way to my house to fix the faucet. If it takes him 40 minutes by road or whatever method of transport he is using to get there and 40 minutes back, I have to pay for it as it is his chargeable time. We must ensure everybody in business in this country has proper roads and facilities, with networks such as the previously mentioned broadband, as well as all the proper facilities necessary for doing business. We must continue with the national development plan, or in other words, finish the motorways.
This Government will take a positive view and there is room available. We can modulate the surpluses and deficits when this situation passes. We had previous crises after the dotcom bubble and 9/11, which we got through. That two-year slump was within this decade and we will get through this slump as well.
Having looked after the less well-off and ensured business is ready again, we will be in prime position when world economies stabilise, as a free and open market, to benefit again. That is where we continue to take credit, by putting in place advance factories, promotion abroad, a suitable tax regime and the training for people looking for employment. In other words, we are still well placed for when this situation passes, as it will.
I have no doubt the US Congress will put through the necessary changes for the $700 billion package. As has previously been stated, support does not come unconditionally. There is a two-year limit on the guarantee given for Irish banks and the offer is not open-ended.
We have had previous experience with ICI. For many years, Irish banks subsequently paid a significant levy, far greater than any outlay initially undertaken by the Government. Changes are certainly required in the Irish financial services sector and it must be regulated and improved. Unfortunately, the main difficulties lie abroad and we have seen the dominoes fall. The fact is that no Irish bank has been nationalised. The Benelux countries have undertaken to fortify Fortis and two banks have been nationalised in England, namely, Bradford & Bingley and Northern Rock. In the United States we have seen AIG supported by the Government, as well as another bank whose name I cannot remember.
Notwithstanding these events, no Irish bank has gone under. The sound fundamentals spoken about to us in committee exist and the domino effect is not of our making. We were told Fianna Fáil needs to make decisions or changes but we made the necessary decisions today.
I welcome the Minister of State to the House on our first day back in the Seanad. I hate to start by saying I was really disappointed with his speech and that he did not go into some of the detail of the guarantee being given by our taxpayers to the banks today. This measure is unprecedented in our history and the biggest blank cheque we have ever written. The Minister of State gave us no grace and the taxpayers of the country no information. The detail is needed, although I realise we will have more information when the legislation is published. It would have been nice to get something now and I believe the Minister of State has been briefed.
I am disappointed the Leader of the House did not grant us a lengthy question and answer period. This was unparliamentary as answers are needed. Why squash our allowed speaking time into ten minutes? What is the Minister of State afraid of? He must have the required detail.
This morning we learned of the State's guarantee of €400 billion for six Irish banking institutions. Nobody is saying measures were not needed because, clearly, if one of the big banks such as AIB or Bank of Ireland went under, it would have destabilised and threatened the entire economy. Essentially, the Government has now taken a domestic decision that represents enormous exposure for the taxpayer.
I heard various Members on the opposite sides of the Houses today blame it all on the international picture but such an argument is not true. Irish stocks are being hit badly for more reasons than what was occurring in the international arena because the market did not believe what the banks said. The banks spoke the language indicating they were fine but we now know the action required from the Minister for Finance in the early hours of this morning was a much-needed rescue plan. The Government acted because it had to.
Bearing this in mind, we have relief at this point. There are no free lunches and all loans will need to be repaid. What I want to know on behalf of the taxpayer and Fine Gael are the terms and conditions of the State guarantee. What has been achieved by the Government to provide a State guarantee amounting to €400 billion to six of our national banking institutions? This is huge, as it represents four times our national income in any year. The US Congress is having difficulty putting through measures that would amount to just 6% of one year's national income.
We must remember that it is ultimately the taxpayer who is providing the State guarantee to our banks. These are private banks which have speculatively loaned money and now need to be rescued. As I stated, we are all in agreement that some measures were needed but was this the best alternative at this time?
What is in this measure for the taxpayer? We must know the details of the insurance provided to the taxpayer and the types of fees which the banks will pay to the State for this guarantee. These fees should be punitive and the people and I hope the State makes money from it by giving such a cast-iron guarantee to our banks. The banks have been merciless with the people, as Senator O'Toole stated, when they decided to call in loans in the past. Now their very customers — the taxpayers — are bailing them out. Let us hope the State makes money.
I heard figures from various economists today indicating we could make up to €1 billion. We need to know exactly what we are getting from the banks in the course of the next two years. If hard cash is not available, it should be provided in the form of equity in the banks.
Before the Government gave this guarantee, what information did it have on the assets and liabilities of these banks? Are we covering bad loans that will never be recovered? Was this action a carte blanche without any quid pro quo for the taxpayer? I would not need to ask the Minister of State these questions if the Government addressed the matter upfront today.
Clearly, tighter controls must be implemented by the financial and banking regulators to prevent future bad practice and poor lending practices to individual borrowers and businesses. If there is not adequate regulation, there may be another false bottom in the economy, such as we have seen in the past two years. The Government and the banks have been warned by the ESRI and numerous Irish-based economists but those warnings were not heeded. The Government and the banks colluded to provide huge loans, in excess of 100%. What about the home owner, the first-time buyer who bought in the past two years? They are the ones who are really in trouble and are now experiencing negative equity.
I have heard talk from the CIF and from the Government today that measures would be included in the forthcoming budget regarding first-time buyers. The best measure is to do nothing. First-time buyers are bound to gain; they have no worries in a falling market. To intervene would hamper that. As has been advised by numerous economists, let the property market find its own levels. For too long it has been over-inflated and over-heated.
The Comptroller and Auditor General's report mentions public service pay and shows that €1 billion has been spent on overtime, weekend pay and allowances. What is the Government doing about that? This is outrageous. A sum of €1 billion represents one seventh of the budget deficit. Why is the Government letting this go on? I spoke to the Chairman of the Public Accounts Committee today and requested an investigation into that. Three quarters of that — €712 million — has been incurred by the HSE, with four individuals between them receiving and amount of €600,000. One person received €170,000, another received €150,000, another €140,000 and another €120,000.
Your time is up, Senator.
This is outrageous. What are these people doing? Are they doing a job? Are there other people in the HSE doing the same jobs and are they not competent enough to do them? Is that why they are being paid this extra overtime? One garda received €83,000 extra. Another garda said to me recently that he must not have gone to bed at all. What is the Government going to do to control this?
Your time is up Senator.
I would like to hear answers from the Minister to the four issues I have raised. The taxpayer needs to be assured that there is a sound basis, that there is not a false bottom in our economy.
We have seen global turmoil in the world economy and markets in recent days. A couple of weeks ago we thought it was beginning to sort itself out. When the American Government could not pass a budget to deal with the crisis in America, that put a lot of pressure on the European and Irish economies. Our economy has huge inward investment from America and we depend substantially on that. When America gets a cold, we get pneumonia.
It is important that we consider why we took the decision we did. It was important to protect the ordinary small investor and person who had money on deposit in the banks. We also had to support small businesses in the banking service. All those businesses employ many people and if the credit situation were allowed to get worse we would find ourselves with huge unemployment queues at the dole office. The Minister for Finance, Deputy Brian Lenihan and his team took the right decision, and the right decision was taken for the guarantee. We have now created a template for the rest of the European Union to follow.
We did not go down the route of nationalisation. Nationalisation would not have been the answer. We have given the full support of the Irish Government to guarantee the banking situation in this country. We have to examine at a commercial level the guarantee we have given, and how banks will pay for that guarantee. I agree with some of the criticism here; they have not got all the answers. I did not hear anybody coming up with solutions. We can all play the blame game but that will not solve the problem. We need people who are thinking outside the box, who have solutions. The Government has taken action and we did not have to go to Joe Duffy's "Liveline" to ask permission.
We are elected to govern and lead, and that is what we are doing. The solutions we have found support the banking system, which we will need to ensure we get out of our recession. Without a strong banking system we would not have support to ride out a recession. We need to stimulate the economy. How are we going to do that? We have an opportunity to do that in the forthcoming budget. Small businesses are the backbone of this country and they must be encouraged. People who employ 50 people or more must be given something in this budget. We need to produce new skills. The skills we have now may not be relevant for the 21st century. We need to develop the new green industry, which we have taken on board as part of our Government agreement. The green issues are very important and there can be huge development and job creation in that area. We must upgrade our housing and retrofit. A €9 billion development programme could happen. The Labour Party has mentioned this and I agree with it because I raised the matter here about three months ago as part of support for the building industry. We relied far too much on the housing industry, which was building more than 90,000 houses a year, which could not be sustained. This is a sustainable programme under which we could reduce our oil and gas imports, for which we pay dearly. If we do not have properly insulated, double-glazed and retrofitted houses, we are letting the energy out through the roof. It is as simple as that and it costs us money.
The budget needs to address the reasons for the recession and the solutions must ensure we have people to take on the jobs when they are created. I concur with the Minister that this is a time for housekeeping and that difficult decisions must be taken in the budget. I believe people are willing to accept such decisions. We will work to ensure the budget is fair and the elderly and less well-off do not suffer.
I propose to share time with Senator Feargal Quinn when he comes to the House.
This debate will pre-empt somewhat business scheduled for later in the evening. It is difficult to discuss the economy in a general manner without referring to specific developments in the past few hours and days. While I do not wish to be politically partisan because we all need to ensure the problem we face is resolved, it is utterly ridiculous for Senators to congratulate the Minister on his speedy response to the crisis and state it is part of the global problem. That is not the case.
For several months, the specific problem we face has been out of the control of the Minister and Government. The stock markets, hedge funds and those unpopular people, the clever analysts of the world, spotted something pretty rotten in Ireland. The Irish banking shares, to which previous speakers have referred, have been among the worst performers in the world this year and last year. Those who analyse stocks of this type decided Irish banks were vastly overvalued and did so at a time when we consistently boasted that we did not have the problems being experienced in global markets. Bank chief executive after bank chief executive congratulated themselves and claimed Ireland did not have a sub-prime problem. In doing so, they implied that the Irish banking system was somehow unique and safe and they had been clever enough not to get involved in sub-prime lending unlike the foolish, dreadful Americans, Brits and others. That, they said, was where they problem lay.
The world did not believe their claims because those who deal in shares and examine banks' balance sheets and behaviour decided the problem here was worse than in the United States, United Kingdom, Europe and elsewhere. They shorted Irish bank stocks — a perfectly legitimate course of action — because they disliked the Irish story and the manner in which Irish banks were behaving and lending much more than they disliked the activities of many of the American banks.
To take a specific case, we witnessed an unprecedented series of events on the Irish stock market yesterday. We must remember that selling short was not allowed yesterday, which means one cannot blame short sellers or hedge funds. International holders of funds dumped Irish stock at any price, despite their lack of exposure to the sub-prime problem. The reason for this course of action was that they, like the Minister for Finance, anticipated a catastrophe in the Irish banking system because they knew we could not continue to survive and were as vulnerable as anyone else. The Minister's response was to take the action he took today.
After the collapse of talks in Congress yesterday, God knows what would have happened this morning, not just on the stock market. We should not give a fiddler's about shareholders. As the people who take the risk, they are the first on the firing line. If they lose their money, it is tough, but they were not the only people who were set to respond. It is abundantly clear that a big run on the banks as well as a major movement of funds would have taken place this morning. People had already moved substantial funds — we are unable to learn what are the numbers because they are not being released — from the ordinary, supposedly secure banks to An Post, while those with larger sums of money had invested them in short-dated Government stocks, which are a safe haven. They moved funds to places which were guaranteed. There was a complete loss of confidence among consumers and international holders of Irish stocks and the entire investment community decided there was something wrong with Irish banks.
What was wrong with Irish banks that the measure taken by the Government this morning became necessary? The Government side is making a great virtue of the decision and arguing it will be a template for the world. I heard on radio this morning that other countries will copy Ireland by taking the courageous step of guaranteeing all deposits. We are taking this action because we have been forced to do so. Without it, there would have been a run on one or other bank. The decision to guarantee deposits of up to €100,000 was not considered sufficient because those with deposits in excess of that threshold — the big punters — had decided to move their funds around. For this reason, we responded with the measure announced this morning.
What did people see that they did not like? What was so special about the Irish banking system that was so bad? The whole world is exposed to the paralysis in the banking community in terms of interbank lending. Although the problem is common to all banks, no other banking system has lost the confidence of the international community to the same extent as the Irish banking system. What gave rise to this loss of confidence? What people saw and did not like was that we had gone bananas lending to property developers. They saw the Irish property market tanking, the banks having taken an extraordinarily high proportion of their security from property and refusing, initially at least, to regard these as bad debts. Those who analyse bank balance sheets decided that if the banks wanted to tell big porkies about their bad debt provision and adjust their profits accordingly, they would sell their shares and make money. No one believed the banks, as became clear two weeks ago when Bank of Ireland announced it was halving its dividend for the year. While I am open to correction, I understand this has not happened since 1929 and never happened to an Irish bank. The announcement was made because the bank was worried about its capital base and it had to preserve its capital. The signal went out to the world that the banks in Ireland had behaved irresponsibly and were beginning to pay the price.
What is important here is not to lay blame but to solve the problem today and ensure the Bill presented tonight includes guarantees that the Financial Regulator is put in irons and the Government insists he enforces much stricter lending criteria. The regulator, as I stated on the Order of Business, should be fired because he allowed these developments to take place. The business of lending to a small number of property developers——
Hear, hear.
——and huge tax breaks being given to them is insane and unique to Ireland. The Financial Regulator knew this was happening, that certain banks were lending huge sums of money to a small number of people who were taking reckless decisions, encouraged by a Government that was looking after them with tax breaks.
I have just come from a Fianna Fáil parliamentary party meeting where the Minister for Finance brought us up to date on the decision made during the night. He stressed this decision was to protect the life blood of our economy. It is not about protecting the management of the banks and the chief executives; it is about keeping our economy moving and sending a message around the world that we are in business. He told us we have received congratulations from the Federal Republic of Germany complimenting us as a small country on making a swift decision. This decision is not about protecting the big shots running the banks but about keeping the show on the road.
I do not know whether Senator Ross heard Joe Duffy's "Liveline" programme last week, but I found it frightening as I listened to it. Such was the irresponsibility shown by Joe Duffy that I wanted to run out to the bank and withdraw the little money I have in it because I was so afraid by what I heard. Senator Ross may not realise that the people——
Joe Duffy was doing a public service.
Allow Senator White to continue without interruption.
He was not. I wish to address a number of points. The message that was signalled by the decision today is important because many Irish people are panic-stricken and afraid of what is happening in the country. Therefore, this was a first-class decision, intended not to protect the banks but to maintain our economy.
As an entrepreneur, business person and co-founder of Lir Chocolates, I record that this recession in Ireland and globally should serve as a wake up call to our dependence on the people and their companies who export goods and services or compete with imports on our domestic market. They are the real anchors of our economy and the source of the purchasing power which has sustained the building boom and the expansion of new shopping centres throughout this island. We were mesmerised by the boom in consumer spending, much of it fuelled by credit cards, borrowing and by the massive profits to be made on a property deal. If one could sell a quarter of an acre for €250,000, why would one be a fool and try to make a living by going down the hard road of starting a business or manufacturing or developing a new service for export. I have been there and done that. I know the reality of what is involved. Connie Doody, myself and all our staff have worked 24-seven for 16 years to sustain our company. It sticks in our guts that people could make fortunes over the sale of a quarter of an acre of land.
We have become complacent over the basic fact that at the end of the day our massive imports and foreign holidays must be balanced by our exports of goods and services. I have said that not today nor yesterday but previously in this House. One indicator of that complacency and failure to distinguish the crucial economic role of our exporters was manifested in local authorities in Dublin and elsewhere imposing the same development levies on the manufacturer and exporter as on the builder of a shopping centre or multi-storey car park — the same levies were imposed when they were not producing anything. Without the exporters we would not have the purchasing power to buy the dazzling goods, mainly imports in those same shopping centres, or to pay the expensive charges in the multi-storey car parks.
That great Irish man, Dr. TK Whitaker, when speaking recently on RTE's "Morning Ireland" on the occasion of 50th anniversary of the publication of the ground-breaking economic development plan, which he masterminded, said that restoring Ireland's trading competitiveness was the number one priority. I have said that over the years here, but nobody was listening. When the economy was booming, the steady erosion of our competitiveness went largely unheeded. Now that we have to fight our way out of a recession and global crisis, in addition to restoring stability to our public finances, there is no more urgent priority than restoring competitiveness in our economy in order that our manufacturing and trading companies can compete and our tourism industry can recover.
All the indicators of the loss of competitiveness have been charted in unambiguous terms by the National Competitiveness Council and Forfás year after year. Some of the reality checks, as spelt out in the Forfás annual report for 2007, include the following conclusions. General price levels here are among the highest in the EU 15 and this situation is worsening. Labour costs are increasing across a range of sectors at a rate well above the EU average. Non-pay costs, including renting or buying property, and professional services such as legal and accounting services are also more expensive in Ireland. I had to obtain advice on two ocassions from legal companies here which are below the radar and are not seen as bêtes noir. The fees legal companies charge are immoral. There is no accountability. They can charge what they like and they are not on the radar as villains of this piece. These are fairly startling conclusions by official bodies not given to hyperbole and I am acutely aware of how difficult it is for exporting companies, such as Lir Chocolates, to succeed in the face of such handicaps.
The recent national pay agreement, agreed in principle, marked some recognition of the need to restore our competitiveness, but I believe there should be a pay freeze across the board for everybody for the next two years. We need a pay freeze for the next 24 months to get back to a sense of reality.
We are aware of the energy the Government is putting into preparing the budget. I am thrilled and proud of my Government for the decision it made during the night to protect the banking system. I am proud and delighted a decision was made. Senator Quinn was not here when I began my contribution but I said this decision is not to protect the big-shots who run the banks or the managers; it is to keep our economy on the move and to show the world that we are still in business.
After the budget on 14 October I would like the Government to devote similar energy and focus to restoring competitiveness and to make it realistic for people to compete internationally. The small and medium size businesses, which are the lifeblood of our economy, must be able to compete internationally.
I welcome the opportunity to speak in this important debate even though it must be conceded that the developments in the past 24 hours have shifted the debate from a broader economic statement to a preview of the legislation the Government is due to bring forward in the next hour or two and the impact of that legislation. I presume we will have an opportunity in the coming hours to speak on that matter and, therefore, I will try to confine my remarks, within reason, to the economic debate. This is a debate we urgently need and it would have been helpful if we could have had it a number of weeks ago.
While I am pleased the Government decided to bring forward the budget by some weeks it may be just a political signal, although I hope it becomes a strong economic signal. We must concede that nobody should be surprised by the stark economic figures and facts that face us currently. It was flagged in advance by many commentators — some economic, some political — and notwithstanding what Government sources would now like to pretend, it is far removed from being an entirely international crisis.
It is approximately 18 months since we commenced in full the debate about the 2007 general election campaign. There was a mantra coming from Government sources, particularly Fianna Fáil sources, at that time that all economic wealth and job creation stemmed from Fianna Fáil, that it was not an international boom but a domestic one brought about, maintained and retained by the economic policies pursued by Fianna Fáil-led Governments for the past ten or 15 years. The idea was presented that the economy would not be in safe hands if the Opposition took hold of the chains of Government and that Fianna Fáil alone could somehow lead the country forward. Now, however, the economic indicators have changed dramatically and there has been a sharp increase in unemployment, with between 40,000 and 50,000 people losing their jobs during the past seven to eight months. We are now being informed that the origins of the current crisis are international and in no way domestic.
We must face facts and consider what we can do to reverse the trend and ensure a return to real growth. The end of the property boom was flagged in advance by many people. However, the Government chose to ignore the signals and the public — of which we are all members — took the soft option. From a political perspective, no one decided to cry wolf. As a result, we find ourselves in the current situation.
With regard to how we should move forward, competitiveness and the control of inflation must be placed at the top of the agenda and genuine public service reform — not the type of fire brigade action proposed by certain commentators — must be considered. Senator Mary White made a valid point in respect of wage restraint. No one favours such restraint. Members are public servants and, like everyone else, we want our salaries to increase. However, we must ask whether we can afford to pay such increases at present. If it is a case of job creation and employment retention versus wage increases, we must err very much on the side of wage restraint.
I appreciate that in moving forward with the social partnership process that has operated for the past 20 years, there was pressure on the Government and employers to strike a deal. I am concerned that some aspects of that deal may be unaffordable and that the so-called benefits relating to it might be offset by job losses. Retaining existing employment and creating new jobs must be placed at the top of the agenda. In the context of job creation, Ireland is obliged to compete in the wider international market. I refer here not only to our EU partners but also to the emerging countries of eastern Europe, nations in the Middle East and far eastern states such as China and India. We must maintain a competitive economy and ensure we tread very carefully regarding wage costs, charges, levies, etc. I am concerned that what passes for a partnership deal may not be in the best interests of the country at present.
Previous speakers referred to the end of the property boom. Senator Healy Eames made a valid point to the effect that introducing new measures to boost the housing market may result in a continuation of what happened for far too long, namely, house price increases. She also stated that perhaps the best thing we might do, especially in respect of those trying to get on to the property ladder, might be not to intervene further in the property market. Prices are dropping and people who took out mortgages between three to five years ago are concerned and disappointed. For new entrants trying to get on to the property ladder, however, the fall in house prices is a welcome development. We must be cautious with regard to intervention.
The Minister for Finance will deliver his Budget Statement in two weeks' time and I hope he will place competitiveness and the control of inflation at the top of the agenda. During the past two to three months, when it was finally recognised that the Government was facing serious economic difficulties and that major shortfalls were occurring, many of the Minister of State's colleagues indicated that savings would be made across Departments. I hope such savings can be made from an administrative perspective. If these savings can now be made so readily and easily, it is disappointing that no one considered making them one, two or three years ago. Everyone, particularly the Government, became carried away with the idea that the boom years would continue.
Spending across Departments increased dramatically in recent years. There is no doubt that the value of money which should have been achieved was not forthcoming. If the current downturn in the economy forces us to face reality, we may perhaps benefit from it in the long term. If it puts competitiveness and value for taxpayers' money at the top of the agenda, that would be a welcome development.
Notwithstanding the political rumours doing the rounds, I hope the Minister for Finance will not introduce taxation increases. Evidence from the 1970s and 1980s shows that such increases do not help to create jobs or produce a winning economic formula. Taxation levels must remain as they stand or, if possible, they should be reduced. We should also reduce levies and charges to make industry competitive and allow taxpayers to spend their money.
We will be rehearsing this debate in two weeks' time in the aftermath of the budget. I look forward to the debate that will take place later this evening, at which point we will gain a greater understanding of what the Government's proposals, announced early this morning, will mean for taxpayers and the financial institutions. During the past five or six years, particularly when one considers the amount of money available to it, the Government lost the plot in economic terms. We are now suffering the consequences of that.
I welcome the Minister of State. Last night, I prepared a script which I intended to deliver today and which contained proposals which were identical to those announced by the Minister for Finance at 7.10 a.m. I will jettison my script, therefore, and deliver it during the debate that is due to take place later this evening.
We must consider the challenges we face and the direction our economy should take. Last month, I visited Vietnam for the first time. The history of that country is very interesting. The Vietnamese fought a war against the French which began in 1946 and which ended shortly after the siege of Dien Bien Phu in 1954. Following this conflict, the country was divided. The north Vietnamese then fought another war against the Americans, which finally came to an end after 20 years or so in 1975. Since then, Vietnam has been a communist state. From 1975 to 1997, this proved to be a disaster. The economy was dead and the country remained poor. As a result of their objectives, the Vietnamese did not appear able to get anything off the ground. Some 11 years ago, however, the Vietnamese recognised the benefit of maintaining their communist state and also embracing the notion of the market economy. Vietnam's economy is now booming.
The enthusiasm and entrepreneurship displayed by the people there and the way the country's gross domestic product is booming provides evidence that despite the judgment of previous Vietnamese governments and against the backdrop of all the lives lost in the two conflicts to which I refer, the market economy is working. I come from a business background and the Minister of State can understand why I might believe in the market economy. My belief in such an economy was strengthened no end by my visit to Vietnam.
We must take a positive approach to the position in which we find ourselves and rely on the market economy. I thank God the partnership deal was agreed last month. However, I read a report last week which indicated that even though there is a guarantee of a pay rise of a certain amount over a certain number of months, a large number of companies will inform their employees and the unions that they will not be able to honour that pay rise without letting staff go. People will be obliged to make a decision. If they want to receive their increases, then 10% fewer individuals will be in employment. People will be obliged to make their decision. The balance of those will be made on the basis of economics because it will be a market economy. In many cases, the unions and their members will decide they would prefer not to accept that increase if it would maintain jobs and this brings us to the one area which is so important and which was touched on by Senator Mary White, namely, competitiveness. We must maintain competitiveness if we are to keep this economy going.
Looking back at what happened in the past, I was very impressed by Frances Ruane who wrote an article a couple of weeks ago in which she talked about TK Whitaker, what happened in 1958 and what was achieved. TK Whitaker also recognised that success would not be protectionism. Let us ensure we look in a very positive light at how we succeed in this area.
There was a real crisis in 1987 and the country came together. I was delighted the then Opposition said that if it was the right thing to do, it would support it, and I heard some sounds of that today. Senator MacSharry is in the House today and his father was entrusted with responsibility of cutting the costs of running this country. That was done very quickly. I gather that at the time, the Taoiseach of the day, Charles Haughey, said to his Ministers not to bother coming back to him if they did not come back with anything less than a 10% cut in their expenses and in the costs of running their Departments. For the first time, people believed that would work. What happened in 1987 under the former Minister for Finance, Ray MacSharry, was that within a very short period, the economy began to turn because we took very tough decisions. Those sorts of decisions will have to be made once again. We will have to do something about ensuring we cut our costs.
I was delighted to read the headline words of the Taoiseach, Deputy Brian Cowen, today. He said that when the upturn comes, we must be ready. Let us take that into account. Whatever costs we cut, let us ensure that in doing so, we recognise the economy will turn reasonably soon and that we should be ready for that. However, let us ensure we do not cut costs in the very areas on which we will have to rely in the future, especially in the area of education.
I will not go in the direction in which I heard so many others go. I listened to a politician on radio the other day who had come in to solve the problems of the economy but who continued to criticise what happened in the past ten years. The person was asked over and over what he or she would do now but refused to answer the question. There are measures we can and must take.
I was very impressed by the debate between Senators John McCain and Barack Obama. Senator McCain made a mistake when he talked about Ireland having an 11% corporation tax. It was a slip-up as he should have said 12.5%. However, I was delighted he made it because I thought perhaps this is very time to consider something like that which would attract the world's attention. A few moments ago, Senator Paul Bradford talked about not increasing tax. I am talking about increasing the tax take by reducing the tax percentage. This is the very time to do something dramatic like that. We are not talking about less money but about more money for a lower percentage. Sums would have to be done but it is an area to which some consideration could be given.
This is the very time to be courageous and to have a belief in the future and to say we can do something about it. I did not know until the other day that in 1929 after the Wall Street crash, the Rockefeller family decided it was the time to build the Rockefeller Center in the centre of New York. It did so because it said it was a time to encourage and show it had a belief in the future. They are the sorts of steps we should take now.
When we come to make decisions in the next two weeks, let us ensure we make decisions which take the long term into account and not only the short term. We have the ability to borrow now and we may have to do so but we should not let it spiral as it did many years ago. I believe there is a consensus across the board and that the Opposition and Government will support the right decisions, as was done with the Tallaght strategy back in 1987. Let us ensure we take the steps which take the long term approach and that we do so from a positive point of view rather than one of doom and gloom. This is the time to look forward to the future.
This debate is taking place in the face of great financial turbulence. I was going to say it was unprecedented but if one goes back to the 1929 Wall Street crash and the subsequent years, I am sure there is a precedent there. The real challenge is to ensure we do not end up in the situation in which they ended up.
This time the problems in America are mirrored across the world, including in Europe, because of the globalised economy. It raises serious questions for regulatory authorities and for central banks across the globe. There were so many innovative but, none the less, artificial financial products on the market and the concept of some of those products was mind-boggling. It is easy to say that with the benefit of hindsight but one would have expected the expertise within central banks and regulatory authorities at least to have anticipated some of the difficulties now being encountered. Having said that, it is a question for another day because the issue, as I see it, is about containment and the restoration of the banking sector.
In that regard, I pay tribute to the Minister for Finance on the initiatives taken. They are courageous and are not without creating certain exposure and risk but they are essential. The Minister was right to follow the lead of Britain and the United States in respect of banning hedge funds and short selling because that was bringing pressure on an already strained marketplace. Guaranteeing deposits was an essential measure and the manner and speed with which he did so was good.
I heard the Opposition spokesman on finance speak today and it is good there was liaison between the Opposition and the Government, a point to which I will return. In a time of serious challenge to the State, it is very important that politicians can show some unity of purpose, which is being done.
There are a number of broad issues, including the banking and construction sectors. The construction sector is in the middle of this problem internationally. The too easy availability of credit and low interest rates over a long period perhaps over-primed the construction sector and caused exposure in that area. There is a need for people to be able to access property. Historically, this country has had a high rate of home ownership of which we can be justifiably proud. It compares favourably with that in the rest of the world. With falling prices, we should try to marry the need for property with the over-supply of it because for as long as over-supply remains, it will be a serious drag not only on the construction industry but on the economy generally. Economists have said — I am sure they are correct — that in doing that, we must ensure we do not artificially buttress property prices because that would only prolong the time before we return to growth.
Another area at which we must look is public expenditure, which there is no avoiding. We have seen significant growth in public expenditure in the past decade. I have worked most of my life in the private sector. At a time of plenty, the ship tends not to be trimmed as tightly as it might otherwise be and, no doubt, areas of fat build up within the system. This happens in the private sector as well and is not unique to the public sector. In the private sector, however, competition ultimately tends to ensure that if this is not trimmed and reined in, business will be lost. This triggers attention to it.
There are also areas of waste and wasteful and unnecessary expenditure. We are in a position now where we are forced to look at reducing current public expenditure by 10% to 20%. This cannot be achieved painlessly. It will be difficult to achieve this, but we will not have the receipts in the short term and may not have them in the medium term. In this regard, I welcome the serious attention this area is getting from the Cabinet, Departments and our Civil Service. In the past our Civil Service structure was very good at meeting the challenges and laying the foundations for the success we enjoyed over the past decade or more.
I see this as a defining moment for our economic well-being and a defining moment for politicians, which brings me back to a point I made earlier about unity of purpose. Being a small island, we have a very open economy and are very exposed. We must send an important signal, therefore, that there is unity of purpose among the political establishment. I do not wish to make undue comment on the other House, but l heard much negative criticism of the debate there last week due to the lack of quality debate and the partisanship shown. This contrasts with the approach taken on the issue by the Opposition spokesman last night and today. It behoves the Government and all parties to knuckle down and face the issue. They must realise they face a challenge that is more serious than their well-being as parties and work together. The people will detect whether they work together in unity and succeed. People are concerned about their economic future, jobs and everything else and the last thing they want to see is partisan politics being played out. What happened in Congress last night was an example of what should not happen.
We need close liaison, on a formal basis, between the central banks of the EU member states and the European Central Bank. The challenges we face require a cohesive approach that will signal to the market and speculators that a serious and determined approach is being taken to ensure we weather this crisis in a way that will lay the platform for future growth in each member state.
The situation also poses a challenge in respect of the social partners. They need to realise that unemployment will, inevitably, increase. The question is to what extent and how this will affect union members. It is important therefore that the social partnership structure shows some flexibility as the situation changes month by month or week by week. There should be some disposition among both the private and public sector to extending the pay pause should the need arise in the national interest. If everyone keeps their eye on the ball, we will come through this situation and look back on it in a few years as a time of great difficulty but a time when we got back to some of the more important fundamentals of the economic life of the State and a time when we put the country on a better footing for the next one or two decades.
I welcome the opportunity to take part in this debate. We are, however, having it in somewhat unreal circumstances in so far as the Minister of State had to come in and give a presentation that did not address what is happening today and was unable to address the decision that has been taken by Government or go into detail on the reasons for it because the legislation is being published this evening. We do not have the details of the legislation and are not addressing the crisis of the day and the decision apparently taken at 2 a.m. or 3 a.m. last night. It was not necessarily a brave decision but was an essential one forced on the Government by the potential of catastrophic circumstances and a catastrophe in our banking sector. If our banking sector collapsed, that would have a catastrophic effect on our economy and result in the appalling outcome of hundreds of thousands of unemployed people.
We do not know if the decision the Government has made will be the solution or will deal with the situation. The amount in question, €400 billion, is a significant sum and we must hope it will inspire confidence. Confidence is a moveable feast in the economy and in banking and is affected by a range of factors. We do not know by what factors confidence in the Irish economy will be affected but we must hope this decision will give the kind of confidence that will lead to economic growth.
I wish the Government had listened to many of the suggestions made by Fine Gael over the years. I want to put to bed the suggestion we did not offer alternatives nor suggest a range of initiatives that would be positive for the economy. We did so on numerous occasions. I have heard calls today for support from the Opposition. We will be responsible in the current situation. We want to support our economy and do not want to see it collapse because of the situation in which the banks find themselves. We will give our support in a guarded way, however, and will raise the key questions that need to be raised.
Many questions arise from the Government's decision, not least of which is what happens to the banks not included in the agreement? What impact will the decision have on Ulster Bank and the other banks? Will the Minister of State address that issue and explain how the Government intends to deal with it? It is a key issue. Many people are employed in those banks and confidence in them must be maintained. How will that be done? Will the agreement or decision the Government intends to put forward in legislation tonight be compliant with EU competition law? There are serious questions in that regard. What will be the response of the EU to the decision that has been made? What is the total exposure to the Irish taxpayer as a result of the guarantee to the banks?
The €400 billion amounts to approximately €250,000 per citizen of an underwrite to the banks. People are very concerned about this and these figures are extraordinary to the ordinary man or woman in the street. As far as they are concerned, they see a banking sector which has behaved disgracefully in many instances now being underwritten. We all understand the reason for this; it is essential for our economy. Make no mistake, however, about what ordinary people think about it when they see their sons or daughters landed with a 30 or 40-year mortgage on property bought at an inflated price and who are now in negative equity. They will not feel very happy about this underwritten guarantee to the banks. We can understand the reason they would not be happy. They may understand the greater good that may come out of it but they certainly will be sceptical when they see the amounts bankers were paying themselves, the rewards that were given and the type of lending and trading in derivatives that took place. There is an understanding that we must keep our economy going and this seems to be the price to pay. However, it is a high price for Irish taxpayers who are entitled to ask what returns they will get from the arrangement.
It is crucial for us to know the regulations and financial oversight which will be put in place because it is clear, as speakers on the Government side have acknowledged, that the oversight and regulatory regime has failed completely. The people who had responsibility for this ought to be called to account. What new arrangements will be put into place and what guarantees will the Government receive? What sort of monitoring will be conducted on behalf of taxpayers subsequent to their underwriting of this enormous sum of deposits? These are key questions. There is an onus on the banks to ensure their behaviour is prudent, measured and considered. Reckless borrowing and derivative trading must become a creature of the past. How will taxpayers be protected?
I spoke on the Order of Business about a meeting in St. Bridget's school, Palmerstown, which I attended along with hundreds of parents. For the past ten years, this school has sought funds for a refurbishment and an extension. The pupils attend the school in the most appalling conditions imaginable. Thus far, €300,000 has been spent on prefabs and €350,000 on architectural fees for the planning application. The building is ready for redevelopment and the children have moved into the prefabs. It is difficult to believe that any child in this country must endure the sort of conditions experienced by St. Bridget's pupils, yet the school did not receive funding yesterday. There has been no clarity as to why that school was left out whereas 15 others were given money for refurbishment. I raise the issue in the context of this economic debate because I ask what impact the bail-out will have on the services we want to provide in our schools and hospitals.
Fine Gael made a variety of suggestions on how this Government ought to have behaved over recent years, which we published in a document entitled Recovery through Reform. Senator MacSharry stated earlier that we have not put forward alternatives, an accusation which I want to bury.
Hear, hear.
Deputy Bruton has been putting forward alternatives for several years. He has addressed repeatedly the issues of reform of the public sector and evaluation of public private partnership projects. He has spoken about the need to save money by limiting quangos. We have proposed a reduction in the rate of VAT from 13.5% to 12.5% to stimulate the building and tourism sectors. We have advocated the publication of a credible anti-inflation strategy. We have discussed the kind of funding needed for next generation broadband. We have made suggestion after suggestion to the Government but it has not listened. It has introduced inflationary budgets, including the most recent one, which have meant that the public finances are out of kilter. No money was saved for the rainy day we are now experiencing. We pointed out what needed to be done and we find today that the Government is looking to us for support. Fine Gael will be constructive in its support but will certainly be asking the questions I have outlined.
We are living in unusual and unpredictable times. We all recognise that conditions have changed utterly. The global turbulence we are experiencing and the statements by legislators, economists and leaders in various fields indicate an uncharted and difficult future.
For a considerable period there was tremendous optimism in the Irish economy. Over the past decade, this great country has witnessed unprecedented improvements in quality of life and economic activity. Activity and progress touched every home and all parts of the country. Everyone enjoyed unprecedented levels of prosperity. Hardly a family or a region missed Ireland's economic boom. There were success stories, achievements, confidence and optimism at every level. Ireland boxed above its weight on the international stage.
Too much attention is being devoted to diagnoses of our economy and the international currency crisis. The sad message coming from certain quarters is that the lights have gone out and there is doom and gloom everywhere. We are expected to knuckle down, buckle up and enter hibernation. There is too much detailed analysis of the international and Irish currency and stock market difficulties by Members of this House. The Minister of State, Deputy Mansergh, will be able to provide an appropriate explanation of the analysis of various experts in these fields, so the energy of this House should be focused on what we can influence and on promoting economic and financial activity rather than on criticism of fragmented thinking with no real attempt to confront the issue or make positive suggestions on restoring our former confidence.
Do players remain in whom we can have confidence? I have confidence in those who have attracted foreign direct investment to this island in the past, such as IDA Ireland, Enterprise Ireland and the other structures which we have put in place to ensure success in very competitive markets. I also have faith in Government policy regarding low wages, the low cost, knowledge-based economy and investments in infrastructure. The Minister of State might indicate for us the additional moneys which will be spent in 2009 on projects such as Transport 21 and the national development plan. I still have confidence in the structures and players, not only in the State and semi-State sector but also in the innovative private sector. This is the team which has been so successful for such a prolonged period, when other players who were competing strongly with us were unable to reach our level. Unless the Minister of State, Deputy Mansergh, has some news of which I am not aware, or information on some great change coming down the track — that the team is gone, the players are gone and it is time to put out the lights — I still have strong confidence and belief in the capacity of the people.
I have listened with interest to people talking about irresponsible bankers and 100% loans. I question the value of sending out this message, especially in the global telecommunications age in which we live. People who are considering investing in Ireland may pick up these messages and conclude there is a problem here. If there were asset tests on certain projects, we might not like the answers, but if we keep to our game plan, we will be able to get from A to Z and obtain the results we had intended to achieve at the outset.
In July of this year I approached the Oireachtas Library and Research Service to obtain the 2007 report on the financial stability of the Irish banking sector. The reference is 2008/4313. I wish to express my gratitude to the staff of this service, particularly Liam Morris, who carried out much of the work. He indicated to me that the paper would provide an overview of the Irish banking industry, describe the economic impact of the sector and the financial soundness of the industry, and assess the likely impact of the global credit crunch on the sector. The paper outlines the structure of the Irish banking system, which is made up of two distinct groups: banks that focus on the domestic economy and those that focus on international financial services. I will not go through the paper in great detail, but I wonder how many minutes I have left.
The Senator has approximately 30 seconds.
I regret that I am running out of time——
We do not.
——but I ask the House to give me a little time to put some facts on the record.
No. There are three people waiting to speak.
There are approximately 500 banks on the register of credit institutions. In recent years the Irish banking sector has enjoyed great competition, with approximately 60 institutions operating in the retail banking market. I will cut to the chase. The most significant economic impact of the sector is that it provides the capital necessary for business to function and to invest for expansion. I express my appreciation to the banking sector for all it has done in assisting the economy in recent years, the benefits of which we have all enjoyed.
Each year the Central Bank and Financial Services Authority of Ireland publishes the financial stability report, which is an assessment of financial stability in the domestic financial year. The conclusion of the CBFSAI at the end of 2007 was that "the Irish financial system's shock absorption capacity remains robust and the system is well placed to cope with emerging issues". The CBFSAI monitors a series of financial soundness indicators, FSIs, of the banking system. These are used to measure the sensitivity to market risks of Irish banks, along with their asset quality, capital adequacy, liquidity and earnings and profitability. Based on the FSIs, the risk-based capital ratios used to assess the solvency of Irish banks are above all benchmark levels. Furthermore, non-performing loans and bad debts represent less than 1% of total loans.
There is one figure I will put on the record, because time and again people have mentioned irresponsible bankers giving 100% loans. There is no doubt there are 100% loans. However, this research paper states that only 2% of mortgages in the mortgage book were at loan-to-value ratios of over 92%——
That is 30 seconds.
——and that the average loan-to-value ratio was less than 51%.
I must ask the Senator to finish.
There are some interesting statistics in the paper and I would encourage people to look at it.
There are three speakers offering.
The three Fine Gael Members would be happy to share time if that is agreeable to the Chair.
The House will show some latitude. The Senators have eight minutes between them.
Talk away.
We speak quickly in Cork. I welcome the Minister of State, Deputy Mansergh, to the House. The economy deserves to be the primary focus of our debate today, given what has happened in recent times. However, the Government has lost sight of the fact that people matter. People are affected by mismanagement and bad government. That is what has happened. We had a debate about the banking service when I tabled matter on the Adjournment about Bank of Ireland. We are now in a state of economic turbulence and this Government, including the Members on the Government side, conveniently blame Wall Street and the global crisis. What the Minister of State forgets is that Main Street meets Wall Street in the home of every single Irish citizen. There are families who are struggling. These are not political words; it is the reality.
While out canvassing last night in Ballyphehane in Cork, I met people who were worried, anxious, struggling, concerned and making choices. I am not talking about choices about foreign holidays but about heating, school uniforms and books and so on. These are ordinary people. Let me put it in context for the Minister of State. A woman came to me last week who had an adult child who was paralysed and required full-time care. This woman was told by a bureaucrat to restrict her child to four nappies and control her incontinence. That is not the fault of Wall Street or the banking sector but of the Government the Minister of State represents.
The taxpayers have propelled us into an economic spiral of success under the Celtic tiger, but they are not being rewarded. Life is cyclical. As the old cliché goes, the wheel comes full circle. A boom is followed by a recession. However, the Government did not plan for a rainy day. It squandered money on electronic voting machines and crazy plans for Abbotstown. The tent at the Galway races is the epitome of where it has gone wrong. People are affected by the Government's inability to govern and by the waste of money on decentralisation.
I wish to address a fundamental point about the national development plan that the Minister of State made in his speech. I agree that infrastructural provision is crucial for our country. My question is about the lack of Government initiative with regard to the Cork docklands. Will the Government give a commitment to the people of Cork that it will fulfil the promises it made in 1997, 2002 and 2007 to the people of Cork regarding funding for bridges and tax incentives? Can it deliver to the people of Cork, or will Cork be a victim of mismanagement and reckless government? The people of Cork deserve to be given an answer tonight. I am here as an ordinary person representing the people of Cork. I am not a shareholder. I do not have millions in banks. We need answers and we need leadership.
I remind the House that a motion was tabled in the Lower House last week calling for an urgent debate on the economy and it was rubbished by the Government and dismissed out of hand by the Taoiseach as playing games. Vindication of the urgency of a debate on the economy has been provided in the past 24 hours. We all know and those on the Opposition side of the House accept that it was necessary for the Government to act. All we are dealing with here are the safeguards required in terms of taxpayers' money, oversight, proper regulation of the banks and ensuring that with this guarantee the banks do not attempt to double their debts and take risks at taxpayers' expense. They are all serious issues. This is not to cramp the Government's approach in dealing with a crisis.
However, it highlights another issue that is symptomatic of the Government's approach on economic policy — its inaction, reaction and lack of ideas. The series of measures introduced by the Minister for Finance, Deputy Brian Lenihan, are exactly the same ideas proposed by Deputy Bruton to cancel ministerial and higher public service pay rises, cut the number of Ministers of State, announce a list of agencies to be rationalised and release up to €400 million from the failed decentralisation programme.
The next measure was the increase of the deposit account guarantee to €100,000, a proposal, which although made by Deputy Bruton more than a year ago was only acted upon when prompted by the crisis reflected in Joe Duffy's radio programme. The Government has known, as has been pointed out from many sources, that there was a fundamental problem in our banking system that needed to be addressed. However, it only addressed it when it was too late at the 11th hour. It then took a measure that was not thought through and the full implications of which we do not know and neither does the Government. That is what we must address tonight.
This side of the House, as will be the case in the Lower House, will be constructive in all this debate. Rushed legislation is always very dangerous. Even at this late stage, we would like to ensure we get this one right.
Ba mhaith liom buíochas a ghabháil leis an Seanadóir Buttimer as ucht a chuid ama a roinnt liom. There is no doubt the economic challenges the State faces in the coming period are substantial. However, with well thought out, responsible policies they are not insurmountable. Simply bringing the budget forward is not enough. The Government needs to take charge and recognise that the buck stops with it when it comes to running the economy. A Government response to the current situation which seeks to address the shortfall in public finances by resorting to cutbacks in public services is simply not acceptable. Our public service is already characterised by a lack of capacity and quality. Of all the countries in Europe, only Estonia and Lithuania have lower public service spending than us.
Opposition parties are correct to blame Government mismanagement for our present predicament. However, those of us in Opposition also have a responsibility to propose solutions as to what we would do. While waste and duplication must be eradicated, let us not kid ourselves that there is a black hole in public spending. It simply does not exist. Government spending is nowhere near the level at which it needs to be to reverse the deficits that were allowed to build up in our social and physical infrastructure. We need to use innovative thinking to stimulate the economy and build the revenue needed to fund our public services appropriately. We need to offer responsible solutions as to how the Government can dig itself out of this mess in the short and medium term while protecting the most vulnerable who have so often in the past become the target of Government cuts.
To stabilise the economy we urge the Government to use the budget in a number of ways. We want job creation prioritised. In particular we want an immediate retraining programme provided for construction workers to get them into renewable energy retrofitting in other industries. We want the Government to address our underperforming export market. Approximately 90% of our exports in 2006 came from foreign-owned companies based here rather than indigenous industry. A well-known American economist has commented that we had not so much a Celtic tiger as an American tiger trapped in a Celtic zoo.
We want the national development plans in social and affordable housing and school buildings to be frontloaded, which would re-employ the construction workers and contribute revenue as well as keep people off the dole queues. The Government needs to take action to reduce the cost of living pressures on the low paid and those dependent on social welfare by establishing an inflation package and awarding social welfare increases. It is imperative for the Government to introduce a set of proposals to reduce the cost pressures on small businesses, including fast-tracking companies legislation to reduce the regulatory burden while protecting workers' rights. In all of that we need a fundamental reform of the tax system. If we have sensible well thought out policies, we can dig ourselves out of the hole in which we find ourselves.
I call on the Minister of State to make a statement and take questions from the spokespersons. By order of the House the debate is to be finished by 7 p.m. However, we can be guided by the Leader of the House.
On the Order of Business I said that the Minister of State would be called upon ten minutes prior to the conclusion of the debate to make final comments and take questions. If the House now needs another five minutes, I now propose that.
Is that agreed? Agreed.
I thank all Senators for contributing to the debate. At the beginning of the debate I believe Senator Twomey alleged that I had a lack of respect for this House. I have sat through a debate here and listened to everyone for three hours without interruption.
Hear, hear.
I found it a stimulating debate with many different angles. Inevitably with the financial crisis coming on top of the economic difficulties, many of the contributions dealt with the financial events and decisions of the past 24 hours. While I do not wish to pre-empt in any detail later discussion on that topic, I will say a few words none the less. The action taken by the Government earlier today to guarantee the retail, wholesale, dated-term debt, secured borrowings and interbank deposits of the six domestic credit institutions followed the advice of the Central Bank and the Financial Regulator. In taking this action the Government is acting first and foremost in the interest of the taxpayer and the small saver and depositor to support the stability of the financial sector, which is essential for the stability of the economy.
I agree with Senator Buttimer and many others who made the point that there have been many very worried people, not just in the past 24 hours but also in recent weeks. In many respects we are in uncharted territory. The action needed to be taken now because global problems over how credit institutions are funded have led to a lack of liquidity across the global financial environment, which has meant that Irish institutions have had difficulty raising the funds they need to lend to customers. In a normal environment when borrowings on the wholesale money markets where banks lend to each other fall due for repayment, they would either be continued or new loans taken to replace them. However, with the credit crunch new funds are no longer available.
The Government's decision to give a €400 billion guarantee to six of the main banking institutions would allow the banks to go to the international markets now and raise funds. It is not the intention that the taxpayer would be liable for any shortfall in the future. Money has not been handed over to the banks and as the Taoiseach said earlier in the Dáil, the facility will come at a price for the financial institutions and a fee reflecting commercial reality will need to be paid by any of them that seek to make use of the guarantee. This relates to the liability side of the institutions' balance sheets.
Senator Fitzgerald raised the situation of Ulster Bank and one or two other related institutions. That is a question I will deal with. On the previous announcement of the €100,000 guarantee on deposits authorised by the Financial Regulator, this applied to foreign-owned banks with branches in Ireland, including Ulster Bank, First Active, and IIB. The broader guarantee does not apply to those banks because they are all supported by large overseas parent banks.
I wish to deal with one or two points raised in the debate. I appreciate the distinction Senator O'Toole made between the market and the free market. He was right to draw attention to the importance of the clearance the Minister received from Brussels to exceed the 3% borrowing limit in the current circumstances because obviously that would have put impossible constrictions on it.
I also liked Senator Boyle's phrase about an unhealthy belief in bubble economics. It is funny in some ways as this has been going on from time to time back to at least 300 years. Humanity seems to have difficulty in learning and, unfortunately, these things repeat themselves too frequently.
Last Wednesday, the Financial Times published a survey which showed that the eurozone as a whole is in recession. The point being made is that Ireland is the first country to announce it.
I am sorry to interrupt the Minister of State. There are a number of spokespersons who wish to ask questions and time is running out.
We would prefer to have a rolling debate on questions. I will not speak too much about the banking crisis which is a topic of conversation now. I wanted to speak about competitiveness but that is not possible in a one-minute question. Therefore, it is pointless getting into a deeper debate on the economy. In his contribution, the Minister of State said there are €50 million in procurement savings to be made in the Department——
Not my Department but across all Departments and agencies.
——for which he has particular responsibility.
Yes, but that is for next year.
What are they?
Announcements will be made about that later. It has to do with procurement, pooling buying power and so on. I cannot go into detail at present.
The Minister of State made a point when summing up that I did not hear clearly but I would like to have it put on the record again. The fact of the matter is that today, the action by Government has eased the access to credit for the banks and it has cheapened the cost of credit and money to the banks. Therefore, the banks are actually better off than they were this morning because we have covered their risk. I think the phrase the Minister of State used was that they would pay a fee reflecting commercial reality. That is what I head the Minister of State say and I would like him to put it on the record again.
I was quoting the Taoiseach.
Yes, that is on the record. Is it the Government's view, because the cost of money to the banks is cheaper, that from tomorrow morning effectively the cost of borrowing to the consumer should also be reflected in cheaper borrowing?
I will pass on that question if the Senator does not mind.
In light of the fact that the Credit Institutions (Financial Support) Bill is coming to the House later, I do not have a question. However, as I am sure all Members would wish, I thank the Minister of State for sitting with us for three hours. It is reasonably unprecedented that a Minister would spend so much time with us. I thank him for doing do and look forward to discussing the Bill later.
We appreciate the move by the Government today and remind ourselves that it is a bail-out by taxpayers for the banks. When will the Government come forward with a plan to provide security for those ordinary people in debt to the banks, those who have lost their jobs, are mortgaged to the hilt and are facing courts in regard to repossession of their homes? When will the Government provide a plan to bail them out? Is it the Government's intention to work through the night to insure against their losses because these are the people who have most to lose? Is that issue on the Government's agenda?
Obviously any actions in regard to that issue will have to await the Estimates and the budget. So far, I would heavily qualify that the repossessions have been relatively small. There was a reference in a number of contributions to negative equity. Negative equity mainly affects people who, for one reason or another, may need to sell. For people who intend to hold on to their property, if they are there for the medium or the long term, it is very likely the negative equity will cease to be negative at a certain point along the line.
That concludes——
There is a further interesting question here.
The time has expired.
I understood the time allowed for questions and was ten minutes.
It was five. The time has expired and as it is now 7.07 p.m., I have to obey the order of the House.
We did not even get our ten minutes.
That concludes the statements and I thank the Minister of State for attending.