Thank you very much, a Cheann Comhairle.
I want to focus my contribution this evening on issues relating to my Department.
The Programme for Government envisages that the Department of Finance will be reconfigured as two departments – a restructured Finance Department which will encompass two divisions: the Budget, Taxation and Economic and Banking Divisions, and the Department of Public Expenditure and Reform which will comprise two divisions, one dealing with Public Service Management and Development and the other, Sectoral Policy Division, dealing with matters relating to public expenditure.
The decision to separate the functions in this way derives from a policy proposal developed by the Minister for Enterprise, Jobs and Innovation when he was Fine Gael spokesperson for Finance in opposition. As Deputies will be aware, there have been many attempts at public sector reform in the past. Minister Bruton’s assessment, supported by Fine Gael colleagues and by our new colleagues in Government, was that previous attempts failed for two reasons. Firstly, previous processes over the last number of years were not driven by a Minister of Cabinet rank. Secondly, where the reform agenda was being pursued, the junior minister or the official driving the initiative was hampered by not having the necessary levers available to deliver on that agenda.
The new organisational configuration overcomes these drawbacks. We now have a position where the Minister responsible for public sector reform is a Minister of full Cabinet rank equal in every respect to all other Cabinet colleagues. This will ensure that the reform process can be advanced and championed at Government level. In addition, because the Minister’s portfolio now includes the expenditure control function, he will have the necessary levers to deliver on reform. These two aspects are fundamental departures from the approach adopted by administrations up to now and the Government are fully confident that the new arrangements will be successful. Reforming the delivery of public services, while at the same time controlling Government expenditure taking account of the poor state of the public finances, will be a key priority for the Government.
In this context, I want to move on now to talk about two issues in particular – fiscal targets and banking policy.
The Government Programme sets out the fiscal strategy that the Government intends to follow. As stated in the Programme, we believe that it is appropriate in order to enhance international credibility to adhere to the aggregate adjustment as set out in the National Recovery Plan for the combined period 2011 to 2012. This approach to our fiscal position is both prudent and practical.
In the process of negotiating the Programme for Government, the negotiating teams from the Government parties were briefed by officials from the Department of Finance, the Central Bank, the NTMA and others. It became evident that while the path forward for the economy can be set out with some certainty for 2011 and 2012, beyond that matters become somewhat more opaque. The Government will keep to the fiscal targets of 2011 and 2012 but, on the advice of the Governor of the Central Bank, we will build in a review for the later years. In this regard, three variables are relevant:-
- the projected rate of growth in the economy,
- the impact of the Government’s jobs and growth strategy, and
- the extent to which it is possible to renegotiate the EU/IMF Programme of Support.
In relation to the first of these, the projected rate of growth for the economy varies from forecast to forecast depending on the agency making the projection. My Department’s view, based on its assessment last November, is for an annual average GDP growth rate of around 2¾% over the 2011 to 2014 horizon. As part of the new EU semester which applies to all Member States, the Department will submit revised forecasts to the European Commission next month, which will take account of the latest domestic and international information to hand.
On the second issue, the Government are very strongly committed to a jobs and growth strategy. We are also fully committed to bringing forward as a priority a Budget to put the strategy into effect in the early stages of our term. We are optimistic that this will be successful and will enhance the rate of growth in the economy.
The Government also hopes to secure a renegotiation of the EU/IMF Programme of Support including a downward revision on the interest rate which applies to the financial elements of the Programme. As Deputies will be aware from events in Brussels in the last number of days, the negotiations are likely to be challenging for us. The Taoiseach and I have been making the Irish case and while nothing final has been agreed, I am confident that we can achieve some improvement in the costs associated with the Programme. Obviously, success in this area would ease the quantum of the adjustment required to reach our deficit target by 2015 and this is to be welcomed.
As stated in the Government Programme, beyond 2015, our commitment goes further than that of the previous Government and envisages balanced budgets and current surpluses. This is an important commitment as our colleagues in Germany, the Netherlands, Finland and Austria in particular want assurances that if the European Union gets its house in order in fiscal terms it will not regress to undesirable practices. We share this commitment and it is something that this Government fully supports. In this regard, it is my intention to strengthen our Budgetary process to best international practice and standards.
If I may, I would now like to turn to the issue of Banking policy. The crisis in our banking sector remains a major problem for Ireland. The cost of the banks is perceived to threaten the sustainability of our fiscal programme. The continued reliance on central bank funding has eroded market confidence in our banks and their ability to access market funding. �
There is broad agreement that the medium-term solution for the problems of the Irish banks is to deleverage them, that is to reduce the size in a balanced and measured way. At the same time, a fast deleveraging process cannot be undertaken because, as recognised in the Programme agreement, sales of bank assets at firesale prices would have significant consequences for our sovereign indebtedness.
The EU/IMF Programme of Support addresses the uncertainty over the capital needs of the banks by providing that a detailed analysis of the Irish banks under an extreme stress scenario is currently being carried out by independent consultants. As the House will be aware, I have indicated that the €10 billion earmarked in the EU/IMF Programme for recapitalising the banks will probably not be enough. The extent of the shortfall will be revealed by the results of the banks’ stress tests, which will be published by the end of March. Any significant increase from the current estimated capital need will exacerbate market concerns regarding the sustainability of our debt position.
The EU/IMF Programme does not address the question of the medium-term funding for the Irish banking system, which remains one of the major vulnerabilities for the sector overall. The fact is that without medium-term funding at a reasonable cost, the Irish banking system will not be able to return to a stable funding position. A mechanism which addresses this issue for the banks would play a major role in restoring confidence in the sovereign and help underpin the good progress being made on the fiscal side.
In early February, my predecessor decided not to inject further capital into the banking system to ensure that Allied Irish Banks, Bank of Ireland and the Educational Building Society would be capitalised to a level of 12% Core Tier 1 capital as required under the Programme agreement. The move was to have been carried out as part of the commitments under the EU/IMF Programme of Support. As had been made clear, the new Government will not make a decision until the results of the P-CAR exercise become available. The Government expect to have the results by the end of this month and we will make a decision at that stage in relation to recapitalisation.
I would like to make a general point before I close. The Government have a huge and urgent programme of work, mandated by the people, to get the economy moving, restore confidence and support the protection and creation of jobs, a task which is even more pressing in the light of the latest labour market figures for the final quarter of 2008 which were published earlier today. We have also the task of fixing our banking system which isn’t going to be easy or pleasant. In addition, our political system must embrace change and our system of Government must modernise and deliver better services with scarce resources. The Government Programme, Government for National Recovery 2011 to 2016 is aptly-named. It is a comprehensive and soundly-based programme which will deliver national recovery and put us back on a sustainable path where our potential can be realised.
During the debate it was suggested that the Programme is long on rhetoric but short on specifics. It was also suggested that it contains no strategy for getting people back to work. I do not accept this analysis. The programme contains many specific commitments in
relation to a jobs programme and labour market policy and covering banking policy, fiscal reform and political and public sector reform. It is also the case that, as I mentioned earlier, the Programme outlines the Government commitment to bring forward as a priority a Budget to put a jobs and growth strategy into effect in the early stages of our term.
I commend the Programme to the House.