Pre-Budget Scrutiny and Budget Priorities: ESRI

I welcome Professor Alan Barrett of the Economic and Social Research Institute, ESRI, who is joined by his colleagues Professor Kieran McQuinn and Dr. Maev-Ann Wren. I thank them for coming before the committee. The committee is carrying out its pre-budget scrutiny before the summer and we are very interested in hearing from the witnesses in the run up to the national economic dialogue and the publication of the summer economic statement. I invite Professor Barrett to make his opening statement.

Deputy Maria Bailey took the Chair.

Professor Alan Barrett

I thank the Chairman for the invitation to appear before the committee. I am the director of the institute and I am joined by my colleagues Professor McQuinn and Dr. Wren.

This opening statement will be broken up into three sections. We will discuss the macroeconomy and housing, and in this context we will probably go over some of the material covered with IFAC. We will then turn to health, which will be a bit different, and we will end with some brief remarks on a number of areas that we see as being particularly important. We will cover short-term and longer-term issues, and we will do so based on the view that a budget in any single year should be framed in the context of short-term and longer-term challenges.

The domestic economy looks set to register strong growth again in 2018 and into 2019. Since 2014, Ireland has experienced the largest growth each year across the European Union and the euro area. Initially, the recovery in economic activity was primarily export driven. However, over the past number of years growth, due to investment and consumption, has been more prominent. The ongoing resurgence of the economy serves as an important backdrop to the formulation of the budget. The recent publication of the stability programme update provides the outline of the Government’s fiscal strategy for the coming years. This comes at a time when the discretion available to the Government in terms of fiscal space has increased considerably relative to previous years. This greater discretion applies at a time when the foremost policy challenge is transitioning the economy from elevated growth rates as the economy experiences a rapid recovery to more sustainable growth rates over the medium-term.

It is clear that there are growing demands on the public purse. The Government launched the national development plan, NDP, earlier in the year, whereby significant increases in capital expenditure are envisaged over the medium-term. Also, the significant hardship experienced by many in the aftermath of the 2007-2008 financial crisis has resulted in calls for reductions in rates of personal taxation. Given the very strong economic performance at present, it is imperative that fiscal policy does not risk overheating the economy. Given the clear need for increases in capital expenditure, as articulated in the NDP, and ongoing pressures on current spending, it is difficult to see scope for significant tax cuts without adding to the risk of overheating.

It is generally understood that the current high price of housing reflects a substantial shortage of housing units. Although prices are still below their 2007 peak, the sustained increases pose significant affordability issues, particularly for low income earners in the Dublin market. Rising house prices are more likely to affect those at the bottom of the income distribution, for whom it is harder to obtain a mortgage and for whom housing costs have a much larger weight in the household budget. Importantly, recent data from the Property Services Regulatory Authority indicates that the sharper growth rate in house prices is at the lower end of the price distribution. Underpinned by strong housing demand, we expect housing completions to grow strongly this year. We expect housing completions, as measured by electricity connections, to increase by 25,000 units in 2018, growing again to 31,000 in 2019. However, this figure is still lower than the estimated structural demand for housing, which is approximately 35,000 units per annum.

In an Irish context, it is important to examine the interrelationship between fiscal sustainability and the financial cycle. At present, given developments in the property market, mortgage credit levels are growing significantly. While overall stocks of credit are still somewhat below the 2008 peak, it is evident that increasing house prices, coupled with growing levels of disposable income, are likely to bring about further increases in the extension of credit. This likely increase in future household credit levels is a further reason for the Government to exercise caution in the formulation of fiscal policy.

At present, while overheating in the economy is a significant internal risk, there are also a number of external risks to Ireland's economic outlook. Continued uncertainty as to the future of the European Union, whether through Brexit or issues in other member states, serves to remind us of the exposed nature of the Irish economy to external trade. This exposure is further accentuated given the present volatile trade relations which were evident at the recent G7 meeting. It has been established in a variety of research carried out by economists in the ESRI and elsewhere that any reduction in global trade and in global economic activity have direct negative impacts on the Irish economy.

We will now turn to our discussion of health, and in so doing we will take a longer-term perspective. However, in order to meet the longer-term challenges that we will discuss, policy reactions in the near-term are needed. Our remarks on health are based on our programme of research with the Department of Health, particularly the Projections of Demand for Healthcare in Ireland, 2015-2030 report published last October. This report provides annual projections of demand for public and private health and social care services for the years 2015 to 2030. I will list a certain amount of the main findings and I hope committee members can stay with me. The population of Ireland is projected to grow by between 14% to 23%, adding 640,000 to 1.1 million people. The share of population aged 65 and over is projected to increase from one in eight to one in six. The number of people aged over 85 is projected to almost double. Demand for health and social care is projected to increase across all sectors, with the greatest increases for services for older people. Demand for home help hours is projected to increase by between 38% to 54%. Demand for residential and intermediate care places in nursing homes and other settings is projected to increase by between 40% to 54%. Demand for public hospital services is projected to increase by between 32% to 37% for inpatient bed days and between 24% to 30% for inpatient cases. Demand for GP visits is projected to increase by between 20% to 27%, while demand for practice nurse visits is projected to increase by between 26% to 32%.

The report assumes no change in models of care. However, further research is examining the potential effects of policy developments that could reduce projected demand in some sectors but which could increase projected demand in others.

The report also provides projections of demand for inpatient and day cases in public and private hospitals, maternity services, public hospital emergency department and outpatient services, pharmaceuticals, pharmacy consultations, home care packages, public health nursing and public community therapy services. The report also includes the effect of unmet need and demand where possible.

There are important policy implications from the report’s findings, many of which mirror and complement the implications of the Sláintecare report. The projected increases in the demand for health services, arising from increases in the population generally and in the older population in particular, come after two decades of rapid population growth, a decade of cutbacks in public provision of care and a consequent build-up of unmet need and demand for care.

The additional demand projected in the report for the years to 2030 will give rise to demands for additional expenditure, capital investment and expanded staffing. This will have major implications for capacity planning, workforce planning and training. Additional investment will be required in most forms of care to meet the needs of a rapidly growing and ageing population.

Before concluding, we wanted to touch on some additional issues that are enormously important and so should not be overlooked. Each issue is part of a global trend and yet domestic policy has a key role to play. Population ageing is one of these issues but has been discussed already in the context of health spending. The other three issues are climate change, inequality and the productivity slowdown.

On climate change, the latest information from the EPA is that Ireland is likely to miss its 2020 target for greenhouse gas emissions and that emissions are projected to continue growing. As it has been suggested that the bill for missing our 2020 targets could be in the region of €500 million, there is a clear budgetary implication for inaction. Apart from fines, Ireland needs to make more progress on our climate commitments if we are to be seen as responsible partners in this global effort. Policy announcements such as the climate elements in the national development plan and the national mitigation plan are to be welcomed but the scale of the challenge may not have reached a wide audience yet.

The issue of rising inequality across many OECD countries has been discussed extensively. Within Ireland, it strikes us that much of the debate in recent times has centred on how income is distributed across households and whether we see increases or decreases in measures of inequality from year to year. According to this analysis, we know that Ireland is a relatively unequal country when judged by the distribution of market income. However, we also know that Ireland’s income tax and social welfare system is highly redistributive and so Ireland achieves a middle ranking in terms of inequality when household disposable income is considered.

With the greater availability of longitudinal datasets, through which the same individuals are tracked over time, we are able to get better insights into the following critical question: to what extent do the same people remain in poorer situations? This question is not answered by the research I have described. We will provide two examples from ESRI research which show the importance of tracking people over time. First, in a study published in January, colleagues show how lone parents and the children of lone parents are much more likely to remain in poverty when compared with other groups. Second, research published by colleagues in October 2017 and May 2018 shows how children differ by socioeconomic group as they transition into primary school and secondary school. These results serve as a reminder that we should think about equality over the life cycle and design policy accordingly.

As a final note in this section, we will touch on the issue of the productivity slowdown, which is evident in many western economies. While there is much debate internationally about the nature and causes of this slowdown, we will focus here on the challenge in Ireland. Research from the OECD, the Department of Finance and others has shown that productivity rates in Irish-owned companies are low. ESRI research has shown that Ireland’s SMEs tend to be investing less than might be expected and this is not accounted for by restrictions on lending. Hence, there is an ongoing challenge in developing the indigenous sector and this is all the more urgent in the context of Brexit.

We have moved across a range of issues and topics and have only touched on many of the complexities involved. However, we hope to develop some of the themes in response to questions from Deputies.

I will chair the national economic dialogue, NED, again on 27 and 28 June. Members of the committee have been invited and I take this opportunity to encourage their attendance. While many representatives of different groups will be present, it strikes me each year at the NED that the broader public is only represented if public representatives such as committee members attend and participate actively.

We have been reminded a number of times today about that event so I think there will be a better turnout.

Deputy Colm Brophy resumed the Chair.

The Chairman reminds us at every meeting about the national economic dialogue to make sure we attend.

Professor Barrett made two points about overheating. I completely understand the risk of overheating due to tax cuts. That is one of the contributing factors. Professor Barrett said that overheating poses a significant internal risk. Will the witnesses expand on what exactly he meant by that? All of the other evidence we are getting suggests there is no prospect of the economy overheating in the short term.

Dr. Kieran McQuinn

When thinking about overheating, people tend to think about fiscal policy, tax and Government expenditure and that is central to any discussion of overheating. Based on our experience in this country, and in many other OECD countries over the past ten years, it is very important that we focus both on fiscal policy and on what we call the financial cycle and in particular on how much credit is being extended in the real economy. What we have been struck by over the last period, and we are not the only ones, is there has been a very significant pick-up in credit. This is understandable in the context of the housing market picking up, more people buying properties and greater activity in the market. We need to heed the lessons of the past. The real difficulty we got into back in 2007 and 2008 was not all necessarily down to the fiscal policy side of things. It was down to the combination of fiscal policy and credit policy. It is certainly something we need to keep an eye on. The committee has just heard from representatives of the Irish Fiscal Advisory Council. Their assessment is the economy is very near potential. It is worth putting in context that the economy has been growing very rapidly. The challenge, as we said in our comments, is to see how we can ensure we go from an economy that is growing very rapidly because we are recovering from a very pronounced downturn and to try to transition that to more sustainable rates of growth over the medium term. Most other commentators, including the Irish Fiscal Advisory Service and the Central Bank, would not say the economy is overheating but they would flag it as a concern. We need to broaden our understanding of it in terms of looking at it from both the fiscal and financial side of things.

I can buy into that analysis. We made a freedom of information request for some of the Minister's briefing documents on the issue of overheating. One of the rationales for the rainy day fund is to prevent overheating. It is almost being put up as the only solution. When the EU Commission made a number of recommendations, particularly on how to prevent overheating, it mentioned investment, reduction of debt, broadening the tax base and preparing for the demographic pressures, which Professor Barrett touched on in terms of health. It focused particularly on our childcare system and the investment in it, the investment in adult education, as well as dealing with the mortgage arrears issue. It did not mention a rainy day fund. We heard the spending drift mentioned and that when we get unexpected income, we should not spend it but should put it into a rainy day fund. Is it not true that it depends on what it is spent on? If it is spent on social welfare payments there is an impact on that when the economy takes a dip but what if we spend it on trying to avoid issues that may overheat the economy, such as plugging the skills gap? We are talking about employment being around 4% but we still have a youth unemployment rate of approximately 12%. We still have issues around the lack of investment in childcare and in certain sectors in the economy. Is it not fair to say there are plenty of other options available to prevent the overheating of the economy and it does not always have to be that when we get the additional income or reach the balance targets, whatever the balance is, that anything in excess should be squirrelled away? Is it not also fair to say that we could put things into capital investment and that in itself would prevent overheating?

Dr. Kieran McQuinn

I will deal with a number of the points. We will focus on this in our next economic commentary, which will be out early next week. We will look at and trace the impacts of increased investment in the economy versus the implications of cutting taxes and the related impacts of that on a variety of different economic indicators. Our starting point would be the plans outlined by the Government as far as the national development plan is concerned, which signifies and indicates there will be a significant increase in investment over the medium term. Some of that is already beginning, which can be seen from the figures. Most people would agree that we need increased investment in a variety of different areas. Many infrastructural deficits, to give it the technical term, have arisen in the past ten years, not least in areas such as housing, because of the cutback we observed. What we were trying to do is to highlight the dangers that could arise from increasing investment that does not focus on productive areas and could cause overheating in the economy. Similarly, we also wanted to look at the impact of cutting taxes on overheating of the economy and to look at the combined package of the two. We think it is important to do this at this point in time. The economy is growing very strongly and we are coming back to the potential level so it is very important how we handle the impact of investment on overheating in the next couple of years. I do not think the rainy day fund in itself is purely about preventing overheating. I think it is probably complex. I am not here to support it or propose it. I think it is about more prudent fiscal policy, the idea that one has a fund to which one can divert funds that one does not believe are ongoing current funds that are likely to there on an ongoing basis and then one can use those funds when there is an economic downturn. For instance, some people have suggested as an example that if we had had the funds available in 2008 to 2009, which we did not, it would have been an opportunity to spend money in areas such as social housing. It would have helped to counterbalance the fact that the economy was going into a very sharp downturn and we could have offset some of the impacts by putting money into the economy. If we had had the fund at that stage, that would have been a good practical use of it. Obviously the funds that we had at that stage had to go into plugging holes in the balance sheets of the banks. That is my understanding of what the rainy day fund is. I would not necessarily focus on it as a means of solely preventing overheating. It is more for prudent fiscal policy over the medium term.

I will outline one other area. Deputy Jonathan O'Brien mentioned various measures to tackle overheating in the economy. I think one crucial difference this time round from the last time - again it goes back to the idea of incorporating developments in financial markets - is the new macro prudential policy framework, which I think is very important because if properly implemented it will hopefully ensure that we do not see the unsustainable levels in credit growth emerging, which we clearly did up to 2007 and 2008.

Is Deputy Jonathan O'Brien happy with that?

I welcome the delegation. I have looked at the ESRI Review of Research 2017, which is a very impressive document covering all the areas they have worked on during that year and across a range of areas.

I have some questions arising from Dr. McQuinn's introductory remarks. On the figures for housing completions, which were based on the number of ESB connection installations, do the housing statistics on completions stand up? One of my key objectives would be to build up the number of house completions to 35,000 to 40,000 units per annum. I understand that during the boom we built 90,000 houses in one specific year, which is the level of houses that would be built in the UK. What is the overall implication of that in terms of capital investment?

On health spending, I am looking at the predictions up to 2030, which are based on demographics. The demographics can show a significant range, as we could have an additional 40,000 to 60,000 people arising from migration flows. There is an all-party commitment to Sláintecare; is it possible to start putting real figures on health spending? What does it mean for future budgets? We are spending €15 billion at present yet we have significant waiting lists in acute health care, for example in cataract surgery, early childhood assessment and so on. Could the witnesses give us a firmer figure for the level of spending we would need to do across the health sector? Professor Barrett mentioned productivity and this is a point of concern because in economics, productivity is everything, is it not? What should we do about that? The committee has been heavily involved and produced a report on the issue of gender equality and the very modest programme in that area the Department of Public Expenditure and Reform has undertaken and I note that Professor Barrett highlights in his own report and research the very small percentage of higher positions in the Civil Service that are held by women. Generally speaking, is increasing the involvement of women at all levels in the workforce linked to higher productivity?

I commend the witnesses on the outstanding work they have been doing across a range of areas.

Professor Alan Barrett

I will kick off on the Deputy's final point and then will hand over to Dr. Maev-Ann Wren and Dr. Kieran McQuinn.

On the issue of productivity, Deputy Broughan is correct. Mr. Martin Wolf has an article in The Financial Times this morning and he makes the point that productivity is everything. When one is talking about medium-term growth projections, there is an assumption that there will be productivity growth over time and that is what delivers living standard increases over the medium term. We are observing this productivity slowdown internationally which often comes as quite a surprise to people as everybody assumes that in the digital age with so much happening that productivity should be blasting ahead but it is not. If one brings that into Ireland the situation gets a little bit more complicated because we have this twin track economy. We have some incredibly productive companies, at least on paper, which are typically foreign-owned and in contrast our core of domestic companies have much lower productivity levels. This is well understood and well discussed. There were two strands of ESRI research that tried to look at this recently; I referred in my introductory remarks to the fact that for quite a while we have been worried about under-investment in Irish SMEs. For quite a long time coming out of the recession the assumption, for which there was good evidence, was that this was about a restricted credit supply to these companies, given the difficulties with the banks. However, the most recent research would suggest that the under-investment in Irish SMEs is not related substantially to credit flows but is about something to do with risk appetite among Irish SMEs. That is clearly a concern. The second issue we have looked at recently goes to the following question and I will give 15 seconds to economic history. When Whitaker proposed models of foreign direct investment and the opening up of Ireland, the theory was always that the foreign direct investment companies would come into Ireland, that the domestic population would gain entrepreneurial management experience and over time there would be spillovers from the international sector to the domestic sector. In a sense this should have been a transition path. I have argued this on a number of occasions. I think that if TK Whitaker were still alive - perhaps he thought it in the later part of his life - he would have been surprised that 50 years to 60 years after his innovation we still had a relatively surprising dependence on foreign direct investment and what we increasingly see is that the sort of spillovers that were envisaged have not happened to the extent that we would have thought. Again the ESRI research on this has tried to identify which companies achieve these spillovers.

There needs to be a sufficient level of human capital within the company to be able to absorb the spillovers. We know something about the types of companies that do well here. Again - and I referred to this in the opening statement in the context of Brexit - we need to look at the domestic industrial sector and issues surrounding investment, human capital, managerial training and a range of other things, and a programme of work could then be done.

To come to the second point the Deputy raised, one of the most interesting studies we did within the institute last year was on the question why there are so few women in the upper echelons of the Civil Service. Both qualitative and quantitative research was carried out. One of the key findings of this was that men and women are as likely to be promoted when they apply but that the big difference between men and women across the Irish Civil Service is that men are much more likely to apply for promotion than women are. One of the qualitative pieces of research that came out of this made a point that I think everyone at one level knows, but it was interesting to see it written down. If a man satisfies two of five criteria specified for a job promotion, he applies; if a woman satisfies four out of the five, she tends not to apply. Again, there are a great many sociological reasons why this might apply.

Moving on, we have learned these barriers in the Civil Service. Again, there has been research that shows there are barriers elsewhere. There is broad international evidence that shows that the most productive workplaces are the most diversified. The first time I came across this literature was in the context of migration. It shows that diversified workforces tend internationally to be more productive. It is similar if there is an age distribution, the theory being that whatever problem one is confronting, the diversity of views tends to generate a more innovative approach to it. There could well be links between gender and productivity in Irish workplaces, but perhaps that is pushing it a little.

I will hand over to Dr. Wren, who will address the issue of health.

Dr. Maev-Ann Wren

I thank Deputy Broughan for his questions. To address first of all his question about the wide range in the demographic projections, they reflect varying assumptions on three factors, namely, life expectancy, fertility or births and, most importantly, migration. The higher figure, 1.1 million, above all reflects assumed much greater inward migration. This would be predominantly in the middle-age cohorts, that is, between about 15 and 44. What we can say we know with some certainty, however, is that the people who will be 80 and 85 in 2030 are in the country now. Therefore, between those two projections there is actually very little difference. It is in and around 90% for 80 years and over and nearly 100%, nearly a doubling, for 85 years and over. This rapid ageing that we project is in a sense a certainty. One could say that the higher demographic growth overall projection is an optimistic one because it implies that we would have the younger people to staff the services, join the labour force and pay taxes and so on to support the needs of the older population. Given our ageing, therefore, we need to hope for greater population growth in a sense.

In answer to the Deputy's question about what this means for future budgets, we are not in a position to answer that yet. What I can say to him is that regarding the projections of demand we have done, which in the opening statement were expressed from 2015 to 2030, annual average increases are about 1% to 3% per annum across services. In fact, for those services used more by older people, such as long-term care and home care, the figure is 2% to 3%. For other services it is 1% to 2%. When one considers increases in budgets overall, this probably sounds like a sustainable path but of course that is volume and the other component of expenditure is price. We are currently working on developing our model to be able to project expenditures. This will involve looking at issues such as potential pathways for public sector pay, for skill mix and for pharmaceutical prices. We hope to be in a position in a year's time or two years' time to come back and to talk about these.

To make a further point on this, do we have a sense of where we are building from? This work has not been done before in Ireland. When the EU ageing reports, which project the effects on expenditure out to 2050 and which were referenced earlier by IFAC, were published, Ireland was one of three countries that could not supply an age cost profile - in other words, how much was being spent on health services by age within the population. Ireland, Greece and Romania were the three countries that could not supply this because our data have been so poor. Part of the big project in which we have been involved with the support of the Department of Health and with a great deal of involvement with stakeholders such as the HSE involves trying to improve the data sources in order that we can project with some certainty. For instance, were one to use those EU ageing reports, the Irish projections are based on the assumption that Ireland's expenditure profile by age is the same as the EU average, which is a big reach.

Finally, regarding the Deputy's question about waiting lists, we have done our level best with the data available to include in our projections of demand what it would take to meet not only the effects of demographic growth and ageing but also current unmet demand. We have used waiting lists where those data have been available and, where available, survey evidence on unmet need expressed by people who return the surveys.

Dr. Kieran McQuinn

On the housing side of things, as the committee is probably aware, there has been quite a lot of discussion about the accuracy or otherwise of the housing supply figures released by the Department of Housing, Planning and Local Government. They are now officially called the connections to the ESB. The Central Statistics Office, CSO, has done quite a lot of work on looking into the figures and coming up with alternative sets of figures to reflect more accurately the current degree of activity. My understanding is that the CSO will publish figures fairly soon as to the actual level of supply in the market or the level of activity in a given year. Part of the problem is that there were more than likely close to 25,000 or 20,000 housing units built last year. The issue is when these houses were actually built. Were they half-built in 2007 and then finished last year etc.? I think there will be greater clarity on this from the CSO fairly soon. What we are looking at is the trend in respect of the level of activity, and one can clearly see there is an upward trend. Perhaps the level is off in respect of the figures we are talking about but the trend is clearly upwards.

The second question the Deputy asked, if I understood it, concerned the implications in terms of capital expenditure and for the capital plan if we radically increase housing supply figures in the economy. There was an earlier question in the previous session about when we will know that the housing market is beginning to unduly influence the level of economic activity. The answer is when one sees housing supply levels significantly in excess of the structural demand estimates, which at present are in the region of 30,000 to 35,000 units. If we go back to building double that, as we were doing back in 2005 to 2008 - I think on average we were building 85,000 units per annum over those three years - we will know that the housing market is beginning to unduly influence the level of economic activity. Clearly, that is one metric that would show that things are getting out of control. Regarding the overall capital expenditure, obviously, the vast majority of those housing units will be privately built, so I am not so sure what the implications will be purely on the capital budget but it is again a matter of the extent to which the overall activity levels would start to unduly influence activity in the economy.

I thank Professor Barrett for his presentation. I do not so much have any questions except to say I agree with a lot of what was in it. A question asked of the previous panel is whether the witnesses think the Government listens to them. One actually sees much of what is in the opening statement translated into Government policy. I was delighted to hear Dr. McQuinn talk about 2008 and 2009. If we had had that rainy day fund then, we could have invested it in social housing. As someone who was on a local authority back then and saw the withdrawal from central government funding and the knock-on effect of that, I believe it is very prudent that Government has a rainy day fund and it is broadened for adverse weather effects. People of my generation and the Chairman's generation always grew up being told to put aside a certain amount of one's wage if possible for a rainy day. This should be carried through in any policy.

I was delighted to hear Professor Barrett talk about gender in the workplace and some of the barriers women face to which he alluded, confidence, childcare and cost being the main ones. We are doing a lot to address that but we could probably go much further. He is right: men will apply for promotion if they reach two out of five criteria. Women like to finish a job before they go on to the next one. That is a given.

Regarding the data sources and the ESB connections, I am looking forward to the CSO figures coming out at the end of the week or next week, I think. Regardless of whether a house was built in part in 2010 and not completed until last year or this year, it is still a new house. People can argue over that whatever way they want; it still will put a properly built and sustainable roof over the head of someone who needs it.

Regarding Rebuilding Ireland, I think people forget where we have come from. I hate going back to this all the time, but it is important to put it in context.

Rebuilding Ireland is a five-year plan, and we always said it would be the middle of year two or three before we start to see that impact. The number of planning permissions being granted and planning applications going through, as well as commencement orders are increasing at a quicker rate than the last year or two, although they are not yet where we need them to be, that is, putting some confidence and viability back into the sector. It is going in a positive rather than negative direction. Members in other parties do not want to accept that and, instead, bash us on the ESB connections or other figures. When we drill down into them, progress is evident, and this does not come about on the back of a card; it has come about with proper policy, investment and communications with people who know this field.

I do not know even where to start with health. I spent yesterday and last night in an accident and emergency department with a family member and I have every respect for people who work in the emergency services given the pressure they are under. The Sláintecare report has been completed for a good while but it was a policy document that had to be handed to the Department of Health to produce a financing roadmap on where to invest over the next ten years. It is not something that can happen quickly. Proper policy and planning take time and doing something in haste sometimes brings poor results. I would rather take time where possible and get the results we want. I am a member of the housing committee, which is currently working on a policy for assisted and independent living for older people because of the projected demographics and because there are not enough options for people. We are feeding into the projected figures for people over 65. People want to stay within their community and even within a kilometre of where they currently live, if possible. We must consider such housing models to free up other houses with a knock-on effect.

There is much in this and I enjoy reading these kinds of documents. I thank the witnesses for the presentation. I was going to ask about higher education as well but they are pressed for time.

Professor Alan Barrett

The Deputy touched on many issues. She asked first if we are listened to and it is always sobering to think about that. In more recent years, the ESRI funding model has shifted a little. Most people think we get a block of money from the Government and go off and do our own thing. It is not quite like that. Increasingly, the ESRI works on the basis of bilateral research relationships with Departments and agencies. The health worker mentioned earlier is a case in point, as we have direct bilateral discussions with policymakers on an ongoing basis, trying to work out the big policy matters and how research can inform the issues being grappled with. There is direct communication and the chance, in a sense, of being at least heard improves, whatever about being listened to.

I will also pick up the issue of childcare, as it relates to a number of topics that have been raised. It is partly an issue relating to the gender pay gap. Many people will understand this and believe that one of the big reasons for the gender pay gap is the extent to which women are much more likely to have gaps in their career. With such a gap, it is not just that the wages will just be low but they will be lower than they otherwise would have been for a long time. Anything that can be done to facilitate more continuous work profiles would do much for the gender wage gap. I can link this to something else that I said. I mentioned in the presentation an observation about lone parent families. It is not just if we look at a point in time that lone parents and their children are more likely to be in poverty. They are more likely to be stuck in that position, and that relates to childcare. Before this committee and others, we have made the case that investment in childcare gives a sort of win-win-win across a variety of points.

One of the worst research experiences of my life was writing on the issue of older people's housing. The ESRI wrote a paper where we tried to assess the policy proposal of moving old people from their houses to smaller houses-----

Older, not old.

Professor Alan Barrett

I will be careful about this in general after the experience. The question we tried to answer in the research was whether there are hundreds of thousands of old-older people and if much housing space could be freed up. The evidence was a little mixed. Rather than the paper being reported as the ESRI investigating this policy, it was reported that the ESRI proposed this policy, and we got into serious trouble with many people. One of the crucial elements of the policy, as we mentioned in the paper, was ensuring older people can move within neighbourhoods. It is a terribly bad idea for older people to move away from their neighbourhoods. We know from increasing amounts of evidence that loneliness can be as big a killer as many of standard health issues.

It is a crucial policy as there will be 1.3 million people aged over 65 in the coming years. I would like to focus on the benefits. I feel Professor Barrett's pain in describing the reaction he got. I saw a programme recently where this was discussed and it was portrayed as older people being shoved from their homes. It is purely a choice that people do not currently have at the level that we should have. It is about independence, security and the financial burden of running a house when that person might only live in three rooms of a three-bedroom or four-bedroom house. It is not that we want the house but we want to give people security and offset the loneliness factor as well. If we can centralise it there may be some way to help with home help hours and the knock-on effect of medical care that will be required. It relates to independent or assisted living within a kilometre of a person's home or community. That is where we are going with this and I welcome Professor Barrett's comments.

Dr. Kieran McQuinn

The Deputy made the point about the rainy day fund being of use in 2008 and 2009. We have a housing conference next Thursday morning and we will delve into these issues in great detail. One policy lesson from the Irish experience over the past ten years especially is that whatever way we do it - that is another conversation - we must ensure a certain number of social housing units are built every year. That is a clear message. Having attended a conference in the UK recently, adding to the housing stock every year is very much felt to be required in British housing policy. If that does not happen, problems accumulate significantly.

I will finish by tying up two themes in the debate. The first is the ageing demographic structure and the second is productivity slowdown. I recently did some work with a colleague in UCD where we looked at the long-term implications of this for growth in Europe. It has very significant implications. Our population structure is ageing but we can consider the degree to which the population structure across Europe is ageing, particularly in Germany, and the long-term forecast is staggering. When the elements are put together, it demonstrates that we seem to be on the precipice of facing a significant reduction in the growth in living standards over the next 30 or 40 years throughout Europe.

Dr. Maev-Ann Wren

On a more optimistic note, in our projections we look in our report in great detail at improvements in health status as people age. There is much evidence that people are living longer and healthier lives. Our projections for increased demand for care in percentage terms are much lower than they would be were we assuming pro rata demand for care at the same age. It is important to note it is not wholly negative.

I agree with Deputy Bailey that we are missing a sector in considering options for older people in Ireland.

On the point that if we had the rainy day fund in 2007 and 2008, the Government could have invested in social housing , I do not know if that is necessarily true. We have the money now but the Government is not doing much to affect social housing numbers.

That is not true.

It is all well and good to put away money from one's wages, if one has it but one cannot put it away if one must walk around without shoes and socks.

Demographics and an ageing population and so on are factors. Are there exemplar OECD countries that have steadily produced housing? What if we had carried on building, when the great Jimmy Tully was Minister for housing, and steadily built houses all the way through the 1980s and right up through the noughties?

Dr. Kieran McQuinn

It is clearly shown in international literature that where housing supply, and particularly land, is more freely and flexibly available then housing cycles are much less. In markets where land is hard to access, develop, etc. there are large swings in house prices.

Professor Alan Barrett

On the issue of a rainy day fund, in ways we did have one in 2008 and it was called the National Pensions Reserve Fund. It would have been great if we could have used the fund to build social housing but, unfortunately, there were other demands on it. Let us not get into that debate now because we would definitely break the Chairperson's heart.

I thank the witnesses for their attendance. We appreciate the input from them and the opportunity to interact with them as part of our work. I propose that we go into private session to allow a changeover in witnesses.

The select committee went into private session at 4.31 p.m. and resumed in public session at 4.32 p.m.