I move: "That the Bill be now read a Second Time."
I welcome the Minister of State to the House, as always.
On 25 May last, this Seanad convened for the first time and we were then concerned about the implications of the IMF having to rescue us about this time last year, as well as the need to change the way in which governance operated in this country. It was obviously unsustainable to have to be bailed out by the IMF and to have the troika here. In that context, the Seanad wishes to play a role in assisting the Government in the reforms which are needed because when a country has to be rescued by the IMF, it needs reforms. This Bill is intended to contribute in that regard.
I have noted the speech in the Dáil, on 5 December, by the Minister for Public Expenditure and Reform, Deputy Howlin, who said: "We will enhance the role of the Oireachtas ... all of these reforms support Oireachtas Members, as representatives of the public, in holding Government to account." We are therefore pleased to respond to the Minister. Ministers have found that there is a ready welcome for their reform proposals in this House.
The other important context is in the Wright report which was published just about this time last year. Mr. Wright came from Canada to advise us on the difficulties in which we then found ourselves. On page 25 of his report, he stated
In the current budgetary process, the period for public dialogue on economic and fiscal challenges facing the economy is far too short. Departmental advice on the economic outlook and sectoral challenges, for example, should be subject to more public and external scrutiny before Budgets are finalised. The process must also support a more rigorous commitment to the planned quantum of fiscal action. The object of a renewed budgetary strategy should be to enhance ministerial responsibility to Parliament and the public by:
creating a meaningful consultation period and seeking broad feedback on the Government's fiscal plan,
releasing more departmental analysis to inform public debate, and
providing third party validation of departmental analysis and the Government's fiscal plan through some form of Fiscal Council.
We support those sentiments, also. In fact, at the Joint Committee on Finance, Public Expenditure and Reform we met the members of the fiscal council. Their professionalism and independence are to be greatly admired, and we support them. It is an important part of the way in which we organise our finances and look to repair the faults which cost us all so dearly in recent years.
The Bill provides a context for economic statistics to be injected into the budgetary process and its basic components come courtesy of the IMF, particularly the design and statement of a fiscal rule. The troika will welcome the fact that a House of Parliament is debating these important matters as it corresponds to having the economic sovereignty of the country restored. Our added value lies in an active role for Parliament; unlike technocrats, Parliament is essential to the process. There is a quote from the US Supreme Court judge Louis Brandeis that "sunlight is the best disinfectant;" the public finances need more sunlight and have needed it historically.
With regard to the IMF agreement, we are preparing institutional reform of the system, taking into account anticipated reforms of economic governance procedures at EU level. A reformed budget formation process would be put in place. Furthermore, we would introduce a fiscal responsibility law which would include provision for a medium-term expenditure framework, with binding multi-annual ceilings on expenditure in each area by the end of this year. There would be a budgetary advisory council to provide for an independent appraisal of the Government's budgetary position, while forecasts would also be introduced. These important reforms would enhance fiscal credibility and anchor long-term debt sustainability. If what we propose was to achieve that credibility, it would make it easier for Ireland to return to the markets.
As can be seen in the Bill and the definition of terms, there would be a desire to build surpluses, as indicated by the cycle, which would be used, as happens in Sweden, to finance the country when there was a downturn. Section 1 has a definition of counter-cyclical policy, structural changes and fiscal sustainability, with other definitions. In an era in which the Maastricht treaty 3% borrowing limit and the 60% debt-to-GDP ratio did not work, with great doubts in the markets as to whether what was agreed in Brussels last Friday will work, this could add credibility to the idea that Ireland has decided to adopt a stance approved of by the IMF and which has proved to be highly successful in Sweden particularly.
We seek to provide for stabilisation in case we ever go through a period like 2000 to 2005 again when we should have been running surpluses. That might have provided funding for the rainy day we have experienced recently. The aim of the Bill is to make Ireland like Sweden, in which the lessons of a banking crisis and painful recession were turned into an effective fiscal council, which we would have, with a permanent staff and budget, which we need. There should be a policy of running structural deficits in a period of recession and surpluses when there is full employment in the economy.
The drafting of a fiscal rule has many American and European aspects to it and it is important to preserve the context in which the need for legislation has arisen. It is a statement of goodwill on behalf of Parliament to commit to fiscal rectitude, with parliamentary and public scrutiny of the budgetary process. It would be a firm statement to join "spendaholics anonymous" after two fiscal disasters in 30 years. The text and definitions draw heavily from the work of the IMF on the evaluation of fiscal rules and what can be considered best practice. The critical elements of the statements are taken directly from the IMF's evaluation of a Bulgarian fiscal rule in a working paper dated 10 November. The Government has committed to introducing such legislation and the Bill is aimed at making the most of this opportunity to put in place a state-of-the-art fiscal rule that would be flexible and respectful of democracy but which could still change the conduct of public administration and the political culture of boom to bust.
The legal issues can be surmounted if there is the political will. John Maynard Keynes said about the foundation of the IMF and lawyers, "I want him to tell me how to do what I think sensible, and above all to devise means by which it would be lawful for me to go on being sensible in unforeseen circumstances some years hence." We know from the fiscal council that stimulus packages do not work in Ireland as the multiplier is small. We need something like this commitment from a Parliament to balance our budgets during the cycle. The Maastricht treaty agreement did not work and what was agreed in Brussels last week seems extremely draconian, with a borrowing allowance requiring a debt-to-GDP ratio of approximately 15%. There is no way countries such as Greece and Ireland could take that level of austerity; therefore, this would be an alternative.
In the context of having a small, open economy, the Bill would attempt for the duration of the troika programme and into the future to change public administration and the political culture in order that when the Government spent more than it earned, it would have to make a clear and accountable statement outlining how it would return to a position of structural balances. It does not attempt to put in place numerical estimates and would, in fact, be a soft budget constraint which would not enter the Constitution in the way a hard budget constraint in keeping with the German suggestion would. The recent EU agreement is draconian and implies a long run debt-to-GDP ratio of 17%, as Mr. Colm McCarthy stated.
Fiscal rules must be context-driven and respectful of the parliamentary system. Imposing transparency would open the curtains of the Departments of Finance and Public Expenditure and Reform; in so doing it would look to prevent us from engaging in the Sisyphus approach to fiscal policy, as he kept rolling a rock up the hill at intervals. We have done this and must learn from how we failed to respond to the crisis in the 1980s and how we can act in a better fashion now. It would give an example to the European Union as a whole. Parliament would take this issue seriously in order to design a better system to deal with structural and cyclical deficits.
We must recognise the constructive role Senators have taken on, in my experience, to assist reforming Ministers in the reform of our institutions since we assembled on 25 May. I commend the Bill to the House.