Fiscal Policy and Budgetary Planning: Discussion

I remind members and witnesses to turn off their mobile phones as they interfere with the sound quality and transmission of the meeting.

I welcome from Social Justice Ireland Dr. Seán Healy, Ms Michelle Murphy and Mr. Eamon Murphy; from the Nevin Economic Research Institute Dr. Tom McDonnell, senior economist, and Ciarán Nugent; and from the Irish Congress of Trade Unions Mr. Ger Gibbons, social policy and legislative officer. I thank them all for making themselves available to meet the committee today. As part of our pre-budget consultation process, we are holding two sessions today to meet selected national stakeholders. We will hold further sessions in September. We will ask each of the witnesses to make an opening statement and then members will ask questions.

By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. If they are directed by the committee to cease giving evidence in relation to a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of a long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House, or any official by name in such a way as to make him or her identifiable.

I invite Dr. Healy to make his opening statement.

Dr. Seán Healy

We welcome the opportunity to meet the committee, whose work is very important. As not everything can go into the opening statement, we would be happy to deal with any issues people want to pursue in the questions that follow.

On the surface Ireland is performing very well on a range of issues: our economy is growing and unemployment is low. On closer analysis, there are some very serious issues. We have a housing crisis; we have persistent poverty and social exclusion problems; we have a long waiting list for healthcare; we have major issues relating to climate change and so much else that would actually bring into question how well Ireland is performing overall.

It is important to recognise that budgets are about choices. In making these choices Government is shaping the society of the future. It is putting in place the various components of what it considers to be a good society, the infrastructure and services that shape the future.

Budget 2020 should be designed so that it is both economically sound and socially fair. These twin objectives are both realistic and achievable. However, they need to be underpinned by a clear policy commitment and by budget decisions aimed at achieving both.

I will address the overall fiscal position. The fiscal space is a critical issue. Government has the freedom in budget 2020, and in any future budget, to generate additional taxation revenue, from raising taxes in one area, and then spending or investing this money elsewhere. For us there is an issue about the transparency of the budget where the fiscal space is concerned.

We note with concern that the table setting out the available fiscal space for the next budget which was previously included in the stability programme update has been omitted from the Draft Stability Programme Update 2019 published in April. To facilitate informed comment and engagement with the budget process the details usually contained in this table should be made available in the public arena.

On public expenditure and Exchequer receipts policy, Social Justice Ireland believes that in the coming years policy should focus on increasing Ireland's total tax take. A move in this direction is unavoidable if we are to deal with the existing gaps in infrastructure and social provision, and if we are going to deal effectively with the other issues that emerge and the bills that have to be met in the period immediately ahead.

Using GDP, GNI and GNI* is problematic in setting targets. We propose setting a new total tax take target on a per capita basis. The target is that Ireland’s overall level of taxation - not just income tax - should reach a level equivalent to €15,000 per capita in 2017 terms. This target should increase each year in line with growth in GNI*. We calculate that the difference between the level of taxation by continuing as things are and what we propose would be €3.5 billion in 2019.

Increasing the overall tax take to this level would require a number of changes to the tax base and the current structure of the Irish taxation system. Increasing the overall taxation revenue to meet this new target would represent a small overall increase in taxation levels and would be unlikely to have any significant negative impact on the economy. It would still keep Ireland as a relatively low tax-take country.

Demography will have a significant impact on Ireland’s budgetary position. Ireland’s growing and ageing population will require increased spending at certain stages in all levels of public expenditure, from early childhood education and care, through education, healthcare and pensions, and obviously care and social care for older people. These issues should be part of the framing of Ireland’s overall fiscal position.

In the broader context we believe that windfall gains in taxation should be used to provide investment for non-recurring infrastructure projects such as the provision of social housing, primary healthcare centres, rural broadband etc. Once the houses are built, they do not need to be built again next year; it is one-off expenditure.

Delivering a just taxation system requires three actions: an increase in the overall tax take, adoption of policies to broaden the tax base, and the tax system to be developed fairly. To achieve a budget that is economically sound and socially fair, other issues have to be dealt with besides taxation. Issues relating to social, economic and environmental development, in particular, have to be addressed simultaneously. We believe the budget should seek to develop five overall goals, including a vibrant economy, decent services and infrastructure, just taxation, good governance and sustainability. We spell out each of those goals in a series of proposals, which we can break down and so on. These proposals are set out on page 3 of our policy briefing, Budget Choices, which we circulated to the committee in advance of the meeting.

I draw the committee's attention to the fully costed set of proposals in the briefing. We have also identified how those proposals can be paid for and the impact they have on the overall budget. We set out all of our taxation proposals and what the income would be from those proposals on page 16. We spell out all of our expenditure proposals and what they would cost on page 17. We then balance the books on page 18. We are being totally transparent in that every proposal we make is costed and we show how it can be financed. We recommend this document as a set of proposals for a fully integrated approach, socially, economically and environmentally, where the decisions are taken simultaneously and, therefore, one is not dealt with without the other. We can be as specific as the committee would like on any of these proposals.

I thank Dr. Healy for his opening statement. I invite Dr. Tom McDonnell to make his opening statement.

Dr. Tom McDonnell

I thank the Chairman and the committee for the opportunity to appear. I am accompanied by Mr. Ciarán Nugent of NERI, and Mr. Ger Gibbons of the Irish Congress of Trade Unions. We are happy to answer questions later.

As Dr. Healy pointed out, a six-minute statement can only cover so much ground, so the accompanying submissions should be considered as well.

Dr. McDonnell need not worry; we will consider them as well.

Dr. Tom McDonnell

NERI's analysis of the available evidence is that the economy is not yet overheating. However, this is likely to change before the end of 2019 in the absence of a negative external shock such as a disorderly Brexit, which could quickly catapult us in the opposite direction. The various Brexit permutations mean that short-run forecasting is particularly uncertain. Nevertheless, the medium and long run sustainability question should continue to guide the fiscal stance taken by the Government.

The overall fiscal position is reasonably solid, at least ostensibly, with a neutral headline general government balance, GGB, of 0.0% of GDP in 2018. In addition, our view is that the structural or cyclically adjusted balance was marginally in surplus in 2018. Effectively, the public finances are now in balance, notwithstanding our high debt level.

Baseline average output growth of 4.5% is feasible over the 2020s. This sets a baseline for sustainable average annual nominal increases in public spending net of discretionary revenue measures. When we take into account demographic and inflationary pressures, the real per person increase will be close to just half this amount. Regardless of what form it takes, Brexit will marginally reduce potential output growth over the 2020s and this will, therefore, impinge on the annual fiscal space available to Government. However, the effect of Brexit on the amount of fiscal space available each year can be overstated. I am happy to talk about that further later.

The other major source of uncertainty relating to the budgetary position is the sustainability of corporation tax receipts. The surge in receipts in recent years caught policymakers and analysts by surprise. Changes to the treatment of corporation tax at EU and international levels, which are likely over the next two years, may undermine the flow of revenue from this source, at least domestically. it is, therefore, contentious whether some of those corporation tax receipts should be considered part of our structural tax base at the moment. This suggests a more cautious fiscal stance until we have greater certainty regarding future revenue yields.

NERI has produced a number of papers in recent years showing that Ireland's per capita public spending and per capita Government revenue are both below average compared to peer high income EU countries, which refers to all of the other countries in the EU with a GDP per capita of 30,000 or greater. I refer the committee to the accompanying submission and I am happy to discuss this in greater depth.

Given increasing demand pressures, Ireland's position in the economic cycle and the negative implications for inclusive growth and public services, a package of discretionary revenue measures that reduces net Government revenue would be an unwise course of action for budget 2020. Ireland faces a number of emerging challenges as we approach a new decade. These include Brexit, climate chaos, precarious work and inequality, housing and homelessness emergencies, a two-tier health system, the fiscal implications of a growing and ageing population, and the fragility of an industrial strategy based on tax-sensitive US multinationals. In particular, the risk of a no-deal Brexit has increased since the start of this year. Now is the time to invest in our people, public services and infrastructure. A substantial increase in productive investment, which will happen over the next few years, is the only way we can ensure our future prosperity in a sustainable and inclusive way. Brexit does not change this fundamental reality. Fundamentally, Brexit should not change budgetary policy in Ireland over the medium term. Good policies will remain good policies.

ICTU advocates for a radical progressive vision for Ireland's economy and society. Its submission for budget 2020, which is currently being finalised and will be submitted over the summer, will outline a series of proposals that will start us on the journey to realising that vision. Congress has consistently argued for an inclusive equality-proofed budget that places the welfare and betterment of the majority at its very core and prioritises higher living standards, particularly for workers and their families, to be delivered through a transformative programme of investment in infrastructure, services and service delivery. In particular, the budget submission will articulate the need to invest more in a wide range of different areas, including social and affordable housing, healthcare, childcare and education, clean and renewable energy and public transport. Achieving these goals means abandoning attempts to cut taxes on a net basis. Such policies will help overheat the economy and will harm workers in the long run. Congress proposes new taxes on capital, particularly on wealth and property stocks, to raise money for productive social and economic investment.

In principle, Congress supports an increase in the carbon tax but that is contingent on an accompanying and linked climate justice fund that would channel the revenue raised in the form of a dividend for every person living in Ireland. Our plan would reduce greenhouse gas emissions while the average household in the bottom half of the income distribution would see their purchasing power increase after the introduction of the linked carbon tax and annual dividend, that is, they would receive more in the form of a dividend than they would expect to pay in carbon tax. Households who change behaviour and opt for less carbon intensive modes of consumption will see their gains increase.

We are happy to take questions.

I thank Dr. McDonnell for his opening statement. I call Deputy Jonathan O'Brien.

My first question is in regard to the overheating of the economy, which Dr. McDonnell predicted might occur by the end of 2019. First, what areas have the potential to cause that overheating and, second, how do we combat them? All the reports to date that I have seen suggest that the potential for overheating comes from the construction sector, but on the non-domestic side - hotels, office blocks and so on - rather than the housing side. How do we combat that?

There is a difficulty since we are not meeting the substantial demand for housing with enough supply. What is the likelihood, if we start to ramp up our housing programmes, that it could lead to overheating in the economy? How do we address the skills shortage?

Dr. Tom McDonnell

I thank Deputy O'Brien for his questions. Why would the economy overheat? The cyclical position of the economy is not something that one can observe directly so we look at a range of indicators. A series of models underlies that and ultimately the various forecasting houses and institutions come to a judgment about the cyclical position. It is a notoriously difficult area. I am being humble in a sense by saying that it is difficult to know at what point an economy overheats. For example, the Irish economy is now moving to an unemployment rate of between 4% and 5%. That would normally suggest an economy that is close to capacity. However, other economies, such as the United States, United Kingdom, Germany and the Czech Republic, have been managing with unemployment of below 4% for some years now. With regard to our employment rate and labour force participation, we still do much worse than a number of other countries. Our inflation rates and wage rates suggest that we are not quite there yet. Having said that, the economy has been in a cyclical upswing for close to seven years. We are starting to arrive at a point where there are skill shortages in the economy. We are seeing wages increase and it is likely that we will start to see an acceleration of that process over the next 12 months, with a big asterisk of Brexit.

What is likely to cause overheating? One of the distinctive features of the construction sector is that it tends to respond with a lag effect to other demand factors in the economy. We are starting to see a ramping up of housebuilding in the economy and, as the Deputy pointed out, there are skill shortages. That ramping up of housing based on private funding and public funding will, in our view, start to push the economy into a position where it starts to overheat. That would be consistent with us moving towards a trade deficit, higher normal wage growth, higher inflation and so on. To prevent overheating from occurring, one normally responds through fiscal and monetary policy. One could do it through fiscal policy by increasing taxes, for example, or perhaps by cutting public infrastructure spending. Unfortunately, our infrastructure spending has been so low for so long now that cutting it is clearly not an option for us. We have infrastructure deficits in many areas compared with peer countries. That implies caution in other areas of fiscal policy. That points to current spending but also to taxation. We would be very cautious and worried if a stance was taken which involved significant tax cuts, particularly on a net basis, including VAT and income tax.

With regard to non-domestic overheating, it is true that much construction activity in recent years has been on the non-domestic side. We expect that to change somewhat in coming years in response to demand. The rise in house prices has made it more viable to make profits in the private sector with increased intervention on the public side. Having said that, it is an issue and the answer to the question about overheating is completely contingent on what happens with Brexit. A disorderly Brexit will be a major shock to the economy. With regard to fiscal policy, there is a structural surplus of perhaps 0.1% of potential output. The implication is therefore that the fiscal space should be used each year, which keeps the country where it is with regard to the structural budget. That is non-contractionary and non-expansionary. The budget should not feed into these overheating effects but should also be cautious about cutting against the grain, particularly since the budget will happen a few weeks before any potential Brexit outcome. I would be cautious about budget 2020 being too contractionary in advance of a potentially significant shock which could propel the European economy into a recession.

Does Mr. Nugent want to address skill shortages?

Mr. Ciarán Nugent

I think Dr. McDonnell covered everything.

I will address corporation tax and the tax base in general. We hear much about our expenditure and how Government is trying to control spending while all of the Opposition parties are seeking more spending. We hear very little on the other side about tax. We hear about widening and broadening our tax base but very little about corporation tax, tax breaks for banks, tax incentives, tax avoidance and trying to address such areas. Do the witnesses have a comment on that? Dr. Healy might be able to comment on that at a time when we have so much need and increasing levels of abject poverty and a housing crisis. How feasible is it to continue to give tax breaks to banks which are making millions?

Dr. Seán Healy

We have a very strong position on what needs to be done about tax. My colleague, Mr. Eamon Murphy, will set it out. We provided a document which has many pages setting out all the details but Mr. Murphy will provide a summary.

Mr. Eamon Murphy

I thank Deputy O'Brien for the question. As Dr. Healy said, this document, Budget Choices 2020, is on the website and I believe a copy was sent to all committee members. Pages 4 to 7 deal with our proposals on taxation. Pages 5 and 6 deal with many of the issues that the Deputy mentioned. He hit the nail on the head by mentioning the need to broaden the tax base and to do so in a sustainable way. Corporation tax has a substantial role to play. Most of the revenue raising proposals that we have made in that area are about reform rather than increases. It is well documented that several large multinational companies based in Ireland are paying effective rates of corporation tax well below the headline that we have set out of 12.5%, which is such an article of faith in Irish politics. One of the proposals that we made in our budget submission was to set a minimum effective corporation tax rate of 6% to ensure that those corporations are making a fair contribution to the Exchequer.

The Deputy raised the feasibility of allowing banks to continue with what is effectively a corporation tax holiday. We believe that there should be a limit to the ability of corporations to carry their losses forward, limited to ten years, and that the cap on that should be returned to 50%. We are being fair about that. We acknowledge that there is a need to remove the bank levy if that is to be the case. That would see upwards of €100 million being raised in 2020 alone. The extent to which banks have been allowed to roll those losses forward effectively penalises the Irish taxpayer twice for the actions taken by the banks during the 2000s. These institutions would not exist in the current format if it was not for the taxpayer and they should now start to make a proper contribution to society. Overall, we think that Ireland needs to take a leadership role with regard to the international moves that have happened over the last few years, including setting minimum effective levels of corporation tax and creating a consolidated corporation tax base. We need to get ahead of what is really an inevitability. There is a time-limited aspect to the current system of Irish corporation tax. We need to get ahead of that and take a lead on setting a Europe-wide minimum to create a fairer system.

I ask Dr. McDonnell to comment too. An argument that is given to those of us who call for the corporation tax holidays to be lifted is that there could be unintended consequences.

Are there any of which the witnesses are aware were we to deal with the issue of the banks and the tax breaks they get?

Dr. Tom McDonnell

First, I echo the points about the CCCTB in the sense that it will happen some time in the next ten years because the Americans and the Europeans are pushing for this so it would be wise for Ireland to bake those potential losses into its fiscal policy. The IFAC has been trying to estimate the potential losses in revenue to Ireland and is coming up with figures of between €3 billion and €6 billion. That figure is too high; I do not think it will be that high. If the CCCTB comes into force, it will impact the public finances to the tune of close to €2 billion and it would be wise for the committee and Government to bake that into their figures.

Regarding the impact of getting rid of those particular breaks on the banks, in principle, the NERI and ICTU have consistently taken a position that, broadly, one should move to a system where tax expenditures full stop are squeezed out of the system. They tend to be economically inefficient, regressive and non-transparent, and are a form of public spending that is never acknowledged. Having said that, if we get rid of existing tax breaks, it is important to give a window or time or notice because often, the business will have assumed that those tax breaks are in place. I am not saying it is an existential risk but the risk is that a bank could suddenly be plunged into another crisis. I am not saying that would happen. What I am saying is that when a tax break is in place, particularly when it relates to the business sector - and that is pretty standard - it is a good idea to introduce the legislation to take effect a few years down the line rather than immediately because of the short-term implications. I could not give the committee an answer on the immediate impact of making those changes on the banks.

Dr. Seán Healy

From the point of view of the issue of tax expenditures, we are strongly of the view that these need to be kept under constant review. The Commission on Taxation devoted its longest chapter to tax expenditures. It is very insightful. We need to keep pace through two measures that should be introduced. As part of the budget process, there should be an annual update of what tax expenditures are costing us. We have all this expenditure in the budget on areas such as health and education. We count all that and have all the lines and so on. We should do the same with tax expenditures.

Second, there should be a sunset clause on every tax expenditure so that it must be reviewed. It does not mean it must end but it must be reviewed before we renew it. That would be a positive step in the right direction.

The Chairman might comment on this. The committee has done extensive work-----

Dr. Healy is ahead of the game there.

I was going to say that this pretty much mirrors our report in terms of recommendations.

I thank the witnesses for their presentations. In respect of Social Justice Ireland's recommendations on childcare and the expense of it, it is effectively a second mortgage for many families. One of the issues holding back a more equal and just society is the lack of access to affordable childcare. I understand what Dr. Healy said about widening the tax base and increasing taxation but what are his views on childcare provision and what needs to happen next?

I would also welcome his views on legislation that has passed Second Stage in the House but has stalled. It was a suggestion to share current entitlements. This is a question for both witnesses. Approximately 50% of the population is female. There are more barriers to getting back into employment, sustaining higher-paid employment and working full time because of childcare and because the way the system is set up means that caring responsibilities tend to fall more to Mum than Dad. One of the issues, particularly for women who are self-employed or in public life, is they do not get maternity leave but cannot transfer maternity leave to their partners so, effectively, the family loses leave that is available. What are the witnesses' views on allowing a mother to transfer all or part of that leave within the family to cater for women who are self-employed, running their own businesses or in public life who do not have access to maternity leave? We need to start thinking outside the box. Paternity leave is fantastic and, obviously, the gold-plated standard, which we wish to attain, is a year at home with baby for Mum and Dad. That is what we want to attain but the Government is looking to increase paternity leave by between two and seven weeks in three, four or five years - whenever it happens, we just do not know - but it is a long, slow and dragged out process. Easing that burden now so that women would be better able to access the workplace would benefit everybody, not just women. Could both witnesses respond to that question?

Dr. Seán Healy

There is a significant problem with the scale of childcare in Ireland and there is a serious challenge regarding the quality of childcare because we need quality childcare. We have some ideas about that. I will ask my colleague, Ms Michelle Murphy, to elaborate on them.

Ms Michelle Murphy

Page 12 of our document outlines our proposals.

That page is open in front of me.

Ms Michelle Murphy

Childcare is a significant cost burden on families. If one looks at it in terms of the life cycle, the period during which one faces this significant cost burden is quite short but it is an area that requires significant investment. The challenge is because the sector is quite fragmented and we rely on private provision. Private providers are struggling between paying their employees a decent wage and expanding their services and meeting the ratios. One of our proposals is to consider how we might address the funding element so that we separate the wage element from professionalisation of the sector. It involves looking at parts of the ECCE scheme, which is for children aged three years and over, and how we might apply that to children aged between zero to three, how the State might support the sector in terms of professionalisation, quality and affordability for families and how we might expand and improve the model. We are seeking €85 million in the current budget for this. In addition, we need to look at how we might expand the sector to incorporate other elements, particularly childminders for those living outside urban settings, and how we deal with the informal care element.

With regard to sharing current entitlements, the legislation that is going through and the potential for a self-employed woman to transfer maternity leave, in principle, this would be a positive step if it led to the broader issue of care being more equal because, as the Deputy noted, the burden of care of children and older family members tends to fall on the woman in the household so that we would take a more holistic approach to care. We would certainly like to see something along the lines of the Swedish model so that if this leave was transferred, it would have to be used because all the literature shows that what is in the best interests of the child is being in the care of its parents in the first year of its life and, in principle, to support women, particularly self-employed women, and their families to care for their child as they would like.

Deputy O'Loughlin and I drafted that Bill, so it is of particular interest to me. We have an issue that for women who are self-employed and running their own business or in public life, dad gets two weeks and immediately they are wondering who is going to mind the baby because the woman has to get back and open her shop or open her accountancy practice, or whatever it might be. It seems an undue burden. It seems silly because there is leave there but we have somehow decided that only one parent can take it and the other cannot. Parents are immediately faced with paying for very expensive childcare, as Dr. Healy rightly pointed out, and many of those facilities will not take a child of that age. Why do we keep this extra pressure? We are all in agreement on wanting to increase leave overall and sharing the caring responsibilities. To be fair to new fathers, we only give them two weeks and we do not allow them to take any more, so how can we have that culture change and that shift in mentality if we do not have anything for people to change to?

I welcome Ms Murphy's comment that, in principle, she welcomes the idea. I want to be very clear that I am not suggesting we take leave away from mothers. However, in situations where the leave is not available to a mother in any event, would it not be better for her, the father and their child to use existing entitlements at no extra cost to the Exchequer while, in the short, medium and long term, we work on increasing leave overall?

Ms Michelle Murphy

It would address the broader issue raised by the Deputy of care not being so gender-focused. It would ensure that the issue of care is taken in a broader perspective and that the role fathers play is acknowledged.

Mr. Eamon Murphy

Unsurprisingly, the Scandinavians are well ahead of us in this regard, as is Germany. They have been at this for 20 years and their results have shown that the more evenly split leave is between fathers and mothers, the more beneficial it is for the children in the long term, as well as in terms of educational perspectives, and it also gets fathers into the habit of playing an active role in parenting, as Dr. McDonnell will tell us.

There is joint responsibility.

Mr. Eamon Murphy

Yes. It has long-term benefits for women as well.

Dr. Tom McDonnell

NERI is doing an econometric study on gender pay gaps and, obviously, childcare costs and the impact of policies is part of that. Hopefully, we will have that research out by the end of this year or early next year, looking at the specific reason for gender pay gaps. It is a related point.

In terms of the Deputy's point on sharing, I completely agree and I would echo what Social Justice Ireland has stated. One of the things that is stark in the Irish data is that, while we all know about the costs, female labour force participation in Ireland trails very badly behind the rates in Nordic and other northern and western European economies. What we effectively do is cut off women's careers while they are in their prime, which leads to gender pay gaps and leads to lower labour force participation and lower levels of confidence. Having a fairer burden, if "burden" is the word, is obviously a progressive policy but, in the long run, it would also lead to higher employment rates across the economy. Therefore, not making some of these investments in childcare should be considered as a false economy because it takes people out of the economy, which means lower tax receipts and lower spending in the economy.

There is, of course, the issue of the affordability and quality of childcare. These are not directly related to the point the Deputy is making but it is a point NERI made a couple of years ago, as did Social Justice Ireland. I referred earlier to an economy being able to grow 4% to 4.5% a year but, in fact, that can be changed either up or down through policies. A policy that increases labour force participation and the employment rate pushes that up and allows us to have a permanently higher level of public spending. Therefore, there are macroeconomic issues as well.

There are benefits. The obvious thing to do would be to remove the barrier. As part of the research into the gender pay gap, NERI might take the following example. If a 30-year-old woman and a 30-year-old man are attending for interview for a job, in the back of the mind of the employer is that she is likely to take six months off whereas he is not. The minute that leave is shared-----

The Deputy is into her final minute.

I am making an important point.

The Deputy is into her final minute.

I thank the Chairman for shouting over my final minute for the second day running.

I do not take the Deputy's time out of the time I talk, so she still has that minute.

I again thank the Chairman for interrupting my train of thought and my point for the second day running. The point I was trying to make is that once we remove that as a consideration for the employer, we break that glass ceiling, we address the gender pay gap and we level the playing field. I ask NERI to make part of its research the responsibility for childcare - "burden" is the wrong word - and the maternity leave requirement, which is a factor.

Dr. Tom McDonnell

There is another economic point about that. If the second best candidate gets the job as opposed to the best, that is bad for the economy and society as well. Therefore, removing those biases from the jobseeking process and job-hiring process is also good for the economy in the long term.

Mr. Ger Gibbons

In the context of childcare, I echo the point that the more fathers are involved in the early months of looking after children, as all the studies and research indicate, the more they will do this in subsequent years and it is in the best interests of children. We would also address this issue in the context of the new work-life balance directive that we have to transpose by 2022, which contains many good provisions in regard to care. Many things are left open for Ireland to decide, such as whether we want to go down this route. This is something we will have to look at in the coming years.

On childcare, I refer to the draft country-specific recommendations that came out on 5 June. In the context of the second such recommendation, a point we wanted to flag up is that the Commission is recommending that Ireland increases access to affordable and quality childcare. While we welcome this in principle, we would just say that last year's recommendation talked about increasing access to affordable quality childcare compared with affordable and quality childcare this year. I make the point that affordable childcare may not be quality childcare. It might be pedantic but these things matter. We believe it would have been preferable if the Commission had stayed with last year's recommendation to implement affordable quality childcare.

We have to acknowledge that one of the big problems we face in the context of childcare relates to the low pay and conditions of workers in the sector. They spend years acquiring the qualifications to work in the sector, they get there and they are still earning just above the minimum wage - I think the going rate is about €10.50 per hour. Nobody who has spent all of this time is going to stay on that rate. It is an issue. We will not get the kind of quality childcare service that children deserve unless we address the issue of pay and conditions.

I take the opportunity, which I do regularly, to say that, in order to have fairness to all members, we have a five-minute questioning period. I remind members that any time somebody is answering, that does not come out of the member's five minutes and there is no restriction on the amount of speaking time for members. We return to all members in order that they can ask supplementary questions and make additional comments. With one minute to go, I indicate to members that they are entering that final minute. I call Deputy Burton.

I want to raise several issues, some of which have been referenced before. Just before this meeting began, during Question Time in the House, the Taoiseach was extremely bullish about the desirability of tax cuts, particularly for middle and upper-income people and about moving the point at which people enter the higher rate of tax. We had tax cuts last year. I want to ask the representatives of both organisations whether they think we have room for tax cuts. In the context of the recent advice from the Irish Fiscal Advisory Council, will our guests outline their thoughts on that at this point? The Taoiseach really was quite emphatic about the desirability of tax cuts so I would like to get their views.

On a related point, I was glad to see the Social Justice Ireland reference to a minimum effective tax rate, something for which I have long advocated.

A Labour Private Members' Bill has been before the Dáil for nearly two years that would establish what effectively would be a standing commission on taxation to examine in a coherent way on a year-by-year basis at the issues of tax expenditure. This committee has done much work but this commission would look at the area in a broader way, considering who would gain or lose out from certain kinds of tax structures.

With regard to financial institutions in Ireland, there can be no argument against a minimum effective tax rate of half the corporation tax rate, for example. That would be approximately 6% and one could move to that over a period of two years. Without a doubt, our European Union partners are changing their approach and we are going to have to change. They may pick a rate of 12.5% or 15% and we will have no autonomy in the matter unless we begin to make policy that indicates our own position. There was also a reference to the trade-off on the bank levy. When we were in government, the bank levy was our proposal to mitigate the impact of the zero-tax companies. Where is that now in the context of the international organisations with which the witnesses have contact? What kind of progress has been made on it?

We are all interested in pay rates and the Government is clearly softening up public opinion to lift the cap on top bankers' pay, which runs around €500,000, with additional elements relating to pensions. On a comparative basis, is now the appropriate time to lift that levy on bank pay? There is a great deal of lobbying in financial services to have it.

Dr. Seán Healy

The standing commission on taxation is a very good idea. Tax changes and the impact of tax expenditure etc. must be kept under constant review. That should be done professionally, with people of real expertise doing it on an ongoing rather than one-off basis. Mr. Murphy spoke about the minimum effective corporate tax rate earlier. We see this as critical and we suggest a rate of 6%, given Ireland's 12.5% corporation tax rate. As we move along, this seems to be on the agenda of the OECD now, and there has been quite an amount of publicity about that in recent times. That is not bad. We have heard much negative reaction from some sectors in Ireland but there needs to be a fundamental overhaul internationally, not just in Ireland, of the whole approach to corporate taxation. Minimum effective corporate tax rates are part of that solution.

The Deputy asked about top bankers' pay. We would find it very hard to go along with the idea that a banker does not have enough income when he or she is receiving €500,000 per year. It is mostly a "he" I suppose, although not always. The minimum wage is less than €10 per hour and the rate of poverty is 15%, with 250,000 children living in such poverty. Increasing banker pay at the top end would not be a priority for us.

Money will be available and there is the overall issue of whether this should be allocated for tax cuts rather than other matters. Our preference is for that to be invested in infrastructure in areas like social housing, water, public transport and broadband. Part of the available amount should also go towards improving our services in healthcare and education, as well as addressing matters like childcare, as raised by Deputy Lisa Chambers earlier. That is in addition to other issues we have discussed. Our preference is to move in that direction rather than giving tax cuts.

There are some points to be made about tax cuts if there is an insistence on going that way. On page seven of our budget choices, we have produced the results of a study demonstrating seven different options for dealing with income tax and the universal social charge. It is interesting as only two of the options would turn out to be fair, as the other five would benefit the better-off more than those with low to middle income. There are two options that would spread the benefit fairly across all people. The first increases the personal tax credit rather than the tax band, as widening the band is not an effective way of being fair. The second option is a combination of reducing the 0.5% and 2% universal social charge rates. The results are in the document and we can provide more detail if people are interested. There is a broader question that Mr. Murphy might like to take up.

Mr. Eamon Murphy

Dr. Healy has covered most of what I wanted to say in mentioning the tax credit. Our preference is for available resources to be used for investment and improving social infrastructure and public services, we understand there is occasionally political pressure to introduce income tax cuts. Unfortunately, most of the proposals we have heard from the current Government have been targeted at people who are on above-average wages or significantly higher than that. Part of the reason for moving from a system of tax allowances to tax credits almost 20 years ago was to create a system whereby the Government would have the mechanism to introduce fairer tax cuts across the board, meaning everybody receiving a cut would receive it at roughly the same amount. That is why we believe any decrease to income tax should come through the tax credit system, rather than tinkering with bands and rates, which typically only benefit people on higher incomes.

This brings a need to introduce a system of refundable tax credits. I do not have a screen behind me as I normally do when I talk about this but I could show the committee a table from our analysis of last year's budget demonstrating the effects of the welfare and tax changes on people of different incomes. It shows a very interesting trough effect, with people earning between roughly €15,000 and €20,000 received almost no benefit whatever in the last budget. The reason is that without refundable income tax credits, the Government does not have a mechanism by which it can target that population. Bringing in that system of refundable tax credits would mean that everybody would benefit from a change in tax credits, regardless of income. That is in contrast to the current system, where people earning below €16,000 or €17,000 are benefitting very little or not at all.

We have two full sessions today and the second session was due to start at 3.30 p.m. There are a couple of Deputies indicating a wish to speak in this one. Perhaps we could keep it tight on all sides.

Dr. Tom McDonnell

When an economy is potentially on the verge of overheating, the economic literature suggests the last thing to be done is to cut taxes. All that does is stimulate the economy even more. In any event other than an absolutely disastrous Brexit, one would not consider tax cuts of any kind under those circumstances. The implicit tax rate, or the amount of tax revenue over the tax base, on labour is higher in the European Union average than it is in Ireland.

It is 36.1% there and 32.7% here. We would have to increase labour taxes, which include PRSI, by about 10% just to get up to the EU average. On the higher rate, what actually matters is the effective rate and the amount of tax someone actually pays. A single earner or a couple with one income and two children on the average wage pay much lower amounts of tax in Ireland than they do in the northern and western European peer countries we talked about. One of the reasons is that they have to pay for so many things in Ireland, such as childcare and healthcare in some cases, when it is private. It is not good policy in the long run. On the consequences of our lower levels of taxation, my colleague and I looked at per capita revenue in Ireland relative to the other rich countries of Europe and we were the second lowest in aggregate receipts. The per capita gap was €1,256 less revenue per person which implied a scale gap of €6 billion over the economy. The idea that we are overtaxed is just factually incorrect. People think they are overtaxed because things are more expensive in Ireland. We have a cost of living crisis, not an overtaxation problem. As it turns out, most of the difference is on the employer PRSI side, which brings us to issues about social wage. The consequence of all this is that in 2018, looking at those ten countries, our per capita spending excluding interest was €15,791 per person, which was the second lowest of all those countries. We would have to increase public spending by 10% just to get up to the average, so no, I do not think this is the right time to cut taxes.

On minimum effective tax rates, there is a social contract. Everyone should pay a minimum effective rate. The difficulty in getting minimum effective tax rates for corporations is that they are not consolidated in terms of tax law in the way an individual is. Until we have a common consolidated corporate tax base across the EU, for example, it will be very difficult even to establish what that effective rate would be. What is "the company" when there are all these subsidiaries? It might pay a very low effective rate in Ireland or a higher one in a different country. They are engaging in tax games to minimise the burden overall. The point of a consolidated base is to deal with that. Finally, I do not believe the optics on the political landscape would be at all positive from removing pay caps for bankers.

Deputy Burton has about a minute left and she is more that welcome to use it.

There is an additional point I want to raise. At the moment in Dublin and in Ireland generally, land speculation is back where it was about 20 years ago. What is the advice of our visitors? Ireland has always failed to dampen speculation on building land. In terms of an affordable three-bedroom house anywhere in the Dublin region at the moment, the land cost per unit has probably now gone past €60,000. In more desirable areas, I reckon it is up around €100,000 per plot. That is why in many areas, including in my own constituency, we are seeing well finished A-rated houses but they are not terribly big. The cheapest of them is about €450,000 but a lot of them are €550,000 to €600,000. I think a lot of Deputies will have the same experience. The crisis for many people is that this is what is supposed to be affordable, never mind the issue in respect of social housing. Do the witnesses have any thoughts on how we could limit or prevent the spectre of this massive return to land speculation?

On the climate change documentation, the thing I was most disappointed about was that there has to be a fairly exact quid pro quo to anyone whom Mr. Murphy was mentioning earlier as being on a lower income threshold, in terms of fuel poverty, such that the carbon tax would be offset by a corresponding increase, certainly for people-----

The Deputy has gone over time.

I am finishing on this sentence. It should be offset by a corresponding increase in fuel allowances.

I ask the witnesses to give very brief replies to the last two questions. We have two more Deputies to get to.

Dr. Tom McDonnell

It is certainly our position that any increase in the carbon tax is conditional upon an offsetting, hypothecated fund which would provide a dividend to every person living in Ireland. If constructed properly, that would produce a cash benefit for the bottom 50% of the population from an income distribution point of view. Our view is that a carbon tax increase should be conditional upon that happening.

Dr. Seán Healy

On the land speculation issue, we have a long track record of trying to get this issue dealt with. Before the last era of land speculation, never mind the current one, we were advocating a variation on approaches that had been talked about back in the 1970s. A mechanism for getting control of the costs involved would be that rezoning could be done only on land that was already owned by the local authority. In other words, it would buy the land and there would be a top-up profit margin for the person who had sold it but then it would be in the ownership of the local authority, which could rezone it, and it would not create a windfall profit. We have other ideas. It is a critical issue that needs to be addressed.

Ms Michelle Murphy

On households and energy poverty, obviously if we increase the carbon tax we have to look at how to support those households. Not only do they have to be supported financially but also, in the longer term, we have to consider how we will move them out of energy poverty. We will need to retrofit their homes so they are able to choose more energy efficient options into the future. The payment is critical but, beyond the payment, it is about what we do to get everyone to reduce emissions and how we target particular households and make sure they are retrofitted and energy efficient, so they can move out of energy poverty for the longer term.

Dr. McDonnell said it should be a precondition that the lowest households do not suffer from the carbon tax and that they see some benefit. Should retrofitting people's homes not also be a precondition? Before there is any question of additional fuel costs, the mechanism should be made available and the resources provided to achieve it, to ensure they do not suffer as a consequence. The fear people have - I certainly have it - is that the carbon tax will go up but the person in an old council house with poor insulation and damp, as the case in a lot of social housing, will be hit with this while it will be years before there is a retrofit programme. At an absolute minimum, any hit that people might take in that regard cannot happen prior to the retrofitting of their home so that they have the opportunity to reduce their energy costs.

I wish to raise something that is never talked about and is never an objective of budgets, although I know the witnesses all think about it.

Interestingly, an exit poll in the recent elections said that something like 85% to 90% of people thought the gap between the haves and the have nots should be reduced. That is an overwhelming majority. It is never an objective in budgets to try to narrow the gap between the rich and the poor and to look at how that will be achieved, although it is beginning to be debated everywhere, even in the United States interestingly. They are starting to debate this because the gap between rich and poor is growing everywhere and even when there is economic growth and slight improvements to people's incomes, the gap is growing and growing. Should that be a budgetary objective? If it is, what should be done to begin to redistribute wealth? I see mention of wealth taxes. I do not know who put those ideas forward and I welcome it but they are quite modest. For example, 1% on assets over €1 million is suggested. Those assets are probably accumulating additional value at about 3% or 4% in reality. Should we not be more radical and ambitious in trying to have wealth taxes that will redistribute wealth?

I have a specific question on childcare. I was at a Single Parents Acting for the Rights of Kids, SPARK, briefing earlier on where it was pointed out that one of the impacts of the national childcare scheme is that, because it will do away with other targeted supports for vulnerable parents who get some support for childcare through childcare employment and training support, CETS, schemes, and community childcare subvention, CCS, schemes, those parents will lose dramatically because of the national childcare scheme as the targeted supports for them will go in favour of the universal scheme. Are the witnesses aware of that and do they have any comments on it?

There is a general acceptance that our over-reliance on foreign direct investment, FDI, and a small number of multi-nationals and the corporation tax receipts coming from them is a vulnerability. How can we diversify away from that? Into what should we be diversifying? To use one example, our committee has said we should look at a research and development tax credit. Some €700 million, which is rising, largely goes to a small number of multinationals. If we are to diversify, do we not need to dramatically reduce that and redirect those research and development funds towards the sort of areas that would give us a more sustainable economy such as public education, public research and development and other strategic areas of the economy that would be more sustainable. Do the witnesses have any comments on that?

The Deputy was bang on five. I ask the witnesses to be brief in their answers but to please over all the questions there.

Mr. Ciarán Nugent

I will take the question on carbon tax. As we said earlier, if it is designed correctly, there should be a net gain for the bottom households if every man, woman and child in the country gets the same dividend. An Economic and Social Research Institute, ESRI, report said a couple of weeks ago that the average house in the bottom 10% is likely to be looking at a €2 per week increase in their consumption bundle and it is about €3 for the next decile. That is not huge but people are still living on the margins and there is an issue there if that comes in the form of a cheque at Christmas, although that might also be something people will buy into.

The carbon tax will not work unless there are viable alternatives and any retrofit programme that is successful in any way will be a function of resources and political will. We have had very little so far in terms of hitting targets that have been set up. There are other ways we could reduce the impact on low to middle income families as part of a wider investment package. Public transport would be one of the big areas. We should seriously ramp up investment in public transport and have viable options for families who probably have to have a car but cannot afford it and other people in that space. The carbon tax by itself will not bring about the change that we need to bring about to hit our targets and to avert climate catastrophe.

Dr. Tom McDonnell

There were four questions there and I refer to the last question on the broader point about changing industrial strategies and enterprise strategies and moving away from the current model if it is under threat, even if it is a desirable model. One of the consistent points we have made in recent years is how low the level of per capita public spending on research and development is in Ireland compared to peer countries. For example, in 2017, Sweden spent €461 per person and we spent €190. Denmark spent €544 and we are spending one third of that. We need to develop a proper innovation system, including the universities and Government, along with enterprises. High potential start-ups should be spinning out. We are not investing in research and development and in the innovation economy. We need to do that and that is fundamental to the type of strategy the Deputy is talking about, as well as areas such as education and building up human capital. I completely agree on that.

I mention the equality budgeting as we sometimes call it, to reduce the gaps between the top and the bottom. There is always a focus on income but the greater inequality is in wealth and matters such as property taxes and wealth taxes. The most effective taxations we have for that are inheritance tax, gift tax and capital acquisitions tax, which are riddled with tax reliefs in Ireland. There are 90% reliefs for all sorts of assets in business, agriculture and so on. The ultimate yield ends up being between €400 million and €500 million. A vast amount of wealth essentially goes to the next generation without any taxation. If one is a nurse or a construction worker, one could be paying a marginal rate of almost 50% but if one is sitting home and inheriting money, one gets its for free. That is clearly inequitable and the studies show internationally that most assets are inherited. What is happening is that wealth is going through the generations and it is unearned. That is the real definition of passive earnings.

I asked the witnesses to be very brief because I want everybody else to come in on this.

Dr. Tom McDonnell

I will stop then.

Mr. Ger Gibbons

The issue of inequality was raised. In the Organisation for Economic Co-operation and Development, OECD, jobs strategy that came out last December, it spent two years looking at labour market performance in terms of employment rates, inequality and productivity, and what policies produce the best labour market outcomes. One of the conclusions was around good collective bargaining. It found that the countries that are best in employment rates, of which Dr. McDonnell mentioned some such as Sweden, Denmark, Finland, Germany and Austria, they have collective bargaining systems that work very well. One of the principle recommendations is that all countries, including Ireland, should put in place legal frameworks that support social dialogue and collective bargaining.

I am looking at the European Commission's innovation scoreboard that came out last Friday and the countries at the top of it are Sweden, Finland, Denmark and the Netherlands. The big difference they have compared to Ireland is that they have proper systems of social dialogue and collective bargaining. It is probably the best way to tackle the issue of income inequality.

Ms Michelle Murphy

I want to briefly respond on the issue of carbon tax. The challenge is that the focus is on carbon tax whereas it should be on carbon policy. Carbon tax is one element of that policy. Homes cannot be retrofitted overnight so people will have to be supported through the tax credit and welfare system while the retrofitting is being ramped up and the houses that are in energy poverty need to be targeted first.

On childcare and the new national childcare scheme, care must be taken with the potential impacts on same, particularly as all the supports are being rolled into one to create a universal system. We have to ensure those families that were reliant on additional targeted supports do not lose out. Care will have to be taken with that when this is introduced in the coming months.

Dr. Seán Healy

Reducing the gap between rich and poor should always be a focus or a priority in budgets.

It is not always the case. For years we have been doing analysis of budgets. On page 4 of our budget choices document we have supplied to the committee today, we provide a worked out impact assessment of the last three budgets and the distribution of the gains. It is quite clear that the people who have gained least are single unemployed people and those on lowest earnings. There is obviously a serious problem. There are two things that need to be constantly kept in focus, the first of which is that the payments of the people depending on welfare should be index linked so that they do not lose out. We show how that can be done on page 4. If we were to bring it to 27.5% of average incomes, which is where it should be benchmarked, we would need an increase in the coming budget of €9 per week for a single person. The second focus is the working poor, the more than 100,000 people who are in jobs but still live in poverty. We must consider the most targeted way of getting to them and ensuring that gap is reduced to give income tax credits and to make the two main tax credits refundable. Both of those things could be done and we have shown how in our document.

There is one other point on foreign direct investment that Mr. Murphy will deal with.

I ask Mr. Murphy to be brief and confine himself to one sentence. I will draw this session to a close ten minutes from now.

Mr. Eamon Murphy

Bearing in mind the short time available to me I will answer in one sentence. I refer members to page 10 of our paper on investment in rural Ireland, regional Ireland, and our proposals for how to support locally-driven investment in SMEs and build a platform such that everybody does not have to move to Dublin in order to have a job.

In respect of carbon tax we have been giving a great deal of attention to the report of the Oireachtas Joint Committee on Climate Action and the Minister's carbon action plan. It could be seen as people asking us for a total game-changer, not just in terms of retrofitting but with all the changes to transport, food, housing and so on. The people I represent are very suspicious of the intent in this. Some regard the Green Party as a party of the right and have always so regarded it. They see this as a regressive policy. They are suspicious because NERI's and ICTU's analyses of past taxation show that it has been very unfair. There was a huge reliance on consumption tax. It could be said that our reliance on excise taxes which affect the family car etc. discriminated grossly against working class and lower income households. There is a huge suspicion that we are being led by my constituency colleague, Deputy Bruton, and others, into a new world, that we do not know where we are heading but it will be much more expensive for ordinary citizens. We mentioned fair mitigation in the report. Will it be serious or will it be the little people who carry the can?

That is the problem. One proposal is the five-year carbon budgets. Would there be merit, for example, in having a five-year general budget so that we know where we are going overall or that the next Government after the election will know where we are going five years down the road and we can see all the analysis? That comes through very strongly. We pick it up in the media and on the doorsteps and so forth.

Dr. Healy first alerted the committee very strongly to the consistent underestimation of the health budget. We know that unfortunately in the coming days we will face this again. We are not prepared to put enough expenditure into that area. Is Social Justice Ireland able to show the Minister for Finance exactly what it wants him to do, as we in parties and as individuals do, for example, last year I advocated equalising diesel and petrol, and picking up €150 million here and there. Is Dr. Healy saying of those "lucky enough" to be earning over €100,000 a year that we should go for a 45% or 48% rate on those lucky 300,000 tax units? We have been watching with interest Jacinda Ardern and the government in New Zealand talk about a budget and economic evaluation based on well-being. When Deputy Bruton was Minister for Education and Skills he pushed the idea of well-being in our education system for teachers, pupils and parents. Has any of the witnesses done any work on this and what extra resources or expenditure it would involve if we really wanted for nobody to be homeless?

Dr. Seán Healy

I am not that convinced that the climate change plan is a plan. There are many individual items in it but there are no timeframes or costings and we are in danger of the outcome that Deputy Broughan is pointing to, that vulnerable people will carry the can, will be hit hardest, and that we will not have a genuine, focused, integrated plan that affects everybody's capacity to contribute. That is what we need.

It is critically important to recognise that the pieces of this plan-to-be have to travel simultaneously. Ms Murphy made this point in the slightly different context that we must be prepared to ensure that vulnerable people, whether they are rural dwellers or people in fuel poverty or whatever, are protected from the consequences of what we talk about. All of the various elements of the mitigation have to be in place if we are to move forward with the climate change plan. Otherwise, there is a real danger of the vulnerable being the victims.

For several years we have shown what the situation was in the health budget overspend. It has always been a situation in which maintaining the level of existing service has not been fully provided for in the following year's budget and as a result it automatically goes over budget. There is a danger of that happening in other areas as well. It is critically important that we do not go that way and to prevent that happening we need to be transparent and the numbers need to be on the table. That was the point I made earlier about some of the numbers that have been removed or omitted from the spring statement this year that have been in spring statements for several years previously. We need a transparent process that recognises the numbers during the year but also that we have them all the time and can make those adjustments so that people who are trying to work out the future or what should be in the budget are not left in a situation of not being clear about the various components.

Mr. Eamon Murphy

On New Zealand's well-being budget, one needs a framework for each budget and there needs to be a set goal in regard to the type of society towards which one is moving. If New Zealand has a proposal for a well-being budget, that is great, but we recommend that each policy be tagged with the sustainable development goal to which it relates, as set out in our document. We have been making the point for a couple of years that the Government should do so for every line of the budget and each item of legislation that is brought in. We would also like it to be done at EU level. The question for us is, if the legislation, policy or budget measure being brought in is not related to a particular sustainable development goal, to what does it relate? All aspects of human well-being are covered by the 17 sustainable development goals we outline.

Does Dr. McDonnell wish to add anything?

Dr. Tom McDonnell

There is not much more to say. I agree with Deputy Broughan that environmental, inequality and economic impacts should be considered holistically as part of a budgetary process that does not climax with a big reveal in October but, rather, is constructed through a consultative process with stakeholders throughout the year and with time given for academics, researchers and the Parliamentary Budget Office to carry out the required inequality, carbon and economic analyses and feed that to the Department of Finance, other Departments and other stakeholders.

I miscalculated slightly - there were three Deputies waiting to contribute, not two. Deputy Bailey is up next and will be followed by Deputy Lahart, who will be the final contributor in this session.

On childcare, approximately 18 months ago Deputy O'Connell and I brought forward a proposal in regard to tax credits for childcare. Such proposals are not always popular. Its purpose was to give choice and ownership back to families and to reflect the fact that in modern society many people no longer work nine to five. It is probable that most of those at this meeting do not work nine to five. Conventional commercial childcare operations do not work for the majority of people. Deputy O'Connell and I are still working on that proposal. What are the views of the delegates in that regard? For me, it is about giving ownership back to parents in terms of quality childcare which they deem suitable for their children in their home or another environment.

On affordable housing, there was a very good meeting of the Joint Committee on Housing, Planning and Local Government yesterday, which was attended by representatives of the National Development Finance Agency, NDFA, and which dealt with affordable housing and its complexities, with which I am very familiar. Some of our cost rental models are being subsidised by in the region of €40,000 or €80,000 depending on where in Dublin they are and the cost of land, topography and complexities that go with that. The delegates referred several times to the situation in Scandinavian countries. The Vienna model is seen as the panacea in terms of affordable housing. Cost rental has been established there for a very long time, whereas we are only at its pilot stage. We are looking at ways of bringing down the cost of rent, particularly in the affordable sphere. Obviously, the delegates were not in attendance at yesterday's meeting and may not have seen it. One of our pilot schemes is likely to involve rents of approximately €1,200 as a result of hitting granite during the construction of underground car parking, as well as other complexities on the site. Do the witnesses have any suggestions around affordable housing, affordable purchase or cost rental of which we may not be aware or of which they may wish to remind us?

On the help-to-buy scheme, almost 12,000 people have availed of it and far more subscribed. The construction industry needs certainty and consistency. Obviously, there is a skills shortage in this area and much investment must be made in apprenticeships and so on, especially when we are looking at new technologies in building. The help-to-buy scheme is due to finish this year. If it were to be extended - I do not know whether it will be - would it be preferable for that to be announced prior to the budget such that the construction industry can plan ahead in that sphere?

I welcome Mr. Murphy's comments on people not having to travel to Dublin for work. The statutory Project Ireland 2040 plan is all about investing in our cities, compact growth and encouraging the opportunity of growth around employment and education in areas such that people do not have to travel to Dublin. I agree with him about rebalancing the country.

On costing a climate plan, there was a very good meeting of this committee yesterday at which it was highlighted that some costings were not in the plan because they will be borne by the individual who may be buying an electric car or retrofitting his or her home. Do the delegates have ideas regarding the retrofitting of people's homes? Could it be done in a manner similar to the help-to-buy scheme? Could one avail of a tax rebate over several years? Are there models such as that which could be replicated?

On costing a climate plan, there was a very good meeting of this committee yesterday at which it was highlighted that some costings were not in the plan because they will be born by the individual who may be buying an electric car or retrofitting his or her home. Do the delegates have any ideas the retrofitting of people's homes? Could it be done in a manner similar to the help-to-buy scheme? Could one avail of a tax rebate over several years? Are there models such as that which could be replicated?

In 2004, Dún Laoghaire-Rathdown County Council began a very deep maintenance programme on its council stock. Deputy Boyd Barrett and I were members of the council at the time. Money recovered from the sale of council properties was invested in the renovation of other council properties. Several deep retrofitting schemes involving wraparounds, etc., were carried out. The council has been very proactive in that sphere for many years and will continue to be so. Council houses with energy ratings of A1, A2 or A3 are now being delivered. I recently visited a development of more than 50 units in Fitzgerald Park in Monkstown. The standard of home being delivered there is exceptional. However, exceptional is expensive. How do we rebalance that?

Mr. Ciarán Nugent

On retrofits, there are opportunities, particularly in the midlands. The Irish Congress of Trade Unions, ICTU, produced a document with the help of NERI some months ago on the possibility of rolling out a trainee scheme and an information campaign through Bord na Móna for homeowners and residents of the midlands first and foremost. The midlands could develop capacity in that depressed central region in the area of retrofits. There is evidence of a significant number of inactive ex-tradespersons who were affected by the financial crisis. It would not be too big a jump to reskill some Bord na Móna workers in addition to some of the glut of inactive former workers. That could be of benefit to the roll-out of a State-led and funded scheme to retrofit the entire public housing and social stock, as well as schools and so on. The properties could be fitted with solar panels and a scheme put in place to allow the energy generated to be sold back to the grid. These are things that have been talked about for a long time but on which there has been little movement.

On the group of households a little further up the income ladder, in some countries low-interest loans are available from the state, although I do not have the detail with me. Grants have been made available here but they are not being taken up at a rate which will lead to us reaching any of our targets. The State could front-end the cost, which could then be recovered from electricity bills over the course of 20 years if we got sign-up in that regard from some of the semi-State bodies.

Dr. Tom McDonnell

On affordable housing and cost rental, the reality is that although cost rental can lead to lower rents, it will be at the margin and will not be transformatively different. All of these policies will eventually have a downward effect on rents across the board, particularly when housebuilding is scaled up. However, that will take time. One would not expect a reduction in rent levels as a result of a single pilot scheme or that it would happen overnight. Unfortunately, this can only be resolved by a satisfactory and sufficient level of housebuilding in the State, which will have to exceed long-term average demand for several years and reach a level of, at least, approximately 40,000 per year for a sustained period of time. The expectation is that much future job growth will be in the greater Dublin area, which will lead to further population pressures and greater demand for housing there.

Again, the cycle of high rents will continue. There is no silver bullet there, unfortunately. If there is a special purpose vehicle with sufficient scale to borrow at very cheap rates, that can also have a marginal effect on rents down the line.

I would like to speak about the help to buy issue. As I said earlier, tax expenditures are rarely the optimal option in public policy. In my view, they merely act to stimulate demand. At the very least, a high level of deadweight costs is associated with them. My view is that the scheme should be ended. I agree that the Department and the Minister should give an advanced signal if such a decision is to be made. This goes back to the point that the budgetary process should begin on 1 January, if not the previous year. Signals of decisions about much matters should be given in the first half of the year, rather than having a big reveal in October.

Would Dr. Healy or Ms Murphy like to add anything to what Dr. McDonnell has said?

Ms Michelle Murphy

I would like to make a brief comment on childcare. If we are to give choice back to families, the first thing we should focus on is expanding the availability and types of childcare that families can access. Investment should be first. Then we can look at how we support families. It is important that we make the tax credit refundable to ensure the credit reaches every family.

I would also like to echo what Mr. Nugent has said about retrofitting. We have made a proposal that seeks to target social housing, in particular. It is based on a Dutch model that involves retrofitting at scale.

Dr. Seán Healy

I would like to speak about two other items that have been raised. We have done a lot of work on cost rental. We have been doing it for a number of years. We made a presentation on how this might actually work to the Dublin Economics Workshop in Wexford two or three years ago, when this was not on anybody's agenda. We have developed our proposals now. I would have been more optimistic about the scale of the impact of our proposals if a special purpose vehicle had been established to keep the actual amounts off the budgetary accounts. We have worked out how that could be done involving various agencies like the European Investment Bank, the Government and social housing organisations. We have done a lot of work in this area. We are quite happy to share it with the committee at any time.

In our view, the help to buy scheme should not be extended under any circumstance. Basically, it is contributing to the escalation of cost increases. We are very much of the view that rather than subsidising the person who is trying to buy the house, there needs to be a focus on the provision of housing and on elements that will bring down the cost of housing. If the person is being subsidised to buy the house, it will always result in the price of the house going up by the same amount of money. We are negative about anything that involves pushing up the price. We are negative about the proposal anyway. We would be quite happy to see it end at the end of this year.

Does Dr. Healy have evidence of his contention in respect of the help to buy scheme?

Dr. Seán Healy

Yes. We have done a fair bit of stuff.

I have not found it. I would contradict Dr. Healy on that one. I would love to see the evidence he has.

Dr. Seán Healy

We will be quite happy to share the stuff we have with the Deputy.

I am going to ask for a pause on this one because I want to let Deputy Lahart in to conclude this session. I remind members that another full session will follow this one.

I am looking forward to the next session as well. I thank the witnesses for their important advocacy. I think we have been used to the conservative players who have been before us. It is nice to get that counter-balance. I mean that in a positive way in both regards. We have had witnesses in from the Irish Fiscal Advisory Council, the Economic and Social Research Institute, etc. It is nice to get a counter-balance and to hear everyone's views.

The ESRI is going to enjoy that one.

As a member of the Committee on Budgetary Oversight, I try to be objective. It is interesting. Deputy Boyd Barrett is a good colleague. The witnesses support the carbon tax and the idea of a tax on wealth, including property, but he does not. I regard most of the witnesses as-----

We support a wealth tax. What is the Deputy talking about?

I am talking about a tax on property. I regard most of the witnesses as left of centre thinkers. I would like to ask them about affordable housing. Which option do they think is better? I am not looking for a "Yes" or "No" answer. I ask them to consider the options. The Chairman and I were members of the same local authority for a number of years. The housing assistance payment can be up to €2,000 a month in the South Dublin County Council area. That is €24,000 a year or €48,000 in two years. Would it be better to invest that in a way that enables the State to take equity in an affordable home, rather than continuing to pour it into the big black hole of rental? I say that as a genuine response to what Dr. Healy has said.

I always look out for the themes that emerge in advance of the budget. I take Dr. McDonnell's point about budgetary transparency. Over the past two years, it has been frustrating for the Committee on Budgetary Oversight, having heard the themes that have come up in advance from the various players, to see the Government finding €500 million or €1 billion under the mattress the night before the budget, thereby giving us no opportunity to scrutinise it. Every Government does this. We have tried to make the point to the Government that the budgetary process needs to be more transparent.

Two themes seem to be emerging from the witnesses. I will take them on board and watch out for them. At an informal briefing approximately a month ago, the IMF flagged the issue of demographics with us in the context of this country's ageing population. It did not feature in any of the briefings we got last year. Climate change, corporation tax, carbon taxes, and petrol and diesel equalisation were last year's issues. A number of them were fudged. The issue of VAT on tourism was dealt with. Every piece of advice we get with regard to spare money or windfall money involves banking it. That message was reinforced by officials from the Irish Fiscal Advisory Council when they appeared before us last week. They spoke about the establishment of a prudence fund that would be available in the event of a downturn. That is completely contrary to what today's witnesses have been saying about non-recurring capital expenditure. It has been argued that we should stow away some money, particularly from corporation tax, in a prudence account. In one sense, it is like the irresistible force meeting the immovable object. I am convinced by that argument because it has been made by so many informed players. I am not pre-empting anything, but I would be really surprised if it is not part of the Committee on Budgetary Oversight's report to the Minister. The witnesses have been the first to say that windfalls should be spent on something else.

The other point that needs to be made about demographics relates to early childhood education. I will be watching out for these two areas. I do not understand why the State, since its foundation, has taken an arm's length approach to preschool education. I do not know why it has not got involved. I have said for a number of years, as a councillor and as a Deputy, that the school building programme provides great opportunities for preschool facilities to be co-located with primary school facilities. That would be exceptionally time-saving for parents. It would enable all after-school facilities to be provided on one site. Dr. Healy spoke about quality. There could be a mixture of degree-trained primary school teachers, who are qualified to work in preschools. We are not doing this. Alternatively, a commercial or private enterprise could be brought in to provide the education, with the State owning the buildings. In my constituency, I find that the cost of leasing and making repayments on the infrastructure that has been bought by preschools is the biggest single contributing factor to the fees they charge. I have made my points. I will not come back in again. I appreciate what the witnesses are saying. They might respond to the questions I have asked.

Dr. Seán Healy

We would be much happier to see the money being spent on the HAP scheme being invested. We have argued this endlessly. We consider HAP to be almost out of control at this stage. We are spending extraordinary levels of money that are not producing the kinds of housing we need. We are still stuck with the housing problem at the end of the day.

We would be much happier to start moving in the direction of having that invested in social and affordable housing. We would argue that the cost rental proposal, which I just talked about, would help the situation along the way.

On the spare money issue and the question of whether to spend it or bank it, we make a provision in our budget costings for the rainy day fund. We believe a certain amount should be set aside. However, we also believe the country should not repeat the mistakes we made before. Ten years ago, when we had an extraordinary crash we took a very tough austerity route to deal with it, as did much of the rest of the world. There is agreement among most international economists of note today that it was the wrong way to go. The critical issue that we should recognise is that we have serious deficits and they need to be addressed. We get opportunities to do that. There are two types of opportunity, the first of which is the type that arises after a crash when, for example, a large number of people who were involved in construction are unemployed. It would have been easy to employ many of these people to address the gap we had in social and affordable housing. Today, we have an opportunity to do something with windfall money. Dr. McDonnell from the Nevin Economic Research Institute pointed out that the investment levels in Ireland are low by international standards. In fact, they have been extraordinarily low. If one takes the previous decade, State investment levels are very low.

Yes, but that is the case across Europe. We heard at the European semester that we attended that state investment has dropped, on average, by 20% in Europe since the crash because states cannot afford it. They are reliant on the private sector to get involved.

Dr. Seán Healy

We did a study within the past decade, which showed that Ireland had the lowest level of investment of any state in the European Union. What frightened us was not so much that we were at the lowest level, but that if we doubled our level of investment, it would still be the lowest in the EU. That shows how far we have fallen behind over the past decade. We are closing the gap somewhat. I do not deny the investment that is taking place but there are significant gaps in infrastructure in particular that are one-off in the context of expenditure. We should use the opportunity presented by windfall income from corporation tax or wherever else to address these gaps, rather than putting that money away. The danger in the event of another crash – I hope there will not be another one – is that we would repeat the mistake we made in that we would be likely to spend all of that money rescuing vulture funds rather than protecting vulnerable people.

I ask Mr. Gibbons, Dr. McDonnell or Mr. Nugent to make some concluding remarks.

Could I ask Dr. McDonnell a question?

No. We have gone 25 minutes over time.

Mr. Ger Gibbons

I echo Dr. Healy's point on HAP and investment in social and affordable housing. We acknowledge that the European Commission, in the draft country-specific recommendations published on 5 June, raised the issue of inadequate cost rental in Ireland for the first time, as far as I am aware. The report referred to the need for further investment in housing. We believe there could be areas here, but it is something that could be prioritised at European level in the next multi-annual financial framework. I will leave it on that point.

Does Dr. McDonnell have anything to add?

Dr. Tom McDonnell

No, I am happy with that. I agree with Deputy-----

Could I not ask my question?

Very quickly.

Does Dr. McDonnell believe, as he implied earlier, that house prices would fall if we ramped up supply, per se, to more than 40,000 units a year?

Dr. McDonnell should answer with a "Yes" or "No".

Dr. Tom McDonnell

It depends on the context.

That is most definitely not "Yes" or "No". Dr. McDonnell should respond very briefly.

Dr. Tom McDonnell

It depends on the context for supply and demand in the market at the time and how many extra people are being employed year on year. It will also depend on location, so if one is increasing the number of houses in Leitrim-----

The answer is longer than we have time for.

Dr. Tom McDonnell

In general, all things being equal, I would expect house prices to go down in that context when compared with the level of production we have at the moment.

I thank Dr. McDonnell very much for that response. I thank all the witnesses for attending and for the most interesting and informative exchange of ideas we have had. I apologise to the people waiting outside the door for the past hour. It has been a very good session. We will conclude the first session now.

I thank Mr. Murphy, Dr. Healy, Ms Murphy, Mr. Gibbons, Dr. McDonnell and Mr. Nugent for their contributions. We will suspend for five minutes to allow the next group of witnesses to take their place.

Sitting suspended at 4.25 p.m. and resumed at 4.30 p.m.

I welcome to our second session the various delegates, to whom I apologise for the overrun of our first session. We appreciate their waiting. From IBEC we are joined by Mr. Fergal O'Brien who is accompanied by Mr. Gerard Brady. From the Construction Industry Federation we are joined by Mr. Pat Lucey who is accompanied by Mr. Tom Parlon and Ms Jeanette Mair. I thank all them for making themselves available to us. This meeting is part of our pre-budget consultation process. We have invited a number of key stakeholders to engage in a discussion with us. We will be doing more of this in September.

By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the joint committee. However, if they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official, either by name or in such a way as to make him or her identifiable.

I ask Mr. O'Brien to make his opening statement.

Mr. Fergal O'Brien

I thank the Chairman and members for the invitation to join the joint committee. As they will be aware, IBEC is the country's main business representative organisation. Its members employ 70% of the private sector workforce. IBEC represents 40 sectors of the economy. As the committee can imagine, there is a broad range of issues about which our members are concerned in advance of budget 2020. However, we are seeing an increasing coalescing on four issues about which I will speak briefly in the course of my opening remarks.

The first and by far the most important is the challenges we see for the economy as a result of significant global tax reform. The second which is connected is how we urgently need to broaden the enterprise base and do much more to support entrepreneurship and the SME sector more generally in the economy. The third is what we see as the urgent necessity for the delivery of much needed infrastructure and housing to address quality of life concerns. We could not have this session without speaking about the fourth, the ongoing challenges presented by Brexit and the mitigation measures we need to see being taken in budget 2020 from a business perspective.

On the issue of international tax reform, there is unprecedented change under way in the global tax environment. Recent developments, most notably the ongoing changes under the OECD-G20 base erosion and profit shifting, BEPS, initiative, will have a major impact on how the foreign direct investment, FDI, model will evolve in the future. It will have significant implications both for industrial and fiscal and budgetary policy. We have recently seen the publication of the G20 BEPS programme of work on global tax reform. The proposals, if implemented, as we think they will be, represent the most significant and fundamental changes in global tax policy in a century. Some of them, in particular, those that pursue a minimum effective global corporate tax rate, will pose significant challenges to Ireland's FDI based model. The decisions we make in coming budgets will probably be the most important for industrial policy for decades. For the moment, the FDI-driven growth model continues to deliver the resources we can use to help Ireland to transition to a new model.

Cumulatively, in the past four years we have taken in €14.3 billion in unexpected corporate tax receipts. That is the scale of the corporate tax surprise in the space of four years. The significance of this issue is widely under-appreciated in the public policy debate. The significant resources and investment this trend continues to bring to the country is a once in a generation opportunity to prepare for a future in which, ironically, other parts of the business investment toolkit will become relatively more important. Managed well, we could use these significant resources to ensure sustainable growth in Ireland's business substance, matched by improved public infrastructure, a thriving indigenous sector and improved standards of living for households. However, thus far, we have used the majority of the €14.3 billion corporate tax surprise to fund unplanned Supplementary Estimates. This trend has to stop.

Starting in budget 2020, we will have no choice but to follow through on the promises of previous decades and finally make a concrete effort to grow the indigenous enterprise base. It should include an intense focus on productivity, innovation, skills and helping companies to export early. The prospect of a no-deal Brexit adds significant urgency to this need and must provide a moment of clarity for all policy makers. We must make Ireland a much more attractive country in which to start and grow a business. We must also ensure the enterprise base in the future will be much more balanced than at present.

On infrastructure delivery, Ireland has a long history of focusing cuts on productive spending during a downturn. We now have an opportunity to break that cycle and deliver significantly improved quality of life into the future. We strongly believe any additional unexpected windfall in corporate tax revenues in future years should be set aside in a designated strategic investments fund which should be used to guarantee the funding of capital projects included in the new national development plan and other key pieces of national innovation infrastructure and provide much needed funding for the cash starved third level education sector. It is imperative that planned capital projects in the NDP be delivered as quickly as possible and that they do not fall victim to either administrative or process responses to recent high profile project overspends or the re-profiling of capital spending.

On the challenges presented by Brexit, it is clear that the risks to the economy and Irish businesses have not gone away. Many IBEC members spent millions of euro in preparing for the March and April Brexit dates. They have incurred significant business costs, many of which were unnecessary. We continue to hope the withdrawal agreement will be finalised and that an orderly Brexit can be achieved. However, businesses must also plan for the worst. They need to continue to make preparations for every scenario. The Government must also do more in order to provide clarity on meaningful mitigation and support measures that would be implemented in order to preserve jobs and enterprises in the event that there is a disorderly Brexit. These measures must be timely and substantive.

In summary, business believes budget 2020 will be one of the most important budgets in recent times. It must respond to the exceptional nature of corporate tax trends. This issue for the economy is probably more important than the risks posed by Brexit, to which we might come back over the course of our conversation. We want to see the budget provide for much stronger discipline in current spending to help to broaden the enterprise base and deliver much needed investment in infrastructure, housing, the education sector and innovation, all of which would help to preserve our future growth prospects and national prosperity.

I thank Mr. O'Brien and invite Mr. Lucey to make his opening statement.

Mr. Pat Lucey

I thank the committee for the opportunity to talk with members today. The issue we are here to discuss will be covered in our budget submission, which is currently in draft currently and to which I will refer throughout this statement.

The construction industry underpins the competitiveness and productivity of the domestic economy, therefore, ensuring Ireland has a dynamic construction industry with the capacity to deliver efficiently and cost-effectively is critical.

Where the policy and regulatory environment has made construction financially viable, the industry has responded, delivering high-quality construction for private and public sector clients. The large increase in student accommodation over the past five years and the ongoing high growth levels in commercial property are examples. In areas such as private residential outside the greater Dublin area or in social housing, securing finance is more challenging and this has limited the industry’s ability to deliver the required output.

Getting the policy and regulatory environment right is critical. The national development plan, Project Ireland 2040, Rebuilding Ireland, social housing targets, the Action Plan for Jobs, the regional and rural action plans, the apprenticeship action plan, the deep retrofit programme and Ireland’s climate action strategy require a dynamic construction industry.

As it stands, without proactive measures from the Government to build capacity in the industry, Ireland will not achieve any of these targets.

The ambition in the €116 billion outlined in the NDP, in developing Cork, Limerick, Galway and Sligo as an economic counterbalance to Dublin and in delivering 35,000 homes annually, is being stifled by blockages, challenges and constraints on the industry to deliver these laudable aims.

In the area of civil engineering, the objective is to deliver the infrastructure that connects regions, improve people’s daily lives and enable housebuilding. This sector of the industry has had nine consecutive months of contraction in the Ulster Bank purchasing managers' index, PMI, survey. The commencement of NDP projects is out of sync with the declining state of the civil engineering industry. In delivering major infrastructure, the time between announcement, commencement and completion of works can be decades. The timeline for infrastructure projects is predictably uncertain, yet, despite a huge immediate economic and social demand for infrastructure, and a commitment to invest, the relatively small spends on preparatory works are not prioritised. This will delay projects unnecessarily and ultimately will cost the Exchequer as inflation erodes investment.

After a decade of underinvestment we welcomed the Government’s commitment to infrastructure in the NDP. In normal times this would provide companies with a clear and certain pipeline of work giving the industry the confidence to invest in people, plant and technology.

However, we are not in normal times, that confidence is not present as the civil engineering industry has never really recovered from the recession. Investment in key strategic projects should begin now to mitigate delays that will invariably occur. Collaboration at an early stage is the key to unlocking progress.

The second key area for focus is housing. While significant progress has been made, our housebuilding sector is reporting that a lack of infrastructure is limiting the development of much residentially zoned land. The CIF and its constituent association, the Irish Home Builders Association, is urging Government to increase the provision for the local infrastructure housing activation fund, LIHAF and simplify its implementation.

This initiative has played a major role in opening up development lands for housing and playing its part in increasing housing output by 25% year-on-year for the past couple of years. What is needed now is more consistency in how LIHAF funding is allocated by local authorities across the country to make essential development financially viable for housebuilders to deliver private, social and affordable housing.

The other key policy measure the Government can take to maintain momentum in housing delivery is the extension of the help-to-buy incentive scheme for first-time buyers of new homes. This scheme is due to expire on 31 December 2019. It has had a profound impact on the rate of commencement of new residential scheme units, with a resultant increase in the rate of new housing completions since the introduction of the scheme.

Many housebuilders report that between 40% and 70% of sales of starter homes in their new developments are sold to qualifying first-time buyers who are dependent on the help-to-buy scheme to help assemble the required deposit under the Central Bank macroprudential rules. Without this incentive scheme, the rate of commencement of new homes will fall, as hopeful buyers will fail to have the required deposit to secure their residential mortgage.

Should the Government shelve the help-to-buy scheme, it must then be replaced with an alternative scheme mirroring the shared equity loan scheme that has operated in the UK. This has been a success for both first-time buyers and for maintaining levels of new house building.

The third key area which our submission will cover is people, that is, ensuring we have enough skilled workers in the industry. In mid-2016, SOLAS forecast that the industry would require about 100,000 additional workers over three years to replace those retiring or emigrating and to meet the targets set out for housing in Rebuilding Ireland and in the public capital programme, as it was known. Since then, we have been hiring an additional 1,000 people per month into the industry, coming to around 35,000. The shortfall can only be addressed by increasing the numbers of people entering the industry through the CAO and apprenticeship route, increased use of productivity-enhancing technology and building methods, and sourcing people from outside Ireland and through the diaspora.

Of course, it is equally important that we retain those who are already in construction and to that end, we believe that pursuing the highest standards in health, safety and well-being are essential and should be a core requirement for public contracts.

At present, we believe we have exhausted the live register as a source of labour. We are targeting the diaspora to get people to return home and finally, we are increasing our efforts to attract more young people into construction through activities at primary, secondary and third level, including a national awareness campaign and school competition to be rolled out in 2020.

This is very much a long-term play for our industry. Our budget submission outlines several steps the Government could take to increase the numbers entering the industry in the short term and to enhance the level of technology and modern construction practices in the industry. At the outset, due to the importance of the industry to the wider economy, the Government should allocate surplus funding from the National Training Fund to support technology adoption such as building information modelling, BIM, lean and off-site construction and support SMEs in training and upskilling their staff in addition to increasing the numbers of apprentices in the industry. DIT recently surveyed industry to identify why the number of apprentices remains low, particularly in areas such as plastering, despite a large increase in activity generally. The survey highlighted that in some trades, such as plastering, the apprenticeship model is broken and must be recalibrated. In these trades we recommend that the Government reinstate the student levy for apprentices to allay some of the costs to the small builder who would traditionally have hired the bulk of apprentices in the industry.

Finally, I must sound a warning about the divergence in activity between the greater Dublin area and the regions. The various crane counts show that there are ten times more cranes visible on the Dublin skyline than in Cork, Limerick and Galway combined. This sort of imbalance is concerning on several fronts and demonstrates the huge challenge the Government has in its attempt to deliver on Project Ireland 2040.

The Irish Fiscal Advisory Council is warning that a slowdown is inevitable, yet there are sectors of the construction industry and regions of the country that still feel the cold air of the recent crisis.

Without more connectivity and activity in the regions, we will not have the sorts of dynamic construction companies operating locally to make the NDP and NPF a reality. We can address these challenges but we must do it together and we must start now.

I thank Mr. Lucey for his very interesting opening statement. It is also interesting to note the conflict with remarks made by previous speakers, particularly on support for house purchase. I will tease out that issue later.

It is nice to have the witnesses to myself. I thank them for their contributions. I strongly agree with them on some of the points they made and disagree with them on others. I fully agree on using the surprise corporate tax receipts to fund key strategic areas of infrastructure and diversify the economy. The witnesses may be surprised to learn that this approach would be the thrust of the industrial policy of People Before Profit. There is, however, a contradiction between that view and the concern the witnesses expressed about a potential minimum effective corporate tax rate. We do not know how long the bonanza will last but it will come to an end at some point. Would we not be better off facing that reality? From a moral point of view, we should address that issue in any case because much of this tax income is from a small number of corporations whose long-term value to the economy is a little questionable as we are vulnerable to what they might do. Would we not be better off closing down some of the tax reliefs they get and redirect them precisely into the areas the witnesses advocated, for example, diversifying the economy and ensuring we have the necessary infrastructure to do so. An obvious example, which was mentioned earlier, is research and development tax relief, which has jumped to €700 million and overwhelmingly goes to a small group of IT companies. Would it not be better to redirect that money into ramping up our ability to produce the apprentices that have been mentioned or developing the infrastructure necessary for more balanced regional development? I will not list all of the things we could do with the money. Even if we took half of the €700 million and redirected it to some of those areas, it would be very good for developing a more sustainable domestic economy that would act as a better buffer in the long term against the ups and downs we may experience. I put those questions to IBEC.

The Construction Industry Federation has issued a stark warning and we should all take it very seriously. Its claim that we will not meet the Rebuilding Ireland targets because of various bottlenecks and problems is very worrying. I ask the witnesses from CIF to elaborate on that point. Before the meeting, I spoke informally to them about this issue and I am not sure how to get out of this dilemma. As I pointed out, despite buying land from NAMA at relatively low prices, developers and builders are having extreme difficulty making a profit when they build on this land. I know some have bought land at the more inflated prices that have developed lately. Even where they bought at very low prices, however, it seems to be very difficult for the construction industry to build and sell at a profit. Maybe that explains the low level of output. Mr. Lucey gave the stark message that the current level of output will not increase much more and will certainly not reach the level we need unless something changes. My solution is that if the developers cannot do this, the State must intervene. Would it not be better for developers to have the State decide to contract them to develop what we need to build? The State must accept that we need a certain level of output come what may. This means asking developers how much it would cost to build the amount of housing needed because we have no choice in the matter. What seems to be happening at the moment is that delivery of housing is dependent on whether developers can make a profit. Consequently, housing is not being delivered to the scale required and, according to the CIF, we may hit a wall fairly soon.

I am very interested in apprenticeship, not least because my son has just started an apprenticeship to become an electrician, which I am delighted about. Is the problem with apprenticeships that it is too expensive for builders to take on apprentices or is it that there are not enough young people who want to avail of apprenticeships, or both? What can we do to address the problem? I am slightly worried about the suggestion that we should reinstate the student levy. Would students have to pay the levy? Surely we should make it more attractive for young people to go into the trades. Perhaps the State could give an additional subsidy to improve pay rates for first and second year apprentices. They might then view apprenticeship as an attractive option rather than being required to pay an extra student levy to take the pressure off the builder. I take the point that was made about builders. I read that a relatively low percentage of builders can afford to take on apprentices. However, loading the cost on the apprentice does not seem to be the best way to deal with the problem. The State needs to employ more apprentices or at least support them in order that apprenticeship becomes more attractive.

Mr. Fergal O'Brien

I will respond to the questions on corporate taxation and research and development. The corporate tax trends in the last couple of years have been by the far the most significant phenomenon in the economy. They are probably more significant than the challenges posed by Brexit. I will give a potted history. Ireland has a longstanding tradition of offering a competitive corporate tax rate. This has been successful as an economic model driven by foreign direct investment, FDI. There was a fundamental shift in the nature of that model. Mr. Lucey mentioned the cranes that we observe in Dublin. This is all connected. In 2015, the OECD introduced the BEPS 1 reform which fundamentally changed how companies structure themselves and where activity sits in the global economy. BEPS 1 meant that corporates had to fully align substance and profits. Ireland has a long history of substance and has always had the substance. Intel and its predecessors have always done significant research and development, evolving their business model and reinventing what they were doing here. Some companies have been here for 50 years but they are doing something completely different now than they were 50 years ago. We have always had that model. There is real substance in the Irish FDI sector but other countries did not have substance. Many other islands offer a tax rate but not much else, whereas there has always been substance in the Irish economy. In 2015, when we drew up the BEPS 1 reform, we saw a significant increase in the nature of the roles and the decision-makers coming into Irish businesses because they were the new rules of international tax. The decision-makers had to be sitting here.

We are now seeing many more European and the Middle East and Africa, EMEA, headquarters here, who predominantly are the people behind those cranes. It is not Irish debt or, by and large, Irish banks funding housing when we observe those cranes. It is this hyper-globalisation of the Irish economy, very significant investment and a long-term commitment to the economy from largely Irish international global corporations. What they are doing here is cutting edge and world leading.

Many countries are not happy with the success of the Irish economy. Predominantly, they are European countries. It seems to us now that some of the major international blocs are coalescing around a new reform of this global tax. They do not like the answer they got the last time in base erosion and profit sharing, BEPS 1. They are going back again and their core objective will be to shift some of that tax revenue not to where the value is created or to where the substance is happening in Irish operations, pharmaceuticals, medical devices and technology but to where they have the consumers. This is a global war for tax revenue and the countries that are big have the might. They have the consumers. They want more of that revenue because they are arguing effectively through the OECD that the value in many of these corporations is created where the consumer interfaces with the product that is being developed. This is not a digital or technology issue. It is happening in respect of the value of brands and other intangibles. They want to redesign the global corporate tax system. They want to put that revenue in the countries where the consumers are, not in the countries where the innovation is happening and the value is being created.

We have a good deal of merit in terms of what we are arguing for but I agree with the Deputy. I believe there is a global momentum here in that we will not have the same competitive advantage on tax in the future. We have to prepare for that transition. To prepare for that transition we have to use the opportunity we have now and the proceeds that are at our disposal to invest in the innovation and the education. I sat in for part of the last session and I heard some of the numbers discussed around our innovation spend. It is pitifully low. We do not have a world-class infrastructure. Colleagues from the CIF will talk about that in terms of the blockages and how that is impacting on the wider business community. We do not have a world-class education system. Of the €14.3 billion we got in the surprise, €11.5 billion of that went on Supplementary Estimates in just four and a half years. Almost all of it went to day-to-day spending.

We could look at the past four years and say that we have blown a golden opportunity but this is not done yet. We could still have some upside. I am saying we have to reset the entire budgetary process. We must be absolutely clear that the upside we get from here on is put into those strategic investments. That is what protects the model for the future. If we lose our corporation tax advantage today, we have not put the building blocks in place to be competitive on issues like the skills, the innovation and the infrastructure. We are not at world standard on those so we will not prosper. We need to use this transition opportunity but invest in the future.

I might ask Mr. Brady to speak about the research and development tax credit because that is an example. The latest figures are approximately €500 million, which is worrying for us. Companies are doing less research and development from the position a couple of years ago, which is a concern. It is well proven that that scheme has brought additional and mobile research activity into Ireland, with a significant return to the State, that would not have happened otherwise. Mr. Brady has conducted a fairly extensive study on this particular scheme so I might ask him to give some of the findings on the economics on it.

Mr. Gerard Brady

There was a recent consultation with the Department of Finance on the research and development tax credit. The figures show that the €700 million it went up to in 2014-15 has come back down in recent years; we are back down to about €500 million a year. That has been falling in the past two or three years, which is worrying because it means less qualifying research and development is being done. We have looked at the studies about research and development tax credits and how effective they are worldwide. In some countries there is a question about whether it is more effective to give a tax credit or a grant. There are some studies that show that subsidies are better and others that show a tax credit is better. The studies in Ireland show that, by a long margin, a tax credit is much better. For every €1 we give in a subsidy, we get about €2.5 in research and development in private companies. I guess the reason for that is that there is a double benefit of the research and development tax credit. On the one hand, it is attractive from an inward foreign direct investment point of view because one gets the tax credit itself but on the other hand, it takes the cost out of research and development. We have seen big challenges in that regard.

The big challenge on the research and development side is, first, direct funding on which I totally agree with the Deputy. Direct funding should be much higher than it is currently which, as Mr. O'Brien said, is pitiful. Second, many small and medium enterprises, SMEs, do not use the research and development tax credit because it is too difficult for them to use administratively. The UK, Norway, France and other countries have separate research and development tax credits for small companies that give them cash. They are refundable. They are paid quicker. Administratively, they are much less burdensome and one sees much better results out of the research and development tax credits. If we want to get more value for money out of the money we are already spending, we should try to make it easier for SMEs to use it rather than shift it completely to subsidies. Along with the research and development tax credit, we believe the Government should be putting money into innovation anyway and using this corporate tax as the opportunity.

I will make one comment on apprenticeships. We would ask that there would be some offsetting and not only in construction. In almost every company we talk to the take-up of apprenticeships has been low across the board. Much of that is due to the fact that they are losing a member of staff for two days a week and still paying them. We are saying that some kind of subsidy may have to be offered to encourage companies to take that up, for example, a tax offset against corporation tax or a direct subsidy. We do not care which model the Government goes down but that it takes some of the cost off smaller companies in particular which cannot afford to pay someone for six or seven days and only get their services for three or four.

On social housing, there are real challenges in that regard. The cost of land is a big issue. The cost of construction is procyclical in Ireland. It will only go in one direction while the economy is getting stronger. We have seen some signs in that regard and talked to many developers. We believe, and we agree with the CIF on this, that the pace of the delivery of new housing will continue to increase but it will slow in terms of the growth. There are two reasons for that, one of which is that affordability has reached its limits, particularly in urban areas. Last year, approximately 90% or 95% of households were more than 3.25% in loan to income ratios in Dublin, which means that there is not a lot of space. If incomes are growing by 5%, we cannot have house prices growing by 10% or 15%. That cannot continue. That sets a top on the market in terms of what people can afford. In terms of land prices, we are competing with industrial, commercial or public buildings in some cases so land prices are increasing. The cost of construction is increasing and because more people are being hired there is more competition. We are low in terms of the unemployment rate. That will squeeze margins and make it more difficult in future years to deliver housing. We believe we may see 20,000 or 21,000 houses delivered this year. That is not anywhere near the rate of growth we need to be at to get to the levels we will need to reach.

In terms of social housing delivery, we have been before this committee on several occasions and have said over the years that we need a much bigger scale of social housing direct delivery. We are cutting out the developer in the middle but in terms of the construction sector and the workforce we need for apprenticeships and some of the trades, we will still need those people to deliver it regardless of what happens. That remains an issue. Even if the State decides to deliver it, who do we get to deliver it? That will be the big challenge.

We have heard from members in other sectors that workers go into construction but not at the rates we would expect in previous years, particularly in the mid-2000s when many people moved from manufacturing into construction. It is not happening at the same rate but it is happening. I agree that that trend is probably the main place left. I do not believe there are many workers left on the live register with trades; it may be fewer than a couple of thousand. They will have to be found from other sectors, which builds up costs for many other businesses and will probably be a challenge for other sectors also. I agree that it is difficult to see how that can be fixed quickly. That is a major challenge for employers as well.

Does Mr. Lucey want to respond on any aspect of that?

Mr. Pat Lucey

If I may I will work backwards from Deputies' questions. I will pass the housing question to Mr. Parlon. I will start with the apprenticeships because it is a great topic. I am delighted to hear Deputy Boyd Barrett's son is training to be an electrician. It is a fabulous way of life and a skill one can travel with. It is a skill one gets and never loses.

To address the issue of the funding, we are suggesting the reinstatement of a levy that was removed in the budget of 2014. I refer to phases 4 and 6 of the apprenticeship programme. When the participants were in the institutes of technology, SOLAS used to pay parts of the money for the training from the national training fund, NTF.

That was taken away in the 2014 budget. We are advocating that it should be reinstated to help them. Regarding what we can do about this issue, there is much happening. One of the greatest problems we have is that builders need confidence. They need confidence that there is going to be enough work in front of them to take on apprentices for the duration of a four-year programme. Unfortunately, that confidence is not there. The work that is happening is largely driven by multinational companies putting private money into construction taking place mainly in the Dublin region. We need more than that. There is not enough certainty in that for builders to invest in apprenticeships.

Everybody has been through the most awful recession. People are scared to invest. They do not want to be as big as they were and they do not want to earn as much money as they did back in the good times. They just want to make a decent living. There is a confidence issue here which really does need a sustained release of work in order to try to encourage growth again. What can we do with the apprentices? We have to attract them into the industry. I do not know if anybody present attended the Ireland Skills Live event that took place in March at the RDS. We were one of the sponsors. It consisted of those in 25 different apprenticeships taking part in a competition to find the best apprentice in each of the 25 areas. That took place in public at the RDS, with the apprentices competing against the clock and each other in joinery, hairdressing, heavy machinery maintenance, aircraft maintenance, welding, etc. It was absolutely fantastic. School pupils came to the event in busloads. Some 11,000 students came from all over the country on the Thursday and Friday. There is nothing like seeing the excitement on the faces of the younger generation looking at the opportunities in front of them. There was something for everybody. One individual was working on a small helicopter in front of the students, while in another area someone else was working on a jet engine. There were also people welding behind red see-through boards. It was possible to see what they were working on. People were also involved in bricklaying and hand-painting competitions. Everything was there. On the Saturday, we were concerned that the footfall might go down because the schools were closed. That morning, however, carloads of families showed up. Mothers and fathers came in with their children to see what the event was all about. One of the questions we were asked many times was where was it possible to find more information on all of this. There is no one place to find out about it.

The Ireland Skills Live event was a brilliant success and that came from collaboration between the industry and the State bodies that have been organising similar events in this area for a long time. For years, however, something like the joinery competition would have taken place in the Dublin Institute of Technology, DIT, with nobody looking at it. A couple of years ago, however, people went to the world championship in Azerbaijan and saw the Irish winners taking part there in a public competition. It was felt that the Irish competitors were disadvantaged. The industry here got together with the Higher Education Authority, HEA, and SOLAS. Everybody was a little afraid as to whether this new approach would work. The industry sponsored the event, the agencies got behind it and it was a tremendous success. I recommend that all of the members attend the Ireland Skills Live event when it takes place next year. If nothing else, they will get a lift from it.

We have a job to do to convince the younger generation that they do not have to go on to third level in order to get pieces of paper in whatever discipline. We want them to understand that we want them to do what they are good at. The current model of success is based on the school league tables. That model seems to rate success as being the number of students that schools get into universities. We would like to see a different model of success used, one whereby schools shepherd their students into what they are good at and what they want to do. If my local school produces the local electricians, engineers, painters and hairdressers, that is success to me. In that context, we are putting together a campaign to attract people into every area of the construction industry. We do not favour people going into one area over another. People should go into the areas that are a good fit for them. We speak to the professional bodies all the time, including Engineers Ireland, the Society of Chartered Surveyors Ireland and the Royal Institute of the Architects of Ireland. All of those professional bodies support what we want to do. As already stated, we will not discriminate. People should go into whatever areas are a good fit for them so that-----

I ask Mr. Lucey to conclude on that point because more Deputies are coming in.

Mr. Pat Lucey

That is fine. It is a topic about which I feel passionate.

I gathered that but we are creeping towards a deadline regarding access to the room.

Mr. Pat Lucey

If the Chair does not mind, I will pass the housing question to Mr. Parlon.

That is fine. I ask Mr. Parlon to be very quick.

Mr. Tom Parlon

I will be brief. There is certainly a conundrum regarding the cost of producing a house, namely, the incentive for the builder to take a risk and get a profit versus the ability of somebody to buy the house. I am told by two different house builders active in the market that it is possible to go onto any site in Dublin today and get a house to buy. Supply has caught up with the ability to buy. That is a dilemma. Whether the discretion available from the Central Bank is running out or whatever, that is where matters stand.

We have been lobbying very hard. Goodbody Stockbrokers issued a report over the weekend which favoured the continuation of the help-to-buy scheme. We find that is a major factor in the context of a first-time buyer being able to buy a house. One of the builders yesterday told me that he had a list of 400 potential buyers. He had to go through every person on that list to sell 12 houses. One person was very enthused about getting a house but he was €10,000 short when he added to together his deposit, his mortgage and the few euros he had in cash. Without that €10,000, unfortunately, that was that.

There might be some notion abroad that if we can press down the price of houses, they will then become more affordable, Unfortunately, the margin for and viability of building is tight, particularly in view of the costs involved. That is only going to slow down building. I know of two large players that have actually slowed down production because the buyers are not coming along. That is a dilemma we are going to have to deal with in the next budget. Costs are increasing. Sometimes the discussion about inflation in construction is exaggerated. There is certainly some inflation on the labour side. There has also been much commentary on some of the big projects. I refer, for example, to the national children's hospital project and the fact that inflation has been blamed for the price escalation. That is not quite the case. Initial underestimation of the costs was a major factor. There are many areas that need to be dealt with. We see the continuation of the help-to-buy scheme as a priority, as well as the LIHAF scheme whereby infrastructure is introduced by local authorities. That could be water, roads, access, etc. The announcement of substantial funding for that scheme was very positive. However, only a fraction of the funding announced has been drawn down. It is extremely complicated, very slow and is certainly holding up some development as well.

I thank Mr. Parlon and I call Deputy Lahart.

I was absent earlier but I was here for the previous session. I have also read the submissions from our guests. I will return to some of the things I mentioned in the previous session. As a member of this committee, I certainly look at common themes arising at this time of the year. Earlier, the representatives from NERI put forward a view completely contrary to what we have just heard regarding subsidised housing and the help-to-buy scheme. The contribution from the NERI delegates came just 20 minutes ago and it is interesting to hear the arguments that have been made. Mr. Parlon's comment regarding the supply of housing having caught up with the ability to pay could make a headline. That paints a particular picture. The key word for me in that sentence is "ability". The people we do not count in the homeless figures or those waiting to buy houses number approximately 250,000 adults. They remain in the homes of their parents. Politicians had an opportunity during the recent election cycle to knock on doors. In my constituency, there was a house in Kingswood in Tallaght, a middle-class area, where a mother reported that all four of her adult children had returned to live at home. They are all working. One returned home to save for a deposit, another because of difficulties affording rent and the other two for similar, if more complex, reasons. People in the construction industry, particularly Mr. Parlon, need to take cognisance of cuckoo funds and this big push towards build-to-rent developments.

The witnesses' organisations need to help the Government and politicians to address this. I met a couple in Elder Heath, which is a fine new development in Kiltipper in Tallaght. They had €90,000 of a deposit for their home. They were paying €1,800 a month in rent but when they got their deposit and bought their house, they found their mortgage is €975 a month. That is a saving of almost €1,000 a month that was going into a black hole. The witnesses' organisations have as much a responsibility as policy makers in this regard.

I ran for election in a by-election in 2014. We were still emerging from the crash at that time and I remember reading a SIPTU paper on apprenticeships. It was very much ahead of its time in its thinking on them. It was produced in 2013 and now in 2019, only 4% of our apprentices are women. Some 39% of apprentices in Northern Ireland are women and the number of female-male apprentices in Scotland is almost equal. Mr. Lucey mentioned jobs in sectors such as hairdressing, front-desk jobs, tourism related business right across to sheet metal working which were flagged six years ago. Investment in apprenticeships is a theme that has emerged from a number of contributors who have appeared before the committee.

In Denmark, 11% of its workforce are apprentices, 45% of those on its apprenticeship programmes are women and apprenticeship programmes are open to people from the age of 18 to 60. There is constant retraining and developing of ability among its people to do work in the apprenticeship sectors.

This discussion has nudged forward the conversation on apprenticeships. I would be as passionate as Mr. Lucey about this issue. I am particularly struck when the leaving certificate results come out in August and the talk is all about the Central Applications Office, CAO, points system. Sean O'Rourke's programme and Pat Kenny's programme are full of it and only 30 seconds of those programmes are devoted to apprenticeships.

In the UK, an apprentice forum has been set up headed by a captain of industry, and its objective is that every parent in the UK would consider an apprenticeship for their child. We have become over-educated in Ireland. Those channels we assumed that traditionally catered for the student with physical skills started offering business and marketing degrees. I refer to the institutes of technology. Those were bullshit courses in terms of what they qualified people to do. The proof of the pudding was in the eating when those students emigrated; they found they were qualified for nothing. As Mr. Lucey said, the students who qualified as electricians, plumbers or carpenters and emigrated got a job the day they landed in another country, but we want to keep those people here. I would encourage the witnesses to keep banging this drum. It requires change on the part of parents and the education sector in terms of the way apprenticeships are viewed. When I was in school many of my classmates left post-intermediate certificate and went into apprenticeships and they studied alongside doing that. That does not happen any more. We laud the fact that people no longer leave school post-intermediate certificate. This is a channel that needs to be open. We are not bearing the fruits of that now because we do not have the necessary workforce. I am 100% behind the witnesses on this issue.

Unexpected revenue windfalls were mentioned. Interesting themes have been raised today. We heard from representatives from the Irish Fiscal Advisory Council, IFAC, and the Economic and Social Research Institute, ESRI. The witnesses before us are on the same page on that issue as the representatives of the Irish Congress of Trade Unions, ICTU and the Nevin Economic and Research Institute, NERI. The representatives of IFAC said this must be squirrelled away into a prudence account. The representatives of NERI and ICTU have said there should be no once-off unrepeatable capital projects. The witnesses before us are saying the same that it should be earmarked for capital projects and to ensure the delivery of the national development plan. The way we should spend revenue windfalls has been a common theme for this committee for the past three years in advance of those budgets.

The witnesses have not commented on demographics. That theme arose in the context of the way our ageing population may affect the workforce. I am keen to develop apprenticeships. I will be pushing for that in the contribution this committee will make to the Minister. I welcome comments from the witnesses on those points.

The Deputy mentioned a technical term in his contribution to describe certain degrees. Who wants to reply first to the Deputy?

Mr. Fergal O'Brien

I will comment on two specific issues he raised, one of which was the windfall from corporate tax revenues. We had some discussion with Deputy Boyd Barrett on that. The other issue is the broader view on apprenticeships. We are very clear on the corporate tax surprise. I will repeat the figures involved. It is €14.3 billion in four years, €11.5 billion of which has gone into Supplementary Estimates each year during the past four years. That is the cumulative figure. These are decisions that have been taken collectively during the past four years. They have not been good decisions. They are putting real risks on our fiscal stability. The excessive corporate tax reliance to fund day-to-day spending gives us a greater risk of a significant fiscal crisis than our reliance on stamp duty did more than a decade ago. That is the risk we see in the economy. We must make a transition away from that to a new enterprise based model with much greater support for the indigenous sector, small and medium enterprises, SMEs, and entrepreneurship, but we must invest in the building blocks. We are not hitting our marks in innovation. We are not delivering the public capital infrastructure at the pace we need to be delivering it. We are not supporting our education system. The Deputy spoke at length about apprenticeships. We are completely neglecting-----

I recall Mr. O'Brien raised the issue of the third level sector last year.

Mr. Fergal O'Brien

We continue to completely neglect our third level sector. We are seeing that now in terms of outcomes, student choices and, worryingly, in terms of perception. If we are asking all these companies that are spending a great deal of money on our physical infrastructure and building wonderful facilities in Dublin to have their global intellectual property sitting in Ireland and we are not minding our own intellectual property in terms of funding our universities, these companies will quickly see we are not a serious player in terms of operating at a global level because we are not making smart decisions around investment. We have been frittering this away in day-to-day spending, much of it into the health service. When we consider the level of public scrutiny of the budget for the construction of the national children’s hospital, there is not the same level of scrutiny of the day-to-day spending of the €11.5 billion we have overspent in Supplementary Estimates in the space of four years. There is very little scrutiny of that from what we can see.

On the issue of apprenticeships, my colleagues from the Construction Industry Federation, CIF, may want to come back in on construction specific issues. From a broad business perspective, as I said, there are 40 different sectors or trade associations in IBEC. A number of those have been instrumental in getting new apprenticeships up and running in sectors such as financial services and manufacturing. We are also examining options around retail, for example. We are trying to broaden out the conversation on apprenticeship options. Uptake of them has been slow. We are disappointed with the uptake of some of the apprenticeships we have sponsored through our trade associations. As Gerard Brady said in a previous response, there is a cost issue in terms of small employers, in particular, that must examined but, collectively, we need to do an a great deal more to brand, promote and encourage young people to consider the options available. Much of this is connected to education sector reform. It is not only about young people making these decisions at the age of 16 or 17. This must be addressed right through our education system in terms of our approach to learning, junior certificate reform and the way young people are being educated under the national school curriculum. Many of our member companies engage on issues such as the gender challenge we face in certain sectors with the very low level of female participation. They are visiting primary schools. They know that by the time students move on to secondary school it is far too late. This work must start at primary school level but a much more systematic and fundamental reform of our education system is required and part of that requires us to have a broad perspective on the opportunities in apprenticeships. Compared to where we were five years ago, we have achieved an awful lot. When I consider the new options we have in apprenticeships, we have achieved a great deal but the uptake of them has been disappointing and slow and we want to see some changes in that respect.

I wish to ask a supplementary question. We have lost a culture of apprenticeships. I am 54 years of age and that culture was very much alive when I was doing my intermediate certificate and leaving certificate. Up to one third of my classmates left school after the intermediate certificate to take up apprenticeships. They are not a sexy option now for students. That is the first aspect that must be addressed. I do not know if the witnesses have any ideas about addressing that. If they listen to Sean O'Rourke's programme in the third week of August, I am not exaggerating when I say that 99% of his programme post the leaving certificate results coming out will be focused on third level, university and college education and only one minute will be devoted to apprenticeships.

How can we change that culture?

Mr. Pat Lucey

I have to be careful because I could go on for a bit.

I will not let Mr. Lucey do that a second time.

Mr. Pat Lucey

As part of our work we hired Teneo Ireland to carry out a behaviour and attitudes survey among a very widespread group. We wanted to find out why construction is not attractive. We got a lot of information back. We are not selling ourselves as well as the Googles and Amazons of this world. The survey pointed us in the direction of the tools to change that. I will stop there because I could go on for too long. We are working on that. I totally agree about perceptions. Perception is a huge thing. There are historical reasons for them which I could go on a bit about, but I will not. I got one massive bit of hope from Ireland Skills Live at the RDS. If we give the information to the mothers of Ireland they will make the right decision. I have no doubt about it. All that they are receiving at the moment is a wealth of information about going to university. They know their children better than anyone, and if they are given options and an understanding of what is available they will point them in the direction of what works for them. I am hopeful. An awful lot of us agree about this. Diversity is mentioned here. It is one of the things we must battle with in construction. It is not diverse enough. That is part of our campaign. As was said, we have to start the primary schools.

What could be done in the budget?

Mr. Pat Lucey

Restoring the student levy would help. We are preparing a skills campaign and canvassing funds for it at the moment. We are also fundraising in the private sector. We would like an injection of help from Government agencies on that. We are absolutely dead serious about this. This is something we have to do. We do not have a choice. We need people to come into construction to do the work this country needs. We will make it happen, but it will happen better if we do it in collaboration with the State agencies.

Sean O'Rourke will be missing a trick if he does not turn up at Ireland Skills Live next year and broadcast from it some morning. He will see something different and get the news out on the airwaves that something different is going on.

I have two other comments to make. Deputy Boyd Barrett asked about the State building houses. We need a lot of different initiatives to overcome the problem we face. A lot of the initiatives that have been pushed out have been working and we have raised the output. As with any problem, however, we must have enough tools in our chest to approach this in the right way. One tool is missing at the moment; the State is not doing enough. We should not rely on any single thing. We need a combination of public and private efforts. The private sector will always take on entrepreneurial projects. It will take a risk on things that the State will not do. When it comes to solving problems however, we must all work together.

I refer to capital projects and unexpected tax funds. People do not seem to realise that if they make a decision to go ahead with something today they will see a shovel going into the ground four years later. It is no good waiting until next October to find out whether we face a hard or soft Brexit. We have to be decisive and press the button on projects now. Nothing happens tomorrow in construction. Press the button today and four years pass before a shovel is in the ground, and that is with everything going right.

I will go to Deputy Broughan now because I am conscious of time and I want to make some points myself.

Mr. Lucey talks about entrepreneurial spirit and enterprise. Has he ever heard of an Italian economist who teaches in London named Dr. Mariana Mazzucato? She wrote a famous book called The Entrepreneurial State. She showed how almost all the major entrepreneurial decisions in the development of the IT industry and electronics generally, including all the elements of the web, were made by the state and university sectors rather than private industry. In fact, private enterprises like Facebook and Google ran with systems that had been put in place by the state. I do not see where this is coming from. I worked briefly in the construction industry when I was a kid. The Ahern and McCreevy Government decimated the construction ability of city and county councils. It ran down the workforce and got rid of apprentices and skilled tradesmen. That is what happened. We did not have the kind of State involvement in housing that had accompanied the private sector in the past. I worked for contractors on both public and private estates.

Why is Mr. Lucey moaning about Dublin and the number of cranes on its skyline? Should he not rejoice in that? Most powerful economies tend to have a major capital city. Some 40 million out of 125 million Japanese live in the greater Tokyo area. Some 20 million Argentines live in Buenos Aires, out of 48 million in total. Half the Austrian population lives in the state of Vienna, though there are historical reasons for that. What is the big deal with this? Should we not rejoice in the fact that when one goes to the top of this building and looks towards the south east, about eight or ten high-rise buildings are rising up over the fabric of the city and all those cranes are out there? The same is happening in my own constituency of Dublin Bay North. We face some changes in Limerick. Limerick city and county will have one leader. The newly enlarged Cork city has upwards of 200,000 people. There is also Galway as well as Belfast and Derry in the neighbouring jurisdiction. Why moan about this? Why not just decide to expand on that and build houses, particularly in the Dublin region? A lot of the high-rise buildings are commercial, such as the 24-storey building by the Liffey and other neighbouring buildings.

Mr. Lucey spoke about confidence and "normal times". When were there normal times? All times have problems and issues. The country is undertaking the national development plan, the national broadband plan and retrofitting. The Construction Industry Federation told us that 50,000 houses would come on stream in 2023 and 2024. None of us on this side of the room believes that supply and demand are in equilibrium. That is fantasy. It is not the case. There is no question of that being the case because in my constituency between 7,000 and 8,000 families are on a housing list. There are 20,000 such families in Dublin city alone and we believe the true figure for the whole country is almost 130,000. There is no equilibrium. We are miles from equilibrium because nothing was done for seven or eight years. What more confidence does the industry need? Even with Brexit we will have a lot of construction if there is a moderately soft landing, which there probably will be under the new Prime Minister. Should we not be planning on that basis rather than worrying about confidence? What is confidence? Confidence was there in the late 1990s and early 2000s. The problem is that the State abrogated its role in doing something about this after 2008 and 2009.

I agree with Mr. Lucey about the shared equity loan scheme. That would be a useful development. On the point of apprenticeships I note that we have given SOLAS the responsibility. Even before the crash, as a Deputy I found that it was very hard to get sponsors after the introduction of the new system of seven segments. Some five of those were awarded in college and a further two on the site. One could still find young boys and girls getting four or five sections and struggling to get an employer who would take them over the line. The Brits have elevated apprenticeships to degree level. Things have changed in construction since I was assisting plasterers. There are many big sites in our constituency, and I note the role that crane drivers are playing. Walls and practically whole apartments arrive in blocks. The technology is changing. Construction is a high-tech industry. These qualifications should be recognised as level 8 qualifications, the level of a basic degree. Last week we gave the institutes of technology the power to award any degree they like up to doctoral level.

If one is a great brickie, one is at degree level in terms of construction. Is that not the way to go? One should equalise the thing and say that all these professions, whether that of economist or brickie, are equally necessary. I do not see why there should be that type of problem.
As a company director, I am a member of IBEC. Earlier, NERI representatives told the committee that of ten wealthier countries, we were ninth lowest in terms of public sector spending. Clearly, we have supplementary budgets because the health budget is not sufficient to run a national health service, which is what we want. Denmark, Sweden, Finland, Austria, Belgium, France, the Netherlands and Germany are Nos. 1 to 8, respectively. We are coming in behind them. If we are to get to their levels of public infrastructure, including transport, to meet the new carbon plans, we will, surely, have to spend money. By the way, that will create confidence among builders. We are going to have to do a great deal of building so it is hard to see why people are worried about confidence.

I will start with Ms Mair who indicated first.

Ms Jeanette Mair

I thank Deputy Broughan for mentioning Mariana Mazzucato, who is quoted in our forthcoming report examining productivity in construction. The Deputy was correct to say she is very strong on the role of innovation in transformative economic policy and investment in human capital, research and development and so on. A significant element of our budget submission, which will be formalised in the next few weeks, focuses on the role of research and development and innovation in construction, linking education and training across the industry and sector. Education is the primary activity of universities and institutes of technology and that feeds into skills development for the sector. The production of goods and services is the primary activity of companies in construction. Therefore, our ultimate aim is to have a designated centre for construction research, development and innovation which would be a bridge between academia, the research community and the construction sector. We have committed to pursuing and progressing that agenda and have already established a joint industry-academic steering committee to work through the construction sector group in that regard. In our submission, we will call for greater investment in construction-related research and development and innovation and, in particular, for a consideration of the existing research and development tax credit and how it meets the needs of construction SMEs. It is often the case that the types of activities and services construction companies provide are difficult to capture in the black and white review Revenue conducts in respect of the construction research and development credit. We need to continue to build links between the education and training sectors and industry so that, as Mr. Lucey detailed, our pilot scheme, which is to be launched in the autumn, can garner additional stakeholder support. A focus of the scheme and many of the policies CIF is adopting are about embracing a whole-life career in construction. It should not just be about the initial qualification that gets one a job but about providing tools and supports through employers for lifelong learning and career progression. That will allow us to offer rewarding and sustainable careers to those choosing to enter the industry and to improve the diversity of the sector.

Mr. Tom Parlon

Deputy Lahart suggested that we were somehow or other favouring institutional investors and the build-to-rent model. That is not the case. The president referred to that. It is part of a very important model, however, and it provides currently for a certainty of funding that is not coming from anywhere else. A figure we came up with lately is that just 6% of our social housing is being provided by the State. Otherwise, it buys it from the private sector. While co-living has received a great deal of negative publicity, it has a place for a sector of the workforce. There are young people who want to spend the minimum amount of time in living accommodation and to live and work in the city. We need solutions in all those areas.

I note to Deputy Broughan that I did not hear anyone moaning. If we gave that impression, it was certainly not intended. We are delighted to have approximately 125 cranes in Dublin. The point the president made was that there are fewer than a dozen elsewhere. It is a massive discrepancy. In numerical terms, the bulk of our members are all over the country. Unfortunately, they are all commuting to Dublin and helping to clog up the streets, contributing to the congestion that exists. It involves a great deal of extra cost. If we had that extra infrastructure so that they could work in the general vicinity-----

We need a world-class capital city, do we not?

Mr. Tom Parlon

Of course and we are not saying otherwise. However, there is a difference between having a 50:50 ratio with respect to economic activity in the capital, which might be acceptable, and a 90:10 ratio, which is the problem we have. There is scope there. The Deputy mentioned high-rise buildings. We are still having a major struggle to get our high-rise buildings and those heights. There are some fantastic designs.

There seems to be a new policy on that in Dublin City Council.

Mr. Tom Parlon

The Government has a policy too and they seem to be at loggerheads. The Minister's recommendations are still not being taken on board. We certainly need to increase the height. Lest the notion go out that apprenticeships in construction are at a low ebb, electricians and plumbers are flying high. This includes the very apprenticeship to which Deputy Boyd Barrett referred to in respect of his son. There are thousands of people in each trade mainly because we have large contractor firms on the mechanical and electrical side which are working for the likes of Google and Facebook and building data centres, not just in Dublin and around the country but across Europe. That is a very good model. It is in respect of the wet trades, which are necessary currently for house-building, where the structure of the industry does not encourage employers to some extent. We have a weakness on the employer side and a mega-weakness around creating an awareness among people who might otherwise choose an apprenticeship in these trades.

I refer to construction issues. The witnesses have touched on workforce issues being key and stated that the live register has been exhausted. The industry is now looking beyond that. From a budgetary oversight perspective, we are heading into the next budget. The summer recess will take place shortly and when we come back we will be fully into the discussions on budget 2020. What are the witnesses' key asks for us to consider in respect of that budget? I refer to addressing the workforce issue but also to the cost of building.

Mr. Pat Lucey

We have exhausted the live register fairly well with respect to workforce issues, but we are still working on it. We are still having success through different training courses with getting people off long-term unemployment and into construction. Going forward, we will have to bring more workers into the industry from among school leavers. However, we will also have to look at the technology. Off-site construction has become very prevalent internationally but we are getting into it more slowly in Ireland. We have people who are willing to do it, but it comes back to that awful word "confidence". If people want to set up a fabrication plant in Ireland, it means a very significant investment. They will want to know they will be able to sell the output. A huge part of what we need is to push the pipeline of work. At the moment, a very significant proportion of that pipeline is coming from the private sector. I read the Irish Fiscal Advisory Council's document last weekend. The funny thing is that when I got to the end of it, I did not feel all that great. I wondered why I was not feeling good after reading this advisory document. I looked at it again and considered the words it used. The word "overheating" was used 39 times. The word "shock" was in it 78 times, "debt" was in it 173 times and "adverse" was used 23 times.

It was a report that made people worried that everybody was saying something was going wrong. Some parts of our industry, such as the civil engineering sector and the regions, have not really had the same crack of the whip as other parts of it. We know that connectivity is a huge part of the social fabric of our regions. Some parts of the country are not connected properly to other parts of it. Dublin needs to go underground. It has to go underground. There is no more room on the streets. If we want to have a fabulous capital city, we have to move forward with these projects. The MetroLink project has been going slowly for a number of months. We need these things to move forward quickly because we do not see big projects starting on the ground until 2020. That will be the first of them if it starts then. People are not being given the confidence to invest and use their skills to make a product that people will buy. Pushing out the pipeline of work is probably one of the biggest things we need. I ask the committee to support our campaign to bring people into the construction industry.

I have a few questions for Mr. O'Brien and Mr. Brady of IBEC. I agree with much of their opening statement, particularly in respect of corporate tax receipts. We have discussed the unexpected and unexplained windfalls that have helped us to plug significant holes in supplementary budgets in the last couple of years. Last year, there was an overrun of €700 million in health. If we did not have these corporate tax receipts, we would have been in much more difficulty. This committee has had a lot of discussion about whether we should bank that money and use it for a rainy-day fund. The witnesses have suggested that it should be used as a strategic investment fund to ensure capital projects are delivered consistently and are not hampered by any downturns that may come. We know it is inevitable that there will be a downturn because that is the economic cycle.

I would like to pick up on what Mr. Lucey has said about connectivity. It is interesting that he mentioned this topic. Irish Rail has just opened a public consultation process with regard to the proposed extension of the western rail corridor, which involves the completion of the second and third phases. The first phase - the Ennis line - is complete and is up and running. It is doing very well, contrary to what some people may have predicted about that line. I would welcome Mr. O'Brien's thoughts on IBEC's position with regard to the second and third phases, into Athenry and Tuam and onto Claremorris. People in the west of Ireland are very keen to develop the Atlantic economic corridor and the western rail link. The connectivity about which Mr. Lucey spoke must be part of the bigger picture, which is a longer-term vision for the west and the north west. How do we connect our major cities and growth hubs? Under the national development plan and Project Ireland 2040, Sligo has been identified as the growth centre for the north west. We want the western seaboard to be connected from Galway through Mayo to Sligo and on up to Donegal. What are IBEC's views on the western rail corridor? Will it support it?

Mr. Fergal O'Brien

We have already had an extensive conversation about the risks associated with corporate tax receipts. We believe the forthcoming budget has to stop the pattern of recent years. This money needs to be put aside for strategic investment in infrastructure, education and innovation.

Deputy Chambers asked a specific question about regional infrastructure. I share Deputy Broughan's sentiment that we need to build a world-class city. The reality is that Dublin operates in a different division and needs to be funded at that level. As a national organisation, IBEC believes that too much of this country's economic activity takes place inside the M50. Over 40% of the country's economic activity is happening inside the M50. This is suboptimal for Dublin and for the entire country. For a number of years, we have been advocating an ambition that we should be planning for an all-island population of 10 million people. Much to many people's surprise, the population of this island has hit 7 million. When one rounds up the numbers, one will see where the all-island population has gone to. This is becoming an island of scale. It is a challenge to make sure the all-island economy is preserved. It is becoming a market of scale. Most businesses in construction and other sectors view the all-island market as a single market. That is the way business predominantly works.

We believe there is a real opportunity to develop the Atlantic economic corridor as a counter-balance to Dublin. Some of it is already becoming a reality. We have spoken about the initiatives we have seen in Limerick about how that city is developing. We see the connectivity piece from an employers' perspective. Now that Limerick and Galway are connected by motorway and the travel time between them has been reduced to less than 60 minutes, the labour market dynamic between those cities has changed completely. We can see people in Galway commuting to our companies in Limerick on a daily basis. We need to make sure that commuting is of a more sustainable nature in the future. We will still need the road infrastructure. Our priority for the sequencing of projects is to make progress with a really ambitious Atlantic economic corridor that connects Dublin, Limerick and Galway and extends the whole way up the coast and all the way around to Belfast. This kind of C-shaped ring will make the all-island economy a reality. Rail will have a role to play within that, but we need to get the road infrastructure delivered. Many of our members want opportunities to move commercial and industrial products by rail. I think this approach will bring us some options, particularly in the context of climate challenge. Investment in rail, including the electrification of rail, must be part of the solution. Our ambition for supporting the western arc, particularly the Atlantic economic corridor, is incredibly strong. The members of our national organisation want to see a greater spread of economic activity. We cannot do this without investment.

I agree with what Mr. O'Brien has said about the importance of the C-shaped infrastructure outlined by Mr. O'Brien, along the western seaboard and back up into Belfast. We want a good road network and a decent rail network to give options to citizens. Reference has been made to the climate issue. The Government published its climate action plan a couple of days ago. It is actively exploring the possibility of banning petrol and diesel cars from certain cities. I am sure Galway will be included. That is where the opportunity for rail really comes in. There is an opportunity for commuter services to come from Mayo into Galway to try to get the congestion out of Galway. This would help some of the businesses represented by IBEC, including those in Parkmore that are facing major congestion issues. We have discussed this. It is an ongoing discussion every year. The industrial estates in Galway cannot get their staff or their products in and out. We need to take the cars out of the city. Rail presents an opportunity for us to do that. Does Mr. O'Brien support the western rail corridor? Will IBEC support the public consultation by putting in a submission to that effect before the middle of July?

Mr. Fergal O'Brien

We are going to be engaging with our members on it. We have not yet taken a decision.

You would want to hurry up.

Mr. Fergal O'Brien

We are going to be really ambitious with regard to the investment agenda for road and rail infrastructure.

What is Mr. O'Brien's personal view on the western rail corridor?

Mr. Fergal O'Brien

We have not formed an opinion on it yet.

Have you formed your own opinion on it?

Mr. Fergal O'Brien

We have not.

I am not asking about "we". You do not have an opinion.

Mr. Fergal O'Brien

We are engaging with our members and we will form an opinion.

As a very experienced business man, Mr. O'Brien might have looked at the project. I am sure it has been brought to his attention on several occasions. He must have his own view on it.

Mr. Fergal O'Brien

We will express an IBEC view when we have engaged with our members. We have a clear position on the support of our members for the western rail corridor. There is a clear ambition at the moment for investment in rail and road and for making sure we are much more ambitious for effective and balanced regional development. At the moment, we are not sufficiently ambitious. That is our number one priority. If rail is going to be a solution to that, we will support it.

I am sure Mr. O'Brien is aware that the deadline for submissions is 17 July. I ask him to show ambition in his engagement with the members of IBEC by asking them to make a submission to the effect that they support an exploration of the financial viability of this project. If it is found that the numbers can be supported, I would love to think that businesses in the west of Ireland will get behind it.

Mr. Pat Lucey

The reality is that if we considered a project like that mentioned by the Deputy, and if everybody said "Yes" today and agreed to go ahead with the project, it would probably be 15 years before it would be done. That is what infrastructure entails. By the time all the work that would need to be done has been completed by Irish Rail-----

The line already exists. It has already been built. It would have to be-----

Mr. Pat Lucey

Even at that-----

It is not a project that would be started from scratch. It has been broken into three phases. The first phase has been completed and that section of the line has reopened. We are exploring the possibility of moving on to the second and third phases. It is not the same as a brand-new capital project. The infrastructure is already on the ground. It would require revamping to allow the line to reopen.

Mr. Pat Lucey

Okay.

I take Mr. Lucey's point on the lead-in time.

Mr. Pat Lucey

The period of time that is usually taken up by the statutory process would be saved. The project would start with the work needed to get to construction. Nevertheless, it would probably take approximately ten years.

We have been waiting quite some time. We are always optimistic.

Mr. Pat Lucey

The point I am making is that when infrastructure is being developed, the buttons have to be pressed at an early stage.

Yes. Project Ireland 2040 looks at the next 22 years. We are thinking about the longer term. We are planning for a population increase in the west of Ireland as well.

This increase will not just be Dublin, Cork, Limerick and Galway, we also want it to happen in the west and the north west. It will not happen, however, without infrastructure and connectivity. There appears to be a view that this is a case of if we build it, they will come. It is a chicken-and-egg scenario. We are always being told that we do not have the population base or the level of demand required, but we will never get that without connectivity.

Mr. Pat Lucey

That is correct. Infrastructure requires a leap of faith.

They said the same thing about building an airport in Knock. Thankfully, Monsignor Horan did not listen and we have a fantastic facility at Ireland West Airport Knock. It is a major asset to the western region. Mr. O'Brien will agree that businesses in the west of Ireland-----

It is past 6 p.m. There are some minor matters that I want to highlight in concluding. My first point is addressed to Mr. O'Brien. In its defence, this committee has proactively highlighted the overruns in current expenditure. It has held hearings on and investigations into how they were being paid for. We have probably been to the forefront in terms of making some of the points that IBEC got around to making this year. Last year, Seamus Coffey made a great deal of the base erosion and profit shifting argument and he was quizzed extensively on it. He was one of the first people I heard refer to this matter. Interestingly, his view was that it represented a substantial threat to the Irish economy, even greater than Brexit. He used exactly the same terminology. His view was that that level of outcome was not as likely, if I remember correctly. IBEC seems to have prejudged the outcome of the next round. The Government and the Minister for Finance have worked extensively with the OECD on this. It is a collective means. We need to remember that Ireland is not alone in looking at the issue within the OECD context. The view of certain countries, including the United States, on corporate tax is different from that of some of our EU neighbours. This is obviously something that is recognised and it is on the Government's agenda as an issue of concern. It is a matter that the committee has examined.

I wish to make one point to Mr. Lucey about the CIF presentation. I nearly wondered at one point whether he and his colleagues had read the Project Ireland 2040 document or anything connected to it. Much of what is in the document refers to curtailing growth in Dublin and shifting growth to the regions. The CIF, its members and the Government at the time, as Mr. Lucey is well aware, contributed to the lost decade. That is why it has taken ten years to get infrastructure projects back up and running. The economy crashed and that is what we have been dealing with. We forget sometimes that it was due to the efforts of the people of Ireland and the Governments that came after that are economy was restored. However, we are still coming out of the aftermath of an awful crash. It is very disappointing when I hear somebody say that their members do not want to grow back to the size they were and that they do not view either the chronic level of housing need that exists and an infrastructure project of the scale of that envisioned in Project Ireland 2040 as enough of an incentive to hire apprentices. When I hear that, I begin to understand why I would be concerned about making suggestions to my child if I were telling him or her certain apprenticeships. There are other more dynamic industries. I hope the CIF submission will include information on research and development and changes. In comparison with almost any other industry, construction is a complete laggard in terms of reform, changing processes and driving innovation. If the CIF members shared some of that enthusiasm, it would be far more positive. I would like to see it in any event.

Mr. Pat Lucey

I am keen to respond. The industry in which we are involved is cyclical in nature. A bunch of us have been through these cycles several times. We never seem to learn from the lessons of the previous cycle. The cycle we have come through has been incredibly deep. It really hurt people to the extent that they are extremely cautious now. Many people went out of business. When some of the big companies went out of business, their supply chains suffered and they did not get bills paid. Many people were in trouble. It is already a low-margin business. Our main contractors earn profits of between 1% and 3% but they take on extraordinary risks in the context of the projects they undertake. It only takes a couple of projects to go wrong to put the biggest companies out of business. It is a very dangerous business from that point of view.

Incredible stuff is going on in construction. We have people with the can-do and problem-solving attitude.

That is good to hear.

Mr. Pat Lucey

That is going on day in, day out in our industry but the fact is that we are running out of work. Our members in the Dublin area are not out of work. However, if we go around to the regions all we hear is that there is nothing happening. People are hopping into their cars and driving to Dublin. They make long journeys into Dublin. Now, they do not want to come to Dublin any longer. They say they do not want to put up with the traffic. They want to get work close to home. There are many threads to this.

The Chairman mentioned innovation and the ability to be productive. Our top 50 companies have 30% of turnover outside of Ireland. That happens because the big private employers that use our companies rate them to be among the best in the world. They take them to other countries to do jobs for them rather than using the local industry. That is an incredible compliment to the people who work in the industry.

We must have a pipeline of work ahead of us at home that allows people to invest. Right now, they are afraid. Construction is not a fun business to be in at present. It tends to get a good deal of negative press. At the same time, however, when we put our people on site and we want to solve a problem, it is clear the sector is full of problem-solvers. The difficulty is that the lead-in period to work commencing is so long. I wish Deputy Lisa Chambers the best and I encourage her to push hard. It will happen, but it is not going to happen quickly because that is the nature of the system. We need to learn that in order to make things happen, we have to press the button early. Each time we get to the end of a cycle, telephone calls come into the CIF from different politicians asking where the shovel-ready projects are. There is no such thing as a shovel-ready project without four or five years of lead-in work to make it so. The people who make these decisions are those holding the purse strings. They allow the engineering, surveys and consultations and so on to take place on projects in order to enable them to become shovel-ready.

Other people want to come back in.

Mr. Tom Parlon

I do not accept for a minute that we are laggards. That is a misimpression and we need to address it. I hope the Chairman is not depending for information on last week's the article by Sean Barrett, which was scurrilous in terms of the ignorance he showed about the industry.

I am not depending on any one person's article but I believe there can be far more innovation. There are several articles on this matter. I am not going to refer to any one person's article. In fact, I call on Mr. Parlon to withdraw what he said about that person's article and work.

Mr. Tom Parlon

I will be responding in kind in the newspaper.

Mr. Parlon can respond in any way he wants but he is aware of the position on privilege that I indicated to him in advance.

Mr. Tom Parlon

The individual in question used a full-page article to ridicule the industry in a very unfair way.

That is fair enough. That may be Mr. Parlon's view. We will move on.

Mr. Gerard Brady

On corporation tax, last year Seamus Coffey commented on the common consolidated corporate tax base, CCCTB, rather than base erosion and profit shifting, BEPS. In the space of a year there has been a significant political change on global corporate tax. When Seamus Coffey referred to the CCCTB, there was little chance of it ever happening purely because, as he said, we had a veto at European level, as did other member states. At the OECD in the BEPS process, there is no veto. In effect, power talks. On those proposals which are risky for Ireland, every large country is on one side of the table while a handful of smaller countries, along with ourselves, are on the other side saying we need to make it work for small countries. As Mr. Fergal O’Brien said in his opening statement, fundamentally, this is not about closing loopholes but about who pays tax where. Big countries want more money paid into their exchequers because that is where the consumers are. The politics of BEPS has changed significantly. In particular, the US position on tax has changed enormously over the past year. We would have regarded the US as being on our side of the table, along with Germany. Those two countries have switched sides over the past year.

I would put high odds on there being an agreement at the OECD with two outcomes. No matter the results of the negotiations, some of our tax under pillar 1 will go to other countries. We reckon that could be as high as €2 billion to €3 billion in a worst-case scenario. Even in a relatively benign scenario, one is still talking about €1 billion lost from our tax base.

When will that occur?

Mr. Gerard Brady

It will probably be 2025 before this is implemented.

Mr. Brady is pitching that at about €2 billion. We have heard figures of €3 billion and more.

Mr. Gerard Brady

It could be significantly worse. It depends on the detail. We will lose a significant share of money. We are not as worried about that. It is something for this committee to worry about because we have five years to get our act together in how we pay for this.

The other pillar is the minimum tax proposal. It would effectively mean that there would be a global minimum corporate tax rate. If one paid 12.5% here and the global tax rate was to be 15%, other countries would have the right to reach into the Irish company to take out that extra 2.5%. In effect, it would mean the end of the attractiveness of the 12.5% rate. There is still much debate to go. It could end up being fairly benign if it is a low number, say less than 10%. However, we have heard numbers as high as 18% and 20%. There is still a long way to go but the big shift in the dynamic is that large countries want an agreement because the alternative is that countries will implement this unilaterally without an agreement. That would be even worse. We think there is significant risk but we have time to get ready for that. That means investing in innovation, education and small and medium-sized enterprises to rebalance the economy.

From what I have read, Mr. Brady appears to be taking a pessimistic view on where that effective rate could end up.

Mr. Gerard Brady

There is a long way to go. I sit on the tax committee for business on the OECD and those are the kinds of numbers we are hearing. For example, the US has already a minimum rate of 13% through its GILTI, global intangible low tax income, tax proposal. It is unlikely to want to go much lower than that. We are probably proposing a lower rate than that. However, the power dynamic is difficult and there is a significant challenge for Ireland. Some of our traditional allies on these issues have moved to the other side. We need to prepare for it.

I must draw the meeting to a conclusion. I thank the witnesses for their participation and exchange of views. I apologise for the delay in getting started. I thank members for their contributions. It has been an interesting exchange of views.

The select committee adjourned at 6.15 p.m. until 4 p.m. on Wednesday, 25 June 2019.