Government Must Help Ireland Trade it’s Way Out of Difficulty

5th December, 2008

Paschal debated the state of the Economy with the Minister for Finance today. His speach to Seanad Eireann is below.


I welcome the Minister of State, Deputy Mansergh, and look forward to his contribution at the conclusion of the debate. I agree with Senator Ormonde that we are having a very important discussion this morning. It
offers us an opportunity to give our analysis of what is happening with the economy at present and to offer solutions in terms of what should be done.

I am deeply troubled, however, by the analysis of what is happening in the economy. There are two truths that so far appear to have received little recognition or emphasis from speakers, particularly on the Government side of the House. The first truth is that the only way we will sustainably get ourselves out of the current economic mess is by trading our way out of it. Look at how our economy got on to a sound,
stable footing in the late 1980s and during the 1990s. That happened because we recognised that as a small, open economy the foundations of our prosperity lay in being able to export competitive goods and services of high value at the right price. By doing that we could ensure we had the right products and services to sell at home.

While issues regarding economies of scale within the HSE, which was mentioned by Senator MacSharry, and the way money is spent in FÁS and so forth are important, the problem we are encountering in our public
finances is not the cause of our current difficulties, but a symptom. Most of the discussion this morning has been about the problem in our public finances, which I accept is crucial, but we will not move the economy forward or deliver the standard of living our people aspire to in the future unless we ensure we are growing our national income, not squabbling about the size of State funding as a percentage of that national income.

Growing the pie or the overall national income is the issue. That is the truth that predecessors in my party and in Fianna Fáil recognised over many generations. How we grow our total income is how our economy will move forward, and how our economy moves forward is how our society will prosper. I nearly despair to hear how little emphasis that crucial point has been given in the contributions to the debate so far. It is telling that in the contribution of the Minister for Finance, competitiveness is the last thing he discussed. The first issue we must deal with is how to get our goods and services competitive and what role the Government can play in this.

The second truth relates to what is happening with our borrowing at present. Last night I attended a public meeting about flooding in Cabra in my constituency. The meeting was very instructive for the debate here
this morning. It was an extremely angry meeting attended by residents and officials from Dublin City Council. The first part of the meeting was taken up with much appropriate and justified anger regarding why homes were flooded in August this year. Half way through the meeting somebody said: “The problem is the flooding in August but the bigger problem is the fact that our homes have been flooded regularly since the 1940s.” While the homes were flooded this summer, those homes and the roads in the area have been flooded regularly over the past 50 years. It is an appropriate analogy for this morning’s discussion.

We are spending a great deal of time now focusing on the fiscal deficit and borrowing requirement, but there is a wider problem that requires greater scrutiny and focus. That problem is that we have generated a
structural fiscal deficit of approximately 5% of our national income, which will be between €6 billion and €7 billion per year. I agree with Senator Alex White that these spending programmes, when measured as a
share of our national income, are among the lowest in the world, but they were based on a way of raising taxation and Government revenue that was completely and inherently flawed. This point is constantly raised in the House but its repetition is necessary because it is so important.

To find ourselves in a situation where so much of our taxation revenue was dependent on the banking and construction sectors was a flaw and problem whose consequences are only becoming apparent now. My views differ from those of my colleague, Senator Ormonde, who said that there are no absolutes. I am aware of what she means in terms of absolutes for the future, but there are absolutes in terms of how one manages an economy. It is absolutely wrong to be in a position where €2 to €3 of every €10 in our economy is being created by the building sector and where our taxes, the money we need to build our public services and ensure they prosper in the future, are so bafflingly reliant on that money. I use the word “bafflingly” very carefully. When I briefly studied economics in secondary school, I was taught by the text books that if an economy is going very well, one should hold some money back for a rainy day. If the engine is accelerating and the car is speeding down the road, one does not put one’s foot on the accelerator pedal, keep on that journey and increase speed. That is what we did.

The way money was being raised by our Government was unsustainable. The most worrying item is not the state of the national finances, because I believe we can work our way out of that if we focus on competitiveness and on the fact that we have a small, open economy, but the speed at which the deterioration took place and the velocity at which relatively stable public finances at the end of last year have deteriorated to the current level. I am not being negative or unpatriotic in saying this. By describing such analysis and views as damaging to the economy, we reduce our ability to learn from this. If this debate is about nothing else, it must surely be about reflecting on how we got to the current position and ensuring it does not happen again.

Yesterday, Davy economists announced that over the next two years they believe an additional 140,000 jobs will be lost, which will probably bring the unemployment rate up to 12%. For this to happen so soon into a
global downturn is a sign of the difficulties we face. However, what is even more worrying is where that unemployment will occur. Davy economists said yesterday that approximately half of the total unemployment will occur in the services sector. This sector is the one on which we are banking our future prosperity.

The Government has said, appropriately, that the services sector is where our future lies in terms of how to move the economy forward. That sector is about value adding and ensuring the intellectual capital and
brilliance of our young people and the people who are already working are translated into economic profit and into margin. To find that approximately half of the total amount of additional unemployment will be
in that sector must give us food for thought.I believe this will cause pressing social problems in future. Members of the Oireachtas must explain this to people in their 20s and early 30s who have attained
brilliance in the software, accountancy services and engineering sectors and who worked and attained levels of academic achievement beyond anything I could achieve. Despite such achievements, these people might
find their jobs under threat in coming years. The way in which we and the Government must respond is twofold. It necessitates confidence. There has been two much flakiness from the Government in recent weeks. It has been too inconsistent on matters of national wage agreements and the scale of the economic difficulty we face.

I recall the debate on the budget earlier in the year, during which I told the Minister for Finance that the economic assumptions upon which the budget was based were wrong. The budget assumed a certain rate of recovery for the economy. I asked the Minister to find one economist in Ireland or Europe who would agree with those assumptions. If I, as someone with only a passing interest in economics, could spot that fault, I cannot believe that the Minister and the Department of Finance were not aware of it also, given that they introduced the budget. This yields two implications. It implies a level of incompetence which, I hope, is not present. If we are reliant on such expertise to emerge from the economic situation, the prognosis is even more gloomy. A second explanation is that it was known, understood, but not shared with the people. This raises even greater concerns about the confidence we should have in the Government to find a way out of the situation.

I refer to the discussions on the Lisbon treaty. I thank my colleague, Senator Ormonde, for her kind words on my work related to this issue. It is vital for the prospects of the Lisbon treaty that we root it in today’s discussion. When we revert to the people in a way and at a time of the Government’s choosing, if we fail to explain that passing the Lisbon treaty and ensuring we are at the heart of Europe in future is essential to our economic prospects, we will omit one of the most potent and important arguments that we can possibly deploy. It is essential for our economic progress that Ireland is at the heart of Europe. It would represent a missed opportunity to fail to make that point, especially in such a debate as this. I have no doubt Ireland’s return to the heart of Europe is an essential ingredient for a prosperous economy in the long term.