A Cheann Comhairle

It is no exaggeration to say that this country is now fighting for its economic future. Unless we demonstrate the will to restore stability to our public finances, there will be no economic recovery.

The world is looking on. We need to persuade the international markets that we are capable of taking the tough decisions now to get our house in order. If we cannot do that, we are in danger of losing all the gains we have made over the last twenty years.

There are three inescapable facts that we must all face:

• First, this year, we will have to borrow four and a half thousand euro for every man woman and child in this State.

• Second, over one quarter of all our current bills, including pay, will be paid for by borrowed money.

• Thirdly, the interest on the money we will need to borrow will use up one third of all the income tax receipts we expect to take in this year: dead money that should be going to meet our public service needs.

Nothing will make those facts go away: no amount of email campaigns or protests will change them. The problem is we have an €18 billion hole in the public finances. We are experiencing an international recession of unsurpassed severity. Every major world economy is suffering or will suffer this year. Our problems have been compounded by unhelpful exchange rate movements and by our reliance in the recent past on the domestic market and the housing sector as the driver of growth. Yes, we made policy mistakes as did other governments world wide.

Of course, if we could have foreseen the extent of the international crisis, we would have done things differently. But as I said here a fortnight ago, I don’t recall much of a clamour from the deputies opposite for less spending, lower social welfare increases, higher taxes or higher levies. On the contrary, the opposition fought tooth and nail every tough decision we made in the budget.

Throughout the month of January, we sought to reach an agreement with the social partners on an approach to managing the challenges we now face. We did achieve agreement on the scale of the problem facing us and on the need to take urgent and radical action to restore stability to the public finances. We were criticised for engaging with the social partners. The deputies opposite argued that it was a waste of time, that it was outsourcing decision-making. And now the same deputies want us to re-enter talks with the social partners: proof if ever it was needed that the opposition is more interested in political mischief than the future of this economy.

Unfortunately, the unions were not in a position to agree to our proposals for addressing our fiscal difficulties. And in the end, the Government, as we had said we would, took the decisions that it believes are in the best interests of all our citizens. We know the pension levy will impose a burden on public service workers and their families. Many of my constituents are public service workers and I know the challenges they face. But it is in everyone’s interest that we deal responsibly with the problems we face and protect this country’s future prospects.

The steps we are taking now, in tandem with the Framework for Recovery which we published before Christmas, plots a way forward to restore us to the path of growth. That is our position.

So what is the position of the Labour party? Their position just a month ago was that there was no time to wait, no time for talks with the unions. Yet in this motion they have put down this evening, they appear to believe that we can go on talking, amending and fine-tuning.

The truth is the Labour Party has no alternative proposal. Getting our finances in order to inspire investor confidence; cutting our cost base so that we are in a position to compete when the world economy recovers. These strategies are beyond a party whose only plan is to borrow and tax our way out of this downturn. Nothing has changed for the Labour Party since the 1980’s. After a brief two and half year period of grown up political behaviour in the 1990’s, Labour has returned to the position of economic delinquency.

A few months ago, their former leader, Deputy Quinn told an interviewer it was not his function to outline a way forward for this country. A couple of weeks ago, the current leader, Deputy Gilmore refused to outline an alternative to the expenditure measures proposed by this side of the House. Then belatedly, last Saturday, in a column in a daily newspaper, the strategy emerged….. a back of the envelope job if ever there was one.

Nearly two thirds of the Labour Party two billion euro in savings are in effect, tax increases which will impact widely on a weakened economy. Several of the actions proposed by Labour have already been taken by Government and are factored into the 2009 Estimates and the revenue pencilled in for some of the measures is highly speculative. For example: where do you get the figure of €186 million for lowering the pension cap tax relief from €150,000 to €100,000? The real figure for this saving is estimated at €85 million. And where is the figure €175 million for full tax rates on tax exiles plucked from? And how does the Labour party propose to get over the legal difficulties involved in taxing people twice. This is fanciful nonsense.

Deputy Burton is fond of referring to the fat cats. Let us look at the so-called fat cats. Are we talking about the 1% of all earners whose income is over €200,000? Those earners, Deputy Burton contribute 20% of the total tax yield. Are we talking about the 2% who earn over €150,000? They contribute 28% of the tax yield. Or are we talking about the 6% who earn over €100,000 because, they Deputy contribute 47% of the entire tax take. And let us look at the income levy we introduced in the budget. This is levied on gross income; that is, before any deductions. Like income tax, those earning over €100,000 pay a very high percentage of the income levy yield: some 37% in fact. The fact is that our tax system is highly progressive. Those with high incomes pay most. Those on low incomes pay least and those on the minimum wage pay nothing at all.

That is not to say that we will not have to raise taxes. The Taoiseach and I have already indicated several times that we need to broaden the tax base and that increased taxation will form part of our return to fiscal stability. Equally, we have said and many commentators agree that now is not the time to increase taxes. We will wait the advice of the Commission on Taxation who have been examining our tax system for over a year. Their report, which is due in early autumn will inform our decisions for next years’ budget. It was, of course open to the labour Party to make a submission to the Commission.

But this Government has no intention of returning to the bad old days of tax rates of 65%. We have more ambition for this country and its citizens. The Labour Party , on the other hand seeks to mire us all in mediocrity and to treat the last 20 years as some kind of aberration.

Resorting to platitudes about change and getting the economy moving again won’t do it. We need to have a plan and the plan we propose is to save €2 billion this year and a further €4 next year. Of this €6 billion, we have already identified €3 billion. This is our plan to return to growth.

The Government is fully aware of the importance of investment for Ireland’s future economic well-being. The goal must be to maintain our position as an attractive destination for inward investment and to position the economy to take advantage of the global recovery when it comes.

To achieve this, we have put forward a planned approach to return the economy to sustainable growth. The Framework for Sustainable Economic Renewal published in December shows the Government's determination to meet the severe short-term challenges we face and to introduce the changes which will ensure that Ireland emerges from the global downturn in a position to benefit strongly from revived international growth.  

The document sets out clearly the measures we are taking to support a return to sustainable growth and jobs over the medium term, with specific steps to

-          maximise the potential for growth by building on our strengths in innovation and research and development;

-          address the huge market for environmental and energy-related products, services and innovation;

-          invest in critical infrastructure and support more employment-intensive activity in the short term; and

-          push forward the Government’s reform programme to create a more efficient and effective public service supported by smart regulation.

We have already taken steps to implement these measures with increases in tax credits which will increase Ireland’s attractiveness as a location for R&D activity, and other measures to help people who want to develop enterprises and create jobs.

Protecting jobs and supporting those who become unemployed is of fundamental importance.

The Government will continue to work to help minimise the impact of the credit crisis and the severe downturn in global markets on employment prospects in this country.

Access for unemployed persons to search for job opportunities, training and employment programmes is vital to this task. The relevant Ministers and their Departments are working with all parties to make certain that people will have more options when new job opportunities become available.

The Government will bring forward other measures in these areas which ensure that we get the maximum impact from resources available and that innovative approaches are used to maintain people in employment as well as assisting those who lose their jobs.

It must also be pointed that this Government is maintaining the largest capital investment programme in Europe. Ireland’s spending on capital is over 5% of GNP.

The Government is determined that we will continue to invest in roads, public transport, in schools and in housing. This is a major investment to support future development and provides a necessary and immediate stimulus for the economy.

There is no doubt that the pension-related deduction on public service pay is difficult.

I can assure Deputies that the Government did not take the decision to introduce this measure lightly. We know it calls for a measure of sacrifice but it is worth calling for so as to avoid a worse fate.

The pensions-related deduction is not seeking to scapegoat the public service.

The deduction is a reasonable and reasoned measure to deal with the serious imbalances which have emerged in the public finances. There was simply no alternative but to make savings in the pay and pensions bill given its relative size. The Government believes that the fairest way to do that is to ask public servants to make a higher contribution towards the cost of their pensions, which, in the current economic climate, have become a very valuable asset.

Public servants enjoy significantly better pensions than the majority of workers in the private sector. Pension benefits are higher and, in particular, those benefits are secure. It is entirely reasonable that a deduction should be made to reflect this reality. For many of those private sector workers who have pensions, the turmoil in financial markets over the last year has seriously affected the value of their pension schemes.

The greatest tragedy of this recession is joblessness. Every day workers in all our communities are losing their jobs. Each day last month, 1,000 workers became unemployed. Many others are maintaining their jobs only by taking large cuts in their pay.

Public servants have secure jobs and will continue to retain relatively generous pensions at a time of great upheaval in the Irish economy.

The deduction decided by the Government is a reasonable contribution by the public service to the measures now required to tackle Ireland’s budgetary problems.

On the issue of banking, the Government is tackling the problems now surrounding our financial system. There is no question but that the inappropriate and highly actions of certain individuals and banks have significantly undermined our reputation as a financial services centre. The public is understandably outraged by these actions. And there is also no doubt that our regulatory system has proven inadequate – as it has in many other countries. A reputation that has taken us years to build up has been significantly impaired in a matter of months. It is my intention to bring forward proposals for reform of the regulatory system as a matter of urgency. And I can tell the House that a new chief executive of Bank of Ireland will be appointed within three weeks and a cap will be imposed on the new executive’s salary.

Remuneration in banks is an important issue. It is the Government’s belief that current levels of remuneration at senior banking levels are not commensurate with the size of our economy or the financial institutions therein.

As I announced last week, total remuneration for all senior executives in the banks benefiting from state capital, AIB and Bank of Ireland, will be reduced by at least 33% and no performance bonuses will be paid for these senior executives and no salary increases will be made in relation to 2008 and 2009. The two banks have also accepted that, for non-executive directors, fees will be reduced by at least 25%.

In addition, the report of the Covered Institution Remuneration Oversight Committee – CIROC - is expected shortly.

As Deputies will be aware, the Committee’s role is to consider the remuneration plans of each of the institutions covered by the Government guarantee.

I will be writing to the Chairman of CIROC, Mr. Eddie Sullivan, to ask him to examine whether an overall cap on executive remuneration can be introduced for the banking sector, in the light of the significant Government support that is now being provided to the sector, and the pay restraint which is now a feature of other areas of the economy, including the public sector.

The banking sector will need to play its part in reducing our cost-base to ensure our competitiveness in the years ahead.

I will therefore be bringing forward proposals regarding remuneration in the banking sector on receipt of the CIROC’s report.

In conclusion, a Cheann comhairle, Ireland is facing major economic and budgetary problems which must be dealt with.

The Government recognises that the future prosperity of the country will be determined by the actions we take now.

We have acted firmly and fairly in the national interest.

We have a strategy to deal with the complex problems in the banking sector.

The Government has set out a clear strategy for the future development of the economy and for dealing with the budgetary problems which have emerged.

The pension-related deduction for the public service is a fair and reasonable measure.

I call on the House to support the Amended Motion and to give the leadership now that will see us through this crisis.