Govt needs less wishful thinking in dealing with the economy

The Finance Bill began in the Seanad this morning. Following a speech by the Minister, I rose with my own contribution. You can read it below.

Particularly in this area of discussing the economy and our future, I am all in favour of hope. We all want to have a debate that is characterised by hope so that we can be genuinely positive and face the future in that vein. That is the basis upon which any of us would come to this debate. Certainly, there is need for a restoration of hope and confidence in the economy.

However, my problem with this debate is that while a number of speakers stated they hope that things will happen, it has been characterised by a significant degree of what I can only describe as wishful thinking, not entirely - in some cases, not at all - based on the facts.

It started out this afternoon with the Minister’s speech. The Minister treated us to an account of what he describes as “tentative signs that the economy is beginning to stabilise on a number of fronts.” He spoke of unspecified key macro-economic and fiscal data releases being generally in line with expectations. He repeated that growth is likely to return in the second half of the year and re-establish itself on a full-year basis in 2011. He also repeated his famous phrase from his Budget Statement that the economy is now turning the corner. On today’s lunchtime news, the Minister for Enterprise, Trade and Innovation, Deputy Batt O’Keeffe, was somewhat less positive than this, couching his remarks along the lines that he felt we have come close to a situation where we might turn the corner, which is somewhat different.

I long for the day, as many people do, that the economy genuinely turns the corner. However, I vehemently disagree with politicians, particularly those in positions of power, seeking to persuade people on the basis of assertion that a new state of affairs has come about because, as of yet, it simply has not.

The second example of wishful thinking came from my colleague Senator Boyle. Earlier, he indicated he was initially sceptical when last summer the Minister for Finance, with little discussion, changed the configuration between cuts and revenue measures that would make up the €4 billion to be taken out of the economy this year. However, Senator Boyle came around to the view that the Minister got the balance about right. No one has explained to me, or could if they were being honest, how they believe the Minister got that balance right.

I was interested to hear Senator Dearey speak about the deflationary effect of the budget and that companies have reached the point where the pips are squeaking at which no further pain can be taken in the deflationary spiral in which they find themselves. This is as a result, at least in some part, of a direct decision by the Government. The Government acknowledged the budget measures would have a deflationary effect. Last December it was known that taking €4 billion out of the economy would have a deflationary effect because it would reduce the spending power of citizens and, accordingly, the amount of money available in the economy for the purchase of goods and services.

While Senator Boyle wishfully thinks this spiral may be coming to an end and that the Minister for Finance got the balance right, there is no evidence that this has occurred. Instead, every time one walks down any street one sees yet another retail unit boarded up because they cannot secure finance from the banks, their rents are too high, or, more importantly, the deflationary budget measures introduced by the Government in this Finance Bill.

Many people suggest that in a bid to turn matters around, they are seeking agreement through social partnership but often do not show evidence of doing so in their own conduct. I have heard Members opposite asking the unions to come back to social partnership which is again wishful thinking. Did no one tell Senator Hanafin and others opposite that social partnership was blown up last December?

I hear voices opposite again showing this wishful thinking as if one can talk it back into existence. Social partnership is at an end and the parties involved have stated so, not me. By its meaning partnership requires people wanting to work together while supporting not undermining each other. It is simply not possible to talk social partnership back into being when one cuts the wages of people earning €30,000 a year. It is just not feasible to wish that those who have faced wage cuts and levies would come back around the partnership table. It will require more direct intervention by the Government to turn this around. I hope it can be done but I have not seen much evidence of it as yet.

Senator Ó Brolcháin criticised Senator John Paul Phelan for claiming the Finance Bill contains little in an employment creation stimulus package. He said one would not find that in a Finance Bill but elsewhere. The Finance Bill, however, is the most important annual economic statement of the Government. Since yesterday’s Cabinet reshuffle the Taoiseach and Ministers have been saying it is all about jobs and because it is so important it will be spread across three Departments not one. One cannot divorce employment policy from the central economic policies as set out in the Finance Bill.

The area with the greatest wishful thinking – the real wishing well of our public discourses on the economy – is NAMA. Its advocates cannot persuade people it has worked because we do not know if it has yet. While the legislation has been enacted and some of the loans are being transferred, we do not know whther it will achieve its objectives. NAMA’s advocates on the opposite side claimed it would ensure credit would flow again in the economy. In recent weeks, however, we have been told by the International Monetary Fund, IMF, invoked early on in favour of the Government’s proposals, stated it did not believe the agency would get credit flowing again last summer, a fact only revealed recently on foot of a freedom of information request.

I accept any government will put forward arguments which suit its position and conceal those that do not. However, there is a limit to the extent to which a democratic government should be permitted to do so, particularly when it is dealing with the economy and the future finances of its country. The Government must level with us on all aspects of its policy formulation on the economy. It is not acceptable for it to withhold information and advice given to it at the time of the introduction of the NAMA legislation.

I am delighted the Report Stage amendment of my party colleague, Deputy Burton, has survived in the Bill even though it looked a little rocky for a while. I also genuinely welcome that the Minister, after his initial uncertainty, agreed to accept the amendment. His Seanad recommendation will alter the period involved from one month to three months with which I believe there will be no difficulty. It is important the Government shares with the Oireachtas, and through us with the public, the cost-benefit analysis of the tax expenditures provided for in the Bill. It is extremely important. When we examine the incentives and measures introduced in the past ten or 15 years, we must analyse now them too and assess whether it was correct to introduce these measures in such a profligate manner. It is correct that we have a mechanism to assess such expenditure, particularly in areas where we are forgoing tax and giving people an opportunity not to pay tax for a prudential reason or a good developmental reason. We should run the slide rule over these schemes publicly so the public can see what is happening in its name.

Returning to the theme of hope and acting positively, I attended an important event on Sunday. The Dun Laoghaire-Rathdown County Enterprise Board teamed up with the Dundrum Credit Union and introduced a scheme to extend lending to small businesses in the catchment area of Dundrum. This is being done in a prudential way, with great care exercised in how the credit committee makes decisions. It is a step of great importance by people in a community where there are assets that could be used more than they are being used. The credit union movement has a wonderful history and track record as a people’s lending agency. It can now team up with the local enterprise board to see what it can do to make a contribution to providing lending to small businesses. Credit unions do not have a history of extending lending in that direction. That is an important gesture and an excellent development. I ask colleagues to consider this area. Important regulatory issues must be considered but we sometimes forget there is an enormous resource in our communities that allows us to make decisions and judgment calls on people’s ability and willingness to bring employment to their local areas and turn around this dreadful situation. I welcome the Minister of State to the House and look forward to debating the details of the Bill on Committee Stage.