I welcome the members of the delegation from the Bundestag finance committee and call on them to introduce themselves to the committee. We will then begin our informal discussions.
Visit of Bundestag Delegation.
Mr. Manfred Kolbe
I thank the Chairman and our colleagues from the Irish Parliament. We are here as members of the finance delegation of the German Parliament. We deal with all financial matters except for the budget, for which a separate committee is in place. We are responsible for all matters relating to taxation, financial supervision, insurance and so forth.
Ireland is particularly interesting for German politicians, including our Chancellor, Ms Angela Merkel. During the past three decades, it has made enormous progress and has considerably improved its economic and financial situation. Its income per capita now is greater than that of the reunified Germany. We have come here with great pleasure and we look forward to listening to members and learning from them.
Ms Krisztina Eustace
Mr. Kolbe is the leader of the delegation and a member of the Christian Democratic Union.
Mr. Klaus-Peter Flosbach
I am particularly interested in capital markets and pensions. I am also a member of the Christian Democratic Union.
Mr. Norbert Schindler
I have been in the German Parliament since 1994 and I am a member of the parliamentary party. I have an agricultural background and own a wine-growing enterprise in Germany. I consider myself a strong lobbyist for agriculture.
Mr. Hans Ulrich Kruger
I have been a member of the German Parliament since 2002. I am a former judge and a former mayor of one of Germany's larger cities. I am particularly interested in pensions, tax fraud and financial services and instruments.
Mr. Ortwin Runde
I am a former mayor of Hamburg and I have been a member of parliament since 2002. I am a member of the Social Democratic Party.
I am the Chairman of this committee and a member of Fianna Fáil. I have been a Member of Parliament since 1997. I was a chartered accountant before I became a full-time public representative.
I join the Chairman in extending a warm welcome to the delegation from the Bundestag finance committee and hope the members have a very enjoyable stay here. I am a member of Fianna Fáil and I represent a rural constituency in the midlands. I was first elected to the Parliament in 1989. I was a Senator until 2002 and have been a Member of the Dáil since.
This committee is composed of Members of the two Houses of Parliament, namely, the Dáil and Seanad. When dealing with legislation, the committee sits in a select rather than a joint format, with only Members of the Dáil present. Other matters that are pertinent to the public service or Government Departments are dealt with by the joint committee, with Members of both the Dáil and Seanad in attendance. The committee deals with finance legislation and in particular, with the annual Finance Bill, which follows on from the budget.
I invite our guests to pose questions.
Mr. Kolbe
Could members tell us, in a few sentences, the secret of the Irish success story? Why has Ireland been so successful during the past 30 years?
I will give my answer and then allow members of the Opposition to do the same.
We have a very good, pragmatic Government. One of the keys to our success is our good education system. Another is our membership of the European Union and our successful use of EU funds. Even though we are well off now, we will still accept more funds and use them productively. Our social partnership system is also a major contributor to our success. The Government, employers and trade unions come together every few years and agree on wage rate increases and other matters of social concern. That has been a model of success. We have experienced very few industrial disputes in Ireland in the past decade, compared to previous ones, and this has provided great stability. Furthermore, the fact that Ireland is an English-speaking country means that it attracts a considerable amount of foreign direct investment from the United States of America. Ireland is seen as an attractive place to invest for those companies wishing to enter the European market. Another significant contributory factor has been the considerable reduction in taxation rates, which has contributed to economic growth. Members of the Opposition may have a different perspective or they may agree with my analysis.
Go raibh maith agat.
That was Irish. Ms Eustace is not expected to know that.
Ba mhaith liom fáilte cuir chuig na teachtaí an Gearmáin chuig an cruinniú seo d'ár choiste. I extend a welcome in our language to the delegation from Germany to our meeting this afternoon. I am the leader of the Sinn Féin Party in Parliament. I have been a Member since 1997 and have been involved in active politics at a local level since 1985.
I differ from the Chairman, the Cathaoirleach, as to why we appear to have experienced an economic upturn in the past decade. Economic circumstances have undoubtedly improved for many people in this State but the sun has not shone on everyone. The external impression is not a reality for many of our people. Not everybody has enjoyed the sunlight and there is a serious gulf between those who have prospered during the Celtic tiger years and the many who are on the margins, denied the opportunities of access to third level education and thereby reaching their full potential as young people in our society. Everything is not as rosy as it might appear. However, things have unquestionably improved.
Some of the reasons the Chairman has articulated for our success are accurate, such as the improved standard of education within our society and the opportunity arising out of that in the form of new, open access to education for many. That developed out of the policies of the 1970s and 1980s and enabled people to invest their talents and energies in an indigenous enterprise culture. We do not have quite the dependency on inward investment that people might believe. Much information technology has been brought to our shores by outside investors but the critical mass of the economy is indigenous investment by people who, despite the downsides that will present, are rooted in society and the economy. They will not pack up and leave when things get difficult.
There are a number of other key factors and the Chairman has made reference to some of them, but our success is based on a marriage of all those things. We require an amelioration of the difficulties to which I referred so that everyone can enjoy the fruits of the Irish economic success over the past decade.
Mr. Runde
Ms Eustace should speak Irish as well.
Ms Eustace
Go raibh míle maith agat agus céad míle fáilte.
I am an Independent Deputy. I am one of the two most recently elected to the Dáil, winning my seat just one year ago. The by-election I won was brought about by the vacation of the seat by the former Minister for Finance, now EU Commissioner, Mr. Charlie McCreevy. I am not replacing him but am here because of him.
The delegation asked about the reasons for Ireland's success. Ireland is unrecognisable from the 1960s and is an amazingly different country. Social partnership, a process in which members of the trade union movement, people in industry and others across society come together, has been very important and is a key element of our progress.
Our age profile was ideal and our young people took advantage of improved education and the growth of information technology. It is also helpful that half of the countries of the world have people from Ireland or with a connection to Ireland living there.
The peace process has also been very helpful in the past ten years. I agree, however, that not everyone has shared in the progress. Having built a successful economy we must now spend the money wisely on our public services. They are some way behind public services in other European countries. There is a debate at present about the European social model as opposed to the US model, which is focused on the individual. It is an active debate.
Could it be explained to the delegation that I must leave go to the Dáil? I will be calling a vote there shortly. I wish the delegation every success.
Mr. Runde
We are very happy to see the development Ireland has had over the last couple of years. We will be even happier when the country joins our ranks and is no longer a beneficiary country but a net payer of EU funds.
We are currently discussing the social model question in Germany also. We are wondering if the social model which we have in Europe can be improved and continued or if the American model will win the day. In that same context, I would like to hear how Ireland sees its future within the extended European Union. Ireland is a low tax country, it is a small country and it is fairly manageable. As so many central and eastern European countries that have joined and will join the EU are low tax constituencies also, how will this affect the Irish economy? If we are correctly informed, foreign investment in Ireland over the past three years has declined quite considerably, and we think it may be partly due to tax competition from central and eastern Europe.
How will Ireland react to this and how does it view the matter of tax competition? Germany understands the tax competition it has from Ireland, although it is sometimes not happy about it. Ireland is a small country and if so many other countries join and go down the same road, what will it mean for Ireland and Germany?
Ireland was one of the few countries that accepted people from the new EU member states without restrictions. Some were sceptical about the Government decision at the time, but it has proved positive. We have a large number of people from many of the eastern European countries, particularly Poland, Lithuania, etc. It is estimated that we will need approximately 50,000 extra people per year over the next couple of years. Those people will contribute in a very positive way to the economy and we do not see the issue creating a difficulty for us, certainly not in the short term and perhaps not even in the medium term.
The issue of taxation has been discussed across Europe. Ireland has maintained the position that a tax regime should be exclusive to the member state. That position has been maintained by our representatives at the European level for many years. There is an ongoing debate on the matter and some people are not appreciative of the current situation. However, some eastern European countries also hold the low taxation philosophy and are seeing the benefits. We are very much in favour of the low taxation policy and we believe it has contributed very positively to this country. We believe that a tax on employment is not a good way forward and we feel the benefits of a low taxation regime are contributing to the development of the country.
During the past three years we have lost some foreign direct investment. We did not lose it through taxation but rather because we are not as competitive in terms of our labour rates as heretofore and we are losing that to other countries, mainly those in the Far East. I represent a constituency in which two German companies, Lapple and Braun, operate. They have outsourced and moved their manufacturing to the Far East. We have become uncompetitive, not because of our taxation rates but because of our labour rates.
Mr. Kolbe
I have just one question. What are the most important issues for the political agenda for Ireland this year and next year?
There will be a general election next year.
Mr. Kolbe
After the election.
The health service — particularly the accident and emergency departments, where there are major difficulties — crime and, in light of population increases, traffic congestion and a shortage of new schools.
Mr. Kolbe
Is that traffic congestion in Dublin only or all over the country?
It is worse coming into and leaving Dublin.
Mr. Runde
I have a final question. The committee will be aware that we in Germany are rather worried because our savings rate is very high. Private savings are approximately 11% in Germany, which is considerable. This means that money is not available for internal consumption in Germany. We have heard that in Ireland that is not the case and that it is the other way round, namely, that there is a negative savings rate and a high consumption rate. Is Ireland happy with that scenario or is it concerned? Would Ireland like to change places with Germany?
Would Deputy Ned O'Keeffe like to comment?
I will not comment on the last question. I extend a céad míle fáile to the delegation. We greatly admire Germany and its economic ability. Ireland's major success is due to European monetary union, under which we obtained money at low interest rates. During the past four or five years, we borrowed capital at interest rates that were as low as 2%. That has driven our economy to where it is today. We have a huge infrastructure bill, due to the development of roads and railways. For the first time in 80 years, we are about to build an extension to a rail line. That gives an idea of the extent of development here.
However, we are concerned about high interest rates. I would like to ask Mr. Trichet, president of the European Central Bank, if he sees merit in raising interest rates in light of the high unemployment rate in Germany and an unemployment rate of 12% in France. We had an unemployment rate of 18% in Ireland in the 1980s. In many areas the rate was as high as 27%. We have overcome that problem. While we lost our traditional industrial base, we now have modern industries and the financial services centre has been a great success. We have a high percentage of chemical and pharmaceutical companies and high degree of added value in the area of technology.
During the reign of the then Minister for Finance, Mr. McCreevy, there was a downturn in savings in Ireland. People lost the incentive to save and put money in the bank. Mr. McCreevy developed the SSIA scheme, which will mature in June 2006, as a result. The maximum level of investment per individual per month is €253. If that money is invested for five years, it will be backed up by a State contribution and a contribution from the institutions. This can be put into a life policy or a deposit account. In the German context, the amount may be small but it is a large amount for an Irish investor. Depending on where one invested, the gross amount could be up to €21,025. That has been an incentive to save. The issue now is whether people will spend the money or reinvest it. Many of our financial institutions are putting incentives in place to retain the money. I read in one of today's newspapers that Allied Irish Banks, one of our largest financial institutions, is offering an incentive that will yield further moneys, based on its savings scheme, probably in the form of a bond.
We have the incentive to save. Many of our young people never see a rainy day in terms of finance and economics. This country has been riding on the crest of a wave since 1989. We had difficult years and dark days in the early 1980s when borrowing reached £32 billion. Many criticised the rate of borrowing at that time but we would have had a famine if we had not borrowed. We borrowed for the day-to-day operation of our economy. Subsequently, the economy began to move in another direction. We saw what was happening in Japan, which is now a successful economy. It suffered a downturn and deflation. We have not touched that but, in economic terms, one never knows what can happen. I do not know if I have answered the question but I have given my view of what has happened in the Irish economy. Low interest rates and the availability of money at low rates was the main driver of our economy in recent years.
There is concern here in regard to the extent of personal credit and there are constant warnings. Much of the growth in the economy stems from property investment. Clearly, that results from money being available, perhaps from German savers, which is being spent in this economy. There is a concern that property is overvalued and that there could be either a crash or a soft landing. We are concerned about the extent of people's indebtedness.
I am sorry to interrupt but we must conclude the meeting. I thank the representatives for attending.
Mr. Kolbe
We thank the members for welcoming us and for the interesting discussion.
The joint committee adjourned at 7.05 p.m. until 3 p.m. on Wednesday, 10 May 2006.