'Savings will deliver in excess of €2bn'

COWEN'S SPEECH:The following is the text of the speech Taoiseach Brian Cowen gave to the Dáil

NÍ RAIBH dúshlán eacnamaíochta riamh roimh Éirinn mar atá sa lá atá inniu ann. Tá cúlú domhanda úll-mhór ann faoi láthair, cúlú eacnamaíochta atá chomh dona le haon cheann a chonaic an tír seo fós.

Socróidh na cinntí atáimid a dhéanamh anois an dtréigfimid an dul chun cinn atá déanta againn go náisiúnta nó an dtabharfaimid saol eacnamaíochta níos fearr dúinn féin agus na glúinte atá ag teacht fós. Ní raibh an oiread tábhachta riamh ag baint leis na roghanna cearta a dhéanamh maidir le polasaí eacnamaíochta.

Just before Christmas the Government published its strategy for "Building Ireland's Smart Economy: A Framework for Sustainable Economic Renewal". Its primary objective was to outline a pathway forward for the Irish economy which acknowledged the severe short-term challenge, while focusing on how we could return to sustainable growth in the medium-term.

At that time, the Government committed to engage intensively with the Social Partners on how we could develop and implement that framework, beginning with the need to devise a credible time frame in which to close the gap in the public finances. We decided to work together with a specific focus on agreeing an approach to managing those challenges we now face.

And those challenges are immense. As we pointed out last week, we are experiencing the most profound global economic crisis in 70 years.

In addition to the effects of an international financial and banking crisis and a worldwide recession, the Irish economy is suffering from the aftermath of a large housing and construction boom and a loss of cost competitiveness after a period of sustained growth.

This is being exacerbated by the decline in the value of sterling relative to the euro which is placing extreme pressure on Ireland's base of exporting companies.

Intensive discussions with the Social Partners on these challenges resulted in the agreement last week of a Framework for a Pact for Stabilisation, Social Solidarity and Economic Renewal.

In this framework, the Government and Social Partners agreed that we would only achieve the prosperous future that the Irish people deserve if, during these extremely difficult times, we take urgent and radical action to restore stability to the public finances, to maximise short-term economic activity and employment and to improve competitiveness.

Stabilisation

This approach is rooted in the belief that stable public finances are essential for the future of our economy. Every action that we take in the period ahead must be motivated by that objective. Without stable finances, there will be no economic recovery.

The framework agreed with the Social Partners endorses the fiscal plan submitted to the European Commission and commits to working together to eliminate the current Budget deficit by 2013.

The difficulty in achieving this cannot be overstated. The Social Partners have agreed that a credible start requires an immediate adjustment of the order of € 2 billion. This must be followed with adjustments of € 4 billion in 2010 and again in 2011, € 3.5 billion in 2012 and € 3 billion in 2013.

Today we are announcing the first steps towards achieving those targets.

Social solidarity

During intensive negotiations with the Social Partners over the past week progress was made on a range of issues under the framework. In the context of the discussions, the Government tabled proposals to achieve a full-year saving of € 1.4 billion through the introduction of a public service pension levy. The unions decided that they were not in a position to agree to that proposal.

While this is regrettable, it does not mean that the engagement with the Social Partners was a failure: the overall framework has been agreed, the need for an immediate adjustment of € 2 billion on a credible basis was also agreed, the need for a significant contribution to be made by the public service pay bill in achieving that adjustment is also agreed, as are links to the Government's strategy for economic renewal published in December.

I am grateful to all those involved in the discussions for the quality and the sincerity of the engagement that took place over the past four weeks.

The Government considered the position at its meeting this morning and took the necessary decisions in respect of the fiscal adjustments required as I indicated we would in the absence of a final agreement. Our decisions take account of the views expressed by the Social Partners during those discussions.

These adjustments will deliver in excess of € 2 billion on a full-year basis and represent a huge political, economic and social challenge for every single person in this country and will be achieved through the following full-year expenditure savings: € 1.4 billion on the public service pay bill, the great bulk of which will be achieved through a new pension-related payment to be made by all public servants (including employees of local authorities), with a small element of the total to be secured through reductions in travelling and subsistence rates and other savings.

In addition, the increases provided for under the Review and Transitional Agreement with effect from September 1st, 2009, and June 1st, 2010, will not now be paid on those dates; this will deliver savings of € 1 billion in 2010;

- €95 million through a reduction in Overseas Development Aid;

- €80 million through a general reduction of the order of 8 per cent in all professional fees, for example in the legal and medical areas;

- €75 million through a reduction in the early childcare supplement from €1,100 to €1,000 per year and a restriction to child under five.

- €140 million through general administrative efficiencies and savings, including those arising from the non-payment of the scheduled September 1st pay increase arising under the Towards 2016 Agreement, through further savings in advertising, PR and consultancies; and through savings on Defence equipment;

- €300 million through an across-the-board reduction in the 2009 Budget exchequer capital allocations; and, we are in a position to reduce the € 8.2 billion capital allocation by € 300 million because of the fact that we are achieving far more output for less money than was the case in the past due to the fact that competitive tenders for capital projects are coming in at prices 20 per cent less than before.

We therefore expect to maintain the level of output on capital projects while achieving this saving.

I wish to make the House aware that legislation will urgently be brought forward to give effect to the pension-related measures which I have outlined. This will include legislative provisions to realise the payroll saving in respect of local authority staff for the benefit of the Exchequer through a reduction in the Exchequer allocation to the Local Government Fund.

Implementation will be discussed in the normal way with the public service committee of the Irish Congress of Trade Unions.

The Government has been guided by the principles of fairness and prudence in making these tough decisions. The new pension-related payment will be graduated to reflect different income levels in the public service, while our other expenditure adjustments seek to ensure all sectors of society contribute on an equitable basis.

In addition, we have already introduced highly progressive tax-raising measures in the 2009 Budget which will raise an estimated € 2 billion or 1 per cent of GDP additional taxation. The income levy targets higher incomes while protecting those on lower incomes, social welfare or in receipt of redundancy payments. 20 per cent of the money raised will come from those with incomes over € 250,000. In addition, those with second homes will pay tax on those homes for the first time.

Today's measures build on our decisions last July to secure an initial round of savings which delivered € 440 million in 2008 and € 1,000 million in 2009. These included a 3 per cent payroll reduction by end-2009 and reductions in spending on consultancies, advertising and other measures. We introduced further administrative efficiencies and savings in the October Budget including a proposed reduction in a number of agencies.

We will continue to target expenditure and tax measures on those most able to bear the cost, and we will support those who are most vulnerable in our society consistent with a responsible budgetary policy and an assessment of what is sustainable in the current circumstances.

We are conscious of the many challenges people face but it is in everyone's interest that we deal responsibly with the situation and safeguard this country's future prospects.

In doing so, we will utilise the social partnership process, which is about engagement and the sharing of analysis, as well as the forging of specific agreements. The social partnership discussions over the past few weeks has deepened our shared understanding of the challenges facing the economy and the appropriate direction for a response.

The Tánaiste, the Minister for Finance and myself have devoted a large amount of time since the beginning of January to these discussions, both in formal meetings and through many informal contacts and discussions, including over several nights and weekends. No greater priority could have been given to these efforts and I believe that the Social Partners themselves would acknowledge this fact.

The inability of the Ictu to agree to the Government's proposals does not mean that the partnership process has failed. The overall framework remains in place and will be built on.

The Ictu has indicated that it is available to continue discussions on the implementation of the overall framework, as have the other social partners.

The Government will continue to engage with them over coming weeks as it implements the strategy agreed in the framework document regarding: support for enterprises, refining price regulation in the energy sector, stabilising the financial and banking sector to meet the needs of the Irish economy and society, implementing a pro-active labour market approach appropriate to Irish conditions to support vulnerable employment and those who lose their jobs, developing a new national pensions framework, and completing the reform and economic renewal agenda to which we are committed.

Economic renewal

The decisions taken by Government lay the foundations for the next phase of Ireland's national development.

Despite the budgetary constraints, the Government is maintaining proportionately the largest capital investment programme in Europe.

We will continue to commit considerable expenditure on roads, on schools and on housing. We are investing significantly in important infrastructure and research and development to drive competitiveness, growth and jobs in the future. We have proportionately the largest investment programme in the EU. This is an investment in the future as well as being our very own stimulus package for the Irish economy.

We have also decided today to reprioritise €150 million of capital expenditure to employment-intensive activities in the areas of school building and energy efficiency improvements.

The biggest tragedy of the current difficult circumstances is the loss of jobs. Protecting jobs to the best extent possible and supporting those who become unemployed is of fundamental importance. The Government will continue to deploy every means at our disposal to help minimise the impact of the credit crisis and the severe downturn in global markets on employment prospects in this country.

The Government is also working to significantly improve access for unemployed persons to job search, training and education, and employment programmes. Relevant Ministers and their departments are working together to maximise opportunities for upskilling and reskilling so that people will be better placed to avail of new job opportunities where they become available.

Immediate steps are being taken to adapt to the unprecedented pace and scale of change including: increasing the monthly capacity of job search (from 6,500 to 12,250 persons) to assist individuals through the provision of guidance on employment, education and training opportunities and development; planned creation of an additional 51,000 training places for newly unemployed people; design and delivery of further courses in sustainable energy and green technology techniques; work towards providing redundant apprentices with the opportunity to complete their apprenticeships.

The Government will bring forward further measures in these areas which ensure that we get the maximum impact from resources available and that innovative approaches are used to maintain people in employment as well as assisting those who lose their jobs.

As I stated before, this further saving of €2 billion is the next step in stabilising our public finances. We will continue to work with the Social Partners on the basis of the framework we agreed last Friday to address the short-term issues, in order to maximise economic activity and employment in the short-term and helping those who lose their jobs. The Government is committed to working with all stakeholders to confront the challenges this country faces in a global recession.

We will provide the necessary hope and direction and we will take the difficult decisions now in the interests of the country and our people.