Committee on Budgetary Oversight debate -
Thursday, 22 Jun 2023

Fiscal Assessment Report: Irish Fiscal Advisory Council

An Cathaoirleach

I welcome the Irish Fiscal Advisory Council, IFAC, including its vice-chairperson, Professor Michael McMahon, council members, Dr. Adele Bergin, Mr. Alessandro Giustiniani, Ms Dawn Holland, and chief economist and head of secretariat, Dr. Eddie Casey.

Before I begin, I wish to explain, as is the norm, some limitations to parliamentary privilege and the practice of the Houses regarding references witnesses may make to other persons in their evidence. Witnesses are protected by absolute privilege in respect of the presentation they make to the committee. This means they have an absolute defence against any defamation action for anything they say at the meeting. However, they are expected not to abuse this privilege. It is my duty as Chair to ensure this privilege is not abused. Therefore, if witnesses' statements are potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative that they comply with any such direction.

Regarding privilege for members, 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 any official, either by name or in such a way as to make him, her or it identifiable. I remind members of the constitutional requirement that they must be physically present within the confines of Leinster House in order to participate in public meetings. I will not participate members to participate where they are not adhering to this constitutional requirement. Therefore, any member who attempts to participate from outside the precincts will be asked to leave the meeting.

I invite Professor Michael McMahon to give an opening statement.

Professor Michael McMahon

The Irish Fiscal Advisory Council, as always, is grateful to the Chair and members of the committee for inviting us to appear before it. We value our engagements with the Oireachtas highly and consider these important opportunities an integral part of our work.

As an official independent body established under the Fiscal Responsibility Act, the council's mandate revolves around four elements: endorsing and assessing the official macroeconomic forecasts; assessing official budgetary projections; monitoring compliance with fiscal rules; and assessing the Government’s overall fiscal stance. Our focus is on the broader fiscal perspective rather than individual tax or spending measures. In our latest fiscal assessment report, we assess the Government’s official projections as set out in the stability programme update, SPU, 2023.

After slowing over winter, Ireland’s growth looks set to recover as inflation eases. However, capacity constraints have emerged as a significant hurdle. There is an exceptionally tight job market and there is a risk that wage and rent pressures could be more persistent than anticipated. The Government’s underlying deficit, excluding excess corporation tax receipts, is projected to narrow to 0.6% of GNI* this year, and is expected to register its first surplus in 17 years in 2024. These projections assume the Government sticks to its national spending rule, which is prudent. They imply a fall in the Government’s net debt-to-GNI* ratio between the end of 2022 and the end of 2026, from 69% to 46%. This is on the back of the forecast surpluses, relatively high inflation and moderate growth.

The saving of windfall corporation tax receipts contributes about 16 percentage points of the overall decline. Excess corporation tax receipts now account for more than one in every four euro of tax receipts. Recent research by the council’s secretariat estimates that just three corporate groups accounted for one third of these receipts between 2017 and 2021. Moreover, the receipts are dominated by tech and pharmaceuticals firms. The high level of concentration means there are risks that these receipts could reverse depending on firm-specific factors and changes in the international tax environment. The council’s central estimates of how big these windfalls might be are slightly larger than the Department’s, at €11.5 billion for 2022 versus €10.8 billion. These are central estimates, not conservative estimates. There is a wide range of estimates, from €8.7 billion to €14.2 billion. These windfall receipts should not be relied on to fund permanent spending. Spending these revenues, which come from worldwide activities, would risk adding to overheating in the Irish economy.

The council welcomes the extension of the SPU macroeconomic forecasts to 2030, shedding light on growth in the years ahead. However, there were a number of methodological shortcomings in the fiscal projections. Most importantly, the fiscal forecasts end in 2026 and so do not provide any clear picture of the challenges associated with an ageing population, delivering climate objectives and Sláintecare healthcare reforms. The council assesses that it would be appropriate to stick to the national spending rule from 2024, given the exceptionally tight labour market, high inflation, capacity constraints and risks associated with corporate tax receipts. The SPU clarifies that this is a net spending rule so that discretionary tax increases create space for additional spending. Sticking to the rule would imply saving excess corporation tax receipts.

Recent proposals on a long-term saving vehicle from the Department of Finance look at several options for how this fund might be capitalised and how withdrawals would work. The options range from transferring less than half of estimated windfalls to transferring essentially all of them until 2030. The withdrawal options considered range from allowing withdrawals by Dáil resolution in predefined circumstances to only allowing withdrawals equivalent to the expected real rate. The savings vehicle proposals could help to manage the inflow of corporation tax receipts and address longer term challenges. The vehicle could reduce the risks of repeating the mistakes of the 2000s, using unreliable revenues to fund permanent tax cuts and spending increases.

The details of how it will work are key and still to be determined. The council assesses that saving windfall corporation tax receipts to address ageing-related costs would be beneficial, given the substantial risks to the economy and public finances from using these to fund ongoing commitments. This presents a huge opportunity to finally tackle a substantial portion of ageing costs, which is something still not addressed, considering that plans to increase the pension age were abandoned. More recently, the debate has shifted to using a portion of the windfalls for additional investment. It should be noted that Ireland is already ramping up public investment quickly. About 30% is directly allocated to housing areas and 7% to climate over 2021 to 2025, though spending in other areas may also be supportive of those broader goals. The plans imply that annual outlays will be doubled between 2018 and 2025, up from €6.6 billion to €13.2 billion. As a share of GNI*, the plans will bring Ireland’s public investment rates to levels consistent with being in the top 25% of rates run by OECD countries in the past three decades.

Capacity constraints already appear to be undermining the Government's ability to deliver on capital spending. The implied unemployment rate in construction is closer to 2%, far below the rate for the rest of the economy. Since budget 2022, nominal Government capital spending has been revised down, while inflation has increased. Both factors mean a lower level of real output is now expected. In housing, there have been underspends in the last three years which, in cumulative terms, are close to €400 million, given catch-up spending taking place later than planned.

Running budget surpluses in times of relatively strong growth is a necessary counterpart to the strongly countercyclical policies that were appropriate during the pandemic and energy crisis, both to manage the overall level of demand in the economy and to ensure fiscal buffers are rebuilt. Meeting the spending rule would require choices about taxation and spending. The €4.3 billion increase in spending planned for 2024 is less than the stand-still costs that would be needed to meet demographic needs, raising social payments and public sector pay in line with wages. On the tax side, the planned €600 million tax package would be consistent with partial indexation of the tax system. Demographics contribute costs of about €1.8 billion alone, given rising pension costs and the ageing population, while Government plans to increase investment will contribute €900 million.

While one-off measures were appropriate to address recent cost-of-living pressures, they cannot serve as a long-term solution. With energy prices lower, there is now less justification for one-off supports, although contingencies could be built in for next winter in case of need at that time. For the longer term, improved planning would help to manage the challenges of ageing and climate change.

In the context of the EU governance reforms, reinforcing the national spending rule as a first line of defence could help Ireland navigate these challenges and maintain a sustainable fiscal path. It is worth noting that Ireland is in a relatively strong position, one that is enviable from an international point of view. Most EU countries are now running deficits and are having to address challenges relating to ageing through substantial fiscal adjustments or pension age increases as well as meeting climate objectives, housing shortfalls and other pressures. The windfalls Ireland is collecting may be vulnerable to reversals, but they offer an opportunity to save and hence reduce the burden of these adjustments on future generations.

I thank the members for their attention. We remain committed to assisting the Oireachtas in achieving fiscal responsibility and economic stability.

An Cathaoirleach

I thank the witnesses for their report and for the detail it contains. It is concise and does not beat around the bush in its deliberations. A big play is made of the fact that it is no longer ten companies that contribute to the windfalls but, rather, three. This is a point not made previously, and it only serves to highlight the subsequent point made about the use of those funds and the consideration being given to the savings vehicle mentioned and how that would be delivered thereafter. The point made is, of course, that even if we do nothing else, we have to learn from the mistakes of the past and that the use of such funds for permanent expenditure is not something which should be considered, despite the political debate we hear in this regard. That debate has started rather earlier than normal and will gather pace over the summer. It is also stated that we may not be able to have the sort of mix that Government parties might be striving toward in respect of expenditure and a tax package.

This is part of the whole process. Economic dialogue is taking place. IFAC has published its report and we will engage with it. The summer economic statement will follow, which will crystallise the figures and focus people's minds and attention concerning the realities that exist rather than the potential they may have thought might exist. The final point made in the report is one that cannot be lost on us at all, namely, that the economy is working well and we are in a strong fiscal position. This is despite many of our neighbours not being in such a position. The whole focus and attention, though, is on these excess incomes, what we will do with them and how we will prudently manage and use them to the benefit of those whom we represent in the future.

I ask members to give their initial responses and to ask any questions they may have. I call Deputy Boyd Barrett.

Deputy Richard Boyd Barrett

I thank the witnesses for the report and for their contributions. They are my favourite group of economists.

On the issue of constraints, much of this comes from labour shortages. It is fair to say that many of these interact substantially with the housing crisis. This is because many young people are leaving. It would be interesting to see the latest emigration figures. I do not know if the witnesses know what these are, but I think about 40,000 to 50,000 people were leaving. We have net immigration, but given that there are real labour shortages, would the witnesses accept that it would be fair to say that a good thing to do in the context of these surpluses would, possibly, to use them to address this problem? I refer to using these surpluses to help deal with some of the constraints IFAC has cited. If we invest in the provision of housing, that could keep this talented pool of young people in the country. Would this be considered a prudent way of spending the surpluses we have?

Professor Michael McMahon

I am going to answer this question in two parts. Would it be good if the constraints were alleviated or pushed much further out? The answer is "Yes". Is it clear that there are easy measures on the table right now that could be used address the level of constraint in a way that is not going to interact with higher inflation and, at least in the medium term, add to these problems? It is much more difficult to give a one-word answer to this question. For example, the Deputy is right that the labour aspect is a big part of the supply constraints. If we focus on construction and we wish to address the housing shortfall, it will be necessary to do so through this sector and cost pressures have hit there. World cement, timber and steel prices all rose sharply. They have come back somewhat since, but it remains a tight and expensive market into which the Government is already trying to ramp up investment. The nervousness I would have, therefore, is that we are not at a point in the cycle now where we can simply say that if we were to put an extra amount in here, it would alleviate these supply constraints. On the first part of the Deputy's question, economists would love these supply constraints to go away. This would make it much easier to grow without inflationary, rent and wage pressures, but it is a very difficult thing to do.

Deputy Richard Boyd Barrett

Yes. Is this about maybe spending in strategically important areas and not wasting money in areas that are not as strategically important? This was alluded to. I was going to allude to a quote from IFAC in this regard as well, but I think it comes from our own summary of the report. This does, though, seem to be kind of what IFAC is saying.

Professor Michael McMahon

It is always the case that spending in an effective and efficient way is the right thing to do, especially with public funds. I do not think that was our line the Deputy was referring to, though.

Deputy Richard Boyd Barrett

No.

Professor Michael McMahon

Particular projects were picked out. That is not what we would do. As a general principle, however, focusing investment or current spending in areas of most need, and it is for the political system to determine how to define what constitutes most need, and the effective use of public funds is absolutely an important thing to have at the back of one's mind when thinking about this subject.

Dr. Eddie Casey

On migration, and I just had a look at this when the Deputy referred to this aspect, it is interesting. In terms of the migration flows, approximately 29,000 Irish nationals returned to live here in the timeframe covered by the 12 months of data up to April, whereas 27,600 left to live abroad. On balance, therefore, the flow is more inward than outward. Now, all types of questions will be posed concerning the income circumstances of the people leaving. On the whole, though, it looks like a picture where people are returning to Ireland, on balance.

Deputy Colm Brophy

This is an interesting set of figures because it is not suiting certain people's narratives to quote that Irish people are coming back here in higher numbers than they are leaving.

Deputy Richard Boyd Barrett

I am aware there is net immigration, but I am still conscious there is also emigration.

Deputy Colm Brophy

Of course.

Deputy Richard Boyd Barrett

It would be better if those people were not leaving, given the labour and skills shortages we have now.

Deputy Colm Brophy

People have a right to leave.

An Cathaoirleach

I ask the Deputies to interact with our guests.

Deputy Richard Boyd Barrett

Of course. I am referring to incentivising people to stay.

An Cathaoirleach

The Deputies interact enough in the Chamber.

Deputy Richard Boyd Barrett

The other way it is possible to help in this regard is through dealing with things like underemployment. This may be, and I suspect is significantly, connected to a lack of childcare or affordable childcare. If we were to lessen this impact, then we could potentially free up significant amounts of skill and labour to help deal with these capacity constraints. Do the witnesses think a good way to look at things is to examine how we can strategically invest these surpluses to deal with things like these capacity constraints?

My other point, about which I have already kind of asked a question but the witnesses are welcome to elaborate on their response, is that the obvious lesson to take from our overdependence on a small number of companies for these surpluses is that we must use these funds to diversify the economy and that we must do so rapidly because we will be in deep trouble if anything happens to any of them. Let us hope this does not happen.

Judging historically on the ups and downs of companies and economic cycles, the likelihood is that it will not last forever. Therefore, we need a pretty urgent look at how we diversify the economy. It would again require prudent spending of these big surpluses to identify some key areas that we can diversify.

Professor Michael McMahon

We have not done anything specific on childcare costs. I will resort to my earlier answer, which is that I think policies to alleviate supply constraints on the economy and in the various dimensions that they exist, including labour supply, would be beneficial. However, the devil is always in the detail with those specific policies and what they would address.

On the second question, the argument that we have made for a number of years is that there is a concentration risk. As the Chair pointed out, the figure that used to be cited was about the top ten firms. Based on the secretariat's recent work, within that, which is already concentrated, it is even more concentrated. With that concentrated risk there is a desire for diversification.

There are two main points I would like to draw out from what the Deputy said. One is that the risk of a change in the international tax environment or some behaviours of these firms will mean that what we assess to be the excess no longer comes. That is on top of but also separate from a more normal cyclical risk that could go on. When we talk about the excess, we are not typically talking about that cyclical risk. When we mention this concentration in certain sectors, particularly tech and pharmaceuticals and tech is the one in the headlines at the moment, we might worry about some of those firms not because of worldwide activities that bring in corporate tax revenues, but because many of them have large operations in Ireland and are responsible for many salaries often at the top rate of tax. If they were to downturn, there is not just the corporation tax element to that downturn, there would also be the jobs and income tax take element.

In that sense a prudent policy that we propose is to save these revenues. While we are not here to advise on the exact mechanism, I think the committee has explored something along the lines of how Norway and other commodity-based economies save their revenues and invest them abroad. That is a different form of diversification. They are diversifying by committing not to invest their sovereign wealth funds in the domestic economy and then to take the flow income from that investment and use that as the-----

Deputy Richard Boyd Barrett

We will be discussing this at length. I would even ask this of the Norwegians. Why should a country save it rather than use it to diversify its economy and diversify its industrial base? One of the things we learned from the last crash was that even though we had a buffer fund, the National Pensions Reserve Fund, it was gone overnight once the downturn came. It did not really act as much of a buffer.

Professor Michael McMahon

There are two reasons to save it. The way these funds typically run in economies is that they are not funds where the capital is run down but the incomes that come from that investment are used. If we accumulate over the period to 2026, in the SPU forecast, by our estimate, we would get close to €47 billion or €48 billion of excess corporation tax. If that were saved and invested abroad, even if it was getting a relatively moderate return of about 5%, it would bring in revenue of somewhere close to €2.5 billion a year which could then be spent. The Deputy is suggesting that the Government could instead spend that on diversification. The lesson from many other countries is that that kind of industrial policy is very difficult to get right. The idea of the Government picking winners, so to speak, and forcing diversification into the right areas can be very costly. That is where the idea of this investment fund, invested outside the national economy, is a relatively prudent way to benefit from the flow incomes that come in over time, but not to think that this is a fund to raid when we hit the buffers.

Dr. Eddie Casey

Both of the Deputy's questions are really good. If we think of the economy as almost a portfolio of what we are investing in, is it a bad thing to have a big exposure to jobs in tech and pharmaceuticals? It is not necessary to get rid of that exposure to diversify that risk. It is actually very helpful to have exposure to those areas because they are incredibly high-skilled jobs with very high incomes. We would actually want the economy to have that exposure in the first place. To mitigate the risks associated with it, we can try to take actions elsewhere that limit how much that affects the rest of the economy. That is why we say a savings fund would help to do that. It is why Norway did it with oil. It is not that it should have abandoned all the oil to prevent over-reliance on one asset; it is more about how it uses the revenue coming from that and how it insulates the rest of the economy.

We frequently hear that the National Pensions Reserve Fund disappeared overnight when we talk about the rationale for the savings vehicle. It is not obvious to us that, while it was raided as people say, it was necessarily a bad thing to have this cash on hand. It meant that we had a smaller EU and IMF emergency programme. It meant less borrowing on the market had to be done at the time. In times of crisis, it is much more helpful to have cash that can be drawn on when firefighting. We do not think we will get into that situation again. We do not think this would be raided and there are ways to protect it. There is always a chance of this happening but by managing the other parts of the economy prudently, including regulation of the banking system, this should not happen. Ireland really was an exceptional case in the financial crisis which was one of the worst episodes of financial distress of any country in history. We hope we will not see that again.

An Cathaoirleach

Apart from our corporation tax revenue stream, we are no different from any other country.

Professor Michael McMahon

There are also the effects of the credit market and the extent of the housing price falls and what that meant. In these situations, it is very difficult to separate the fiscal and the banking. I always describe Ireland as having a banking crisis that turned into a fiscal crisis. Other countries in Europe started on the fiscal and turned into a banking crisis. However, once we were in it, it was very bad. On both fronts we ended up being very exposed.

An Cathaoirleach

Much of what the witnesses are saying now is to protect us against that happening in the future.

Professor Michael McMahon

Yes.

An Cathaoirleach

Others who cried wolf then are looking to repeat the faults of previous days.

Deputy Colm Brophy

I apologise in advance because due to a set of clashing meetings, I will need to leave within the next few minutes.

Deputy Richard Boyd Barrett

I also want to apologise in advance because I need to go to questions in the Dáil Chamber shortly.

Deputy Colm Brophy

With the exception of a gap of just over two years, I have been a member of this committee for many years. One of the unfortunate aspects of our discussion every year is that it is nearly always dominated by the discussion of this area, the risk and everything. It seems everybody latches onto that, meaning that some of the other messages get lost within it. If I had more time, I would like to explore some of the other messages because I believe that within the constraints of what we used to call the envelope, there are plenty of opportunities for a range of actions to be taken by Government. I know it is not the job of IFAC to prescribe what Government does, but we can cover and have successfully covered everything, including the critical importance of providing a tax break to people who need it as well as funding services and getting that balance right.

There is one aspect of this cliff edge we always talk about regarding the tax payments of multinational companies. I believe the former head of IDA Ireland recently said that there is a very substantial investment by the multinational sector in Ireland, including some of the companies, for want of a better description, that might be highlighted and the ones that make very substantial payments. We are inclined to think of it all vanishing in one go as if we were back in 2008 when everything fell off. Is it the view of IFAC that over a period of years we would see a ratcheting back because we have a physical presence operation as well as being a place where things are booked, profits are shown, taxes originate and so on?

It is important to recognise that the multinational sector is a very deep and developed sector that has probably taken 20 years to develop in this jurisdiction. While there may be international legal changes regarding taxation that would adjust the overall amount that is payable to the State, there is no indication that it is likely to fall off a cliff in the next 12 to 24 months yet every single time, our budget discussion seems to end up being dominated by it. I think Professor McMahon or his predecessors have come in and had this conversation with members of the committee almost every time. If we were looking at it, does Professor McMahon have an indication as to what the likely outcome would be regarding how it would scale back, what the percentages would be and what core corporation tax would remain at even in an economic downturn or the projected changes to international taxation?

Professor Michael McMahon

It is a very good question. It is important to make some of the points the Deputy is making. I was alluding to this earlier in my response to Deputy Boyd Barrett. Let me put some numbers on it. In 2014, Ireland took in €4.6 billion in corporate tax. By 2022, it was over €21 billion. That is-----

Deputy Colm Brophy

I think I read somewhere that this is somewhere around 20-something percent of overall taxation.

Professor Michael McMahon

It is 27% now. The normal rate for most OECD economies is somewhere around 8%. A lot of corporate tax is paid in Ireland. Regarding our estimates, and they are estimates and there is a range of these, in that increase, we would say that somewhere around €9 billion or €10 billion of that last year was what we would call the excess. When we talk about the excess, it is not necessarily what would disappear in a recessionary situation, a tech downturn or an issue relating to the pharmaceutical sector. This is what we think are the worldwide activities-related multinational tax that could disappear with the changes in the international tax environment and changes in their own decisions as individual corporations about where they want to locate things like intellectual property. The counter to that is that of that increase, from €4.6 billion to €12.1 billion is what we would think of as normal corporate tax that we would put into the Government funds as other taxes that are there to be spent.

The point we were trying to make about the cyclical exposure is not something that is taken fully into account in this excess. There is still this concentration risk. It could be a specific sector or a more general global downturn that would see not just all corporate taxes fall but also have a knock-on effect on these high-value added jobs, which could disappear along with the income tax that would go with that. That is worth separating.

The reason we tend to focus on what to do with this excess corporate tax is because there is great uncertainty about it. I would love to sit here and tell the committee that we know the playbook and the dynamics and that it will disappear on a certain date or stay at a certain amount, but we do not know. It could be more next year and then disappear. It could stay relatively elevated for a few more years after that. We presented a range of estimates precisely because there is a lot of uncertainty around that.

The second cyclical point is that you do not want to take all of that €12.1 billion last year and think it is going to be here forever because that is susceptible to a cyclical downturn.

An Cathaoirleach

Professor McMahon said it ranged from €4 billion to €12 billion.

Professor Michael McMahon

Sorry - it went from €4.6 billion in 2014 to €21.1 billion in 2022.

An Cathaoirleach

And of that €21 billion, Professor McMahon is saying that possibly up to €12 billion is repetitive.

Professor Michael McMahon

Broadly - in my head, I said it was €9 billion to €12 billion-----

An Cathaoirleach

It ranges from €4 billion to €12 billion. Are we not safer saying €8 billion rather than €12 billion?

Professor Michael McMahon

We have taken a mid point, which is again why we try to stress that we are not taking the most conservative view. The most conservative view would be to put the excess at €14 billion and that would reduce it. We are taking a mid point but it could be €14 billion or less than that.

An Cathaoirleach

If the council was back where we were 15 years ago, it would be asking whether property receipts would continue or things would remain "boomier", as they said.

Professor Michael McMahon

One reason we focus on it is because there is such uncertainty. We could be here again in a year's time having the same conversation with similar numbers but the prudent thing is still to take this form of diversification, which involves saving.

Dr. Eddie Casey

One thing we learned in the paper is that the concentration by sector is really high as well. We did not know this from the revenue data because they would have subsidiaries that do some finance and some accounting and each of things are recorded as separate areas. When you look at it in terms of what the ultimate parent does, it is dominated by just two sectors - pharmaceuticals and tech. They account for 90% of the receipts we are seeing in the overall sense.

Deputy Colm Brophy

Is that not the bulk of our foreign direct investment?

Dr. Eddie Casey

It is more than that. If you look at manufacturing, you can see that pharma might be about two thirds while in services, computers would dominate but it is not nearly as high as this, so the corporation tax is more concentrated. The other side of this that is worth knowing is that if there is a risk that some of these companies reorganise their operations, a lot of them would probably do so for the same reasons. If it makes sense for one company in tech to reorganise how it structures itself and where ultimately the profits and taxes show up, it will probably make sense for another to do the same.

Deputy Colm Brophy

I acknowledge fully what Mr. Casey is saying. One of the problems is that we have to make decisions around how you take the percentage you want to ring-fence. Every year, you get such conflicting advice on it but that is the job of the Government. Unfortunately, I am very sorry. As I started off by saying to the witnesses, I would love to have way more time to tease this out but I must leave the meeting. I thank the witnesses. Hopefully, I will get another opportunity to engage with them between now and budget day.

Deputy Bernard J. Durkan

We have had to familiarise ourselves with the same arguments we have had over numerous years. We should monitor overdependency on the same sources for an excessive amount of revenue and try to relate our budgetary surpluses now to the totality of debt because there must be some correlation. Otherwise we will believe, as some people would tell us, that we are the richest country in the world. We saw in the last crunch that all our reserves disappeared within three or four hours. We were not the richest country in the world. We were dependent on too many external issues. When we compare ourselves with Norway, we see that it has 15 times the world's known reserves of coal and gas on its shoreline. They do not have to go abroad. It is right on their shoreline. Norway is not in the EU because it does not have to contribute anything else. It is in a very different position from us when it comes to natural resources. We are not in that situation. We could have been in respect of wind energy. My memory of that is that in some parts of the country, there was reasonable investment in wind energy. Why is it better to be onshore rather than offshore? It is simply because it is nearer to hand. Everybody says it should be offshore. The only reason we want it to be offshore is because we do not want people objecting to the provision of the infrastructure.

When the previous crash happened, it was not so much because we were dependent on one area for our revenue, but because of the way in which that end was being run and the banking sector. I was dealing with somebody's mortgage file the other day. The person borrowed something like €140,000 on their mortgage, which is quite a lot. When the loan came through, there was another €50,000 on top of it. A car was thrown in with it - over the period of a mortgage. It was madness. Not only were you spending today's money, you were spending the money for another 30 or 40 years ahead of it.

They offered a car and a continental holiday and told people they would never get a chance like this again. Then we discover that the money was lent on an interest-only basis, for the foreseeable future in many cases. It was outrageous and it happened under everyone's nose. No one shouted "Halt". I am not making a political point. I have repeated this many times. No one said anything until someone pulled the plug and suddenly we knew where we were: desolate, isolated and alone. We did not have many friends.

In the past few days, we held meetings on the European review of international taxation. Not many friends came from there when we were at our saddest. They were the first to point out to us that we were a tax haven, should be punished and needed to increase our taxation and various other admonishments in the shortest possible time. This was crazy stuff, happening in the face of the most appalling, desolating and devastating crisis we had ever known.

I will come back to the remedies and how to avoid it in the future. As I mentioned to the Chair earlier, the first thing we have to be aware of now is inflation. Our next-door neighbour and other European countries are having trouble with inflation. The eurozone is having trouble with the development of its economies. We need to look at a number of issues. Insofar as we can, we need to ensure that we can keep the foreign direct investment that has been attracted here, for whatever reason, as long as possible and use the resources accruing from it in the best possible way to ensure we do not go into the chasm we have all been talking about. We could talk ourselves into it. We could find ourselves creating a zone beyond which we fall over a cliff. Inflation needs to be dealt with. There is a correlation between the available resources and debt. When it comes to international credit ratings, total debt is taken into account.

We found ourselves previously in a situation of not having any rating. We were not wanted. Our value was junk on the international financial markets. That can happen overnight, and by that I mean very suddenly. It happened overnight on the previous occasion. The next crisis we will have is a world food shortage - famine. It is already raising its head all over the world. We do not seem to recognise it. We do not seem to observe what is happening around us and yet millions of people all over the globe are dying of starvation. What are we doing here? We are thinking about ways and means of reducing our productivity in this area. The witnesses mentioned that two sectors, the pharmaceutical sector and the agrifood sector, helped to drag us out of the chasm we were in almost overnight. They were the two dependable sectors, for whatever reason. Some was foreign direct investment, but the agrifood sector was indigenous. It was at home and we had absolute control over it. We could accelerate or decelerate as the market demanded and as necessary. We have to do something like that again. We have to be careful to ensure we do not contribute to inflation with the money we have to spend now, in the way in which we spend it. A cold hard look must be taken with a view to measuring the effect our policies are having on a regular basis in order to be able to correct, if we go too far down the road. We will be encouraged by everyone. Everyone encourages more spending and expects that everyone benefits, but that is not so. Inflation is still on the rise and is dangerous.

An Cathaoirleach

Deputy Durkan made a lot of observations, rather than asking specific questions, but they were crucial nonetheless to the Deputy and those he represents. Perhaps the witnesses will respond in kind.

Professor Michael McMahon

I am happy to respond. The Deputy is correct that Ireland does not naturally have a pot of oil or anything like it. However, one of the natural resources Ireland has is a highly skilled labour force, which is one of the reasons many high-skills sectors have been attracted here. We should always be proud of that.

On the point about relating things to debt, as I laid out in my opening statement, if the Government sticks to the SPU plans and if the macro forecasts are correct - it is hard to do macro forecasts - it is estimated that Ireland's debt will fall from 69% to 46%. We estimate that approximately 16 percentage points of that drop will come from prudent behaviour on saving the excess corporation tax. That is related to debt. We have made this point quite strongly. Right now, we have challenges in inflation, though they are higher in some neighbouring countries. In May, Ireland recorded 6.6% of the harmonised index of consumer prices, which is still far higher than the European Central Bank's target, which we should be aiming for. In some areas, particularly food, it is running much hotter than that. There is definitely a sense in which thinking about how decisions are made,adds to the overall levels of demand in a tight and fairly hot economy. We are in favour of that.

I will endorse a point we make often, namely, that planning and the fiscal framework are important for ensuring credibility on the international stage. We have seen historically in Ireland that it can change quickly, but we have also seen in recent years in neighbouring countries that it can change quickly when the frameworks that are put in place for sensible planning are not respected. Therefore, it is important that this committee, the Government, we and all the stakeholders recognise what I said in my opening statement: that we are in a fortunate position right now to be in a relatively strong economy with a good fiscal position. However, the decisions that are taken have important implications and should be made carefully.

Deputy Bernard J. Durkan

My closing comment is that the emphasis is on decarbonising our economy. We all have to contribute to it and we also have to back it up scientifically but we do not always do that. We are not always treated equally across the globe. For example, on the television one might see a series of smoke stacks and emissions of all descriptions might be belched out. That is not happening in this country. It is somewhere else. It is imported to sell a concept. That issue should not be treated in isolation. For instance, some people say the farming community should be compensated to do other things. It is not about that. It is about food production. We cannot exist without food and we are good at it so we should be loath to ignore the importance of food production in this jurisdiction from a national and European point of view.

Deputy Sorca Clarke

I am attending a meeting of this committee for the first time today. It is a pleasure to be here. I have three questions. Should I ask one after the other or is the format a back and forth?

An Cathaoirleach

You can ask the three together and judge from the response whether you need to come back again.

Deputy Sorca Clarke

Professor McMahon referenced how decisions are made and I will focus on that, specifically in the area of corporation tax. Earlier, when I was following the committee online, I listened with interest. He stated that the saving from windfall corporation tax receipts contributes to approximately 16 percentage points of the overall decline of net debt. Will Professor McMahon elaborate on how saving can have a positive impact on the net debt position?

I agree with the statement Professor McMahon made to the effect that over-reliance on a small number of companies and sectors for corporation tax presents a real risk. However, he also stated that excess corporation tax receipts now account for more than €1 in every €4 of tax receipts. Does that mean that he sees all corporation tax as being excess? What definition does he apply when it comes to excess corporation tax receipts?

He argues that we are already experiencing capacity constraints in capital and investments. However, it is worth noting that that varies across different investment programmes. He also argues that it is important to have countercyclical policies.

I would normally agree but, in reality, the procyclical policies of the austerity period are what have left us with massive infrastructural deficits, coupled with the need to rapidly decarbonise, as Deputy Durkan touched on earlier. Does Professor McMahon agree procyclical policies from the austerity period have made countercyclical polices more challenging and, to some degree, represent economic risks?

Professor Michael McMahon

Let me answer the questions and then we can go back and forth as the Deputy sees fit. On the first question, as a matter of accounting, the way in which saving the excess corporation tax contributes to the fall in net debt is by allowing the Government to run larger surpluses. Those surpluses mean we do not need to borrow and, therefore, the debt can fall. It is literally that level of accounting calculation. To clarify, €1 in €4 of total tax revenue comes from corporation tax, not from excess. We had a bit of discussion before the Deputy arrived. The estimate of the extent to which there is excess is €1 in €7. It is a number, last year, of between €8.7 billion at the lower end of excess up to €14.2 billion at the upper end of the estimates. As we were trying to point out previously, these are the corporation taxes we think are driven by multinationals' worldwide activities not related necessarily to the behaviour of the domestic economy. It is difficult to estimate. The reason we have a range and pick a number in the middle, such as €11.5 billion last year, is it is difficult. We have this range and it could be closer to the €8.7 billion figure or the €14.2 billion but trying to get a handle on that is a difficult problem. The Department of Finance has a number close to our midpoint, which is €10.8 billion. That is the order of magnitude out of a total of just over €20 billion. That is the sort of quantum we are talking about with that.

The Deputy's final point was an interesting one on the role-----

Deputy Sorca Clarke

I apologise, but can we go back to how the council defines excess corporation tax. What measures does it use? I appreciate the council is examining global activity and so on, but what is its definition of "excess"?

Professor Michael McMahon

There are a number of different ways it can be done. We can go back to before some of the changes in the international tax environment that led to the parking of intellectual property in Ireland and, therefore, the paying of taxes on that, took place and see what was a normal amount of corporation tax paid for a given state of the economy. Then we can extrapolate that out to where we are now with the domestic economy and say if we looked like we did back then or if we looked like other OECD economies and how they get corporation tax, adjusting for different rates, what would be a normal amount of tax for the economy where it is now. That will give an amount and then one can see what we actually took in. The difference between those is what we call "excess". I would like to ask Dr. Casey to come in. There are six different models. He may want to talk the Deputy through all of them or she might ask him to not talk.

Deputy Sorca Clarke

Not to add to Dr. Casey's burden, but there is another issue I want clarification on. The council is examining a period in history and comparing it with today. A large number of multinationals have been here for a considerable period. How long does an entity have to operate in Ireland before it becomes what might be called an established income generator?

Professor Michael McMahon

I will let Dr. Casey come in with his models in a second but the earlier discussion focused on this. Some of the firms that pay high levels of corporation tax in this country also have large, long-standing operations here and employ thousands and thousands of people in the economy and those people pay income taxes as well. There is a big benefit to having them. The wrong impression is that everything coming from a multinational firm is somehow a bad thing. This is a very enviable position.

Deputy Sorca Clarke

No, this is a conversation about the definition of "excess", it is not-----

An Cathaoirleach

Everyone is looking for a bit of comfort here. We all want to spend the excess, so I would like the council to give us a definition that gives us the moral authority to respond to every demand throughout the economy. That is where we are at.

Deputy Sorca Clarke

How does the council define "excess"?

Professor Michael McMahon

This is Dr. Casey's time to talk about his six models.

Dr. Eddie Casey

Yes. I will not go into detail but I can give a broad overview of it. We look at a point in time when Ireland was raising about its average share of receipts from corporation tax.

Deputy Sorca Clarke

What period is Dr. Casey talking about?

Dr. Eddie Casey

Back in 2014-15 we were raising approximately 14.5% of our taxes from corporation taxes.

An Cathaoirleach

Internationally it is 8%.

Dr. Eddie Casey

Yes. That was around the time we started to see these-----

An Cathaoirleach

Whereas we are at 27% or 28%.

Dr. Eddie Casey

Exactly. We started to see these surges from 2015 on. We have taken an approach where we take that level of receipts we were earning as a starting point. Rather than model it on the basis of what GDP is doing, which is the key driver for many of these models in other countries and in Ireland in the past before we saw these surges, we use things that are representative of the domestic economy. We use things that have a clear link to the domestic economy like what is happening on the ground with jobs, taxes being paid by the majority such as VAT, income tax and those type of real economic developments. Those measures are produced by the CSO so they are pretty clear measures. There are things like GNI*, which we talk a lot about as economists and things like domestic gross value added, GVA, and we link it to those. We say if this is representative of what is happening in the underlying economy, rather than the distortions being caused by activities related to how foreign multinationals operate and how they organise themselves, we think this is what the underlying tax base looks like from profits and corporate activity. Linking it to those measures that are more representative of the domestic real economy we see what taxes would look like if they grew in line with those based on historical relationships between these things. That is where we end up with our estimate of the underlying tax that would be raised from corporations. The difference is the excess.

An Cathaoirleach

What is the percentage? If internationally it is 8% and it is 27% or 28% here, is Dr. Casey saying the adjustment will bring it back to about 12% or 13%?

Dr. Eddie Casey

About 14%.

Professor Michael McMahon

Yes, 14%. It is about half.

Deputy Sorca Clarke

We are not going to get into every single model, but if we are using 2015 as a baseline, can Dr. Casey give us a clear example of one thing that would have an influence and one thing the council takes out because of its influence?

Dr. Eddie Casey

In the year we start?

Deputy Sorca Clarke

In the calculations from 2015 up to now to determine the excess.

Dr. Eddie Casey

We do not adjust for the base year. The reason we took those years as starting points for all these simulated receipts was there was this surge over that time and there was an argument 2014 was lower than the historical average and an argument that 2015 was higher. We started from both points and the excess is somewhere in the middle of this range. One thing we have done is charted and looked at what the economy has done in GNI* terms, which we all as economists agree is the right way to look at the economy. What would it have done if we just look at that and how it has evolved alongside corporation tax receipts? What can be seen up to that point in time was this clear relationship between the two, but since 2014-15 there has been a massive divergence where corporation tax receipts have taken off and the link with the real economy has broken down. There really is a clear sense this is excess in a very real sense of the word and that we cannot explain it by looking at the real economy and what is happening on the ground.

Deputy Sorca Clarke

I had a question about procyclical policies.

Professor Michael McMahon

I will be quick. The Deputy's question relates to something I do not believe we have specifically looked at, which is whether current infrastructure deficits are exactly related to decisions made in the past. Clearly they are, at some broad level. We have not done it sector by sector, as the Deputy alluded to, but at a broad level one can think many years of underinvestment has led to infrastructure deficits that are now-----

Deputy Sorca Clarke

Professor McMahon said it is how decisions are made.

Professor Michael McMahon

-----creating difficulties today. That is true.

Going back to the answer we gave to Deputy Durkan, and as we have laid out in the report, it is the job of the Government to make an assessment about which of these areas are most in need, while keeping an eye on the need for countercyclical policy in aggregate. The Government can still decide to allocate money to specific sectors, projects and spending heads but it then makes choices to do other things to ensure that overall, it is not adding flames to the fire, if you will, of a tight labour market and hot economy. Those are the choices we always talk about. It is for the Government to identify those areas and allocate spending appropriately. As we stress, the Government's net spending rule is a net spending rule. If there are areas that need even more put into them, it is possible to spend more than the normal 5% spending restriction if tax measures are brought in.

Deputy Sorca Clarke

That spending could go to the health service, for example.

Professor Michael McMahon

That is absolutely so. All of these areas could be addressed by different combinations of tax and spending measures that would still remain consistent with this fiscal framework.

Deputy Patricia Ryan

I apologise for being late but I was in another meeting. I thank our guests. I will ask my questions concurrently to save time. If they have already been asked, I apologise. Given the challenges we will be facing with an ageing population, what measures would our guests recommend in addition to the Government's proposed auto-enrolment scheme, mandatory workplace pension schemes and a flexible pension age, as outlined in the fiscal assessment?

With regard to plans to save windfall corporation tax in a separate fund, what use would be envisaged for those funds exactly? Could they be ring-fenced to address the increased pressure on age-related issues such as age-suitable housing and healthcare, or do our guests merely advise that, from a fiscal point of view, their best use would be for pensions?

Professor Michael McMahon

Those questions are linked. I will start with the second of them. There are two big advantages to focusing on pension costs. One of the advantages is that they are quite forecastable. Demographics are well known and fairly slow-moving. We can tell now what kind of commitments under current policy we will be looking at in 2030, 2040 and 2050. A couple of years ago, we put out our long-term sustainability report, which pointed to the kinds of costs Ireland will be looking at by 2050. An additional age-related health spending consideration, in addition to pensions, predicted an increase worth approximately nine percentage points of GNI*. That is quite a big number when we think about the extent of these things. That is one of the advantages.

The other advantage is that its slow-moving nature means we can save the excess corporation tax in a fund that could be invested and generate a return. We have quite a long time to build up the pot before we need to draw from its flows in a big way. We could get to a point in 2040 where the pot is quite big and providing a substantial flow. That could eat into the nine percentage point cost Ireland will face.

Of course, there are many other things that can be done to help to address those kinds of costs. It is our estimate from that report that the cost of deciding not to increase the pension age from 66 to 67 by 2050 - and Dr. Casey will correct me if I am wrong about this - will be approximately €5 billion at that point. There is a menu of possible options that any government can take in terms of how to deal with these costs. We could change the generosity of the system or the age at which people can access it. We could take actions now to build up a fund to address the issue.

Going back to the general point we have been trying to make about this long-term saving vehicle, dealing with forecastable and predictable future challenges frees up space in the budget to deal with a number of other challenges. These are not the only challenges that Ireland faces but the climate transition challenges are going to come sooner than the bulk of the age-related challenges. We can create a system that allow us to feel the age-related challenges are dealt with. This is a question for Deputies today and their future selves and the questions and challenges with which they will have to deal. If we know those age-related challenges are taken care of because of this enviable position of excess corporate tax, if we invest it well and plan appropriately, the discussion can then shift to dealing with climate, housing, infrastructure and all of the things that might be thought of as the ordinary business of today's Government. There is a menu of different options, some of which the Deputy mentioned. The key thing is to plan now. The wonderful thing about costs that are coming in the future is that even relatively small amounts of action we take now will add up to a lot over 20 or 25 years. It would be a real tragedy to do nothing and for those of us who will be affected in 2035 or 2040 to be suddenly facing decisions of the scale of five, eight or nine percentage points of GNI* as actions need to be taken suddenly and quickly. That is a big fiscal adjustment and we would not want to make it at that point.

Deputy Patricia Ryan

What actions would Professor McMahon prioritise?

Professor Michael McMahon

Both privately and in my current position, I am loath to give an answer. It is a question for elected officials to answer. Almost all of these decisions have winners and losers. If there were a magic silver bullet, we would have placed it on the table and everybody would have got behind it and been super happy. That is just not the way. It is for the political system to determine what is the right option. With pensions, in particular, deciding the winners and losers will involve an intergenerational aspect. There are big questions to be asked but there is a menu from which to choose. A grown-up debate on those options is required. We must consider what is the ideal and why. It is a conversation worth having.

Deputy Mairéad Farrell

I will pick up on something my colleague, an Teachta Patricia Ryan, was talking about, that is, the establishment of a long-term investment vehicle to help to pre-fund pension expenditure. I am obviously not opposed to such an idea. The National Pensions Reserve Fund enjoyed early success and was helping to build public wealth. Professor John McHale, who was the first head of the International Federation of Accountants, IFAC, said the fund was well on its way to achieving its targets prior to being liquidated during the banking crisis. From a governance perspective, what lessons can we learn from the experience of the National Pensions Reserve Fund, particularly in respect of political risk management? The National Pensions Reserve Fund had a strict commercial mandate and was politically independent. Drawdown prior to 2025 was strictly prohibited but a later Government changed the legislation. That underlies the drive to establish a new fund at this point. Perhaps our guests will make a comment on that issue.

Professor Michael McMahon

In many ways, the establishment and governance set-up of the National Pensions Reserve Fund was correct. It is also correct that democracy requires that if a government of the day needs to change the rules, it can and should. When we consider a long-term savings vehicle that is built up over a number of years with excess corporation tax - we will have to agree a name so we all call it the same thing - one advantage, as I said to Deputy Patricia Ryan, is that the bulk of those pension costs will come much further down the road. By the time we get there, the hope is that the pension savings pot is very large.

You will not then be eating into the capital, but using the resources and earnings from it to pay these costs. That is advantageous because Ireland's fiscal credibility for addressing these long-term costs would then rest upon the establishment and existence of that pot of money. That would make it incredibly costly for anybody to just change their mind and say they would spend it on something else. That has certainly been the historical experience of these funds, particularly commodity-based ones that have been built up to a sufficiently large level. They do establish themselves as independent and those flows of income are what the Government gets to use, as it does other revenue sources.

To me, that would be the biggest advantage. It would enhance credibility. As I was saying to Deputy Patricia Ryan, it would mean that the existing challenges of the day - whether the day is 2030, 2035 or 2040 - would not be dominated by the pension question. The Government could address other challenges, such as whatever the social challenges are during that time. To me, that is the main benefit. Other uses for that money today typically come sooner and therefore do not give the time for the pot to accumulate to a sufficiently large level. If it is not at a sufficiently large level, it either does not enhance your credibility to deal with things, because it is a small pot that will not really make any headway, or it is not viewed as sufficiently large and important to make raiding it to be costly for fiscal credibility. That is the challenge, but this is very much a decision for elected officials.

Ms Dawn Holland

Time will tell, in a way.

Mr. Michael McMahon

If I could stress one thing at this point, it is that we are having these conversations. It is actually very healthy that we have this conversation nationally. I took part in the National Economic Dialogue recently. There seems to be an incredible support for this from lots of the social partners in order that we do not repeat the mistakes of the past. I took this to be a very heartening position to come out of that meeting. We need to be careful because the devil is in the detail about what this fund is trying to do, how you run it, and how you set it up. The Deputy's opening question was about the details. I think it is the right question. We need to think carefully about the details and get them right.

Deputy Mairéad Farrell

Of course, the concern would be that if the money is to be raided at some point because of an economic downturn, there would be an impact on what it is actually designed to do. We see that now. That is why we are having this conversation.

My other question relates to establishing a sovereign wealth fund, SWF, or whatever you want to call it. The IMF points out that, when establishing that, there will be risks associated with merging it with other types of funds, such as stabilisation or development funds. There is the risk of muddying the waters with funds that have very different reasons for existing or with different types of asset allocation and risk appetites. In terms of the kinds of investments they engage in, they should not all be all under one, singular management. Do the representatives have a view on that?

Mr. Michael McMahon

I will refer the Deputy to the answer I gave at the very end. Her question about the details, which is deeper, is the right one. Ultimately, a decision may be taken that this is a fund that is to build fiscal credibility by taking a large chunk of the future, predictable, age-related costs, and covering them with actions today and over the next 15 or 20 years. If that is the stated intention of this vehicle, then it is right that is what it is designed to do and that it is set up in such a way that it can achieve that mandate. Anything that muddies the water or makes it look like it is also doing five other things will lessen the impact it will have on fiscal credibility. Again, the devil is in the detail of how it is set up. However, the first point will be to agree on what it will be set up to do. We have argued that it is for age-related costs because they are slow-moving and very predictable. The bulk of the costs will come in 2040. We will really see start to see the fiscal constraints coming in 2050. Taking action now will put Ireland in a really strong position to not have to worry about that, and to allow it to worry about the issues of the day.

Deputy Patricia Ryan

I am sorry to come back in again. The opening statement warns of overheating the economy and the risk of inflation. Maybe this question has been asked, and I apologise if it has. It seems as though most of the recent commentary is on how inflation is slowing. What are the representatives' views on the inflation outlook?

Mr. Michael McMahon

It is true that inflation is slowing. We always need to be careful to recognise that when we say inflation is slowing, it just means that prices are going up less quickly. It does not mean that prices are falling. In aggregate, the rate for April was 7.2%. That means that this April, compared with April 2022, had 7.2% higher price levels than the average basket. When we got to May, it was only 6.6% higher than the previous May. Yet, May was higher than the April before it. Therefore, the price level has still gone up. Within that, there are lots of different things going on. Some prices do tend to fall. Energy prices have started to fall, which is of course a very welcome development, given both the challenges people faced and the worries about the challenges people were to face last winter.

Predicting what energy prices will do is an incredibly difficult thing and, as we know, it is very dependent on geopolitical developments. I certainly have no expertise in that area, although I can tell the Deputy what the best guess is. Even if inflation were to come down to close to the ECB's target of 2%, that would not take away from the cost-of-living aspects of that, which are large, and the cost of doing business aspects of that, which are also large. Inflation is a really damaging economic phenomenon because it hits everybody, although this does not necessarily happen to everyone in the exact same way. Yet, it really does affect everybody.

We are optimistic in the report that inflation will come down. Yet, it is worth pointing out that this does mean that price levels will be permanently elevated, compared to where they were before last year.

Dr. Eddie Casey

One important thing to add, and this feeds into the debate about the coming budget, is that we broadly thought that the approach that was taken in the last budget was appropriate in the sense that core spending increases and the permanent injection into the economy of extra demand from the Government's side were kept to a relatively sustainable rate. It was 6.5% or close to the 5% under the spending rule. If they had gone beyond that, there would have been the risk that inflation would be higher again and there would be more pressure there. It made sense to use an approach that drew on a sustainable increase in overall permanent spending and used some temporary measures at the time when energy prices were high. This was the appropriate thing to do. This is exactly what we are saying to do when we look at budget 2024. This is why this kind of approach is so important and why it helped last time.

An Cathaoirleach

I thank the witnesses for making themselves available, their presentation and their responses. As I said earlier, this debate begins much earlier in the calendar every year, and this is especially the case this year. It is the beginning of an election campaign, at least by the parties if not by the Government. This is because the Government, as we know, is obliged to work to its own programme for Government and its ability to implement that. That is based on the income and expenditure as they evolve during the course of any period of Government.

Witnesses have heard, for example, here today that one party seeks some sort of comfort from the witnesses that the excess corporation tax receipts are becoming more consistent and more of the norm. That will allow them, then, the moral and economic comfort to spend these temporary receipts on permanent spending. Witnesses have heard another party look for similar comfort to give the impression or to have it believed that they would spend those temporary receipts on permanent spending in a much better manner than was done previously, before all the corrective measures came into place to ensure that the same dilemma might not present itself again. Yet, here we are.

Against all that, and the backdrop to all of that - as has been outlined and is obvious - is that the economy is performing well, contrary to the plight of many partners in Europe. Our credibility is strong. Our credit rating is strong. We are high up both of the respective league tables. That does not happen by accident; it is by design. It is, maybe, as a result of our learnings from years past, or maybe as a result of the corrective measures being put in place by our partners within the EU regarding fiscal rules. By working to, acting on and sticking to a plan, that is where we are at. That was proven by the manner in which we were able to respond to Brexit, and the manner in which were able to deal with the pandemic, and the potential impact that could have had on our economy. Corrective measures were put in place.

The other issue that has been discussed here, and rightly so, is that this committee, prior to my arrival on it, is in the process of arriving at a recommendation regarding that savings vehicle issue, hopefully. It is envisaged that Government will make a decision on that in the coming months, which will put to bed a lot of the speculation that takes place on an annual basis. Long may those excesses continue but there has to be some reality brought to bear, especially when one considers the figures that Dr. Casey mentioned. If the international average for such receipts is 8% and we are at 28%, and we are trying to be prudent by saying that realistically, it will maybe land at 14%, then that vehicle has to be put in place to ensure that this issue is put to bed into the future.

Insofar as we can when we are dealing with our own constituents, we all try to, I will not say dampen expectations, but bring a bit of reality in order to ensure that expectations are not allowed to cater for crazy economics into the future. In any household, it is about what is coming in and what is going out. The best guesstimates of IFAC's and Government's expertise indicate what any receipt might be in a given year, and thereafter, there are costs to stand still. New teachers have to be employed to keep schools open, and new nurses and doctors in hospitals to keep them at the level they are at presently, irrespective of what one wants to do beyond that. There are commitments within a programme for Government which that Government has the right, expectation and the mandate to implement. It cannot be changed midstream. There are borrowing and debt costs that have to be adhered to, and the witnesses have mentioned themselves the great strides that have been made in that regard. Was it 62% down to 39%?

Professor Michael McMahon

It is 69% to 46%, over the SPU.

An Cathaoirleach

Exactly. That, again, is working to a plan, and to a means by which we have the capacity to make inroads in that regard.

We have seen various measures introduced, twice last year for example, to assist with the cost-of-living and inflation issues. Thankfully, we have had the capacity to make interjections there. The temptation is always to go beyond that. The temptation is always driven by political representation and aspiration, and short-termism on the part of some political aspirants, which is not in the best interests of those who we represent. As I said, the fiscal rules that have been introduced help to ensure that is kept in check.

The moral obligation, from our perspective and those that would be deemed to be the best possible representatives of those who give us the privilege to be here, is to decide on the value of those excesses, and to put a vehicle in place that deals with it into the future, rather than it being used as a nest egg to win elections, which will only cost us a lot more electorally in the long term, as we found out one time too.

I thank the witnesses.

The select committee adjourned at 11.14 a.m. until 5.30 p.m. on Wednesday, 28 June 2023.