Martin Mansergh (Tipperary South, Fianna Fail)
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Last month, the Department of Finance published the pre-budget outlook, which set out the economic and fiscal forecasts in advance of the budget. It is the intention that this document will provide the platform for a debate on economic and budgetary decisions on a more fully informed basis. Accordingly, I welcome this opportunity to set out the current and prospective economic and budgetary position. The debate also provides an opportunity for Senators to state what they believe needs to be done to put the public finances and the economy firmly on the road to recovery. There is widespread agreement that we must narrow the gap between income and spending by approximately €4 billion next year. Such an agreed view is a positive starting point and I look forward to hearing the views of Senators on how this can and should be achieved.

However, before setting out Government's broad thinking on the public finances, I would like to outline briefly the short to medium-term economic prospects. The past 18 months have been a period of exceptional economic difficulty. The contraction in the construction sector, together with a severe global recession, have resulted in an unprecedented rate of economic decline this year. GDP will decline by approximately 7.5%, GNP by even more at 10.5%. The scale of deterioration in the global economy has been the worst in decades. Given that our major trading partners have been badly affected, Ireland could never have expected to be immune from such a global recession. Clearly, for an open economy such as ours which relies heavily on international trade, this highly unfavourable environment has presented enormous challenges. Declining levels of activity have taken a heavy toll in the labour market. This year, employment will fall by approximately 165,000 people, with the construction, retail and manufacturing sectors the worst affected. Unemployment has increased significantly and this is the most tangible part of this recession.

A reasonable degree of consensus has emerged on the short-term outlook. The current consensus forecast is for a GDP decline of 1.1 % next year. The pre-budget outlook anticipates that growth would return during 2010, but that for the year as a whole GDP will still contract by 1.5%. Nevertheless, this is an improvement since the April supplementary budget forecast. While unemployment is expected to increase into next year, recent labour market developments suggest the rate of increase in unemployment has slowed. While the data do not make it clear whether this is due to emigration, the Government does not regard emigration as a solution to our labour market problems. The creation and protection of jobs remains the overriding objective of Government economic policy, and all aspects of active labour market policies are required to ensure work rather than unemployment remains the norm.

There are three main pillars to the Government's economic strategy and these were further highlighted in the pre-budget outlook: to ensure we have a properly functioning banking system capable of meeting the needs of savers and borrowers; to ensure our public finances are stabilised and put on a longer term sustainable path; and to regain our international competitiveness to be in a position to exploit the global economic recovery and to generate employment growth. With regard to restoring our banking system, substantial time has been spent both within this House and elsewhere discussing what needs to be done. Whatever the differences of opinion may be regarding solutions, everyone agrees that a healthy, fully operational banking system is a cornerstone of a modern economy. Clearly, repairing this system is a fundamental requirement for economic recovery. That is why the Government, like governments and central banks across the globe, has provided substantial support to the financial sector and the broader economy in the current crisis. Much more work needs to be done, but we now have the basis for ensuring we develop a modern healthy banking system whose focus is to support economic activity and underpin employment, especially among small and medium-sized enterprises.

The deterioration in the economy has exposed weaknesses in our public finances. Our tax revenues have returned to 2003 levels while current spending has increased by 70% since then. Borrowing for day-to-day spending has escalated to unsustainable levels and an Exchequer deficit of €26 billion is projected for this year. To put this enormous figure into perspective, we must borrow €500 million each week to fund it. What is striking about the figures is that the deficit has emerged not because the share of Government revenue in our economy has become disproportionately small, but because the share of Government spending has become disproportionately large. Over the past decade, Government revenues have moved within a relatively narrow range of between 34% and 37% of GDP while the share of Government spending has increased from 36% of GDP in 2007 to a projected 45% this year. As a country, we face the hard reality that if one continues to spend more than one earns, one must keep borrowing the difference. If one keeps borrowing the difference, the interest bill will soon become overwhelming and all one's money will be spent repaying it.

Everyone who subscribes to the basic tenets of responsible management knows that the current position cannot continue. Debt service costs are rising rapidly and are absorbing a large and growing share of tax revenue. We must halt this phenomenon and ensure it does not become ingrained. If it does, it will greatly inhibit the Government's ability to provide essential public services. It is also imperative to inspire confidence both internationally and domestically that the deterioration in the public finances is being tackled.

It is also important to restore balance to Government expenditure and ensure taxation is at more sustainable levels. As a number of commentators have remarked, the improvement in the economy over the medium term will not be sufficient to close the budgetary gap. There is a significant underlying deficit that must be dealt with in a targeted way. The report of the special group on public service numbers and expenditure programmes and the report of the Commission on Taxation will form the basis of future tax and spending policy.

Our immediate priority is to stabilise the deficit at this year's level, which is already one of the highest in Europe. To do so requires an adjustment of about €4 billion. Without such savings, the deficit would rise further next year. Between now and budget day, the Government will decide how the necessary savings will be achieved.

Turning to where the adjustments should come from, I would welcome the views of Senators. However, it is important to bear in mind some key facts. Taking account of the very significant increases that have been made to personal taxation, the marginal income tax rate is now at 52% for PAYE earners. It is abundantly clear that the scope for further income tax increases is limited. Moreover, the data on who funds the income tax yield tell their own story. In overall terms, 4% of income earners contribute almost half of the income tax yield. Furthermore, for 2010, it is estimated that around half of income earners will pay no income tax under the current regime. While they may have some exposure to the income levy, having 50% of earners out of the tax net is no longer viable if we want to fund the range of services we expect the Government to provide.

In terms of the other significant taxes - VAT and excise duties - our rates are already high by international standards. The rate of corporation tax must be seen in terms of international markets and our ongoing ability to foster enterprise and future job creation. Given that these four tax areas, income tax, VAT, excise duties and corporation tax, represent the vast bulk of tax revenue, there is limited capacity to raise additional revenue in the forthcoming budget. Consequently, the immediate focus must be on expenditure reduction measures.

The overall amount of gross current voted expenditure stands at almost €56 billion in 2009. Roughly one third of spending is on social welfare related matters, one third on programme expenditures and the final third on public sector pay and pensions. Therefore, the bulk of the adjustment, which must be on day-to-day spending, must consider each of these spending lines. A further significant fact is that we are currently in a period of falling prices. While a prolonged period of price decline would bring its own problems, the current short-term decline in consumer prices does have the effect of supporting real income levels. Consequently, there is some scope to adjust public spending, including welfare expenditure, while still protecting the living standards of those most in need.

The Government's approach to correcting the public finances has been acknowledged by the European Commission. In its excessive deficit report which was published recently, the Commission acknowledged the balanced approach taken and the measures that have been implemented towards reducing the deficit. On the basis of stabilising the deficit the Commission has also proposed a one-year extension for a number of countries and in our case this will mean an extension to 2014 of the deadline to bring our deficit below the 3% of GDP threshold.

This proposed extension, which will be considered by the Council of Ministers today, is welcome. However, let there be no misunderstanding about what this implies. An additional year to correct, while easing somewhat the adjustments required in the later years, does not change the focus of our need to stabilise our very large deficit. If anything, it reinforces the need to continue to take effective action for 2010.

In addition to restoring the banking system to health and stability to the public finances, the Government is also focused on the needs of the wider economy and in particular the promotion of favourable employment conditions. The pre-budget outlook reiterates the requirement that we reposition our economy on a more sustainable, export-led growth path through regaining our international competitiveness. Ireland's cost competitiveness has deteriorated in recent years. As a number of agencies such as the National Competitiveness Council have pointed out, elements of our costs are higher than those of many of our competitors. While this has been aggravated by some factors beyond our control, such as the euro appreciation in recent months, there are measures we can take ourselves through domestic policy action to improve our competitiveness.

In recent years, our labour costs have risen faster than productivity growth. As we refocus our economy towards export-led growth, these crucial input costs become all the more important. Therefore, reducing labour costs through some combination of nominal pay reductions and enhanced productivity must form part of the strategy to improve competitiveness. On a positive note, our labour force continues to be highly skilled and flexible. We have made a significant investment in education at all levels to ensure we have the skills demanded by our increasingly knowledge-intensive economy.

In discussions with the public sector unions, both the Taoiseach and Minister for Finance have indicated that, in view of its share of total spending, the public service pay and pensions bill will have to contribute to the overall budgetary adjustment. An indicative figure of €1.3 billion was identified for the level of adjustment required in the pay bill for 2010. As a Minister of State and public representative, I am in daily contact with public servants. In some senses I have been one since 1974. From my experience in dealing with officials from all grades and sectors of the public service, I readily acknowledge the professionalism, integrity and ability of the majority of our public servants and the important and continuing role they play in delivering essential services to our citizens. However, the public service, no less than any other sector of the economy, must adapt to meet changing social and economic conditions. Maintaining the status quo is not an option. However, the public service has changed and adapted in the past and significant measures have already been taken in the public service since July 2008 to deal with the economic crisis. These measures include the suspension of payment of the general round increases under the terms of Towards 2016 review and transitional agreement, the application of a general moratorium on recruitment and promotion in the public service, the introduction of a pension related deduction of an average of 7% from the earnings of all public servants and the implementation of incentivised early retirement and career break schemes.

Despite these measures, the reality is that public service pay still accounts for about one third of all current expenditure and cannot be sustained at current levels given the severe reduction in tax revenue and other spending pressures that have arisen. The measures introduced and under consideration by the Government to reduce the cost of the public service pay bill reflect the absolute priority to bring the public finances under control so as to provide any sort of foundation for economic recovery. To achieve the necessary savings in public expenditure, the public sector pay bill has to make a further contribution, as indeed all other areas of public expenditure are required to do. This will affect those employed in the public service but it is a matter not of choice but of necessity as expenditure cannot be sustained at current levels without adversely affecting economic recovery.

Discussions with the unions have been ongoing for some time at both plenary and sectoral level to find an agreed basis for achieving the necessary reduction in the public sector pay bill. Discussions have centred on identifying alternative measures to pay rate reductions to achieve the necessary saving. These discussions reflect the Government's preferred option of reaching agreement with the unions on measures to effect the necessary reduction in the public sector pay bill.

It is regrettable that public service workers engaged in a national day of industrial action on 24 November that interrupted the availability of services to our citizens. Industrial action will not further the interests of public sector workers, it will not change the economic realities of our current national finances and it will not create a situation where public service workers can be excluded from the contributions required from all sectors to meet an unprecedented economic crisis that will inevitably impact negatively to some extent on all our citizens.

Given my ministerial responsibility for the Office of Public Works, which has responsibility for flood risk assessment and major flood relief works, I could not let this occasion pass without referring to the recent flooding in the west and south which had such devastating consequences for everyone affected. I have just been discussing these issues with the Oireachtas Joint Committee on the Environment, Heritage and Local Government. I spent the first half of the morning viewing flood damage in Carrick-on-Shannon and Leitrim.

The impact would have been even more severe had it not been for the tremendous efforts of the emergency teams who have worked tirelessly. Thanks to them, no lives have so far been lost. We have witnessed a co-ordinated and dedicated response from all the emergency services, including local authorities, the Defence Forces, Civil Defence, the gardaí and local volunteers, for which we are immensely grateful. OPW engineering staff have provided technical and additional material back-up in many places. While it is important to note that many of the affected areas have not experienced this scale of flooding in living memory, we must make every effort to improve our capacity to anticipate and react to such events.

I have given the highest priority to progressing the OPW's programme of major structural flood relief schemes to reduce the flood risk in areas which already have a long history of flooding. Several successful schemes have been completed, including those in Kilkenny, Carrick-on-Suir, the River Tolka in Dublin, Dunmanway, Gort, Cappamore, Sixmilebridge, the River Nanny, Hazelhatch, Leixlip and Newport, County Tipperary. However, there was still some severe flooding in Gort when I walked through after midnight last Sunday week.

Construction works on flood relief schemes at Mallow, Clonmel and Ennis are substantially complete. Work has just commenced on the first phase of the flood relief scheme for Fermoy. The OPW is also funding major schemes in Waterford and Carlow. It has been undertaking major works on the River Dodder in Dublin for the last three years, an area that suffered severe flooding in the past. It also commenced works on a major scheme in Mornington, while minor works have commenced in Newcastle West, in Mullingar and at Ballymacoda, County Cork. In addition to those at construction stage, major schemes to deal with flooding problems in Templemore and Enniscorthy were formally placed on public exhibition earlier this year. The design of a scheme for Tullamore is at an advanced stage.

OPW officials are also working closely with the local authorities in Bray and Arklow to develop flood relief measures for both towns. Yesterday, I, together with the Minister for the Environment, Heritage and Local Government, issued joint planning guidelines to prevent, as far as possible, aggravation of the problem by inappropriate development in flood plains. I would add a word of caution in this respect. Experience elsewhere has shown that while we can build up flood defences, even the best flood defences do not provide an absolute guarantee for the future that the places concerned will be protected but they should mitigate the risk and frequency of flooding. There are many lessons that will need to be learned and many actions that will need to be undertaken in the short, medium and long term in regard to this issue which, I understand, will be debated in more detail in this House on Friday.

As a country we face some extremely tough economic and fiscal challenges. To overcome them, we must continue to pursue appropriate policies to position the economy to benefit from the global recovery. We have already taken action but much more is needed. To summarise, we have taken significant actions curbing expenditure and raising additional tax revenue since July 2008 to address the crisis in our public finances. Our immediate priority is to stabilise the deficit and this we will do in the forthcoming budget. In this regard our actions have been commended by various outside commentators and international market reaction has changed in our favour. Bank lending must be facilitated and our actions in regard to the very difficult banking situation are taking hold and are the right decisions. We have, through various measures, sought to promote a climate that will facilitate employment, but more must be done here in terms of restoring competitiveness. In taking action now, we must keep our eyes set on the goal to be achieved. Implementing difficult measures now will enable the economy to return to sustainable growth over the medium term. This will facilitate a return to employment growth and a sustainable improvement in living standards.

The Government is acutely aware that businesses, families and almost everyone in our society are affected by the deterioration in economic conditions. In the forthcoming budget we will bring forward policies that will ensure the burden of adjustment is spread as fairly as possible. In anticipation of budget day, I look forward to hearing the views of Senators.

Martin Mansergh (Tipperary South, Fianna Fail)
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Yes.

Marc MacSharry (Fianna Fail)
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I welcome the Minister of State, Deputy Mansergh. I also welcome his predecessor, Mr. Parlon, who is in the Visitors Gallery.

I am glad to have the opportunity to make a few points on the forthcoming budget. As has become customary, I must commence by making a basic rebuttal of what Senator Twomey stated. He always frames his contributions on matters of this nature by stating we got the country into the mess in which it finds itself and that it is important to learn the lessons of the past. To an extent, I agree with him. Many of the gains made since 1987 can and will be made secure as we look to the future. Any objective analysis of what has happened in the past 20 years or so must take account of and acknowledge the fact that as exports began to decline from the mid-1990s onwards, they were replaced by a tax base that was fed by transaction-based taxes such as stamp duty etc. As everyone now knows, such a position was not sustainable. If, however, we are to engage in an objective analysis, it must also be stated any manifesto produced by Fine Gael, the Labour Party, Sinn Féin or an Independent Member during the period in question would have advocated higher levels of expenditure across various departmental Votes.

There is no question that the world is a very different place. There is also no question but that mistakes were made. Senator Twomey has referred to those who predicted what would happen and used the ancient Greek word "hubris" - which relates to someone who is arrogant or presumptuous - when talking about the actions of previous Governments. It would be presumptuous of the Senator to state that had Fine Gael been in power, it would have done things differently. The reality is that a stopped clock is right twice a day. As much as anyone else, in its election manifestos Fine Gael argued for increased expenditure, rates of pay etc. It is arrogant and presumptuous to state matters would have been different if any other party had been in power.

Senator Twomey referred to the former Minister for Finance, Mr. McCreevy, who held the view that if the resources were available, they should be made available. Had we known what might occur, there is no question but that this approach and the expenditure and plans relating to it would have been adjusted accordingly. Circumstances have changed and, like any responsible regime, the Government has changed its mind and is trying to implement the policies that are necessary in order to allow us to meet the challenges we face.

I take the opportunity to suggest a number of items I would like to be included in the budget. I am not stating they will form part of the budget. We can have the debate after 9 December on what we think of the budget.

It is important that people remain positive, optimistic, constructive and realistic. Some €56 billion is being spent, while, relative to this, very little is coming in. There is no question but that serious action must be taken. We are all aware of the difficult challenges and the need to make an adjustment of €4 billion in the forthcoming budget. Decisions that will have a severe impact on every household will have to be taken. As the Minister of State indicated, we must try to spread the pain and difficulties that will be forced upon those households as fairly as possible. We must also do everything possible to ensure those who are most vulnerable and least well off will be protected to the fullest extent possible.

When introducing the pre-budget outlook in the Dáil, the Minister for Finance, Deputy Lenihan, indicated that the scope for increases in taxes was minimal and that reductions in expenditure would be the priority on this occasion. According to Davy Stockbrokers, the budget's only real job will be to outline the split of the €4 billion package to which I refer, not to alter its absolute size, on either side. Davy Stockbrokers also stated a fiscal consolidation focused on expenditure would be more successful and boost competitiveness.

As the Minister of State indicated, the aim in the budget will be to stabilise the public finances and reduce the budget deficit back below the European Union's 3% limit by 2014 in order to ensure we regain international competitiveness. While I agree with Senator Twomey that it is vital that there should be a correction of expenditure and that the tax base should be broadened, it is also important that we do everything possible to restore our competitiveness. It was not, as Professor Colm McCarthy noted, just the cutbacks and reductions in various expenditure streams in the 1980s which led to the high growth rates of the 1990s, it was also the increases in revenue that occurred. There are many differences between Ireland's position now and in the 1980s when we had our own currency, could reduce interest rates and benefited from transfers from the European Union. Currently, there are fewer such transfers, Ireland is part of the single currency and we no longer have full control over interest rates. I do, however, agree with Senator Twomey on the need to restore competitiveness.

It is predicted that the economy will contract by 1.5% next year. This will occur in the aftermath of a 7.5% decline this year. Annual growth is expected to turn positive in the second half of 2010, but this may not occur until 2011. As the Minister of State indicated, the rate of unemployment is expected to peak next year at approximately 13.75%. If corrective action is taken now in order to stabilise the deficit, it is expected the general Government balance in 2010 will be minus 14% of GDP. Ireland's income is approximately equivalent to that obtained in 2003 through tax revenue, while its expenses have increased by 70% in the interim. In other words, we are spending in the order of €22 billion more per annum than we are generating in tax revenues.

On a previous occasion Senator Quinn inquired whether, if it arose, we would embrace the opportunity to return to our lifestyles of 2003.

David Norris (Independent)
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Of course, we would do so.

Marc MacSharry (Fianna Fail)
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The vast majority would do so. Many people have lost their jobs in recent times and we must bear in mind the prospect highlighted by Senator Quinn when contemplating the difficulties we will be obliged to face with the budget for this and succeeding years. Two to three budgets will be required in order to rectify the situation. While it is estimated that adjustments of €4 billion will be required in each of the next three budgets, I hope current income and revenue levels will hold in order that we will not be obliged to make even greater cuts.

As the pre-budget outlook states, "Evidence from international organisations, such as the IMF, EU Commission and the OECD, suggests that consolidation driven by cuts in expenditure is more successful in reducing deficits than consolidation based on tax increases". However, a broadening of the tax base will be necessary because we have a high level of services and, compared to other nations, a low level of taxation. The latter must change. For credibility purposes, and acknowledging the great efforts and progress made in Government Buildings in the partnership negotiations, it would be just to have a higher tax rate for earnings over a certain amount, whether that is €100,000 or €150,000. I have no doubt about that.

If we went through the 226 individuals in the Oireachtas we would not get consensus on the various bodies or services to be cut as envisaged in the McCarthy report. The Tánaiste mentioned that some of its suggestions appeared ridiculous and I concur with that. However, many of these measures will have to be introduced. I hope we can get on with it, that they are as fair as possible and that over the next two years we achieve very substantial savings.

In 1977, a disservice was done to the country by the abolition of domestic rates. While it was introduced by a former member of the Fianna Fáil parliamentary party, Mr. Martin O'Donoghue, with the benefit of hindsight it was a mistake, not that one could envisage the reintroduction of a domestic rate as it would be political suicide for anybody to advocate it, but we need to focus on local government funding. If a charge similar to a domestic rate, a property tax or that which is in Newry in Northern Ireland was introduced it would mean that Sligo Borough Council instead of having to beg centralised funding for a project would generate funds of its own of between €30 million and €50 million. With that type of income the relatively small urban area of Sligo Borough Council would be able to undertake its own capital projects for bridges or roads and there is merit in this. While I do not believe it will feature in this budget, we must consider it. I do not mean introducing it through broad brush strokes across the board but through a community or property tax which would be just, with an appropriate waiver scheme whereby those most vulnerable and less well-off would not have to pay.

In recent years there have been huge increases in the level of social welfare payments, with pensions increasing from €113 to €230. I do not advocate any cut in the old age pension and I hope other measures can be found. Equally, I do not advocate a cut in jobseeker allowance payments for those who are long-term unemployed. As somebody who is employed I would happily be prepared to pay more to ensure those people can maintain the levels they are at. Having said that, and as a recipient with two children of child benefit, we should examine taxing or means testing child benefit. There is scope for doing so, particularly if one considers that people earning hundreds of thousands of euro per year can perhaps survive quite easily without these payments. That is an area where savings could be made.

I want to mention a very good suggestion for a social welfare chip and pin system, which I have forwarded to the Minister for Social and Family Affairs, Deputy Mary Hanafin, and the Minister for Finance, Deputy Brian Lenihan. I do not have time to discuss it in detail. It was envisaged by Phelim O'Neill, a solicitor and businessperson from the west of Ireland. It is a very detailed proposal on how substantial savings could be made through a chip and pin system. People already have a social welfare card and they would receive their benefits through credits on that card which could be used in the State. There are vast benefits to this and merit in considering it. I hope the Ministers have the opportunity to do so in a meaningful way.

On previous occasions, I discussed an entrepreneurship education strategy for Ireland. With regard to public pensions, I hope the social partners and those negotiating in Government Buildings make the further progress they need throughout this evening to ensure the strike on Thursday can be averted. If we are to tackle this crisis it is vital that we move forward together as a nation rather than stacked against one another as programmes such as "The Frontline" would like, with the public sector set against the private sector, to which I am fundamentally opposed. The successes of the 1990s were achieved in partnership and if we are to get out of the difficulties we are in it is vital that we do so now.

In the north west in particular, and in the six Border counties, the State is haemorrhaging financial revenue, which is going across the Border. This needs to be examined urgently and I go so far as to suggest a special VAT rate for businesses selling in those six counties. At least it would ensure that the revenue stays in the country. A vast amount of money is leaving the country. I do not blame families for seeking better value for money; I fully understand they need to do so in these difficult days. We must help them and the quickest way to do so would be to introduce such a VAT rate in the Border counties as a temporary measure for four or six months. We would see an increase in revenue for the State. Her Majesty would do little to support employment in this jurisdiction and we should do more to prevent facilitating revenue going to Her Majesty's Government at present.

The Government has taken many steps over the past year and the Minister of State, Deputy Mansergh, mentioned several of them. These include the establishment of NAMA, labour market activation measures, the back to education allowance, the work placement scheme, the employment subsidy scheme - I do not agree it should be limited to certain sectors because if somebody is prepared or can save a job through the employment subsidy scheme he or she should be able to do so - and other measures introduced in the supplementary budget in April. Many unpalatable and difficult decisions had to be taken. Nobody sets out to introduce such measures or wishes to do so. However, they are necessary.

I pay tribute to the Minister of State, Deputy Mansergh, for his work and to the Minister, Deputy Brian Lenihan, who has displayed an unbelievable and unprecedented level of competence in coming to terms with a brief that at no time in the history of the world was as complex as it is, with financial services, the banks and the world crisis in which we find ourselves. That was acknowledged by the IMF, the ECB, the OECD, former Taoiseach, Garrett FitzGerald, former leader of Fine Gael, Alan Dukes and other commentators.

Marc MacSharry (Fianna Fail)
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It is of the utmost importance that whatever measures are being contemplated, and I look forward to hearing other Members giving their suggestions, we look after the most vulnerable and ensure they are not penalised and that the pain, which will have to be shared to the fullest extent possible, is shared in a way that those best placed to take it are those who receive it.

David Norris (Independent)
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With the permission of the House, I wish to share time with Senator Fergal Quinn.

Paddy Burke (Fine Gael)
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Is that agreed? Agreed.

David Norris (Independent)
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I welcome the Minister of State. I saw that he enjoyed the tributes to his modesty as compared with his predecessor. I am not the slightest bit interested in political point-scoring by parties. As an ordinary citizen, taxpayer and Member of this House I say a pox on both your houses. I am not really bothered. It is a matter for a further day to have a historical review to see where things went wrong. Now we are faced with a crisis, the dimensions of which have been laid out very clearly by the Minister of State. The figures are shocking; €500 million a week to be borrowed and we will be lucky to have a decline of 1.1% in our domestic product next year. These are horrifying figures. It is right that they should be front-loaded. I agree with the Minister of State that we have to restore our banking system but must we revert to the same kind of system? I am referring to the structure of the system as well as the personnel involved. I accept that we need a good banking system but what does that entail? Investors should believe their investments are safe and credit should be made available for business but that has not been the case in the recent past. I am deeply concerned about NAMA. I do not intend to show malice towards the Government because we were all enmeshed in this but I suspect the sums may be wrong. Recent news reports indicate an additional €1 billion in banking deficits. Banks are having to defer interest payments on bonds, including those now due. The signs are poor, which is why we need a positive review of the situation.

This morning I attended a business breakfast meeting which was addressed by the chairman of Aer Lingus, Mr. Barrington, a very charming man. We must be careful not to cause further damage. I have been contacted by Aer Lingus employees about their pensions. We are in danger of doing another Irish Ferries job, given that the airline is transferring its assets to a new company registered in the United Kingdom. We may find that all the pilots of our national airlines are hired on lower wages from eastern Europe. I do not think that would be good for the economy. Perhaps the events which led to the closure of SR Technics are now a matter of history.

I have to laugh at Senator MacSharry's remarks on the North of Ireland. I recall the Minister for Finance's call for patriotism during last year's budget debate. We have not seen much patriotism from the banks. People would not demean themselves to take €500,000, while the little people pay tax, as that horrible American woman said. There was not much patriotism among the people who headed across the Border while they were supposed to be on strike but the Government led us to this situation. I questioned the sense of increasing the rate of VAT by 2.5% on the day that it was lowered by the same amount in the United Kingdom. That was a daft decision in the light of the land border between our jurisdictions. As a result of allowing property speculators to impose upward rent reviews only, Grafton Street became the most expensive street in the world. Add the increase in rates and one strikes three hammer blows against the capital and other towns. If the haemorrhaging to the North continues, a further 17,000 jobs will be lost.

I agree with the proposed suspension of the general round of increases and would be the first to volunteer a 20% pay cut but such gestures are useless if they are from individuals rather than across the board. I can afford a pay cut but that will not make the slightest difference unless those who can afford it contribute most. Similarly, I acknowledge the need for a ban on recruitment but advise the Minister of State that sensitivity is needed. In the past programmes which had been given permission to hire staff before being axed by previous bans on recruitment resulted in undelivered services and a couple of old freaks who were stored somewhere and paid out of taxpayers' money to do nothing.

The 7% reduction in regard to pension arrangements and the incentivised early retirement scheme is fine but, again, the implementation of these proposals must be nuanced. We have already seen in the case of the Garda that the most senior officers got out quickly because they were afraid that in the budget their lump sum payments would be whacked. In several Departments early retirements compounded the lunacy of decentralisation. I understand many of the staff in the Department of Transport who have transport expertise have gone or are going. I hope the excellent personnel who continue to work in that Department do not leave because it is important to press ahead with the metro project.

The development of a private hospital in Sligo represents yet another drain on taxes. However, the real Scrooge cut was to the Christmas bonus. We would all give up 20% if the Government were to restore it. Last year I attended an excellent briefing by the Society of St. Vincent de Paul at which the suggestion was made that the fuel allowance be front-loaded. It is idiotic to stagger it over several months because recipients have to pay up-front for oil and other heating fuels. Women are particularly disadvantaged because their lower wages mean they have lower savings. MABS needs additional funding because it has insufficient staff to provide its services which are absolutely necessary.

I am in favour of a windfall tax on property development but again I ask the Minister of State to ensure the proposal is nuanced. I am sure he is familiar with Westport House which may be facing bankruptcy. I will forward to him the letter I received from Jeremy Browne on the matter.

For God's sake, let there be no further cuts to overseas aid. The Government should restore us to our proper position of heading towards the figure of 0.7% of GDP. The decline means we will continue to reduce spending, even if we leave the target intact. Will the Minister of State raise with the Minister for Foreign Affairs the urgent necessity of cutting all intergovernmental aid to Uganda in the light of the introduction in that country of the death penalty for homosexual activities? I do not think any Member of the House, no matter how extremely reactionary his or her views may be, would welcome such a development.

The scrappage scheme proposal is interesting but the Government should be careful. A similar scheme in the United States led to a environmentally unhealthy bulge. Why not increase tax on petrol? That would address the principle of the polluter pays. We need these cuts and people like me are prepared to take whatever medicine is doled out because we are lucky enough to afford it. However, we must protect the vulnerable and be nuanced in our approach in order that budgets do not conspire to destroy the system.

Feargal Quinn (Independent)
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I welcome the Minister of State and was interested to listen to his contribution. We have a crisis on our hands. Our immediate priority is to stabilise the deficit at this year's level which is already one of the highest in Europe. However, this stabilisation which will require an adjustment of €4 billion is not nearly enough. We should be cutting €8 billion.

I have a problem with the urgency with which the issue is being addressed. Last week Fitch Ratings downgraded Ireland's credit rating. It also downgraded the rating for Spain which had a similar problem and cut its level of public expenditure by 12% to 15%. The Danish deficit figure is seven points better than ours and people there have accepted 20% cuts. The IMF forced Latvia, Hungary and Estonia to cut by as much as 30%. What would happen if this was a business rather than a government?

David Norris (Independent)
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Would the Government buy a used car from Fitch?

Feargal Quinn (Independent)
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Would the Government buy a used car from any company, the rating for which has been downgraded by every agency in the world? We owe so much money that we have to borrow €500 million a week, as Senator Norris reminded us. No company could survive in that way. What would a CEO do? He or she would tell the stakeholders, his or her customers, staff and suppliers that the company faced a real challenge, that it would not be enough just to tick over, that the company would have to do something much more urgent to get back to where it was. It is easy to say, please, do not hurt the vulnerable and the others.

Last week I asked Mr. Colm McCarthy at a meeting of the Joint Committee on Finance and the Public Service what would happen if we really had to take cuts that brought us back to the standard of living we enjoyed in 1999. He said we would not have to go back that far - just to 2003. I can recall what happened in 1999 well and in 2003 even better. Our standard of living then was quite good. To those who ask the Minister not to touch the vulnerable, the old age pension, children's and jobseeker's allowances or the Christmas bonus I say we have to do this to get back to where we were in 2003. It sounds disastrous and people ask that these benefits not be touched.

The Forfás report, The Cost of Doing Business in Ireland in 2009, contains the answer to our competitiveness problem. It will not be solved by moving the four Border counties south. We have to become more competitive. We must get our costs down and must find a way to do this, which means taking difficult decisions. If these decisions returned us to the standard of living we enjoyed and our way of life six years ago, we could put up with this. I went to Dundalk when a store was closing and asked the people working there where they would get jobs. They said they were not sure. When I said they would probably have to go to Newry, only a 15 minute journey from Dundalk, they told me the rate of pay there was only one third of what they were earning. How can we manage to compete on the world market in that way?

I spoke on Radio Ulster last week. The presenter of the programme spoke about the fact that so many people from here were travelling north and asked about the jobseeker's allowance and other rates of pay and commented that our public service was not finding it easy to take cuts in pay. He said we talked about people earning €50,000 as being poor. In Northern Ireland £50,000 or €50,000 would provide a very high standard of living compared with the standard here. We must take steps to get our cost of living down and bring down the cost of doing business. It is not enough to take €4 billion out of the economy this year, we must take €8 billion.

Senator MacSharry talked about what had happened 20 years ago. Between 1987 and 1989 we took very tough decisions that got us back on track very quickly. We were not afraid to take them. There was strong leadership at that stage and it was said we would not succeed by spreading the cuts over many years but by doing so in a much shorter period. Within ten years we had doubled the number of people working in Ireland. We got the economy right within three years. We must do something like that, which involves leadership by the Government. It needs a Government that states, "We can do this," very much like President Obama who said, "Yes, we can." We can do it. Let us make sure we stop dithering, that we stop dodging the issue and that we grab hold of and take some tough medicine. That would put us back only to the standard of living we enjoyed six years ago. If we were to put up with this for a couple of years, we would be back where we were. We will not do this unless we become competitive and are willing to take the tough medicine. It is easier to take the tough medicine now than to say we will spread it over six years. If we are unwilling to take that medicine now, it will be spread out and we will not get on top of the economy. Let us go back to President Obama's phrase, "Yes, we can." We can do it, but we must be determined to do so.

Dan Boyle (Green Party)
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The pre-budget position is ominous and requires difficult decisions to be made not only by the Government but also by the political system. Our room for manouevre is painfully small and we are led by circumstances not entirely within our control. We may not be doing this to the same extent as other countries. However, we have some advantages such as a high level of exports. We have also managed to keep Government borrowing within European averages. Even after this year, we will rate high as a country with a high level of wealth and an average level of borrowing. We will be in a better position than most other European countries. However, we cannot continue to borrow €500 million a week. We must show due cause to those from whom we borrow that not only do we have the capacity to repay but that we will not rely on continued borrowing. The gap of over €20 billion or €22 billion must be closed. The political debate is on the question of whether it should be closed over a short or long period. The agreement we sought from the European Commission allowed us to do so until 2013 but that has been extended to 2014 because already this year we have seen a shortfall in taxes of €2 billion.

We must remove €4 billion from the budget on 9 December. The implications of this, even if it is not what other countries are doing, are severe. That is more than we have done in any budget in any given year. It involves making decisions that would seem unpalatable at all other times. Our choices are stark - we can reduce public expenditure, as the Minister for Finance has indicated. If we bring in only €32 billion and spend approximately €50 billion, we must consider our expenditure. We need to reduce capital expenditure, which is high in European terms but we need to maintain it at a level that will allow us to continue to develop infrastructure and be competitive. We need to measure our level of public expenditure against that of our competitor neighbours.

A relative of mine works as a personal assistant to the registrar of a British university. Their salary is £18,000. The equivalent salary here would be twice that amount, even in sterling terms. We have deluded ourselves in recent years. We have inflated wages and, consequently, our cost of living, beyond a level we can sustain. The effect of the budget on 9 December will be to introduce an air of realism into the economy. Unfortunately, the Minister for Finance and the Government face the challenge of sharing it out in a proportionate way. We all know the consequences of the 1927 budget in which Ernest Blythe reduced the old age pension by a shilling.

Martin Mansergh (Tipperary South, Fianna Fail)
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It was 1924.

Dan Boyle (Green Party)
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People think of the value of a shilling in today's terms, but a shilling represented 10% of the old age pension at the time. We cannot imagine the Government coming up with a proposal to slash social welfare payments by 10%, especially pension payments.

Feargal Quinn (Independent)
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It was 16%.

Dan Boyle (Green Party)
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That is even higher again. Very difficult decisions will have to be made. The Minister has said that his room for manoeuvre on tax rates is very small. We increased taxes in the April budget, especially through the levy system, and this has improved the effective rate of taxation paid by higher earners and the level of money paid through income tax. Our scope might not be as large this year, but I believe that on 9 December, the Minister for Finance must refer repeatedly to the report of the Commission on Taxation. We are not just talking about bringing in additional money through taxation. We must bring about tax reform. There is much fat in the current tax system in instruments such as tax reliefs, tails in tax reliefs that have already been ended, the tax residency rules and what are prosaically known as horizontal measures, where people on higher incomes from €250,000 and €500,000 have an effective tax rate of 13.6%. We have to be seen on budget day to be sharing the burden most proportionately. If there are no figures to show that the tax take among those income groups has changed radically, then we will have failed as a Government. We will set a bad precedent in our efforts to improve the economy.

We also have to address the question of public sector pay and numbers. Initially the McCarthy report was derided politically. Taken as a whole, many of its recommendations are practical and should be introduced quickly. It refers to getting rid of bodies that do not seem to have any practical purpose, amalgamating bodies that could work more effectively together, and to practices within public sector spending that could help reduce costs. Nonetheless, part of the argument on public sector reform has resulted in an unnecessary confrontational attitude to those who work in the public sector. We are fortunate with the quality of the people we have in the public sector. It happens to be a sad fact that in terms of public expenditure, most of the Government's resources goes into this area. It needs to be examined critically. While I wish those involved in the talks every success in coming up with a formula that addresses the cost of the public service, I would not be that impressed with a deal that is structured around unpaid leave alone. The overall package must include less being paid and fewer people working. Otherwise there will not be jobs in the short term. We are talking about measures that will bring about a change in people's individual circumstances and which will bring down the standard of living to what it was five or six years ago.

As the Minister rises on 9 December and we get to talk about his proposals, I hope we in this Chamber will address the reality of what is ahead of us, not only this year but in the next three to four years. I do not believe that any change of Government would result in addressing these problems differently because our room for manoeuvre is pitifully small. Given the scale of the problem we are facing, the actions necessary and the need for honesty with the people, there should be a greater degree of consistency among all politicians about the nature of that problem. If there are those who continue to say that if we tax differently, cut differently, and pretend that everyone can be kept happy in the aftermath of 9 December, then I do not think that is being honest with the people.

To be successful, the budget must do more than meet the broad economic parameters. In philosophical terms, it has to be a budget that nobody is happy with. It must be a budget of such consequence that everybody will look at it aghast and realise the nature of the problem we are facing and recognise that if we do not take actions of this type, we are not going to recover in time and to the extent we can given the potential we have shown in recent years.

Today's debate is important in setting out the decisions we need to take, but I would also like to hear the extent to which politicians collectively are prepared to address the people about the nature of the problems we face and how we can deal with them in the immediate future.

Alex White (Labour)
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I would like to share my time with Senator Doherty.

Cecilia Keaveney (Fianna Fail)
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Is that agreed? Agreed.

Alex White (Labour)
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There is one reason for a change of Government, and it is related to credibility. We have a deficit that is the most serious in our lifetimes. Historically, it ranks very high on the list of economic crises anywhere in the world. We have seen one of the biggest collapses of a country anywhere on record. However, people accept that there are two components to our deficit. There is a structural element to it and a cyclical element to it. I regard the structural element of our deficit as being the Fianna Fáil element. The reason there should be a change of Government is not so much that a new Government would not have to find €4 billion on 9 December, because we in the Labour Party accept that we have been brought to a situation where that is necessary. We regrettably accept that we must take €4 billion out of the economy this December, and more in the future.

However, I disagree with a point that was made by Senator Quinn and Senator Boyle. When we measure the success of a budget, it should not be about how painful that budget can be. That is a complete abrogation of our role and of the requirement that is on politicians. Are people suffering enough? I can assure Senator Boyle that people already know that this budget will be an unhappy event. It is ludicrous to suggest the measure of our sense of achievement will be in how unhappy people are after the budget and that there will be success if they are screaming, unhappy and annoyed. What a poverty of imagination that betrays on the part a politician to suggest that this should be the case. I accept that the budget will be painful, but that should not be a measure of its success.

We need a broader sense of bringing the community together with what needs to be done. That will require political leadership beyond accountancy economics, which is what we have now. We regrettably have to subscribe to that accountancy economics because we can see the reality of what is facing us in the next few weeks. However, we have a much broader vision that is lacking in this Government. The problem with Senator Boyle's point on a change of Government is that the people do not believe this Government has any credibility, especially the main Fianna Fáil component. They are simply not believed or trusted. All the former Taoiseach's talk this morning about growing bluebells is an example of how deluded both he and the members of his party are about how they are seen by the people. They are not regarded as people with any credibility because they have largely brought us to where we are. If there was no other reason for a change of Government, that is one. Nobody can get away from that reality.

The situation has been described by other colleagues and there is no point in my taking up the short time I have describing how bad things are because we know how bad they are. The serious situation facing us is perhaps best expressed by the unemployment situation. We are now looking at 40% unemployment among people aged 15 to 19 years and 30% among those aged 20 to 24 years. It is no good for the Minister to say the increase has slowed down. As we will see when the figures are released, the increase has slowed down in considerable measure because of the return of emigration, which it is clear and documented is beginning to happen.

The problem I have with the whole approach of the Government is not that it and its advisers in the public service are sitting down to come up with the measures they need in the next few weeks. It is that I cannot believe for one moment that it would be possible or desirable to take any more than €4 billion out of the economy. I respectfully cannot understand how Senator Quinn or anyone else could conceivably justify how the economy would even survive losing more than €4 billion on 9 December. Even the Government does not believe it could survive a bigger whack than €4 billion. The situation that more could be taken out is fanciful, not in the sense that one cannot actually do the sums and subtract €8 billion but because of the impact it will have on people's lives, on public services - the real, everyday services that people need - and on the overall future prospects of the economy. Such a deflationary act would be a seriously retrograde step.

My problem with the Government's approach is not so much that it will do the sums and the subtraction but that there is no vision for anything else. Where is the jobs strategy? Where is the strategy to face the future in terms of turning the economy around? The Minister of State in his speech listed three priorities for Government policy, first, the banking system, second, to ensure the public finances are stabilised, with which I absolutely agree, in case I am misunderstood, and, third, to regain our international competitiveness so as to be in a position to exploit the global economic recovery and to generate employment growth. However, what is the Government doing about any of these things? It is not enough for a sovereign government to say it will take action to position itself so it can take advantage of changes that happen in other countries and elsewhere. We should be agents of our own futures and take steps and have policies that will ensure we can restore confidence in the economy through job creation strategies including - this is where I would agree with many of the points made by Senator Quinn - genuinely targeted assistance to enterprise, small business and people with ideas and those who want to take risks. That should absolutely be part of our turning around what has happened, and it is the sort of thing I want to hear from the Government.

It is lamentable that Government policy is reduced to those three items. This is not because any of those items is wrong. I agree that each one of them is necessary. However, they are far from sufficient, which is the problem with Government policy. It is doing plenty of things that are necessary but it is not doing anything like enough of what is required to turn things around.

Senator MacSharry's contribution was interesting and thoughtful in regard to a number of issues, most strikingly in regard to taxation. If I understood him correctly, he thought there was a strong case to be made for a higher rate of tax for those earning in excess of, say, €100,000 or €150,000. In that, he is reflecting a view taken by Mr. Ray MacSharry, who is not unrelated to him. I agree with that view and my party has advanced that proposal, not, as we are often accused, because we take pleasure in taxing people, but because we have to face the fact that one of the legacies of the past ten years is that we have introduced some progressive new public services that we all support. I do not say the Government has not done good things, whether in regard to special needs assistants, improving infrastructure or the new child care system which is being introduced. All of these things are important and any society or country wants to have those kinds of services. However, what I lay particularly at the door of the Fianna Fáil Party in Government, as well as the vanished Progressive Democrats, is that they sought to persuade people that these services could be funded permanently from the kind of temporary taxes we saw being levied through the property bubble.

We cannot have world class public services without a taxation system to sustain them. The figures just do not add up. I am not in the camp referred to by Senator Boyle, namely, trying to persuade people that everything can be fine and we can have great public services without the answer to the question as to how we are going fund them. We did not make long-term provision in the last ten to 12 years for those public services and the advances that were being introduced. Now, we are left with a situation where we are asking ourselves whether we have to remove these services or whether we must consider, at least in part, what contribution a reform of the taxation system can bring, including an increase in some areas of taxation.

The figures show that we are one of the most under-taxed economies in the world, certainly in the OECD, which has been documented repeatedly. The Government was very happy to welcome the support of Dr. Garret FitzGerald for the NAMA project. I disagreed with Dr. FitzGerald on that but perhaps the Government will also agree with him on his comments in The Irish Times on 7 November last, which is a very clear statement of the position. He said: "[W]hat I find absolutely unacceptable is that because of what seems to be universal cowardice about the need to tackle our unsustainably low level of income taxation – in most cases at a level which no other developed country in the world would ever even contemplate – we are currently prepared to tolerate cuts in our health services that threaten the lives of our people, including in particular our children, as well as some cuts that will weaken our already grossly under-funded education system."

With regard to the trade unions, I respectfully disagree with what I understood my good colleague Senator Twomey to suggest earlier, namely, that there was a sense in which trade union leaders were acting in a perhaps somewhat less than responsible manner, or that they were psyching up their members, as it were, into thinking life could be otherwise than it is. I do not believe that is the case. I do not believe the trade union leaders are doing anything other than giving, as best they can, genuine leadership to their members. They are in an extremely difficult situation and I certainly do not believe the trade union leaders in this country are the problem. We can see the problem. It is not in the trade union leadership; it is much closer to home in this House.

Pearse Doherty (Sinn Fein)
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Gabhaim buíochas leis an Seanadóir White as ucht a chuid ama a roinnt liom. Tá a fhios agam gur díospóireacht iontach tábhachtach í an díospóireacht seo. Cuirim fáilte roimh an Aire freisin. I welcome the opportunity to discuss the pre-budget outlook and to outline some of my party's proposals in terms of where we believe the Government's direction should be on 9 December and beyond. There is an onus on parties in Opposition to provide alternatives. There is no point in us continuing to argue that we do not support X, Y or Z unless we are willing to put forward proposal A, B and C as an alternative. We are the only party in opposition that has submitted a range of proposals to the Government which are costed nearly entirely by the Department of Finance and the Commission on Taxation.

This takes me to the point that whether the Government supports these proposals is an issue we can have a debate on, and we can argue the merits of taking from those who are living on €200 a week or taking from those who are earning €200,000 per year. Let us have that ideological argument. I have no problem with this.

Senator Boyle spoke of honesty. I want to turn that point on its head. It is utterly dishonest for the Government and Minister after Minister to say time and again that there is only one option. There is clearly more than one option. We have provided the Government with an option in terms of our analysis of where the budget deficit can be closed, how we create a stimulus package to keep people at work or get them back into work and how we help families in households that are suffering as a result of the downturn in the economy. These options are costed by the Department of Finance in order that when we say that, for example, standardising discretionary tax reliefs will generate €1.1 billion, it is a fact. Let us discuss, then, whether we should do that or not. When we talk about introducing a wealth tax, we do so knowing it is available in many other European countries. For example, France, Norway, Switzerland, Greece and Holland all have a wealth tax. In the 1970s we had our own wealth tax and the introduction of such a tax on those with assets above €1 million would bring in revenue well in excess of €1 billion. The introduction of a third rate of tax at 48% would again bring in revenue that is badly needed for the State in region of €355 million. The capping of public sector salaries at €100,000 would generate €450 million in savings.

These are examples from a range of proposals costed for the Department of Finance in our document, Road to Recovery. We need an honest debate to discuss the fairness in deciding to cut social welfare rates instead of taxing at a higher rate those who have significant assets and wealth. The average person does not follow these debates and the little nuances that different political parties emit time and again. The Government has done a good job in making people believe there is only one strategy, which is to cut public sector pay, social welfare and front-line services. We have shown this is not the only way.

The Government has also been very successful in saying we have the most generous social welfare allowances in Europe. That is absolute nonsense as we have the third lowest rate for an individual, with the second lowest being the United Kingdom and the lowest being Greece. We have terrible social welfare rates when it comes to individuals and with couples, the rate is just below average. We need an honest debate and we must discuss fairness in the budget.

I do not have time to go through every point in this brochure but I made an appeal, from a parochial perspective, last year when we spoke about VAT rates after the budget. We have two proposals that will deal with cross-Border shopping. The first is that we reduce VAT rates. Given that the Chancellor of the Exchequer in Britain is about to increase VAT rates, now is the opportune time to give confidence to those people shopping in the Twenty-six Counties.

Report after report has shown that the primary driver for people in cross-Border shopping is the purchase of alcohol. Some 50% of all alcohol sold on the island of Ireland is now sold in the North. The consumption of alcohol on an island-wide basis has increased; there has been a 7% drop in the South but a 30% increase in the North. The reality is that we have the highest excise duty in Europe on wine and the second highest on beer. The Minister should take that duty in for the month of the December; if the exercise does not work it would cost €18 million but if it does, it will keep people at home to purchase their alcohol and then the rest of their groceries.

We have seen reports today and yesterday that cross-Border shopping could cost approximately 1,700 jobs. Excise duty could be cut on a pilot basis by 20% this Christmas and VAT rates could be reduced in line with what is happening in Britain. We should try to keep shoppers in each county. I am an all-Ireland person; if people want to travel to Newry that is fine but I want the people of Donegal to stay in Donegal, the people of Gweedore to stay in Gweedore and the people of Dungloe to stay in Dungloe. That is how parochial we are. We must build our local economy.

Such action makes sense as we are losing a significant amount of money. I ask the Government to consider some of the proposals in the Road to Recovery document.

John Gerard Hanafin (Fianna Fail)
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I welcome the Minister of State. In joining the debate I note there was a call for a change of Government. Considering the past two years, there was a divergence of opinion on major issues in the Opposition parties and I wonder what kind of Government they would have formed and how long it would have lasted. It would not have even got over the first hurdle, which was the agreement to underpin the deposits in the banks. If they could not deal with such a simple issue undertaken by all major European economies subsequent to our underpinning of the banks, it is surely time for a party which is in a position and willing to take the tough decisions to undertake them.

These are tough decisions. We find ourselves in an almost unique position and going back to the 1930s is the nearest parallel we can find. It is fortunate we have the 1930s as a template as we know what we should not do. The first action that period shows us should not be taken is to act on the temptation to impose trade barriers. That was taken from the system very quickly and the American economy ensured it would not happen. The Gramm-Rudman Act created all the difficulties where tariffs started to increase around the world.

The second issue was to implement a Keynesian policy of spending money at a time when the public was beginning to slow its expenditure. That is beginning to show positive results. There is a clear consequence to that because in the printing of money, somebody loses out; unfortunately for people holding American debt, the value of the dollar has decreased because of the amount of extra money primed into the economy.

Notwithstanding this, although the recovery appears tentative, it is there. We saw a reversal during the week in Dubai, where debt was put into default and the stock market collapsed for a short period before recovering on the basis that things were not quite as bad as people had feared. The recovery is tentative but we appear to be on the right track.

Being on the right track means the Government took steps which had to be taken. The first was to stabilise our banking system and we are in the middle of the second step, the stabilisation of our economy and fiscal position. I have no difficulty in doing what needs to be done as long as we do it right. It appears the Government has spent hours, days, weeks and months in ensuring the forthcoming budget will be fair. It appears there is no lack of compassion in Fianna Fáil but as Mr. Colm McCarthy quite succinctly put it, there is a significant lack of money.

Fianna Fáil and the Government would like to have kept the rates as high as they were, and we did so in the good times. I have no doubt there will be changes but the Government will ensure such alterations are targeted, and only those who can afford to take the cuts will be affected. It is very easy when in Opposition to say that when the Government does A, it should have done B, when the net result is the same.

If a very high earner is taxed more or has social benefits decreased, it probably has the same net effect. Invariably, the Opposition has said it would have been much better if the Government acted in a different way. People who are very high earners are invariably those people who have availed of every possible tax shelter. They have section 23 and section 48 tax exemptions, allowances for capital allowances and we can be sure they will have invested in employment benefit opportunities where they can take tax relief on investing in a new business. What great benefit would accrue from increasing the taxation on such people? There are ludicrous cases where people on as much as €100,000 per year could be in a negative tax wedge; in other words they get more from the State in benefits than they pay in tax. That has to be rectified and I hope it will be rectified by the Government.

There is the idea that the problems can be solved by just increasing taxation and in one fell swoop everything would be cleared but I am sure that route would have been taken if that was the case. That route was taken in the 1980s and it cost us dearly. It took us a long time to get back to a competitive advantage. Considering the amount of tax that is being paid, a very large portion is being paid by 4% of people. That is the way it should be and I have no difficulty with those who can afford to pay doing so. As I have also said, those who can afford to pay can also do without their benefits or at least with fewer of them.

Where is this leading us? There will clearly need to be cuts in public expenditure. We have come back from the brink and the Government was largely responsible for bringing the country back from that precipice. The public, in the fullness of time, will see that we did not take popular or political decisions. We did not take decisions to put on the long finger the hardship entailed in getting our economy right. We are looking to correct the economy now. We are doing it in a measured way to ensure those who are less well off do not suffer as a result of us taking the action we need to take to ensure fiscal stability in the economy. The economic projection that there will be a GDP drop of 7.5% this year, followed by a drop of 1.5% next year plus the fact that unemployment levels are decreasing in terms of the number of people and the rate at which they are losing their jobs are positive signals. They are not the new dawn but they are heading towards a new dawn. The only way to get to a new dawn is by ensuring we have our banks right. As I said, the Opposition would not have done this correctly, but we are putting the banking sector on a sound footing. We must also get the economy right, which we are doing, and be competitive. The private sector is becoming more competitive and there has been a 7% fall in real terms in our competitiveness index. In other words, costs here have decreased by 7% and it is becoming easier to attract manufacturers back into the country and get businesses up and running.

The public sector has also played its part. It saddens me when I hear people pitch the private and public sectors against each other. The public sector has played a marvellous role in ensuring the nation achieved what it has achieved. It is worth noting where we are currently. Despite all the changes and difficulties and despite the current position with the economy, the gross domestic product per head in Ireland is $52,390. In Germany, it is $38,520, in Denmark, it is $57,000, which is one of the highest in Europe, and in Italy, it is $36,000. In other words, we are looking at a situation where major economies have significantly less output per person than the Irish economy. In the United Kingdom GDP per head is $36,000 and in Sweden, a major economy, it is $46,000. GDP in Switzerland is $60,000 per head.

The economy starts from a very high base and we must ensure the public realises the need to get our finances in order and the benefits this will bring to the economy and bonds. We want to get to a situation where economists can agree that Ireland is doing what needs to be done. That is what economists are saying about the economy. I suggest members of all the major parties recognise there is no alternative. What other Members here have spoken about are different methods of getting to the same point, but there is no alternative to what the Government is setting about doing.

In the past, I have often quoted The Economist when it suited. It is a fine publication but an article in it comments that Ireland is tapping the same capital markets as the richer stronger nations and that we may find it more difficult to access capital. The fact that people are now saving 13% of their income, rather than the usual 2.5% to 3%, has proven a boost for the Government. We are borrowing practically all we need to borrow at home. Therefore, we can fund our deficit at home from people's savings. This is positive because at least our borrowing is not foreign borrowing. Therefore, I hope The Economist will adjust its expectation that we may find it difficult to get funding in the world markets. We do not need to go to the world markets for funding.

The Government will ensure there is fairness and equity in the budget, but it is not going to be an easy budget. When Senator Boyle spoke earlier about all round hardship, I understood he meant there would be fairness all round and that everyone would share the burden in accordance with his or her ability. That is what I hope for in this budget.

Paschal Donohoe (Fine Gael)
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I welcome the Minister of State at the Department of Finance, Deputy Mansergh, back to the House. I listened to the contributions of Senators Boyle and Hanafin and was struck by the number of times I heard them say there is no alternative and there is nothing that could be done differently. Listening to them I realised that not only is the economy under the vicious assault of which we are all aware, the nature of politics we practise here is under assault. I have heard person after person stand up and say there is no alternative nor no other way other than what the Government is doing.

There is always an alternative. Politics is about generating choices and options and there are always different ways of handling things and tackling a crisis. Fine Gael, in its contribution up to now and in the contribution it will make before budget day, has shown it would respond and handle this crisis in a different way. Senator Hanafin praised the care and the lavish detail the Government has given to preparing the current budget, but that is what the Government is there for. That is its job and that is what we expect from it. If less time had been spent running around the country opening swimming pools, newsagents and hairdressing salons between 2002 and 2007 as opposed to the Government doing its work and looking after the long-term plan for the country, we would not be in the mess we are in now or we would be in less of a mess. Senator Hanafin praised the Government for its care and attention, but if a fraction of that attention had gone into considering a long-term plan for the country and economy, not just by the next election, but afterwards, we would be in a better place now.

If times had been a little less good in previous years, they would be a lot less bad than they are now. That is the choice we faced and the reality of where we are now. When preparing for this debate I took a quick look at the front pages of two main investment newspapers, the Financial Times and The New York Times, to see what they are saying about Ireland's current position. I want to be serious and move away from party politics in this regard. Today's Financial Times printed an article entitled "Investors tear up old rules on behaviour" which examined what is happening in Dubai. Having analysed the situation in Dubai and what is happening with regard to debt there, it turned its attention to Greece and Ireland. It mentioned that Ireland's debt-to-gross domestic product is forecast to rise by 80% next year. This was the front page story today.

With regard to the story in The New York Times, after it mentioned what was happening in some parts of eastern Europe, it turned to Ireland and stated the burdens are even greater in Ireland than in Latvia because economic boom here was driven by easy credit and soaring property values which have now given way to precipitous busts. It stated that public debt in Ireland is expected to soar to 83% of gross domestic product next year, from 25% in 2007. Today, when considering where the markets might be looking to next for the next sovereign bond scare, the front pages of two of the main investment newspapers mention Ireland. This brings home to us the precipitous state in which we find ourselves.

When Senator Hanafin began his speech, he started off with a little diatribe against the Opposition and talked about coherence between the Opposition parties. We have no requirement to be coherent. We are here to put forward our different political ideas and try and gain the support of our parties. We are not in government. One gains coherence if one is lucky enough to be in government. That is when the discipline kicks in. We have Fianna Fáil saying one thing about the tax burden. It says it wants to make all the savings out of expenditure as opposed to taxation, but Senator Boyle, on the front page of The Sunday Times every week, says the exact opposite. He says what we need to do is broaden the tax base. Where is the coherence there? There is a basic incoherence.

Another matter strikes me repeatedly and it was very apparent during the debate. I refer to Senator Boyle's contribution. He said that when people heard the budget, they would gasp. What is there to be praised? We are not here just to make people gasp but to offer them hope and to say there is a way forward. When Senator Hanafin was making this point, he deliberately slowed down wonderfully and I thought there was going to be an epiphany, that he was going to reach out to us across the party political divide and make a point on which we could agree-----

Rónán Mullen (Independent)
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Really.

Paschal Donohoe (Fine Gael)
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-----but I was sadly disappointed. While he talked about bringing the country back from the brink, he failed to acknowledge the role played by the Government in bringing the country to the brink in the first place. The need to stand and accept pain is quoted repeatedly.

I have worked in the real economy and was fortunate to do so for many years. I have been through it all - creating and losing jobs. The economy has one simple purpose - to create wealth which, in turn, will allow us to create employment and provide security for people. Members on the Government side talk about the need for cutbacks and adjustments, objectives with which I agree, but the only reason this should be done is to create the space needed to allow employment to be created and to put in place creative employment strategies to maintain employment and enhance our competitiveness. I note there is a subtle positioning of the need for dialogue. The Government wants to confine the debate to the need for cuts and adjustments, a word which is both clear and dangerous. It wants to confine the debate to what needs to be taken out of the economy. We need to do this, for the reasons highlighted in the newspapers from which I quoted, but that is only half the job that needs to be done. We are here to give people a feeling and a vision as to how employment will be created.

I refer to a document which I have studied and read in its entirety and which is being praised repeatedly entitled, Towards the Smart Economy, which was launched by the Government. It is without doubt one of the worst documents I have ever seen published by any Government in recent times. All it does is sum up everything that has been happening. There are no ideas for new initiatives, no new plans to make a difference to our future. It does not contain a single deadline or a single target delivery date. It is not possible, therefore, to evaluate how the specifics of the document will be delivered because every attempt has been carefully made to make it bland, non-measurable and not time specific.

Fine Gael has a very different view. Measures must be taken to recognise the need to cut the fiscal deficit and bring borrowing under control, while, at the same time, focusing on the one aspect that will make our recovery sustainable - the creation of employment. Every job created means an additional €20,000 in tax revenue and savings to the Exchequer in social welfare. My party made a proposal last week and there are more to follow, including a fully costed plan to reduce the higher rate of employer's PRSI by 20% and the lower rate by 50%. This plan would cost €900 million to implement. We have suggested the elements that would pay for such a plan, including broadening the tax base by the implementation of a carbon tax and a windfall tax on power generation activities and the abolition of the employee's PRSI ceiling. Our plan would accomplish two things, only one of which is being pursued by the Government. It would make a contribution to reducing the fiscal deficit to make the country secure again and accomplish the one objective that would make our recovery sustainable - job creation. The absence of a strategy to achieve this leaves a gaping hole in the Government's plan.

Fiona O'Malley (Progressive Democrats)
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I must admit I am disappointed by what Senator Donohoe has had to say. I wrote it down because I could not believe it. He states that in government that is where the discipline kicks in, as if to say one can have any fanciful notion one wishes while in opposition because there is no need to be consistent and disciplined and one's numbers do not need to add up.

Paul Bradford (Fine Gael)
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That sounds like Fianna Fáil.

Fiona O'Malley (Progressive Democrats)
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That does not amount to responsible politics, especially in the current crisis. The temperature has cooled somewhat, which is fortunate as we approach the budget. The Taoiseach was wise last week in inviting members of the Opposition to come up with ideas. We must avoid leading the people up the garden path, as has often happened up to this point. Therefore, I am astonished at Senator Donohoe's comment-----

Paschal Donohoe (Fine Gael)
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I meant coherence between political parties.

Pat Moylan (Fianna Fail)
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No interruptions, please.

Fiona O'Malley (Progressive Democrats)
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It is not good enough because the people need to know. The Senator will regret having made that point and his party will regret conducting itself in that way. The country needs to hear it from all of its political leaders, not just from the Government exclusively. It needs to hear how we can together and realistically solve the country's problems.

I was very encouraged when I heard the Minister of State's contribution because it marked out exactly what we needed to do. In many ways, we all know what we need to do; it is a question of how we go about it. I hope that next week the Minister for Finance will have the courage shown by the Minister of State and make the necessary difficult adjustments. The one consistent lesson to be learned from previous economic downturns is to ensure we do not repeat the mistakes of the past and fail to grasp the nettle and make the required adjustments quickly enough.

We all know that next week's budget will be painful. We have all learned to live at a certain standard but we no longer have the money to finance it. The Minister for Finance made a point during the debate on the NAMA legislation which was overlooked; he said everyone was rightly concerned about the liabilities of €54 billion which might be produced with NAMA. However, nobody seemed to be looking at the deficit of €20 billion year on year which being incurred. That is what the Minister has to sort out. A total of €500 million a week is needed to finance it. This means that every one of us will have to feel the pain, which does not give anyone any pleasure. However, we need to be realistic and should not pretend there is another way.

Like other Members, I have attended briefings by various interest and representative groups which have asked that their sector not be touched. They all have legitimate reasons for asking for this. There was a time when we had money to give to everyone. It reminds me slightly of the 1977 budget, when everybody got a bit of everything and there was nothing left for the farmers, although we were already giving them everything possible. In recent times there was money available for everybody. However, time and again after the Budget Statement people asked why an allocation was not bigger. That was the cry. Ministers were encouraged to spend money because it was available, particularly on the old age pension, and the Government was determined to bring it up to a high standard. That was then but, unfortunately, this is now. We can no longer afford increases and cutbacks must be made. I am glad the old age pension is not likely to be touched and I hope that is the case. Life is difficult for elderly people on a fixed income because that is their lot whereas unemployment assistance claimants have the capacity through training schemes and so on to return to the workforce and not to remain on social welfare for the rest of their days. It is desirable to protect fixed incomes for the elderly, as they have given their lives to the State.

Last weekend I read the papers published by the MacGill school in 2007 about what was next for the economy. People of every political persuasion did not spot the problems and it is worth reading these papers because no politician saw what was coming. Parties were trying to outdo each other with generosity. I accept Senator Donohoe's criticism that the parties responsible for getting us out of the current predicament must take responsibility for getting us into it. However, the Government parties have not shunned responsibility for where we are, although that does not make the next task of solving these problems and having the courage to make adjustments easier nor does it make it more palatable for our citizens to have to face up to and accept the impending cuts. The Government will not take pleasure from the cuts that will be announced next week but I hope it will continue to discuss them with the public. The last thing a Government can do is to continue cutting public services without communicating its message clearly as to why they are being cut and for how long.

I am also worried that people are focused on the upcoming budget whereas it will only be one of three tough budgets. However difficult this year's budget will be, next year's will be equally difficult and the Government will have to seek the same amount in savings. That is why realism needs to come into play because it is not the case that if we all hold tight, this will be as bad as it gets. It will probably be much worse next year, although there are positive signs such as price reductions and increased exports. We need to be careful about that because, as Senator Donohoe said, the only way to revive the economy and to create jobs is to restore competitiveness. That means reducing costs, in particular labour and energy costs. While energy costs have reduced, they have a long way to go. We need to focus on restoring competitiveness. We cannot lose sight of the fact that we have a youthful, highly skilled and highly educated workforce and it must be ensured the unemployed can enhance their skills in order to be prepared for the upturn when it comes.

Senator Quinn has raised the issue on two or three occasions of the rate of pay for workers in the South compared with their compatriots in the North in equivalent jobs. That speaks volumes about the bind we are in. I hope a strategy will be devised to get us out of the difficulties we face but we all need to be responsible and that is why the Opposition parties, and not just the Government parties, also need to be disciplined for their own credibility. We all should be realistic about what can be achieved for the country in the future.

Rónán Mullen (Independent)
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Cuirim fáilte roimh an Aire Stáit. In 2008 the economy entered the worst recession in 80 years, sparked by the global credit crunch and the collapse of the domestic property bubble. The scale of the economic collapse was staggering. In 2006, at the height of the boom, the private sector was a net borrower to the tune of €10 billion. In 2009 the private sector will be a net saver of €20 billion a year, which represents a withdrawal of €30 billion from the economy annually because of lower spending on housing and consumer goods, and less capital investment by businesses. The massive withdrawal of capital contributed to a major growth in unemployment, which doubled from 5.9% in June 2008 to 11.9% in June 2009. It currently stands at 12.9%.

Government spending is running at more than €500 million a week in excess of income and the Government will need to borrow €26 billion this year to fund the differential between income and expenditure. This equates to a significant percentage of national income. While the Minister for Finance is correct to point out that the one-year extension of the budgetary deadline granted by the European Commission is welcome, we are in a serious position and I agree with him that soft pedalling the necessary adjustment in the coming year is not an option. If corrective action is not taken by 2011, the deficit will increase to 15% of GDP.

The scale of the economic challenge facing the nation is daunting. Few families have not experienced their incomes shrink or have not had a family member lose a job. These are challenging times and I do not envy the Minister for Finance his job. I wish him well, as his role is crucial in preparing the ground for an economic recovery. While I disagree with him on many issues, I acknowledge he has risen to the challenge and he is one of the few showing real leadership at a dangerous time in the history of the State. Handing out that bouquet, which will not put him up or down, highlights that one of the reasons we are faced with our current problems is bad leadership in the past. There is no point pretending this is due to international circumstances. The leadership we had was unable to say "No". Such leadership is always bad leadership. It must be acknowledged folksy communitarianism was no substitute for principles-based governance, which provides for people to be told what is excessive. A nanny who cannot say "No" will spoil a child and a government that cannot say "No" will spoil an economy. That is why there is a massive disconnect between Exchequer revenue which, as the Minister of State pointed out, is in the same range as a percentage of GDP as it was in recent years, and massively increased public spending.

It is crucial to acknowledge that everyone is not equally to blame for the current crisis and, therefore, everyone should not bear the burden equally. The most vulnerable, particularly the elderly, the disabled and the ill, need to be protected. They did not create this mess nor should they pay for the greed and stupidity of those who did. While cutbacks must be made, we must try to trim the fat of government such as public relations budgets, expenses, unnecessary travel, ill-thought out and pointless conferences and meaningless reports rather than the tangible services that make a difference to people's lives, which are the muscle that sustains the most vulnerable in our society.

If the cuts the Minister proposes are to be sustained, we need to rethink the way government works in Ireland. For too long the solution to every problem the Government experienced was to throw new organisations and money at it. I am reminded of the overly indulgent nanny of recent years. Invariably, a quango was set up to deal with every problem and the number of Departments, agencies, quangos and regulators is in excess of 600. Government was one of the fastest growing industries in Ireland and that was neither healthy nor sustainable. One could say that one of the fastest growing industries in Ireland has been Government and that was never healthy or sustainable.

Ní ionann gach duine nuair atá muid ag leagan an mhilleáin maidir leis an ghéarchéim eacnamaíoch seo. Níor chóir go leagfaí an milleán céanna agus an t-ualach céanna ar gach duine. Na daoine is mó atá ag fulaingt ná na daoine is sine. Tá áthas orm le cloisteáil nach mbeidh laghdú sa phinsean. Tá daoine ag fulaingt ó mháchail éigin agus na heasláin inár dtír agus ba chóir cosaint a thabhairt dóibh mar ní iad is cúis leis an ghéarchéim seo agus ní cheart dóibh íoc as saint agus as aineolas na ndaoine is cúis.

Is gá ciorruithe a dhéanamh ach ba chóir díriú isteach ar na buiséid chaidrimh phoiblí, costais nach bhfuil aon chiall leo - taisteal thar lear ag polaiteoirí a théann thar fóir agus nach ndéanann aon mhaitheas don tír, comhdháileanna nach bhfuil ciall ag baint leo agus tuairiscí nach bhfuil bunús acu. Ansin is cóir na ciorruithe a dhéanamh ar dtús, cé nach bhfuil mé a rá gur leor sin chun teacht cóngarach le €4 billiún.

Tá an ceart againn. Tá gá na ciorruithe móra a dhéanamh agus ag an am céanna caithfimid na seirbhísí is mó a chuirtear ar fáil do na daoine is sine agus na heasláin agus iad atá faoi mhíchumas éigin a chosaint. Sin an chéad rogha is cóir dúinn a dhéanamh. Caithfimid díriú isteach ar an gcaoi ina bhfuil an Rialtas ag feidhmiú. Le fada anois, nuair a bhí aon fhadhb sa tír, cruthaíodh eagraíocht nua éigin agus caitheadh airgead isteach inti. Tá níos mó ná 600 quangos anois. An tionscal is mó a bhí ag fás in Éirinn le blianta anuas ná an Rialtas é féin agus ní raibh sin ceart ná folláin.

We need to go back to the drawing board and redesign Government in order that the money Government collects and spends gets to the people who need it and not to an ever-growing and not necessarily very effective bureaucracy. Improvements on procurement, the more widespread adoption of shared services, better IT management, the increased use of virtualisation and electronic payments could all contribute to lower costs and increased efficiencies. There is also a need for fundamental redesign of process used by Government and the structures and work practices used in Government.

Reform cannot take place without the co-operation of public sector workers. There are those who would set public and private sector workers at each others' throats but the reality is that many families are the product of mixed marriages between public and private sector employees. Ireland is too small for factional interests to triumph. In the words of Benjamin Franklin, with which we are all familiar, "we must, indeed, all hang together, or assuredly we shall all hang separately". The Minister is not only responsible for managing the fiscal crises but also has crucial responsibility for public sector reform. Once the budgetary process is over, I urge the Minister to turn his considerable talents to driving public sector reform in Ireland and providing the same leadership there as he demonstrated in addressing the financial sector crises and the fiscal crises.

I wish to address some remarks on the topic of education. Education is not a cost for Government; it is the single most important investment we can make in the future of the nation. The human talent we possess is the most important asset and our education system is the single most important item of critical infrastructure. No sector can be immune from cutbacks but the education sector is one where it is far better to use a scalpel than a slash hook. In making cuts I urge the Minister to look at back office operations and quangos of dubious benefit rather than frontline services. To be blunt, good teachers perform one of the most valuable tasks in society and deserve to be paid fairly for their work. I have no doubt if one asked Members how they got here in the first place they would eventually mention a teacher who inspired them many years ago. In recent months teachers have been all but vilified as though they created this current mess rather than the greed and stupidity of bankers, developers, crony capitalists, and corrupt politicians not to mention regulators who drew fat salaries but were asleep at the wheel. Teaching is an honourable and worthwhile profession whose contribution has never been properly recognised. If we develop a smart economy in Ireland it will be due in no small part to the work of Irish teachers who have consistently given far more than they were paid to do.

We need much more than a smart economy; we need a wisdom society. That is why I put the emphasis on education. Earlier today I pointed out that voluntary schools, of which I am a trustee of over 100, receive €200 less per student than VEC schools and €90 less per student than community schools. That is not equitable. Some schools are at their wits' end as they face water charges and the moratorium on posts of responsibility means that in some cases six out of eight school head posts are unfilled. The key pastoral role played by year heads is not available to students. How can we talk about cherishing children of the nation equally and safeguarding the welfare of our future society if we are not putting young people first?

Pat Moylan (Fianna Fail)
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The Senator's time is up.

Rónán Mullen (Independent)
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I thank the Cathaoirleach for his indulgence. It is crippling the management of schools. I make no apology for saying that education should be excepted in any cutbacks. As it stands, with the Government slow to pay grants, schools are being pushed into bad management practices where they must borrow from banks in order not to be in the red. The articles of management require them to run the school within a budget. Schools require extra support from the Government, not cutbacks.

Larry Butler (Fianna Fail)
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I am delighted to speak on the commitments to which we must adhere in the budget. It is important to set out the parameters and guidelines of what we would like to see. We all want to see as much support as possible for education, people on fixed incomes and social welfare. That is a reasonable approach when dealing with difficult times. Ireland faces a very important budget because we have committed to the European Commission to cut the deficit by €4 billion, which amounts to 2.5% of GDP. It is reasonable for a country currently overspending to correct its spending. We cannot continue or this country will be unsustainable in terms of the budget deficit. Recent suggestions by the unions of a slash and burn policy with regard to public servants is total nonsense. The unions gained so much in the past 11 years by being partners with the Government. We had great engagement with the unions over that period to the unions' benefit and it is nonsense to see that, when the unions must take a little pain, the highly paid members of the unions will take no pain. Union leaders ordered union members onto the streets over a week ago but it does not get away from the fact that we must make these decisions. We would prefer to make these decisions with the social partners rather than outside of social partnership. It is possible to do this. If unions get down to real negotiation we could come up with a solution to accommodate unions, workers and the Government. It is vitally important that we do so. The unions are going into negotiation even though they have a strike planned for the following week. That is not the way to do business. The gun to the head never produces good policies.

It is vitally important for the country to have a good public service, as without it, it is not possible to run the country. The public service is equally as important as the banks are to the economy. Deputy Mullen is right that the reality is we will hang together or we will hang separately. If the IMF comes in, it will not be too worried about the public service, social welfare recipients or pensioners; it will simply make a 35% cut across the board. We do not want it to do our business for us. We have to do our own and should do it together. Everybody benefited from the partnership process during the past 11 years. If we run into bad times, we have to work together to find our way out. In thar regard, we are confronted by a serious flooding problem.

Union members went on strike on a day of protest last week. Some 15,000 people had hospital appointments on that day and will not receive another for the next two or three months. As a result, there will probably be a build-up of 45,000 patients on waiting lists. A pork plant in County Offaly had to let its 200 employees go home on the day of the strike because there were no inspectors on duty to inspect meat. I do not believe anybody has examined the cost of the strike. It must be phenomenal, running into hundreds of millions of euro. If we do not work together to find a solution, we will face a very bleak future because we will not be able to borrow money from the institutions from which we are now borrowing. Therefore, a reasonable approach should be taken.

The figure of €4 billion appears to comprise a cut of €2.5 billion in current spending, a hike of €750 million, mainly derived from a carbon tax, and a cut in capital spending of €750 million. That is a reasonable approach to how we will balance the books, which we must do, as we are taking in €32 billion but spending €55 billion. That cannot continue. We must ensure old age pensioners, child care services and education services are part of the consideration. To continue investment in these areas, we will all have to reduce our expectations. If income is €32 billion and X amount has to be borrowed against that figure to balance the books, hard choices will have to be made, such that those who can afford to pay should pay a little more. The people who cannot afford to pay have to be looked after. The smart economy programme will play a major role during the next seven or eight years. A good education system, of which I am all in favour, is necessary to produce the people who will work in the smart economy.

It should be noted that the teachers who teach our children have longer holidays and are better paid than most teachers elsewhere in Europe. These are two important points to bear in mind. Teachers here do not put in the hours worked by teachers elsewhere in Europe. The same applies to nurses. Nurses here are paid well above what nurses in England and elsewhere in Europe receive. The same applies to those who deliver professional services such as consultants and doctors. If we are to drive down the public sector pay bill, bearing in mind that there has been a 20% to 30% reduction in the private sector, we will have to drive down the prices charged for professional services. The €60 charge for a visit to the doctor and the €75 or €100 charge to have one's teeth cleaned or for an extraction cannot continue. Neither can hospital consultants continue to have an annual salary of €250,000, when their counterparts across the water and in Germany are on a salary of €80,000 to €100,000.

Pay costs account for 50% of the budget in the health sector. Alarm bells would ring in a private company at the point where pay accounted for 35% of the budget. Account must also be taken of middle management. I have pointed out to the Minister that there is room for at least €1billion in cuts in the health service without affecting the delivery of health services. The cost of middle management should have been examined four years ago when the health boards were broken up, but that did not happen. Half of the staff concerned do not know what they are supposed to be doing. I know a number of them and their biggest task is to get out on the golf course two or three times a week to amuse themselves. That cannot be good for any organisation. Nobody seems to be taking action in that regard. It was a misjudgement when the decision was made to remove authority from the Minister. Those who pay the bills are the ones who should make the decisions.

Paul Bradford (Fine Gael)
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I am glad to have this opportunity to contribute to the debate. A number of colleagues, including Senator MacSharry, have actively sought such a debate during the past month to six weeks. We are now almost at the 24th hour and presumably the major budgetary decisions have been taken. I do not believe, therefore, that there will be any dramatic changes as a result of this debate in the Seanad. However, I hope that, if we are still in our current positions in 12 months' time, this House of the Oireachtas will be used in a much more proactive way to debate the financial issues facing the country and the budgetary choices available. I also hope this Chamber will be used to liaise with the social partners, listen to their suggestions and present some ideas and suggestions of its own. Notwithstanding that concern and complaint, a matter for another day, I wish to express some of my thoughts on the current economic choices facing the country.

The Minister of State knows better than I that next week's budget will almost certainly be the most difficult ever faced by the Government, in terms of its preparations, and one of the most difficult ever faced by the people. It is unique in terms of the scale of the problems we face and the solutions that will have to be presented by the Government. On the other side of the equation, the Government has one small advantage. Possibly for the first time ever in the history of the State, there is a reasonable degree of acceptance by the public of the scale of the problems. There may be limited public acceptance of the solutions and measures required also. I recall the Governments of the 1980s under the leadership of Dr. Garret FitzGerald and the late Charles Haughey which attempted to bring forward difficult financial measures. One of the road blocks they faced was the lack of public understanding of the scale of the problem. At least this time almost every citizen is able to quote the figures mentioned by Senator Butler that show the country is spending €57 billion, while our income is €34 billion. This cannot continue. If there is light at the end of the tunnel for the Administration, perhaps it is the expectation of difficult measures. People are willing to take some medicine. Everyone favouring cuts, tax increases or revenue curtailments as long as they are in someone else's area is a regular occurrence. Tomorrow week the people must accept that we must all play our part.

A phrase that has annoyed me very much in the economic debates of the past 12 months is, "We did not cause the problem, it was the banks which caused it". As The Sun newspaper might put it, "It was the banks wot done it". The banks have done significant damage to the economy and our society. Several people within the banking institutions are guilty of grave economic crimes. However, even if there was never a banking crisis, there would still be a serious economic crisis and we would still have a deficit of more than €20 billion. To be brutally frank, we have all caused the problem to some degree. In the past decade every citizen has earned somewhat more than he or she should have, spent in excess of his or her income and saved too little. We have all been part of the problem. I am the first to acknowledge that some are a good deal more guilty than most, but we have all sailed along in the ship of State which is now in very choppy and rocky waters. Therefore, we must all play some little part in turning the economic fortunes of the State around.

The throwaway comment to the effect that if there was no banking crisis, there would be no economic crisis is silly in political and economic terms because Government revenue and spending equations have been out of place for some time. When one adds the international economic thunderstorms that hit us, we can see exactly where we are. The question is how can we get out of it. There is a mature political consensus on the need for the correction to be in the region of €4 billion. When one debates from where this €4 billion should come, whether spending cuts or taxation, it falls out of kilter very quickly. However, it is good for the political establishment to have a degree of mature acceptance among all political parties that tough decisions are required.

I welcome the fact that progress appears to have been made with the social partners in the talks to pare back the public sector pay bill. I support and admire our public servants and the public service very much, as does everyone on this side of the House. However, we must recognise that matters cannot continue as heretofore and if they do, there will be no public service or public servants because the country will be forced to transfer responsibility for its financial future to the IMF. If the formula required is a temporary lay off of public servants for ten, 12 or 14 days, that is acceptable. If that measure produces the 5% or 6% cut in the public sector pay bill without embarrassing anyone too much or without anyone coming under an obligation to say what it really entails, we can live with it politically and economically. By one or other means we must reduce the public sector pay bill.

We must consider the big spending Departments, including the Departments of Health and Children, Social and Family Affairs and Education and Science to determine the savings that can be made in these areas. We could continue to live in dreamland or cloud-cuckoo-land and maintain there should be no more cuts, especially in a given area. However, these three Departments spend approximately 75% of taxpayers' money and savings and reductions must be made within them.

A fine contribution was made by Senator Mullen on the education budget. On several occasions in the House he has made an excellent case in outlining the reasons teachers are so important, why the education service must be maintained and developed and why we must ensure investment continues in education. He has been a great champion of this political argument and it is a view with which I agree. Notwithstanding the dreadful budgetary figures facing the country, I trust we will continue to invest in education.

Although stark economic and political choices will be presented to the people next week, we must project a degree of hope. The term "stimulus plan" has been thrown around too easily. We have been informed of the success of such plans in Germany and France. However, they were based on the motor industry. There was a short-term gain but such plans may not succeed in the longer term. However, we must consider investment and job creation. My colleague, Senator Donohoe, pointed out very effectively that every job created was worth almost €20,000 to the taxpayer. This must be at the forefront of our thoughts.

Let us consider Irish society, industry and the economy. How does one stimulate the economy in a manner that will not be dramatically inflationary and will not result in a vast amount of money leaving the country because it is spent on imported goods and services? Irish agriculture stands out as an area suitable for a stimulus plan. There is a production deficit in the European food industry at a time when world food supplies must be significantly boosted. Irish agriculture could play a very significant role in this regard with the help of a stimulus plan. Thousands of jobs could be created if there were reasonable and wise levels of investment. Let us consider the REPS, rural environment protection scheme, bio-fuels and other alternative energy sources. The Minister of State and his ministerial colleagues would be wise to consider the possibility of introducing a stimulus plan based on Irish agriculture which could return rural Ireland to prosperity. Only last week definitive figures were produced showing the drop in farm incomes during the past 12 months, on a scale of between 20% and 30%, which represents a frightening drop. This issue must be addressed.

The specific measures to be taken next week remain secret to the Department of Finance and the Government but there have been some straws in the wind in respect of cutbacks that are a source of concern for many citizens. Child benefit has been the subject of debate for a significant period. The classic argument is that a universal payment for rich and poor alike can be challenged. Members received a huge number of representations from various groups in recent months and these indicate that direct payments to mothers in respect of their children are still extremely important. I hope the Ministers for Social and Family Affairs and Finance will reflect on that point.

The social welfare budget is huge and as unemployment increases, it will become even larger. I hope means-tested payments and old age pensions will be maintained at their current levels. There is a possibility that benefit payments which are not means tested could be examined. If a saving is to be made on the social welfare budget, I hope it will not be imposed on those who are on the basic means-tested payments or old age pensions.

Figures in respect of VAT have emerged in recent weeks. A lack of both consumer confidence and spending power has obviously resulted in a significant drop in VAT revenues. Last year's decision to increase VAT has proven to be a catastrophe. While I accept that a number of tough measures will be announced on Wednesday next, I hope some positive measures will also be introduced. A strong case can be made in respect of reducing VAT. Such a move would result in the generation of additional revenue to the State and would restore consumer confidence and spending power.

As well as presenting the people with stark choices and challenges on Wednesday next, the Government must also give them a degree of hope. The budget must be realistic but people must also be afforded the opportunity to see that there is light at the end of the tunnel. I am of the view that people are up to the challenge. They are ahead of members of the political establishment in this regard and they are aware of the scale of the problem. They are concerned with regard to their jobs and incomes but they also have fears with regard to their children and their children's children. If next week's budget is tough but fair, it will achieve the desired response from the people. I accept that it will be difficult for the Minister for Finance to frame such a budget. However, he must try to match people's expectations.

We have moved well beyond the politics of economic illiteracy. The people are not stupid. They are aware of the challenges we face and of the choices that must be made. I hope the Minister for Finance will introduce a budget that is both balanced and fair.

Jim Walsh (Fianna Fail)
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I listened with interest to Senator Bradford's fair and measured contribution. We have come to expect such contributions from him. I also listened with interest to contributions from Senators Butler, MacSharry, Mullen and others, including the Minister of State. I must admit that I missed some Members' contributions as a result of the fact that I was obliged to carry out other duties.

Senator Bradford's point to the effect that this debate should be held on an earlier date next year - assuming that we will all still be here - is well made. If that were to happen, Members comments could be factored in to the overall debate on the budget. As matters stand, this debate is taking place somewhat late.

Framing the forthcoming budget has presented the Government with a tremendous challenge. Governments across the world - the Administration in this country was no different - were overwhelmed by the scale and speed with which the economic downturn took hold and caused what was, more or less, a global banking collapse. Owing to the fact that the downturn arrived in the wake of a period of unprecedented growth in this country and of general growth in the global economy, it was difficult to come to terms with quickly.

Commentators and politicians on different sides of the House sometimes overlook the fact that during the good years the mantra repeated by the Opposition and backbenchers on the Government side was that we should ensure the fruits of the Celtic tiger would be distributed in an equitable manner in order that those who did not appear to be doing well would benefit. I and others subscribed to that argument.

We have quite an amount to show for what occurred during the good times. Roads and other infrastructure throughout the country have improved dramatically. I was involved with the Irish Road Haulage Association, IRHA, in the early 1980s when times were difficult. At the time, I strongly campaigned for the Government to emphasise the improvement of road infrastructure, especially in the context of constructing motorways on the main arteries between our cities. In the early 1980s, it was estimated that the payback in respect of the Naas bypass, the first section of motorway built in this country, was of the order of 15%. By any standards, even those relating to private investment, that level of payback would be regarded as attractive.

As Senator Bradford correctly stated, there is no one in this country who did not in some shape or form benefit as a result of the Celtic tiger economy. In the late 1990s, for example, huge emphasis was placed on improving social welfare payments, particularly old age pensions. That was the correct course to take and those on old age pensions welcome and appreciated what was done for them.

A serious attempt was made to redistribute the wealth that was created. However, there is no doubt that people involved in risk capital ventures became very wealthy during the period in question. Those who use their initiative and take risks - that they took the latter is highlighted by the predicament in which they currently find themselves - deserve to obtain a reward. These people also created a considerable number of jobs during the Celtic tiger period. Up to 400,000 people were employed in the construction industry at one point. It must be remembered that the large influx of immigrants into this country during the past ten years or so occurred as a result of the need to meet the demand in that industry and in other parts of the economy.

Public servants have stated that they are not responsible for what has happened. All of us in the public service - the pay of Senators and Deputies is linked to theirs - benefited to a tremendous extent from the significant improvements made during that period. Some of those improvements came about as a result of social partnership. In the late 1980s and throughout the 1990s, social partnership played a pivotal role in laying the foundations which gave rise to the success we subsequently enjoyed.

During this decade, probably based on the false premise that we were on an upward curve, a view that was held across the globe, we tended to dismiss the normal dogma that applies in respect of economics, namely, that everything goes in cycles and what goes up must eventually come down. This has exacerbated the difficulties with which we are now faced. Our level of competitiveness has been seriously eroded, a matter about which I am concerned.

In 1998, the public service pay bill, which includes those who are on pensions, was marginally in excess of £7 billion, which today would be somewhere between €8 billion and €9 billion. At present, this bill stands at more than €20 billion. People must recognise that the level of public pay has increased dramatically.

There has been a great deal of navel gazing in respect of this matter. Earlier today, Senator MacSharry highlighted a number of significant failures on the part of the national broadcaster, RTE. One of the most obvious of these is its failure to meet the challenges presented in the context of promoting an understanding among members of the public with regard to the global banking crisis, the economic downturn and the property bubble. That people should have such an understanding is important from my point of view. I have no difficulty with people in the media. They are right to be critical where they feel mistakes have been made. I do not have any difficulty with that and it is up to politicians to defend themselves. The constant drip of negativity, which has almost reached tsunami stage, has damaged to some extent the psyche of the country and the confidence of investors and consumers. Unless those areas recover we will not get back on the path to growth to which we aspire.

This has a global dimension. I saw very good programmes on channels from our neighbouring island, BBC 2 and Channel 4. I would say they were relatively inexpensive to produce but they were extremely informative. They were on the banking situation in Britain and the collapse of Lehman Brothers, which had resonances for what was happening here as a microcosm of what happened in the United States. Other programmes were on the collapse of eastern bloc countries such as Latvia and the effects on the Czech Republic and Poland. It is a pity it was not done here in an educative way which would inform people and allow them to see that we are in a very serious crisis but that we can work our way through it. It would have harnessed a level of cohesion in the population to deal with the serious challenges that exist. Without such national cohesiveness we are very unlikely to rescue ourselves any day soon.

Our banking system did not escape the global downturn. People feel the property bubble gave rise to all our woes but that is an incorrect and superficial analysis. If we had never had a property bubble we would still be encountering serious economic difficulties because of the global downturn in banking. Our banks would still have had credit difficulties. Very definitely, factors were the property market, the reckless banking which went on and the lamentable and disgraceful failure of our regulatory authorities, and I include the regulator and would not exclude the Central Bank. The former Governor of the Central Bank stated that it gave warnings and included them in reports but people who are paid very high salaries need to be more proactive than putting something in a report and significant failures occurred in that area. In mitigation of their failures, the same thing happened in the United States, Britain and other places. We must recognise these failures if we are to ensure we do not go down that path again.

The Government faces challenges on three fronts. One of these is banking, which it has dealt with in the best way it could, given the difficult circumstances. I do not know whether the guarantees given at the time needed to be as all-embracing as they were but I do not know that they were not right either. NAMA was the correct measure to take. On the fiscal side, perhaps our successes have not been as good as the manner in which we dealt with the banking situation. Our public finances fall into three areas, namely, pay and pensions, social welfare and non-pay areas. It is my opinion that Irish pay generally is way ahead of what it should be. We are approximately 30% to 40% ahead in the private sector. Pay in the public sector is supposed to be, according to economists, 22% ahead of what it is in the private sector, which means our public sector wages are probably too high by a factor of 50%. That is extraordinary. I do not think we can correct that amount unless we take €5 billion out of the public pay bill and I suggest we do so through a cut in pay, consolidating the pension levy into a pay cut, and reducing numbers. We must reduce numbers in the public service by 50,000 to 60,000. That will come close to getting the €5 billion.

Unfortunately, we have no option but to cut social welfare. There has been a decline in prices and if this is done there is an onus on the Government to ensure the cost of living also comes down. There has been too much profiteering throughout the economy. Senator Butler mentioned fees. Legal fees in this country are a disgrace and the Government has never tackled them. Medical fees are also a disgrace. They are far too high and exorbitant. This is also the case for a range of other fees. Hotels and the retail sector are feeling the pinch. It would be fair to state that they ripped us off during the good days and this needed to be corrected. People have to become more competitive and whatever price controls need to be introduced should be introduced.

In the next three years we need to save approximately €14 billion. As I have stated previously, the target of €4 billion is too low. We should aim for €5 billion or €5.5 billion this year, a similar amount for 2011 and less in 2012. If we do so it may give us a little scope to provide stimulus and in 2010 we need to target very specific stimuli to areas of the economy that can retain and improve employment. The real blight of the downturn is unemployment.

Fidelma Healy Eames (Fine Gael)
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I welcome the Minister of State, Deputy Michael Finneran. What could I possible say at this stage that will make a difference and will be heard? So much has been said. It is not all about what is being said this evening. We face a €4 billion hole that the Government will try to fill next Wednesday, 9 December. It is borrowing €500 million a week just to stay afloat but the problem as I see it is that we have lost confidence that the Government can keep us afloat even with this. Its lack of sustainable strategies has instilled fear in the entire nation and this has led to paralysis. Above all, the paralysis seems to be in the Government, with its lack of imagination to get us out of the mess it has brought us in to.

What are the Government's choices to find the €4 billion? That is the biggest issue. There is wide agreement that it cannot tax its way out of the recession. It is considering cuts to spending, some of which we support. We would particularly support cuts to waste. Only yesterday, I met a person with a small enterprise who has 13 people working for him. He is a supplier of goods to the HSE. He told me he faces other suppliers giving backhanders to people in the HSE. That is what he is up against to stay afloat. Clearly, there is no accountability or monitoring of systems. The buck must stop with the Government.

Cuts to services that affect the front line are not acceptable, namely, cuts to children's education, health care that people need or social work that could affect child protection. I am disappointed with the union leadership in this country. I do not blame the public servants, I blame the union leadership for its lack of a holistic vision of this problem and coherence. I blame the former Taoiseach, Deputy Bertie Ahern, for this. He turned the unions into the monsters we have today. The Government continues to give €1.5 million for activist training. Social partnership left out the small and medium enterprise sector. These are the people who created the jobs that paid the taxes to pay for public services.

We need to get this right. Today, we hear the unions want to ask public servants for 12 days unpaid leave. How will this be managed? The last thing one wants to hear - I am sure Senator MacSharry will agree - is that one's child's teacher is out. If a child's teacher is out for 12 days, that is the equivalent of one day every three weeks of the school year. Add sick and personal leave and the child's education will be seriously compromised. Are we getting as a quid pro quo the guarantee that the child will be taught by other teachers in the school? That certainly would increase pupil-teacher ratios. What would happen if four or five teachers were out at the same time? This could cause mayhem. I recall what it was like to go without substitute teachers when I started teaching in the mid-1980s. If one was genuinely out sick for a day, one dreaded coming back to hear about how one's children messed up other classes.

What about social workers and child protection services? We have learned about the Monageer case and the lack of out-of-hours mental health services. Last year I was told by social workers based in Galway that they had to leave 15 child protection cases unopened for up to two weeks because they were severely understaffed. Lives may be put at risk.

I blame the poor leadership given by union officials rather than public servants. We have done a serious disservice to public servants because they are widely regarded as an easy touch. I do not blame them for asking when their salaries will stop being cut. They have already seen levies of 7.5% introduced. It can be conclusively argued that benchmarking increases were wrongly given. Why not roll back on benchmarking entirely and leave it at that? Public servants would then know where they were going and their demonisation might end. I recently spoke to a 29 year old teacher who earns a salary of €29,000. He has already taken a 7.5% reduction through levies. Will he have to accept a further cut of 7%? His salary is not high, given the cost of living in this country. He has a house and a car but already rents some of his rooms to cover his mortgage repayments.

People want hope and leadership. This morning I visited the Ballyvaughan enterprise centre where I met unemployed people who spoke about their sense of isolation. Their feelings are shared by 420,000 people. With one in every three under the age of 25 years out of work, the level of youth unemployment is running dangerously high. In Galway city alone, 5,300 people under the age of 25 years are unemployed. The solution has to be the introduction of a jobs stimulus. I was stunned when Senator Walsh said the Government might consider such a stimulus if it had more money. Why not consider one? That is what separates Fianna Fáil from Fine Gael. My party believes we must offer hope. We cannot take from people, while giving nothing back. I do not know how many job policies have been presented. Our most recent pro-jobs policy involves the elimination of PRSI as part of a €900 million tax cuts package to create employment. Why not transfer some of the money provided in the social welfare budget to fund internship programmes? The Minister of State will be aware of how much Members of the Houses benefit from internships. Both employers and newly qualified graduates would benefit. Young people are in a catch-22 because they lack the experience to secure the few jobs available. By investing in job creation we would create the tax income needed to pay for public services.

I am one of the three people who started a job creation initiative in Oranmore, where I live, because we were fed up with the lack of leadership and solutions from the top. Every Friday at least three people approach me with ideas. We have established a panel of experts from people who are willing to donate their time for free. We have an information technology person to help us to build a website, a marketing expert who will help to market ideas and a former banker who never foreclosed on a mortgage in 40 years of work. We have every kind of expert needed to start up a business. This initiative is generating a wonderful level of excitement and hope but we can do much more in this regard.

There is unanimous agreement that the Government has made a mess of the economy but I am more interested in solutions than in apportioning blame. We need to educate ourselves out of the recession. Thanks to Finland's investment in teachers in the early 1990s, that country is much better able to cope with the current recession. Only 8% of Irish teachers have qualifications at masters level or above, whereas all Finnish teachers are qualified at least to that level. Finland is top in the programme for international student achievement in literacy, mathematics, science and problem solving. We need our graduates to perform at that level if we are to develop Ireland into a knowledge and innovation economy. Solutions are needed, not only today but also in four or five years' time. Our graduates will create and maintain the jobs needed to fund the Exchequer.

It is no longer acceptable to praise ourselves for our educational achievements. Our literacy problems are intergenerational in nature. Approximately 30% of children in disadvantaged areas leave primary school with low literacy levels. The equivalent figure is 10% in ordinary schools. One in six students drops out prior to completing the leaving certificate with no qualifications and no hope. Such students go on to become the parents of the future and the cycle continues when they pass on to their children their low literacy levels and disregard for education. We have to invest in education and cannot permit cuts to be made at the front line. We will lower standards if the Government agrees to the unions' proposal to force teachers to take 12 days unpaid leave. I will not accept such an outcome unless it can be proved that children will not be disadvantaged.

At tomorrow's meeting of the Joint Committee on Education and Science I will fight to ensure the registration fee for third level students is capped. They are already struggling and the current policy is simply aimed at introducing fees by the back door. This will be the acid test for the Green Party. Let us focus on education and growing the economy.

Labhrás Ó Murchú (Fianna Fail)
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Tá áthas orm go bhfuil an díospóireacht seo ar siúl. Gach lá sa Seanad, bíonn cúpla nóiméad againn chun labhairt faoi chúrsaí eacnamaíochta. Ní chabhraíonn sin dáiríre, mar tá muid ag caint ar rud atá uileghabhálach ar fad. Bheadh sé tábhachtach go bhféadfaimís ár dtuairimí a nochtú agus féachaint an mbeadh aon chomhthuiscint eadrainn. Tá súil agam go mbeidh na tuairimí a nochtfar anocht cabhrach agus dearfach. Aontaím leis an Seanadóir deireanach go bhfuil sé tábhachtach dóchas a thabhairt do dhaoine ach níl mé cinnte an raibh dóchas le baint as an chaint a chuala muid ansin.

Each morning on the Order of Business we have one minute of glory to talk about different issues. When we start to talk about the economy, it is clear we are dealing only in sound bites. We must accept that we are dealing with an exceptionally complex issue. It is easy to talk wisely with hindsight but in years to come when we ask what was our reaction to the recession and the economic crisis here several issues will become clear. It took us a long time to get out of denial that we had a problem, possibly because the recession hit us so quickly. We were in denial that this was a global problem, which it is. When we could not accept that we were wasting time again. Then the blame game went on for a long time. The media, in the main, did not crown themselves with glory. Many will look back and say there were many missed opportunities to respond positively, and where necessary, with compassion, to this recession.

People on both sides of this House are well aware that many things happen in the background that very often cannot be made public until the appropriate time. We cannot act in isolation from Europe because we have benefited so much from the EU structures. Thanks be to God, we will have a good infrastructure when, I hope, there will be an upturn in the economy soon. Unless we retain the confidence of the European Union we will go nowhere. That must form part of every debate we hold.

Everyone here could spend ten or 15 minutes on the blame game but that will not make a positive contribution. We have had good times. The Celtic tiger was good to many. Our employment rate is exceptional by any measure. We should not forget that but we should think about how to protect those jobs and help those who have recently lost their jobs or who will never have jobs and will depend on social welfare.

I have seen a great sea-change in competitiveness in a short time. For example, one sees hotels offering bargains every day in the newspapers. They seem to have adopted the attitude that it is better to have full capacity in a hotel, and keep all the workers there than have two thirds unused and let many workers go. I can see that clearly and that hotels are competing with one another. There is a new culture. There is no doubt that we had crossed a line in pricing. It seemed as if we were pulling prices out of the air. The same could be true of other areas, for instance, the construction industry, which is experiencing a downturn. It was quite clear that from a competitive point of view we were pricing ourselves out of the market and worse still putting those excessive prices onto the shoulders of many young people.

I am not criticising hotels, the construction industry or any other sector. That was typical of the Celtic tiger era. It is important to see how people are prepared to respond to this. I am glad to say that denial is gone. The blame game has been diluted and people are focusing in a more positive way on our present situation. I will not enter into discussion with Senator Fidelma Healy-Eames because, as I said in the cúpla focail Gaeilge, we want to hear everybody's point of view. However, when one throws a word like hope around loosely but speaks in negative terms and undermines every single positive proposal brought forward one will not raise hope but do quite the opposite.

This struck me recently in respect of the flooding crisis. The Taoiseach is involved in many issues, not just the economy, yet he travelled the length and breadth of this country to identify with the people and their problems. He made himself available, travelling to every flood area but somebody picked out the small point that he did not have his wellington boots with him. That might sound funny in other times but it is not a bit funny because that kind of response to leadership shows a degree of irresponsibility.

I also salute the Minister of State with responsibility for the Office of Public Works, Deputy Mansergh, who has been at the coalface, although I know that is the wrong term for flooding. He was available to listen to the people and to bring back their views. Let us respond positively when we see people being proactive about any problem or issue. The flooding crisis is attached to the economic problem because it will involve a high cost. That will be thrown back onto the Exchequer. People responded negatively to the Government's announcement of its first €10 million measure rather than waiting to see whether it was a roll-out rescue effort, which it obviously was. Did people expect that without any assessment of the problem we would name a figure, as if that was the way to solve the flooding problem? I hope we are going to get into a new frame of mind, to think how we can all work together.

Since the day when the recession became official I have said repeatedly to many fine people on the Opposition side who hold the same views that this was one time when we should all work together, leave political point-scoring to one side and think particularly of those who are most vulnerable. I have no doubt there are anomalies in the social welfare system and that corrective measures are required but there are some people within that net who are exceptionally vulnerable and helpless to whom €3, €4 or €5 could make a serious difference. We must ensure the caring element remains within the budget. I saluted the Taoiseach when he indicated that pensions for the elderly were unlikely to be hit. At least that is how we all interpreted his remarks. It struck me straightaway that the Taoiseach was sending out a message that in spite of our drastic condition there would be a caring element in the budget. I would like to see that extended to other areas.

There is absolutely no À la carte formula for getting out of the recession. We must examine all the challenges we face, including the public sector, which is a very powerful body as we saw in the number that came out on the streets. It has made a major contribution to the development of this country and we are particularly lucky in the calibre of people we have in the public service. If, however, one has a secure job and a guaranteed pension one sleeps fairly well at night. One may have to tighten one's belt a little but in the main one can do that by being a little more careful with expenditure. The person who exists on €200 plus a week, particularly if he or she had a job or another lifestyle, has a limited chance of being animated or energised now. We must appeal to those who have jobs to think of those who do not.

We must also believe in ourselves. Throughout history we have overcome many challenges. This is not the greatest challenge we have ever faced. The mere fact that we were successful in passing the Lisbon treaty shows that we have maintained our status in Europe; therefore, we are part of a bigger structure on which we can depend. I have seen many of the statements that have come from the European Union and have no doubt that the Commission is happy with the approach we are taking.

We will only have hope if we are realistic; tell it as it is; try to be fair to everybody, especially those who are most vulnerable and are competitive. Above all else, we will only have hope if everybody regards himself or herself as part of a partnership. I would include in that partnership employers, trade unions, the media and public representatives. If we do not do this, we will not attract investors to help us to get back to a strong position. We will not succeed in holding onto confidence which we have in international markets. The foundation for all of this must be social partnership.

I heard at lunchtime that there was a possibility of substantial progress in the talks with the unions. The greatest sign of hope for the people would be the bringing back of social partnership to centre stage. We should encourage the social partners to go down that road.

Paul Coghlan (Fine Gael)
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I am glad to have the opportunity to say few words in this debate. I welcome the Minister of State and thank him for his contribution. I can identify with much of what Senator Ó Murchú said on the issue. There is no doubt we all have a vested interest in returning the economy to sustainable growth as quickly as possible. As the Minister of State pointed out, everybody has been and will be affected by the deterioration in the economy.

One of our primary concerns must be the creation and protection of jobs. That is essential if we are to get the economy back on a growth path. We need to reduce the burden on the State caused by the large number of unemployed and get them back into gainful employment. In my area we have been greatly affected not just by the flooding, but also by a great decline in tourism, which has been very damaging to jobs, morale and confidence. It has been an extremely challenging year in the industry, particularly in sectors such as golf tourism, and the suffering is likely to continue into 2010. We urgently need help to mitigate the challenges we face.

As golf tourism becomes ever more competitive internationally, increased Government support, through financing promotional initiatives by Fáilte Ireland and Tourism Ireland, is ever more vital to restore Ireland's position as a leading golf destination. We have suffered terribly in this regard. Given climate change and other factors, perhaps it will continue to decline and we will not be able to control it. Therefore, more emphasis may have to be put on walking holidays and many other activities which are equally important. The removal of the €10 airport tax on tourists would go a long way to encouraging tourism. Reducing the VAT rate to comparable levels in the United Kingdom to improve our competitiveness would also make us more attractive to British tourists, as there has been a significant fall in the number of tourists from Britain in 2009 and this trend will continue in 2010.

We are all very concerned about what has happened in the retail sector and the fact that a number of our own citizens are travelling north of the Border. We need no further increases in indirect taxes. The impact of an increase in the rate of VAT on goods would further depress consumer spending here. I hope the Government will take action on the issue in the budget. An increase in the rate of VAT would drive more consumers to the North and make it extremely difficult for retailers to compete on what is already a very unequal playing field. We need to restore balance.

The Government needs to reduce regulatory charges, including water and waste charges, commercial rates and other levies for specific sections of industry. There is a necessity to reduce the cost of complying with obligations on businesses, which costs need to be driven down by central government as part of an initiative to control costs, encourage businesses to survive, reduce the regulatory burden and enhance competitiveness. We have lost out greatly in this respect.

Controlling public spending is absolutely vital. We need to modify the social welfare system to encourage people to work. We also need to encourage banks to make credit available to SMEs and the Government to clamp down on illegal tobacco and alcohol sales which are causing huge losses of revenue to the Exchequer. Specific measures are needed in the budget to keep local businesses afloat and people in jobs, the most critical issue for our economic well being.

The Minister of State made a good contribution and I look forward to something positive in the budget. He has held out the promise that good measures will be introduced in it. If that is the case, we will welcome them. However, a major reduction in excise duties and VAT is vital for the future of the economy. As consumer confidence is very fragile, we urgently need a stimulus to restore it. It is critical, therefore, that the Government does not increase taxes in the budget and that the bulk of the adjustment to be made to the public finances is on the spending side.

In the last year 30,000 jobs have been lost in retailing. Consumers must be encouraged to spend. Members of the public are now saving 12% of disposable income and need to be encouraged to spend some of this in order to create employment and give the economy a boost. This can be done by convincing them that they will not face increases in taxation and through proactive measures to encourage spending. The minimum required is a reduction in the rate of VAT to the same level as in the United Kingdom.

There is no doubt that there was a huge failure in the banking system. The banks fuelled the greed. What they did was inexcusable. There is a perception that developers and bankers created the bubble but, in fact, they destroyed the Celtic tiger.

The failure and reluctance on the part of some in high society such as judges and the heads of various important public bodies and quangos to take a pay cut are totally inexcusable and lead to a sense of injustice. No one can excuse himself or herself and stand aside from this national effort. The taxpayer simply can no longer afford the luxury to which the people concerned have become accustomed.

There has not been a proper clear-out at the top of the banks, at director or management level, which is doing nothing to restore the confidence of the average taxpayer. The Minister needs to exercise more control and authority in this regard.

Flexibility and changes in work practices to reduce the overall cost of and improve services to the public, as well as the removal of restrictive practices which have been hugely damaging, need to be tackled urgently. The figure being spoken of, namely, €1.3 billion on the spending side, is a mere stumble in the right direction. If the necessary medicine is meted out equitably, the people will accept it, which is in keeping with the tenor of the Minister of State's remarks. I hope that will be the outcome of the budget.

Paddy Burke (Fine Gael)
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I wish to share time with Senator Joe O'Toole.

Labhrás Ó Murchú (Fianna Fail)
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Is that agreed? Agreed.

Paddy Burke (Fine Gael)
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I welcome the opportunity to contribute to this important debate. I also welcome the Minister of State, Deputy Martin Mansergh, who is a regular visitor to the House.

Senator Twomey dealt with the issue of jobs. One of the few ways we can hope to get the economy moving again is to create jobs which should be export-led. It is all about taking people from the dole queues, as we need to reduce the cost to the Exchequer. There are very few ways we can do this other than by creating jobs in industry, the services sector and tourism. Senator Coghlan referred to tourism and I fully concur with what he said.

I come from County Mayo where in the best ten years for growth in the history of the State only ten jobs were created in industry. That is an indictment of the Government and the way it treated County Mayo in those ten years. That said, a considerable number of jobs were created in the services industry and construction.

That brings me to tourism. Senator Coghlan is correct that we have the product, whether it is fishing or golf. Only today I received a golf magazine from a company in Dublin which has put together packages incorporating hotel accommodation, golf and evening meals. There is unbelievable value to be had compared to some years ago but we are not marketing the industry properly. There is no doubt Fáilte Ireland has fallen down in this regard. As I have said on a number of occasions in the House, we have the product - walking holidays, the best fishing in Europe and the best golf courses in the world. We also have access through the airports at Dublin, Knock, Shannon, Galway, Cork, Kerry and Donegal. Using tax breaks, we have built a vast number of hotels throughout the length and breath of the country. We also have better roads, rail and other facilities. I heard the managing director of Aer Arran being interviewed on television last weekend by Ivan Yates. The managing director said there were 26 agencies dealing with tourism in the west, which is completely ridiculous. That is where we have fallen down. We need to merge all of these agencies into one, two or three which could sell tourism - an international product - in international markets.

On previous occasions I have raised the issue of banking with the Minster for Finance and the Minster of State. Yesterday we saw the value of bank shares fall drastically in the markets because it transpired that, while it was thought the figure for the haircut would be 18%, it would be 25%. As Senator Norris said, this will require an injection of a further €1 billion by the Government which will take a bigger share in the Irish banks. It already owns Anglo Irish Bank and will take a major shareholding in Irish Nationwide also as part of its amalgamation. It will also take a larger shareholding in AIB and Bank of Ireland.

This leads me to the point I raised about charges. I am led to believe various accountancy firms working in some of these institutions, particularly Irish Nationwide which will be wound up, are charging €3,500 a day for their services. I would like the Minister of State to confirm this. If that is the case, we are again going down the route taken by the tribunals. Several Senators referred to the charges being applied. While I received no answer from the Minister or the Minster of State on previous occasions, I am led to believe these are the charges levied by the companies operating in the various institutions. Some €3,500 a day is being charged to evaluate loans and properties that will probably be transferred to NAMA from the institutions which will be amalgamated. Somebody has to be take charge. The Minister for Finance has the powers available to him to take charge and make sure the taxpayer is not ripped off. We are considering taking a few euro off those on the dole and not paying the Christmas bonus, yet, at the same time, we are throwing €3,500 a day at the senior partners in some of these firms.

Joe O'Toole (Independent)
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I welcome the Minister of State. I have listened to a lot of the discussion here about what should and should not be done in the budget. The most important point is that there be an element of fairness. The people understand there will be hardship and are ready to take a stand for it. However, they have to be convinced that what is being done is fair.

I heard my colleague, Senator Quinn, for whom I have great respect, say recently in the House that people might ask in the future, "What did you do in the time of great economic crisis?" and that the only answer would be, "I went out on strike for a day." This shows a complete lack of understanding. I spoke to people on the day of the strike last week and the one question that came through time and again was, "What did we do to deserve this?" There are answers on both sides and they can be dealt with. However, the most significant part is that we looked at the situation as matters stood and we made the best of things as we went along.

Last week I heard the contribution on radio of a woman representative of a large private sector group, IBEC, a diligent body with which I do not have a problem. However, I was astonished when, in the context of rubbishing the public sector, she said it would be those in the private sector who would help us to work our way out of the recession. I said to myself that this might well be true, but I then waited for the next bit, for somebody to ask who got us into this mess in the first place. Who was it? It was the banks and the developers, not the public sector. The people who caused this crisis were in the private sector. We all understand and acknowledge this because that is the way it happened.

As I know the Minister of State has been a great advocate and defender of the public sector, I am not saying this in a personal way. However, it is important that, in striking a balance, when people talk about pay levels in the public sector, we should also talk about the tax breaks made available to the private sector at the same time. It is important that we remember the banks shovelled out money. We should also look at the efforts made to allow developers to do things which perhaps they should not have done.

People have asked me whether I was involved in the benchmarking process. I certainly was. The choice was very simple at the time - would the public sector stand by and see everybody else take his or her share of the cake? This was at a time when people had joined the public sector as a teacher, nurse, civil servant, garda, etc. and realised they were not being paid as much as those in the private sector. They acknowledged the job security and the process by which they paid for their pensions. They pay for them over a period of 40 years.

There is talk of people leaving the public sector with a package. I told a story recently about a guy I knew who had been in the private sector but had not worked for 35 years. When he became eligible for the State pension, he received a pension package worth €270,000. If we use the media method of working out the cost of pensions, that is what it costs to give a person the non-contributory old-age pension. Somebody who has paid into a pension fund for 40 years is portrayed as having a package worth €500,000 or €600,000 and suddenly ripping off the country. There is something wrong about this. There should be balance. A couple of weeks ago in this Chamber Members said there was no chance of public service unions doing a deal with the Government or accepting a reduction in pay packets and no chance of peace. We are within hours of such a deal.

My colleague, Senator MacSharry, announced that Thursday's strike was off. That may have been made previous to the announcement but he was probably right.

Marc MacSharry (Fianna Fail)
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I was confident.

Paul Coghlan (Fine Gael)
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I hope the Senator was right.

Joe O'Toole (Independent)
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Nobody wants a strike on Thursday and there is no need for one because we are that close to an agreement. We will take the hardship in the budget as long as it is rooted in fairness.

Martin Mansergh (Tipperary South, Fianna Fail)
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On Senator O'Toole's last point, one of the last points I made in my opening contribution was that we would bring forward policies in the forthcoming budget to ensure the burden of adjustment was spread as fairly as possible. That is something common to us all.

I thank all Senators for their contributions to the debate which has been constructive. I do not propose to attempt to answer all of the points made but would like to pick up on a few issues. In a rather interesting contribution Senator O'Donohue suggested the Government was bringing forward a notion that there was no alternative. I can think of many alternatives, four of which I will mention. We could put off taking serious action or spread it out over a long period.

Paul Coghlan (Fine Gael)
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Would that not result in the IMF coming in?

Martin Mansergh (Tipperary South, Fianna Fail)
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The second option is that we could abdicate altogether, default on our debts and let the IMF come in. The third option, advocated by Senators Quinn and Walsh, is that the Government could go in far harder. The suggestion was that it was not a figure of €4 billion that was required but €5 billion, €8 billion or another figure. The fourth alternative is for the Government to put much more emphasis on increasing taxes and less on expenditure reductions. The difficulty with that option is that increasing tax rates would not necessarily lead to an increase in the tax yield; it might even diminish it.

Apart from the political points made at the beginning of his contribution, Senator Twomey gave a very sound analysis of the seriousness of the position in which we find ourselves. I largely agree with him on the need for action. There was a point debated in the background and the Senator used the word "hubris". He said we had over-extended, become over-ambitious and unrealistic about our prospects and that we should have taken action earlier. I agree.

I do not accept Senator Mullen's notion which has been propagated that in the time of the former Taoiseach, in particular, the answer to every demand was "Yes." Senator O'Toole will remember the nurses' strike in 2007, when the answer was "No." I remember an occasion five or six years before when the ASTI did not want benchmarking and engaged in a prolonged action and the Government held perfectly firm.

Joe O'Toole (Independent)
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That is absolutely correct.

Martin Mansergh (Tipperary South, Fianna Fail)
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Oversimplified caricatures are being painted of past events.

I agree with Senator Twomey that we should use GNP as a gauge and made sure such a reference was inserted in my contribution. I also agree with Senator MacSharry that one of our main aims must be to try to secure as many as possible of the underlying gains made since 1987. We will have to take one or more steps back in order to ensure we can take steps forward in the future. I also agree with him in his comments about broadening the tax base.

There were contributions on indirect taxes and the Border. My comments are without prejudice to decisions that might be made one way or another in the budget. A 2.5% increase in the rate of VAT in Northern Ireland is due to take effect in January, as the cut in the British VAT rate was temporary. There is speculation that further into next year, possibly following a change of government, the rate will rise even further. One of the main difficulties with the 0.5% increase in the VAT rate last year was that it might have advertised differences with the rate in Northern Ireland but underlying differences include the exchange rate and price factors independent of tax and exchange rates. That point has been well demonstrated.

I agree with Senator Hanafin in his contention that we can bounce back and we will do so more quickly if we take the right action now. I also agree with Senator Boyle that incomes have become too high in comparison with those in other places. That was part of the logic in joining the single currency. There is little doubt, however, that incomes have fallen in the public and private sectors.

As Senator O'Toole acknowledged, there is no antagonism towards the public service. That is true of the vast majority of Government Members. We recognise the great contribution it has made, as we have seen recently in the response to the flooding throughout the country. Volunteers and various branches of the public service have come together and done a fantastic job in dealing its effects.

Senator Alex White expressed a sentiment which almost sounded like a sound bite but I agree that our measure of success should not be the suffering of the people. This is not a gratuitous or masochistic exercise; we are only doing what is absolutely necessary. If one likes, it is being done to secure the future viability of the State, economic independence and control over our own decisions.

I am delighted the strike has been called off, or at least that is the information passed on to me. When the second day of action was announced last week, I felt the unions were putting pressure on nobody but themselves.

Joe O'Toole (Independent)
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I think that was the point.

Martin Mansergh (Tipperary South, Fianna Fail)
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Yes. Nobody would be more delighted than me if a way could be found to achieve the cuts required in the public service pay bill on a consensual basis. That would be wonderful.

I appreciate this is a slight diversion, but Senator Norris tends to divert from some of the main points.

Joe O'Toole (Independent)
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I hope the Minister of State does not encourage him.

Paul Coghlan (Fine Gael)
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Perhaps it is the effect the Minister of State has on him.

Martin Mansergh (Tipperary South, Fianna Fail)
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He talked about the departure of a number of senior public servants. I attended the farewell dinner for the president of the Association of Garda Sergeants and Inspectors last week.

We would all like to be in a position to restore the Christmas bonus, but that is not realistic. The Senator also spoke about ODA for Uganda, but no decision has been made in that regard; only discussions have taken place. I would be surprised if the Government proceeded with it.

I have covered as many points as I can. I thank Senators for engaging in a constructive debate, which tends to be the norm in this House.