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Fiscal Responsibility Bill 2012: Second Stage (Resumed) (Continued)

Wednesday, 10 October 2012

Dáil Éireann Debate
Vol. 778 No. 1

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Deputy Seán Kyne: Information on Seán Kyne Zoom on Seán Kyne I am delighted to have an opportunity to speak on this important Fiscal Responsibility Bill. As we know, the people voted last May in a referendum to pass the stability treaty. Stability in this context means fiscal responsibility or, in simpler terms, good housekeeping. The stability treaty comprises many elements of international law, but also three or four articles of national legislation. These require this Bill to be passed through the Oireachtas in order to give effect to the treaty. Considering the support we receive from other countries and the ECB, it is appropriate that we give a pledge in this Chamber on financial responsibility. Therefore, the introduction of this national legislation is required to give effect to the stability treaty.

The Bill gives a commitment to a balanced budget, as required in Article 3 of the treaty. Everyone would agree that it is right and proper we have a balanced budget in the interest of the country. If, however, a Government fails to enact a balanced budget, a correction mechanism will come into play. If these rules had been in place in previous decades, our economy would be in a much better place. Fiscal rules are not something new. For many years we have had rules, targets and expenditure ceilings and constraints. Now, under this Bill, we will have specific definable and measurable rules for our budgets. Article 3 also recognises that despite the best efforts of a government, exceptional or extraordinary events may take place from time to time that could hinder the capability of a government to balance its budgets and provides that temporary deficits will be permitted.

The Irish Fiscal Advisory Council was formed in June 2011 and it will now be put on a statutory footing. It will be an independent watchdog and will ensure that sound financial measures are enacted and that the Government complies with the terms and conditions of the stability treaty. The advisory council is already producing reports and assessing the Government's budgetary targets. It published its most recent report in September and it has reviewed the accuracy of previous Governments' financial forecasting and projections. The council will act as a watchdog that will keep an eye on the Government to ensure it complies with and abides by the terms and conditions of the stability treaty. This is important. This week, the council called for greater transparency and openness from the Government in budgetary and financial planning. It is hugely important the council has a statutory basis.

Conducting budgetary planning in public creates certain difficulties, because while there is a need for freedom to express and espouse ideas and measures, irrespective of whether they are popular or not, there should be balance between that and discussion by the media, whether in print or over the airwaves, of what may or may not happen. Such discussion creates an element of fear and concern among certain sectors of the population. In terms of confidence, it is important we limit that to a certain degree, while allowing some discussion. There is a fine balance between doing the right thing and not scaring people while putting out in the open what is being considered.

In section 6 of the Bill the Government commits to outlining its plan of action in the event of a deviation from its targets. Where targets are not adhered to, an early warning system will operate. The public will be informed that the Government is in danger of not meeting its targets and will be made aware of the attempts to rectify the problems presented. Last week, Martin Schulz, President of the European Parliament, made a very impressive speech here in the Dáil. He spoke about a number of issues, including the connection between national and European parliaments. He stated it was very important that we continue the prerogative that national parliaments enact their own budgets. It is hugely important now and in the future that this Chamber rather than the European Parliament retains control over our budgets.

This Bill and the Irish Financial Advisory Council provide safeguards against reckless spending and economic mismanagement. I welcome the Bill. If these targets had been in place and if we had had a watchdog to ensure they were adhered to by Governments, we would be in a better place than we are now.

Deputy Éamon Ó Cuív: Information on Éamon Ó Cuív Zoom on Éamon Ó Cuív I am pleased to have an opportunity to speak on this Bill. The Bill's aim is to ensure that governments follow good fiscal practice. However, I am not sure the remedy to the problems we face as a country is in this Bill. The history of the past ten years and the lack of definition of a structural deficit demonstrate, based on analysis done by independent international bodies, that during the boom years we would have complied with the terms of the new fiscal treaty. The Bill does not deal with the problem that arose in this country and in Spain, for example, where the transfer of huge funds within the European Union, due to the free market and open banking situation, led to a huge growth in the amount of credit available. This credit did not only come from Irish banks. It is a myth that it was all from Irish banks, but there were other major players in the market here. If the Irish banks had not lent money, the other international banks would have lent even more.

This situation led to a huge growth in tax revenue, which meant large surpluses were created. For example, the National Pensions Reserve Fund was largely funded from the surpluses, other than the Eircom money put into it. It was very difficult to calculate the structural surplus and the surplus due to extraordinary events. All of the economic commentators said we had a structural surplus and did not have a large structural deficit. Therefore, as with many other situations in Europe, the job is only being half done. It seems to me that Europe is reluctant to tackle some of the creations to which it is attached. One of these creations is this god it has made of competition and the free market. It loves hamstringing governments, but controlling the private sector seems to be anathema to it. It seems to believe that by definition, if there is competition, everything will work correctly.

However, as in human activity, what might be a good thing in reasonable measure can become a huge ill in society when taken to illogical extremes. For example, the belief that seems to pervade European thinking - that as long there is competition, business people will make money all the time - has been shown in the banking sector right across Europe to be spectacularly untrue. To be honest with ourselves, if someone had said ten years ago that organisations such as Bank of Ireland, AIB, KBC, Bank of Scotland and others right across Europe could not manage their own businesses, nobody would have believed it. If it had been said that German and French banks were potentially bust if they did not ask Irish and Spanish taxpayers to bail them out, nobody would have believed it, but that is what has happened. Despite all of these new rules, until we control this properly, what happened can happen again.

I do not believe that the European Union came to the aid of Ireland.

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