The war in Iraq is obviously damaging the international business climate. Oil prices are rising, markets are in turmoil and this will impact on the Irish business sector. This is happening at a time when Irish business is suffering from the highest inflation rate in Europe. Is the Taoiseach happy to see inflation increase by 1% in February? This is the highest monthly increase in five years. Is he happy with the annual rate of inflation of 5%, two and a half times the European average? VAT has been increased in two consecutive years and there has been increases in ESB charges, telephone bills and VHI contributions. Will the Taoiseach explain the actions the Government will take to reduce this inflationary trend so that the word does not get out that Ireland is a high-inflationary area? It is difficult to persuade companies to invest in a high-inflationary area. This is all before the impact the Iraqi war will have.

The war in Iraq is a tragedy. In his question, the Deputy correctly said this will have an impact on business and lead to a slowdown in the world economy. We are still projecting GNP growth of 2.25% this year. Inflation is still too high. We have had several meetings between Departments, agencies and bodies that can help us to drive down prices. Competition is obviously a factor in this. While there are some direct tax charges, our business, employment and direct taxes are lower than in most countries. Our overall tax burden is certainly not in the upper reaches among OECD countries, never mind EU states. We accept that it will be a challenge to drive down inflation. Price stability remains a key part of our fiscal policy and this will only come about through more competition in the market, trying to get better price controls and our fiscal policies. We will continue to operate all those.

Today is a crucial day for the partnership agreement. If it is agreed, we will work with the trade unions and employers across a range of issues and take a range of measures to try to improve on this. The issues we will be engaged in range from housing to salaries. Our overall policy attempts to sustain progress in a difficult international climate and hold employment and taxation at current levels. We will try to be ready to take up growth again and be in an competitive position when the international climate improves. While we are not in a great position, our position is not bad – it is certainly better than most countries.

Is it not a fact that 2% of overall inflation is directly attributable to the Government's actions and reflects its inability to control price increases? The Taoiseach referred to the partnership agreement, which is based on open and honest engagement with all the social partners. The letter of determination of health expenditure for 2003 refers to a non-pay inflation factor of 2.8% while health inflation was running at 8.8%. Is that honest and open in respect of both sides? Will that gap be filled by empty wards, surgery cancellations and empty beds?

The partnership agreement also refers to the fiscal policy that contributes to non-inflationary growth. However, local authority funding has decreased by 2% this year. That means that every local authority will have to charge increased commercial rates and service, water and refuse charges, while local authority rents are increasing at an enormous rate. The Taoiseach has not answered the question. The Government is directly responsible for 2% of inflation and he has failed to control prices in his own area. The stealth taxes that are creeping in throughout the country are causing grave concern and a great deal of frustration for the electorate. This is before the impact of the Iraqi catastrophe ever hits our shores. The Taoiseach might explain what measures the Government will take to reduce inflation in the coming months.

We will continue both in Government Departments and agencies to follow the policy of price stability and we will try to get inflation as low as we can, although I recall when I was Minister for Finance, there was no inflation and I was called on to stimulate the economy and generate more activity in it so that there would be inflation. We do not want inflation at the level it is today. We want to control it and drive it down as best we can. There are no orders in place to control prices but if we can generate more activity and competition in the economy, that will be of assistance.

I want to correct the Deputy on the health inflation figures. He outlined an overall figure but, even if he was correct, there was a 12% increase in the revised volume of the health Estimate.

These are CSO figures.

The Estimate has increased by €902 million to €9,200 million, an increase of 12% on the outturn.

Why is one in five beds being closed in the Mater Hospital?

This is Leaders' Questions. The Deputy is not the leader of his party.

Hopefully, the social partnership agreement will be ratified later and I hope we will be able to work with the social partners and our agencies to achieve price stability as best we can.

The Taoiseach is not helping the situation.