Budget Statement 2009: Statements.

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

The budget for 2009 needed to be formulated against the backdrop of a strong downturn in the domestic and much of the global economy and the recent worldwide crisis in financial confidence. Decisive Government action has been needed to arrest the deterioration on both fronts.

With regard to the banking crisis, the Government's leadership in giving guarantees of liabilities under a scheme now approved by the European Commission and the co-ordinated reduction in interest rates by central banks around the world, together with the framework declaration by leaders of the eurozone in Paris last Tuesday, whereby member states may also, depending on circumstances, provide greater liquidity and, where necessary, capitalisation, have all been focused on underpinning the financial institutions without which modern society cannot function and which are essential to the viability of this or any other independent state.

The budget is designed to stabilise the public finances in the interests of securing jobs, living standards and essential public services where a large gap has opened up between income and expenditure as a consequence of the fall in growth of 1.5 % of gross domestic product in 2008, reflecting the sharp decline in housing construction, weakened consumer activity and rising unemployment. For the first time in more than 20 years, even after budget measures, borrowing will amount to more than €12 billion, which is 6.5% of GDP, while the debt to GDP ratio will rise to 43%. The aim is to bring the deficit back within agreed EU parameters of less than 3% of GDP by 2011.

The right balance needed to be struck so as not, on the one hand, to allow our debt to balloon rapidly to unsustainable levels through lack of action, requiring far more severe measures later, but equally not to exacerbate the problems by driving the economy into a deep depression. Even so, more action and follow-ups will be needed in the future as signalled in the budget on a number of fronts. In macroeconomic terms, we are allowing automatic stabilisers, such as increased social welfare payments, to operate, but we have no scope, outside of a few targeted interventions, to stimulate the economy across the board.

In the current situation, every sector of the community, but especially those better placed to do so, is being asked to contribute something. While individually and in isolation most of the tax increases and most of the cost-saving measures are to be regretted, they are necessary and parties who criticise or complain about them need to put forward a coherent alternative concept. We have been through a period of exceptional growth, exceptional increases in employment and for many people exceptional improvements in living standards and the range and quality of public services, notwithstanding remaining gaps. Our objective is to hold on to as many of these gains as possible, even where one step backwards may be needed to take two steps forwards later.

On the specifics, there is a social welfare package of more than €500 million, with spending increased by 8.4% to €19.6 billion, which includes State pension and jobseeker's benefits and allowances increasing by 3% or more, just ahead of the anticipated rate of inflation. In much better times, the welfare increases in the 1995 budget of the rainbow coalition were only2.5%. Next year's increases include a €7 per week increase in the State contributory pension to €230.30 per week. There is also a two-week extension to 32 weeks in the fuel allowance and a €2 per week increase in the payment. Payments to carers are also being increased. The phasing out of child benefit over the age of 18 and the trimming back of the early child care supplement by six months with compensating measures for social welfare and low-income families are reasonable changes pending a more fundamental review of child benefit payments.

The provision without means test of medical cards to all pensioners over 70 unfortunately has proved a bridge too far in current financial circumstances. The medical organisations demanded and obtained conditions which are unsustainable. However, as the Taoiseach told the Dáil this morning, the majority of people over 70 will be eligible for a medical card, GP-only card or annual grant payment.

On income tax, people on the minimum wage stay outside the tax net and those on the average industrial wage remain on the standard rate because of indexation. The income levy is only a token contribution at lower income levels and excludes social welfare payments. In infinitely poorer times, people contributed for a patriotic purpose a penny a month to the Catholic Association to help achieve emancipation. The levy, which rises to 2% on gross income at higher levels, will collect much larger amounts from those on higher incomes and has precedents under different Governments in the 1980s and 1990s and is less permanent than a rise in income tax rates. Capital gains tax has risen to 22% in tandem. There is a tax on second homes and on more expensive cars. No one can say that the higher paid are not contributing more, and the highest reaches of the public service — secretaries general, Ministers and Ministers of State — are taking 10% pay cuts. The public service, as broadly defined, will be included among those paying €200 for city car parking spaces.

The 8 cent on a litre of petrol in a context of falling prices will raise revenue but also encourage a switch over to more environmentally friendly diesel. A 0.5% increase in the standard rate of VAT is marginal compared with very large increases of up to 5% at one time in some budgets of the 1980s. While excise duties on cigarettes and wine are being increased, the 50% reduction in excise on lower alcohol beer and cider is very welcome from a social, safety and employment point of view.

An important strong statement for inward investment was made by the Minister against this backdrop that there would be no upward shift in the rate of corporation tax in the lifetime of the Government. The improvement in research and development credits will in fact lower the effective rate for companies. The three-year tax exemption for start-up companies will also help create employment in small businesses. In these circumstances, the once-off shift in the preliminary tax payment dates for large companies is reasonable. In terms of the tax and social welfare system, the cost of employing people and of conducting business in Ireland remains very competitive.

The continued priority given to education, research and infrastructure is very welcome, and a high level of public investment is being maintained even if some elements in the national development plan will take longer than originally envisaged.

The fall in house prices, the recent reduction in interest rates, the restructuring of interest relief to help more new and recent purchases, improvements in the local authority mortgage scheme and perhaps the tax on second homes should all help young buyers. The reduction in stamp duty from 9% to 6% will help the commercial end of the market.

The budget also contains many environmentally beneficial measures in terms of transport, the home energy saving scheme and the clean-up of large toxic facilities. I was also pleased to be able to inform the Development Committee of the World Bank in Washington this weekend that Ireland is the sixth largest per capita donor of development aid, and will be contributing 0.56% of GNP next year, and also of the Taoiseach’s commitment to hold to the 2012 target of 0.7%.

I would now like to review areas for which my office has been given responsibility, in particular a major reform of procurement management in the public service through the National Public Procurement Policy Unit in the Department of Finance and the Office of Public Works. Over the last few years, the main focus of reform has been on construction procurement, with the introduction of new fixed price lump sum contracts and standard conditions for the engagement of construction consultants. All non-commercial State bodies will be required to develop and implement corporate procurement plans.

There is clearly a strong economic reason for North-South co-operation on procurement. The National Public Procurement Policy Unit in the Department of Finance, in conjunction with the Central Procurement Directorate based in Belfast, and the cross-Border body InterTradelreland, have been working together to develop expertise, so as to take advantage of business opportunities on an all-island basis. It is important to build on these contacts for mutual benefit across the island. With an estimated all-island spend on public procurement of €15 billion annually, the pooling of knowledge on more strategic approaches to procurement is essential.

The Minister for Finance announced in the budget that the Government has reviewed the decentralisation programme, and has identified priority elements on which implementation will proceed at this time. A capital expenditure envelope of up to €72 million in 2009 and €90 million in 2010 will be provided for the completion of projects going ahead. Projects proceeding will include a major PPP project to provide, under a single contract, new headquarters for the Department of Agriculture, Fisheries and Food in Portlaoise and the Department of Education and Science in Mullingar, together with a new facility for the Department of Enterprise, Trade and Employment in Carlow. A successful tenderer has already been chosen and full planning permission has been granted in respect of the Portlaoise and Mullingar developments. When completed, the total numbers to be employed at these three locations will be in the region of 1,500.

I am glad to say that work is well advanced by the OPW in bringing to tender stage other construction projects referred to in yesterday's announcement. These involve new buildings in the towns of Claremorris, Roscommon, and Tipperary. Also, and very importantly, this next phase of the programme will include construction of new headquarters for the Defence Forces at the Curragh and for the Department of Community, Rural and Gaeltacht Affairs on a site to be acquired in Charlestown.

To date, expenditure of approximately €250 million has been incurred on the programme. This covers the acquisition of development sites, construction of offices and the leasing of accommodation. Against this expenditure, the OPW has realised approximately €575 million for the Exchequer through the sales of surplus property to the market, which realised €375 million, joint venture deals to the value of €125 million, and the transfer of properties to the Affordable Housing Initiative which realised €75 million.

The completion of these projects, coupled with the progress already made, will bring 6,000 public service jobs to over 40 locations outside of Dublin. The 6,000 posts that are moving are primarily Civil Service posts, with a small number of State agency posts. They include 2,500 posts that have already moved, together with an additional 3,500 posts, which are in train.

The main arguments for decentralisation remain valid. Decentralisation relieves congestion in the capital. It provides high-quality jobs for the regions. It has obvious advantages for securing a better regional balance. It helps the economic and social development of the chosen centres and their catchment areas, as well as providing a further boost to the provision of infrastructure in the regions. It also has the potential over time, and sometimes immediately, to attract other investment and services, and acts as an incentive to entrepreneurs to develop businesses in the regions, thus creating positive knock-on effects.

Flood events which occurred earlier this year leave us in no doubt about the ever-increasing threat which severe weather poses, both to businesses and to householders. Within OPW's allocation, measures to relieve existing flood risk and to prevent the creation of future flood risk will be prioritised. Provisions in the Estimates will allow the three flood relief schemes, which are currently on site in Ennis, Clonmel and Mallow, to proceed to completion next year, and will also allow the design of the next phases of those schemes to proceed as planned.

Likewise, there is good news for potential flood victims in Dublin, Waterford, Arklow, Bray, Carlow, Fermoy, Mornington, Tullow, Enniscorthy and Tullamore. Our provision will enable the OPW to continue to work with local authorities to deal with problems which, though smaller in overall scale, are nonetheless very significant for the people who are affected by them.

The Heritage Services of the OPW are now responsible for managing and maintaining over 750 national monuments and a range of historic properties throughout the country. We provide full interpretative facilities and guide service at over 60 sites which attract over 2.5 million fee-paying visitors annually. Our heritage is a source of pride and inspiration for all our citizens and a cornerstone of our thriving tourism industry, the beneficial effects of which are felt nationally, regionally and locally.

The future for the heritage service is one of consolidation. It will continue to play its role in tourism, but will concentrate on reinvesting in existing facilities and exhibition, and, where appropriate, as a performance venue, developing links with local communities and interests by fostering greater use, and funding will be available for these most important tasks.

The arts allocation, while reduced, maintains most of the gains of recent years. The Arts Council current allocation, which is only slightly reduced, will help maintain a broad range of cultural activity and employment. There has been tremendous investment in recent years in the national cultural institutions, in large projects such as the Wexford Opera House, the Royal Hibernian Academy, the extension to the Gate Theatre, the Cork Opera House refurbishment, as well as in ACCESS projects around the country, beneficiaries of which include the Excel Theatre in Tipperary and the Strand Theatre in Carrick-on-Suir. Work on the PPPs for the National Concert Hall and the Abbey Theatre will continue as planned. The Government in the budget recognises that the arts are not an optional extra or a dispensable luxury in difficult times, but integral to the well-being and identity of our society.

I look forward to listening to the views of Senators on the budget.

Senator Liam Twomey

There has been no acknowledgment by the Ministers, or anyone in the Cabinet, of the people who are responsible for getting us into this mess, and who have effectively destroyed our public finances over the last number of years. This morning the Minister for Health and Children, Deputy Mary Harney, was so out of touch she thought that the only people who would be affected by the withdrawal of the over-70s medical card would be GPs. It is true that GPs will see a loss of income; however they will not be as affected by the withdrawal of the over-70s medical card as greatly as the patients. It shows how little regard the Minister has for people over 70, and the lack of understanding she has of her own Department, when medical cards are withdrawn in that manner.

If one does not have a medical card, there is no entitlement to services from the HSE. There is no entitlement to a home care package or to a public health nurse to come and change dressings. Also, one has to pay in-patient charges in hospital and other in-service charges for long-term care as well. The patients who will lose their medical cards will be extremely put out by what the Minister has done. To try and laugh it off by saying only the GPs are affected shows her arrogance and ignorance towards the patients who will be affected.

The Minister is making it up as she goes along. She stated that between 5% and 6% of people will be affected by this move because of the other conditions she has brought in. The Government could not work out how many people would receive an over-70s medical card seven years ago. The Minister can put her hand on her heart today and tell us how much income and how many assets people over 70 have, to the point that only 5% or 6% of people will be affected. She has no notion how many people will be affected, and she should admit that. This is what happens when one is in power too long.

In his Budget Statement the Minister for Finance softened up parents in regard to acting on child benefit next year. I do not know if he will withdraw it or tax it. However, it was strongly indicated that is next in the Government's firing line. Elderly citizens who will hold their €2 increase in their cold hands during the winter will appreciate their call to patriotic duty by the Minister for Finance, who is nicely cushioned in the back of his Mercedes earning more than €4,000 a week. When he eventually retires, he will have a pension of in excess of €3,000 per week. Government Members should not insult every man and woman by pretending they are suffering, as they are not suffering at all. It is a minor inconvenience to them but ordinary people who will pay these additional taxes will suffer greatly in the coming years. Government Members should not try to align themselves with such people because they are too far out of touch to even consider themselves to be in that position.

They are the so-called guardians of the tiger but the reality is they have destroyed our economy and they want ordinary people to pay for it. The 1% income levy is a tax, not a levy, while many of those in double income households will be subject to a 2% tax increase. They are double income households because house prices were driven daft by Government policy and couples had to have two jobs to buy a house. The former Taoiseach said it would be unpatriotic if they did anything else other than pay extravagant prices for their homes. That is why they are in the mess. They are faced with negative equity and they must pay more for petrol and motor tax and increased VAT. However, these charges do not apply to the same fat cat Ministers who are calling us all to our patriotic duty. Their cars are free, they do not pay motor tax nor do they pay for petrol or for the service bills for their Mercedes. They are completely immune to these increases but they call us all to our patriotic duty. According to Ministers and Fianna Fáil, the little people, not anybody else and certainly not them, must answer this call.

How many Ministers will pay the €200 urban car parking space charge?

Deputy Martin Mansergh

I expect to.

Senator Liam Twomey

We will wait for the rest of the Ministers to line up.

The conditions and pay of Ministers have been enhanced considerably over the past eight years and they are out of touch with ordinary people. The budget has this written all over it. It is not fair and the Government was out to hammer people for whatever it could get out of them. It is a disgrace.

How does the budget seek to secure the gains that have been made? The Minister of State admitted there is a lack of flexibility in the public service and said this would have to change but how will that happen? The Minister for Finance did not bother getting around to it yesterday nor did his predecessor in previous years. The decentralisation programme is dead, other than where contracts are agreed. However, it is feared large, empty buildings will be scattered across towns throughout the State, for which the Minster of State is responsible.

Deputy Martin Mansergh

I assure the Senator they are full in Tipperary.

Senator Liam Twomey

I am sure they are given that every Minister looks after his own patch but what will happen elsewhere? All the Minister for Finance said he would do is produce a few reports and see what will happen. Perhaps he will examine the issue again in 2011 but who knows? The Government does not have a clue what it is doing.

The scale of borrowing is frightening and this has not hit home with people yet. It is an admission that, in a short period, the Government has blown a sound economy with public expenditure going awry. The Minister for Finance stated he is taxing everybody because he needs to restore order and stability to the public finances. Senator MacSharry will ask what Fine Gael would do about it. Sadly, as our economy goes up in flames, he is one of the boys in charge. We have announced what we would do and he can look that up. However, Fianna Fáil and its partners are in charge and its members must resolve the problem.

The cutbacks in funding to local authorities will put services such as firefighting at risk. The reduction in local authority budgets is massive and, at local level, this will create even more problems because, without the transformation we expected to happen in the public service over the past few years, local authorities have only one way to address the shortfall, which is to increase the rates and charges they apply for services. That will put more pressure on small businesses. That is the reason the Government was expected to introduce reform and make hard decisions yesterday. It blew the opportunity and it cannot admit that.

The Government parties are too cosy and nothing in yesterday's budget would give any Opposition Member even the coldest of comfort that they will sort out the economic problems we face over the next number of years. There are issues with the public finances and a number of officials have tried to make great strides to address them but when the Minister stated he would not give in to vested interests, he meant he would not take them on. He will do nothing to introduce the change required. He will make ordinary people who have been fooled by the Government parties over the past few years pay for their mistakes.

If one lives a clean life, one will get away with many taxes but many people like a drink, a cigarette, with which I do not agree, a bet and to travel. The Government's policy is to get them every which way they turn. I am disappointed by the way the Government parties handled the budget. They have no shame about taking us back to where we were in the 1980s or before the Celtic tiger. They have no problems boasting about ratcheting up public debt to 43% of GDP in a short time. They said they do not want to destabilise the economy and that is why they are borrowing so much money. While there may be a need for the borrowing, there is a greater need to make sure the money is spent properly. There is no indication that the message has gotten through to Government politicians. I am worried, therefore, that they will also fail to make the hard decisions needed to address the banking crisis.

Senator Marc MacSharry

I welcome the Minister of State to the House and I am pleased to have the opportunity to contribute to the debate. We live in a time of almost unprecedented economic uncertainty and while I usually begin with a retort to Senator Twomey, I will leave that to the end of my contribution. A number of potential downside risks to the economy were identified in last year's budget and all of them materialised. They included weaker growth, increased commodity prices, currency appreciation, spillover effects from financial markets and lower housing output. The upheaval in global financial markets, especially in recent weeks, is unparalleled and it is difficult to know how this will ultimately impact on economic development. There is no upside to these developments.

Ireland is also experiencing a housing market adjustment. Lower output this year will reduce economic growth by 4%. The difficulties and issues in the housing market have spread to other sectors of the economy by impacting on employment, confidence and taxation revenue. Reflecting these developments, the economy has moved into recession and growth for the year will be negative with a cumulative decline in output of 2% over the next two years. While positive growth is expected to be relatively weak in 2010, the economy is expected to be back on a more sustainable growth path in 2011.

Lower growth and, in particular, the contraction in consumption and house building have had a major impact on tax revenue, which is 10.5% lower this year. The increase in unemployment has put pressure on spending, with the result that a general Government deficit of 5.5% of GDP is in prospect this year and it will reach 6.5% next year. This turnaround in the public finances from a surplus in 2007 is unprecedented in the EMU. Unemployment has increased. Averaging 4.5% last year, the forecast for 2009 is 7.3%.

Senator Twomey focused on our economic fundamentals, many of which remain strong. Our population in the early 1990s was 3.6 million, but it is now 4.4 million. Where there was a workforce of 1.2 million, that figure is now 2.2 million. For some of the reasons I have outlined, one would obviously acknowledge that the level is rapidly decreasing. GNP in the early 1990s was €66 billion, but it is now €160 billion. GNP per capita was €10,800, but is now €36,100. The rate of unemployment was 16% and is heading for 7% now. The debt to GDP ratio was 95%, but is currently 25%. While it will increase to 43%, this is well below the EU average of 60%.

When heading into the difficulties of the mid to late 1980s, my father, Ray MacSharry, did not have economic fundamentals as strong as these when delivering his budget in 1987 to lay foundations, which we are now attempting to do to position ourselves to maximise potential benefits from the upturn. It was necessary to take tough decisions when preparing this budget, the aims of which are to bring order and stability to the public finances, to enhance productive capacity, to ensure fairness in public spending and, importantly, to protect the most vulnerable in society.

Like Senator Hanafin, I am proud to stand on this side of the House and welcome the increases in social welfare in the context of our current economic difficulties and tax revenue. The Minister of State referred to some of them, but they are worth noting again. The non-contributory and contributory pensions increased by €7 to €219 and €230, respectively, per week. The qualified adult allowance rate increased by €6.30 for those aged 66 years and over and €4.60 for those aged under 66 years. The fuel allowance has increased by two weeks with an extra €2 per week. Carer's allowance and carer's benefit increased by €6.50 per week. The lowest full adult social welfare rate increased by €6.50 to €204.30. The qualified child rate has increased by €2 to €26. The threshold for the family income supplement increased by €10 per child per week. The minimum maternity benefit and adoptive benefit rates increased by €8.50 to €230. Some €20 million extra has been allocated to fund school therapists and psychologists, €10 million each for the Departments of Health and Children and Education and Science. Some €55 million extra has been allocated to implemented the fair deal for nursing homes.

The budget has been financed against a background of the most challenging fiscal and economic situation for a generation. In particular, we are confronted by severe budgetary pressures and negative economic growth. The budget's aim is to restore order and stability to the public finances with fairness in mind, to increase productivity and competitiveness and to protect to the greatest extent possible the position of the most vulnerable. Against the uncertain international and domestic economic background, the Government is determined to pursue prudent and sustainable policies that will help everyone through this challenging period.

There is no question but that the budget was tough. Listening to various broadcasters and reading the print media today, one could feel a sense of anger, fear and worry about the toughness of some measures. There are concerns about the 1% and 2% levies. As Senator Twomey mentioned, there are concerns about the over-70s medical card. As the Taoiseach mentioned, only 6% of people will be without those cards when one takes into consideration the other measures. I understand the fear and anger in this respect, but I am confident the Minister will take these concerns into consideration.

I also understand the natural level of frustration with the 1% levy on all income. However, it is vital that we all shoulder a burden proportionate to our means. As a rebuttal to Senator Twomey's comment that this is a 1% levy on the poorest, tax on the poorest was 20 times as high when his party was in government.

Senator Liam Twomey

The taxes are back.

Senator David Norris

It is still nothing to be proud of.

An Cathaoirleach

Senator MacSharry without interruption.

Senator Marc MacSharry

Just in case anyone believes Senator Twomey about this situation being completely homegrown, the Fine Gael manifesto had no difficulty in presiding over spending the tax revenues from property bases. The manifesto predicted growth in excess of 4%. We cannot have selective amnesia.

Senator Liam Twomey

They were the Department of Finance's figures. The Senator should not mislead the House.

Senator Marc MacSharry

The budget will look after the most vulnerable. The 8.4% increase in social welfare spending is welcome. I also welcome the fact that we will maintain capital investment to ensure we continue to build momentum in our capital projects. It is important that we do so strategically, focusing on projects that will increase our marketability in terms of foreign direct investment and assist the development of indigenous enterprise and industry and on public transportation, thereby making a significant contribution.

Next year, overall expenditure will be almost €57 billion, a 3.6% increase to ensure that we improve services in education, health, social welfare and so on. These are large figures at a time when all of us agree we are in unprecedented circumstances.

It is vital that we all shoulder burdens proportionate to our means. The budget has sought to provide for such in a fair and balanced way. There is no easy way to take tough decisions. Politics is not about popularity — it is about leadership. At a difficult time like this, leadership requires difficult decisions. In the presentation of this budget, the Minister, Deputy Brian Lenihan, the Taoiseach, the Minister of State, Deputy Mansergh, and their ministerial colleagues have proved they are prepared to take the necessary steps to ensure we are on the right road to recovery. However, it is but a step.

Given international circumstances, the banking scheme and the budget are welcome as steps in the right direction, but further steps are necessary. The Government has shown that it is prepared to take them. I look forward to it. We must maintain our ability to move and react quickly if we are to come out the other side of these difficult economic times.

Senator David Norris

With the permission of the House, I wish to share my time equally with Senator Ross.

An Cathaoirleach

Is that agreed? Agreed. Each Senator will have five minutes.

Senator David Norris

I welcome the debate. Like most other Senators, I received approximately 20 submissions from Age Action Ireland, Action on Suicide, Chambers Ireland, the Carers Association and the Disability Federation of Ireland, which attended the Mansion House to point out that €83 million had disappeared while being redirected through the HSE. Several of the federation's members asked to have their stolen money returned to them. These are the types of issue we must address.

Dóchas, which represents 40 organisations, is reasonably satisfied that the 0.7% target for overseas development aid is still on track. I received a submission from the Irish Cancer Society — it is regrettable that only 50 cent has been added to each packet of cigarettes, since it could have been €2 — and Inclusion Ireland. As children with disabilities have a statutory entitlement to assessments by therapists and so on, therapists have been drawn away. As a consequence of these staffing restrictions, there is a serious lack of professionals to provide ongoing therapy. Each area has its own difficulties.

I also received submissions from the National Council for the Blind of Ireland, the Irish Deaf Society, Focus Ireland, the IFA, the National Youth Council of Ireland, One Family, OPEN, Schizophrenia Ireland, the Irish Senior Citizens' Parliament, the Simon Community and the Society of St. Vincent de Paul. I am not an economist but I know one simple thing, that money is the symbolic representation of energy. In the old days one received a sack of corn if one worked for a farmer. One was then given a gold ducat, a ten bob note, a promissory note, then something else. The problem internationally is that the symbol has become detached from reality. We are now into international casino financing and I am disturbed that the Minister's colleague is considering licensing casinos and, in particular, making accessible to Irish gamblers the kind of terminals described throughout Europe as the crack cocaine of gambling.

I appeal to the Minister of State in respect of the 1% levy. It is a disgrace. Those of us here can afford it. I do not mind paying 2% but surely people earning under €35,000 should pay nothing at all. These people are already on the edge. Those earning between €35,000-50,000 should pay 0.5%. I have written to the Minister for Finance appealing to him and I will table a recommendation at the appropriate time. It is important to examine this and it would be very popular if the Minister agreed to it. I imagine the amount of money gained is quite small.

Let us consider the situation of the poor. Liquid fuels have risen by 47% in the past 12 months, other fuels by 39%, gas by 17-19% and the ESB seeks a 17% increase. In respect of food, in the 12 months to May the price of flour has risen 39%, bread by 17%, milk by 30%, butter by 17% and tea by 11%. That shows how near the margins are these people. I can suggest one practical measure from one of the briefings I was at, given by the Society of St. Vincent de Paul. It suggests front-loading the fuel allowance, especially for those using oil, who tend to be people in the country. I welcome the increase to €20 but oil companies will not deliver on the basis of that sum. If it is paid in two equal parts of €510 in October and then January it will cost the Exchequer nothing but will help the people involved.

The medical card situation regarding those over the age of 75 is a mess and should never have been implemented. I approve of means testing but, on the other hand, people have been seduced out of the VHI and are now dumped. They may not get cover again.

The merging of the rights agencies is a mean one because there are no savings. We know that the Combat Poverty Agency will be absorbed into the Office of Social Inclusion and will lose its independence and its capacity for independent research. There is no saving in this move. This month, a motion was passed in the Joint Committee on Social and Family Affairs asking that this would not be done. The Minister knows the text of this.

I refer to the Equality Authority and the Data Protection Commissioner, who are being decentralised. There is no saving. This is being done to deprive the poorest of the only voice they had and that is shameful. The Minister should examine this again.

Senator Shane Ross

Many of us on these benches, one of whom is Senator Norris, would have liked to have co-operated and welcomed this budget and the coming Finance Bill. There was a sense that we were in a state of financial emergency and that we should rally around and not be ultra-critical of everything that occurs. It is very easy to be critical and it is easy to be in opposition in this period because any cuts will be unpopular and will give politicians plenty of openings and the possibility to champion some cause. Many of us have supported difficult decisions this Government has made in the past.

It is a pity that Senator MacSharry invoked the name of his father because this Government is turning its back on some of the great Ministers for Finance that Fianna Fáil has produced. I include Mr. MacSharry, Albert Reynolds, Bertie Ahern and Charlie McCreevy. This budget is so badly thought out in its strategy that we are entitled to criticise it on strategic grounds.

I do not understand why there is such an extraordinary emphasis on tax and such a small emphasis on cuts. The decision to introduce an income tax of 1% up to €100,000 and 2% up to €200,000 smacks of laziness and easy figures. It raises €1 billion. One can see the civil servants or the Cabinet sitting around thinking it is great to get €1 billion that way. It is the most extraordinarily crude instrument I have seen any Government introduce in any Finance Bill or budget. It is unfair and is crude in every way when it makes no exceptions of that sort.

It is fair enough in a state of national emergency to ask well-off people to pay more than those who are badly off but it is not fair to say that those who have benefitted from the Celtic tiger should be those who are penalised the greatest. A great number of those who benefitted from the Celtic tiger are those who worked the hardest. We should not regard this as punishment or a penalty for it. These people must be recognised. The Celtic tiger was built, to some extent, on the sweat of the middle classes, who do not deserve to be punished. We should not hold them up as easy meat and fat cats who did not work for it. They did work for it.

There are increases in income tax and capital gains tax, from which the Minister hopes to raise €160 million. God knows how this will be done because there is no capital gains tax on shares or property. I do not know how he expects to raise that sum of money. There are increases in VAT and DIRT in a move to hit the savers and depositors, those who have had a tough time. I do not understand the strategy behind this except that it is easy mathematics, whereby they know approximately what they will get and tax it.

There was an alternative, to rebalance this by saying we would make serious cuts. Let us ask the question why FÁS is untouched. The €1 billion allocated is a nice neat figure that the Government could have examined. The sum remains and some feeble excuse is given in the explanatory memorandum. What about Enterprise Ireland? According to the budget document, Enterprise Ireland receives a grant for administrative and general expenses of €98 million and gives €56 million in grants to industry. It costs more to run it than what it gives in grants. The IDA is almost exactly the opposite way around, giving grants of €90 million while it costs €43 million to administer. There must be massive waste in Enterprise Ireland and State agencies. The Government has not tackled the so-called commercial, State-sponsored bodies either. I am disappointed that all the emphasis is on tax and so little on spending. The Government has messed it up.

Senator Dan Boyle

I accept what Senator Ross says in terms of taking a strategic approach in terms of whether one accepts or rejects what is proposed in this budget. That is preferable to the usual knee-jerk reaction that accompanies debates like this. Senator Ross's contribution was based on a particular economic view of how we should be proceeding. I do not claim to be an expert on Marx but a Marxist slogan goes, "From each according to his ability, to each according to his need". I refer to this in the context of the levy proposal.

We have had levies before and there is a debate as to whether they are an effective instrument. When levies were introduced by the rainbow Government, there was no minimum wage, full PRSI was paid on wages and those on the lowest wages were fully in the tax net. That rate of approximately 30% was an effective tax rate for people at that time, little more than ten years ago.

We must acknowledge the difference between the introduction of a levy then and the introduction of a 1% levy now. Of the workforce, 36% are not in the tax net, 44% are at the standard level and 20% are at the highest level. The levy does not apply to social welfare recipients. We should debate whether those on the lowest wage levels, which are unacceptably low, have a capability and whether we should have this principle of contribution. We should also debate whether an appropriate contribution is being given by those at the highest level. This is where I disagree with Senator Ross. Raising capital gains tax in order to assert the principle that people should pay the same tax on income they receive from capital as they do from income on work should be an intrinsic part of our taxation system.

I welcome the standardisation of tax relief in respect of medical expenses. People were getting higher benefit from the tax system by having a higher income yet they were receiving the same medical treatment. That was an injustice in our tax system and we had to get rid of it. I welcome the moves towards pensions relief being brought down in respect of the kind of contribution that people can put in and from which they can receive benefit. It is not acceptable that this State continues to forgo more in tax by subsidising private pensions than we pay in the State pension. That is not social justice.

I can accept that the taxation measures may not have been thought out in a strategic way but it is a start and will be added to when we have the report next year from the Commission on Taxation. We must be honest and admit that this is only one of similar budgets that will be introduced in years to come. We are talking about a climate where the economy is estimated to have shrunk by 1.5% this year with an estimate that it will shrink by a further 0.75% next year. This means we will have a similar budget then, with further difficult and unpopular decisions. It is the business of Government to make those decisions.

The second point concerns the removal of medical cards from people over 70 years of age. This measure was introduced with the best of intentions, albeit with an eye towards achieving a certain political advantage. It was brought in on a rushed basis with no particular knowledge of what the cost might be or its proper social effect. There was a need to re-adjust that. I am not too sure whether it has been done properly but at least we know that people over 70 years of age with incomes of €650 per week will still be in receipt of either a full medical card, a doctor-only medical card or a €400 grant towards their medical costs in a year. If anyone in the Opposition would like to argue that someone aged over 70 with an income in excess of €650 per week should receive some type of support from the State I would like to hear that argument.

Some of us would like to have a universal health system but we have neither the means nor the resources. There are some of us who would like to see a universal medical insurance system in place but that will not happen in a budget like this one. We must make short-term difficult decisions and run the risk of the unpopularity that follows. As a member of a Government, I have made that choice, my party has made it and so has the Government in which we serve. How it falls out and whether it may be adjusted in future legislation is something we will discover.

I have always argued, even as an Opposition spokesperson, that we placed too heavy a reliance on the construction industry over the past ten years, in terms of our economic strength. If the 2007 level of construction were to be maintained in 2008 we would have an economic growth rate of 2.5% this year and 3.5% next year. The reality is that we were never going to build 90,000 houses year in, year out. We need a diversified economy. Circumstances will force us to bring about that outcome and there will be economic pain. In the long term, however, that is not a bad thing if we can diversify the economy and make sure there is a sustained and sustainable approach to economics in the future.

There are a number of measures that the Opposition have claimed amount to support for the construction industry. They are nothing of the sort. The housing finance agency loan scheme from which I benefited in purchasing my house in 1987 to the tune of IR£17,500, has been increased to offer €285,000. That is a 92% grant, offering the possibility of buying a house worth €310,000 to €315,000, a below average house price. The equity release scheme is a combination of already existing schemes and will allow people who are purchasing through shared ownership to do so in terms of affordable housing. This scheme is not moving as it is and is causing a capital drain for local authorities.

Measures have been taken in the budget to allow public resources be used in a more effective and socially just way. I hope members of the Opposition will look at the budget in a less peevish and churlish way, that they stop concentrating on knee-jerk newspaper headlines, look at the details and see where such balance is being achieved.

Senator Alan Kelly

I hope I do not follow the last speaker's slightly patronising tone.

This budget will be the Waterloo for this Government and for this generation of Fianna Fáil. For the past couple of months, the people of this country were led up the garden path into believing this Government would deliver a tough but fair budget. Their understanding was that this Minister for Finance was different from his predecessors, Deputies Cowen and McCreevey, and that the pain would be shared by those who gained most from the development of our bubble economy, namely, the builders, speculators and bankers and the high level earners.

That was folly because this Minister is not different and the budget is all over the place and lacks coherence. It ruthlessly targets the middle income PAYE family. It protects the benefactors of the Fianna Fáil Party and the wealthy and fails to take any significant steps to help those most in need during the sharpest downturn in our economic history. Although increasing numbers of people are signing on the live register, there is not even one good idea in the entire Budget Statement concerning job protection and the re-energising of people through training and back to work schemes. This is despite the fact that there are 80,000 more on the dole queues.

I live among the people who will suffer most from this budget, the lower and middle income families, many in their 30s, 40s and 50s. They are already under severe pressure from savage mortgages and increased overheads. They are teachers, nurses, tradesmen, factory line workers and shopworkers. They woke up this morning wondering how they will pay for it all. Hospital charges have gone up and so have medical bills. There is a return of university fees for the charges announced are fees through the back door. There are changes in child benefit and child supplement along with increases in a plethora of indirect taxes. These families will pay more in tax and must pay more for a range of public services. We learn more about this as the hours go by.

Like many colleagues and, I presume, the Minister of State, I have received many calls from constituents I will take this opportunity to tell Members about a few of them. One was from an old age pensioner who was concerned about the withdrawal of the old age medical card for those over 70 years of age. As a consequence of having received the card this person did not maintain VHI cover and now does not know what coverage he will have in case of illness, nor how long the wait must be before reclaiming a benefit from the VHI, if that membership is renewed. This person feels isolated and marooned by the Government. By all accounts this could still end up in the courts. I had to explain to this person that the Government could not negotiate a good deal with the GPs in the first place and the consequence is that such people are the ones to suffer.

Another call came from a friend who has two children in college and another doing the leaving certificate. This family has a modest income and does not get grants from the local authority. They must now face up to having to pay registration fees of up to €1,600 a year as well as paying the ancillary costs of sending children to college. They will also be hit with the reduction and withdrawal of child benefit and thereby experience a double whammy. Education is a universal right and yesterday the Minister for Finance took it away. I recently addressed 5,000 students in Cork on this issue and I can tell the Minister fo State that this is one that will return to bite.

I also took a number of calls from teachers who are irate about the cutbacks in education. It is clear the Minister is intent on looking after rich kids only. The increase in class sizes is a disgrace and one of the worst elements of the budget. School transport costs will be increased and the number of specialised teachers cut. When I was in primary school in the 1980s, parents used to substitute when teachers were off sick. Is it not unbelievable that we will return to such circumstances as a result of the Government's decision not to provide sick cover?

Ministers state that primary teachers will not lose their jobs under this scheme and will be redeployed. They should tell that to the graduates of St. Patrick's and Mary Immaculate training colleges. Only last year, the Fianna Fáil Party promised 4,000 extra teachers and a pupil-teacher ratio of 20:1. Under the budget, the pupil-teacher ratio will climb from 27:1 to 28:1. These measures are cutting back on our children's education.

I spoke to a retired person who works two days per week to supplement his income. He will now have to pay 1% tax on income from a 12-hour week. The 1% tax levy imposed indiscriminately on all incomes is scandalous. Why did the Minister not exclude from the measure those who are not currently in the tax net? I fundamentally disagree with Senator Boyle's inaccurate comments on the rainbow Government. The Minister of State should not launch into a diatribe on the levy being the most efficient administrative method of imposing the tax. It is a quick tax win imposed by the Government on the most vulnerable. Anyone on fixed social welfare or a pension who works a few hours here and there to make a few bob will have to pay part of his or her income in tax.

I listened to Ministers state that the levy was introduced because all of us must play our part. Are they seriously arguing that those in the income bracket I have described, especially retirees on fixed pensions, can afford to pay the levy? It is not widely recognised that 30% of those in poverty are in homes headed by a person in some form of employment. The proposed new tax will make their circumstances worse. Lenihan's levy is a disgrace and will define the Government's attitude towards equity. Middle income families view it as a direct income tax which, alongside the raising of the earnings ceiling for PRSI, was aimed at them. No amount of camouflage on pay packets will hide the fact that these families were the Minister's target.

The budget savages those who need health services. The changeover to the standard rate for tax relief on medical expenses will hit middle income families hard because they fall between two stools. They are not rich and need to use this relief to claw back some of the substantial health care costs for families. Not only has tax relief on medical expenses been slashed, the minimum threshold for the drug payment scheme has increased by €10 to €100 per month and the qualifying age for disability allowance has been raised from 16 years to 18 years for new claimants. This latter measure was an example of pure savagery.

The duration of the illness benefit scheme is to be limited to two years and the number of contributions required increased from 52 to 104. The list of such measures goes on. For example, insane charges are being imposed across public hospitals. Accident and emergency charges will increase from €66 to €100. Health professionals inform me that they struggle to secure payment of the €66 charge. How will they get people to pay the €100 charge? I question this Government's understanding of the internal ramifications of the increased charge and the internal politics of health. I predict the general practitioner co-operatives we are encouraging members of the public to use to stop clogging up accident and emergency departments will increase their prices with the result that savings will not be made and the taxpayer will be ripped off again.

Hospital in-charges are to increase from €66 to €75, while long-stay charges are to increase by €31.44 per week. These measures are being taken by a Government which has shown it does not have a long-term strategy for public hospitals and refuses to support to them. The increases in hospital charges will prevent people from accessing the medical care they need.

Vulnerable people have been dealt a major blow by the Government. They face significant increases in the cost of food and energy and while the Minister provided a modest increase in the fuel allowance, he must know people are suffering greatly from food poverty. Increases in social welfare payments do not match inflation and the plethora of new, indirect taxes and excise duties will wipe away whatever meagre gains were given. The increase in pensions is also derisory. It should be noted that VAT accounts for 14.5% of income among the bottom 10% of earners, whereas it accounts for only 6.8% of the income of those in the top 10% income bracket. The increase in VAT to 21.5% will accentuate this disparity.

One of the greatest examples of waste during the so-called Celtic tiger years was the failure of the Government to address the child care issue by establishing a proper child care system. In Ireland families pay up to 26% of their household income on child care, whereas the figure in many other European Union countries is as low as 5%. What has the Minister done? He reduced the upper age threshold for early child care supplement, one of the few benefits available to families, from six years to five and a half years. The Minister for Finance was the Minister of State with responsibility for children when the supplement was introduced. How did he arrive at the new threshold of five and a half years? He was simply seeking another quick tax win.

As I indicated, the budget includes few measures to protect jobs. It seems the Government wants us to return to the era of having long-term unemployed. The budget attacks those seeking to return to work by reducing the period for which jobseeker's benefit is paid from 12 months to nine months for those with fewer than 260 contributions and from 15 months to 12 months for those with 260 or more contributions. The number of social welfare contributions needed for jobseeker's benefit is to increase from 52 to 104.

I have spoken on many occasions in the House about the need to stimulate the economy in the area of high value jobs. Again, the Government has not gone far enough. Where are the incentives and strategies for the development of high-tech industry or to facilitate the development of small and medium size enterprises into larger exporting companies? This sector is being strangled.

Why, in the name of God, has the Government not made proper provision in the national development plan for next generation broadband? How will we ever re-stimulate the economy while we remain the laughing stock of Europe in this area? The Government should have made provision to address this key infrastructural issue which has been strangling the development of business for years.

The budget confirms the failure of the decentralisation policy. In addition, the Government has not produced any new measures in the area of public sector reform. I hope the Health Service Executive redundancy programme will not be based, even in part, on the unpublished Teamwork reports into acute care. The voluntary early retirement programme must not be applied to front-line staff and needs to be targeted at middle management.

Consistency is required in carrying out public sector reform and we do not need change for the sake of it. Reform must be top down, which will require examining the layer of boards and top level management in the public service and scrutinising the work done for the ridiculous salaries some individuals receive. I learned recently that a small number of top earning public servants received €3 million in bonuses this year, an insane figure. The performance management and development system, PMDS, applied in the public service, to which I have alluded in the House on a number of occasions, should also be reviewed.

I ask the Minister to reconsider or amend the €10 euro departure tax proposed for air travel. The levy will have a significant impact on tourism at a time when it is facing an uphill battle to maintain the visitor numbers and revenue to which we have become accustomed. It will also have a detrimental impact on airports, especially regional airports. If, as it appears, the proposed levy will discriminate against Shannon, Cork and Kerry airports as a result of the distance criteria applied to the two proposed rates, it should be reviewed. Shannon and Cork airports have suffered enough blows this year.

This is a dreadful budget which will enter the annals for the severity of the cuts it imposes on families in the PAYE sector, its lack of protection for the vulnerable and lack of investment in children's future, its decimation of the health system and the absence of focus on the need to develop indigenous industry in parallel with inward investment in high value services. In short, it has no coherence. The Minister stated he wanted to get the country moving again. Unfortunately, I worry he will stall it.

Senator Eoghan Harris

While the Minister of State, Deputy Martin Mansergh, has made a manful attempt to put a good gloss on the budget, he has been unable to make it better than it is. I wish I could support the budget or the Opposition's criticism of it but I can do neither because both sides failed to deal with its core failure, namely, the failure to reform the public sector. The Irish Times cut to the chase this morning when it described this as the central failure of the budget and stated it was beyond comprehension that in a time of crisis in the public finances a Minister would kick public sector reform into the long grass.

It was not the Minister for Finance, Deputy Brian Lenihan, who did this. He has had many calls in recent times and must not have had any sleep because the dead hand of the Civil Service is all over the budget. I will give three examples, ranging from minor to major. First, if civil and public servants are being asked voluntarily to give up 10% of their salaries, by virtue of the same voluntary principle, why are medical card holders not being allowed voluntarily to give up their medical cards?

Second, we have been informed that the pain is spread equally across society. It is a palpable lie to pretend that people in permanent pensionable jobs will endure the same pain during the recession, however long it lasts, as those employed in the private sector. I spent 20 years in the public sector and 18 years in the private sector and there is no comparison between them. Life is hard, cruel and difficult in the private sector.

This brings me to the third problem. Although the private sector is the one that is not looked after in the budget, it is that sector which alone creates wealth and jobs. The public sector creates many fine things and gives us many great services, not least the Office of Public Works which comes under the remit of the Minister of State's Department. We have had great civil servants. Dr. TK Whitaker was one such civil servant who delivered us from the bane of the Civil Service which had crushed Irish creativity for so long, as was pointed out by Tom Garvin. However, the current generation of civil servants shows no signs of such creativity and the number of them increases all the time. Mr. Dermot Gleeson pointed out in Killarney last weekend that public sector numbers have grown by 30% since 2000. That is 30 new public servants for every 100 in the sector.

I wish I could support the Opposition but yesterday I did not hear any central criticism from Fine Gael, the Labour Party, the Green Party or Sinn Féin of the core issue of the need for public sector reform. Why is that the case? This is where an Independent Senator comes into his or her own. It is because every party in this country is petrified of the public sector and of the political consequences of taking it on and dealing with it. This is because the public servants are the real rulers of this country. It is a case of public sector rules okay, but it is not okay.

Because of the dead hand of the Civil Service, we did not get the budget we needed. What we needed was a business budget of tax cuts to allow private sector entrepreneurs and workers to spend, consume and create jobs and we needed spending cuts in the public sector — it would not have mattered whether such redundancies would have been voluntary or compulsory — to finance a business budget. We did not need a "sit on your butts" budget, as it were, which is what we got from the Civil Service mandarins who drew this up. I cannot believe the Minister, Deputy Brian Lenihan, was completely wide awake when he rubber-stamped this to allow it to go through. I have huge respect for him but this is a deadly budget rather than a dynamic one. It is a book-keeper's budget, not a business one. It is not a budget to bring us out of the decline in the economy.

I have heard nothing coherent from the Opposition in the way of criticism of the budget, except for Deputy Ruairí Quinn who had the courage to point out the public sector-private sector apartheid that is growing. He called for solidarity between public and private sector workers. I heard nothing from the Labour Party or Fine Gael. I did not even hear a criticism from Fine Gael of the medical card proposal from the point of view of the exorbitant fees paid to doctors. Why do its members not demand a cut in the doctors' fees?

I wish I could support this budget or say I could support a coherent Opposition criticism of it, but the central issue, the need for reform of the public service and the need for investment and a dynamic private sector, has not been confronted.

Senator Paul Bradford

I welcome this opportunity to contribute to this debate. I welcome Senator Harris back to the House following his recent illness. I genuinely welcome him back to the state of independence which he had enjoyed up to 12 months ago. That was an outstanding contribution by him; it was fearless, brave and informative. However, regarding his comments concerning the Opposition parties, in particular Fine Gael, I am disappointed he did not notice the contribution by our spokesperson, Deputy Richard Bruton, last week in his document, Recovery through Reform — A Budget Perspective, in which he majored strongly on the question of the public service. The Senator would have noted from that document that Fine Gael put forward a set of proposals, including a proposed redundancy programme across the public service to reduce its ever growing numbers, for whom the taxpayers have to pay. The question of public service reform is an issue we will have to revisit. The colour of the Fine Gael money is on the table. We proposed a cutback of at least 5,000 jobs in the public service.

What was introduced yesterday was a tough budget. People were expecting a tough one and, from a political perspective, there was a willingness from the body politic to take on board the difficult measures required to turn around the economic ship of State. However, we were hoping those measures would focus on what is very much the kernel of the problem and solution, namely, putting people back to work. When we had the all-night debate on the banks a fortnight ago, on that same day the most dramatic figure on the economy was released — the unemployment figure — which showed a 50% increase in unemployment over the past 12 months. That is the most dramatic economic indicator we have seen, not only in the past 12 months but probably in the past two or three decades. Any debate on the budget or the economy must focus on the question of job creation. It is only through creating jobs, putting people back to work and allowing them to contribute to rather than take from society that we will turn around the economic indicators which have become so disappointing in recent years, if we are blunt about it.

We must concede that there is no magic solution in terms of the meeting the required economic criteria. I have said in this House during the past 12 months that in the period from autumn 2006 to the general election date in May 2007, the main Government party succeeded admirably in selling message that Fianna Fáil had a magic formula for economic growth and development and that it was only through that party being in power that our economy could thrive and succeed. We now know to our cost that there is no magic bullet or magic Fianna Fáil formula and we have to start looking for new answers, hopefully, from new people in the not too distant future.

I wish to refer to a number of the budgetary measures introduced yesterday. The one that has grabbed the public attention most dramatically is the 1% income levy. It is a crude and regressive measure from a taxation perspective and is not entirely based on ability to pay. It is quite unlike Fianna Fáil. The Minister of State present had a long tradition not only of public service but of having an interest in the history of the Fianna Fáil Party. Probably for the first time in the history of the State, on the basis of the so-called cute politics, of which perhaps the Opposition is sometimes jealous of Fianna Fáil, it has got it spectacularly wrong. It is introducing a taxation measure — it can call it a levy but it is a tax — which will be paid by virtually every citizen of this State, regardless of his or her ability to pay. That is very unlike Fianna Fáil. It is almost as unlike Fianna Fáil as the removal from the elderly of the medical cards it granted amid a fanfare of trumpets some years ago.

I take on board the criticism levelled by Senator Harris regarding the granting of medical cards to all those over the age of 70. When that measure was introduced it probably required much more thought and regulation from the perspective of what it cost the State by way of the additional premium general practitioners received. I am no expert on the measure but I am told that a GP receives a higher fee for a medical card patient under the over 70s scheme than he or she receives from a medical card holder in his or her 40s, 50s or 60s. That should never have been the case. We have given people this benefit and it is difficult to take it away from them. It will cause a great deal of political difficulty. That is the Minister of State's problem. Nevertheless, people are genuinely worried that their medical card and access to reasonably free health care have been removed. The practicalities of this measure are that when the process is completed, the majority of people over 70 years of age will retain their medical card.

However, severe and unnecessary worry has been caused to many people during the past 24 hours. Urgent clarification is needed. Apparently a letter will be issued to every medical card holder over the age of 70. I appeal to the Minister of State to ensure the language used in those letters will be couched not in cold, vague Civil Service speak but in user-friendly informative terms in order that they will aid and support rather than frighten people. I concede that the majority of people over 70 will eventually retain their medical card but we want to ensure they are not frightened in the interim period.

Deputy Martin Mansergh

That is a fair point.

Senator Paul Bradford

This measure to remove the entitlement of a medical card to all those over the age of 70 might turn out to be the Government's footwear and clothing measure. It will hang around the Government's neck politically and even though a case can be made on pure equality grounds, it will cause administrative chaos and genuine worry and fear among people. We could speak for much longer on this measure.

Another budgetary measure is the residential property tax. I am sure it has a nicer title than that. I refer to the €200 fee that will levied on the owners of second houses. Again one could have a philosophical reason for supporting such a measure. However, if we want to be real about local government and local taxation, let us be real. Let us produce the work required to look at how local government will be funded into the future, whether there will be need for local taxes, and if so, how this may be balanced against lesser taxes at national level. We all know that the €200 on the so-called second residence will become €250 next year, €300 the year after and again I am not sure as regards the cost of administration. Will it be worth the effort?

The VAT increase appears to be modest, at 0.5%. However, if we are trying to keep costs down as well as inflation and assist job creation, the VAT increases are quite aggressive. As regards the change in capital gains tax, the Minister of State would have been involved in the administrative rather than the political side of the Government in 1997——-

Deputy Martin Mansergh

On the research side.

Senator Paul Bradford

——-when former Taoiseach, Deputy Bertie Ahern, and the then Minister for Finance, Charlie McCreevy, boldly proclaimed — probably with some merit — that the reduction in capital gains tax had produced wonders for the economy. We are now seeing a reversal of that, albeit small, at a time when enterprise, initiative and effort need to be rewarded. It is somewhat worrying that taxation is being increased. I appreciate that money has to be found, and I do not have the magic bullet. We are having this debate in the aftermath of the budget. From the viewpoint of future planning, we all get submissions from various interest groups and write pretty meaningless letters to Ministers for Finance in advance of budget day. Much greater political debate is needed on the economic choices, in advance of the budget. We are aware that Cabinet confidentiality has to apply, but we must have much more vigorous public debate about the choices that exist. Even if there is little money, there is always a degree of political choice to be had.

We are bolting the stable door after the horse has gone. In the next few months, the economic statistics will not change dramatically. We need to keep up the dialogue and debate on the economy and consider the alternatives. Clearly, there is an alternative to this budget. It will have to centre around real reform of the public service as well as value for money for the taxpayer, giving back choice to people by tax reduction rather than increases. A good deal of debate is required.

I wish the Minister of State well. I am aware of the enormous responsibility on him and his senior colleagues in Cabinet. This economy is floundering. International factors have obviously played a part, but the statistics available for the past two years clearly show that given the boom in property and other areas, as well as the growth in public service numbers and the wastage of money in too many schemes, many of the problems the Government is now trying to correct should never have happened. We need to redouble our efforts to be more politically and economically vigilant.

Senator Terry Leyden

I welcome the Minister of State, Deputy Martin Mansergh, to the Seanad. We have missed him on this side of the House in the past year. Nonetheless, we are delighted he was elected to the Dáil from his constituency. We knew he would be in the Government and I want to commend him for his excellent work.

In the budget debate of 1983, the former Deputy Alan Dukes stated:

Viewed in the context of the total requirement to finance the State's activities, an extra levy of this kind cannot be regarded as a huge change in taxation or as something that will make a very big difference to the overall spread of the burden taxation. I am, therefore, introducing a temporary 1 per cent levy on income. It will apply to the same income categories and will be collected in the same manner as the youth employment levy introduced last year. This should yield £47 million in 1983 and about £80 million in a full year.

On a point of order, although it might be wrong of me to interrupt, that cant of Senator Leyden's, which is becoming something of a long playing record, is politically and factually incorrect.

An Leas-Chathaoirleach

That is not a point of order.

Senator Paul Bradford

It is a point of information, at any rate.

Senator Terry Leyden

I can prove that Dr. Garret FitzGerald objected to the transfer of the register of deaths, births and marriages to Roscommon town.

Senator Paul Bradford

When?

Senator Terry Leyden

He fought actively against it and it is on the public record.

Senator Paschal Donohoe

That is 30 years ago.

Senator Terry Leyden

I had to persist to ensure we had the decentralisation of those offices to Roscommon town. The former leader of the Fine Gael party is on record as objecting to the decentralisation of those offices to a rural town, and we know his pedigree as regards putting a tax on children's shoes. I was a Member of the Dáil at that time and I opposed the measure. He begged the late Deputy Jim Kemmy to support it and his refusal brought down the Government. That is another indication of the type of taxation Fine Gael is prepared to put forward. We are not putting taxation on children's shoes.

Senator Paschal Donohoe

We are not going to take any lectures on taxation from Senator Leyden.

It will compensate for the supply of water and provision of sewage treatment facilities to those houses. It will give a marvellous boost to local authorities which will be responsible for collecting it. I will be affected by that tax but I welcome it because it will be worthwhile and will give some support to areas. Water, sewage treatment facilities, roads and lighting are provided in most areas and no contribution is being made to the local authorities for them. It is very important the Minister ring-fences that money.

They should make a voluntary contribution of at least 10% to show support to the State.

We, on this side of the House, will robustly support our Government. Of course, there will be political fall-out next June in the local and European Parliament elections. That is the cost of being in Government. The people are proud that we have a Government with Deputy Brian Lenihan as Minister for Finance——

Senator Paschal Donohoe

They must glad to have Senator Leyden.

Senator Terry Leyden

——and Deputy Brian Cowen as Taoiseach. Fianna Fáil, along with the Green Party and the Progressive Democrats, are the only ones in a position to govern this State. We take on responsibilities and take the hard decisions. We will face the critics but at the end of the day, Fianna Fáil will still be there. It is the party of the people and has survived longer than any other. We are proud——

Senator Alan Kelly

The Labour Party is the oldest party in the State.

Senator Terry Leyden

We never took a shilling off the old age pensioners like those opposite.

Senator Paschal Donohoe

It is doing so now.

Senator Terry Leyden

It was never forgotten.

Senator Paschal Donohoe

This will not be forgotten either.

Senator Feargal Quinn

I wish to share my time with Senator Ivana Bacik. Each year in this debate I usually act as a school teacher examining the pupil's examination results and say: "Could do better", but I will not do that today. Today I will regard the Minister as a grocer giving bad news to his customers and staff and saying: "We are having a tough time and we will have to make some tough decisions." That grocer might say there is bad news but if it is given with clarity and honesty, it will be accepted. Did the Minister do that? I believe he made a valiant effort to do so but he did not paint a realistic picture of how he sees the challenge. He was far too optimistic in his forecasts. The figures for next year will be worse than he forecasts. The need to cut current spending is essential. The forecast is an increase of 7% but that is too much to take. He did not do what was needed and what the country was willing to take, that is, a cut in current expenditure.

That grocer would explain to his audience that he had to tackle costs. The cost of the public service in Ireland is excessive yet when the Minister referred to the Health Service Executive redundancy scheme, he said that discussions were under way on the development of such a scheme. That was a weak move at a time when we have such high expenditure. Public sector pay and pensions equal 50% of current spending. We did not give the people the opportunity to say they will accept the bad news.

Look at what happened in Cappoquin Chickens last week. That great company in County Waterford ran into difficulty. The new owners went to the workers and said they could not survive unless they took a reduction in pay. Almost everyone took the reduction in pay. The country was willing to accept something like that and the public service would have had to do so.

Look at the performance bonuses paid. As far as I can see from the figures published last week on performance bonuses paid to senior civil servants, almost everybody got one, although not the same amount. Performance bonuses are paid for exceptional work or work over and above what one is expected to do in one's normal duties. That is what we should have tackled yesterday.

That grocer would have done something daring and imaginative to encourage customers to stay. Who are our principal customers? I was delighted to hear the Minister say that he was bringing forward a number of measures to support jobs, encourage enterprise and enhance our productive capacity. Although the steps he took were welcome, they were mild and not very exciting.

If the Minister was running a shop and if he had a problem, he would ensure that while he was giving all the bad news, he would give the customers some good news about a special offer which would draw their attention to something about which they could do something. I did not see any sign of that or of holding out any hope to our customers. When the late Charles Haughey was Minister for Health in 1979, he had no money to do anything but he gave everybody a toothbrush. I was reminded of that yesterday by a 39 year old who said the one thing they remembered about Mr. Haughey was that toothbrush. It was not very much but he had the imagination to distract attention from the very limited budget he had. I did not see the Minister showing imagination.

In his debate with Senator Barack Obama a couple of weeks ago, Senator John McCain made a slip of the tongue. When referring to Senator Obama's wish to increase tax, he said Ireland increased the amount of money it took in when it reduced corporation tax to 11%. We do not have an 11% corporation tax rate but a 12.5% one. It was a slip-up on Senator John McCain's part. Would it not have been imaginative if we had said to our biggest customers, who are the foreign direct investors, that this is an opportunity to reduce the rate of tax? All the evidence suggests that each time we reduce the rate of tax, we take in more money. That is the type of imaginative step we could have taken. I am not criticising all the steps the Minister has taken but I would have preferred to have seen more imagination and more daring in this area.

I will comment on the one tax which I do not believe anyone else has. Foreign direct investment is important and I was delighted the Minister said that there is no question of the 12.5% corporation tax being increased but he has increased capital gains tax. There will be no capital gains for the next couple of years anyway but this will frighten those foreign direct investors. I would have preferred to have seen more imagination in this budget.

Senator Ivana Bacik

I thank Senator Quinn for sharing his time with me. I would like to put forward some reasons the budget should be criticised and opposed. We all accept the Government is in dire financial circumstances. There is no question about that. However, many of us would say the Government must bear some responsibility for the state of the economy. That is the least we can expect, given it has held uninterrupted power for the past 11 years. Despite this, in his speech yesterday the Minister for Finance asked all of us to make a common sacrifice and bear an equal part of the burden in what he described as a patriotic call to action.

The programme of cutbacks and closures will not call on everyone to make equal sacrifices. Rather, it will bear most heavily on the most vulnerable. Numerous criticisms were made on this side of the House, and elsewhere, with regard to how the budget will bear heavily on the poor and disadvantaged, which is regrettable. It is a regressive budget because of that.

The Minister has increased a range of taxes, direct and indirect, in a variety of areas of human activity, including hospitals, travel, education, child care and an across-the-board increase on VAT. He has also increased the tax on wine, cigarettes and petrol. If one could be permitted a moment of levity in the gloomy and bleak prospect of this budget, one might wonder why the Government seems to approve of beer-drinking cyclists who take their holidays at home as long as they do not actually own a holiday home here. Bizarrely, beer and spirits have not attracted tax increases similar to those on wine, cigarettes and petrol.

The Minister could have considered other ways of raising revenue. Senator Quinn spoke of imaginative measures. This was the time for imagination and creativity. We and many environmentalists expected and hoped more progressive measures would be introduced to reduce our carbon emissions, which are appallingly high. We have not come close to meeting our Kyoto targets, yet the Minister has deferred the introduction of a carbon tax.

Other than the small charge for second homes, there is no attempt in the budget to introduce any sort of real property tax. Instead, the Minister has taken the easy option of increasing other taxes across the board, most significantly income tax. He has described the increase as a levy — it has been termed the Lenihan levy — but we all know it is an income tax and that it will bear disproportionately on the poor. A levy of 1% will be based on gross income up to €100,000 and 2% above that. The biggest problem in this regard is there is no minimum threshold. This is something that will be debated further in the Houses. There should be a minimum threshold and those who earn below a certain level should not have to pay 1% of their income. Few of us could disagree that those who earn over €100,000 should pay more, but it wrong and regressive to introduce minimum wage earners into the taxation net.

Will there be any winners as a result of the changes in taxation? The only notable tax that brings about a win is one for developers, namely, the significant concession made with the reduction in stamp duty on commercial property. Apart from that, we are all losers. We are losers too in the area for which the Minister of State has responsibility, arts and culture, where there are enormous and swingeing cuts for cultural institutions and the arts generally. We are all losers too in terms of the cutbacks to be imposed on human rights bodies, the Equality Authority and a range of other agencies that do important work. The body that has been working on early childhood education will be closed and numerous other closures and cutbacks are to be imposed. We will all be the losers from that.

We are all losers as a result of the Government's new policy of abolishing or cutting back significantly on universal benefits, for example, the loss of child care supplement for children over five and a half years of age and the loss of child benefit for young adults over 18 in full-time education. What is of concern also is the sinister signal the Minister has sent that he will ask the commission on taxation to examine the payment of universal child benefit more generally. All of these moves are of great concern because they signal a regressive movement towards means testing for every State benefit. Will the Minister of State confirm whether that is the case? If it is, we will see greater inequality and a deepening of the already serious divide between rich and poor.

If we see means testing introduced for every benefit, we will see greater segregation in terms of education and health care. We have already got a two-tier health service, but we will now see two-tier education and child care systems in place, which is most regressive. The question has been asked as to why millionaires' children should get free fees. Why not if it means their children go to the same schools as those on social welfare? There is a greater good to be served by universal provision. The budget is most regressive in that it encroaches on and undermines that principle.

Senator Fiona O’Malley

I am surprised to hear Senator Bacik give out about means testing because what it does is target resources at those who need them most. The Senator must recognise that resources are limited. I would have thought means testing was something she would advocate. I do not mean to pick on the Senator, but she was most unfair in her comment that as a result of this budget, the burden falls most heavily on the poor. It falls on everybody and that is the problem. Everybody is being asked to pay their bit.

Senator Ivana Bacik

A tax of 1% of €35,000 means a lot more than 1% of €100,000.

Senator Fiona O’Malley

It is not fair to say it bears most heavily on the poor. It is regrettable that people of limited and fixed means will have to make a contribution, but the Government in its wisdom has decided that everyone must make a contribution, however great or small. I was delighted to see Senator Harris back in the House and listened to him with great interest. I agree with him that part of the problem is the required public sector reform. I agree too with Senator Ross that it is unfair that people who became a success or benefited from the Celtic tiger are being vilified. It should be acknowledged that these people took risks and made investments on behalf of the country.

With dramatically reduced revenue available, the challenge for the Government is to meet the cost of running public services. These services have seen significant investment during recent buoyant times. It is regrettable that we must scale back some of these services and delay targets such as reduced teacher-pupil ratios. However, we must act now to contain further decline and arrest the decline in public finances. That is the reason we needed this tough budget, which is only the beginning of the plan to restore the economy and put it on a sound footing.

During the prosperous years the economy delivered resources which allowed successive Governments to invest heavily in enhanced public services to which we have all got used. There is, however, no easy way to make tough decisions. I listened to Fine Gael's response and felt there was an element of disingenuousness in it and in its proposal to reduce borrowing further from €6.5 billion to €5.5 billion. This would involve, in addition to the measures outlined in the budget, sacking 10,000 public service workers before Christmas or cutting 500,000 medical cards from poor people. That is the reality of such decisions. Fine Gael should acknowledge that is the case.

Senator Twomey made the point earlier that it is not Fine Gael's responsibility to come up with the good solutions because it is the Government that is in charge. We must be responsible and consistent. We cannot say on one side we would not cut public expenditure and at the same time criticise the Government for doing such a thing. The situation is difficult and the Government has a tightrope to dance. Perhaps Fine Gael will learn about that one day.

Rationalisation of the public service must be carried out sooner rather than later. The Minister has indicated that in a matter of months he will set to work on reducing public service numbers. We need to establish where the cuts are needed and how to redeploy people. If nurses or therapists are needed in the community rather than in a hospital, we need to have flexibility and co-operation from them so that they will work where required. I am concerned by the chasm that is growing between workers in the public and private sector and the level of resentment that could boil over if public sector reform does not take place. The public sector represents 17% of the workforce. It is paid for by the resources generated by the other 83%, the private sector. The public service cannot be allowed to operate in a different sphere. It will damage itself enormously if it is perceived to be immune to the vagaries of the economy, particularly by the people who finance it in the private sector. The public sector is not immune and cannot remain immune. The change required in the public sector is not a demonstration of the capacity to change and be flexible by imposing performance and productivity targets on itself. It must convince the public at large and the private sector — the people who pay for it — that it can operate in a way that makes sense.

The Minister knows, and demonstrated in the budgetary arithmetic he presented yesterday, that he is not in a position to delay this reform. I understand he is about to undertake reform, which needs to get under way sooner rather than later. Ultimately, the public will not support sustaining an inflexible public service which is not affordable. As a Government, we need to send out that message. I look forward to the reforms that are under way and which will go a long way to restoring the public finances to where they were in previous years.

Senator Michael McCarthy

I welcome the Minister of State, Deputy Mansergh, to the House and congratulate him on his appointment. As we all know, he was a Member of the last Seanad.

The measures in this budget come as no great surprise but the severity of it has disappointed many of us. It is only now that the chickens are coming home to roost and the ordinary compliant taxpayers, the hard-working families, are paying for the decades of cute-hoorism. The Minister for Finance, Deputy Lenihan, talked about the need to restore calm in the public finances and to bring back some type of order. However, we should not forget that it was this Government that brought about the mess that represents the financial capability of this country — the lack of money and the state of public finances. The budget has mercilessly attacked middle-income families. It has gone after those people with a vengeance. It has failed to protect those it sought to protect — those whom the spin says it is protecting — and has left the super-wealthy free of contributing their fair share to the recovery of our economy.

Despite that fact that we are seeing the most serious increase in the numbers out of work in recent times — there has been a mammoth increase — there is not one initiative in the budget to deal with the number of job losses or to deal adequately with those who lose their jobs by providing education and training. The people who will suffer most as a result of this budget will be the nurse, the teacher, the garda or the skilled tradesman — people who are struggling to make ends meet, pay mortgages or child care costs or send their children to university. These families will pay more in tax and more for the range of public services, and the full extent of these charges will not be clear for a number of days. The social welfare package is only half of what was announced in last year's budget and it is clear that those at the bottom of the pile are going to fall even further behind. The Government has inflicted the maximum possible pain on middle-income families and done nothing to ensure that those who have made vast fortunes out of the Celtic tiger are contributing to the recovery of the economy.

This budget has done little to encourage younger people to join the agricultural sector. The measures announced to extend the farm stock relief and stamp duty relief schemes for trained young farmers are welcome, but they could have been bolder in bringing the over-35s into the equation with regard to stamp duty. The suspension of further entry into the young farmer installation scheme sends a clear message from the Government to those who might enter the sector to stay away. In order for farming to be viable we need young blood. We need young people and new people to come into it. That is not happening.

The protection of the vulnerable in the area of social affairs has failed to materialise. The budget is €515 million, half of what it was last year. The general increase of €6 in social welfare payments will do little to offset the increases in food costs and the general inflation-based increase of 4.3%. It misses the point in terms of protecting the vulnerable. People are now finding themselves on the dole queues after years of economic prosperity and jobs for everybody. Last night the standard entitlement to unemployment benefit was cut from 15 months to 12 months. These cuts have been applied to people who are already on the live register and who have effectively been hit with a double whammy. Why? It is because in the first instance they have had the misfortune of losing their jobs at the beginning of a very difficult recession, and now they find they cannot even rely on the welfare income to which they thought they were entitled — the same welfare income to which they had been contributing while they were working. This aspect of the budget has all the hallmarks of a move to encourage emigration. That is despicable and disgraceful.

With regard to the removal of the entitlement to medical cards for those over 70, we must go beyond the spin put on the by Government. Let us begin with the inception of the scheme. The scheme, termed the "gold card" because of the fees being paid to GPs, which was four times what they were being paid under the ordinary medical card scheme, was introduced in 2001. The political thinking behind that move was to win the 2002 general election. There was nothing else. The Minister who introduced it, former Deputy Charlie McCreevy, would have been well advised by civil servants, colleagues and others, if he consulted with them, of the financial implications of the move. However, it was political opportunism at its worst. Now the Government wants to withdraw it. It wants to take people out of the scheme and put them back in a means-tested system. These are the people who have the greatest need of health care — those who depend and rely on this card for a wide range of services, including access to public health nurses, GPs and therapists.

My telephone has been hopping and I am sure every public representative, whether Government or Opposition, has been contacted by people who are now fearful of losing their medical cards. Research has already indicated that people who cannot afford a GP and who do not have a medical card will stay away from their GPs. This will contribute to ill health among that section of society. It is despicable. This move was first leaked to the media two or three weeks ago and became a talking point. The spin was that only those over a certain limit — the retired bankers, consultants or barristers who could well afford to do without it — would lose it, so there was not much sympathy. Thus, a spin campaign was begun to ease people into the knowledge that the scheme was being ended. However, we now realise that many more people than we originally thought will lose their cards. Fear has been created among these people, and that is unforgivable.

Third level fees, registration costs or whatever one wants to call them are an expense for those attending third level institutions. I got a call yesterday evening from a constituent who was attending University College Cork and was already living hand to mouth. I will say no more other than that this is a genuine case of hardship. He now has to countenance a payment of €1,500 which he does not have. It is because the Government is intent on reversing the brave and visionary decision of the rainbow Government under the stewardship of Niamh Bhreathnach when she was Minister for Education, to abolish third level fees. This Government is intent on reintroducing third level fees. We have seen a number of Ministers fly the flag on their reintroduction, including the former Minister for Education and Science, Deputy Noel Dempsey, who was bailed out by Deputy Harney, and more recently the Minister, Deputy Batt O'Keeffe, who relied on a golf-playing dental economist, who must be very adept at education economics, to push the case for reintroducing them.

The Government is sneakily doing it through the back door. The charge of €1,500 is a scandal and a disgrace. The descendants of the visionary education Minister, the late Donogh O'Malley, who abolished second level fees, must be appalled by this move. What will be next on the Government's agenda for education? Will costs and fees for second level education be introduced? Why is it so against third level education? Why is it so opposed to people from less well off backgrounds going to university? These are the people on whom we will rely to reboot the economy and to provide the services and qualifications needed to keep this country vibrant and turn the corner from the recession.

We were promised 4,000 extra teachers by the Government. What has it done? It has slashed 400 teaching jobs. We were promised 20 pupils per teacher. We all know the classroom size issue. Every single candidate who contested the general election last year would have been lobbied extensively by educationalists about this matter. What has happened? The ratio has increased from 27:1 to 28:1. Is that not some indictment of the Government's educational policy? School transport fees have gone up to €300, an increase of 150%. Of all the moves, taking the medical cards from the over 70s and registration fees are the most despicable.

I conclude on a point I made on the Order of Business this morning. The Government should be honest and call the income levy what it is. It is an increase in the income tax levels from 20% to 21% and from 41% to 42%. We got a distorted political lesson from a colleague in this House a while ago, who supported the income levy being introduced, but opposed the one introduced because of dire financial consequences in the 1980s brought about by reckless spending on behalf of Fianna Fáil after the 1977 general election. Senators should bear in mind there are no allowances or reliefs for this particular taxation. The Government should be honest and call it what it is. It is not an income levy; it is an increase in taxation. Throughout this debate, the Government Senators will support and the Opposition will oppose. I am dumbfounded that any Senator could possibly ride both horses in this Chamber this evening.

Senator Paschal Donohoe

My colleagues have commented well and forcefully on the impressions that will be created by this budget. Two points are most apparent and most upsetting to the families and those who will be paying these new taxes and dealing with the new economic reality we all face. The first is the imposition of an income levy that does not discriminate or differentiate between someone earning €20,000 or €30,000 a year and someone earning €95,000 a year. The second is the withdrawal of medical cards for those over 70 years of age. The granting of those cards was a clear symbol of the existence of universal benefits in the country. Our movement away from it, regardless of the economic circumstances we are facing, will cause great worry and upset for many families.

However, I wish to discuss the Government's objective, which it has stated many times, to bring order to the public finances. I wish to examine how it claims it will do that. Even a cursory examination of the assumptions the Government has outlined regarding how the budget will perform shows it is culpable of the most profound economic negligence that puts everything it has done up to this point into the shade. When this House debated the budget, we said that the assumptions on which it was based were flawed. We talked about the number of house builds on which last year's budget was predicated and we pointed out that no economist or anybody with a real understanding of how the economy is performing expected those houses to be built, which is what happened. That budget was built upon flawed assumptions that nobody believed would happen. Even if we had not encountered what are, I accept, exceptional global circumstances the mere development of the kind of economy we were witnessing last year would have meant that the budgetary assumptions of last year would never happen.

We can see exactly the same thing happening now. Government Members talk about social solidarity and the need for everybody to make sacrifices. They claim to have a plan and if it is to work they need everybody to undergo hardship and make sacrifices now. However, there are two assumptions in all this that are very likely to undercut everything they talk about. The first assumption the Government made is that the recession will end in 2009. It believes that unemployment will peak next year at approximately 7% to 8%. It then believes that from 2010 to 2011 the average rate of national income growth will be between 3% and 3.5%. I challenge the Government to produce a group or even a single credible economist who will make that forecast and believe it will happen. The truth is that any organisation or single economist trying to predict the future can only envisage an uncertain global economy and can only expect that the national income of countries like ours will be squeezed.

I am at a loss to understand why the Government believes that our national income will rebound from where it is now to growing next year and by 3% for the subsequent years. This is storing up even greater difficulties in the years ahead. The Government is hoping that the current global economic circumstances will rebound and that rebounding will save it hard choices. That was the assumption it made last year and it has not happened. In the plan to restore so-called order to the public finances it claims this will happen by 2011. By 2011 on its own figures there will be a €3 billion gap between where it expects the deficit to be and the deficit required to be delivered under Stability and Growth Pact. Some €3 billion needs to be raised through either raising taxes or cutting services, for which we have no plan.

My other colleagues have made very forceful points about the impact the budget will have on families here and now. They are pressing problems and already coming home to roost. The entire budget relies on a set of economic circumstances that are so optimistic that even if the economy gets back to normal growth next year, which is unfortunately unlikely, those assumptions will not be met. It means that even the kinds of sacrifices, solidarity and suffering the Minister of State suggests people need to show now in order to enjoy a return to a good economy at some point in the future will not make that happen. Given the Government's track record of making rosy economic assumptions, those assumptions not being met and it blaming somebody else for their failure to be met, I fear we will see the same happen again in the future. We are witnessing the same kinds of rosy assumptions being made on the economy.

The Government must take responsibility for how the economy has been managed in the past ten years. The standard way to manage an economy that is going very well is not to allow it to overheat and to save money for a rainy day, provide tax cuts when needed and lower interest rates when needed. The big question the Government must answer alongside many others is why, given that we have reached the rainy day, is the war chest empty? After enjoying rates of economic growth of 6%, 7% and 8% year on year, why is it that the moment people turn to the Government seeking help it can give no help? That question must be answered. As we work through the difficult times ahead we need to look to the past and ask what we can learn from the lessons of the past. All I can see in this budget is the mistakes of the past being made again, being compounded and made on a worse scale.

Senator O'Malley rightly pointed out that Fine Gael had not been in government recently. Perhaps if we get into government at some point in the future — I am certain we will — we would have had the opportunity to learn the experiences the Government parties have. I am envious of any politician in any party that has the term of Government that Senator O'Malley's party has had. The lessons we need to learn are minor by comparison with the lessons the Government needs to learn in looking to the future, making responsible and prudent decisions and then having the honesty to communicate that to the people. That has not happened here.

Senator Ivor Callely

I have listened to the various contributions to this budget debate with great interest. I welcome the opportunity to participate in the debate at a time when the global economy and the world financial markets are in a state of freefall. The collapsed economy and financial markets are such that the various attempts by governments, the European Union and institutions do not seem to have had any real impact to date.

The uncertainty in the international economy and the financial environment places us in a very difficult position, but we have to assess and meet that challenge head-on. We are fortunate, due to our economic success over recent years, to be in a strong position with a fairly solid foundation. Let us not lose sight of what has been achieved. Our country has been transformed. We have all gainfully witnessed an unprecedented and hugely successful economic period. Ireland is now seen internationally as an attractive place to do business. We enjoy a great reputation of being confident, dynamic and highly qualified. As a result, success has been built and sustained and given the particular turbulent global challenges we face today, one does not have to be a rocket scientist to know how difficult it will be to sustain hope and confidence in the face of current daily challenges.

No one is immune to the challenges ahead, and each one of us needs to deal with the competing realities of our aspirations to improve the quality of life for all. Listening to some of the Opposition, they paint a defeated and sad outlook from a desperate last cry of wolf, barely standing on their last legs. They have helped to do one good thing with their desperate cries; that is, they have highlighted that the odds are stacked against Government, mainly due to forces outside our control due to the global economic and financial turmoil. They have jumped on the easy fix gravy train and joined in the chorus of outcries on all the unpopular decisions.

I have a simple message. Life and circumstances change, but one cannot give up. We have to find new ways, a new vision and reposition ourselves. The essential difference between Fianna Fáil and the Opposition is that the Fianna Fáil approach and record is positive and the Opposition's is one of negativity.

The Taoiseach, Deputy Brian Cowen, and his ministerial team are endeavouring to protect the progress we have made. They are determined to stabilise the current situation, correct our fiscal imbalances and position us to benefit when the upturn comes. This has necessitated a significant reduction in Government expenditure, revenue generation and the imposition of certain other measures across the board. The public have seen clearly that what must be done is being done. There is a genuine appreciation of what is required, while not necessarily agreement on all aspects on how to achieve our target. We are, by no means, out of our difficulties yet, but there is almost a tangible acceptance of the need to proceed and a determination to get through this period and back to a destiny that Fianna Fáil is capable of delivering, as proven over the past decade.

We need to make tough, but correct, macro-fiscal decisions. We have come from a position where we enjoyed cash surpluses for the past number of years, to a serious deficit situation, where we now have to borrow. I support, in principle, the prioritisation that the budget for 2009 contains. The €57 billion spend is based on the delivery of long-term economic and social improvements, through a combination of focused targets, and paves the way for a brighter future for all.

The Taoiseach stated: "We are determined to keep our focus on making sure that we come out of these difficult times as quickly and as strongly as possible". The budget reflects the Government's focus on reducing expenditure on non-essentials and to spend moneys in areas of greatest priority. I do not have the opportunity in the time left to discuss some issues I wanted to raise on expenditure on non-essentials and expenditure on areas of priority. I hope I will have the opportunity at some point to put those on record.

I welcome that this budget continues to heavily invest in areas of priority, in particular the national development plan, transport and communications, the environmental services and research and development, which will help to drive the future economic progress of this country. I equally welcome the €20 million spend, and the numerous improvements and increases in social welfare, in particular the extra €166 million package of supports for older people, especially the weekly payment increases, along with the €30 million energy package, with an extension of the fuel allowance season to 32 weeks and an increase in the fuel payment to €20 per week.

To a great extent, this year's budget is overshadowed by the income levy and the withdrawal of the medical card. I am concerned that the withdrawal of the eligibility criteria for the medical card is referred to as affecting those over 70. Fianna Fáil philosophy has always been caring and compassionate to our older people, which is reflected in the number of unique and innovative feature contained in our health and social welfare services. I have a proposal but I do not have time to put it on the record. I wish to advise the Minister of State that the issue of the withdrawal of medical cards needs to be revisited.

Senator Jerry Buttimer

I wish to share time with Senator Pearse Doherty.

Cuirim fáilte roimh an Aire Stáit. Tá ár dtír i mbaol dul siar go dtí dorchadas na n-ochtóidí. Is é pobal na tíre a bheidh ag fulaingt go mór de bharr na cáinfhaisnéise inné. Is iad na seandaoine a chaill a gcártaí leighis, na feirmeoirí nach mbeidh in ann a mhuintir a mhealladh chun fanacht ar an bhfeirm, na páistí scoile a bheidh orthu díol as a gcuid taistil an fhad agus a bheidh siad i ranganna plódaithe ar fad a bheidh thíos leis. Ní fheicim aon dóchas do mhuintir na tíre sa mhéid atá beartaithe ag an Rialtas anseo. Ag an am seo séard atá i ndán do na daoine ná dífhostaíocht agus an imirce.

The Minister of State came to this House with the reality behind and in front of him that he and the Government have hit the ordinary people of Ireland, in a budget where the people have been once again asked to bail out him and his colleagues. Any critique or analysis of this budget can only paint one picture. It contains savage cuts, regressive taxation and taxes the elderly and those on low incomes. It is socially unjust. Above all, the legacy and the imprint Fianna Fáil has left today in the homes of Ireland are that the poor, the vulnerable and the middle income earners have been left on their own. Fianna Fáil has turned its backs on them. The untruths of the general election have come home to roost and now the fraud it has perpetrated has been exposed.

The Minister of State's Government has not looked after the vulnerable members of society. They have been let down. This is a savage budget with savage cuts which hurt people and will make the recession deeper. Senator Callely spoke on economic affairs outside our control, but this budget, in the current economic situation, is a missed opportunity. Senator Harris spoke of public service reform but there is none. There is no innovation or new ideas. The Government had an opportunity to end decentralisation and it funked it.

The cuts to be imposed mean less money and fewer services. The Government has taxed the people. Members of the Government cannot mention Ernest Blythe, or John Bruton and children's footwear and clothing. The Government has done much worse. Today's edition of the Irish Examiner refers to patriotism and this is the headline.

An Cathaoirleach

The Senator cannot display newspapers.

Senator Jerry Buttimer

Gabh mo leithscéal. It is an example. The Government has taxed the old, the poor and the disabled and it has decimated rural Ireland. Agriculture has been killed off and in return we have silence from the Members on the Government side. The 1% income levy has had the great affect of bringing people on low pay into the tax net. The Minister of State referred to emancipation, which means freedom. Is the Minister of State's definition of "patriotism" taxing the elderly, bringing the low paid into the tax net, increasing class sizes, increasing the cost of secondary school annual bus tickets, abolishing medical cards for the over 70s, increasing college registration and denying education to people and halving child benefit for over 18s? I hope not but that is what the Government is saying.

Senator Fiona O’Malley

Fine Gael proposed even more cutbacks.

Senator Jerry Buttimer

The Senator's party is extinct so she cannot talk.

If this is what Fianna Fáil calls social justice, I look forward to the next three years when the people will witness what the party stands for, which is looking after the wealthy few at the expense of the many.

Senator Pearse Doherty

Gabhaim buíochas leis an Seanadóir Buttimer. Tá a fhios agam go bhfuil go leor le rá aige ar an cheist seo. Tá mé iontach buíoch gur roinn sé a chuid ama liom.

The budget is terrible and it has rightly gone down badly in the community. The Government parties had to make cutbacks and manage the public finances but they have got it all wrong. They promised us they would look after the most vulnerable but they did not. They stated they would ensure the top earners would pay their fair share but they did not. The also promised that front-line health and education services would be protected but this did not happen.

The Government failed to tackle the crisis in education in the budget. It is astonishing that the parties have opted to increase class sizes and slash the funding for primary school buildings. Everyone knew they had moved away from their commitment in the programme for Government to reduce class sizes. However, no one expected it to be completely abandoned in favour of an increase in class sizes. This move is a kick in the teeth to all the voters who took Fianna Fáil at its word when it promised to reduce class sizes during the general election campaign in 2007. More than 1,400 schools are covered by the schools building programme, yet the Government has slashed funding for the primary sector. The Minister announced an additional €79 million for the programme but it is all being invested in third level institutions. It is unbelievable that the Government is considering a 5% reduction in funding for primary school buildings.

The increase in the registration fee for third level students from €900 to €1,500 will place a huge burden on students subject to high rents and other education costs. The Government promised that the capitation grant would be doubled but it will only increase by 13%, which will do nothing for schools that are €84 million in debt and which must be funded through cake sales, race nights and so on. An opportunity was missed. I welcome a number of small measures the Government got right but, in general, this is a bad budget and it needs to be revisited through amendments to the Finance Bill. The Government parties need to do the right thing and acknowledge they got the budget wrong.

Senator Geraldine Feeney

I welcome our former colleague, the Minister of State, Deputy Mansergh. This is the first time I have been in the House in his presence. I am delighted to have an opportunity to contribute to the debate. Opposition parties over recent months have referred to the need to secure an economic and social future for our country and they said the budget should be designed to do that. In my lifetime, I have never known the Cabinet to sit for so many long hours to put the budget together. I have not known Ministers to work around the clock all weekend to do so. This reflects the bad economic state in which the country finds itself. Two weeks ago the House worked through the night to pass emergency legislation when the Government had to guarantee financial institutions to the tune of €400 billion.

This is a great budget and it is designed to secure the economic and social future of our country. I congratulate the Minister of State, the Minister for Finance and the Taoiseach. RTE's chief reporter stated on "Morning Ireland" earlier that the budget did not go far enough and it could have been much tougher but it is designed as part of a three-year programme and it will get tougher next year and the year after. He also said we are all in this together and everyone must take their share of the pain.

I refer to health issues. A number of Opposition Members stated they received 20 or 30 e-mails. I received two e-mails, one from a cancer research organisation complaining that the increase in the price of a packet of cigarettes was not sufficient and another from Age Action Ireland. On the Order of Business, Opposition Members said old people had been left in the lurch and they are in no man's land because they had cancelled their VHI policy when they received a free medical card. I went to the trouble of ringing the VHI to ask how many people left the organisation when they received the card. I was told there had been no noticeable decrease in the number of over 70s. In 2001 before the change was made, the VHI had 88,989 members aged over 70 whereas today the number stands at 120,776. The VHI will take back the customers who left in 2002 and they will not be asked to wait ten years if they have a complaint, as was pointed out on the Order of Business. They will be recognised as full members provided they pay the premia they missed. This is done in the interests of present customers, which is fair enough. The VHI also said they would ask them to become members before 1 January next. However, this involves only a small number of people.

A total of 80% of over 70s will still be covered by the medical card because those in receipt of the basic pension will retain their medical card going forward. Following the budget, 15% of over 70s will receive a cash grant of €400 annually per person. An additional €454 million will be invested in health services next year. Doctors are the biggest losers in the health area as their funding is reduced by €85 million and that is no bad thing.

Senator Eoghan Harris

Hear, hear.

Senator Geraldine Feeney

Our over 70s will take what is coming when they know the great savings that will result for the economy.

Fine Gael proposed €700 million in savings, which would result in the closure of three hospitals and the loss of 10,000 jobs immediately. I am glad we are not doing that.

I refer to the 1% income levy. I have three children employed at the lower end of the salary bracket — they are all in training. None of the three have told me that the levy is a bad tax because it is not. My daughter pointed out that it is €1 in every €100. As they would not normally pay tax, they do not mind paying the levy. I imagine that my children are no different than anyone else's and that there are many more young people like them.

Senator Nicky McFadden

To add to Senator Feeney's point, someone earning €98,000 will pay a 1% levy, the same rate as someone on the minimum wage.

While cautiously welcoming the small increase in social welfare payments, some of the measures to save money, such as the removal of medical cards from the over 70s, the increase in the pupil-teacher ratio, the removal of children's allowance for youngsters over 18 years of age and the increase in college fees, will negatively impact on lower income families. The increase in the pupil-teacher ratio should have been untouchable by the Minister for Education and Science. We will now officially move to a ratio of 28:1, the largest primary school pupil-teacher ratio in the EU. The cruellest part is that it will affect our children's chances of learning and their life chances in an increasingly competitive world. Consequently, there will be no jobs for 400 new teachers.

While recognising that we are in difficult times and a recession, it is regrettable that the Minister has chosen to step back from a progressive policy towards young people aged 18 years and over in full-time education by withdrawing the child benefit for this age group. It will lead to earlier school leaving because parents will find it more difficult to fund their children's education. The increase of €600 in registration fees for third level students is, as Senator McCarthy stated, essentially re-introducing fees, making it impossible for people from lower socio-economic groups to obtain third level qualifications.

While there was a basic increase in social welfare payments, what is €6.50? It would buy one pound of mince and half a dozen eggs. Given inflation, it does not add up to much. Likewise, the meagre increase of €2 in the qualified child allowance is not sufficient to help parents meet their children's needs. It beggars belief that our €6 billion surplus of last year was turned into a €15 billion deficit.

The 1% levy on incomes under €100,000, including those on the minimum wage, is a scandal and is the harshest aspect of this budget along with the abolition of the universal medical card for those over 70 years of age. On average, families will lose out to the value of €2,500 per annum, which will have a knock-on effect for small businesses. People will not have that €2,500 in their pockets to spend, thereby putting small businesses at risk. It was stated in the House how important small business and employing people in them are for the economy.

The spatial strategy was also given the kick. The gateway towns and innovation fund were scrapped. In Athlone, we were awaiting significant money for infrastructure projects, but it is gone. The reduction of 5% in the local government fund is another slight on communities and small businesses. There will need to be rates and increases in refuse and recycling charges. Small businesses must already endure the increase in energy costs. It is almost impossible to survive in small business in this downturn, but it will be impossible with the extra cuts.

This morning, Age Action Ireland made a presentation to the Joint Committee on Social and Family Affairs. The group spoke about fuel poverty, a matter that we have debated, and its effects on older people. The delegates expressed considerable disappointment with the removal of the medical card for those over 70 years of age and the 1% income levy. The €2 increase in the fuel allowance and its extension by two weeks is a pittance because €2 would not even buy half a bale of briquettes. Elderly people go to bed early to keep warm and to cut their energy bills or stay out with their friends in warm shopping centres. It is no way to treat people who have contributed to the economy by paying taxes all of their working lives. It is cruel and harsh. Every year, an extra 1,500 to 2,000 people die during the winter in comparison to the summer months. The stark reality is that we have the highest percentage increase in winter deaths in Europe.

I wish to raise the issue of housing aid for the elderly, now administered by local authorities, the scheme having being transferred from the HSE. Given the 5% cut in local government funding, I question how local authorities will be able to implement the scheme. In County Westmeath, there is a €600,000 shortfall in the housing budget for essential repairs and DPGs. I have serious doubts concerning how we will look after the elderly. People are in acute hospital beds waiting to go home. Age Action Ireland highlighted the need for a fuel poverty strategy, which we do not currently have. There must be joined-up action by all Departments to ensure that fewer elderly people die from fuel poverty.

The budget will make the country worse and lead us into a depression. We are going to borrow more this year, doubling our national debt. While everyone accepts that there is a downturn, other countries are not as badly off as we are. The Government has failed in the budget. Why were there no wage freezes, redundancy packages or serious levies placed on bank CEOs as promised?

I wish to refer to the disgraceful closure of Connolly Barracks in Longford at a time when the town needs to be supported by those working in the barracks and when real estate has devalued. It is a foolhardy fire brigade action.

Senator John Hanafin

I welcome the Minister of State to the House. In framing the budget, the Minister sought balance, equity and fairness. At an unprecedented time in financial markets, the Minister gave a resounding "Yes" to a balanced budget in terms of tax, borrowing and savings. The 1% levy is necessary given the reality of our taxation code, which meant that those on the lowest incomes were not in a position to offset any tax increases at the lower band. However, there were people who, through exemptions, pension rights, section 48 and section 23 provisions, film rights and other positive measures, paid nothing. This was unjust. The 1% levy means that the very wealthy will pay, an example set by Ministers when they took 10% pay cuts. They should be commended on doing so on top of the other taxation that everyone must bear.

The strategy to reduce spending was important in the context of a different financial situation, a matter that relates to borrowing. Our borrowing is nothing more than a modulation of the past 11 years. It is sound business practice that in the good years one puts away money and in the bad years, rather than causing deflation, one does not take too much money from the economy. This is what the Minister has done. He was prudent in managing the funds available.

We have promoted industry in this budget by way of increased exemptions for research and development investment, new start-up businesses and no capital gains tax or corporation tax below a certain income level. We have also ensured the income of enterprise boards has increased, meaning that small business will again benefit. In the most difficult times, the Minister has managed to promote industry and balance taxation. In doing so he increased the litre of petrol by 8 cent but that will hardly be noticed at the pumps because the increase will equal the decrease in the price of oil in the past few weeks, which is down to $72 a barrel today. The Arabs tell us that the real price of oil is $60 to $70 a barrel. Other positive developments in the past few weeks include the reduction in interest rates, so repayments on our national debt will be lower. Markets appear to have stabilised and we should take credit in this country because the first in Europe to underpin its banks was Ireland, followed by Greece, Portugal, Denmark and Austria until every country made sure the banks were underpinned or nationalised, as in the UK.

This is a balanced budget in terms of looking after people. Of the €55.8 billion of budget moneys, 78% will be spent on social welfare, education and health. The increases in social welfare, at 3% and 3.1%, are over what is expected to be the inflation rate. Inflation may be lower because commodity prices fall in recessionary times. It is a balanced budget in terms of taxation, borrowing, savings, looking to the future and ensuring the less well-off are looked after. It was with particular pride that I heard of the €2.6 billion increase to €19.6 billion allocation to the Department of Social and Family Affairs. There is €7 extra per week for old people, an extra €2 in the fuel allowance and an extension in the number of weeks. People of working age get an extra €6.50 in all working age payments, which includes jobseeker's benefit, illness benefit, disability allowance and one parent family payments. Families with children have seen an increase, with €56 million of improvements in support of families and children. The qualified children's increase goes from €2 to €26 per week. All family income supplement thresholds are increased by €10 per week per child.

This is a budget geared to the times. It looks to the future, will not be deflationary and is committed to ensuring a viable building sector, which has had a battering in the past few weeks. The Government is committed to ensuring the national development programme continues to proceed, with all major cities linked to the capital by motorways, the upgraded M50 and the Atlantic corridor.

Tax relief was provided to first-time buyers of new properties. The budget suited the times that were in it and will lead us out of the perfect storm in the financial markets and will see Ireland as a safe and good place to invest. People will say that sound management was balanced with the needs of the people.

Senator Paddy Burke

I propose to share time with Senator Regan. I welcome the Minister of State to the House. It goes to show how Government spin and bluster changes over the years. Any of us here long enough to remember famous speeches by various Ministers for Finance know that they always went back to 1997 and compared what the Government led by Fine Gael and Labour gave and what the Government was then giving in respect of increases. The Minister of State did not go back to 1997 but to 1995. In an outrageous speech, Senator Leyden went back to 1983. It is amazing that he voted against the 1% levy at that time but it would not be the first time Fianna Fáil Members, while in opposition, voted against good proposals by Fine Gael and Labour. The Anglo-Irish Agreement and the 1% levy, which was needed at the time, are examples.

This budget is an attack on the poor, the low paid and the farmers. I have not heard much about the farmers this evening but this is a major attack on them, as it is on those who have to go to accident and emergency units, medical card holders and rural people who need a car. Despite the comments of Senator Hanafin on the 8 cent per litre increase, this amounts to nearly 40 cent per gallon, an outrageous increase. Those who must pay this are people who need cars, people in rural areas with no public transport or no prospect of it being introduced.

Where has it all gone wrong? A few years ago, we had a massive surplus of €3 to €4 billion per year and there is now a deficit of €15 billion. Where has the money gone and how could it happen so quickly? There is no explanation from the Government but it is clear that the signs were there before the last general election, and for the past number of years, but the Government did nothing about it. If it had done something we would not be in the mess we are in today.

We sold Eircom for a massive amount of money, along with the TSB and Aer Lingus. The OPW, for which the Minster of State is responsible, sold various pieces of property over the past year and a half. We sold the jewels in the crown, semi-State bodies built up by hard-pressed taxpayers over the years. That money has been squandered over the past number of years.

Fixed contracts were introduced in the past two years. This has been removed, according to the speech of the Minister of State. Does it apply to the projects outlined in the decentralisation project? Some are going ahead and some are PPPs. Are these still on fixed contracts, is this clause removed and will they have to reach another arrangement?

Senator Eugene Regan

The Minister of State claims that the budget is designed to stabilise public finances. It may be designed to do that but it does not do so. We will borrow an extra €2 billion next year in order to subsidise current spending. Looking back, that is the situation we were in when the man with whom the Minister of State worked, Charlie Haughey, brought the country to near penury in the late 1970s and early 1980s.

I find some elements of the Minister of State's speech to be quite cynical. We talk about "automatic stabilisers", a phrase that has a meaning in economic terms. It was suggested that social welfare increases act as automatic stabilisers. However, due to the spending spree over the past eleven years there is no facility for automatic stabilisers and counter cyclical measures because the money has been spent. We have now borrowed so much that we will double the national debt in a very short time and will return to the types of figures we saw in the 1980s.

We are being very self-congratulatory now as we were earlier today. The fact is that the Government gave free medical cards to those aged over 70 and then expects a clap on the back when these are taken away. It created quangos and when some of them are amalgamated members of Government congratulate one another. The Government gave tax reductions and then imposes on gross income across the board an income levy and income taxes. It takes a brass neck to have made some of the speeches today congratulating the Government and claiming credit for correcting the problems that it created over the past 11 years.

Senator Larry Butler

I congratulate the Minister of State for dealing with a very tough budget. We all knew this one would be difficult because we were facing a huge hole in our finances. It was necessary to take hard decisions, to be decisive and to show leadership and I believe we have done that. It was important that we made a major decision in July that gave savings of up to €400 million. That was far seeing and corrective at a time when we did not realise our finances were going to be in poor shape. We did it, however, and it was very important.

That concerned 2008 and we now look forward to balancing the books in 2009. There is €1 billion in 2009. The rationalisation of State agencies was long overdue. In this budget 41 agencies were dealt with, which will save substantial amounts of money. We must look at some others.

The bank guarantee and support for the financial institutions was another issue that we dealt with very swiftly and we now have a banking system that is credible. The new legislation to come before the House tomorrow will give the banks important credibility in the European and world context. It means that we are now open for business in this country and the Government is behind the institutions of our banking system and is committed to them. We cannot run a country without a good and reliable banking system.

It is important to ensure that we put strong investment into education for the future, as this budget does. There is also a substantial amount in the budget for social and affordable housing which needs support. We have done that in this budget and have also put aside substantial amounts for research and development. That will be important for ensuring new job creation projects for small firms.

When the proposals on banking come before the House tomorrow it is important that we have a package——

This budget is a corrective measure and is part of the solution. We must see it in the European context. Our bubble has burst in terms of the construction industry but when we look at countries such as Germany whose bubble was not in that industry we see that it must now examine the bubble burst in its economy, namely, the car industry. Today General Motors looked for a major bail-out from the Government in the United States. Although we are not in great shape on this island, the situation is global and we are dealing with it in our own way.

The budget has taken corrective measures that have hurt everybody. Let us be honest about that and admit it has hurt people across the spectrum. Everybody is playing a part in this. We spoke about working together and this is an example of how we can do that. It has cost everybody and those who can afford to pay more are paying more. That is fair. I commend the Minister of State for what has been done in this regard and I also thank those Opposition spokespersons who see the necessity for this budget. We look forward to the new legislation coming before the House and I shall have more to say then about the housing sector, which I consider to be most important. It contains a good package on housing.

Senator Diarmuid Wilson

With the permission of the House I wish to extend thesitting until 7.10 p.m. in order to give the Minister of State an opportunity to conclude the debate.

An Cathaoirleach

Is that agreed? Agreed. The House will conclude business at that time.

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

I thank all Senators for their contributions to the debate on the budget and I will respond to some points. First, for the information of the House, while we have been speaking, the Minister for Finance, Deputy Brian Lenihan, has published the scheme which is subject to the approval of the Houses of the Oireachtas, the Credit Institutions (Financial Support) Scheme 2008.

Senators Ross and Quinn raised the issue of capital gains tax and were of the opinion that there would be no such tax worth talking about levied on shares and property next year and so therefore the rise to 22% was academic. The gain is, of course, computed on the difference between sale proceeds and cost price. Many assets will have been held for longer periods and the appreciation of those assets will by no means have been cancelled out by recent falls. It will have been in some cases but not in others. The capital gains tax increase is directly related to the reduction in stamp duty on commercial property and to the combination of income tax and income levies.

Senator Alan Kelly did not give adequate account of the tax credit for research and development, which is being raised from 20% to 25% and will be a positive development from the point of view of attracting companies that will engage in research and development. The measure will also reduce the effective rate of corporation tax, which stands at 12.5%.

Senator Ross, not for the first time, attacked FÁS. Community employment programmes are extremely important around the country and many worthwhile local organisations, sports clubs and cultural organisations would find it difficult to continue without them. They also provide valuable employment for older people who might find it difficult to secure alternative useful employment.

I will now dwell a little on history. An income levy was first introduced by Alan Dukes in 1983 and cancelled in 1986. The second time an income levy was introduced was at the beginning of the previous Fianna Fáil-Labour Party coalition when Deputy Bertie Ahern was Minister for Finance. The levy was the pièce de résistance of the Labour Party’s contribution to the budget. One must take this into account when considering comments from the Labour Party.

In the case of a person on a low income earning €60 per week in part-time employment, the levy will be only 60 cent per week. If a person is earning €98,000, the example cited by Senator O'Malley, the levy will amount to €980 per annum. The criticism of the levy is, therefore, over the top.

Senator McFadden raised the issue of rural dwellers and cars. If people were to switch to vehicles with diesel engines, they would not pay extra. On the assets sold or privatised under various Fianna Fáil Administrations, which was also raised, the rainbow coalition sold very cheaply the second mobile telephone licence and even more cheaply the Irish Steel company, the closure of which caused such environmental problems.

I was amazed that Senator Kelly, in his supplied script, referred to PRSI. Given that the PRSI ceiling was only index linked for 2.5%, as has happened in practically every budget under every Government over the past 20 years, I do not understand to what it is he takes exception in the measure. The changes in child care payments must be taken in the context of the substantial improvements there have been in the past ten years.

On another point of history raised by Senator Quinn, Mr. Haughey, as Minister for Health, had substantial increases in budgets in 1978 and 1979. It was not the case that he could only produce a toothbrush.

I was amused when Senator Leyden effectively proposed an absentee tax, which used to be proposed every year in the old Irish Parliament. He also wanted to introduce a star chamber or what the French would call a chambre de justice for tribunal lawyers.

As Senators will be aware, the demand for third level fees is coming from the university heads. The question of whether third level education should be free, particularly at higher income levels, is a matter for debate.

Approximately 2,000 teachers have been recruited since July 2007. When considering the pupil-teacher ratio one also needs to take into account the many additional special needs assistants and resource teachers who have removed some of the burden on teachers.

Allow the Minister of State to continue without interruption, please.

Senator Jerry Buttimer

He provoked me by launching an attack.

Deputy Martin Mansergh

I am responding to the Senator rather than attacking him.

One thing I missed in the debate, except through hints, was an absence of a constructive alternative. Points were made about the different measures, including for example, that taxation and expenditure will cause pain. As Senator Butler said, that is true. The only alternative I heard was explicitly stated by Senator Harris and was implicit in one or two other contributions, particularly from Fine Gael Senators. The proposed alternative is to slash public service numbers and repudiate social partnership. This is what Deputy Varadkar argued with me in the late night debate yesterday. The Government is not taking that route because we value the contribution social partnership has made to the economy.

The public service accounts for only 10.5% of the workforce, a low figure by international standards. Even if one includes school and hospital employees, the figure increases to only 14.5%. While I welcome Senator Harris back in the House, I do not agree with his attack on what he described as the "dead hand" of the Civil Service.

I spent four days, from Friday until Monday when the Minister was formulating his budget, at the IMF-World Bank meeting in Washington. The world is facing a financial crisis, with only a few countries being relatively spared, while others have been extremely hard hit. As Senators will be aware, Ireland faced a critical situation a couple of weeks ago. In addition to the leadership given by the Taoiseach and Minister for Finance, the public servants concerned in the Central Bank and Department of Finance gave magnificent service to this country. Some people who speak in this House and some who write newspaper articles have no understanding of the quality and input of some of our senior public servants without whom this country would be a very different place. I sometimes think there is an ideological element involved.

Prior to being appointed a Minister of State, I had a debate with Senator Regan in a different context when the situation was more favourable about whether the Taosieach and Ministers deserved their salaries. We all have taken a 10% cut in our salaries. One of the questions I asked the then Minister for Finance, Deputy Cowen, was effectively how many people were better paid than the then Taoiseach, Deputy Bertie Ahern. It was about 13,000 and if there were half a dozen who came from the public sector, I would be surprised. This debate is sometimes put in the context that the public sector is on the pig's back and the private sector is hard-pressed.

Some of the financial problems in the world have come, as we all know, from overpaid executives in certain financial institutions in certain countries. We ought to have balance in this debate. Is it the case that a teacher who helps to produce a well rounded student is less valuable than a farmer who rears a bullock or a baker who produces a loaf of bread or a cake? Is it the case that somebody who drives a public service bus is less valuable than somebody who works for a private bus owner? Many generalisations are paid that are not particularly valid.

Public service reform is needed. It is promised. I do not dispute that.

Senator Paul Coghlan

They are all not all up to the standard of the ones the Minister of State described.

Deputy Martin Mansergh

A number of agencies are being amalgamated.

Senator Jerry Buttimer

Only 41 out of 200.

Deputy Martin Mansergh

The administration of agencies is being examined. Members will see considerable developments on this front over the course of the next year but this will be done in the context of social consensus and partnership, not by sacking thousands of people, as seems to be implicit in some of the suggestions that have been made.

This has been a difficult and painful but a necessary budget.

Senator Jerry Buttimer

An unnecessary one.

Deputy Martin Mansergh

The test of it will be if in two or three years' time we will have succeeded in turning around the economy and return towards the trend of a growth rate of 3% or 4%, which the agencies say we should expect to achieve and be capable of.

Senator Jerry Buttimer

The Government will then try to buy the next general election.

Deputy Martin Mansergh

I was struck in America by the fact that people tend to view the glass as half full rather than half empty. People there were talking in positive terms about the falling house prices putting houses more within people's reach, falling petrol prices and so on. Sometimes we need to look at the positive aspects that are coming through and that are still there rather than just looking unremittingly at the negative points.

An Leas-Chathaoirleach

When is it proposed to sit again?

Senator Diarmuid Wilson

Tomorrow at 10.30 a.m.

Seanad Éireann díospóireacht - Wednesday, 15 Oct 2008

Budget Statement 2009: Statements.

Seanad Éireann díospóireacht -
Wednesday, 15 Oct 2008