Dáil debates
Wednesday, 25 May 2011
Finance (No. 2) Bill 2011: Second Stage (Resumed)
12:00 pm
Peter Mathews (Dublin South, Fine Gael)
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The Finance (No. 2) Bill is welcome in so far as it is a piece in a jigsaw. The Minister for Finance outlined how it is set against the country's economic position as defined by predictable measurements and the revisions of gross domestic product and so forth that occurred during the IMF-EU review. I have suggested that our position is even starker and that it will have a far greater impact that we must not forget.
Our situation is not properly understood in the EU or the IMF. Following the credit and subsequent property and asset bubble, losses in our banking system will amount to approximately â¬100 billion. This has been a slow-burn story to date. It was unreliable until the end of last year and during the change of government. The problem now is this monstrous debt. While it is awful that 450,000 people are unemployed and 50,000 are emigrating, those emigrating are at least not saddled with debt. With their qualifications, they have a survival kit, albeit abroad. The people who are being crushed are those who must stay because they are tied to their debt obligations. The true story that needs to be brought forward by this House is that the banks' historical losses are approximately â¬100 billion. The embedded debt in the banking system, with the further debts in the household and business systems, are too large.
The debt in the banking system has a hardcore of approximately â¬150 billion, essentially provided by the European Central Bank. Of that, â¬70 billion has a provenance in the repayment in full of senior bondholders up to the end of last year. The banks did not have the money to repay the senior bondholders; accordingly, they got it from the ECB on loan and used it to repay them. That happened when people did not understand the size of the losses in the system were as large as I have outlined.
What is the solution? There should be a write-down of the debt owed by our banking sector to its creditors, that is the ECB and the remaining senior bondholders. It has been suggested the write-down on ECB balances should be â¬50 billion with â¬25 billion on those to outstanding senior bondholders, making a total of â¬75 billion. If that â¬75 billion were cascaded through the system by a debt write-down for households and businesses that took on impossible debt between 2003 and 2007, it would lead to a massive and real, not a bogus or ghost, stimulus to the economy.
Take the example of a person paying back â¬1,850 a month on debt repayments. If they in turn were able to get a debt write-down of 25%-30% their monthly repayments and loan amount outstanding would be manageable. Moral hazard will be put forward as a possibility to prevent such consideration but this can be dealt with through logical and fair argument.
The contributions I heard yesterday on this Bill were constructive and showed that everyone in this House is genuinely trying to make little adjustments and alterations to what is essentially a good proposal to deal with our housekeeping arrangements. As stated by Deputy Doherty we have three problems: a debt problem, which I have just mentioned, a fiscal problem, which is housekeeping balances and, a jobs problem, all of which are inter-related. We must not fall short in setting out the true picture, explanations and suggestions-----
Robert Troy (Longford-Westmeath, Fianna Fail)
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The Deputy has gone well over time.
Peter Mathews (Dublin South, Fine Gael)
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-----to our counterparts in Europe. We are after all in a community, one first called the European Economic Community. The word "community" means support for one another. Europe cannot fully understand the support we need unless we explain it to them properly. If this means we must explain it every week, then let us do it. Is feidir linn, to which I would add, Caithfimid - we must.
Willie O'Dea (Limerick City, Fianna Fail)
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I have spoken on many finance Bills down through the years but this is possibly the shortest, physically, on which I have spoken, which reflects the fact that it is a pretty small initiative. Nevertheless, I wish it well.
On the day the jobs initiative was announced I welcomed the move by the Minister for Finance on research and development tax credits, a reform long overdue. I reiterate that welcome. There is tremendous tax competition to attract investment in intellectual property, research and development and so on. By and large, we have done well as a country in attracting that type of investment, as the figures for the past five years will show. Unless we keep up with our competitors we risk falling behind. While I welcome what the Minister has done I am bound to mention a number of pressing issues, including that of the base year. Research and development tax credit is claimed by reference to the increase in expenditure on research and development over the base year 2003. This has created problems for a number of firms who invested fairly substantially in 2003. On the outsourcing cap, one is allowed to outsource 5% of one's expenditure on research and development. That is too small. I made representations on the matter to Deputy Lenihan when he was Minister for Finance which, I regret to say, were unsuccessful. However, the case is no less valid now.
The difficulty that arises is not the quality but the amount of research done outside business by research and third level institutes. The amount in this regard far exceeds what is done in-house, as people in the business will testify. Also, an increase in the cap from 5% to 25%, as recommended by some experts, would encourage further links between industry and the research and third level institutes. Many Government policies scattered throughout the programme for Government are designed to encourage such links. Retaining the cap at 5% flies in the face of what the Government is attempting to do to encouraging linkage, with which I agree. The programme for Government also includes the specific commitment that companies with research and development expenditure of under â¬100,000 would be allowed tax credits for the entire expenditure rather than tax credits by reference to the base year. I sincerely hope the Minister for Finance will be able to incorporate these urgently required changes in the next budget.
On value added tax, on the surface it would appear it is a good idea in principle to target VAT relief at a particular sector. This is better than the initial approach suggested in the programme for Government, namely, a 1% cut across the board for all activities covered by the 13.5% rate. Nevertheless, the question that arises is whether the VAT rate reduction will be passed on. The evidence in this regard is, to say the least, a little sketchy. I recall the former UK Government, to stimulate the economy and create employment, introduced fairly substantial cuts in value added tax but because the concomitant benefits were not realised the public finances ended up in an even worse mess, resulting in the cuts having to be reversed. The Government has said in a number of statements that it intends to review the situation at the end of this year to ascertain if the reductions have been passed on. If not, the relief may be withdrawn. I regret that I do not find that credible. If the Government were serious about this it would introduce the reduced rate for the balance of this year and indicate its preparedness to continue it in the next and following budget provided the benefits were being passed on. If the benefits of this reduction are not passed on, all we will have is a raid-pilfering of private pension funds to enrich restaurateurs, hoteliers, fast food outlets and various others who have benefited from the reduction.
Despite that many services are covered by the reduction, many others are not, including services directly related to the tourist industry, which I accept is a job rich industry and it is right for us to focus on it. For example, one of the services covered by the 13.5% rate is "short term hiring of cars, caravans, mobile homes, tour guide services" which are fairly integral to encouraging tourism. Perhaps the Minister will when replying clarify if these services are covered by the VAT reduction. General repair and maintenance services are also subject to VAT at 13.5%. As such, electricians, mechanics, carpenters and so on remain liable to the 13.5% rate. I do not know what would be the cost of extending the reduction to cover these services but it could perhaps be balanced by reducing the VAT rate by 3%-3.5% rather 4%, in particular in view of the growth of the black economy.
Also subject to the 13.5% VAT rate are "fuel for power and heating, coal, peat, timber, electricity, gas and heating oil." There is no relief in this area despite the reality of fuel poverty. I recently read an article in a newspaper in relation to the reduction in the VAT rate to 9%. It was estimated that in respect of a meal and two drinks costing â¬100 one would save â¬3 as a result of this reduction. I do not know if that would encourage people to go to restaurants. The relief would be better concentrated on people who are suffering the effects of fuel poverty and who are struggling to survive week to week.
I hope these measures will be successful because it is in the interests of the country that they are. However, I am concerned about the method by which the finance is being raised. This direct attack on private pension funds is akin to something the Mugabe regime in Zimbabwe would try to do, expropriation of private property. As I said on the last occasion, the number of people aged over 65 years in this country will treble in the next 50 years. How are we to provide for them? Traditionally, we have encouraged people to help provide for themselves through the provision of generous tax reliefs. The cost of annuities has gone through the roof, returns have disimproved and there is a constant threat of withdrawal of tax relief hanging like the Sword of Damocles over people who invest in private pensions, on top of which the Minister has now imposed this levy. Also, various legislative changes introduced by this and the previous Government restrict the sums one can provide for. The whole direction of the levy is towards creating a disincentive to people to provide for themselves, when there has never been a greater need for people to provide for themselves.
The Taoiseach said in the House yesterday, and the Minister for Finance has said on previous occasions, that representatives of the pensions industry made this offer to the Government. They suggested to the Government that it impose a levy of, I think, 0.5% on the basis that tax relief for pension provision would not be interfered with. I listened to the Taoiseach and that is clearly what he said. Do I take it that it is the Government's intention, because it is bringing in this levy, not to interfere with the present tax regime for contributions to private pension schemes? I would like the Minister to address this in his response. When these people from the pensions industry approached the Government, not only did the Minister take them at their word but he said he would do even better for them. Instead of a levy of 0.5%, he made it 0.6%. He gave them more than they were looking for. According to the Taoiseach, there was a clear understanding that this was a quid pro quo for not interfering with the tax relief on pension contributions. I doubt if that will be the case. Having read the IMF/EU deal and seen what the Government will have to do on the taxation front and having read the programme for Government which talks about tax shelters and so on I very much doubt if that will be the case.
I do not doubt the Minister's bona fides. I am sure he had visits from people in the pensions industry who made the suggestion to him. If the people from the pensions industry, whoever they were, thought they were doing something for their members by approaching the Government with such a suggestion they are even more foolish than the returns they have managed to get for pensioners in recent years would suggest. We need an incentive to people to provide for themselves, because the State will not be able to provide for them in future years. We need an incentive and not another disincentive.
With regard to defined benefit schemes, people who have retired and for whom an annuity has been purchased out of the pension fund will not be caught by the levy. It is the people for whom the pension is provided directly from the fund who will be caught. This is another anomaly. A person under the age of 60 who can afford to retire early can transfer his or her pension to an approved retirement fund, which will not be caught at all. That is another potential loophole.
The Government says it is up to the trustees of defined benefit schemes to decide how to finance the levy and where they will find the money. However, as much as 80% of defined benefit schemes are already in deficit and are in no position to absorb this charge. This means either that contributions will increase for the people who are still paying them or employers will pay more. There is an irony here. If employers must pay more the cost of employment will increase. This may lead to job losses, as a result of an initiative that is supposed to create jobs.
The most likely outcome is that beneficiaries will have to pay directly. Benefits will be cut. We are talking about people who, because of the devastation wrought on pension funds by the downturn, in many instances have had indexation taken out their defined benefit pensions. By agreement, trustees abandoned indexation. Members of this House are beneficiaries of a defined benefit pension scheme, which is indexed. I can imagine the reaction of Members if the Minister for Finance or the Taoiseach announced the abolition of indexation and left us at the mercy of future inflation. Many of these people are in precisely that situation. Many of them are elderly, vulnerable and living on fixed incomes.
It has been suggested that funding a pension of â¬10,000, which is at the upper end of what people might expect, requires capital of â¬150,000. A levy of 0.6% of â¬150,000 would amount to â¬900, or a 9% reduction of a pension of â¬10,000. People in pensions business tell me that the figure needed to generate a pension of â¬10,000 is closer to â¬200,000. That would put the levy up to a 12% reduction in the pension, every year for the next four years, of elderly people on fixed incomes. That does not seem to be very fair.
Most of the discussion of this issue has focused on defined benefit schemes. The amount of capital accumulated in defined contribution schemes has been devastated by what happened in the markets in recent years. They will be further devastated by the Government reaching its hand in and taking a portion of the capital retained over the next four years. Many schemes will have to close down. It is written into the legislation that if a scheme closes down its trustees will not be caught for the levy at all.
I do not think the Government envisaged people being advised to shift their pension funds overseas. Under EU rules they would be immune from the Government levy. I am told certain gentlemen are in town at present going to different businesses extolling the attractions of Malta as a possible location. Pension funds can be moved offshore, where they will be out of the ambit of the levy. We may find that the levy will be applicable to people who cannot afford to move offshore and whose schemes do not provide for early retirement and do not close down.
I agree with the point made by the Minister for Finance and others regarding public sector pensions. There has been a levy on them. Public service pensioners have a reasonable expectation that there will be enough tax revenue to pay their pensions. It is very different for private pension schemes.
I listened to the Minister's assurance regarding deposits. Private pensions are another form of saving. They are exactly equivalent to deposits. The proposed levy is a retrospective tax on saved income. There is, therefore, no reason in principle that cannot be extended to deposits.
Those people from the pensions industry who went to the Government had no right to offer their members' capital to the Government. They merely administer pension schemes. They do not own the money. They had no right to offer it to the Government or anybody else.
Peter Mathews (Dublin South, Fine Gael)
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They offered it to the previous Government.
Willie O'Dea (Limerick City, Fianna Fail)
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They had no right to offer it to any Government.
Peter Mathews (Dublin South, Fine Gael)
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That is clearer. I thank the Deputy.
Willie O'Dea (Limerick City, Fianna Fail)
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The Minister said pensions were built up as a result of generous tax relief. That is true. The State went to people and told them it needed them to provide for themselves because the State could not afford to do so. For that reason, the State gave tax relief. The offer was made and accepted in good faith. The State cannot say, years later, that it offered too much and wants to take some of it back. In any event, pension holders will pay tax when their pensions are paid out.
Another Government argument is that much of the money is invested abroad, as though the investors are unpatriotic people who decided to invest outside Ireland. The Government is well aware that the rules under which these people operate are set by the Government and can be changed by it. I do not mind who I offend when I say we are very lucky they invested most of their funds abroad in recent years. I can just imagine what the situation would be if they had not.
I trawled the record to find a precedent for this type of imposition in the history of the State. I found none. The closest a Government came was the proposal by the minority Fianna Fáil Government in 1988 to impose a levy on the capital gains of pension funds. The levy was not on the capital but on the capital gains. In 1988, substantial capital gains had been made by pension funds over the preceding two or three years. The Opposition finance spokesperson at the time was the Minister for Finance, Deputy Michael Noonan. That levy was designed to raise £15 million in 1988 when times were better. The current levy is designed to raise â¬1.9 billion. In 1988 Deputy Noonan said: "I always understood that the rule in regard to the taxation of pension funds was that the funds were taxed on the way in or on the way out but not taxed during the term", which is precisely the point. Deputy Noonan went on to say in regard to the proposed £15 million imposition, which was intended to and did only last for one year:
I am not sure whether all pension funds can bear this imposition ... we need more information about this ... it ... will bear very heavily on some pension funds. I sincerely hope that it does not drive some of them into insolvency.
While that is what Deputy Noonan said about a £15 million levy in 1988, he has no concern now about a â¬1.9 billion if not â¬2 billion levy, although the £15 million levy was actually on capital gains and not on capital itself.
There are many other issues I would address but, unfortunately, time is against me. In regard to the jobs initiative generally, which this Bill is bringing into law, I wish it well. I hope it succeeds in its objectives and hope it is the beginning of a process of economic recovery in this country. However, I could not help noticing as a I read Deputy Noonan's speech from 1988 another quote referring to the 1988 budget brought in by the then Minister for Finance, Mr. Ray MacSharry, where Deputy Noonan said: "This is a budget of addition and subtraction when the nation is interested in multiplication and growth rates which would lead to jobs." Scratch around as I might, I cannot think of a better epitaph for this budget, initiative or whatever one might wish to call it. Nevertheless, I wish it well and I hope the objectives set out by the Government are achieved.
Tom Barry (Cork East, Fine Gael)
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I wish to share time with Deputy Paschal Donohoe.
Robert Troy (Longford-Westmeath, Fianna Fail)
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Is that agreed? Agreed.
Tom Barry (Cork East, Fine Gael)
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I welcome the Bill, which gives effect to the measures in the jobs initiative. Four main areas are covered, namely, the research and development, or R&D, tax credit, the suspension of the air travel tax, the introduction of the lower VAT rate and the introduction of a pension levy. Similar to the position with corporation tax, which is very important for attracting foreign direct investment - we have recently heard all the arguments for retaining it while other countries try to make us increase it - the R&D tax credit is also a measure of huge importance. Some 25% of incremental expenditure on qualifying R&D can be set against corporate tax liabilities. The Bill enhances the flexibility for the accounting of R&D tax credit by giving an ''above-the-line'' tax credit. It makes three amendments to section 766B of the Taxes Consolidation Act 1997 which address the payroll liabilities, the relevant payroll period and the payable credits. Basically, it facilitates a better operational status of this measure.
The second area is the suspension of the air travel tax. The Bill amends section 55 of the Finance (No. 2) Act 2008 to reduce the air travel tax to zero and suspend it until the end of 2012, at which stage it will be reviewed. This puts the onus back on the airlines, which are constantly complaining, to deliver. This is positive because, as they say they can deliver, let us see whether they act accordingly. Hopefully, this will help to boost tourism numbers, which have been dropping year on year. From the implementation date, which is set at 1 July 2011, the measure is set to cost â¬105 million to December 2012. It will also hopefully provide a stimulus to revitalise the tourism industry, particularly literary and cultural tourism, where there is huge potential. Unfortunately, not even this good Government can promise wonderful sunshine or promote the country as a sunshine destination so we will have to look to other areas to encourage visitors to come.
The third measure amends the Value-Added Tax Consolidation Act 2010 to provide for a second reduced VAT rate of 9%, which will apply mainly to the tourism trade. It will last until December 2013 and will cost up to â¬820 million over the complete period. This is a bold and decisive move by the Government to aggressively encourage tourists by enhancing our cost competitiveness and giving better value for money to all who come here. Our nearest neighbour, the UK, will get even greater value given the sterling-euro exchange rate. This will help to reverse the 32% decrease in tourist numbers from the UK from 2007 to 2010. The amendment covers a number of areas, including restaurant and catering services, hotels and accommodation, admissions to cinemas, theatres, musical performances, art galleries, fairground amusements and sporting facilities, as well as hairdressing services and printed material.
It is worth noting that the reduction from a 13.5% to a 9% VAT rate will help to encourage and develop the arts by making theatre and musicals more affordable. It will encourage new talented Irish people and others living here to follow their talents and their dreams because it will create a market and help to provide them with a livelihood, which is a positive spin-off, and it will also make our country more attractive in the process. It will also help to fill the very high standard of accommodation which we have. While many think in the main of accommodation in the cities, there is also accommodation in our rural communities, such as in the Blackwater Valley, where I live and where we rely on tourists to come for fishing and the relaxed way of life. Many farming communities have built fabulous supplementary accommodation to bring tourists to Ireland. The Bill will help in this area also. On a lighter note, if all of these tourists cut their hair on their way home because they have had such good value for money, it will bring an added benefit.
More seriously, I hope the Revenue Commissioners desist from harshly penalising minor infringements in regard to late payments of VAT by reputable companies. I have had an issue with this practice for some time. When people are owed VAT rebates by the Revenue Commissioners, they cannot get paid on time. However, there are those with a good track record whose only fault is that they do not have a proper cash flow because others are strapped for cash also, and who, in the absence of a practical banking system, cannot pay on time, although they may pay within a month. The Revenue Commissioners could certainly show some lenience in that regard.
The fourth measure imposes a levy of 0.6% on the capital value of the assets under management in pension schemes. The levy will last for four years and will hopefully raise â¬470 million. Difficult as it is to bear, and many are angry and critical about it, if this succeeds, it will hopefully benefit pension funds in the future. It is worth recognising that this measure is being taken to tackle the enormous black hole we have inherited from the previous Government. I cannot but smile wryly when I hear Deputy O'Dea speaking of loopholes in the Bill. He has become terribly clinical. Where were all the soothsayers and people who could see into the future in the last Government? The real loophole here is a financial recklessness into which the previous Government entered. It did not envisage that it would absolutely ruin the country. When I hear the Deputy using quotes from 1998, I shall quote him back straightaway. He mentioned people in business to whom he spoke. I hate that the Deputy has left the Chamber but he can watch the debate on video link. I run a business and we need to instil confidence back into the country. We are picking up the pieces from a Government that fell asleep at the wheel.
I heard a former Minister state it was lucky that pension funds were invested outside this country. What does that mean? Does it mean that when the former Government was in power, breaking the country financially, it encouraged people to leave, knowing the place would be a basket case? I am upset that people can wreck a country, stand up some months later and act as if they were Robin Hood, able to fix everything in a short while. It is extremely hard to rebuild after the devastation they caused. At present I am working to try to bring back a sugar industry to the country. There are talks and troubles and we are attempting to have a feasibility study. However, the amount of work involved in returning industry to this country after the destruction of our indigenous industries is considerable.
I welcome this Bill, therefore, even though parts of it are unpalatable. We must go through with it and my generation in business will pay for it. I will not emigrate; we are the people who are stuck. We are glad to stay here and want to see our country return to a position of solvency. However, I will not tolerate the people who broke this country criticising the efforts we make to restore it to its former glory.
1:00 pm
Paschal Donohoe (Dublin Central, Fine Gael)
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The ultimate job of this Government is to put in place measures that will allow this State to regain its full sovereignty and rebuild its solvency. Any such measures must be evaluated in light of these two overriding objectives. Within that framework there are many measures and plans proposed in this Bill which are welcome. The philosophy underpinning the Bill is that the green economy and the smart economy will form a large part of our future economic renewal, but this Government must also look after the cash economy of today in order to allow us get to that point. It recognises that the many different sectors of employment and growth which constitute the cash economy will play a significant and valuable role in our future by providing jobs for those who lack them and by preserving the jobs we have.
Within that theme there are five areas I wish to touch upon in my contribution. They are mentioned in this Bill and the debate surrounding it and I believe it is worthwhile to note them in the House. First, I refer to the employment survey figures published today by Forfás, covering all companies that provided State aid or supervision in the past year. Many of these companies tend to be so successful in providing a balance of payments surplus that an enormous difference shows up between Ireland and other European countries involved in managing a debt crisis. These figures reveal a point very pertinent to this discussion in the House. They show that within that sector of our economy, slightly more than 2,750 people are employed. However, the actual numbers employed in the sector have declined by 6,521 since last year, in spite of its superb economic output in that period. This points to the real challenge we face in securing the jobs we have. In those sectors of the economy that are so very successful in producing wealth and driving export performance the numbers of people employed are actually declining because of the sector's productivity and the nature of the industry. Between one and seven and one in eight jobs within our economy are found in this large sector which is massively important to our economy. However, in spite of this recent great success the numbers employed in the industry are in decline.
That points to the strategic necessity of a Bill such as this which looks at other jobs and other sectors that are important to our economy and asks what can we do to give them a prompt and add some confidence. What this Bill proposes, therefore, is the abolition of one tax, the reduction by half of another and the reduction of a third tax to be funded by measures taken elsewhere. The measures are all designed to provide support and confidence to other parts of our economy that will be vital in our continued renewal.
Second, I refer to measures that were announced in the jobs initiative which are not, by their nature, included in the Finance Bill, namely, proposed measures to improve visa access to this country. This is a most important area for us to focus in coming months. Last week, I organised a forum in Leinster House that focused on the digital part of economy, in particular companies involved in digital gaming. Many colleagues were good enough to come along for an hour to hear about the good work in question. Yesterday, I visited one of the companies concerned, Havok, which was acquired recently by Intel because of its enormous success in designing software that allows three-dimensional graphics to be portrayed on screen. Company personnel spoke to me about the considerable challenge they face when they identify foreign talent, people who design games, physicists and engineers, the very epitome of the smart economy, and induce them to move to our State. Getting them into this country and locating them here is proving a real challenge.
The personnel pointed to a scheme which currently operates in Denmark. Danish candidates who work in the smart economy but who have not worked or paid tax in Denmark in recent years can return to that country and be given a personal tax holiday for five years. That tax holiday to encourage them to return is tied into the ability of such people to create local jobs. Why can we not look at a scheme of that kind? If we can attract people into our State, regardless of nationality, and tie their employment here into indigenous job creation, we should be able to make instant their ability to acquire a visa. One of the factors that played a significant role in the creation of the Silicon Valley success story, of which we hear so much, is that, in the early 1980s nobody cared who was responsible for creating the success. If a person had a good idea, it did not matter where they came from. The authorities made it very easy for them to get into the state of California, set up a business and be active.
I believe that we will move quickly to a situation whereby, notwithstanding our banking difficulties and the pressure created in the supply of credit, there will be people coming into this State who will want to supply capital to people who are successful and have good ideas. We should encourage people, regardless of their nationality, who want to set up business in Ireland to create jobs here. I heard at first hand personnel from the company, Havok, talk about the great difficulties they experience in doing just that. There is a low-cost opportunity here for our State. Measures could be sorted out quickly in order to make it easy to funnel direct job creation into the smart economy.
My third point was touched upon by Deputy Stephen Donnelly in his contribution on the jobs initiative a number of weeks ago. I agree with him on one important point. We must ensure that whatever measures we put in place to reduce the tax burden on employers will contribute either to an improvement in competitiveness within the sectors concerned or to an improvement in direct job creation.
It would be a pity if in 12 months when we sit back to evaluate the success of this initiative - I will make a point on that - what we see amounts only to marginal improvements in these sectors but there is no sign that it is yielding direct job improvements or improvements in the competitiveness of those sectors. Too often in our country we come up with an initiative and put it out but we never take the time to step back 12 or 18 months afterwards to determine how it has actually worked. We must be brave, stand up and indicate what has and has not worked and what we should do the next time. The evaluation of initiatives, especially this one, must be carried out a good deal more. By the time we get to the next budget we should be able to stand up and state what has and has not worked with regard to all the measures proposed in the Finance (No. 2) Bill. In the case of those elements which have not worked within the scarce resources available, we should acknowledge as much and redeploy them elsewhere.
I conclude with reference to the European situation on which many colleagues have commented in this debate and earlier today in the House. It is of inordinate importance that whatever decisions are to be made in the next 12 to 18 months in terms of our engagement with private credit markets and so on, such decisions should not be made at the last moment. We can see a significant element of what is unfolding in Greece. It has a large amount of debt that must be renewed shortly; I believe it is next month. Whatever the difficulty facing Greece, which is vast, it is being compounded by the fact that it is running out of time to make any decisions and all the agencies involved are quickly finding themselves in a corner. Whatever decision we make and whether the scenarios are run out in private or in public, we should be doing the work for it now.
Paschal Donohoe (Dublin Central, Fine Gael)
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We should think through the matter now and not wait until 12 months time. As has been found with Greece, our ability to navigate our way forward is significantly impaired, notwithstanding the banking difficulties, by a significant fiscal deficit that must be serviced now. Whatever the measures taken by the Government to reduce the scale of the deficit, they must be taken quickly. Such is magnitude of the deficit. I read today that the Greek deficit is between 9.7% and 10%. There is little difference between that deficit and our own at the moment. All steps that can be taken to reduce it in a sustainable manner would appear to be in the national interest and should be done within this year.
Dessie Ellis (Dublin North West, Sinn Fein)
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Tá an Bille seo an-tábhachtach ar fad, ach nà théann sé ró-fhada. Nà théann sé fada go leor ar chor ar bith. Is é sin an fáth go bhfuil Sinn Féin mÃshásta leis. Essentially, we are debating the Fine Gael Party and the Labour Party's so-called jobs initiative once again. It amazes me that there should be any need another debate on what is almost wholly a pointless piece of window dressing, which is more about paying lip service to stimulus than about contributing to any initiative which will bring sustainable long-term growth or even a short-term boost.
The Government has called this budget cost neutral. Unfortunately, once again we in Sinn Féin are correct when we say it will also be jobs neutral. Fine Gael has been obsessed with public sector reform for the past four years at least. The party's language translates into a three pronged approach of slash, burn and privatise. It has supported the deflationary measures of the previous Government and has built on them since it came into power. It has missed a golden opportunity to take the initiative, to act in the public interest and to deal with the problems facing ordinary Irish people. However, what is worse, those in Fine Gael do not know it and their Government partners, who should know better, are going along with it. Never mind the imperative that it is Gilmore's way or Frankfurt's way: it is now clear that it is Noonan's way or no way.
This is not surprising from Fine Gael. However for the vast numbers of people who voted for the party, who worked hard during the past decade and are now struggling or out of work, including young people facing emigration, it will be not only devastating having put their trust in this Government, but it prolongs their struggles and will force more to work in far flung places away from their families and the country in which they wish to make their lives.
The extent to which this is window dressing is obvious when one considers the numbers. A capital spend of â¬135 million is touted but, in reality, this is not new money for extra work; it is simply a reorganisation of spending with an extra â¬29 million for these projects. We have spent more than the entire capital expenditure plan on metro north. Roughly â¬150 million has been spent already according to the Department of Transport, Tourism and Sport and now there is a danger the Minister will decide not to go ahead with the plans.
Since this plan is budget neutral, money is being taken from somewhere else and, for the most part, from the pockets of hardworking individuals who have been hit and hit again by this and the previous Government to the clear detriment of the wider economy. This time it is in the shape of a deeply inequitable pension levy, which, according to Government officials, will see pensions rise in cost by 50% in some cases and, it has been claimed by the private pension sector, which will be a fatal blow to its trade.
Just as the previous Government distracted people by rearranging deckchairs on our very own Titanic, the Government rearranges the numbers to make it appear that it has the remotest commitment to creating jobs. Not only were the road works, pedestrian routes and cycle lanes for which money has been earmarked in this initiative essential, but they were already planned. There is no consideration of a large scale capital project which could create employment in the medium term and have significant return on spend. We may only hope more courage and initiative is taken by the Minister for Transport, Tourism and Sport in future when he finally makes his decision between BXD, metro north and DART underground.
Whatever about these projects, we cannot afford to stand by idly while unemployment remains so high. It would be higher than the current scandalous figure of 450,000 had we not said goodbye to so many brothers, sister, sons, daughters and friends as once again we are faced with a generation subject to emigration. This would be bad enough were it not for the fact that all of these measures give the lie to so many of the promises of Fine Gael and the Labour Party in the election campaign and before. In 2009, we heard the disgraceful nonsense cry of "jobs, jobs, jobs", a promise for capitulating on the second Lisbon treaty vote. Then, the cry of "jobs" was one of Fine Gael's much discussed but much less acted on five point plan. However, this was not simply vague talk. Both Government partners laid down clear detailed promises to make a real go of a jobs creation plan. Deputy Enda Kenny had the neck to state that in a four year period he would spend â¬7 billion on job creation, creating 100,000 jobs and 45,000 training places.
Deputy Eamon Gilmore stated that the Labour Party would spend â¬500 million on jobs and would set up a strategic investment bank with â¬3 billion. This initiative, if one could use the term, does nothing close to that objective. It is smoke and mirrors and Deputy Michael Noonan has proven himself to be more Tommy Cooper than David Copperfield.
If anything is to be taken from the plan, it is the reduction of the airline tax and the new lower rate of VAT. The reduction to 9% is positive and, hopefully, will help struggling restaurants and similar businesses which cater to tourists. However, many more supports could have been given to the hospitality industry but they are lacking. The tiny impact of a â¬3 euro reduction in the price of an airline ticket is highly unlikely to inspire many people from around the world who are also being hit by similar poorly thought out measures to wing their way here to spend their hard-earned cash, much less the throngs we require. Surely if we are to build on our tourism industry we need good transport infrastructure which has been neglected, surely we need to link Dublin Airport to our city centre in the most effective way possible while creating jobs along the way.
Sinn Féin before, during and after the election has put forward real meaningful ideas for job stimulus that can help to get our economy moving again but these have been roundly ignored or derided by the consensus for deflation and cuts represented by the other major parties in this Chamber. Sinn Féin would invest â¬2 billion from the National Pensions Reserve Fund into creating and holding on to jobs in the next year. This would see a large specific job creation investment as well as a â¬1 billion spend on infrastructure on top of existing commitments, ensuring that the essential capital projects are seen through with the best value for money and the best return of jobs. All this would be done with a focus on the young unemployed to see that our best and brightest are not forced to emigrate.
We can do this not by cutting the wages of the 20% of people who only have â¬70 euro left at the end of the month but by targeting the highest earners in the public sector, Deputy and ministerial wages and those with net assets over â¬1 million excluding farmland. This is the fairer, more equitable way we can start to get on a road to recovery. It is the kind of change the Government parties were elected to do and have so far failed in both word and deed.
This must, however, be done. We must invest properly in our economy or it will continue to fail, we will say goodbye to many more friends and family and dole queues will swell. We have a choice and it is time to be brave and do what is required of us. This Government has given â¬24 billion to the banks and specifically â¬3 billion to Anglo Irish Bank, it has continued the path of raiding the National Pensions Reserve Fund to pay for a bailout which is not acceptable and will only saddle us with a debt we cannot pay and yet it has shown so little consideration for the need to get people working again and spending again. Where are its priorities?
We said it first and we say it again, jobs are the priority; the people of this country who are struggling and who are languishing in unemployment are the priority, not the bankers, not the IMF and not the ECB. Until the Government wakes up to that we will continue down this road and we will reap the whirlwind or it shall be inherited by our children.
Tá slà nÃos fearr ann agus caithfimid infheistÃocht a chur isteach chun jabanna a chruthú ach nÃl go leor anseo.
Jerry Buttimer (Cork South Central, Fine Gael)
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Cuirim fáilte roimh na hÃirà Stáit, an Teachta Creighton agus an Teachta Hayes. I compliment the Minister of State with responsibility for European affairs on her work representing Ireland abroad in the past few weeks. It is good to see someone who, along with the Minister for Finance, has the ability to represent our country abroad.
Listening to Deputy Ellis, I had to ask if I was listening to Paul Daniels or Tommy Cooper because it was like taking something from here and something from there and mixing it up. In reality, this is a jobs initiative, it is a plan, a vision to get Ireland back to work.
Dessie Ellis (Dublin North West, Sinn Fein)
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It is not working.
Jerry Buttimer (Cork South Central, Fine Gael)
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It is not perfect but the Deputy misses the point completely, a bit like Sinn Féin during the royal visit last week. It has missed the mood and is opposing for the sake of it.
This initiative requires bravery from the Government, something it has displayed. We have not abandoned the principles of responsibility or the interests of the Irish people. How can someone criticise a Government that introduces a research and development tax credit, suspends the air travel tax, changes the VAT and employers' PRSI rates, restores the minimum wage and introduces a pension levy?
We must pay to create jobs; there are no easy solutions. The economists, the experts, the commentators and the Opposition all agree there is no pot of gold, no magic wand to wave or silver bullet. That is why the duty of Government is to be responsible and to act on behalf of all of our citizens. In just ten weeks, this Government has been strategic and displayed vision. It is acting. We might not agree with everything, we might want to see more money spent but if we compare the first ten weeks of this Government with the last ten years of the previous Administration, there is a stark difference. That is why it is important to look to the future and to this Bill to offer a new opportunity.
I tweeted when the Bill was introduced that it was not ideal but that it was a new beginning, a significant step that would instil confidence in employers and give hope to those seeking employment, while providing leadership and showing those in the outside world that we are once again in control of our finances, albeit with the help of the IMF and the EU.
If Deputy Ellis wants to be critical of the Bill, fair enough but let us look at what is in it for schools, roads and retrofitting schemes. Is it wrong to help small and medium-sized enterprises and to offer hope to people? Is it wrong to tell schools we will expand the building programme and look at new public private partnerships? All of us have received letters and e-mails from parent associations, boards of management and school principals about conditions in schools. Measures to address those conditions are contained in this Bill.
There is an extra â¬60 million for investment in local roads. Will those opposite vote against that? I hope not. This is about investment in infrastructure, a gateway to creating jobs. Are we telling people in Cork the N28 cannot be upgraded, or that the main road from here to Wicklow cannot be improved because we do not have the money? The Government is going to invest an extra â¬60 million in roads and while that is not ideal, if we take the Bandon Road and Sarsfield Road flyovers in Cork, those are included in this to provide relief and improve a road network that shows a confident, mature nation ready to embrace employers and entrepreneurs and to open our markets.
That is why it is important to look at this Bill holistically. The Taoiseach was right this morning that our country needed help. We did not go voluntarily to the IMF and ECB. Those in Government 12 months ago were in denial about that but we had to go there, we had no choice, we could not go to the open markets.
We must never forget the narrative of why we are here. It was as a result of poor management by the previous Government, bad economic decisions and a lack of political accountability. There was a breakdown in regulation and a cosy cartel that ran this country for a decade was allowed to develop. Those who were in Government lost the run of themselves and their cronies were part of the inner circle, ensuring no one cried "Halt". It is important that narrative is never forgotten by anyone. We have a duty to remind the people and, more importantly, the Fianna Fáil Members of this House, why we are in this situation. Our people are living in places such as Toronto or Boston or Brisbane and there are those who are still at home seeking work. As Deputy Mathews said, there are those at home who cannot afford to go away due to their debts or family situation. The story is that of a people under pressure, of people struggling. I refer to the euphoria of last Monday and the past week with the visits of President Obama and the Queen. The visits lifted the Irish people. I noted as I walked from College Green among hundreds of ordinary citizens the sense of hope and of a new beginning, a sense that together we can get out of this morass. It will not be easy and the job of government is to lead, to be responsible and to tell the Irish people the truth. A government can never be allowed to abandon its people as happened during the past ten years. The previous Government ignored its responsibility, a responsibility that goes with accepting the seal of office entrusted to it under the Constitution by the President of Ireland. This is what the previous Government did; it abandoned the people and ignored the sacred trust. Its members did not live up to their seals of office and the responsibility attached. Likewise, people in banks and in financial regulation have serious questions to answer. There must be accountability and this must happen under this Government's watch.
Deputy Mathews in his contribution spoke about a monstrous debt and he is right. People have a monstrous debt and our country has a gargantuan debt. However, the ordinary citizen has to deal with high unemployment, emigration, negative equity and which are the legacies of ten years of boom and bloom. This Government has presented the Finance (No. 2) Bill which offers solutions and a plan. This is not a plan for the big shots or for the rich and powerful but for those who are courageous in creating employment and for those on the lower minimum wage. This Government is saying to them that it understands and is listening. I become nauseated when I hear people in certain parts of this House say they are concerned about those who are unemployed or in negative equity. I said it before in this House and I say it again, everyone on the Government side of the House knows of family members, friends and constituents who are in negative equity, who are unemployed and who are under pressure. They ask us to provide a solution and to give them an opportunity to go back to work. They want to be able to remain in their family home and they ask for a chance to start a business or to buy their own home. This is why it is important that the Minister, Deputy Noonan, has taken on the banks and has created a new banking force. Our banks must listen and they must be cognisant of the ordinary person. Equally, the Revenue Commissioners must stand up and listen and must be aware of the plight of business people and of the ordinary citizen.
It is unfortunate that a two-tier Ireland seems to be developing, private versus public, with an upper, middle and lower class. I regret this because the people I choose to represent and the people who put me in here are not the high flyers nor the socialites who were drinking in the Galway tent, who owned three or four houses and two or three big cars. They were the people who bought property - one property - at the height of the boom, who had a job and who were earning â¬50,000 or â¬60,000 a year, whose spouses also had to go out to work. They were paying for child care. These are the people who are in negative equity today and who are struggling. I use "struggling" deliberately because that is the plight of many citizens today. The job of government is to create a new State, a new opportunity and a new vision.
The Government, the IMF, the ECB, the banks and Revenue must listen to the distress of the ordinary person, the man and woman whom we all know. I do not mean the developers, the people sitting on the boards of banks, the economic commentators who knew everything, nor the political commentators. They must listen to people. This Government must create hope.
I have met many people over the past 12 to 18 months who are distressed. I met a man two weeks ago when he came to my office. He was afraid to go home. He was afraid to tell his partner that he owed money to the banks and to Revenue. He was employing five or six people and he could not go home and tell all this to his partner. This is not acceptable and it is not the Ireland I want to live in.
The Government has an obligation to protect the family home and it must encourage people to enter into a covenant and agreement with the banks or lending institutions. I agree with Deputy Mathews that the people who lend us money must understand the story of the Irish people. As the Taoiseach said this morning, we will pay our debt but I contend this cannot be at the expense of our people. I agree that we live in the European Union which is a community of sovereign nations. My understanding of being part of the European Union is that we are here to support one another and to live and to work for a common goal. Those who are assisting us should listen to the cry of the Irish people. The Taoiseach is correct in that we will honour our debts, we will repay them, but it behoves those in control of the IMF and the European Union to listen, to come out of their ivory towers and to interact with the ordinary citizens of this country to see how they are getting on.
I am very pleased that the Minister, Deputy Noonan, and the Government have within the first 100 days brought forward a jobs initiative. Deputy Dessie Ellis is correct that the biggest task facing us is the creation of jobs and the retention of existing jobs. We must reward entrepreneurs and risk-takers who employ people. Equally, contained in the jobs initiative is an acceptance that those who want to work should be allowed to work. It is much better to have people working than on welfare. Is it right to keep the minimum wage at the level introduced by Fianna Fáil? Should we allow people to go on welfare? It is much better to have people in work and to place a value on work so they can make a contribution to society and can be proud, active citizens.