I welcome to the House the Minister of State at the Department of Finance, Deputy Mansergh.
Supplementary Budget Statement 2009: Statements.
This budget has been prepared against a background of very weak international economic and financial conditions and deterioration in domestic demand and the public finances. It sets out the Government's plan for the renewal of our economy over the next five years which can be built on to secure sustainable economic progress for the long term.
Arising from the deterioration in global financial market conditions, the world economy is experiencing its deepest and most widespread recession for more than 50 years. Global economic output is contracting for the first time in this period with world trade forecast to fall. The advanced global economies, Ireland's major trading partners, are forecast to contract by more than 3% this year, which will in turn affect our export performance. As a small, open economy reliant on trade, other external factors such as an unfavourable sterling exchange rate are unhelpful for our indigenous exporters and are heightening competitiveness concerns in that sector.
Domestically, as the recession which commenced during 2008 deepens further, gross domestic product, GDP, is projected to experience its sharpest decline on record, contracting by almost 8% this year. While a further decline is likely in 2010, as the expected international recovery gains momentum and the sharp shock in residential housing output abates, Ireland's economy should begin to grow again by 2011. In the meantime, we must vigorously pursue appropriate policies to position the economy to benefit from the global recovery whenever it emerges. Our labour force continues to be highly skilled and adaptable and we continue to invest in education at all levels to ensure we have the skills demanded by our increasingly knowledge-intensive economy. Our economy remains flexible and resilient and this will facilitate an adjustment to reflect the prevailing conditions.
For its part, the Government remains committed to providing a pro-enterprise environment and to maintaining our relatively low tax burden on business. In the budget, capital spending remains at a high level by international standards. This will allow us to maintain our investment in productive infrastructure, which will enhance our competitiveness. These measures will help equip the economy with the requisite skills and operating environment needed to participate in future sustainable, export-led growth. Through taking the necessary action now, we will safeguard our recent progress and secure our future prospects.
In his budget, the Minister for Finance set out the essential steps needed to restore and renew this economy. The urgent priority is to stabilise the public finances. The resolute actions being taken in this budget, especially to reduce the budget deficit, are fundamental to restoring the confidence of investors in our economy. We also must do the following: restore our damaged banking system to ensure credit flows to consumers and businesses; regain competitiveness, since the future of our economy lies in exports——
While I do not wish to be discourteous by interrupting the Minister of State, with the indulgence of the House I wish to raise a point of order.
Senator Norris, on a point of order.
Will the Minister of State supply Members with a copy of his speech?
Yes, I presume copies are coming.
I thank him. I also note the budget package was not made available universally. Only those who were in the Chamber on the day got it and Members have not received it. That is a pity and it does not help the debate. I apologise for the interruption.
We must protect the jobs we have and invest in retraining; support and stimulate economic confidence as much as we can within the resources available; and restore our reputation abroad.
Foremost in our minds has been the achievement of fairness in taking the measures in this budget. We have been guided by the principle that everyone should contribute according to their means. For instance, the tax increases announced are progressive in that those who can best afford it will pay most. This will be more than compensated by the fall in the cost of living. For example, as a result of the changes proposed, a person earning the minimum wage, which is approximately €17,500 per year, will be asked to pay €350 per annum or €7 per week, representing 2% of their net wages. A person earning €50,000 per year will pay €1,500 or €29 per week, which is 4% of their net income. A person earning €300,000 per year will pay €15,655 or €300 per week, which is 9% of their net income. Fairness also requires that the real value of social welfare benefits should be protected as far as possible.
The deterioration in revenues since 2007 illustrates that in recent years our tax system had become over-reliant on construction sector activity. It is necessary therefore to restructure our tax system to suit an export-led economy growing at a more sustainable pace. In the context of a rapidly rising deficit, it also has been necessary to look at ways of reducing expenditure and increasing revenues. The total reduction in gross spending for 2009 comes to €886 million in current spending and €576 million in capital. This is equal to €1.8 billion in a full year but, together with measures announced in the main budget last October and in January, will amount to close to €5 billion. The Minister gave notice that further savings of €4.8 billion will be required over the period 2010 to 2011. The total tax and levies measures will raise €1.8 billion in 2009 and more than €3.6 billion in a full year. Again, the Minister stated that while the measures outlined in this budget have necessarily concentrated on income, in 2010 and 2011 he will turn to other areas of taxation to achieve the necessary adjustment in later years.
The Government has agreed with the European Commission that five years is the appropriate timeframe for addressing our structural problems and the necessary multi-annual consolidation plan is now being implemented. Spending reductions and savings will continue to be necessary as well as additional revenue over the period. The scale and nature of adjustments over the later years of the five-year plan will depend to a great extent on the strength of the economic cycle. If growth is better than forecast, less will need to be done at that stage.
As regards specific measures in the budget, I refer to taxation. Among the measures on taxation, the 1%, 2% and 3% income levies are all being doubled and the respective thresholds are also being reduced. The changes to the levy are progressive in that those with higher income pay the most and the burden on lower earners remains low. Approximately 30% of income earners, 670,000 people, remain exempt from the levy as do medical card holders above the threshold. The principle of fairness was central to the Government's decision and this is demonstrated by the fact that the top 1% of income earners, those with income in excess of €175,000, contribute 24% of the total income levy yield while those earning over €50,000 contribute 70% of the total levy yield.
The entry point to the income levy is still €750 higher than the entry point to the tax net in 2005. The average tax rate of a worker earning €25,000 will still be lower in 2009 than it was in 2007 and the average tax rate for a single worker earning €60,000 in 2009 is lower than the equivalent tax rate in 2004. In addition, the Government has ensured the over-65 exemption limit will remain unchanged at €20,000 for a single person and €40,000 for a married couple.
The challenge facing the Government requires that the tax base be widened and the reduction in the minimum threshold will bring an additional 110,000 earners into the income levy net for the first time. The levy only will apply to earnings over €15,028 per annum or €289 per week. The health levy rates will double to 4% and 5% with effect from 1 May 2009 and the threshold for the higher rate is being reduced from €100,100 to €75,036. Again, this is a progressive measure, which ensures those who can afford to pay the levy will do so. The reduction in the higher rate threshold means that an additional 89,000 income earners now will pay the higher rate. In terms of fairness, 50% of the yield from this levy will come from those paying the higher rate. The Government has ensured more than 1 million income earners, that is, those with income under €26,000, as well as medical card holders and the over-70s, remain exempt from the health levy.
The PRSI ceiling is being increased from €52,000 to €75,036. This will mean that 220,000 income earners will now make additional PRSI contributions and the progressive approach of ensuring those who can pay do so will be maintained. Mortgage interest relief is being retained in such a manner that it will only be available for the first seven tax years from the date on which a mortgage is taken out. This means any taxpayer who has received mortgage interest relief for more than seven tax years on an existing qualifying loan will no longer be eligible for such relief from 1 May 2009. However, the measure continues to protect first-time buyers and others who bought their homes when house prices were very high. In addition, the new rules for mortgage interest relief will continue to provide significant support for first-time buyers and others who now take out a new loan to purchase a new home, move home or take out a loan for the repair, development or improvement of their current home.
The Minister also announced a proposal for a stamp duty trading up swap scheme. This new scheme will be set up by the Government so that people who want to move to a bigger property for personal or family reasons will not be prevented from doing so. It is essentially an exchange of dwellings between a developer and a purchaser where the purchaser buys a new house or apartment from the developer who subsequently sells on the swapped or traded-in house. The purchaser of the new property will not have to pay stamp duty, unless the new property is over 125 sq. m, in which case a reduced rate of duty applies as is the current position. The developer taking the second-hand property in exchange or part-exchange will not have to pay stamp duty when the properties are exchanged. Stamp duty on the swapped house will not arise until that property is sold on.
The scheme will be in place from the date of the finance Bill up to December 2010 and full details will be in the Bill. It is estimated that there will be no cost for the scheme but that it will lead to an increased yield in VAT, income tax and corporation tax from developers who currently hold unsold housing stock.
The basic rate of deposit interest retention tax, DIRT, is being increased from 23% to 25% for interest from bank accounts etc. It is also being increased from 26% to 28% for interest on longer-term savings products, for example, life assurance and fund products. The Government has ensured that those aged over 65 years are exempted from DIRT and they may hold DIRT-free accounts. This and other capital tax changes will ease the additional tax otherwise required on labour and consumption and toward taxation on wealth and sources of wealth.
Significant increases in welfare payments have been provided over the past decade. However, the Government has had to examine how we can use the €21 billion welfare budget to afford maximum protection to those most in need in the light of the current budgetary constraints. Limited changes in eligibility to certain benefits are therefore being introduced. Specifically, jobseeker's allowance for the under 20s will be halved to €100 a week. The Christmas bonus will not be paid in 2009. Payments under the rent supplement scheme will be reduced to reflect the fall in prices in the rental market. We also will intensify the campaign against welfare fraud. The Government has also decided that child benefit will be either means tested or taxed in the budget for next year.
However, the social welfare adjustments include some positive measures too. The Government has maintained the increased support payments provided in the October budget and, as part of our response to the current levels of unemployment, has refocused resources on the enterprise strand of the back to work allowance which supports people into self-employment. Under this initiative, the employee strand of the back to work allowance will be closed to new applicants and replaced by two new back to work enterprise allowance schemes. This will enhance access and provide a two year support regime for the participants, thus encouraging enterprise and, in due course, creating additional employment opportunities.
The early child care supplement monthly payment is being halved to €41.50 per child, with effect from 1 May 2009, and will be abolished at the end of the year. It will be replaced in January 2010 with a pre-school early childhood and education scheme for all children between the ages of three years and three months and four years and six months. A capitation grant will be payable to service providers who provide free pre-school places. Approximately 70,000 children will be eligible to qualify for the new pre-school year under the new pre-school early childhood and education scheme.
The early child care supplement was introduced to assist parents to meet child care costs and, while appropriate at the time, it is not as well targeted as it might be because it is paid on a universal basis. The Government recognises that pre-primary education is a key determinant of student performance at all levels of education, which in turn raises the private and social returns from all future investment in their education. Government investment in infrastructure, through both the EU co-funded equal opportunities child care programme and the national child care investment programme has facilitated the introduction of this pre-school year scheme, which is an exceptionally progressive measure.
The Government is establishing an enterprise stabilisation fund to assist vulnerable and viable businesses by supplying direct financial aid in conjunction with the banking system over the next two years. This fund will have a total budget of €100 million over two years and will be administered by Enterprise Ireland with existing support for Irish companies in 2009. The fund is intended to focus primarily on small and medium-sized enterprises engaged in exporting.
For those who have lost their jobs, there is a need for retraining and further education. In addition to measures already announced by the Government, a further wide range of activation measures was announced in the budget with the overall cost being met through the reallocation of current resources within the relevant Departments. Within available resources, the Government will continue to pursue policies in support of further training and education services for the unemployed. The Government will implement measures to support the smart economy through investment and incentives to reach a research and development target of 2.5% of GNP by 2013.
Restoring Ireland's competitiveness is a priority so that we will be well positioned to exploit the global economic recovery when it emerges. There are positive signs in this regard. Prices and wages are adapting to the new economic realities and this should progressively improve our cost base and, in turn, our competitiveness. It is important to recognise that our medium-term prospects remain favourable, with positive demographic trends and the relative flexibility of our economy.
The current weakness in the markets poses a serious challenge to the financial system as a whole and to economic policy-makers and regulatory authorities around the world. Ireland, in line with other countries, has taken action to protect the stability of its financial system, working in close liaison with the European Commission and the European Central Bank.
The measures introduced by the Irish Government are based on the following principles: the State will not let any systemically relevant institution fail; any State involvement in financial institutions will protect the interests of tax payers; the State will have regard to legal implications, particularly under European law; and the State will support the flow of credit to the real economy. We have provided very substantial support to the banking system through the bank guarantee, bank recapitalisation and the protection provided by public ownership.
To address the issue of asset quality in the banking system, the Minister for Finance announced on budget day the setting up, on a statutory basis, of a national asset management agency under the aegis of the National Treasury Management Agency. This agency will purchase from the banks their land and development loans and their largest aggregate associated exposures. The Minister pointed out that these assets pose the main systemic risk to the banking sector and the most significant obstacle to the recovery and restoration of lending into the economy by the banking system. The transfer of these asset types from the banks will ensure that the balance sheets of the banks are strengthened and uncertainty over bad debts is reduced.
The agency will have an independent commercial remit and will be expected to protect the taxpayers' investment. The Minister made it clear that all borrowers will be required to meet their full legal obligations for repayment to the agency. Senators will recall that the Government's recapitalisation measure for the two main banks contains a credit package, through which the banks concerned have committed to increasing lending capacity for SMEs by 10% and to provide an additional 30% capacity for lending to first-time buyers in 2009. New statutory codes of conduct on mortgage arrears and business lending have also been introduced.
All these measures will help to ensure that the banking system can play its vital role in extending credit to individuals, households and businesses in the real economy. Departments and State agencies have engaged with banks and business representatives in a variety of settings on issues concerning the flow of credit for business. A formal structure for those contacts on an ongoing basis will be finalised shortly. An independent review of credit availability, funded by the banks and managed jointly by the banks, Government and business representatives, is also under way.
The Minister is bringing proposals before the Government to introduce new structures of regulation of financial services. This will include the integration of Central Bank responsibilities with regulatory and supervisory functions. The Central Bank of Ireland will in the future be chaired by a commission, chaired by the Governor. These changes are designed to restore Ireland's reputation, and are in line with the emerging international agenda for reform in the financial services sector. The Minister has asked Sir Andrew Large, former Deputy Governor of the Bank of England and former member of the UK Monetary Policy Committee, to advise on the process to select a new head of financial regulation within the new institutional structure. The structural changes and a substantial increase in regulatory capacity will lead to a more effective and efficient financial services regulatory system which will be aligned to the best international standards.
The Minister for Finance said stabilising the public finances was the first and most urgent step we must take. My responsibility for public procurement gives me an opportunity to make a significant input towards this objective and, at the same time, to achieve increased value for public expenditure.
Last July, the Government decided to assign responsibility for procurement to me and that a national office for the procurement of goods and services should be established in the Office of Public Works. This has been done and a project board has been set up under my chairmanship to oversee the development of what will be now known as the national public procurement operations unit, NPPOU. Part of the remit of the unit is to encourage the development of greater North-South links. I am grateful to have the services on the board of the official from Northern Ireland who heads the central procurement area in the Department of Finance and Personnel. It has been decided that with immediate effect, the NPPOU will manage the purchase of goods and services common to all areas of the public service, such as office equipment, furniture and fittings, fuel, electricity, printing, stationery and office supplies, uniforms and transport fleets. The existing Government supplies agency in the OPW has been disbanded and its duties in the above areas will be assumed by the NPPOU.
Sector-specific items such as drugs, medicines and military equipment will continue to be managed within the relevant sectors, for example in the HSE and the Department of Defence. The value of goods and services within those categories, which had been dealt with by the Government supplies agency, amounted to approximately €65 million and usage by Departments and agencies of its services had been patchy. A key measure of the success of the unit will be the extent to which its range of activities can be expanded. There is plenty of room for expansion, as the total value of the categories which it is proposed should be placed in the new unit's remit amounts to about €500 million.
In order to achieve savings of €25 million in the current year as required by the Government, the unit is actively examining the potential for immediate savings from a reduction of 8% in all contracts for goods and services over €100,000. The Government is most anxious to ensure that reform of structures, practices and procedures in the procurement of goods and services does not crowd out small and medium-sized enterprises at present supplying goods and services to the State. Accordingly, the unit is examining a range of measures to counter the risk of such crowding out.
Although there has been some reduction in the capital provision for OPW in 2009, there remains a very substantial provision for capital work, including flood relief works and the decentralisation programme. Decentralised offices due to be completed and delivered this year include Newbridge, Wexford, Trim and Clonakilty. Flood relief schemes in progress include Ennis, Mallow, Clonmel, with works due to start in Fermoy in the near future.
I recommend the budget to the Seanad and look forward to hearing the views of Senators.
Over the past two days this budget has been debated extensively in the Lower House so much of what we say today will be repetition to some degree for the Minister. Ministers should be described as super, but rather than in the traditional sense of the word it is in the sense it is used with supermodels. We have supermodels in the Cabinet rather than on the catwalk. It is not the way the Minister, Deputy Dermot Ahern, would flutter his eyelashes, or even the Minister of State present, and it is not how another Minister, Deputy Micheál Martin, pouts when he is accused of mugging the elderly, but what makes our Ministers supermodels — L'Oréal supermodels — is the way they collectively say "because I'm worth it." Ministers are supermodels with attitude who have trampled on the vulnerable in this budget. They have pushed the poor not into consistent or even relative poverty but into everlasting poverty. Ministers want everybody else to pay for the worst excesses of the past ten years.
There was an expectation in this budget that our "L'Oréal — because I'm worth it" Ministers would be the first to make the significant sacrifices, but that has not come to pass. They have maintained their State cars and there is no change whatever to ministerial Mercs and Garda drivers, with everything remaining the same. Our public representatives have no problems when they retire from politics as they pay themselves in excess of €100,000 in pensions per year, which is unacceptable. I would have expected that in these more difficult and frugal times, for the majority in this country, the Ministers in charge would have been prepared to make a greater sacrifice.
Most Ministers have an entourage of between ten and 20 civil servants doing constituency work for them and there has been no change in those personnel whatever. Ministers have made no changes and their only sacrifice is 10% of their very generous salary; that is enough of a sacrifice for our celebrity supermodels in government. The Fianna Fáil backbenchers must feel like the ugly Betties of the fictional model agency that is Fianna Fáil because they are taking all the political pain for their Ministers. When the relevant Finance Bill comes back to the House, the Ministers should look at themselves and the very generous bonus payments, allowances and grants being paid.
The Minister for Finance admitted that those earning more than €20,000 will be back at 2007 tax levels, those earning over €50,000 will be back at 2005 tax levels and those earning over €100,000 will be back at the 2001 tax levels. Our race to the past will raise €1.8 billion in taxes this year, but the trouble is it seems to be a long race. In 2010, the Government will seek an additional €1.75 billion and an extra €1.5 billion in 2011. What year will the people's tax rates be equivalent to when all that is finished?
There is no guarantee that the process will stop at these figures. The Minister admitted that he got his predictions wrong for the tax income by €5 billion. He made that prediction in January and we are now in April so the finances are deteriorating faster than anybody could have possibly expected. Tax revenue was €47 billion in 2007 and €40 billion in 2008 and it is expected to drop to €34 billion in 2009. That is today's prediction but only a few months ago the prediction was €37.5 billion.
What happens if the revenue drops to €30 billion before the end of the year and what changes will come in December's budget? Will the Minister of State fill us in on that? What will happen if the improvements expected do not materialise in 2011 and we get into a more prolonged recession in the country than we expected? What are the Government's plans in this respect?
We should look at the cause of our problems. Benchmarking was once described as an ATM machine for the public and Civil Service and it is the root cause of the misery inflicted on public servants. In the days of the benchmarking I and benchmarking II process, former Taoiseach Deputy Bertie Ahern and the current Taoiseach, Deputy Brian Cowen, told us everything was flying. There was a collective exuberance in the nation and the same people in the public and Civil Service bought their homes when they were expensive, took out car loans and maxed out credit cards because Fianna Fáil told them it was safe to do so. We knew it was wrong then and it is definitely wrong now.
Public servants are not the only ones who have seen their dreams shattered not just for themselves but for their children as well. The scourge of unemployment is back walking the land we live in. The fact that no Minister would even bother resigning or saying sorry to the people is a sign of their collective arrogance. It is really annoying for the people now that the Government has washed its hands of responsibility.
No matter how bad things get, there will always be vultures and laughing hyenas to feed off the carcase of what was the Celtic tiger. As everyone is aware, during the past five to ten years developers viewed themselves as "big fellows" and clever bankers were of the opinion that they deserved nothing less than bonuses of €1 million each. These people are now destined to off-load their toxic debts not only onto us but also onto our children.
When we engage in a debate on the proposed national asset management agency, people will come to realise the number of individuals involved in creating these toxic debts is not large. Approximately 60 to 70 people are responsible for causing the problems that gave rise to our national financial crisis. The exuberance of Deputy Bertie Ahern, the bankers and the developers has landed us in the mess in which we find ourselves.
The Minister for Finance stated the Government intends to take a hard line in respect of this matter. In what way does it propose to do so? At present, all it is doing is talking big. Most developers were quite smart with regard to how their arranged their huge loans with the banks. In the vast majority of cases, they protected themselves personally. The Government is going to take the assets referred to in the budget away from these individuals. However, the latter will still be left with substantial amounts of money. Some 20 years ago, Larry Goodman was bailed out in the aftermath of the beef tribunal and he is now one of the wealthiest men in Ireland — he is capable of purchasing private hospitals etc. We are going to repeat what happened at that time and the taxpayer will again be left to foot the bill.
Perhaps the Minister of State will indicate what the Government intends to do to make the people to whom I refer pay. My reading of the law is that nothing much can be done about these individuals. The Government is merely trying to fool or mislead the people by informing them that it will pursue the bankers and the developers. The latter are well covered, but poor taxpayers will be left to swim in a sea of toxic debt for a number of years. Taxpayers have again been hoodwinked by the Taoiseach, Deputy Cowen, his immediate predecessor, Deputy Bertie Ahern, and those who previously acted as their cheerleaders. It is these individuals who have led us into the current mess. Capitalising the banks leaves a bad taste in everyone's mouth. However, it was stupid Government policy that led us to this. The Government should acknowledge that this is the case and take the appropriate action.
Will the Minister of State comment on the development whereby the bright lights of the private sector dazzled the Minister for Health and Children, who stated that 1,000 new beds would be provided by the private sector in order to remove the pressure from the public system? I have debated this matterad nauseam during the past four years. I informed her from the outset that it was a bad policy, but she indicated that all the experts at her disposal indicated the position was otherwise. If the Government is intent on doing away with private hospital grants, is this an acknowledgement that the scheme only ever offered poor value for money and that the policy was daft in the first instance? What action will the Government take to ensure that those beds, which as we were previously informed are necessary, will be provided by some other means? If this capital investment in the health system is not made in some other way, then patients will be denied treatment. We all know what will be the outcome of such a development, namely, a return to the position which obtained in the 1980s when it was stated that health cuts hurt the poor, the weak, the elderly and the vulnerable.
Some 70% of the population used to have private health insurance. By the end of the year or sometime next year, unemployment will stand at 15%. As a result, it will not be possible to sustain the level of private health insurance to which I refer. This means an increasing number of people will be obliged to rely on the public health system. There has been no indication with regard to how the Government proposes to deal with this eventuality. The only information that has been forthcoming was provided by Professor Drumm, who stated that €1 billion will be removed from the HSE's budget. From what I have seen to date, this will be done in the crudest possible way, namely, through cutting services. As a result, patients will be denied access to vital procedures, services etc. In the context of the long-term position, we are heading down the wrong road.
On the Order of Business, a number of Members stated the Government should take action in respect of the fixed interest rates people pay on their mortgages. Senator Hanafin and other Fianna Fáil Members quite clearly indicated they oppose such a move. Their colleagues in the Lower House are in agreement with them in this regard. If realistic action is going to be taken, the Minister of State should speak up for the people in a way that his party colleagues in this House are not doing.
When delivering his budget speech as Minister for Finance in 2006, the current Taoiseach stated that everything to do with the economy was absolutely fantastic. I do not recall the actual words he used but I am sure the Minister of State is familiar with them and they are available for everyone to read in the Official Report. What the Taoiseach stated then makes for light-hearted reading when one considers the contents of this supplementary budget.
It is stated in Budget 2009, at table 7, that net current expenditure is destined to increase in the coming years. However, we are informed that the Government is going to try to reduce capital expenditure during the same period. Does the Minister of State expect that current expenditure will increase between now and 2013, even in light of the savage tax increases being imposed on ordinary citizens? Will he indicate how such expenditure will increase? The people will be extremely interested in his comments in that regard.
The Minister of State indicated that people on the minimum wage will only be obliged to pay €7 per week as a result of the changes proposed. If a person has one child under the age of five, he or she will automatically lose almost €20 per week before he or she pays any form of increased tax etc. The Minister of State has not taken into account the effect this budget will have on young families. What will be the position of such a family which bought a house seven years ago and which now finds itself in a position of negative equity? One or other of the parents might have had a second job in order that the family could afford to pay the mortgage. However, that job has probably now disappeared and his or her primary employment may also have gone by the wayside. In addition, under the budget the family in question has lost its mortgage interest relief and its overall income may be relatively low. If they have children under five and a half years of age, they will lose the €1,000 per year early childhood supplement. The Government has not yet indicated what will be the position regarding child benefit. We know that it will be means tested, but will the gross amount provided be reduced by the end of the year? I am of the view that we are being softened up in respect of something that is going to be put forward in December.
The Minister of State indicated that "Approximately 70,000 children will be eligible to qualify for the new preschool year under the new preschool early childhood and education scheme". In the Lower House last evening, the Minister of State at the Department of Health and Children, Deputy Barry Andrews, criticised Deputy Enright in respect of a press release she issued. The Minister of State attempted to weaken the effect of Deputy Enright's statement by saying the Government would be able to achieve its goal in this regard because a certain number of parents will send their children to private preschools, others will not take up the scheme and others still are already eligible. This scheme is another figment of the Government's imagination. The Government merely ratcheted up the figures to make matters look good. Some €450 million will be removed but €150 million will not be put back in. The Government is again using gross figures in order to soften the impact of what it is doing. It should endeavour to be as straight as possible with regard to the figures it uses in its budget documentation.
Enterprise Ireland is to receive €100 million to allocate in respect of small and medium businesses. I did not know that Enterprise Ireland was a bank. Perhaps this is a new development. I am aware, however, that unlike their larger counterparts a number of small banks in Ireland have not been destroyed by exposure to toxic loans. Why has the Government not approached one of the smaller banks or building societies which possess the expertise relevant to evaluating loans and which can identify what are good and bad criteria in the context of carrying out such evaluations? Why was the €100 million to which I refer not allocated to these institutions? Enterprise Ireland is not the appropriate body. It might be able to evaluate the scientific merit of certain projects or their research and development potential but it has never been an organisation that would have the expertise to understand banks' loan issue criteria. That should be examined because if one of the smaller banks was approached, it might also be able to do something for mortgage holders and first-time buyers. Some of these smaller banks have a network across the country and they have the expertise and one of them could be used to play a role in sorting out the crisis.
The two main banks are about to receive €3.5 billion each from the State. They have a huge mortgage assets book and people are making repayments — for the bigger bank it is at least €2.5 billion per year, a percentage of which is profit. Does the Minister know how many loans that bank has approved since the beginning of the year on the potential €6 billion it has received both from the Government and existing mortgage holders? It is a small sum because the bank is holding on to that money to improve its capital position. Giving the main banks €500 million and telling them to give it to small businesses and first-time buyers is misleading and will not work. The Government should look at one of the smaller banks that is solvent.
The problem is not the mortgage holders, they are paying their loans back, the problem lies with the toxic debts of the 60 individuals who have banjaxed our national finances. The three main banks, Anglo Irish Bank, AIB and Bank of Ireland, are holding those toxic debts, while the smaller banks are not in that position. The Government must talk to them and use their expertise when using taxpayers' money to get the country back on its feet.
The national asset management agency is an expensive option, costing €80 billion, with no guarantee it will work. I would like to know how this figure increased from the €40 billion mentioned by the Governor of the Central Bank to the Oireachtas committee to the €80 billion outlined by the Minister for Finance. God help us when the banks get the chance to ratchet the figure up even further. We must be very careful here.
The Minister of State must consider whether the Irish economy has a bad does of the flu, as Mr. Peter Sutherland said on "Morning Ireland" this morning, and that we are not in intensive care. We do not, however, have the full prognosis. We need to know if there is an opportunity for the resuscitation of hope in the Irish economy. There are good pointers for the resuscitation of hope: energy costs are falling, with interest rates and other costs. There is a sense we have finally grasped the need for competitiveness and are lowering costs across the economy. I do not believe the leaders of some of the public sector unions are giving good leadership to their members. There is a need for people to be more honest if we are to continue with the resuscitation of hope in the economy. Barack Obama wrote about the audacity of hope but we must try to have the resuscitation of hope so we can get things going in this country again.
I welcome the Minister of State to the House and thank him for making himself available. I am glad to have the opportunity to make a few points in connection with the budget. I completely understand the levels of frustration, regret, anger and worry that exist. I also understand the frustration and anger with some of the measures in this budget — they are perfectly understandable — but to fully appreciate the context of this budget we must look at the environment in which we find ourselves. There are unprecedented economic conditions internationally as well as in our economy. Against that background we had to take the appropriate action. Many things could be made available to the public in the past that can no longer be made available. We are trying to pay for a level of service we cannot afford and appropriate action was necessary.
The budgetary measures are severe and I realise people are frustrated and that there will be pain for all sections of society. The context of this budget was not just to cater for the domestic audience but, as the Taoiseach pointed out, to send a signal to the international audience.
There were limited options available to Government, considering the pace and scale of the economic decline in the past year. Draconian measures were necessary. The aims of the budget were to stabilise the public finances, restore our banking system, regain our competitiveness and protect the jobs we have and cater for those who have lost theirs by way of social payments, training and education opportunities.
A snapshot of the economic situation in 2009 shows that activity is set to contract by 8%, the consumer price index will fall by 4%, unemployment will rise to 12% and total spending on public services will cost €60 billion, with a general Government balance of -10.75%. These are serious figures. To stabilise the public finances, the budget has been framed against the background of the most challenging fiscal and economic situation for generations.
The Government has introduced this budget to assure the Irish people we have the capacity and the will to bring us out of this period of severe economic distress. The Government is committed to introducing essential steps to bring the economic renewal that is required — stabilising our public finances, restoring the damaged banking system, regaining competitiveness, protecting the jobs we have and retaining people in education and training. We must support and stimulate economic confidence and restore our good reputation abroad, which has been damaged in recent times.
I welcome the contributions from Peter Sutherland and Peter Bacon on "Morning Ireland" this morning. Their message was positive and it was good to hear from someone like Mr. Sutherland, who has such international experience in all aspects of public service.
We have seen the doubling of the income levies and the PRSI ceiling raised to €75,000. The health levy had to be doubled to 4% and 5%, with duty on cigarettes up 25 cent, although I have no difficulty with that. It could have been more, as was recommended by the Irish Cancer Society. There is an increase of 5 cent on the price of diesel but no increase in the price of beer and spirits, although I believe there was scope to do something there.
With regard to social welfare, from 2010 the early child care supplement will be replaced by a free preschool education year at an estimated cost of €170 million. It is intended either to tax or means test child benefit but we should closely examine that. I believe those who are in a position to pay a little more would happily do so to secure our children's future. Our children should be ring-fenced from this and we should do all we can to enhance the services available to them. I believe those who are lucky enough to be employed and earning appropriate levels of income would not have a difficulty with paying a little more to secure our children's future and to protect the more vulnerable in society. As this year progresses and notwithstanding the measures that have been taken, we should seek to avoid adversely affecting the level of child care supports.
The jobseeker's allowance for new claimants under the age of 20 years will be halved to €100 per week. Unquestionably, this is severe and the various youth groups have expressed their concern, as I have. However, I hope it might encourage more young people to engage with the education system. A total of 24,000 additional places in education and training have been made available. I hope that when resources are available this measure will be examined again.
Payments under the rent supplement scheme will be reduced to reflect prices and rents. It will be interesting to see how that will be implemented because rents vary in different parts of the country. Will that be discretionary for the local authorities or will there be a clear set of parameters? There is talk of an average of 6% or 7% up to a maximum of 10%, but I would like a little more information on it. The December bonuses will be discontinued. Again, this is a very severe measure and I can understand the pain it will cause. I have received calls from people who are very concerned about the level of pain this will create at Christmas, a time they would have earmarked it for other expenses. However, as the Minister, Deputy Mary Hanafin, said, it was necessary to use these funds to avoid cutting the basic social welfare and jobseeker's allowances.
With regard to reform in the use of public sector resources, there are some measures in terms of the proposed reduction in the number of Ministers of State, ministerial pensions not being paid and so forth, but there is more scope to refine further the delivery of service in governance and to reform the Oireachtas. Perhaps over the next few months we could examine areas where even more savings could be made. However, I am not interested in pandering to media interests or engaging in tokenism or gimmickry. If we are to tackle the public service pay bill and secure efficiencies in the public service, we should take a comprehensive approach. I have no interest in focusing just on judges, Deputies or Senators. If there were a proposal, for example, to cut public sector pay by a certain percentage in the national interest, I would be far more supportive of that than simply pandering to a particular interest. Senator Twomey referred to the ministerial cars and spoke about cutting this and that. That is fine and if it is part of an overall package of measures, there is scope for that.
The various task forces that have been established to review public sector numbers and to seek efficiencies are due to report over the coming months. I look forward to tangible actions being taken as a result of those. The public service has served us exceptionally well through the decades and the Celtic tiger years but there is always room for improvement. The numbers have grown a little too much in some areas and there is some duplication. When one considers that of the approximately €54 billion in expenditure, a total of €20 billion goes on public sector pay it is a no brainer. It is something we must tackle. It will be painful but we will have to do it.
I am pleased that we will continue to spend approximately 5% on capital projects, which is still approximately double the EU average. However, it is important to focus our capital expenditure on labour intensive projects and projects that will contribute most to our competitiveness. It is vital we address this issue because, in recent years, we have become uncompetitive. Overall, there are savings of €576 million in gross capital expenditure. Obviously, there are reductions in schemes which will cause pain, especially for farmers. There is a proposed reduction of 17% in the rural environment protection scheme and the fallen animals scheme is to be abolished. A sum of €200 million is to be saved in the areas of social housing and water services. I would like more detail on the housing aspect. The €150 million saving on roads mainly applies to regional and local roads.
These cuts are highly regrettable, but necessary. The options available to the Government were limited. A difficult balance was sought and, to the extent possible, I am pleased the Minister has come close to achieving that balance. When preparing and commenting on a budget such as this, we must acknowledge the level of obvious frustration and disappointment it will cause but we must also acknowledge the reality and the fact these measures had to be introduced. Governments operate in a real-time environment, without the benefit of hindsight. As the Minister, Deputy Brian Lenihan, said in the Budget Statement, some people predicted a soft landing for the property boom and others did not. No one predicted the pace and scale of its demise, which is highly regrettable. However, we are where we are and we must take the appropriate actions that will take the country out of the recession.
To return to public sector pay, I welcome the fact that our salaries will be benchmarked against those of our counterparts internationally. However, they should also be benchmarked against the private sector and, just as they went up with the private sector salaries, they should also come down with those private sector salaries. In that context, I hope the process of social partnership can continue and that we can achieve a consensus on how to continue to meet the challenges presented by this crisis. No stronger message can come from this country than a social partnership agreement. I believe the social partners are realistic. An element of realism has come into all sectors of society in recent months. We are in very difficult times and we must take appropriate action.
I wish to comment on the proposed national asset management agency. The banks provide the lifeblood of the economic system. Without them to lend money to households, individuals and businesses, the economy would contract even further. I welcome the establishment of the national asset management agency. I like the proposal and believe it will be a template that will be replicated throughout Europe. I like the way it will operate. However, I have some concerns. The first is how we will determine the asset values. Reputable firms and expertise will be sought and engaged to do this. I am involved in the property business as an auctioneer and it must be pointed out that if one went to 20 auctioneers in the current environment for valuations, one would be guaranteed to get 20 different valuations. It is very difficult to determine asset values at present. The Minister should take a number of different valuations and arrive at an average because it is impossible for one individual to get it right. A sample of valuations will be required to determine the valuation appropriately.
My other concern, which has been expressed by many people, is about the non-Irish assets. I have concerns about us managing a property portfolio that includes properties all over the world that are subject to a series of different regimes and government policies over which we do not have control or influence. That will have to be examined. The European Central Bank would probably like to see this replicated throughout Europe. If that is the case it will signal the turning of the corner for the European economy in terms of dealing with the toxic debt.
Following on from the painful measures that have had to be introduced, we must remain constantly alert to the difficulties of the less well-off and the most vulnerable. As certain cases emerge through the media or anecdotally from Members, we must seek to make adjustments where appropriate to help them. There is no question that unique cases will arise. It is very difficult for people at the moment and more will have to be done. In terms of protecting jobs and helping people without jobs, I welcome the enterprise stabilisation fund of €100 million. Unlike Senator Twomey, I am happy that Enterprise Ireland will administer that fund. The work of Enterprise Ireland and the IDA needs to be supported in any and all ways possible.
The announcement of the previous budget re the smart economy has been enhanced further by the investment incentives to reach a research and development target of 2.5% of gross national product, GNP, by 2013. In that context, as the Minister of State is aware, I previously referred to the cut in Science Foundation Ireland's funding by a small percentage. I would not mind paying a little more to ensure organisations such as Frank Gannon's Science Foundation Ireland would have the appropriate resources. The research in which they are engaged is of consequence. It is not just a case of PhDs that do not produce tangible results. It will help the economy. The more we can do in that regard the more we will lay a foundation that will take our country on a sustainable growth path.
I welcome the enhanced access to the back to work enterprise allowance scheme that will facilitate an additional 1,400 places. That may not sound very much but anything is a help at this point. I also welcome the earlier eligibility for the back to education allowance and the new work experience programme for graduates.
One other thing I would like to see is a focus on revenue-neutral measures. I have been working on some in the area of entrepreneurship, especially the introduction of entrepreneurship from primary education through to third and fourth level. In terms of entrepreneurship we focus too often in this country on the person who is an entrepreneur rather than on it being a way of doing things. I have called for a debate in this House on the issue and I will bring forward some suggestions myself. They are the kinds of improvements on which we need to focus. I refer to a quotation that is relevant to this time, which I will identify later:
We have the essential resources to get out of the depression that has enveloped the country in recent years and to open up new possibilities for growth and employment. We simply cannot afford to let opportunities slip. Optimism does matter. We must provide the best conditions for the inflow of capital into the country ... and for higher investment.
This budget is the first step in providing the right balance for a new outlook ... New possibilities for steady economic growth and employment are being opened up. The policies being implemented this year will be continued and developed over the next few years in line with the Government's programme and ... direction. The public finances will be managed prudently; there will be a better distribution of the tax burden and the economy will become increasingly competitive.
We must not be intimidated by the difficulties or give way to defeatism. Let us take the opposite course. Let us talk of opportunity. Let us work together in a new spirit of co-operation, determined to get things right. This requires a contribution from all sections of the community. The essence of consensus is that the various interest groups will each make some contribution to the public good.
As things come right, success will become self-sustaining. Jobs will become [more] available . . . We will have a stronger economy that will allow us to improve social conditions. These are the rewards for exercising the necessary discipline and restraint in the short-term.
That is the concluding paragraph of the budget in 1987, which is very relevant today. If we go forward in the same manner from this budget the rewards can be reaped here as well. We saw the 20 years that followed it when economic conditions in this country flourished following the appropriate fiscal rectitude measures that were taken at that time, although I accept mistakes were made in our over-reliance on the property market. Let this be the beginning for us to do the same, namely, to lay the foundations for the years ahead.
I wish to share time with Senator Feargal Quinn.
Is that agreed? Agreed.
I welcome the Minister of State, Deputy Mansergh, but it is a qualified welcome. I do not mean any disparagement to his talents because I have known him as a very senior and capable public servant, a distinguished Member of this House, and a very capable Minister who understands clearly these matters, but for such a serious debate it would have been welcome if the Minister for Finance himself had turned up.
It would also have been helpful if we had had immediate delivery of the Minister of State's speech. I had to ask for it. I also had to ask for a copy of the blue book, the supplementary budget. It was not delivered to Members of this House, as was traditionally the case. Neither was it given to Members of the other House until after the press got hold of it. I would like to think the Civil Service in this country was treating the Parliament with the respect with which it is due. I will continue to call for that.
At the outset the Government should acknowledge bad stewardship. I do not say that in a vindictive way. The Minister of State knows perfectly well that I have supported the Government when I thought it was doing appropriate things but there has been bad stewardship. We could spend the whole day giving a recital of it. I refer to PPARS, the overpayments to road builders, which was raised consistently by people such as me in the House, and waste in the health service. I previously mentioned a case where I lobbied with a parent to get delivery of a medical service for a particular syndrome. Three managers were appointed at the first stage but when the embargo on recruitment was introduced there was no delivery. That is wasteful. Those people are still in place and that kind of flab has to be cut out, however painful it is.
Let us consider the banks. The Minister of State spoke about our reputation. That is important but it is being squandered by these people who showed themselves to be nothing but beggars on horseback. What we have seen is gombeenery run riot. They alienated their own clients, the small people who pay taxes and who provided the funds. They deliberately moved managers around so that they would not know what was a good risk. They did not know how to rate people. They broke the contract between the ordinary people of this country and the banking institutions and for that reason I will have certain recommendations to make.
Scandal after scandal has been uncovered. Banks have taken money from people, stolen money from people's accounts and overcharged. For the purpose of foreign investment, banks involved themselves in the United States of America and that involvement collapsed through the fraud of their own officials. They provided packages so that people could have offshore accounts. Is it any wonder our reputation is in tatters?
We have a good capacity in this country and it is the same with our natural resources. Let us look at our agricultural industry to which Senator MacSharry on the Government side referred. We have wonderful beef and our reputation is in tatters because of the way the beef industry operated. Again, it repackaged rotten goods and destroyed credibility. We need to clean this gombeenery out of this country, however painful it is.
How dare people like Standard and Poor's and the rest of the international rating agencies downgrade this country. They should be held to account for their complicity in this mess that originated with the sub-prime collapse in the United States of America. This is an opportunity to do that by international agreement and for us to examine internationally the operations of multinationals that are now more powerful than governments. I would especially like to see Monsanto and Shell put in their boxes. Seriously damaging actions were taken to the detriment of our reputation.
I have made some proposals in this House. It is at least three months since I proposed the creation of a national property management agency. I am pleased to see some elements of that have been taken up under the national asset management agency, but it is not enough. We need a national property management agency into which all this property should be transferred. There is no constitutional impediment to this whatsoever. I know the rights of the owners of private property are guaranteed but the governing clause of the Constitution refers to the social good, the good of the people. I could quote it if necessary. I would love to see a property developer, speculator or bank go to the Supreme Court and argue that his or its private speculative interests were of more significance under the law and Constitution than the welfare of the people.
By way of a little coda, I must state I have never been a republican, unlike the Minister. I have never really acknowledged anything other than a cosmetic argument for a 32-county republic but it is now made and that is what we must move towards. One of the factors inhibiting us is the separation of the two parts of our island. We are inhibited in terms of certain tax structures but we should be fighting together. I am sorry to say the British have let us down by devaluing their own currency and selfishly not joining the eurozone. It would be much better if Newry and Dundalk were in the same regime. I say this against my deepest cultural persuasions.
We need positive ideas and they need to be listened to. We do not need all these Robespierres and Mesdames Defarges around this House calling every week for somebody else's head or a bucket of blood in respect of some personality-based issue. We need a couple of really good ideas and this is the time to implement them.
I did not believe I would see an asset management agency in my lifetime and I welcome the one to be established. Crony capitalism was referred to and that is exactly what we have. In addition to establishing the national asset management agency or property management agency, the banks should be nationalised. They should be drawn together into one great bank of Ireland that can have its reputation restored, whatever the cost. I do not want to see any property speculator making anything back out of this. So what if they lose their houses; I have no pity for them. So what if they go on social welfare. They made other people lose their houses and require social welfare. Let them taste what they themselves have delivered to the people.
A very serious problem confronts us. We will have a higher national debt, higher inflation, higher interest rates, higher unemployment and higher oil prices. We must stop doing what is good for Dublin 4 in the belief that it is good for the entire country. What is good for the country will be good for Dublin 4 as well. What we need to do is reduce Government spending and raise taxes fairly. Not all the budgetary provisions are fair. We need to stimulate the economy and protect and create jobs.
With regard to fair taxes and efficiencies, I call for the establishment of a new Ministry. In the United States there is a Department of Homeland Security. I want a Minister for home security to protect ordinary people's mortgages and ensure they at least have a roof over their heads. I want an audit to be conducted within every single Ministry and the results forwarded to the Committee of Public Accounts for examination. There is flab around the place. There are 58 different accounting systems in the Health Service Executive alone. What is that about? Let us cut it all out.
We are again requiring the Central Bank to engage in financial regulation. We are going round in circles because this is where we started. We found the system we had to be unsatisfactory and then established the Financial Regulator, which apparently was unsatisfactory because the regulations were not imposed and the authorities did not engage in supervision.
Why not introduce legislation to outlaw non-recourse provisions in loan agreements? If a property developer has three developments in construction and defaults on one loan, the banks are prevented from going after him in respect of the other two. Why? They should all be part of the same bundle.
Why did I have to ask the Minister for Social and Family Affairs, Deputy Hanafin, six months ago the position on claiming a social welfare benefit? I have become aware that there were people from outside this country getting friends to go into the social welfare offices to collect their money for them. When I asked the Minister whether they were being asked to produce identification, she did not know. I now know they were not. At least it is now known but it is ridiculous that it took me to point it out in this House. If I want to connect a telephone, I am asked to produce my passport, birth certificate and bank statements, yet we are handing out money as I have described.
Why not stop the extra child care supplement this September and then start the free year immediately? There is no joined-up thinking. Why is there a gap? Why are we only changing tax rates at the end of the year? We have the technology and talent to address this. There will be an eight-month gap before the measures are implemented. We are in a crisis but not behaving as if we were.
Betting does not do very much for this country. Why not double betting tax? Why not have a proper tax on travel abroad?
Owing to the time restrictions necessary to allow us all to contribute, I did not have the opportunity to make the kind of plea I usually make on behalf of the people who have lobbied me. I will leave this for the Finance Bill. However, I must say one of the meanest measures was the cut to the scheme for community support for older people, which is responsible for meals on wheels, electricity, etc. This is disgraceful and the scheme should be restored. The cut will only save a piddling amount of money. I will have more to say about fairness when discussing the Finance Bill.
My heart goes out to the Minister for Finance. He looked shattered, over-worked and exhausted in the Dáil. We must all support the Government but it must do the right and radical thing and ensure these skunks do not get away with it any more. I will support the Government in every measure it implements in this regard, including the nationalisation of the banks.
The Senator has reduced the time allowed to Senator Quinn.
I have not. The Cathaoirleach can be flexible.
I thank Senator Norris for allowing me time. For years during budget debates, I have had the chance to act as a schoolteacher and I usually say I will give marks to the Minister. It has been interesting to recall that over the past ten or 15 years, we have usually held the debate on the evening of the budget. With regard to what Senator Norris said, the Minister for Finance presented the budget very well and with confidence.
He did but he looked exhausted.
He instilled confidence in people and I congratulate him thereon. If he were receiving marks on the manner in which he delivered his speech, he would receive high marks.
Before the budget, I wrote in one sentence that international investors need to see that Ireland has a comprehensive, credible, multi-year plan to tackle the deficit in our public finances, place our banking sector on a sound footing, transform the funding outlook and support our economy. The Minister achieved this and would receive marks in this area if I were giving them. With regard to the economy, the sovereign debt market, the banking system and public finances, the Minister would receive high marks for instilling confidence internationally. He claimed he would do so and achieved this.
A business in financial difficulty would handle a financial crisis in a slightly different way from the Government. A business facing a crisis owing to costs rocketing out of sight and the failure to bring in enough income would state it would have to tackle the problem. It would also state it would have to instil confidence and hope among its people, be they customers or employees. The Minister cut costs only to a certain degree and this is where he would lose marks. If half of the savings are to accrue from cutting costs and half from increasing income, the Minister got it wrong. Much closer to a quarter of his savings are to accrue from cutting costs and three quarters are to accrue from increasing income. This is a lopsided way for a business to go.
Something far more serious needed to be done with regard to cutting costs. When one looks back to the past five or ten years one sees where our costs have escalated. One of the challenges facing us is to cut costs and the Minister did not grasp this clearly enough. However, he increased the tax rates and I do not agree entirely with Senator Norris on this. There was a need for imagination on this but we did not have it.
In 1987 we had similar problems. One could say they were bigger problems than those we have now with regard to debt. The then Minister for Finance, Mr. MacSharry, grabbed hold and cut costs but imagination was also shown. This was when the financial services centre was instituted and a target was set to reduce corporation tax over the following years. We reduced taxes on occasion to bring in more income. This is the message I would have liked to have seen in the budget.
On many occasions in the past, particularly over the past 15 years, we saw that by reducing the percentage tax we increased income. A good example of this, which Senator Norris mentioned, was betting tax. I remember when the then Minister for Finance, Charlie McCreevy, introduced this he was howled at in this House. He reduced it from 20% to 10% and Members of this House argued he was looking after his friends in Kildare. He returned the following year and told the House he had taken in far more money at 10% than he did at 20% and that he would reduce it to 5% the following year. He did so and took in more money again.
This is how a business operates. A business decides to reduce prices to bring in more income. I did not get the sense of any touch or flair of this in the budget and for this I would fail it in marks. The Minister did not raise confidence in the long term. Yes, in the short term he has done the correct things but there is a need to do something in the long term and I do not think we did so. Lip service was given to research and development and the Minister spoke about science. This is where we will have an opportunity to do something. However, the Minister only touched on it. We should heavily invest in this if we are to act in this area.
In the budget, the Minister used the words "restoring competitiveness" but there was a degree of complacency. The Minister stated:
Private sector wages need to adjust and are adjusting. I hear examples every day of companies and employees reducing costs and changing work practices in order to safeguard employment. It is this flexibility that will restore our competitiveness and provide the basis for future prosperity.
I do not think we are doing nearly enough. He continued, "With the introduction of the pension levy, the public sector has also lowered its costs". We must do far more than he gave us the opportunity to do in this area. This shows a lack of confidence in this area and this complacency concerns me.
A number of weeks ago I recounted a meeting two years ago with the former US Secretary with responsibility for employment. She stated her job was to ensure there were more jobs in the US. She explained it was not her job to create these jobs but to create the environment in which entrepreneurship can create these jobs. This is not understood. If we are to make this an entrepreneurial, attractive country to create jobs we must do far more than we are doing. I did not see the spark of imagination I had hoped for in the budget.
Businesses need money and a very large number of them are short of it. Steps could have been taken in this regard but they were not. The Minister has admitted it was probably an error — I believe he used the word "mistake" — to have increased the VAT rate last October at the same time as the rate was reduced in Britain and Northern Ireland. The British seem to believe that by reducing the rate they will do more business, encourage more business and will take in as much if not more at the lower rate than the higher rate. We slipped it up 0.5% hoping it would not be noticed.
There is a realisation now that many businesses are short of cash. It would not have been an impossible task to stretch the length of time in which these businesses must pay VAT. VAT must be paid within 30 days. It would not have been impossible to stretch this to 60 or 90 days. Every business in the country would have had a little more flexibility and cash. This would not cost the State anything in the long term — it would have cost in immediate cash flow — to do this for one year. The Minister was not thinking about how to create entrepreneurs to create jobs and how to put more cash into the system on this basis.
I support the move the Minister made with regard to the banks. It is the right direction and it appears the international markets have stated they think the solution should be given approval. To mark the Minister, he is getting honours in one or two areas but he will fail in a few others. I hope he identifies the challenges which exist and that we will see changes in the Finance Bill to create the atmosphere and optimism we need and to encourage businesses to create more jobs.
The budget was an exercise entered into reluctantly because of the economic circumstances in which we find ourselves. Nationally, it is meant to explain where we are going as a country under the leadership of the Government. Much of the uncertainty which has existed from recent interventions has passed because of the action taken by the Government this week.
Prior to discussing individual issues I want to speak about the need for this budget in the context of the wider international audience. I was struck by some statements made in the immediate aftermath, such as that made by the European Commission on the degree of action being taken, which was unremittingly positive. Stephanie Flanders, the economics editor of the BBC, stated there was method in the madness of the Minister for Finance's actions, particularly with regard to the proposal for a national asset management agency, and that the UK could learn lessons from this. This puts a context on the nature of the debate we are having which goes beyond the narrow definitions and knee-jerk politics we have had since the budget speech on Tuesday. There are encouraging signs that there is a degree of realism on where we stand economically in terms of how we are viewed internationally. If this was the intent of the budget we can be encouraged that things are going in the right direction.
The options taken have been criticised. The first criticism is on whether enough action is being taken with regard to a €3.25 billion package. It is generally accepted that to take out more would have created too much tension and brought the economy to a standstill. We then consider whether appropriate amounts of additional taxes were levied and an appropriate amount of public expenditure was curbed. I cannot understand the contributors who stated additional taxation was three quarters and the public expenditure element was one quarter. From what I can see, the ratio is 1.8 to 1.5 which is approximately 60% to 40%.
Suggesting that the public expenditure element should have been greater is a legitimate point of view but my view is that to have taken more out of public expenditure than was taken on this occasion for a period of eight months of this calendar would be to deprive the economy of the only engine of spending in the economy at present. An onus is on the Government to keep a critical level of public expenditure going. The decisions were made in this context.
With regard to the level of additional taxation, difficulties arose because the changes and reforms which should happen to income tax are not possible in the middle of a tax year and so the levy vehicle which was introduced last October was made more progressive. My party argued for this and is more satisfied that the system of 2% and 4% and 6% is more progressive. I admit I would like to see a higher rate again for the higher income. I would like to see it applied at €150,000 rather than at €175,000 but these are measures which can be looked at in the future.
There has been a degree of public and political disagreement over individual items of public expenditure cuts and much of this centres around decisions on the social welfare budget. This is now a budget of €21 billion amounting to 40% of public expenditure. While it is directed for the most part towards people in real need in society and therefore needs to be protected, there are elements of that €21 billion which are universally given to many in society who already have sufficient income. For instance, the decisions on rent supplement and on other secondary benefits were the right ones to take and they point out a possible direction for future reform of social welfare.
The obvious and most disappointing aspect is with regard to the Christmas bonus but if the choice is between the Christmas bonus — which is not given to all categories of social welfare but only to the long-term unemployed and pensioners — and the option of reducing the 3% increase from last October, then I am not going to make any apologies and however unpalatable it was, it was still the better choice. There is some chink of light that if the anti-fraud measures being instituted this year towards enhancing the cost effectiveness of the €21 billion spend in that Department achieves more than is anticipated, the decision on the Christmas bonus might be looked at again and I would be hopeful in that regard.
There were other disappointing decisions relating to the reduction in overseas development aid. We live in a climate where more people in our society are talking about the need to look after our own citizens first. However, despite our recent travails, we are still a very rich country and we still have responsibility for meeting the needs of those without on this planet. The reduction when added to the previous reduction is generally in line with the size of our economy and our commitments in terms of gross national product, GNP. My hope would be that we can still achieve the 0.7% target by 2012 and this is a goal we should strive for.
The issue which the Opposition parties have taken most time on since the budget speech last Tuesday seems not to be about the budget at all——
That is not true.
——but about the asset management agency. However reluctantly they are prepared to admit it, the Opposition parties are now moving away from the budget. There is a grudging acceptance that the measures taken needed to be taken. The two options being offered by the main Opposition parties are the Fine Gael approach that we should have greater cuts in public expenditure which means less spending in the economy in general or the Labour Party approach that we should borrow more and invest to get out of our political difficulties. Both approaches are fundamentally wrong because they miss the first element. We cannot borrow more unless we are seen to get our public finances in order.
The first element in any economic recovery programme is the type of exercise we have engaged in this week. The asset management agency is an integral part of this programme. Outside of coming up with a credible alternative, the option of doing nothing is far worse for the economy. That the banks are in the current situation, despite the interventions made by the Government, has resulted in an economy in sclerosis. If we leave the assets where they are and allow the banks trade as they are currently, there will be no impetus to the economy or targeted or additional lending. The issue of how to deal with the toxic loan book is vital to the economy. To take it aside and give it to the most effective State agency, the National Treasury Management Agency, offers the best hope for dealing with this seemingly intractable problem.
The real questions which the Opposition parties need to ask themselves is what is their alternative to a national asset management agency and why they lack confidence in the National Treasury Management Agency which will be responsible for ensuring that it is successful. The NTMA helped manage our national debt from a situation where it was 130% of national income to a situation where it fell below 25%, one of the lowest in the OECD area. Given that experience, it is now time to entrust that responsibility to an agency to deal with the main source of our current economic difficulties. I have that confidence, as do my party and the Government. The Opposition, by failing to show any alternative in this area——
Give us a break.
——is preparing to rely on catchphrases and knee-jerk politics about bail outs without promising anything towards a better and hopeful future. This plan can and will work, despite the carping of the Opposition.
I welcome the Minister of State, Deputy Sargent, to the House. My opening comments were planned to be directed to the Minister of State, Deputy Martin Mansergh. I was appalled last night to watch "Nightly News with Vincent Browne" and to hear the Minister of State, Deputy Mansergh, defend the budget in the way he did. The practice whereby serving TDs and Senators were in receipt of ministerial pensions was wrong and I am glad the Government has decided to do away with it. If one is a pensioner then by definition one should be retired and be given a pension on leaving the House. When asked by Vincent Browne whether he agreed with the practice, or "codology" as he referred to it, The Minister of State said he agreed with it but that a case could be made for the retention of the Taoiseach's pension while still a serving Member.
I acknowledge the job of Taoiseach is a difficult one with many pressures and that the holder deserves to be well paid and well looked after when he or she has retired. However, it is contradictory, if not sad, for a Minister of State to support the taking of the Christmas bonus from someone who is long-term unemployed or an old-age pensioner while making the case on TV3 for a former Taoiseach and sitting TD to be allowed to retain a pension of €170,000. We need realism in this debate and to suggest political reform was built into the budget is not true. I welcome the symbolic gestures made which we needed to be seen to make in this House. This was symbolism, however, because we know that while the savings made by not paying serving TDs and Senators their pensions will not be significant, the gesture sent out the right signal.
I welcome the decision to halve the allowance paid to the Chairmen of committees and to abolish the allowance paid to Vice Chairmen, convenors and whips. However, the Government should have gone further and abolished at least half the committees. There should be an audit of committees to decide which are essential and then examine the other aspects of parliamentary work that cater for the committees which are unnecessary and a huge burden on the taxpayer. The Government did the right thing in halving the allowance for Chairmen of committees and ending the allowance paid to Vice Chairmen, whips and convenors but the extra step is needed to abolish unnecessary committees.
I have raised this issue on many occasions and other Members on all sides of the House support the points I make. There has been a drastic reduction in the European Central Bank rate recently. The rate is now as near to zero as it ever has been or ever will be. It came down again by 0.25% this day last week. The three types of mortgage to which I will refer are tracker, variable and fixed rate. Tracker mortgages are related to the European Central Bank rate and a reduction will automatically be passed on to those on tracker mortgages, hence the term "tracker mortgage". Those on variable rate mortgages are not necessarily guaranteed a reduction. It is at the discretion of the banks to pass on that discount. Most have passed on the discounts thus far, but I do not believe any reasonable, thinking person would allow discretion to banks, given the nature of the economic mess in which we find ourselves. There is no doubt the banks are responsible for some of that. While some banks have used this discretion, others have not, which is not very supportive of those in unsafe jobs who are paying mortgages. It is not good enough for such people to be dependent on banks' discretion.
Anyone who sought advice from a mortgage adviser in recent years, whether in a bank branch or a building society, would have been advised to enter into a fixed rate mortgage agreement because of the economic climate at the time. That was very good advice because the rates were rising. Now, the rate is as near to zero as it ever has been and those in such agreements are locked in. Some banks are seeking ridiculous amounts of money to allow people to be released from such agreements. In one case, the sum involved is €12,000. It is somewhat like constructive dismissal, whereby the situation is made so unpraticable that the person concerned has no choice. It is a Hobson's choice and one may take it or leave it. It is not financially worthwhile for people to get out of such agreements. Let us bear in mind those on fixed rate mortgages. By definition, the agreements entered into were a reflection of interest rates at the time. Those involved are young couples with families and single people who made such agreements in the past two or three years. They are now repaying mortgages at rates of 4.5%, 4.6% and in excess of 5% in some cases. Such people do not benefit from reductions in the European Central Bank rate.
I have written to the Minister for Finance, Deputy Brian Lenihan, and the finance ombudsman on the matter. Until something is done I will consistently raise the matter of the plight of those with fixed rate mortgages in this House and elsewhere. Let us consider the manner in which the taxpayer has recapitalised and guaranteed the banks. Let us consider the new body, NAMA, the national asset management agency, and the manner in which the taxpayer has supported and bailed out the banks in difficult times. It is not unreasonable to expect some level ofquid pro quo. The Government should instruct the banks to let these people out of such agreements. It is the least they could do given the amount of money spent bailing out the banks. Sean FitzPatrick, Michael Fingleton and such people have been living in cloud cuckooland with pensions of €28 million and €1 million bonuses. They have probably benefited more often than a young couple in receipt of benefit from mortgage interest relief. Those who benefited from mortgage relief will no longer benefit after seven years. The arrangements which allowed Fingleton’s pension still exist.
I call on the Minister of State, Deputy Sargent, to take the message back to Government to give some element of leverage and to show some sympathy for those locked into fixed rate mortgages. It is not good enough that the issue is not used as a negotiating tool with the banks or that there is not some element ofquid pro quo in terms of getting younger people out of very difficult situations. It is no good to say inflation is at an all time low or that the ECB rate is down. Such people are not benefiting in any shape or form. That must be paramount in terms of negotiations with banks and it should be locked into any agreement that the Government makes in respect of NAMA. I will keep raising this issue until such time as there is some movement on it. It is necessary and I say that genuinely for the thousands of hard-pressed couples who are finding it difficult to pay mortgages. Those who have lost jobs are being subjected to the same brutal regime by banks, as are those whose jobs are not guaranteed in future. I call for some consideration for those people.
I believe some of the language in the budget was cleverly disguised to confuse people. The further we move from it, the more we realise the severity of the budget. It will be evident when the dust settles. I quote the deputy leader of the Labour Party and spokesperson on finance, Deputy Joan Burton. On the day the budget was announced, she stated in the Dáil that this was a budget from hell, which is precisely what it represents if one is on a low income or social welfare.
I refer to the health levy which is built into PRSI. The Budget Statement used language which almost disguises what is taking place. Someone earning €75,000 per year pays 2% on the levy, but someone earning €750,000 pays 0.2% of their income on the health levy. Will the Government indicate if that is fair? It is not. Why introduce such flowery confusing language to disguise what is taking place?
As a result of the budget the Christmas bonus will not be granted to the old age pensioner and those who are long-term unemployed. Certain right wing economists and commentators would have us believe that to be on social welfare is the same as getting money for nothing, with a free house and a hand-out as opposed to a hand up, and that it is almost an attraction or something of which to be proud, which is not the case. I have been unemployed and anyone who knows what that is like can testify that it is not very uplifting to join a dole queue.
We have had to listen to nonsense from right wing commentators who seek a 3% hit on the social welfare bill. It was pointed out by the Green Party spokesperson on finance that the social welfare bill is €21 billion. However, what is the cost of bailing out developers and banks? It is €90 billion and NAMA must be established to deal with that. The budget places a very substantial burden on middle and lower income earners, including significant taxes on gross income.
Let us consider the income levy. Last October, I stated that we should be honest in terms of the debate on the budget. The income levy is precisely an increase in income tax. The pension levy is another increase in income tax or a pay cut for public sector workers. Gardaí, teachers, midwives and local authority workers are now expected to finance our way out of this mess, which was created by absolute avarice and greed and lack of regard for the ordinary working individual. The McCreevy and Progressive Democrats era tax policy was comprised of "spin, spend and God will send". Who is paying for that now? The ordinary hard-pressed taxpayer is expected to bail out these blackguards from the mess in which we find ourselves. These cuts with the income levy from last October particularly affect middle income families.
I refer to one statistic although I am conscious that citing statistics can be technical. A couple, one of which is a PAYE income earner, with two children under five years of age, earning €15,500, will lose €1,154 per year. A similar family earning €30,000 will lose €1,680 in this tax year. I was struck by the data which flashed up on the screen when the budget was announced. A person earning €15,000 stands to pay an extra €350 per year because of the income levy, which may appear harmless in print. However, we must be mindful of the affordability of such an individual or family unit to pay that extra €350. It does not sound like a good deal of money if it is taken from someone over a 12-month period, but it is a good deal of money if such a person fails the affordability test. I have no doubt if an affordability test were applied in this regard, we would arrive at this conclusion. There has been an average pay cut of 7% for public servants and a 25% increase in VHI bills.
There is a €1,500 registration fee for third level education and more third level fees are on the horizon. It is a clear, stated target of the Minister for Education and Science to introduce third level fees. The matter deserves long, tedious debate, investigation and research. Let us not rely on dental economists to supply figures to the Government when it must make decisions in this regard. The Labour Party abolished third level fees when Ms. Niamh Bhreathnach was Minister for Education. That was a fundamental legacy of that Government and if the Government of which Mr. Donogh O'Malley was a member took the same line as the present Minister for Education and Science, we would also pay for second level education. Different soundings came from Government prior to the publication of the Budget Statement. There was talk of fairness and balance, closing off tax shelters and targeting tax exiles. However, there was no fairness and balance, apart from the references to it in the speech. There is no way in which one could state that the budget is fair and balanced towards those on lower or middle incomes.
I refer to tax exiles and I have consistently raised this matter. I stress that such people are doing nothing illegal. The current system is the creation of both Houses of the Oireachtas, but it must be changed. It is preposterous that any business person can sell a business, make millions of euro and then register his wife to live in Italy for 183 days to avoid paying a €4 million tax bill. One could not make that up.
A couple with two young children and a mortgage fixed at 4.8% or 5% will face a doubling of the income levy, the pension levy if one or both parents are in the public sector and the withdrawal of the child care supplement, which was worth €2,000 per year. The couple's mortgage interest repayments to the banks, the greedy institutions that nearly collapsed the economy, will be double what they should be were it a question of fairness. Given all of the above and the extra 5 cent on a litre of diesel, while telling other people that they can go to Italy for 181 days so as not to pay their income tax bills is ludicrous. Where does the buck stop? Does the Government have any shame? How can we allow this situation to continue? We are being told the tax shelters will be closed off, but not yet. O Lord make me holy, just not yet.
It is neither fair nor balanced that a review of the tax reliefs has been put on the long finger again. We have heard much about self-administered pension schemes. On Tuesday, the Grinch removed the Christmas bonus from old age pensioners and the long-term unemployed, but he thought nothing of going after a scheme that allowed the Michael Fingletons of this world pensions worth €28 million. Who are they trying to blackguard?
Landlords' mortgage interest relief was only shaved by 25% despite the fact that a full phase out could have saved the Exchequer €500 million. No top rate of tax was applied to high earners. Those earning €200,000, €300,000 and €400,000 per annum will pay proportionally less than a school cleaner, who may only earn €10,000 per year. The banks have been given another bail out, but there is conflicting economic evidence of its cost. This morning, Peter Bacon gave his opinion.
In attacking the poorest and most vulnerable, the early child care supplement has been abolished, but let us not forget that the Government abolished the free book scheme last October. Last Tuesday, it removed another €30 million from the schools building programme. I could count on one hand the number of schools in my constituency on which the Government is spending approximately €500,000 per year for prefabricated buildings, yet there is no long-term investment in decent education infrastructure. The Government has decided that it is fine for people to have pensions of €28 million and to do a Cinderella trick, that is, slipping in and out of the country before midnight as long as air traffic controllers do not spot them.
I welcome the introduction of a preschool year for every child, something for which the Labour Party has campaigned consistently. Since the decision has been made for the wrong reasons, my welcome is cautious. There is little to praise and much to lament in a budget that hits working families, but the decision to replace the child care supplement with a sustainable and sensible system of preschool child care is right. However, a number of questions remain to be answered. A universal system of early child care would cost less than the combined funds currently being spent on the supplement and the separate subvention scheme.
As details of the budget begin to emerge and as the dust settles, it seems the intention is to deliver the scheme through the existing preschool infrastructure. Is there enough capacity? Do we know how many places are required? While some 80,000 children are in this category, is the system capable of delivering on the Government's promise? These questions must be answered.
It is extraordinary that, given our options to save money, we have targeted overseas development aid, ODA. We are discussing the poorest and most vulnerable and disadvantaged people. In the past ten years, various Ministers trotted off to United Nations meetings and gave various commitments, but these were nothing short of lies. We will not reach our ODA target. We are not serious about the protection of children's rights in Third World countries.
The Government has attacked the poorest and most vulnerable, but it has left untouched the tax exiles, the €300 million in tax relief on pensions for the rich, the €10 million in artists' tax exemption, the €400 million in tax relief on non-health sector property-based schemes and the €400 million in tax relief for landlords. Why would any of these be touched when, on Christmas week, a pension could be taken from an old age pensioner and €204 could be taken from someone who is long-term unemployed? It is a full week's amount and 50% of the usual amount received at Christmas. Why would the Government bother chasing landlords or those who can most afford cutbacks when it can harangue, harass and consign to poverty——
The Labour Party's record on the old age pension is not great.
Senator McCarthy without interruption.
The manner in which backbench Deputies nearly jumped out of their seats last October, yet only gave a cautious clap last Tuesday, is the most difficult aspect to accept. What are the Senators on the opposite side of the House telling their constituents? What do Ministers and Government representatives say when they are approached by people whose houses are about to be repossessed, who have lost the early child care supplement, who are paying pension levies or lost their jobs and who have been subjected to the meanest taxation in the form of doubling the income levy?
The Senator has one minute remaining.
I am glad the Minister of State, Deputy Mansergh, has returned to the House, as I will conclude on this question. Is it fair of any Minister to argue that a Taoiseach should retain a pension worth €170,000 per year while, like the Grinch, the Christmas bonus from social welfare recipients is removed? Reconciling these facts is beyond me.
Why are the poor and most vulnerable being made to pay for mistakes that emanated from the Galway tent, namely, massive development, greed and billions of euro in tax havens? The Government has turned around and decided to collapse the education structure by removing €30 million from its funding while spending vast sums every year on renting prefabricated buildings. Ours was once a proud country in terms of its educational yield, but the Government has ignored this so as to ensure that the Fingletons, FitzPatricks and so on are not hurt. Those guys operate at a level that is not even known to air traffic controllers at Dublin or Cork Airport. Does the Government have any shame?
I commend the Minister for Finance on the courage displayed in his budget, which will set the path for economic recovery. Difficult choices were necessary and have been made. Our fiscal situation was untenable and a significant correction in the level of fiscal imbalance was unavoidable. We needed to increase the level of taxes to pay for the social welfare demands and for those who have lost their jobs and to continue to protect those who are most disadvantaged. We also needed to take action on public expenditure.
The principles underlying the budget are equity and fairness. While severe on many taxpayers, particularly the higher paid, the Minister has clearly attempted to shield the most vulnerable.
Tell that to pensioners.
I welcome the Minister's decision not to reduce the level of social welfare payments.
It is expected that prices will reduce by 4% this year instead of increasing by 2.5%. The Government expects to see reductions of 10% in the cost of electricity and gas. This means we can buy more with the same money than we could a year ago. The removal of the December bonus social welfare payment, as referred to by the previous speaker, is regrettable.
He mentioned a figure of 50%, but it amounts to a reduction in social welfare costs of approximately 1.9%.
It is a week's income for a pensioner.
The previous speaker's warped view is appalling, as he confused the global recession——
The structural deficit.
——with individuals' commitments in terms of their bank borrowings. The latter matter has been addressed by the Minister. Those in question must meet their personal guarantees, PGs, to the banks but the other matters will also be addressed. The Senator has a warped and incorrect view.
Grinch. Why does Senator Callely not abolish Christmas while he is at it?
Allow Senator Callely to continue. Senator McCarthy should not speak to Members across the floor.
I ask the Minister of State to arrange a departmental briefing for the Senator so he could have the correct picture. As I stated, the actual reduction amounts to1.9%. As prices are expected to be lower than last year, social welfare recipients should not be worse off.
We need to do more on cost reduction and on public expenditure review to balance tax increases. As a Government, we are in danger of doing exactly what the economy did, namely, raising our prices and not paying enough attention to our cost base, that is, public expenditure.
The early retirement scheme and benchmarking on public pay announced by the Minister are essential first steps. The process of public sector reform and public expenditure review needs to adopt a structural and strategic approach using approaches such as zero-based budgeting. Zero-based budgeting is a method of budgeting in which all expenses must be justified for each new period. This compares with the present system, which generally takes the previous budget and adjusts it up or down. By contrast, zero-based budgeting starts from a base of zero and every function is analysed for its needs and costs. Budgets are then built around what is needed for the upcoming period, regardless of whether the budget is higher or lower than the previous one.
We also need flexibility in all areas of our public sector regarding job and employee mobility. Decentralisation has not worked and now should be formally scrapped and replaced with a pooled approach to labour in the civil and public sector. Officials would be appointed to a pool instead of a specific Department and would work on issues as they arose, such as for example, asylum and immigration, social welfare claims and agriculture claims processing and so on.
Is that a new policy?
This would be of benefit to both the Civil Service and its customers as the Departments could draw from a pool of labour responding to need. It also should have a positive financial benefit for the Department in respect of overtime, travel costs, etc. and the customer or client should be dealt with more speedily. Consequently, benefit would accrue to both the service provider and its customer.
We need to keep Ireland working and must ensure there is a positive environment for business to establish, grow and expand in national and, more importantly, international markets. I welcome the retention of the corporation tax rate of 12.5% which sends a strong signal to international investors that Ireland is and will continue to be an attractive investment location. The retention of this rate tells international investors that Ireland is an ideal location to grow or develop a business. We must now capitalise on this by sending this message all over the world. I wish to put forward a specific proposal on this point. I propose that we identify the target countries we wish to attract, set targets we want to achieve and pull together a sales and marketing team comprising the best sales and marketing gurus, together with the IDA, Enterprise Ireland and the relevant ambassador, which would report directly to the Tánaiste and Minister for Enterprise, Trade and Employment on progress and success.
The announcement by the Minister that there will be a scheme of tax relief for the acquisition of intangible assets, including intellectual property, is most welcome as a means of supporting the smart economy. We have an opportunity to use tax policy as an important lever to acquire intellectual property and subsequently benefit from the income arising from such. Current reliefs for investment in intangible assets have been criticised as being somewhat unco-ordinated. We now have an opportunity to bring together all such reliefs into a comprehensive package. This initiative also must be accelerated in order that Ireland can develop as a knowledge-based and wealth-driven economy.
I seek a major co-ordinated effort from all our development agencies to sell the message that Ireland is the place to locate or develop highly skilled jobs. This applies equally to inward investment opportunities and to our home-grown firms. Under present circumstances, specific initiatives should be brought forward by the IDA and Enterprise Ireland together with the county enterprise boards. For example, local management in foreign-owned enterprises must be given every support in their efforts to attract and win further investment from their parent company in competition with, in many cases, their sister companies.
I believe there is a need to be more supportive of businesses in the manufacturing and internationally traded services sector. While supports are in place at present, we must provide additional funds and accelerate existing programmes. Funds to be provided should be focused on job creation as well as job retention within the conditions of the EU. The loss of jobs in SR Technics in north Dublin is a tragedy. The Minister yesterday said that each 1,000 jobs lost broadly costs €21 million or €21,000 per person. Therefore, does it not make sound economic sense to spend money on saving jobs?
The enterprise stabilisation fund to be administered by Enterprise Ireland will have a total budget of €100 million over two years, with €50 million being provided in 2009 and a further €50 million to follow in 2010. Approval will be based on business plans submitted to the agency by applicant companies and particular attention will be paid to small and medium-sized enterprises engaged in exporting. I understand that assistance will be available to companies that were not in difficulty on 1 July 2008 but which now may be facing difficulties as a result of the global financial and economic crisis. They must be judged by Enterprise Ireland to have sound, robust and sustainable business models and plans that are financially viable in the medium term and capable of significant growth in a global upturn. In the context of the unemployment level, €50 million in 2009 seems inadequate and I hope the Minister has room to increase this, if necessary. The process also must be carried out on an accelerated basis and I hope that efforts to save the jobs in SR Technics would be able to draw on this fund.
As for what else must to be done, the supplementary budget must do more to provide an incentive to businesses to take on employees. I believe there is a strong and compelling need for a fiscal incentive to employers in manufacturing and international services to increase their employment levels over a target level of, for instance, 1 January 2009. Given that so many are unemployed, I suggest a tax allowance for home improvements to principal private residences should be considered. This would provide an incentive for home owners to invest in their properties using tax registered tradesmen.
I also believe it is time to reconsider the minimum wage legislation and to consider specifically whether it is leading to a grey employment market and whether it acts as a disincentive to employment.
One minute remains to the Senator.
Given the earlier interruptions, I should have a few minutes of injury time.
I was not present at the time and can only abide by the clock.
If it is acting as a disincentive, the minimum rates should be revised downwards or parked until we are in a better position. This should be done in weeks, not months, and would help to get people back in employment. Moreover, commercial rates should be frozen and no new charges or cost increases by local authorities should be permitted.
The good news is that Ireland is a place in which to do business and is in the premier league. The World Bank report, Doing Business 2009, places Ireland in seventh place out of 181 countries, which is unchanged from 2008. We must not be complacent and must make continuing efforts to maintain and improve our rankings in this and similar reports. This is not simply to be able to feel good about a high ranking or an improved position but to be able to convince mobile investment that Ireland is the place in which to locate and to win the jobs that go with such investment decisions. In addition, all the countries with which we compete are reacting to the global crisis, making improvements in their economies and seeking to reduce the burdens on business. Therefore, standing still is not an option. We need a comprehensive programme to improve our competitiveness and reduce any and all regulatory burdens placed on business.
We need a banking system that can provide working capital and development capital to business and consumers. The proposal to move loans into the National Treasury Management Agency under a newly created national asset management agency, NAMA, is an enormous decision and dwarfs in its scale, complexity and risk all other matters raised in the supplementary budget. I have every confidence in the National Treasury Management Agency and its senior management who have shown their professionalism and effectiveness in previous challenges that have been entrusted to them. However, I believe taxpayers would like to see a very simple explanation showing the specific objective being pursued, the options available, including the possibility of a do-nothing option, the cost of such options and the benefits likely to be achieved for each option.
I believe a decision should not be rushed on the basis of the limited information available, the rapidly evolving nature of the economic environment worldwide and the scale of the risk that such a decision entails for this and future generations. We also must ensure our approach is supported and consistent with our EU partners. In the event that it proves necessary to transfer loans to NAMA, there are concerns regarding the valuation methods——
The Senator has greatly exceeded his time.
I will conclude by making an important point. There are concerns in respect of the methods to be used to decide on the value at which such loans would be transferred, the expertise available and required to manage distressed loans and the feasibility of recovering a levy in the event that recoveries are insufficient to discharge the debts.
While I wish to say more, I understand that economic forecasters around the world predict the world economy will revive in 2010, bringing a return to rapid growth in Ireland in 2011. To achieve this, we must take the courageous decisions now, work together over the next two years and we will emerge stronger and more prosperous. We must be positive about our future. This country has benefited from some great political figures who were a source of inspiration, who took the difficult, courageous and correct political decisions when it might have been easier to jump on the populist bandwagon, who set out to achieve and did so. The economic, social, cultural and community progress our country has won and enjoyed is due largely——
The Senator must conclude.
——as a result of their vision, courage and determination. Sadly this is usually not recognised at the time of their efforts but with the passage of time it shines through. This supplementary budget bears vision, courage and determination.
Senator Callely should conclude, he has gone far over time and other Senators are waiting to speak.
I forecast that the courageous measures announced in the supplementary budget will emerge in the passage of time as the correct political decisions taken at this challenging time by this determined Fianna Fáil-led Administration.
We can feel reassured after Senator Callely's presentation. It is no time for arrogance from Members on the Fianna Fáil benches. Fianna Fáil has dragged us into this economic situation and has failed to maintain the international reputation of this country to the extent that Mr. Peter Sutherland had to make an intervention today to speak up for the country, to say that the economic difficulties were capable of being resolved. The Government failed to do that because of its inaction since it came into office. Notwithstanding the fact that it was staring the deterioration straight in the face, it failed to act and recognise or acknowledge the extent of the problem. It failed to act on regulation when systemic failure became apparent. It failed to respond adequately when issues of governance and malpractice were highlighted. All the Minister for Finance could say last December about one of those instances, concerning hiding directors' loans, was that it was disappointing. That inaction and lax approach to managing the economy and the government of this country led to the deterioration in the reputation of this country. Therefore, I welcome the intervention of Mr. Peter Sutherland, who has come to the aid of this country at this difficult time.
The notion of the mini-budget, which was not so mini, is not an original idea of the Government. It was urged by the same Mr. Peter Sutherland, who said the Government had to bite the bullet on the serious economic situation. This was also highlighted by the former Fine Gael Taoiseach, Mr. Garret FitzGerald, who urged the Government to act. Belatedly, the Government decided to take action. As recently as December, the Minister for Finance indicated there would be no early budget in 2009, nor was there a need to raise taxes or do anything other than what had been done with regard to the public finances and the banking system.
We now have the proof of the mess that this Government and successive Fianna Fáil Governments have led us into. It is there in black and white and we will all pay the price for the mismanagement of the economy. It is extraordinary to consider the state of the country, the marvellous success of productivity growth, employment growth and export performance in previous years, the dramatic reduction in national debt and see it all destroyed by this Government. In the first two years of this Government we have economic growth of -10%. We will have a quadrupling of the national debt with what is proposed regarding the national asset management agency. The situation has been created by the Government and, instead of being arrogant about how wonderful the Government is in taking these measures, a little humility is required in acknowledging the extraordinary failures of successive Governments, and the belated actions of this Government in recognising and acknowledging the mistakes made.
The argument advanced is that in good times we enjoy reduced taxation and in bad times we take it on the chin when the Government imposes increased taxes and pension and income levies. It is not as simple as that. If the Government is to manage an economy properly, it should cater for cyclical swings and international factors that may throw an economy off course. It has provided no safeguards for that situation. We know the unsustainability of the budgets of previous years, which the Government was adept at using to secure power. This was done on a false basis.
The balance between taxation and expenditure savings is wrong, as economic commentators have acknowledged. We are attempting to tax our way out of the economic recession. That is the fundamental failure of this Government. There is no emphasis on value for money, nor any addressing of waste in public expenditure. There is no action in creating or retaining jobs. Yesterday in the Dáil, the Taoiseach spoke about public sector reform, as he has spoken many times, but there was no element of this in the budget. There is no economic thinking underpinning this budget, it is purely an accounting exercise. For that reason it will not solve the economic problems we face.
I refer to the banking proposal. Last autumn the Government was bounced into the bank guarantee scheme. It did not consider all the options and lost control of the banking sector because it did not plan to introduce such a scheme. It had intended to ensure restructuring of the banks but, once the guarantee scheme was in place, it was not in a position to ensure any such restructuring. It did not have control over remuneration, governance or illegal practices. Late in the day, it got its act together on these matters. After extensive constructive opposition to these matters, where the matters that needed to be addressed were highlighted, we have the proposal for the national asset management agency and the toxic debts of our banks.
This proposal is ill-thought out and reminds me of the decentralisation proposal of Mr. Charlie McCreevy in a previous budget where he tried to distract from the bad news. This is thrown into the budget to distract from the bad news. Just like the decentralisation scheme, it has not been thought through. There was a grand announcement but no precision on the quantum of what is involved, no outline of how the loans are to be priced or the ultimate risk to the taxpayer. There is a suggestion that banks will be levied to take account of future losses on the loans but there is no advantage to the bank in the first instance if the State is ultimately going to charge the bank for the cost of this exercise. The editorial in theFinancial Times puts it well:
There is no point to a bad bank that absorbs no risk. One could achieve a similar – slightly better – change to banks' risk profiles more easily and without large outlays by forcing them to write down assets to the prices at which the government currently intends to buy them. This would also leave the assets in the hands of people who have strong incentives to manage them effectively.
The Government is also talking about passing legislation to force the banks to participate. The whole proposal is fraught with difficulty. I am not saying this mechanism cannot be made work. Why is it that every initiative taken by the Government is done in a ham-fisted manner? The Government does not do its homework, set out a comprehensive scheme, have the legislation prepared and then present it to the Oireachtas. It has given control to the banks and property developers indebted to the banks. It has shown its hand and put all its cards on the table. Once again it has lost control of the matter.
The Minister of State indicated in his speech — the Minister, Deputy Lenihan, also said it in the Dáil on announcing the budget — that all borrowers will be required to meet their full legal obligations for repayment to the agency. A significant proportion of these loans are non-recourse loans so it is nonsense to suggest that borrowers will be held to account and the full rigours of the law will be applied to force them to uphold their legal obligation.
This proposal has not been thought through and was instead thrown out to distract attention from the negative news in the budget. It has tied the hands of the Government when it comes to dealing with the banks. Developers will simply throw the keys of a project on the table and indicate that the Government can take it over and do what it likes with it as it is not their problem. There is potential for developers and those associated with them to make a second killing at the expense of the taxpayer.
This is all because the Minister for Finance and the Government have not done their homework or prepared a scheme that is comprehensive and which has covered all these issues. The proposals are so vague as to be open to abuse by those with whom the Government is dealing. The ultimate cost of this lack of clarity will be to the taxpayer. The international commentary on this proposal is reflected in the rating agencies' views of Irish banks and has not helped. Moody's assessment has taken account of the Government scheme. With the manner in which the Minister for Finance has gone about this business, he has increased the potential cost to the taxpayer.
I am very pleased to support the supplementary budget, although I take no pleasure in the fact that there were cuts and tax increases. They were entirely necessary. In light of the realities, this Government has gone to extraordinary lengths to ensure fairness and equity and the public has accepted that, first, the Government has gone to great lengths to ensure we can prepare for the future and bring our finances back to order, and, second, that the plan we have for a five-year recovery will be accepted by the international markets.
If anyone had been in solitary confinement for the past seven years in America, Japan or any other state in Europe until today, by 1.30 p.m. he or she would have been well aware that there is an international recession. We are a major trading nation that has achieved much success and we are a very open economy, so naturally we would be hit. When this recession began, our national debt was at 20% of gross national product, GNP, we had put money away in the National Treasury Management Agency and we had one of the lowest — if not the lowest — rates of individual taxation in the OECD. We also had 2 million people at work so we were well placed. Many people ask where the money went but it went on low taxes, investment and putting people to work.
It is surprising to hear people speak of the Government buying €90 billion of bank debt because this is not true. The Government will buy — in a fire sale — the severely marked down value of properties that in any ordinary circumstances would be a multiple of what the Government will pay. We only have to point to the Swedish experience in that regard. In the 1980s that country was obliged to bail out its banks and its Government took similar action. At the end of the term there was a full recompense and a profit for the Government in taking over the assets.
Another misconception was stated clearly by Senator Twomey. He indicated that people on this side, including me, supported the maintenance of fixed rate mortgages in banks. If I, with the best intention in the world, made a fundamental error in a health matter, Senator Twomey would very quickly correct me in a proper manner. How does Senator Twomey believe the banks can pay people 4% or 5% on fixed rate deposits over five and ten years? It is simple; they are matched to fixed rate mortgages. If we do away with fixed rate mortgages, we must also take the fixed rate deposit which people live on. Banks cannot pay out more in interest than they get in. That is simple economics. If there is a fixed rate mortgage, there must be a balance on the other side because rates can fluctuate and affect the income or expenditure of the bank. This is not a difficult process and once it is explained, I am sure it will be accepted as an economic fact that cannot be altered.
I am aware that over recent years we have had considerable success with social partnership and I trust the unions and other social partners, in recognising the work undertaken by the Government to achieve a high level of fairness, will co-operate further in the renewal of the economy. Easter is a particularly appropriate time to speak of renewal.
If Mr. Peter Sutherland stated that we still had very sound fundamentals, I have no reason to doubt him or to believe he went on that programme other than to speak the truth. Our incomeper capita is still one of the highest in the world and even after the necessary budget we still have one of the lowest tax wedges in Europe. The tax rate is still lower than what it was in 2007 for a worker earning €25,000, and a single worker earning €60,000 in 2009 still has a lower tax rate than the average in 2004. We had a balance between spending cuts and allowing the economy to grow. It is a fundamental tenet of any economy that the only one safe job is a competitive job.
We need to restore our international competitiveness. The world economy will recover in 2010 or 2011 and it is expected that the Irish economy will begin to grow again. However, it will take time for such growth to filter through and allow for the creation of real jobs. When I refer to real jobs, I mean competitive jobs. In the interim, it is the responsibility of the Government to try to protect the most vulnerable. The reality is that social welfare and health account for the entire budget at present.
I am sad that our overseas aid is being cut. However, I am conscious that every cent of that aid is borrowed. We are not, therefore, donating our money, it is someone else's. Such money must be paid back. As a result, we must live within our means and according to our budget.
The Government must explain to people the nature of the difficulties with which we are faced so that they fully understand the position. There must be no knee-jerk reaction. The Government must assure people that in buying out the assets of the banks we are operating on the basis of sound economic principles. It must further assure them that these assets will stand to us in the future. There is no better way to inject money into the economy than through the banks. We must protect the structure relating to the banks and there is a price to be paid in that regard. The knee-jerk reaction is that we have bailed out the banks. However, we will obtain a fine premium on the money we have invested in recapitalising the two main banks. In addition, we also have a right to shares in those banks. If further assistance is required, the State will obtain the assets at a complete write-down value and further shares. As a result, we might end up owning the banks.
It is fundamental to our economy that we have a viable banking system. It is also fundamental that we should not remove too much money from that economy. The budget strikes the correct balance in that regard. If there are conclusions to be drawn from what I have said, the first should be that we are not buying assets worth €90 billion. We are instead buying those assets at reduced or fire sale prices.
No one on this side of the House would claim to willingly ask people to maintain fixed rate mortgages. The only reason such mortgages must be maintained is that they are linked, on the opposite side, with fixed rate deposits.
This budget was absolutely necessary. It strikes the right tone in the context of equity and fairness. Difficult decisions have been made. I would like the Christmas bonus for certain social welfare recipients to be restored. I am conscious that there has been a 3% increase in social welfare this year. In light of the 4% decrease in inflation, there has been a net increase of 7%. Notwithstanding the latter, if at all possible and if economic circumstances allow, I ask that the €100 million required to pay the Christmas bonus be found from somewhere. If it is not possible to restore the bonus, I fully accept that certain measures must be taken. This budget strikes the correct balance.
I welcome the Minister of State. I also welcome the opportunity to contribute to the debate on the budget.
Previous speakers referred to Ireland's economy as suffering from an illness. I want to use a fruit analogy and state that it has gone pear shaped. The latter is, of course, an understatement. The Government has introduced a supplementary budget which might be described as being as bitter as a lemon. Ordinary taxpayers will be squeezed in this budget until the pips squeak.
The new measures announced by the Minister for Finance, Deputy Brian Lenihan, this week focus on reducing income, through increasing taxation, and cutting public services. The cuts in income through increases in taxation are stringent. The income and health levies have been doubled, the PRSI ceiling has been increased and restrictions have been introduced in respect of mortgage interest relief. As previous speakers indicated, all of these measures will impact severely on low and middle income earners, particularly those with heavy outgoings relating to mortgage commitments and child care payments.
As the Minister of State may be aware, crèche costs in the private sector in Dublin amount to at least €1,000 per month per child. Therefore, a couple with two pre-school children is currently paying €24,000 per year in child care, which is a whopping sum, before any other bills are met. For parents such as this, the warning that child benefit will be taxed next year and that the early childhood supplement will be abolished represents a double whammy. I wish to be constructive and I welcome the Minister's announcement of free pre-school places for young children. The provision of such places is long overdue. However, it is difficult to see how enough places can possibly be provided for 70,000 children by January next. This announcement seems like a mere concession to parents who have seen such a significant drop in their incomes and who are aware that there is more to come.
The cost of the swingeing reductions in income are particularly bittersweet when we consider the ongoing bail-out being offered to the two main banks. The Minister for Finance remarked in passing that the bad assets of the banks — this is the figure upon which there has been so much emphasis since the budget was announced — will amount to €80 billion to €90 billion on book value. This massive figure is way above the previous official predictions and could be enough to sink the country financially. Figures I have seen indicate that taxpayers will enjoy a 15% discount on the book value of these assets and will only be obliged to take on 85% of the risk. The bulk of this risk will be taken on through the proposed national assets management agency, NAMA, in a gamble of monumental proportions. It is particularly monumental when one considers the context.
The total public expenditure figure for this year is just over €60 billion — €20 billion for public sector pay, €21 billion on social welfare and the remainder on non-pay programmes and public investment. As we are aware, the total revenue take will be substantially below this figure. Predictions are continually being revised and the amount involved has dropped from €40 billion to €37 billion, and to an even lower amount in recent weeks. We have allowed the banks to gamble a colossal amount of money. On the basis of bad assets, they have lent out more than twice the entire annual revenue income for the State this year.
The €80 billion or €90 billion in bad debts to which I refer relate to approximately one fifth of the total debts of the banks. Media reports indicate that one third of the total bad debts relates to property outside the State, namely, apartments in Bulgaria, Dubai and other locations in which Irish people have invested.
They would not be worth much now.
That this was allowed to happen indicates that there has been an appalling failure in regulation. It is clear that there are major questions to be answered with regard to how this came about. The Minister conceded that mistakes were made and that there was a massive over-reliance on construction and property.
Now that we are in this position, how do we move forward? I am glad Members on the Government benches have admitted that we may end up owning the banks. Why should we not move more quickly in that direction? Why should we not nationalise the banks now? Given that we are nationalising the risk through the establishment of NAMA, why should we not also seek to nationalise profit? Senator Norris made a good suggestion with regard to creating one national bank because this would confer on taxpayers a greater possibility of recouping a profit. That is the sort of radical and creative solution we should be considering.
I am grateful to a colleague in the financial sector who provided me with a copy of the World Bank's financial sector strategy and policy group's cross-country study on the use of asset management companies in the resolution of banking crises, which was published in the year 2000. This study, which reaches a number of interesting conclusions, indicates that asset management companies such as the proposed national asset management agency tend to be ineffective at corporate restructuring and are only good at disposing of assets when these are used to meet fairly narrow objectives in the presence of certain factors. Such factors include a defined timespan for the operation of asset management agencies. The most effective studied were located in Spain and the US and these had achieved their objectives where a small amount of bad debts was transferred from relatively small banks. In addition, the agencies in these countries were given a fixed timespan within which to operate. The World Bank identified some of the criteria necessary for the success of these agencies as professional management, political independence, adequate foreclosure and bankruptcy laws, appropriate funding, skilled resources and transparent operations and procedures. I am sure the Minister is aware of the World Bank studies on these structures.
Looking at the criteria which have been identified, I have a number of questions about NAMA which have not been answered and I would be grateful if the Minister would address them. The big question which everyone is asking is how much the agency will pay for the debts. Will it be as much as 85% of their book value, which would still saddle us with a whopping bill of €76 billion? What are the criteria for eligibility of the land and development loans which we are being asked to transfer? Will the number of individual developers to whom these loans have been made be disclosed? There have been disturbing media reports that only a very small number is involved. To whom will the shortfall levy be applied, assuming there is a shortfall as the Government envisages there may be? What is the position of Anglo Irish Bank? There are questions about this in the Government fact sheet on NAMA with which we were all supplied. No answers were supplied. What about the recruitment process for the CEO, chair and board of NAMA and for the new head of financial regulation? Looking at what the World Bank has suggested about asset management companies in banking crises, it is vital to have transparency in the operations and processes of these agencies, in order to inspire public confidence and confidence among international markets and investors. These are some of the questions that need to be answered. NAMA represents the elephant in the room of this budget. That is the focus of much of the comment.
I want to refer to the rest of the budget and to be critical as well as constructive. The budget was described, importantly, as a six-step five-year plan. All of us welcome as absolutely necessary the idea of a long-term plan. It is also important that it constitutes six steps. However, looking at the fine print, most of the detail relates to tax increases and cuts in public spending rather than to the equally important idea of stimulating the economy through job creation, the smart economy, building competitiveness and so on. Other speakers have mentioned many of the cuts proposed. I want to mention in particular the cut which I regard as the most mean minded, the cut in overseas development aid. An additional €100 million is to be cut, but it was mentioned in the small print and not in the Minister's speech on Tuesday. Dóchas and the other Irish aid agencies have rightly reacted very strongly, saying that the new aid cuts, coming on top of the three other cuts already imposed on the aid budget since last June, will have a devastating impact on the world's poorest people. The recent cut means that we have seen in the first four months of 2009 aid spending cut by 21.8% of the projected total for the year. Dóchas has said this will lead to the loss of lives in the developing world. This puts into perspective our own requirements on belt tightening. There will undoubtedly be hardships in Ireland. Although the Minister said he would not reduce welfare payments, he then proceeded to abolish the Christmas bonus, a particularly Scrooge-like gesture, cut rent supplement rates and halve the jobseeker's allowance for those under 20. Undoubtedly this will lead to greater hardship for those vulnerable groups.
There are two other groups whose predicament should, I believe, have been addressed in the budget. What about the provident people — not the profligate bankers whom we are bailing — in Bord na Móna or Waterford Glass who are seeing their pensions disappear, through no fault of their own? Surely there should be measures to protect pensions. Are there any such plans? Young people facing redundancy who have heavy mortgage commitments are another vulnerable group for whom this budget has provided no relief. We need to ensure their homes are protected, if we cannot protect their jobs.
I do not want to sound entirely negative. I recognise, as we all do, the need to make cutbacks. There are welcome measures in this budget. There are creative measures. I welcome the pre-school plan, which is long overdue. The cuts in pay and allowances to Oireachtas Members are very welcome. Some of us, including myself, have already taken a 10% voluntary pay cut. I did that last year. We need to lead on these issues. I also welcome the measures to reduce the public sector pay bill. The career break scheme for civil servants is excellent and should be extended throughout the public service. I am taking an unpaid career break from Trinity College next year. Trinity is one of the public sector employers which offers this incentive.
The Senator has two jobs.
Thirty-three Senators have second jobs.
I have not.
It is important to see an extension of the career break scheme through the public service. The early retirement scheme is also useful. These innovative and welcome measures aside, the budget as a whole appears to be a very crude and blunt attempt to balance books through cutting public spending and raising taxes on incomes of ordinary families. The Minister may have attempted to sweeten the pill through token comments about the need to generate greater competitiveness and create more jobs but there is very little detail or substance in his plans. This is a real shame, a missed opportunity. There are no real ideas or proposals for stimulation of the economy. When have we ever seen an economy that has recovered through cutting spending and raising taxes? We need to see a stimulus plan too. Without that, this is a real lemon of a budget.
This was a very difficult budget. Everybody would agree that it was not the type of budget a Government would want to introduce before elections in June. We have put the country first and the elections second. It was a brave, honest and realistic attempt to get our finances into a corrective state. The Minister has achieved that, by and large. Economists and the international markets also believe we are serious about balancing our finances. One of the key elements of the budget is the measure designed to restore the banking system to a sound footing. Without that, the economy will not work.
While substantial amounts of money will be taken from people's pockets, it is important to put this in the context of the reduction in the cost of living. Oil, gas and electricity prices have gone down, as have mortgage interest rates. Savings per household will be an average of €2,500. However, there is a gap between that saving and the amount which the budget measures will take. Everybody will be worse off by between €20 or €30 per week, on average. That seems to be the gap the budget has caused.
We did not have choices in how to address this situation. Previous speakers have mentioned that Ireland still has one of the lowest tax economies in Europe, even after this budget. It is a very harsh budget; we have not seen anything like it since the 1980s. However, when benchmarking it against the rest of Europe one will find that Ireland is still competitive from a tax point of view. The fact that there are reductions in living standards will hurt but it is a reality check. The Irish people will meet the demands made of them. They are good under pressure. They are now under pressure and this is a national effort. We are going through it together. Everybody, be they at the low, middle or high point on the income spectrum, will be helping out in this regard. A little has been taken even from people who are unemployed.
With regard to unemployment, it has been Fianna Fáil policy over the years to look after the elderly and the less well off and it is regrettable that the Christmas bonus was reduced. However, like other speakers, I hope that between now and then the Government will find the extra €120 million or so that is required to look after people at Christmas. I hope it will do its best in that regard.
A number of issues arose in the debate regarding the banking system. This Government is not bailing out the banks. It is trying to keep a banking system in place. Do not forget it is everybody's banking system. It is made up of people's deposits. It is the person's credit with the bank that keeps the person going. If the system was turned off tomorrow morning, where would we go? If one did not have one's bank card or cheque to get cash, what would one do? I do not believe anybody has seriously examined what the effects would be of the banks going out of business and the money supply being turned off. It would be catastrophic. There are many criticisms about bailing out the bankers. We have changed much of the banking system and a new system will be introduced. Senator Regan said we are not doing that but we are. There will be new governance of the banks. The various boards of the banks have changed and new people are being brought in. That must be done and be seen to be done. The banking system let us down badly both here and internationally. We must take action to correct the mistakes that were made.
With regard to the asset management agency, at least we are talking about assets. In some countries, the banks have no assets. They simply have bits of paper, which could be put in the fire. The paper is worthless. At least we have an asset in land and buildings which it will be possible to quantify to estimate what the cost will be. There are safeguards in the scheme. We must protect the taxpayer. It is important to bear in mind that the banks will lose on this. They will have to write down the losses on these assets. The person who invested in the asset will also lose out substantially. We should be very clear about this. At the end of the process is the taxpayer, who is picking up the tab. It is our job to ensure that when the write down happens, the taxpayer will get value for money.
They are the key issues that must be dealt with when establishing the new asset management agency. If there is a shortfall, we must ensure there will be a levy on the banks. The banks have now been put in a healthy position and they will have to pay whatever shortfall occurs in a levy to the asset management agency, which represents the taxpayer. It is important that people understand that the banks are not being bailed out. Everybody will pay their way, and there will be pain. This is not optional. We must remove some of these bad loans from the books of the banks, although some of them are not bad loans, and allow the banks to go back to what they are good at, which is lending money to people, businesses and multinational companies. The multinationals depend on a good banking system. There are non-performing assets in the banks and they must be dealt with.
There are always casualties in recessionary times. The big casualties so far are the unemployed. We must try to protect them. We who have jobs must do everything we can to protect the unemployed, old age pensioners, children and people who depend on us. I commend this difficult budget. I would like to have seen a more attractive budget given that we must face the public in June. However, we are not here to fight elections but to manage the country's finances and ensure corrective steps are taken. That has been done quite successfully in this budget.
My colleague, Senator McCarthy, dealt with the headline items in the Minister's Budget Statement on Tuesday. I wish to deal specifically with an item in Section II, Part B on page B10 of the budget document, under the heading "Other Departmental Savings". In the case of the Department of Community, Rural and Gaeltacht Affairs it is stated that there will be savings across various areas including supports for the community and voluntary sector and local and community development programmes. I am sure we will hear about many other items under other subheadings in the weeks ahead.
The matter that concerns me is the suspension of the scheme of community support for older people following Tuesday's budget. If this matter has been raised by other Senators, I make no apology for raising it again and I support any comments made previously on it. This scheme is invaluable to older people and their families as it allows the older person to live independently. The scheme provides funds to individuals, through local community and voluntary organisations, to provide personal monitored alarms and items of home security such as door and window locks. Muintir na Tíre, through its community alert, and Age Action Ireland are among the organisations involved in providing this service. I am a member of a community alert group in my area and I have seen the benefits of the scheme.
Between 10,000 and 11,000 older and vulnerable people per annum have benefited from the scheme in recent years. The total cost is only €4 million per annum. That is an average for 2007 and 2008. The average cost per person, based on those figures, was €356. If one takes 21% VAT off that, one is looking at a cost to the Exchequer of €293 per person for the scheme. This scheme must not be suspended. We should not do that to the elderly who have a capacity to live independently if we are prepared to support them with a miserly €356 or €293 net of VAT. All members of the Government should hang their heads in shame if they persist in that suspension.
Some of the devices, especially the panic pendant, provide an alternative to institutionalisation, allowing the elderly or infirm to retain independence and freedom in their homes, secure in the knowledge they have a link to the outside world. My mother wears such a panic pendant and has benefited from it on a number of occasions. It is a great comfort to her and the rest of the family that she has it.
Many lives have been saved as a result of such devices. I have three examples from one operator from one night last week. One contact keyholder was alerted and found a woman lying on the floor. In another case on the same night a woman was found on the floor suffering from cardiac arrest. A third keyholder found a man on the floor who was in distress. It is possible that three lives were saved owing to those devices. Many older people living alone in rural areas are targets for criminals and such devices are essential in the fight against that type of crime. Of all people, the elderly and infirm living alone are the most vulnerable.
It is in everyone's best interests that older people are supported and encouraged to remain self-reliant and actively involved in their own well-being and that of their families, friends and the wider community. Central to that is the provision of supports for older people to stay in their homes for as long as possible.
That quotation is from the programme for Government. How is the suspension consistent with that commitment? Surely it is worth spending €350 on vulnerable elderly citizens?
A total of 21.5% of the cost of the device returns to the Government. Five companies operate in this industry and they employ an average of 35 people each. A further ten smaller companies employ one to two people. That is a total of approximately 200 employees. All these pay income tax and PRSI which is returning to the State. If any of these employees are made redundant they will be a drain on the State rather than a source of revenue through taxation and other means. Furthermore, once the devices are in place the individual clients pay a monitoring fee of between €66 and €120 per annum, and 21.5% of that money goes back to the State. There is a constant return to the State in terms of VAT. The devices are self-financing over a number of years.
I urge the Minister to take a fresh look at this area. It is important to think of elderly citizens and the lives that can be saved through the provision of such supports. This is a scandalous attack on the elderly and their families with little or no savings to be made.
I welcome the Minister of State, Deputy Devins, and wish him well on 21 April. I hope his resignation will not be accepted as he is doing an excellent job. I wish him well in the future.
On the points made by the previous speaker, that matter is being examined by the Minister currently.
I hope so.
I spoke to the Minister this morning and schemes already in place or applications that have been received are being addressed.
Much discussion has arisen from Tuesday's budget, and I do not wish to repeat what has been said by Members on both sides of the House. The debate on the emergency budget has been good. I compliment the Minister for Finance, Deputy Brian Lenihan, on his brave and pragmatic approach. He has grown in stature and worked into his brief as Minister for Finance at a difficult time. I have no doubt there is great confidence in him. He presented a tough budget that has affected every one of us in this House more than most, but we are all prepared to play our role and pay our dues to the State. We are fortunate and honoured to serve in the Oireachtas and it is only right and proper that we make a major contribution, as we all have done in this budget, and willingly.
We heard Peter Sutherland on "Morning Ireland" speak about the prevailing situation. He is a former European Commissioner, Attorney General, chairman of Goldman Sachs and chairman of BP. He gave a realistic and pragmatic assessment of the current situation. He is to be commended on raising his head above the parapet and going against the naysayers and gloom merchants. His contribution was inspirational. The Government information service should circulate his speech to all media outlets throughout the world. Mr. Sutherland would be a great spokesperson for Ireland Inc. and his talents should be utilised.
He should run in the by-election.
If he ran for Fianna Fáil he might be all right.
It is a pity the Government side did not listen to what he had to say before today.
It is a pity Fine Gael did not listen to him today.
Senator Leyden should be allowed to speak without interruption.
To paraphrase him, he said that it is incumbent upon us to recognise our great strengths.
The Government should have put the country first.
Senator Leyden should be allowed to speak without interruption.
Mr. Sutherland said we are not the basket case we have been made out to be, that it is about time we started looking at the positives, and that we have been here before and we can do it again. I suggest to the House and to the Members of the Dáil that we all take a leaf from Mr. Sutherland's positive and constructive standpoint, especially as we face local and European elections, and inject some even-handedness into the debate.
It is all about the elections.
I raised on the Order of Business and with the Minister for Finance and the Taoiseach at a meeting of the Fianna Fáil parliamentary party today the issue of the number of young people with fixed rate mortgages. There are mortgages and there are mortgages. However, the Government must step in when a young couple or single person is effectively locked into a fixed rate mortgage when all about them are falling towards 2.5%.
I bring to the attention of the House the behaviour of a number of operators in the sub-prime mortgage market in this country. I am familiar with one case in particular where Start Mortgages was delighted to advise one customer that it was reducing their rate to 6%. I wish to read to the House how Start Mortgages markets itself. Its website refers to open-minded lending.
At Start Mortgages we offer finance to people who have been unsuccessful in getting a mortgage from the main banks and building societies. Start Mortgages understand that people often face financial ups and downs for reasons outside of their control. We believe that these circumstances should not prevent you from getting a mortgage.
On Monday, 16 February this year, out of the 15 applications made that day to court for repossession, 12 were made by Start Mortgages. On 12 January, two thirds of applications made that day for repossessions were made by Start Mortgages. Understanding my foot.
I suggest, like Mr. Sutherland, that the authorities take a realistic view of cases involving those caught up in the sub-prime market. That might be done through some form of goodwill gesture by the operators or by having lines of constructive communication. I would like to see mortgage companies dealing with repossession orders case by case. I call for an immediate reduction to competitive rates and the introduction of some mechanism or facility whereby those on exorbitant fixed rates can switch to a variable or modified variable rate. In addition, there should be a stay on repossession orders. As we approach Easter and the local and European elections I have no doubt these issues will require much consideration.
The State is now the owner of Anglo Irish Bank. We own 25% of Bank of Ireland and will soon own 25% of AIB. We are now in a position to give people an opportunity to switch from fixed interest rate mortgages to variable rate mortgages. A small fee may be required to pay for the changeover but people should be given the opportunity, especially given that it appears interest rates will remain at a low level for a long time. It would give a tremendous boost to young couples, individuals and families.
As I stated on the Order of Business this morning, the Financial Regulator has not been doing its duty in respect of Start Mortgages, which operates in Dublin and Derry. There should be an investigation into the company's conduct regarding the sub-prime market. I know an individual who is required to make a repayment of €1,100 per month but is unable to do so. The company will not benefit by repossessing houses such as his. It is imperative that companies negotiate, extend the mortgage periods and reduce the interest rates. It is as simple as that.
Many issues arise on foot of the budget. The one that impressed itself on me most was not the reduction in Members' pensions, which has been accepted by everyone, although the individuals affected paid into a scheme, but the withdrawal of the double payment of social welfare benefits at Christmas. This is of great concern. I recall a period during which a 50% bonus was paid at Christmas and a period during which a 75% bonus was paid. I will not raise expectations as this is a very serious budget and I will not make any false promises or commitments but I believe that, as we approach the October budget, we should review all Departments' expenditure to determine where savings can be made to fund the bonus. It is a very welcome bonus for those on lower incomes. I welcome the fact that we have the highest social welfare rates in respect to unemployment benefit and pensions. However, all Departments could examine their budgets before October and determine whether it will be possible to review the decision on the Christmas bonus. I welcomed Senator Hanafin's request in this regard.
I wish to share time with Senator Buttimer.
Is that agreed? Agreed.
I welcome the Minister of State to the House and wish him well in the future. I recognise the quality of his work. I will allow my colleague, Senator Buttimer, to deal with the budgetary imbalance between taxation, spending and job creation and instead concentrate on the portion of the Minister's Budget Statement that dealt with the proposed national asset management agency under the aegis of the National Treasury Management Agency.
Like my colleagues, I welcome the comments this morning of Mr. Peter Sutherland on "Morning Ireland". He was absolutely excellent, as stated on the Order of Business. Dr. Bacon was good also. I agree with the proposal of Senator Buttimer on the Order of Business that this House could perform a very useful and beneficial exercise by having Dr. Bacon present to make a presentation and answer questions. There is much detail to be considered in the establishment of the new agency. We recognise that we will not have all the detail and answers to all our questions until we see the legislation. The Minister for Finance intends to produce it before the summer. The sooner, the better. It will answer our questions.
What loans will be transferred to the asset management agency? I understand there will be a portfolio approach. Which banks' eligible land and development loans will be transferred? I presume it will be the six institutions covered by the Credit Institutions (Financial Support) Scheme Act. With regard to the appropriate price, will loan agreements be honoured in full? What will be the position on the new and old loan agreements following the write-downs? How can performing loans be transferred and on what grounds? We understand from the press conference yesterday that some of the loans will be performing loans or healthy loans. I, therefore, do not agree with the use of the word "toxic". The loans are impaired property loans and do not represent toxic debt. We did not get involved in sub-prime lending such as that in the United States but we need answers to the questions I have asked.
Why would any party pay interest and attempt to service loans if its assets were to be purchased compulsorily by the new agency? We will have to know the answer to this. What is a written down value and how does one assess the risk? Where there is a dispute, as there probably will be in many instances, how will it be resolved? Will there be a proper facility in this regard? We must await the legislation to find out. What will be the position on property arbitrators? I would like to hear the Minister of State's views on this when he is responding.
Will the banks or developers be able to write off future profits against the written-off losses following the transfer? How does one apply the written down value when the Government concedes that the worth of a class of assets is harder to assess in the current constrained economic environment? These are all very tricky areas.
Will Anglo Irish Bank, which has already been nationalised, be regarded as a bad bank, so to speak? Will it operate separately or will it transfer assets to the asset management agency?
With regard to cross-collateralisation, it is suggested that entire portfolios will be required. Will this be a question of pursuing individuals rather than asset classes? This is a key question in respect of the portfolio approach. If there is disagreement, will there be an arbitrator and, if so, who will it be? We will need to see the legislation to know the answer.
The markets have taken the view that the Government has set its face against nationalisation. At the same time, it has conceded and acknowledged that it will end up with a stake amounting to more than 25%. It could end up with 50%. However, the markets are now taking the view that the stake will not be between 50% and 70%. Will the Government put a cap on its stake and ensure it does not exceed 50%? I refer primarily to AIB and Bank of Ireland.
One must determine the value of what remains in the banks and how profitable the good banks will be. I like the part of the proposed model that, like the guard to the knave, imposes the levy to recoup any shortfall that may exist down the line when the national asset management agency has finished its work.
I thank Senator Coghlan. This budget is the greatest sham job in Irish political history and it will indict the Members opposite for all time. CORI states the "budget lacks vision as banks escape and children are targeted". It concludes its analysis of the budget by stating:
Ireland is at a crossroads. It is facing a wide range of challenges. The roots of the current economic crisis lie in policy decisions taken in previous years. It is crucial that similar mistakes are not made again.
The political legacy of Fianna Fáil and the Progressive Democrats has come home to roost. Shame on them. They are penalising the ordinary people who flocked to them in the last seven days of the election campaign and they have thrown away the family silver. It is disingenuous of Senator Boyle to state Fine Gael offered no policy options before the budget because it did. The reality is that Fine Gael's proposals were very much about achieving one third of the required savings through new taxes and two thirds through spending cuts. It is absolutely nauseating when one hears Government Members, particularly Fianna Fáil Members, talking in the House about having put Ireland first. They never did that, they put themselves and their friends first.
This budget has made cuts of €3.75 billion this year and it is to find €4 billion next year and €5 billion the year thereafter. Where will it stop? We have heard nothing from the Members opposite. Life is about jobs, job protection and job creation. This budget contains no job policy whatsoever.
What is to happen to the ordinary citizen who is struggling today to try to make ends meet? I do not refer to fancy holidays, fancy cars and exotic lifestyles but to ordinary daily life. The Government and its policies have led us to where we are today. It blew the boom because it chose the wrong options. If, instead of being arrogant and condescending, it had listened to those of us who know something, but not everything, it might have been better off.
Senator Hanafin, whom I respect greatly, spoke about Holy Week. The dark days of Holy Week are replaced by the joy of the resurrection on Easter Sunday, but sadly there is no light at the end of the tunnel for us as a nation. One can talk about Mr. Peter Sutherland all one wants. The reality is much different to what Peter Sutherland spoke about this morning. Ask the Irish people. Ask those struggling today and who will be down €3,000 or €4,000 per year. These are not big bankers or developers. These are ordinary citizens on middle and low incomes with two kids, child care costs and mortgages. They are forced to pay high property taxes because of the policies of the Government.
In this budget the basic premise that one cannot tax one's way out of a recession was forgotten. The people were asked to let the Government off the lead again. It might be unpalatable but it is the reality. Go to the doors in Cork South-Central, Sligo, Dún Laoghaire and Dublin South and one will hear it from the people, as we heard on "Today with Pat Kenny" yesterday morning. The budget hammered low to middle income earners with tax increases. Entrepreneurship was not rewarded and neither were people who try to do the best they can, which is what we all try to do.
The policy of tax individualisation has returned. A married couple with no children and a single income of €50,000 will lose €1,500 or €3,092 at an income of €75,000 excluding the health and PRSI levies. A married couple with two children and a single income will lose €2,500 at €50,000 or €4,000 at €80,000. Is it equitable that a couple with two children should pay more? We are penalising people.
The fundamental question with regard to this budget is where is the jobs plan. Where is the vision? Where is the renewal? There is none. The two Brians have left us off the lead and they have forgotten about the reality that we must have work and enterprise.
This morning, I received an email from a married man with two children. He stated he had bust a gut for ten years and was screwed by high house prices followed by child care costs and now was taking a massive tax hit through levies on pensions, health and income and was also being affected by changes to the child care supplementary payment and PRSI ceiling, a wage freeze in his work place and a cut in the number of hours his wife works. He stated all of this will mean that he will be down by €50,000. He stated he voted Fianna Fáil all his life but will not do so now.
The decision with regard to the social welfare cuts to the bonus payment is mean and scrooge-like and will save very little. I hope the Minister of State, Deputy Jimmy Devins, who is a decent man, will return to his Cabinet colleagues and state that we can change this. It is penalising the people.
I am delighted to welcome the budget. I also welcome my constituency colleague, the Minister of State, Deputy Jimmy Devins. He has been a Minister of State for a long time but I have never had an opportunity to speak in the House while he was taking the business of the day.
There is no doubt that this is a very difficult budget which is coming at a very difficult time. The Taoiseach, Deputy Brian Cowen, has acknowledged that it was a difficult budget containing difficult measures. However, it would not have been introduced if there was not a need for it. Everybody in the country can be heartened by what Peter Sutherland had to say this morning. I am sorry that Senator Buttimer is leaving the Chamber because——
No comments on people not in the Chamber.
He is still in the Chamber. He was still here when I mentioned him.
Fine Gael shouts and roars at us to stop lecturing it. It should put forward good workable plans. Senator Buttimer criticised one particular cut in the entire budget but he does not give us any solutions. What is Fine Gael's alternative? When somebody of the calibre of Mr. Sutherland states what he did this morning, the Government and the rest of the country will sit up and listen. Senator Regan stated Mr. Sutherland asked for this measure approximately one year ago. I do not know whether this is quite true but I am sure if he stated it he must have done so in some shape or form.
The Government and every citizen realised that whether we call it a mini-budget, a crisis budget or an emergency budget, it had to happen. We are where we are. There is a real lesson in what Mr. Sutherland had to say this morning particularly for Members of the Opposition and for his own party, Fine Gael. He stated he was saddened that it was the diaspora which was doing more for the country than the people in the country. He stated the negative talking has to stop. Yes, there are negatives but there are also positives. Talking ourselves up is not the right thing to do but we must start talking about the positive things of which we should be proud. We should be delighted that we have 2 million people employed in the country. These are things we should be speaking about. We should also be proud that we are one of the countries going through a recession which is still capable of borrowing money and is allowed to do so. There are countries which are not capable of doing so and are not allowed.
Considering the budget as a whole and listening to the Minister for Finance and the Taoiseach, it is about jobs but it is not about jobs tomorrow morning, the following morning, next week or next month. The Taoiseach stated there was no silver bullet. It is about jobs in the longer term. There are no easy solutions. If there were we would not be standing here defending and speaking about a very severe budget.
I asked members of the Cabinet where do the Taoiseach and Minister for Finance go for their advice. The reason I asked was that I hear Fine Gael and the Labour Party, in particular Deputies Enda Kenny and Eamon Gilmore, stating they have produced documents. I do not make light of this because it is the first time we have had this. However, it is also the first time that we had to have it. I commend Fine Gael and the Labour Party for doing this. Obviously, the Government must listen to somebody who has a greater expertise in how to run a country and bring it back to where we need it to be in a couple of years when the global recession is over. I was told the Government seeks advice from those running the national treasury. To me, they must be competent and knowledgeable people who have practice of running the country for us and know the best possible ways to get us out. They are advising the Government and have advised the Government on the budget.
Most people would state that middle to working class people are the most severely hurt by Tuesday's budget. Yesterday we were told that the levies are here to stay and will be incorporated into our pay packets from next December. We had got used to benchmarking and this has stopped. When we return to better times will the levies be reviewed, removed or halved? It would give a little hope to people in the middle income bracket such as nurses, gardaí and teachers.
We are all concerned about people on fixed income social welfare and most of them are in that position through no fault of their own. I can see why removing the Christmas bonus had to be done. We have so many people on social welfare now that it was a choice between cutting the payment or doing away with the Christmas bonus. By not giving the Christmas bonus we do not cut the benefit and a much wider block of people will benefit from it.
I make this suggestion for what it is worth and it probably will not see the light of day. The Government could come up with a scheme by which it would give half the bonus and perhaps from September to December, it would take, say, €5 out of every social welfare benefit so that the recipient would pay 50% and the Government pay the other 50%. I know there are many people who rely on the extra week at Christmas to do whatever they have to do, whether that is the Christmas shopping or food or whatever. These are just two things I ask the Government to consider but I commend the budget. It is not easy.
Everybody has felt the pain, including everybody in this House. I am glad to see we are leading by example and we were the people who were the first mentioned by the Minister when he stood up last Tuesday. I ask the Opposition to come on board. We do not expect them to talk it up but we ask them to realise what a bad state the country is in and things will not get any easier. We can all pull together. In the words of Peter Sutherland this morning, we are not a basket case, as we are being presented in Ireland. We are sending out the wrong message and that was his reason for deliberately writing the piece in the international financial media a few weeks ago where he wrote that Ireland is not the country being perceived outside of these shores. There is an onus on the Opposition parties. They have neither the alternative nor the solution. I ask them to grow up and realise what is going on.
That is a great way to get co-operation.
I did not interrupt any speaker. They throw out the old reliables like the Galway tent and all our friends working in the Anglo Irish Bank and all of these types of things. It is only themselves they are letting down because it is falling on deaf ears now. Eddie Hobbs, and George Lee to a certain extent, Brian Keenan and Joe Durcan, have all said the Government did not have a choice, that if the Government does not take such action with the banks there is no economy. If we do not have banking we do not have an economy and if we do not have an economy we do not exist.
The Senator said that 12 months ago.
I thought the Senator said it was global.
I am glad to have the opportunity to speak in this very important debate. We have had several discussions on budgetary policy, on the economy and on the state of the country in recent months and I hope on each and every one of those occasions I spoke in a positive fashion. I outlined my hope and my desire to see the Government bringing in a financial statement or a budget that would work for the country, put people back to work, create incentives and grow the economy. Sadly, the events of Tuesday, from an economic, political and social perspective, were entirely depressing. I hope my track record of being reasonable in this House will cause my colleagues on the other side to realise that when I say I found the events of Tuesday depressing in every respect, those words are genuine.
We spoke some weeks ago about the vacuum in ideas and in policy. I hoped the vacuum would be filled by the Minister for Finance last Tuesday. Instead, we had a return to the type of economic policy which failed Ireland in the 1970s, the 1980s and which will absolutely fail Ireland again, the policy of high rates of taxation, levies and charges. It has been said that no country has taxed its way out of recession and sadly, I do not believe we will be any different.
I summarise my comments on this budget by saying that at the very core of it there is absence of hope. The Irish people have listened to economic debates for months. Every citizen understands the perilous plight of the economy. Last Tuesday, every person hoped for leadership but above all, for hope. However, there was no hope in the core of the Minister's speech, in his words or in the policy behind his tax and spend proposals. I am very worried that we will be back here in six months time and in 12 months time when the situation has gone from bad to worse, when job losses will have significantly increased, when anger on the streets will be demonstrated by thousands of unemployed people.
I spoke about my fear of marches. Public sector workers and their supporters marched some weeks ago. I have no difficulty with people presenting their point of view but that march was led by and included people who at least had jobs to go back to the following Monday. The next time we see a march in O'Connell Street it will be people without jobs and without hope and with no confidence in the future. That will be a very dangerous and destabilising situation. This is the reason the Minister needed to demonstrate hope, courage and conviction and to announce a plan in which people could have confidence. No fair-minded person, including the Members on the Government side, can believe that what happened on Tuesday will turn the ship of state around from its present perilous journey. As expected to some degree, it will result in every taxpayer paying more tax and in every Government programme being pared. Sadly, the fundamental problems of the economy were not addressed. We have lost competitiveness.
The Minister was brave enough and man enough to concede some weeks ago that his decision to increase the rate of VAT was wrong. We presumed, at a minimum, that he would reverse what he conceded was a wrong decision but he did not reverse it. We are shutting down retail Ireland. Small shops, big shops, corner shops, high street shops, literally have no future. There was a possibility on Tuesday to reverse out of that route to disaster and despair but we did not do so. I find this quite amazing.
What has been done to make Irish industry competitive again? What has been done about energy charges, fixed charges, levies, rates, local authority water charges? Absolutely nothing. We are simply reverting to the formula used — admittedly by virtually every political party in this State — from the late 1970s to the late 1980s, of trying to tax our way out of a problem. It did not work then and it will not work now. It will put people out of work rather than creating jobs. This is an absolute disaster for this country.
I look across my constituency where on a daily basis people are losing jobs. I note the industry physically closest to my constituency, agriculture, where as late as yesterday, 70 or 80 more workers in a meat plant in Midleton lost their jobs with sadly another 70 or 80 to follow perhaps. I looked through the Budget Statement to see what it planned to do for agriculture, whether it would generate any confidence among rural people, whether it would facilitate rural people to invest in agriculture but the answer is "No". I look at tourism across the county of Cork, east Cork in particular. I ask will this budget attract any additional tourists into Ireland or generate additional tourist activity across the country and again the answer is "No". I appreciate the problems I highlight are not easily resolved and I appreciate there is only so much money available. However, the elephant in the room last Tuesday is the elephant that was in the room last month or last year or the year before, namely, the cost of running the country, the cost of the public sector.
Fine Gael was criticised by some as being on a campaign against the public sector but nothing could be further from the truth. I assure the Minister of State that the party which founded this State, my party, and the party which founded the Civil Service and the public sector, my party, will always have the highest regard for the public sector. We also hold the taxpayer, who funds the public sector, in high esteem and we wish to ensure that value for money is received. The most interesting paragraph in the Minister's speech on Tuesday last was his reference to the question of where the money goes, which we should all take on board. If I am correct, the figures he provided were €21 billion for social welfare, €20 billion on the public sector, €15 billion on day-to-day services and €7 billion for investment this year. The equation simply cannot continue. It cannot endure that €41 billion out of somewhat more than €60 billion is spent on the public sector and social welfare payments, with only €22 billion left over for other projects including running Ireland Limited. Within that equation lies both the problem and the solution. The challenge for us is to be brave enough to face up to the solutions required.
I wish we could believe as the late, former Taoiseach, Mr. Charles Haughey, believed in the 1970s that we could simply employ more and more people in the public service and somehow there would be a magic solution. To some extent Fine Gael in the 1980s continued to believe in that policy. As several courageous politicians, including the father of Senator O'Malley, proscribed and recognised, that formula did not work then, could not work now and will not work in future. We must seriously examine value for money in the public sector and ensure every euro spent, which is not the Government's but taxpayers' money, produces value for money
To an extent, I am pleased the partnership talks have resumed, because it will bring back to the table the groups and organisations which have been at the very core of policymaking decisions in the past 20 years, some of which were good and some of which were bad. I get somewhat annoyed when I hear certain union leaders and the leaders of other groups in society state categorically they are not part of the problem and so should not be part of the solution. All the groups which sat around the partnership table and talks, which excluded the vast majority of Members of the Oireachtas, were those responsible for the decisions taken in the past 15 to 20 years. I hope they will be a part of the solution and will face up to the brutal reality of the erroneous policies implemented and will now show a willingness to reverse course.
I express my genuine, deep despondency at this budget, which will remove spending from the economy, cost jobs and kill hope. I hope I am wrong, but I fear I will not be in this regard.
I am pleased Peter Sutherland is receiving such attention in the House today. Everyone on both sides of the Houses seems to be referring to him. He is a man of whom we can all be proud. His reputation throughout the world in the area of business is something from which we can all take a sense of pride. However, having listened to the contributions of many Opposition Members, it is disappointing that while they lauded him, they did not listen to his words at all. It is important we continue to express ourselves as a confident nation. Speaker after speaker commenting on the remarks of Mr. Sutherland on the radio this morning did exactly the opposite. For example, Senator Bradford spoke of a total absence of hope. The message from Peter Sutherland this morning was one of hope. I wonder if the speakers really heard his comments. There are many very positive statistics, and as Mr. Sutherland stated, the country is far from a basket case. We must dwell on that, because regardless of the petty politics which is a part of the political game, the real issue is the future of the country. It is only by speaking confidently together on the matter and by expressing confidence in our future that the rest of the world will believe us. If we do not believe in our future, how can we ask the rest of the world, from some of whom we must borrow money, to have confidence in us? If our political leadership, especially in the Opposition, refuses——
The Senator should first talk to her side.
——to acknowledge the good work being done——
They continue to get it wrong.
I agree with the speakers who stated this was something of an awful budget, but it was necessarily awful. It is awful for all the people who must pay additional taxes. However, a choice was made and the trouble with governance is that choices must be made. We have a major budget deficit problem. If it were left to the Opposition that would spiral out of control, but where would that leave the country and the next generation? That is why workers today must make sacrifices and they have been asked to do so in the short term such that there will be a brighter future. I listened closely to the remarks of Peter Sutherland and he described the position in this way. He suggested there is a small, immediate public deficit crisis and we must restore order to the public finances. That is exactly what the Government has tried to do.
It was a very difficult budget to frame and I applaud the Minister for his courage, because it is only in difficult times that one can do what is absolutely necessary in terms of reforming the tax regime. He signalled that he will possibly introduce a property tax. As we are all aware, it is essentially a fairer tax. To a certain extent, our system of very high stamp duty has stifled the activity in property transactions, which is to no one's benefit. Signalling the introduction of a property tax is fair. I have no doubt we will be lacerated. I am watching Senator Twomey and his attitude is disgraceful.
It is good to be truthful.
This is not a game.
The Senator requested my opinion.
Decisions are made and the attitude of the Opposition is most unfortunate.
What is my attitude?
The Senator's attitude is that the Opposition will kill us, but if it is important——
The Senator made a comment about me in the House and stated they would be lacerated because of the property tax and I agree with her. She will be lacerated. I did not say I would lacerate her myself, but I agree with what she said. When Fianna Fáil got rid of the property tax in 1977 it was a political stunt.
I could tell from the Senator's expression——
Senator Twomey agrees with Senator O'Malley.
The Government will pay the price for that political stunt.
The attitude of another party is unfortunate when the country is faced with very difficult decisions which must be made to deal with a major crisis in terms of the public finances. Fine Gael does not have the courage to introduce a property tax. If the Government introduces such a tax in the next budget I believe the courage to bring about a fairer tax system would be applauded.
Who went bust, though?
I am certain the Opposition has already started and it would be no surprise that we would be lacerated by the Opposition if it was introduced.
It was the Senator's budget, not mine.
Senators mentioned the national asset management agency, NAMA, and its bail out of the banks, but such comments are doing the country no good in terms of international finance. This morning, I took the opportunity to read the international financial newspapers, theFinancial Times in particular. People will be surprised to learn that RTE’s economics correspondent, a man who is known to be deeply gloomy, described the budget as a brave and gutsy move by the Government. It is referred to in this manner in an editorial in today’s Financial Times. This is what we must remember. The international press is applauding the Minister for being the first to frame a solution to the banking crisis.
The Senator said that about the bank guarantee scheme last September as well.
I am surprised that everyone believes the cost to the taxpayer will definitely be €90 billion, but it is a long-term solution. It is important to remember that doing nothing was not an option.
Nothing would assure a collapse more than sitting tight and letting everything occur around us. Doing nothing is not an option.
In government, one must make decisions.
Good. At long last.
I would like to believe we have the Opposition's support, as it would certainly have taken the same decision. If it finds itself being forced to govern, it will quickly discover that every Government decision getting kicked will never——
No, that is Fianna Fáil.
Senator Twomey has made a career out of kicking the Government at this stage.
The Senator has the wrong party.
Please, Senator O'Malley without interruption.
The budget's objective is to achieve a balance between a reduction in costs and an increase in revenue. Given the growth in the budget deficit, the budget was necessary. Senator after Senator referred to how much of a pity it was that more money was not being spent on this or that, but we must stop the deficit from growing. The Minister tried to strike a delicate balance in his budget, which I welcome as part of an ongoing process. As we curtail public expenditure, I look forward to the further stimulus of job creation.
Everyone, particularly those of us in politics, must work together and build confidence in our country among the Irish and the international community. Whether one is in government or opposition, one has a responsibility to speak up for our country and to stop others from talking it down. It is how we will get out of this cycle.
I welcome the opportunity to say a few words on this important issue. I remind Senator O'Malley that Fine Gael proposed and debated a stimulus package in the House last week, but her side of the House voted against it. Deputies Bruton and Burton, the Fine Gael and Labour Party spokespersons, respectively, have been treated shabbily by the Government, which has not listened to or taken on board any of their ideas. It asked for their ideas for consideration and cast them aside. The Government seeks co-operation, but it accepts none.
Senator Feeney mentioned Mr. Peter Sutherland. When this side of the House proposed him as a Commissioner, our idea was rejected by the far side. I note that Government Senators do not discuss any other Commissioners or what they have said in recent months about the financial situation. Senator Feeney also stated that the expert group from which the Government was receiving advice was the National Treasury Management Agency, NTMA. Only a few months ago, however, the Minister for Finance stated he was making his decisions on the expert advice of the regulator and the Governor of the Central Bank. Last December, these experts told the Minister he would have €5 billion more than he has today. Who does one believe?
Given much of what the Minister has done, believing him is difficult. His banking scheme received the full co-operation and support of this side of the House. In both Houses, he stated no money would need to be invested in the banks. Later in this House, he stated he would not nationalise Anglo Irish Bank. He told this to the public and the bank's shareholders, but he nationalised it two weeks later. What are we to believe? The public finds believing anything to be difficult.
In recent years, this country sold its silverware. We got more than £5 billion for Eircom and we sold the TSB and ACC banks and Aer Lingus, but all of the money has gone down the Swanee.
What about pensions and the national debt? What of Mr. Peter Sutherland?
Much of the money invested in the National Pensions Reserve Fund came from the taxes paid by hard-pressed taxpayers who, after taking out large mortgages, paid stamp duty, VAT and so forth. The then Minister for Finance, Commissioner Charlie McCreevy, invested €1 billion in the fund, but the majority since has come from people who borrowed to buy expensive houses and apartments. Coupled with this, the wage inflation of recent years, low interest rates and a single currency have led to our boom and bust situation.
The Government will not put its hands up and admit to forgetting about the tourism industry, which is in a shambles. It has also forgotten about manufacturing. We have lost our glass-making, linen-making and other cottage industries and there is nothing to replace them. The budget has done nothing to rectify that situation.
Small businesses are dying daily, but the Government has done nothing in the budget to incentivise them, to promote job creation or to provide confidence. What confidence has the Government given to the business sector, including bars, restaurants, hairdressers, book shops and fashion shops? These people support local authorities through rates and water and refuse charges, but they are being socked left, right and centre. There is nothing for them.
Regarding the funding of local authorities, it has been brought to my attention that the Government recently announced grants to local authorities for the provision of roads and so forth. However, it sent them a circular to the effect that they should not spend the funding. It will now take back 30% of the proposed funding for local authorities. This will have a detrimental effect on local authorities and will lead to a reduction in the provision of road maintenance, public lighting, footpaths and sewerage and water facilities. It will badly affect all the services provided by local authorities and the Minister of State should confirm whether the funding and grants that were proposed to local authorities in recent weeks now have been cut by 30%. This constitutes more disaster. It upsets people when such measures are done covertly and without their knowledge. They cannot believe anyone, which is the reason that all politicians are branded as being the same. People believe they do not tell the truth and do not inform them as to what is happening.
I refer to the new national asset management company that is to be established. In his speech to this House, the Minister of State said:
The agency will have an independent commercial remit and will be expected to protect the taxpayers' investment. The Minister made it clear that all borrowers will be required to meet their full . . . obligations for repayment to the agency.
I have heard Government Members claim this does not constitute a bail out of banks. However, the Minister of State clearly stated that the obligations of the borrowers will be to the agency. This means that on the establishment of the agency and after its purchase of the bad debts from the banks, the latter then will be absolved from all aspects of such bad loans. Thereafter, they will be in the agency's hands and it will be responsible for pursuing those who borrowed in the first instance. What role will the banks then have? The Minister of State should explain to Members whether banks will have any role in this regard. They will receive 60% or 80% of the value of such debt on its purchase by the agency and thereafter they will be finished with it and will be out of the loop. I have been informed that some of the deals that were done are so complicated that they never will be untangled. The banks will hand over such deals to the agency, which will take them lock, stock and barrel and will attempt to untangle the legal webs that have been set up by various companies and experts over the past ten years. This matter should be explained to the public before the national asset management agency is put in place.
I refer to those who seek new mortgages. What criteria have been laid down by banks for those who wish to borrow? My bank, National Irish Bank, uses a measure of approximately 2.5 times an applicant's wages. However, as a great gap now has emerged between gross and net income, against what will an applicant be assessed? Will the criteria be based on gross or net income because they differ greatly? This will have an enormous effect on the price of property and if the criteria are based on net income, house prices will decline further.
I seek responses to my questions on local authorities, the reduction by 30% of grants and on asset management issues. My final question pertains to the numerous hard-pressed business people who in these difficult times are late in their payments of VAT, PAYE and PRSI. Will the penalties that have been imposed in recent years still be in place or will there be a form of reprieve for such people? I refer in particular to those who will make a genuine effort to make their payments, albeit one, two or three weeks late in some cases.
I again welcome to the House the Minister of State, Deputy Barry Andrews. Normally I enjoy Senator Burke's contributions but today I was surprised by his list of negative contributions on this budget. While it is something in his personality that I had not spotted previously, he must play the game and I take it in the context in which it was delivered today.
I will not say much because it all has been stated repeatedly but I considered this budget to be a fair attempt to try to bring our finances back under control. Its purpose was to try to restore competition, to protect jobs and restore confidence and to restore our international reputation, which was beginning to come into question abroad. This is our biggest opportunity to try to bring stability to the economy and the Government is doing that. I was apprehensive before the budget was announced that it might not connect with the public in the manner in which it did. I was out and about last night and was greatly surprised because the feedback I received was highly constructive. I had been afraid to appear on doorsteps, although I was prepared to visit every door. However, to my pleasant surprise, people welcomed the Government's decisions and that it had taken the lead, has a strategy and that a five-year plan has been announced. The entire purpose of the exercise was to be fair and the Government was fair. One will pay according to one's means, which is a good way to go about it.
Second, jobs and confidence must be brought into the economy and this now will happen. People wanted the Government to take a lead. They understand what we must do. We were running low in terms of our international thinking. There are huge questions to answer about the entire banking system. The banks behaved extremely badly. They forgot their role and forgot how to do a deal with the ordinary man in the street. It is time to remind them that their role is to look after the ordinary man and to open up their credit facilities and home loans. They were not doing that but went into big-buck profiteering.
It is a major disappointment to us as a nation that we allowed the banks to do that. This is the reason I come down heavily on the Financial Regulator and the manner in which it took its eye off the ball and did not do its business as it should. Its purpose is to monitor how the banks work and to monitor the economy as it was beginning to bubble but it did not do its job properly. I am glad to note the budget announcement that new regulations and a new structure are to be introduced that will combine the Central Bank and the Financial Regulator in a new role that will examine and monitor all the activities of the financial sector.
I refer to the national asset management agency, which will take over debts from the banks and will allow them to open up and to stop suggesting that they will handle this situation. That day is over for the banks as the new agency will deal with the debts. This will free the banks to get on with their purpose, which is to give out loans and mortgages and to reopen credit activities for people. This would be the first step towards protecting jobs, which are at stake in this regard.
I will turn to another aspect of the budget, namely, the new scheme to be introduced by the Tánaiste and Minister for Enterprise, Trade and Employment on developing new courses in respect of back to work training schemes. Moreover, new types of course will be introduced to try to enhance new methods. The old skills no longer will be sufficient and new ways and new types of jobs must be considered. Working nine to five may no longer take place and a different structure may emerge. The entire skills programme must change and I welcome the inclusion of this scheme in the new concept introduced by the Tánaiste as part of this budget.
This was a fair budget and the NAMA concept is good. It will help to loosen the financial sector and its purpose is to protect and open up jobs. I also welcome the focus on child benefit and in particular I am very keen on the pre-school education proposal. It is a great idea and I look forward to it. When I was teaching, I would have welcomed its introduction to enable three year old children to attend the local crèche. This is a great new concept, one I have always pushed. Parents will be able to afford to get their children in at that age, even if they have not been able to afford it up to now. It is a wonderful idea that will open up jobs in that area. I compliment our education system at that level.
At second level we should make more of certain programmes. Post-leaving certificate courses are great because they tap into the skills that are needed. I have seen these courses work and I was part of it. These were a first class concept in bridging the gap between education and work to see what jobs were out there and reflecting this in the courses and expertise of our educational system. This allowed a new type of upskilling that was necessary. I wish to see post leaving certificate courses integrated into back to work schemes. I did not see a reference to this in the speech of the Minister of State but maybe there is because I did not read it fully. We should combine second level education at the vocational level with FÁS to see how best we can maximise and not duplicate. That is where we might have trouble because, up to now, there was competition between the FÁS and vocational systems to decide which was better. They should work hand in hand, so as not to waste money. There was much money wasted and new schemes should be facilitated to maximise the skills that are necessary and relevant for today's thinking.
The banking system is the big issue. We must restore the financial system, which has been tarnished. The national asset management agency is the way forward. Much work must be done on it but the public understands that this is the only way that will work for us. It will not happen overnight but people want a plan and a lead taken. Ordinary people want to see that their deposits are protected so that if they deposit money for two years, the money will be there in two years. There are many questions being asked when one goes into banks. If we do so, we will restore confidence on the ground. The ordinary person has lost that confidence and that is the person we are here to protect. The ordinary person needs jobs protected and the ordinary family needs to be protected.
The budget introduced on Tuesday will do this. It is fair and straightforward. Nothing will happen overnight. We have had serious problems but we must put it right. As a nation and as politicians we must work together. We should not pick holes in everything that is being done but try to find a way forward so that we, as a country, as parties and as politicians work together so we can all hold our heads high.
I am not splitting hairs and knocking the next person who comes in. I will not do so because I want us to work together. As a politician I am here for the betterment of our country. I want to see us working together. We have a structure. The Opposition should try to say something positive and not pick holes in it and say the Government is making a hames of it but the Opposition would do better if elected. That is what the Opposition is saying, that they are the mighty people and the Government Senators are all wrong. I am never 100% right, no more than any of us are, but I want to try and I am not a negative person. For God's sake, let us try to be constructive in what we do as politicians. This is a smashing formula. Let us go together on this.
I know we are in Easter week but I get the sense that Government Senators have taken it a step too far because some of them are acting the role of Pontius Pilate, trying to convince us they had no hand, act or part in the economic downturn and the direction that they, as representatives of the majority party in Government, have taken this country. They have left us in hock to the banks and developers for billions upon billions of euro.
I would like to be positive and examine the good aspects. I can find one, which my party proposed many years ago in a pre-budget submission that focused solely on education. I refer to preschool education, which is to be welcomed. I am fearful that the announcement, made two days ago, will come back to haunt the Government. It could be similar to another announcement made on a budget day, that of decentralisation. I know of the difficulties of trying to get my two children under five years of age into the crèche in my home area. The facilities do not exist in most of the country, neither in the private nor community sector. I hope there is a plan by 1 January for every child between the age of three years and three months and four years and six months so that all can avail of the preschool facility within a short distance of home.
I listened to the diatribe from Government Members telling us that this was the only option. Ministers told us the same thing, giving us two harsh options and asking which one we wanted to take. They tell us we are devoid of ideas and that they had to do this. The reality is different. When the Minister for Finance and the Taoiseach asked parties to step up to the plate and provide solutions to the gap in the public finances, Sinn Féin stepped up to that plate.
Two days ago, the Government introduced cuts, savings and additional taxes of €3.3 billion. Sinn Féin identified nearly the same sum of savings and additional revenue, over €3 billion, in its pre-budget submission. The difference between the Sinn Féin and the Government documents is that Sinn Féin does not attack the weakest and most vulnerable in society. It does not take €30 million out of building schools, when 1,400 schools or one out of four, are on the school building waiting list. It does not take €300 million out of building roads or public transport. It does not take €200 million out of social housing for the 40,000 families on the housing list. It does not get rid of the early child care subvention, the €1,000 that many families depend on to help pay crèche fees for their children of one, two and three years of age. It does not attack the most vulnerable in society by cancelling Christmas, getting rid of the Christmas bonus and halving the social welfare payments of 18 and 19 year olds. When the Minister says there were no options, that Minister is telling mistruths. There were other options and Sinn Féin provided them.
This Government did not want to take that path because no option is easy and every option will make a certain section of society uncomfortable. The Sinn Féin options ensured fairness, that those over €100,000 would pay a tax rate of 48%, that all discretionary reliefs would be granted at the standard rate rather than the higher rate and that savings would be made in the public services and other areas. Those have been shown to the Government but the Government did not want to annoy those with whom it was in bed. They have had a love affair with the bankers, speculators and greedy developers. They are the people who got us into this position in the first place.
I will not pretend that this is good for the country because it is not. It is clear the Government is devoid of views and strategy to bring us out of the current mess it has led us into. We need to get out of this through a job creation strategy and the Government has not given one iota of consideration to job creation. In the past two weeks Sinn Féin has launched a €2 billion job creation strategy. We have costed and sourced the required funding, with part of it being a €300 million job retention fund where subsidies would be given to employers who could assure that there was a market for their product but are suffering difficult times. A subvention of up to 20% of labour costs of employers would be given in this respect, which makes sense.
It makes sense to give an employer €100, €150 or up to €200 to keep a person in work so that a person can pay PAYE and spend money in shops, restaurants and bars. The person would not have to rely on the State for social welfare payments. It is another good idea dismissed by the Government.
This budget has attacked many people. I listened to the Minister for Finance last night on Newstalk radio when he was pushed on the issue of mortgage interest relief. There has been a 100% cut for everybody who has a mortgage over seven years and the Minister stated that tough decisions had to be made. When he was asked why he did not cut the relief for landlords, some of which have ten, 20, 50 or hundreds of houses in this city and others, he said that he cut the relief by 25%. He was asked why he did not make the same cut of 100% as experienced by the ordinary Joe Soap and he said the landlords had mortgages too which they could default on.
That shows very clearly where the loyalties of the Government, particularly the Minister for Finance, lie. They are with the landlords who were in bed with the bankers and the property developers who made millions of euro during the boom. He will cut their mortgage interest relief by 25% but people who are now on social welfare payments experience a 100% cut, which is disgusting, unfair and harsh. It is unreal that the Government has attacked people in that way.
I listened to the Minister for Social and Family Affairs on another national radio station when she was asked why Ministers' salaries and those of highly paid officials within the public service were not cut — some of the CEOs of State bodies earn €500,000 annually — and she indicated that we needed to carry out studies to compare such salaries with those in other EU countries to see if other prime ministers have cleaning staff in their houses or other perks.
When it came to the 18 and 19 year olds who through no fault of their own have found themselves unemployed, the Government carried out no such study. They took out a mallet and implemented cuts of 50%, reducing the payment to €100 from €200. That is unfair. There are many other areas like this.
I spoke in this House about the danger and fear that our elderly feel in communities because of increased levels of crimes such as burglary. We now hear that, as of Tuesday, community supports for the elderly will be suspended and funding is no longer available to the dozens of community groups who were out there on a voluntary basis, ensuring our elderly people had access to this fund to provide greater security, personal alarms and other matters of personal security. That is definitely unfair.
We have heard it all before with regard to roads. The Government told us the national development plan will be protected and we need to get people into work by building infrastructure and roads and preparing to get out of this economic recession. What did the Government do last Tuesday? Of the €604 million allocated to local and regional roads through local authorities earlier last year, it cut 25% of funding. The Minister met the Department yesterday and will instruct local authorities to hand back 25% of the announced funding.
This is another example that the Government does not know whether it is coming or going. Last October there was an announcement relating to the schools building programme. In February an additional €75 million was allocated to the schools building programme but in April €30 million was taken from it. It is clear the Government has no strategy and is making it up as it goes along.
This is a damning indictment of the Government. There is a bitter pill to swallow for all of us in the budget, but the pill should have been directed in the right way. There were and still are other options. The Government indicated it will increase taxation by €2.5 billion in the budget at the end of the year and by an additional €2.1 billion in the following year. My sincere wish is that those in government will not be in control of the Department of Finance at that time, as their record has been appalling. If Fianna Fáil holds on to the reins of power despite the lack of public confidence, I ask the party to revisit the documents we have presented, with other sensible proposals that would ensure job creation and the protection of public sector services. They would ensure that the most vulnerable in society would be protected.
I started off by saying that the role of Pontius Pilate has been played. Easter is a very important time for many of us as we commemorate the leaders of the 1916 Rising. As I was coming here today I wondered what the educator, Pádraig Pearse, would have thought of the way the Government has left thousands of people in prefabs and dilapidated buildings and cut their school building fund as it bails out banks and greedy developers. How would James Connolly, the champion of the worker, have felt as the Government has taxed the poorest and most vulnerable?
He is coming in here to tell us——
I ask the Senator to conclude.
Their attitude would be similar to that of the general population.
He is patronising us. Since when did the Senator have that role?
Ba mhaith liom fáilte a chur roimh an tAire Stáit go dtí an Teach. Tá sé deacair, ar bhealach, labhairt faoin gcáinaisnéis seo. Bhí am ann nuair a bhféadadh daoine breathnú ar cibé rud a bhí sa cháinaisnéis agus iad a mholadh nó a cháineadh de réir mar a d'fheileadh. Ar an ócáid áirithe seo áfach, glacann muid uilig go raibh cinntí deacra le déanamh ag an Rialtas. Cé go bhfuil cuid againn an-bhuartha faoi gnéithe den gcáinaisnéis seo, caithfimid a admháil — tá seo á rá agam le fada sa Seanad — go bhfuil gá glacadh le rudaí, fiú rudaí go bhfuil éagóir ag baint leo i dtaobh pointe áirithe agus go mbeidh gá le cúiteamh amach anseo, mar shampla, an pension levy. Tá gnéithe de sin nach bhfuil sásúil, ach táim sásta go bhfuil an tAire chun breathnú air in athuair chun athruithe áirithe a dhéanamh.
Cé go mbeidh cásanna ina mbeidh daoine thíos leis an pension levy, ní am é seo chun dul amach ar stailc. Tá sé an-tábhachtach ar fad go mbeidh aontacht sa tír, fiú muna bhfuil muid sásta le gnéithe áirithe den gcáinaisnéis. Nílim sásta le gnéithe áirithe de, ach glacaim leis go mbeidh cáinaisnéis eile ann agus go mbeidh sé níos measa fós. Sa cháinaisnéis sin beidh cánacha nua á ngearradh. Tá, ar ndóigh, cáin charbóin le teacht agus beidh cánacha nua á ngearradh maidir le tithíocht.
Táim buartha freisin faoi chéard atá i gceist ag an Rialtas a dhéanamh i dtaobh an liúntas leanaí, sé sin, go mbeidh scrúdú amach anseo a bheidh bunaithe ar ioncam na ndaoine. Ghlac mise leis i gcónaí gur prionsabal maith a bhí ann, go mbeadh an liúntas leanaí ar fáil do ghach duine. Bíodh an ráta cánach ard, más gá, i gcás daoine áirithe, ach ba chóir don Rialtas maoinú a thabhairt, fiú do scoileanna príobháideacha, mar is buncheart é go mbeadh oideachas ar fáil agus go n-íocfadh an Rialtas as muinteoirí na tíre. Tá an rud céanna fíor i gcás an liúntas leanaí. Táimse buartha go bhfuil sé i gceist ag an Rialtas, an chéad uair eile athrú a dhéanamh sa chóras sin. Glacaim leis, áfach, go bhfuil cinntí deacra le déanamh agus sin an comhthéacs ina bhfuil an méid atá le rá agam, á rá agam.
Like many others, I am extremely concerned with regard to certain aspects of this budget. As stated on a number of previous occasions, however, Members on all sides are in the special and unusual situation whereby they must grit their teeth. There are aspects of the pension levy which I find troubling and I am glad the Minister proposes to make certain changes to it. Those changes will ameliorate some of the difficulties it has caused. However, there will be a need for a reckoning in the future and some of the injustices to which these emergency measures give rise will be properly addressed.
The Minister for Health and Children, Deputy Harney, once famously stated that one's worst day in government is better than one's best day in opposition. When I see the stressed look on certain Members' faces as they walk through the corridors of the Houses, I wonder whether that principle still holds. I sympathise with the Government with regard to the fact that it must make unpopular choices. I accept that dealing with the issues that have arisen is not simple. Nonetheless it is the job of every Member of the Oireachtas to try to take an honest look at what is proposed in the budget and to comment thereon. As already stated, there are aspects of this budget which I find troubling.
I wish to begin by making a point that may seem slightly extraneous. I hope to vote "Yes" in the next referendum on the Lisbon treaty provided that there is real substance to the guarantees that will be on offer, particularly those relating to social and ethical issues. However, I took exception to the incorporation by the Minister for Finance of a reference to the Lisbon treaty in his budget speech when he said that Ireland had been damaged by its rejection of that treaty. The decision to include this reference was unwise. What the Minister said does not make sense from an economic point of view. The current financial crisis began in 2006, came to light in 2007 and only began to affect Ireland in 2008. We have all been informed as to the impact of the international dimension — the crisis with sub-prime lending, etc. — on events in this country. It is obvious, therefore, that there is no causal link between the result of the referendum on the Lisbon treaty and the recession.
I make this point out of a genuine desire to be fair-minded with regard to this matter. It was wrong of the Minister to target the 53% of the electorate that rejected the treaty. His point had no intellectual credibility. If he was sincere in incorporating the Lisbon treaty as part of the current crisis, then I do not believe he has a proper intellectual grasp of what has been happening on the economic front. The point he made would have been better left unsaid. The causes of the current crisis should not be communicated to the people in that way. A budget speech is extremely important and should not be used for other political purposes.
Professor Ray Kinsella of UCD recently wrote inThe Irish Times that Ireland needed a budget written not in the Department of Finance but rather in factories and on farms, in small businesses clinging to viability and in family homes and hospitals. I wonder how well the budget meets the challenge set down by Professor Kinsella. Ought we be concerned that the budget’s focus is dominated by a preference to raise taxes rather than cut expenditure? I accept that the Government has a great deal of expertise at its disposal. However, I also accept that people have the right to harbour legitimate concerns and to ask difficult questions with regard to what has been decided. I wonder whether we will look back on the budget and take the view that we took the difficult choices that were necessary or will we see ourselves as having “bottled it” in respect of those choices.
There are some who believe that the necessary adjustments should have been made on the spending side rather than on the tax side. It is still the case that public sector spending, while important, is too high when compared with the European average, particularly when one considers wages. If the salaries paid to hospital consultants, HSE officials, university or third level lecturers — of which I am one — etc., had been reduced, €100 million could have been raised. I wonder whether people had the courage to tackle vested interests in the public sector in this regard.
The budget should have focused on reducing the cost of living. It is for this reason that I wonder whether this tax hike runs contrary to good economic policy. The abolition of the Christmas bonus seems particularly tough. The only thing that can be said in its favour is that people have been given plenty of notice of its disappearance. However, that is a small consolation. The abolition of the bonus will give rise to a saving of €156 million. In addition, there will be another appalling cut of €100 million in the amount allocated to overseas aid. The savings made in these two areas amount to €256 million. If salary increments in the public sector had been frozen, some €300 million could have been saved. In such circumstances, did people display the necessary courage? We must all have courage when we discuss making cuts because such cuts affect people's interests, which is not something that we desire to do. Was the necessary courage absent when a decision had to be made as to what would have been most in the interests of the country?
I raised the matter of our expenditure on overseas development aid with the Minister for Foreign Affairs at the Joint Committee on Foreign Affairs some time ago. I pointed out that the British Prime Minister, Mr. Gordon Brown, had given a commitment that his country would meet the target of allocating 0.7% of GDP to overseas development aid by 2013. The Minister's attitude was that Ireland is much better than Britain and that,per capita, it is the sixth most generous donor in the world. When I asked him whether he would commit to ensuring that Ireland would meet the target of allocating 0.7% of GDP to overseas development aid, he was not able to do so.
The tax take is shrinking and the figures in this regard are extremely stark. Tax revenues have decreased from €47.25 billion in 2007 to €40.75 billion in 2008 to an envisaged €34.5 billion this year. That is a massive decrease of €13 billion. In the context of such a decrease, we all accept that spending on everything, including overseas development aid, would have to fall. Why could overseas development aid not be reduced on the samepro rata basis as everything else? Why is it that additional money was taken from the overseas development aid budget? The easy target was identified and, yet again, a swingeing cut was made such that instead of standing at 0.58% of GDP, the figure for overseas development aid now stands at 0.48%. We are, therefore, moving away from the 2013 target. On what basis was the Minister for Foreign Affairs seeking to portray Ireland as being better than Britain? At least the British have stated that they will meet the target by 2013. We must ask whether people will die as a result of our decision to reduce overseas development aid yet further.
I am not stating that the money allocated in respect of overseas development aid might not be better spent. On previous occasions I expressed my concerns regarding our spend in respect of the UN fund for population activities. I worry about a number of these international quangos and what they do with the money we allocate to them. However, the fact that we might wish to consider how we spend our money is a separate issue from that relating to the need for Ireland to continue to be generous. One is only generous when one continues to contribute through the bad times. When one only gives money during the good times, one is merely posturing and being patronising. We have missed an opportunity to send out an important message that in the leaner times we will not forget concepts such as solidarity and that we will not fail to honour the great Irish tradition of looking outwards as well as inwards. Our overseas development activities are a matter of pride for us on the international stage but we are abandoning our position in this regard.
When we consider that the global downturn is going to have a greater effect on the developing world, we must ask whether we echoed the Pharisees' response in the context of overseas development aid by stating we are still going to allocate a large amount of money but that cutbacks must be made. We obeyed the letter of the law and not the spirit in the choices we made in this budget.
Cuirim fáilte roimh an tAire Stáit go bpléifimid an t-ábhar airgeadais anseo. To pick up on Senator Mullen's last point, we have a proud tradition of charitable donations and State support for the overseas development sector. It is a pity given the climate that it must be revisited but we must remember that we are in the vanguard when it comes to meeting the 0.7% of gross domestic product, GDP, in 2012. We should remember that while the quantum is being reduced, because our GDP is also being reduced, we are maintaining our progress towards the target. It is difficult because the Government has direct responsibility to ensure that the many thousands of unemployed today and those who will be unemployed later this year and into next year can maintain a standard of living and that it meets the challenges presented by the significant downturn in our economy.
I have never seen challenges of such a scale in my life time. We lived through difficult periods in the past but we never came from such a plateau of success, which makes it more difficult. There had not been the accelerating hole in the public finances that we are currently seeing. With the collapse in the world-wide financial sector, the difficulties have been exacerbated. Ingenuity is required to steer our way through this so we will come back to better days in the future.
We were told in advance that the budget would be harsh but we were told it would be structured in as fair a way as possible. That commitment was made by the Taoiseach on a number of occasions and by the Minister for Finance. It has been both those things. It has been harsh. There is no point in denying that. It is a significant imposition on people's incomes and on families. The consequences of not doing anything, however, would be far greater. The fiscal hole must be rectified as far as possible.
Having done this, at the end of this year we will still borrow €20 billion, although it may even be more. The budget statement stated there would be an impact of a 1% further reduction in our GDP but that is likely to be 2%. We are saying we will see the economy shrink by 8% this year but by December that figure could increase to 10%. This has been a growing difficulty which no country shows signs of emerging from. Only within the past month has the US President's economic adviser stated that the downturn in America was accelerating.
It was important to introduce a fair budget. Those who can afford to pay more have been challenged by the significant levy that has been imposed on their incomes, which is as it should be.
The other side of the equation is expenditure. Our expenditure this year is likely to be €56 billion with an income of €34 billion or less, with some saying it could be closer to €30 billion, a significant gap. I cannot see that gap being bridged without significant reductions in the cost of our public services. As someone who managed businesses in the difficult years of the 1980s, all businesses had to ensure they operated efficiently and cost effectively. Public services operate on income and expenditure and efficiency does not get the same priority as in the private sector because that factor is driven by the bottom line and competition will ensure the private sector must maintain efficiency or the business will not survive. That is not the case in any public service so we must ensure we have the necessary dynamism to address those shortcomings.
I note in the budget speech that there is a review of higher remuneration and that is important. Across all sectors of the economy, we have paid ourselves too much. It was easy to understand that when the economy was booming everyone sought to participate in the increased affluence generally. There are now huge knock-on costs which must be addressed. If prices are falling we must ensure incomes are related to that. When there was inflation, we constantly asked that our wages keep pace with inflation so when prices are falling the corollary must be applied or else we will find ourselves in an irretrievable position.
I have said to nurses, teachers and others in the public service that if we fail to handle this situation, the outcome will be that those decisions will be taken out of our hands. When the International Monetary Fund, IMF, took over the Argentinian economy, it cut public service numbers in half and halved the wages of those remaining. When the IMF went into Latvia, public service salaries were cut by 35%. We must all take an element of the pain to ensure we do not end up in a situation where such draconian impositions are placed upon us.
Efficiency is an idea we should embrace in all walks of life. It is good for morale and people want to be part of an organisation they can be proud of. We have excellent staff across the public service who have made a tremendous contribution to development who in many ways contributed to our economic success. Like any organisation, there are the good, the bad and the indifferent. We must ensure we end up with only the good performers in our system.
I have heard much discussion of the complex nature of the problem with the banks. The approach taken by the Government to date has been sure-footed. It is not without risks but I support the general thrust of what it is doing. If we fail to deal with impaired assets or impaired loans in the banks, Ireland will end up like Japan in the 1990s when its economy just bumped along the bottom and made no recovery simply because the issue was not addressed. However, we must do this in a way that is more than an accountancy exercise. We must ensure that after dealing with these impaired loans and assets we have an economy with people who are prepared to be entrepreneurs and risk takers to grease the economic turbines. That will ensure we get back to growth. The detail of that is something we will examine in the future.
Unemployment is the big challenge. We must concentrate on promoting enterprise in the economy. That part of the equation should be strongly addressed over the remainder of this year. In that regard, the change in capital gains tax, CGT, is a mistake. I have said this previously. The rate has gone from 20% to 22% and is now 25% but the State will get less revenue than it did last year. The result will be that assets will be tied up which otherwise might be employed when the economy starts to move and people start to regain confidence. When there was a 40% rate for CGT there was indexation. Now, there is no indexation. It is quite an imposition. There is still money in the economy, despite the recession. People are sitting on it and waiting. It would be a pity if our fiscal policies focused on Germany and the US for investment instead of Ireland. We need the investment so it is imperative the fiscal policies we pursue do not create impediments that will prevent or discourage people from investing in this country in the future.
There is no doubt this is a tough budget. However, what comes to my mind is the number of people who tell me they never gained from the Celtic tiger economy. Would the people who said that be missing what they are missing now if they had not been touched by the Celtic tiger economy in recent years?
There has been a startling change in people's expectations over the past decade. When we see the statistics for the tax rates and standard of living of a relatively short time ago we must recognise that where we have come to and are now is far ahead of where we were ten or 15 years ago. That is probably no comfort for people who are trying to get used to the new reality or to the young people who do not know a different reality.
I recall a conversation I heard on a radio programme about three years ago. The people were discussing the leaving certificate subjects and commenting that there was a huge reduction in the number of pupils studying German and a huge increase in the number studying Spanish. Somebody was asked the reason for that. They responded that in the 1980s people had to learn German because they had to go to Germany for jobs because of the recession in Ireland. Now, because people have a holiday home in Spain, they must be able to ask for their wine in Spanish. That encapsulates the change that occurred in a relatively short period. We went from a hand to mouth economy to one that was a European leader and almost world leader. That is probably the reason the change in circumstances has been so difficult for people.
The media could be a little more honest in their approach to this issue. Their solution is: "Get rid of all the politicians and we will have no problem." If they could string a few bankers up as well, it would be an addition. The difficulty with that is that the people advocating these measures, complaining about the Taoiseach's salary and comparing it with that of President Obama are on salaries that are multiples of either the Taoiseach's or the President's salaries. There should be a little more honesty on the part of the media in dealing with the situation and presenting the case.
I wish to discuss one of the more positive measures in the budget. It is not positive to see €1,100 taken out of people's pockets for children under five but it is important that preschool education is beginning to feature on the Government's agenda. It is something I have advocated for some time. I have always said that studying music is very important in developing a person's hand-eye co-ordination as well as their rhythm and vocal abilities. I hope the preschool education year will encompass extra support for the musical element in the service provision. Of all the subjects for children under five years of age, music will help language development, co-ordination and working together or team work. I could speak for considerably longer than ten minutes on this matter. I welcome the budget proposal.
I also welcome the 25 cent increase in the excise on cigarettes. The Minister made a mistake in his speech in the Dáil when he said the increase was 25%. I walked up Grafton Street that night and heard a row between a man and a woman on the subject. One of them said the Minister said 25% while the other said he had said 25 cent. Regardless, I think both people were happy with the increase. It is recognised that 70% of the population do not smoke and 70% of smokers want to give up, and the price is one of the key issues in how successful people are in doing so.
However, if we are increasing the price of cigarettes we must also examine the issue of the unauthorised or illegal importation of cigarettes. There was a shocking programme on this on RTE recently. A person who was caught with 20,000 cigarettes was fined only 13 cent. I believe the highest fine that has been imposed is €243. I ask whoever is responsible for this issue to talk to members of the Judiciary, assuming they are responsible for setting the penalties. If it is up to the Minister for Justice, Equality and Law Reform, I ask him to deal with it. We cannot seriously address the illegal importation of cigarettes if the punishment does not fit the crime. It is a serious issue and must be dealt with.
Another issue is being dealt with in Donegal, and I commend Customs and Excise and the Revenue Commissioners in that regard. There is a clampdown on cars being brought into the county illegally without VRT being paid on them. A number of people are buying cheaper cars and legitimately bringing them across the Border. However, many people have never legitimately re-registered their cars. It became a trend. It started out with people from Derry who bought houses across the Border and got away with not having to pay the rates they would have paid a mile away in Derry. However, because they got away with it, everyone bought a car in the North.
There has been a significant clampdown but the difficulty is that the Revenue Commissioners have not been ready for the reaction. They moved the VRT office from Lifford to Donegal town. They have not opened a facility in Bridgend and Letterkenny specifically for VRT. People are terrified. They are not driving the cars unless they are trying to get to Donegal town but when they get there, the queues are so long they are told to go home and come back another day. A woman was in contact with me today and told me she went there and met a woman who was there for a third day. This woman is eight and a half months pregnant and is on maternity leave. If she had not been on maternity leave, she did not know how she would have got the car legitimately registered. She did not get it registered the day she went there, so she drove 180 miles for nothing. The office could not deal with her that day because the queues were so long. There are offices in Bridgend and Letterkenny so I ask the Minister to open them and facilitate people to pay their VRT. Droves of them want to do it but they are not given the facility to do so. That is not right.
I am concerned about the 5 cent increase in the price of diesel. It is difficult for the hauliers, who are already experiencing difficulty. It is also difficult at a time when we are trying to get more economical vehicles on the road to increase the price of diesel and not the price of petrol. I come from a Border constituency that relies on many jobs in the fuel sector, especially petrol stations, because of our location and people coming from the North. We always rely on trying to absorb such increases. However, petrol stations must pass on the cuts in oil prices to their customers. In many cases what is happening is that they are exploiting customers because of the Border and the fact that the turnover is so great. I encourage the Department of Finance and the operators to be as generous to customers as possible. My loyalty changes according to which petrol station is cheapest.
It is very important to get the banks lending again. People who have been genuinely looking for small loans have not been able to get them and that is affecting the motor industry to a great extent. I do not claim to have any expertise in terms of taking the bad debt out of the banks. I will leave that completely in the hands of those who know much more about it, but we must ensure the banks get back to operating as banks as soon as possible. People appear to think that the bad debt is being taken off the people who owe the banks money. It is important to realise that those who owe them money will continue to do so and the difficulties will still remain even if the debt is moved to an asset management agency.
I am vice chairman of the youth and sport committee of the Council of Europe and people have raised with me their concerns at the halving of the jobseeker's allowance for 18 to 20 year olds. I understand the concept of trying to get people into the mindset of working or going into training. I will not be popular for saying it but I consider the reduction in the allowance to be an incentive to training and work. Persons who come from multiple generations of unemployment should be given a kick-start to get into employment rather than being encouraged to go straight into the social welfare system. However, if there are genuine difficulties I hope social welfare officers will have the ability to deal with the claims individually.
I very much welcome the focus on the north west in terms of social welfare fraud. Again, I probably will not be popular for saying it but significant sums of money are involved. I commend those involved. If we all pay what we are obliged to pay then the difficulties for the Government will be reduced and the need to squeeze those who always feel they are squeezed will be reduced. People have long being able to point the finger at those in proximity to the Border who are able to play the system. Accordingly, the people who are always hit continue to get hit.
Politicians have been hit heavily in the budget. The 9% pension levy has already been imposed and there is a 1% income levy, a 10% drop in expenses, a 25% cut in mileage, the consolidation of expenses and the lack of increments. The allowance for committee Chairmen has been halved and the allowances for conveners and Vice Chairmen has gone. While people will not recognise it as a pain or inconvenience for us, I point out that as a Senator I run an office with no allowance whatsoever for it. It is difficult to keep the show on the road. It is only when one is not in the office that people start complaining but no one seems to realise that it takes money to run an office. I am not being defensive but the reality is that if we want to provide a service for the community we are expected to do it on thin air currently.
I wish to raise a financial and budgetary issue with the Minister of State. I am reliably informed that Leinster Lawn is to be reinstated and the car park removed, which will necessitate the tarmacadam surface being dug up and re-grassed at a cost of €600,000. I am also informed that alternative arrangements will be made for staff and journalists to park elsewhere and that they will be reimbursed for parking charges and taxi fares.
I presume this matter is related to statements on the budget.
No, but I wish to avail of the opportunity, if the Leas-Chathaoirleach will bear with me, to ask the Minister of State to confirm whether that is the case. In my view it is a total waste of money and it is sending out the wrong signal to the public from this House. I do not think we should indulge in that type of business. It is a waste of money. The likelihood is that the lawn will have to be dug up again when further refurbishments take place. Given the current financial difficulties we must be careful when we are doing things like that.
I thank all Senators who have contributed to this debate. Tuesday's supplementary budget was produced against an extremely serious international and domestic background. It was designed to address a set of unique, complex and difficult problems in our public finances, banking system and labour market as well as to restore our competitiveness, economic confidence and international reputation. Despite the formidable nature of these challenges, the Minister for Finance has succeeded in drawing up a budget that will provide a sound basis for economic recovery and renewal over the next five years and which can be built on to secure sustainable economic progress for the long term.
The supplementary budget will, however, reduce the living standards of nearly all of us. That will be painful but, unfortunately, it is unavoidable. One keeps hearing that those who caused the problem should bear all of the pain. While one can sympathise with that sentiment, it is also true that we have all — including workers and those getting social welfare payments — shared to a greater or lesser degree in the benefits from rapid economic growth in recent years. Over this period, pay rates and unit labour costs rose faster than elsewhere in the euro area and we became too reliant on the construction sector for economic growth and tax receipts. Our competitiveness is out of kilter with the rest of the euro area and if future growth is to depend on exports, our price and cost structure must fall relative to our trading partners.
For some years unit labour cost growth in Ireland has been much faster than in our main trading partners. Also, the comparatively weak productivity growth we have experienced since 2004 has been accentuated by a high rate of increase in wages, which has resulted in a big increase in our unit labour costs. Those trends in unit labour costs imply that economy-wide steps will need to be taken to reduce wages and improve productivity or a combination of both. In the short term a realistic approach to wage developments will be essential to ensure we address the dramatically changed economic circumstances which we now face. It is also essential this approach is complemented by steps to secure improved productivity.
A report published last year by the National Economic and Social Council, The Irish Economy in the Early 21st Century, presented data from a survey which illustrated the extent to which the average Irish worker had benefited from low tax and PRSI rates. The survey showed that while the average total cost of employment in Ireland was 30% higher than the European Union average, disposable income was 78% higher — second only to Luxembourg — and income tax paid was only 20% of the EU average. It is interesting to note, for example, that the average Hungarian worker with less than 30% of the average Irish wage, paid nearly three times the amount of tax in cash terms than his or her Irish counterpart.
In advance of the supplementary budget there were calls from some quarters that it should be expansionary. One can ask why it took the form it did. There is a simple and compelling reason: we had little choice. If we had not taken the action we have, the public finances soon would have become unsustainable and additional borrowing — where we could get it — would only be available at a prohibitive cost. If pain has to be incurred it is far better not to have it inflicted on us by outsiders.
Every segment of society and sector of the economy can make some contribution to dealing with our shared economic problems that threaten all our futures. If we can do this we will have provided ourselves with a formidable basis for overcoming this crisis and for achieving a robust recovery in the shortest possible time. Not only that, we will also have provided ourselves with the basis for making Ireland once more the most dynamic economy in Europe and for securing a prosperous future for ourselves and for those who will come after us.
Senator Twomey referred to the termination of the capital allowance scheme in the health area. The provision of health services is a matter for the Minister for Health and Children, in particular in the context of the co-location of hospitals, and that issue can be discussed in more detail with her. On the concerns about the transitional arrangements for the phasing out of this relief, as was the case with the phasing out of previous property related schemes under the Finance Act 2006, transitional arrangements will be put in place to cover projects that are in progress and where there is a reasonable and legitimate expectation on the part of the promoters and developers as well as the end users of such projects that they will be completed. The transitional arrangements would cover circumstances where planning permission had been granted or where construction contracts had been signed but where the project had not yet been completed. These matters will be considered fully in the context of the forthcoming Finance Bill.
Senator MacSharry read out a very telling passage from the 1987 budget speech of his father, Ray MacSharry, a former Minister for Finance. There was a comment made on that period inThe Economist the week before last to the effect that, when it comes to retrenchment, Ireland has form.
I enjoyed Senator Norris's reference to Madame Defarge, the woman who knitted at the bottom of the guillotine and enjoyed seeing heads roll. While the Senator expressed disapproval of Madame Defarge, he effectively suggested that numerous bankers, speculators and developers should be strung up on the nearest lamppost.
It might surprise the Senator but he did not actually mention Ministers. I am sure Senator Twomey would have done so.
The Minister of State is safe enough for the moment.
Senator Norris suggested doubling betting tax while Senator Quinn pointed out that when the tax was reduced in earlier years, the tax yield increased. In an era of Internet betting, an increase in the tax on betting would not necessarily provide an increased yield and might well be counterproductive.
Senator Norris asked why we would not raise income tax rates in the middle of the year. Making changes to the income tax system in terms of rates and bands mid-year gives rise to significant logistical and cost problems, not least for employers. This is essentially because of the cumulative nature of the income tax system. The calendar year would need to be split into two short income tax years. The legislation would also be very complex and, as a result, the commencement date would have to be postponed, which would result in a lower yield. All in all, adjustments to the income and health levies and the PRSI system comprised the most efficient mid-year mechanism to achieve an increase in revenue.
Senator McCarthy suggested an individual earning €750,000 per year would pay a lower proportion of his or her income on the health contribution than an individual earning €75,000 per year. There is no upper limit on the health contribution and it applies to all incomes, and therefore what the Senator suggested is not the case. The health contribution rates have been doubled in the budget and it will cost more for high-income earners than low-income earners. There is an upper limit on the employee PRSI threshold, which has been increased to €75,036. However, this only applies to employees and there is no upper limit for the self-employed.
Senator McCarthy also mentioned the tax exiles issue. The Minister for Finance took action on this, not in last year's budget but in the Finance Act, by ending the Cinderella rule. From 1 January this year, an individual is regarded as present in the State for tax purposes if he is here at any part of the day, not merely if he is only present at midnight. This is part of the Government's commitment to fairness and to ensuring everyone plays his part in achieving economic recovery. Some of the very wealthiest in our society, or half in our society, have made very big losses on various activities and in some ways one wonders whether they would have been any worse off had moneys been paid into the Exchequer.
Senator Paddy Burke asked about small businesses getting into difficulties with taxes. Penalties and interest are matters for the Office of the Revenue Commissioners but it is always possible for taxpayers to make arrangements with that office for meeting their obligations.
A number of Senators naturally raised the issue of the national asset management agency, NAMA. NAMA, acting for and on behalf of the taxpayer, will not be paying the book value for the assets. On transfer of the assets, the banks concerned will have to recognise losses on their books. Developers will be required to repay their loans in full or forgo their securities and collateral. Where developers have made losses, they will have to recognise those. It will not be the function of NAMA to go easy on them. NAMA's mandate will be commercial and there is no intention for the State to incur a loss.
The stream of income from the assets and proceeds from the eventual sale of the underlying assets or the repayment of the loan will accrue to NAMA. If NAMA fails to make a full recovery on the realisation of the assets over the long term, the Government intends that a levy should be applied to the banks to recoup the shortfall.
Senator Twomey referred to the potential size of the land and development loan books to be transferred to NAMA. I can assure the Seanad that, in recent months, extensive analysis has been carried out on the loan books of the covered institutions. This has given a clearer picture of the size and nature of the banks' loan books. The Minister for Finance has confirmed that entire portfolios of loans will be transferred to the agency, not just land and development loans but also related loans and the largest aggregate associated exposures in the banks. The potential book value of loans transferred to NAMA is in the region of €80 billion to €90 billion although the amount paid by the agency will be considerably less. Significant further detailed work and extensive due diligence on the loan books will be required to ensure the appropriate categories or portfolio of loans are transferred and that the banks are cleared of the identified riskiest loans by NAMA.
NAMA is not a toxic bank and will have loans on its books based on real physical assets. While some of these will undoubtedly be of better quality than others, there will be a mix of good or performing loans and bad or non-performing loans. The objective of NAMA is to strengthen the banks' balance sheets to reduce considerably uncertainty over bad debts and, as a consequence, ensure the flow of credit on a commercial basis to the real economy to protect and increase employment while also maximising and protecting the interests of taxpayers.
Considerable work on the detail of the proposal will take place in the coming weeks in parallel with the preparation of legislation. The transfer of assets from the banks' balance sheets to NAMA will complement measures already introduced with bank recapitalisation to improve the flow of credit and support economic recovery. These include the provision of at least an additional 10% in capacity for lending to small and medium enterprises in 2009 and an additional 30% in capacity for mortgage lending. If the mortgage lending is not taken up, the extra capacity will be available to small and medium enterprises. There will also be new funds for lending to support new businesses and environmentally friendly and innovative investments. In addition, new codes of conduct pertaining to mortgage arrears and business lending were introduced on 27 February and 13 March, respectively.
With reference to the contribution of Senator Doherty in particular, it is very easy to work oneself into a state of passionate condemnation of this or that aspect of the budget without having any regard to the circumstances we are in and which the Government must address. With regard to the various measures adopted, there were very few easy or problem-free choices.
I am trying not to sound patronising in saying Sinn Féin has recognised and is recognising the need to produce more credible and coherent economic alternatives. However, further work must be done. There are many easy solutions which have great popular appeal but might have a severe impact on the solvency of institutions we need to keep going.
An issue was raised which has absolutely nothing to do with this budget debate. It relates to a decision of the Houses of the Oireachtas Commission, and two members of the commission are here. The figure mentioned, approximately €200,000, is at least three times the cost put forward prior to the decision being taken. The issue of not being in compliance with planning permission goes back to my time on the Houses of the Oireachtas Commission.
A very definitely stated Government policy to encourage a move to public transport was set out in a letter from the Minister for Transport. This House is exceptionally well-served by public transport. At least 50% of the time I arrive by public transport, whether by bus, train, Luas or whatever. The Office of Public Works made a recommendation and a decision was made by the Houses of the Oireachtas Commission and I believe it is a good decision.
I interrupt briefly the Minister of State. He answered some of my questions but I asked a question about smaller banks being more solvent than larger banks and whether we could examine this with regard to getting money into the system quickly. Has the Minister of State considered this?
I will have to examine the point made by Senator Twomey. I no longer remember the argument he made.
The past seven months were a period of great financial and economic crisis. I have come to the House on many occasions. I appreciate that Senators would have preferred if the Minister for Finance could have come to the House. I thank Senators for their courtesy.
When is it proposed to sit again?
The House stands adjournedsine die.