Thank you, Chairman. It is a pity you were not in a position to chair some of the finance committee meetings when I was a Minister of State. Deputy Burton used to tear strips off me, personally or otherwise. However, that was all part of the political game.
I thank the committee for the invitation to appear before it today. It is slightly depressing to continue to discuss the challenges affecting our industry but we believe it is important. Without any hyperbole, I must state at the outset that our industry is in crisis. Total employment in the industry, both direct and indirect, will fall to below 100,000 by the end of next year, a reduction from 400,000 in 2007. That is a severe blow. Output is set to fall below €10 billion next year. When one looks at the construction industry across the 15 EU economies, our output should be in the order of €18 billion.
In 2007, the industry had gone beyond what would be normal at €38.5 billion, which was 24% of GNP. We recognise now, although I am not sure if we recognised then that it had gone beyond what was sustainable. On the other hand, there was rapid economic and demographic growth at the time and the industry was keeping up with the demand that existed. Whatever over-shooting occurred, all the indications are that we will seriously under-shoot what would be normal output for the industry. We acknowledge that mistakes were made in the past. However, the construction industry can play a central role in delivering current and future growth needs of the Irish economy.
The further erosion of the capacity, skills and innovation in the industry represents an opportunity cost for the economy, which will not only deepen and lengthen the recession but will undermine future productive capacity. Countries in Europe and elsewhere, such as Germany, France, Japan, Britain and the US, have all centred their economic recovery plans on increased investment in labour-intensive construction projects. Unfortunately, in Ireland, capital expenditure which had become embedded in the wider economy is effectively being wound down. There is no other way to put it. This is continuing to depress rather than stimulate economic activity.
Since the national development plan was published in 2007, the capital construction programme has been reduced in every subsequent budget. Originally, €10 billion was supposed to be spent on this programme per annum and it was due to be in operation from 2010 to 2013. Now, however, only €6 billion will be spent on it per annum. When one considers the new project starts, one realises that the amount being spent is nowhere near that. We carried out a survey among those in our industry earlier in the year and this illustrates that only in the region of €600 million worth of projects will commence this year. The money allocated cannot be spent if projects are not commenced. It is widely known that only one new road project — the Castleisland bypass — is beginning this year. I am sure this project will be of major benefit to people from Castleisland and places nearby who wish to travel to Dublin. However, when compared with the Waterford bypass, which was opened yesterday, the level of expenditure on the Castleisland bypass will be quite small.
The Government's capital spending for this year will be approximately €6.5 billion. This money relates to ongoing commitments in respect of inter-urban road and other projects which are, unfortunately, coming to an end.
If we consider the workload for the industry for the next three to four years, particularly in the context of the number of new project starts, the outlook is dismal. All we are aware of are projects which have been placed on hold, which are being halted, which are not being sanctioned by the Department of Finance, and so on. Thankfully, we have a pipeline of projects in place. These projects have been planned and went to tender but there does not appear to be a commitment in respect of them. We are losing capacity and skills at every level within the industry on a daily basis.
We regard as indisputable the fact that Exchequer investment is necessary to arrest the number of job losses and create a platform for economic recovery. For every €1 billion cut from the capital construction programme, the cost to the Exchequer in social welfare payments and lost taxes is €510 million. People in the industry who lose their jobs go straight on to the dole. Current REA rates indicate that the average construction worker contributes approximately €17,000 to the Exchequer in taxes. Unfortunately, when he or she applies for jobseeker's benefit, he or she costs the Exchequer approximately the same amount.
If the capital construction programme is cut by €1 billion, the extra cost to which I refer arises but there is no infrastructure delivered. If the €1 billion is spent, the eventual cost is just €490 million, the infrastructure is put in place and jobs and economic activity are protected. In simple terms, it would be cheaper to build infrastructure rather than not. When referring to infrastructure, we mean the improvements to the public infrastructure that are necessary to remedy our current competitive disadvantage. I refer to infrastructure in the areas of transportation, education, health, broadband, telecommunications and water and waste water services.
If we are to achieve our long-term growth potential, we must immediately set to work addressing the infrastructure deficit in these areas. There is terrific value for money to be obtained. This is particularly true in the context of the competition in the industry and the major reduction in costs. Our members would state that they are cutting each others throats for business at present.
The reduced capital expenditure commitments set out in April's budget must be delivered in full. The Construction Industry Council, which comprises representation from the various sectors within the industry, came forward with a proposal to consider alternative funding options, including private pension funds. This has been hailed as a good idea by the Department of Finance and many commentators. As this still has not got off the ground, we will be pushing for it to be taken on board. It would make up some of the deficits that exist at present.
Moreover, our members have major problems with current public procurement procedures. We certainly can see where savings and efficiencies could be made in that regard and the National Roads Authority provides a good template in this respect. Likewise, with regard to pre-qualification for public projects, small and medium-sized contractors throughout the country are experiencing major difficulty in simply qualifying to tender. This issue pertains to jobs that normally would be done by local contractors, be they in Athlone, Mullingar, Bandon or wherever. They simply find they are unable to meet the qualification criteria after which some major national player comes in and takes the jobs in question. This is a source of particular frustration.
We also believe there is a clear opportunity to begin to make Ireland a low-carbon economy using the capacity and know-how within the construction industry with particular regard to the national energy refurbishment initiative. Earlier today, I was heartened to see Bord Gáis showing initiative in this regard by talking about creating 250 jobs in the new year. Moreover, Sustainable Energy Ireland already has a substantial €100 million grant project and within the Construction Industry Federation, CIF, we have set up a one-stop offer whereby a householder who chooses to do some refurbishment can apply to a qualified CIF member firm, which will be able to do the entire job at the same time.
The housebuilding sector, which generally has tended to be the perception driver for the entire industry and probably for the economy over the last decade, is at a total standstill at present. This year, we believe that fewer than 20,000 new homes will be built, the bulk of which are either once-off or social housing projects. Moreover, all the indications are that next year, fewer than 10,000 houses will be built. The ESRI still states that Ireland has a medium-term demand level for approximately 40,000 units when one examines the statistics.
In respect of the job intensity associated with building a house, as each house provides approximately one and a half jobs for a full year, 10,000 houses will only create work for 15,000 people over a year. When one considers the peak figure of 90,000 units being built, this certainly constitutes a major cut. There has been much exaggeration regarding the level of unsold houses and all sorts of figures have been bandied about. Our estimates, which are based on what I believe to be fairly good information from our members and through HomeBond, suggest there are between 35,000 and 40,000 new unsold houses, fewer than 10,000 of which are located in Dublin. In a normal market situation, the Dublin stock represents approximately one year's supply.
Another major issue lately has been NAMA, which certainly is a major issue for both the construction industry and the entire economy. We have been highly supportive of the major reconstruction of the banking industry that has been ongoing over recent months and have engaged substantially with the Government and with NAMA on that particular issue. One major concern we have pertains to the lack of enforceable lending targets for the banks. We do not consider that NAMA will have done its job if it creates a more viable banking system. The absolute target must be that the banks will begin to lend again to small industry, mortgage seekers, small builders and so on. We are dealing with these issues and have made submissions to all sides represented on the Select Committee on Finance and the Public Service in advance of the debate that is about to begin.
As for some of the general issues, I refer to a view being expressed regarding the blame game. I have even heard a number of politicians referring to the part played by the construction sector in the current problems facing the economy. As I noted earlier, the CIF acknowledges mistakes within the industry, particularly the fact that too many resources were attracted into the property development sector at the peak of the market. On the other hand, one could lose sight of the fact that between 2000 and 2007, the construction industry contributed €50 billion to the Exchequer in employment taxes and other associated taxes. The attachment of blame on the grounds that this sum was too much to contribute does not make sense to me. The issue obviously pertains to the manner in which it was spent and so on.
The figure of €50 billion I referred to does not include the substantial development contribution scheme and the moneys paid to local authorities around the country. The local authorities have their own funding difficulties. That windfall was used to expand the public service, increase numbers within the public sector, pay for increased wages and fund other public policy initiatives. We should not blame the industry for its generosity in the taxes it paid. Whatever one says about our members, they are all based here and they all paid their taxes here in the past. I do not make that point from an adversarial point of view but to add balance to the record.
Ireland is unique by European standards in that the benefits of construction employment are spread throughout the country. One can compare Irish construction companies with those in Britain or France and find that 95% of companies in Ireland are in the small to medium-sized enterprise categories. That is different from what occurs across the Continent.
We must recognise the importance of the industry to the economy and the future restoration of the economy. We seek the creation of a national construction partnership forum, which will involve all sectors, including employers, employees' representatives, the Government and other stakeholders. We seek to chart a sustainable path for the industry to maximise the potential the industry has to contribute to our future prosperity.
