Senator Bacik Contributes to Debate on the Budget

Order of Business

Senator Ivana Bacik: I welcome the Minister of State. I also welcome the opportunity to contribute to the debate on the budget.

Previous speakers referred to Ireland's economy as suffering from an illness. I want to use a fruit analogy and state that it has gone pear shaped. The latter is, of course, an understatement. The Government has introduced a supplementary budget which might be described as being as bitter as a lemon. Ordinary taxpayers will be squeezed in this budget until the pips squeak.

The new measures announced by the Minister for Finance, Deputy Brian Lenihan, this week focus on reducing income, through increasing taxation, and cutting public services. The cuts in income through increases in taxation are stringent. The income and health levies have been doubled, the PRSI ceiling has been increased and restrictions have been introduced in respect of mortgage interest relief. As previous speakers indicated, all of these measures will impact severely on low and middle income earners, particularly those with heavy outgoings relating to mortgage commitments and child care payments.

As the Minister of State may be aware, crèche costs in the private sector in Dublin amount to at least €1,000 per month per child. Therefore, a couple with two pre-school children is currently paying €24,000 per year in child care, which is a whopping sum, before any other bills are met. For parents such as this, the warning that child benefit will be taxed next year and that the early childhood supplement will be abolished represents a double whammy. I wish to be constructive and I welcome the Minister's announcement of free pre-school places for young children. The provision of such places is long overdue. However, it is difficult to see how enough places can possibly be provided for 70,000 children by January next. This announcement seems like a mere concession to parents who have seen such a significant drop in their incomes and who are aware that there is more to come.

The cost of the swingeing reductions in income are particularly bittersweet when we consider the ongoing bail-out being offered to the two main banks. The Minister for Finance remarked in passing that the bad assets of the banks - this is the figure upon which there has been so much emphasis since the budget was announced - will amount to €80 billion to €90 billion on book value. This massive figure is way above the previous official predictions and could be enough to sink the country financially. Figures I have seen indicate that taxpayers will enjoy a 15% discount on the book value of these assets and will only be obliged to take on 85% of the risk. The bulk of this risk will be taken on through the proposed national assets management agency, NAMA, in a gamble of monumental proportions. It is particularly monumental when one considers the context.

The total public expenditure figure for this year is just over €60 billion - €20 billion for public sector pay, €21 billion on social welfare and the remainder on non-pay programmes and public investment. As we are aware, the total revenue take will be substantially below this figure. Predictions are continually being revised and the amount involved has dropped from €40 billion to €37 billion, and to an even lower amount in recent weeks. We have allowed the banks to gamble a colossal amount of money. On the basis of bad assets, they have lent out more than twice the entire annual revenue income for the State this year.

The €80 billion or €90 billion in bad debts to which I refer relate to approximately one fifth of the total debts of the banks. Media reports indicate that one third of the total bad debts relates to property outside the State, namely, apartments in Bulgaria, Dubai and other locations in which Irish people have invested.

That this was allowed to happen indicates that there has been an appalling failure in regulation. It is clear that there are major questions to be answered with regard to how this came about. The Minister conceded that mistakes were made and that there was a massive over-reliance on construction and property.

Now that we are in this position, how do we move forward? I am glad Members on the Government benches have admitted that we may end up owning the banks. Why should we not move more quickly in that direction? Why should we not nationalise the banks now? Given that we are nationalising the risk through the establishment of NAMA, why should we not also seek to nationalise profit? Senator Norris made a good suggestion with regard to creating one national bank because this would confer on taxpayers a greater possibility of recouping a profit. That is the sort of radical and creative solution we should be considering.

I am grateful to a colleague in the financial sector who provided me with a copy of the World Bank's financial sector strategy and policy group's cross-country study on the use of asset management companies in the resolution of banking crises, which was published in the year 2000. This study, which reaches a number of interesting conclusions, indicates that asset management companies such as the proposed national asset management agency tend to be ineffective at corporate restructuring and are only good at disposing of assets when these are used to meet fairly narrow objectives in the presence of certain factors. Such factors include a defined timespan for the operation of asset management agencies. The most effective studied were located in Spain and the US and these had achieved their objectives where a small amount of bad debts was transferred from relatively small banks. In addition, the agencies in these countries were given a fixed timespan within which to operate. The World Bank identified some of the criteria necessary for the success of these agencies as professional management, political independence, adequate foreclosure and bankruptcy laws, appropriate funding, skilled resources and transparent operations and procedures.

I am sure the Minister is aware of the World Bank studies on these structures.

Looking at the criteria which have been identified, I have a number of questions about NAMA which have not been answered and I would be grateful if the Minister would address them. The big question which everyone is asking is how much the agency will pay for the debts. Will it be as much as 85% of their book value, which would still saddle us with a whopping bill of €76 billion? What are the criteria for eligibility of the land and development loans which we are being asked to transfer? Will the number of individual developers to whom these loans have been made be disclosed? There have been disturbing media reports that only a very small number is involved. To whom will the shortfall levy be applied, assuming there is a shortfall as the Government envisages there may be? What is the position of Anglo Irish Bank? There are questions about this in the Government fact sheet on NAMA with which we were all supplied. No answers were supplied. What about the recruitment process for the CEO, chair and board of NAMA and for the new head of financial regulation? Looking at what the World Bank has suggested about asset management companies in banking crises, it is vital to have transparency in the operations and processes of these agencies, in order to inspire public confidence and confidence among international markets and investors. These are some of the questions that need to be answered. NAMA represents the elephant in the room of this budget. That is the focus of much of the comment.

I want to refer to the rest of the budget and to be critical as well as constructive. The budget was described, importantly, as a six-step five-year plan. All of us welcome as absolutely necessary the idea of a long-term plan. It is also important that it constitutes six steps. However, looking at the fine print, most of the detail relates to tax increases and cuts in public spending rather than to the equally important idea of stimulating the economy through job creation, the smart economy, building competitiveness and so on. Other speakers have mentioned many of the cuts proposed. I want to mention in particular the cut which I regard as the most mean minded, the cut in overseas development aid. An additional €100 million is to be cut, but it was mentioned in the small print and not in the Minister's speech on Tuesday. Dóchas and the other Irish aid agencies have rightly reacted very strongly, saying that the new aid cuts, coming on top of the three other cuts already imposed on the aid budget since last June, will have a devastating impact on the world's poorest people. The recent cut means that we have seen in the first four months of 2009 aid spending cut by 21.8% of the projected total for the year. Dóchas has said this will lead to the loss of lives in the developing world. This puts into perspective our own requirements on belt tightening. There will undoubtedly be hardships in Ireland. Although the Minister said he would not reduce welfare payments, he then proceeded to abolish the Christmas bonus, a particularly Scrooge-like gesture, cut rent supplement rates and halve the jobseeker's allowance for those under 20. Undoubtedly this will lead to greater hardship for those vulnerable groups.

There are two other groups whose predicament should, I believe, have been addressed in the budget. What about the provident people - not the profligate bankers whom we are bailing - in Bord na Móna or Waterford Glass who are seeing their pensions disappear, through no fault of their own? Surely there should be measures to protect pensions. Are there any such plans? Young people facing redundancy who have heavy mortgage commitments are another vulnerable group for whom this budget has provided no relief. We need to ensure their homes are protected, if we cannot protect their jobs.

I do not want to sound entirely negative. I recognise, as we all do, the need to make cutbacks. There are welcome measures in this budget. There are creative measures. I welcome the pre-school plan, which is long overdue. The cuts in pay and allowances to Oireachtas Members are very welcome. Some of us, including myself, have already taken a 10% voluntary pay cut. I did that last year. We need to lead on these issues. I also welcome the measures to reduce the public sector pay bill. The career break scheme for civil servants is excellent and should be extended throughout the public service. I am taking an unpaid career break from Trinity College next year. Trinity is one of the public sector employers which offers this incentive.

It is important to see an extension of the career break scheme through the public service. The early retirement scheme is also useful. These innovative and welcome measures aside, the budget as a whole appears to be a very crude and blunt attempt to balance books through cutting public spending and raising taxes on incomes of ordinary families. The Minister may have attempted to sweeten the pill through token comments about the need to generate greater competitiveness and create more jobs but there is very little detail or substance in his plans. This is a real shame, a missed opportunity. There are no real ideas or proposals for stimulation of the economy. When have we ever seen an economy that has recovered through cutting spending and raising taxes? We need to see a stimulus plan too. Without that, this is a real lemon of a budget.