Committee on Budgetary Oversight díospóireacht

Priorities for Budget 2019: Discussion

Chairman

In the first session we will meet stakeholders for a discussion of pre-budget submissions. The select committee is due to finish the part of the meeting by 5.30 p.m. I remind members and delegates to turn off their mobile phones as they cause interference with the sound quality of the transmission of proceedings.

From the Irish Congress of Trade Unions, ICTU, I welcome Ms Patricia King, general secretary; Dr. Ger Gibbons and Dr. Laura Bambrick. From the Dublin Chamber of Commerce I welcome Ms Mary Rose Burke, CEO, and Mr. James Coghlan, council member. From the Dublin Airport Authority I welcome Mr. Vincent Harrison, managing director. From the Irish Small and Medium Enterprises Association, ISME, I welcome Mr. Fergus Sharpe, senior public affairs executive, and Mr. Neil McDonnell, chief executive. I thank all of the delegates for making themselves available to come before the committee.

As there are time constraints and because we have so many delegates, we will try to keep things tight. I will allow each member five or six minutes to ask questions and ask delegates to also keep to this time limit in giving their replies. If we can adhere to these time limits, we will be able to have additional questions in a second round. I will ask each delegate to make an opening statement. We will then open up the discussion for a full question and answer session.

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

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

I invite Ms King to make her opening statement.

Ms Patricia King

On behalf of the Irish Congress of Trade Unions, ICTU, I thank the Chairman for giving us the opportunity to appear before the select committee.

Congress’ pre-budget submission is being finalised and will be launched in the coming weeks. The short-term outlook for the economy remains positive. The Nevin Economic Research Institute, NERI, which is funded by congress projects that the rate of economic growth this year should be around 5% and 4% next year; that the number in employment should rise by around 100,000 this year and next year; and that average hourly earnings should increase by around 3% this year and next year. We must remember that these wage increases come after years of falling or stagnant wages for many workers. The NERI has also found that the average 18 to 24 year old worker earned one tenth less in real terms in 2016 than in 2008 and that the average 25 to 34 year old worker saw a real increase of just 1.4% in this period.

The public finances are improving, but they are still marginally in deficit a decade after the start of the crisis. Congress concurs with the European Commission's assessment set out in its 2018 Ireland country report that addressing infrastructural bottlenecks is essential for sustainable and balanced growth in the future. Public spending per capita in Ireland is just 85% of the weighted average in similar high income western European countries such as France and Germany, as well as the Benelux and Nordic countries. This amounts to an underspend of €12 billion a year compared with these countries.

Repairing public services, overcoming infrastructural shortcomings, addressing the consequences of a growing and ageing population and responding to the impact of new technologies, Brexit and other emerging risks all require a substantial increase in investment in the coming years over and above what is envisaged in the Ireland 2040 strategy.

In particular, we need to invest more in social and affordable housing, early years services, education, public health, water, rural broadband, clean energy, public transport and motorways as well as research and development and innovation to ensure sustainable, balanced growth over the longer term. Given the many challenges facing Ireland, it is our firm view that tax cuts are simply not affordable, would only prevent Ireland from achieving the sound and stable public finances necessary to meet the needs of 21st century Ireland and pose a risk of overheating the economy.

As advocated in the European Commission draft country-specific recommendations, budget 2019 should limit the scope and number of tax expenditures and broaden the tax base. The reality is that the Government simply does not collect sufficient revenue through general taxation and social insurance to ensure the public services on which people in peer countries can rely. This is mainly due to the lower employer social security contributions levied here than in those countries.

ICTU is proposing a number of measures to raise additional revenue next year. In particular, it is time to end the "temporary" reduction in VAT for hospitality introduced seven years ago. This alone could raise over €500 million, which would be enough to build 2,500 homes or dramatically increase investment in early years services. The congress pre-budget submission for 2019 will set out our priorities to ensure that workers and their families receive a fairer share of the economic growth taking place - it is forecast to continue over the short term, at least - and ensure that people who suffered more than most during the crisis are supported to live a life of dignity.

Budget 2019 should seek to improve the social wage. This is comprised of the non-wage returns to workers in the form of decent early years care and education, health, education, transport and housing services. It should improve the provision of high quality childcare, as advocated in the European Commission draft country-specific recommendations. Government childcare policies must address the problem of poor pay and conditions for workers in the sector. Policies must ensure that adequately qualified workers are attracted to and remain in this key sector.

Hundreds of thousands of people are affected by the housing crisis, as highlighted in the ICTU housing survey issued last week. Budget 2019 should prioritise the increased supply of social and affordable homes, the improvement of services and measures aimed at supporting homeless people, the use of vacant homes and sites and swifter progress towards a cost rental system. Congress is specifically calling for a local government-led social housing programme involving the construction of at least 10,000 units per annum.

Budget 2019 should aim to make progress towards a well-funded, universally accessible, single tier health service, as outlined in the Sláintecare report, especially with regard to the expansion of primary and community care services. The Nevin Economic Research Institute has found that public investment on a per student basis in education is low compared with peer countries, especially in primary and lower secondary education. Public investment in education would have to increase by nearly €2 billion to reach the peer country average. Budget 2019 should prioritise investment in the DEIS programme, further reducing early school leaving rates and the number of young people not in employment, education or training - this figure was 13% of young people in 2016 - as well as in lifelong learning and basic digital skills. Social welfare payments should be increased by at least a higher percentage than forecast inflation next year. In addition, the most regressive cuts imposed during the crisis years should be reversed, especially those affecting young people, lone parents and older people.

The living wage, currently cited as €11.70 per hour, is the minimum that all workers should receive. The minimum wage, however, is four fifths of this amount. Moreover, €400 million will be spent this year supporting low-paid workers with children through the working family payment, formerly the family income support, and €300 million on the housing assistance payment. These and similar payments represent the subsidising in many cases of low-paying employers. The national minimum wage should be brought into line with the living wage.

Brexit poses a considerable threat to the jobs of thousands of workers, especially those in agrifood and traditional manufacturing. These workers are mostly based in rural areas. We are proposing the introduction of a specific measure, a Brexit adjustment assistance fund, aimed at supporting these workers now rather than in a few years when they might lose their jobs. This should be built on the European Globalisation Adjustment Fund, which has helped 11,000 workers in the Republic over the past decade, as well as the US trade adjustment assistance programme, which is similar to the European globalisation fund but with a stronger emphasis on income support.

ICTU wants to see Ireland embark on a path that sees at least 0.7% of output devoted to official overseas development aid by 2025, a target that is already exceeded by a number of peer countries. I am happy to take any questions.

Chairman

I thank Ms King for her opening statement. We will defer questions until all opening statements are made. I call on Mr. Neil McDonnell of ISME to make his opening statement.

Mr. Neil McDonnell

We thank the committee for the invitation to attend and give our views. When we issued our pre-budget submission to the Oireachtas in May we asked members to cast their minds back to the summer of 2008. Back then, new house prices were only €18,000 off their 2007 peak but they were not plummeting. The soft landing was on its way and the dismal scientists had got it wrong. Shortly afterwards, things started to happen in America and we had a 31% fall in new and second-hand house prices. The rest is history. Back then, we had national debt of only €50 billion. We were able to borrow our way out of the hole then. Today, our debt is more than four times higher, excluding our pension debt. We will not be able to borrow our way out of the next crisis.

In our pre-budget submission we pointed out the many macroeconomic risks to Ireland. There are arguably more internal and external risks to the health of the State now than there were in the run-up to the 2008 recession. Unfortunately, in the current political environment we see little appetite to acknowledge and confront these risks.

Our country and its citizens are too heavily in debt. At the same time, Ireland has suffered a decade of underinvestment, which is being felt in the state of housing, health, education and childcare. Yet, the clamour for spending is all weighted to the current side. Despite a persistent gap of 40% between the wage bill of public and private sector workers, the majority of our so-called fiscal space is being diverted into the public payroll. This impacts our public competitiveness, which has disimproved from sixth to 12th place according to the recent IMD World Competitiveness Center measure. Our pre-budget submission called for this gap to be closed to 10% by 2025. The public-private sector pay gap is not to be found in any other advanced economy in northern Europe. If Ireland is to thrive, there must be a rebalancing of our spending priorities and the way we address the cost of living and cost of business issues.

We are entering an era of unprecedented volatility in international trade and our relationship with our nearest neighbour, yet everything we are doing domestically is reducing our ability to compete internationally. Despite investing in the creation of the National Competitiveness Council, we ignore its findings, as if allowing the council to simply write reports is an adequate outcome. Ireland is a high wage economy, the fourth highest in Europe in employer-borne wage costs. The issue is not our domestic wage levels but rather the cost of living for Irish workers. Ireland is consistently the fourth most costly European economy to live in. The spending of our citizens is 23% above the EU average on a like-for-like basis, but there is little appetite to understand the reasons. The cost of accommodation for our workers is now a material deterrent to those workers living in Dublin. It is nonsense to think that this cost of accommodation issue can be bridged by employers paying more. That money will simply pass from employers to the owners of accommodation via their employees.

Our electricity prices are the fourth most expensive in Europe. Yet, our regulator is considering further increasing the public service obligation levy, a charge which makes it more difficult for businesses to invest in low-carbon technology. We are the second worst performing country in Europe in greenhouse gas reduction. Our insurance costs remain farcically high because we refuse to tackle known issues with our legal system, Central Bank insurance data, insurers, the book of quantum and our Judiciary. Other countries tackled these problems decades ago. We simply pass the costs to business, charities, sports clubs and citizens in ever higher insurance costs and health costs. This rent-seeking behaviour by the legal profession is not merely immoral; it is having a detrimental effect on the health of our children, for example, through no-running policies in schools, and on our social and civic fabric of life. Most of the remedies to these issues are legislative.

We remain dangerously overdependent on a small number of pillar banks, whose only priority is balance sheet repair. Meanwhile, small and medium enterprises, SMEs, if they can access working capital, are paying significantly more to access it than their competitors in other countries.

We agree with the Irish Congress of Trade Unions, ICTU, that Ireland has the highest rate of people who are not in education, employment or training, known as NEETs, in Europe, yet all our focus is on our underfunded university sector. We need fewer, better universities and a far greater spend on skills, technological training, vocational training and lifelong learning.

We regret to observe that successive budgets have prioritised multinational corporations rather than indigenous SMEs. This is despite the fact that SMEs employ 950,000 people, almost three times as many as the multinational sector. Our businesses are local, native, and ubiquitous, but since the Culliton and Telesis reports we have had no independent strategic review of our industrial policy. Indigenous enterprise will not be tempted to move out of Ireland by changes in US corporation tax rates. We ask the committee to bear that in mind as it considers budget 2019. Measures introduced previously, such as the employment and investment incentive scheme, the knowledge development box, and the key employee engagement programme, KEEP, are so complex that small business cannot use them.

Our pre-budget submission for 2019 asks the committee to "think SME". In view of the political and economic threats that are present today, we believe it is extremely important that it does so.

Ms Mary Rose Burke

I thank the Committee on Budgetary Oversight for the invitation to discuss priorities for budget 2019. Dublin Chamber values its ongoing engagement with parliamentarians of all parties and is appreciative of this opportunity to present its preliminary recommendations for budget 2019.

Dublin Chamber is the largest chamber of commerce in Ireland. We represent more than 1,300 firms throughout the greater Dublin area, employing some 300,000 people nationally. The firms range in size from small start-ups to major multinationals. Our diverse and cross-sectoral membership base gives the chamber a keen insight into the needs of both businesses and their employees in the run-up to the budget.

The chamber takes a holistic view of the commercial environment. In our policy agenda, we strive to reflect the complementary needs of business and society. Many of the members of the committee will be familiar with our Dublin 2050 initiative from a number of years ago. Last year, we ran the great Dublin survey. It had more than 1 million impressions on social media and received more than 20,000 responses from residents of the capital to discern their hopes, needs, dreams and aspirations for the future. From that survey we devised a vision for the future of Dublin as a city that will be globally renowned for its economic vitality and quality of life. It is with this vision in mind that we approach budget 2019.

Our budget recommendations have been approved by our elected policy council and shaped by ongoing engagement with our membership base and the work of our budget and taxation task force, led by Mr. Vincent Harrison. While official estimates of available Exchequer resources next year have not been available for long, we hope to inform the work of this committee by outlining our strategic priorities and preliminary recommendations. The context of the budget shows that Ireland's small open economy has continued to perform strongly despite rising international risks. Robust economic growth is continuing, and there is healthy consumer sentiment. Meanwhile, the labour force is steadily approaching full employment. Dublin Chamber research suggests that more than half of firms expect staff numbers to rise in the third quarter of 2018. Such figures offer reason for optimism, but we also caution against an overly expansionary fiscal policy. Headline indicators are positive, but the underlying position is precarious. Internal risk factors include high Government debt, the inadequacy of economic infrastructure, the productivity gap between Irish and multinational firms, and reliance on a narrow segment of tax receipts. These weaknesses leave Ireland's globalised economy highly vulnerable to external shocks. Budget 2019 must take action to address these weaknesses, while avoiding inflation. Dublin Chamber notes the Organisation for Economic Co-operation and Development, OECD, observation that there are already signs of overheating in the economy, and echoes recent International Monetary Fund, IMF, advice that Ireland should exercise caution with its fiscal policy in 2019.

Informed by these realities and business feedback, Dublin Chamber recommends that the fiscal space should be used to prepare Dublin and Ireland for the challenges ahead, by strengthening the fundamentals of the economy, namely, our infrastructure, indigenous businesses and labour force.

Mr. Vincent Harrison

As Ms Mary Rose Burke outlined, Dublin Chamber advocates a targeted approach to the use of available resources in 2019. I will discuss these under three headings, each of which represents an imperative for government, namely, investment in Ireland's infrastructure, growing Ireland's businesses and investment in Ireland's human capital.

The inadequacy of our infrastructure stock is perceived as the most important barrier to doing business in Ireland, according the World Economic Forum survey. Infrastructure ranks as the most important policy issue for businesses in the greater Dublin area and is identified as the greatest challenge facing competitiveness of the region. In a survey of Chamber members carried out this quarter, almost half - some 48% - chose investment in infrastructure as the top priority for budget 2019. Dublin Chamber welcomes Project Ireland 2040 and the accompanying national development plan, NDP. Alignment of spatial and capital investment planning is to be commended, as is the longer-term approach adopted in the NDP. The first test of budget 2019 will be whether it meets the Government's commitments as outlined in the NDP. This will require €7.3 billion in Exchequer funding for public capital expenditure. While the Chamber is heartened by the NDP, stable and timely implementation will be crucial. The recent pattern of capital expenditure in Ireland is among the most unstable in western Europe, and it must avoid slipping back into this traditional pattern of boom and bust. Given the importance of infrastructure delivery, the rainy day fund should be used as an insurance policy for the NDP. Dublin Chamber recommends that when economic growth dips below the level required to fund delivery of the NDP, drawdown from the rainy day fund should be permitted to ensure steady implementation.

The success of Dublin is critical to the success of Ireland. However, contrary to widespread perception, the capital city is significantly underfunded relative to other regions. For example, Dublin received the second lowest level of capital investment per head from central Government of any county from 2009 to 2016. According to a survey conducted earlier this year, more than two thirds - some 68% - of firms in Dublin believe that not enough is being done to improve infrastructure in the city. Traffic congestion in the greater Dublin area already costs the economy €350 million per annum. This figure will rise to a cost of €2 billion per annum by 2033. In this context, projects to relieve the growing pressure in the capital must be prioritised for delivery. Chief among these are MetroLink, the DART expansion programme, BusConnects, and the Shannon water pipeline project.

To secure its future prosperity, Ireland must remain attractive to multinational investors while also taking action to avoid excessive reliance upon a narrow number of multinational businesses. This will require the strengthening of the indigenous business base. There is little sense among businesses that progress is being made in this area. A recent Department of Finance and OECD study highlighted the widening productivity gap in the economy, with productivity being increasingly driven by foreign dominated sectors such as ICT, pharmaceuticals and telecommunications.

Budget 2019 will be the last budget before Brexit. To provide a competitive context for our proposals on entrepreneurship, Dublin Chamber has undertaken a comparison of the island of Ireland and the UK. The table displayed on the slide is included in our preliminary recommendations document and I invite the committee to consider it. While progress on all these fronts is not feasible in any one fiscal year, there is room for Ireland to make a serious statement of intent in 2019. First, Ireland's offering to entrepreneurs is starkly uncompetitive when compared with the UK offering, which includes a lifetime cap of £10 million on qualifying gains for entrepreneur relief from capital gains tax. This is worth approximately €11.4 million in current market prices. This compares with a €1 million cap in Ireland. To send a strong signal that Ireland intends to compete with the UK ahead of Brexit, Dublin Chamber recommends upgrading entrepreneur relief to surpass the relief available in the UK. The cost of bringing the lifetime limit applicable here up to the nominal UK equivalent of €10 million, as promised in the programme for Government, has been estimated at €54 million, using the non-dynamic costing model employed by the Department of Finance. A further increase in the limit to €15 million would incur an added annual cost to the Exchequer of just €2 million, according to the same model, while positioning Ireland at a clear competitive advantage against the UK.

Second, Dublin Chamber proposes a scheme to encourage greater investment in existing Irish SMEs.

As a matter of principle, the capital gains tax rate should reflect the risk profile of the investment concerned and its contribution to the Irish economy. In practice, however, the flat 33% rate of CGT effectively incentivises passive investors to invest in large blue chip multinationals at the expense of investment in higher-risk Irish start-ups and SMEs.

Dublin Chamber recommends introducing an investor relief along the lines of the UK model, offering a lower CGT rate of 20% on all investment in unquoted companies to encourage the growth of indigenous businesses.

Dublin Chamber calls on the Government to consider a lower rate of income tax on dividends for entrepreneurs in order to reward entrepreneurship at all stages in the business life cycle. To develop prospering indigenous businesses on a large scale, Ireland must offer rewards to entrepreneurs for staying on to scale their businesses rather than offering divestment as the only path to extract large-scale value.

Consideration should also be given to making the research and development tax credit more attractive to SMEs by allowing an up-front claim and increasing the credit rate to 30%. This would begin to address the low levels of innovation in the indigenous sector.

With regard to investing in Ireland's human capital, Dublin Chamber recommends that the Government takes measures to attract, retain and develop talent in the Irish labour force. This is crucial to check rising costs, maintain Irish attractiveness as a location for foreign direct investment and support indigenous business growth.

Access to skilled labour is a rapidly growing challenge facing businesses in the greater Dublin area. Almost two thirds of chamber members now report that they are searching for employees with a particular skill set but struggling to find them.

This challenge will continue to mount in the context of a buoyant labour market. As the OECD has recently noted, Irish labour costs threaten to slow business growth and undermine competitiveness through inflation, making it difficult for SMEs to compete with larger firms for skilled employees. While inward migration will continue to play a valuable role, population growth in the capital carries its own challenges in terms of managing overstretched infrastructure and the housing stock.

The female employment rate in Ireland is 10.4% lower than the male rate. This represents untapped potential in the Irish labour force that can be utilised without increasing demographic pressure. One in five Dublin Chamber members has specifically identified easing female labour market participation to help them access the skill sets that they require.

There is clear evidence that the gap in female labour participation is due to the burden of child-rearing falling upon women in a context of high childcare costs. Female labour force participation diverges sharply from male participation around childbearing age and fails to catch up before retirement.

This is increasingly supported by business feedback. Over three quarters of Dublin Chamber members now report that the cost of childcare has a material impact on their business. Noting recent IMF advice, Dublin Chamber recommends a significant expansion of fiscal support for the new single affordable childcare scheme to ameliorate the problem in 2019.

Dublin Chamber has a number of other recommendations to improve the skills base in Dublin and help SMEs to attract the skilled specialists they need to grow. These are included in our submission.

I thank the Chairman and the Deputies for their kind attention and the committee clerk and other committee staff for their assistance. We are keen to hear the members' feedback on our strategic priorities and recommendations in advance of our final submission to the Department of Finance. We look forward to discussing them with members in more detail this afternoon.

Chairman

I thank Mr. Harrison very much. All opening statements are supplied to all members in advance of the meeting. A number of members have already indicated they wish to contribute. I am going to start with Deputy Burton.

Deputy Joan Burton

I welcome the various groups that have taken time to speak to us today. My questions are on the real capital expenditure on infrastructure over the next few years. The Government is currently beset by ongoing difficulties associated with housing. While the level of building of private houses has certainly picked up, there is almost no significant progress being made on social housing or, indeed, affordable housing. In that context, does each group believe it is correct to establish a rainy day fund per se when the Government could establish a housing development bank or corporation that would use funds, including projected dividends from NAMA, to fund local authority social and affordable housing? Money would be repaid to the development bank fund via social housing rent and mortgage repayments on affordable social housing. Do the various groups believe that simply putting money on deposit in a rainy day fund, which would be placed on deposit around the world, is the best use of a very scarce capital resource at this time when we could follow the example of countries that have found other mechanisms? We are no longer restrained in the way we were over the past ten years in terms of capital investment as a country.

My second question concerns the summer economic statement, which has just been published, and the amount of €2.6 billion, which has been committed in terms of the €3.4 billion envelope that the Minister for Finance has identified in terms of next year's budget. Could ICTU, in particular, comment on the plight of people employed by section 39 organisations who in many cases voluntarily took reductions in pay in line with the public sector but who have failed in seeking to restore pay parity? I do not see any reference in any detail in the summer economic statement to any restoration being committed to specifically by the Government. Has ICTU or its member unions reached or developed any further understanding with the Government on making this one of the priorities in sorting out issues that arose in 2008 but which have yet to be rectified?

On the health service, have any of the organisations considered how to increase dedicated funding to the HSE and Tusla? As we know, the Government has pretty much experienced fairly constant crises in different elements of both of those organisations for the past two years.

Ms Patricia King

I will make reference to the rainy day fund. It is raining cats and dogs for thousands of people every day. I refer to people who find themselves living in hotels and totally unsuitable accommodation. It is becoming increasingly difficult for any Administration or set of policymakers to convince those people about the taking of a dollop of money. Every accountant and economist is asking, "What heresy does this woman speak?" I am sure there is merit in putting money aside for the rainy day but we have horrendous social problems that just need to be addressed. There are many people who get very frustrated over what seem to be anodyne responses to the matter in some cases and, in other cases, over people just not getting it in respect of the daily suffering of those affected. Therefore, it is very difficult to say one should take this money, lodge it in a rainy day fund and not have any real proposal or prospect for those coming out of the circumstances to which I referred.

I hope the Minister for Finance will take the opportunity to lay out in concrete terms the Government's proposals to deal with this issue. In 2017, 780 local authority houses were built. I was born and reared in County Wicklow. For the last three years, not one social or affordable house has been built in Wicklow despite the lengthy waiting list for housing in the area. It will be hard to convince people on the housing waiting lists of the need for a rainy day fund. Approximately 19,600 houses are to come on stream via the private sector and the housing assistance payment scheme and other schemes, much of which accommodation is below par for people on the social housing lists. We are so far off getting it right, such that the focus should not be on what amount could be put into a rainy day fund.

The Deputy is correct in what she said about the section 39 organisations. However, I would not in that regard have necessarily used the word "voluntary". People had no choice. The Government told the HSE and the Department of Health they had to implement the same levels of cuts on staff wages of these organisations as were applied throughout the public sector. The HSE and the Department fully fund most of those organisations and so staff therein were subject to the same level of cuts. However, no provision was made in the Lansdowne Road agreement restoration process to replenish the wages of staff of the section 39 organisations. Currently, we are in a form of industrial foray with the HSE and the matter has been referred to the Labour Relations Commission. The industrial action is deferred on the basis that talks are afoot. I do not know if they will be successful and I would not like to say anything that might impact on the discussions that are ongoing as we speak.

Chairman

Would the ISME representatives like to respond on this issue?

Mr. James Coghlan

On social housing, I am not expert on this topic but it is clear we have a housing issue in the country. It is difficult to come up with solutions. We need to get our data right in the first instance. Evidence-based decision making is always something to aspire towards. If we get the data right, we can then make better decisions. I imagine the purpose of the rainy day fund is to ensure there is a fund of money available for spending when in a counter-cyclical environment spending needs to be made on the public side. When private sector investment is down the spend is from the capital account and in that instance the Government would possibly use a rainy day fund. I recognise the requirement for infrastructure investment. There are other capacity constraints, including in terms of finance, which is a major issue on the private sector side in particular; and in terms of skills. I recently read that we will need 80,000 construction workers in the near future to deliver the capacity we expect in the construction sector. As I said, as a first step we need to get the data right.

Mr. Neil McDonnell

Ideally, we should be putting away money. The Deputy is correct that accommodation is a problem right now. Currently, people expect employers to solve that problem but it is not possible for them to do so. Perhaps there is an ingenious way around monetising or securitising the provision of social and affordable housing right now that, for instance, could be used to bridge the long term pension deficit. We can try to fund that through payments back to local authority housing. We do need to spend money on housing now but we also need to stop spending in the round because we are going to run out of money quite soon.

Chairman

Would Ms Burke like to comment?

Ms Mary Rose Burke

We believe that the most immediate threat to upward pressure on wage costs in Dublin comes from inflation, the cost of accommodation and the lack of residential capacity in high demand areas. This is the most egregious example of under-investment in Dublin's infrastructure, including in the housing sector. We are experiencing a real accommodation crisis, with the highest ever number of households on the social housing waiting lists and the highest number of households reliant on social housing supports such as the housing assistance payment, HAP, and rent supplement. Despite that Dublin has the greatest housing need in the country it received the lowest capital investment in housing from central government in the period from 2009 to 2016. We believe there are a number of issues that need to be considered in addressing the issue. We need a commitment to density in high demand areas. Dublin Chamber of Commerce has long been an advocate for the economic, social and environmental benefits of greater urban density. We also need market stability. Every time the Government signals to the market that it is looking at changing building regulations there is a drop in activity levels. We need a period of time to adjust to new regulations, particularly in the apartment sector. We need to build more social housing. We believe that social housing provision should shift from the counterproductive policies of private home acquisition and rental support to the construction of purpose built social and affordable housing.

Budget 2018 committed to the provision of almost 6,000 new social housing units next year but that is an increase of only 31 on the number committed to last year. At the same time, more money is being put into the housing assistance programme. We believe this is exacerbating the problem and that this money would be better spent in the direct build of new social housing. We also need to look at initiatives to better manage vacant homes. On the rainy day fund, we believe it should be available to smooth out the stop and start in capital investment, including in the build of social housing. We need a sustained programme of capital investment and the rainy day fund should be available to maintain the base level of construction that is needed in housing and other infrastructure and to prevent the stop-go type of investment that we have seen in the past.

Chairman

I thank the witnesses for their responses. I call Deputy Lisa Chambers.

Deputy Lisa Chambers

I thank all of the witnesses for being here. My first question is to Ms King. She mentioned a Brexit adjustment assistance fund. Perhaps she would elaborate on what is proposed in that regard. On the 9% VAT rate, which Ms King advocated be returned to its previous level, the argument from industry is that that would cost jobs. In my own constituency of Mayo there are many hospitality workers and I would be concerned about the impact of an increased VAT rate on businesses in the area versus the Dublin sector. In addition, in light of Brexit, there is concern that there will be a reduction in the number of tourists from the UK.

Ms King also listed a number of priorities and areas that she feels need to be addressed. There is nothing in her statement with which I disagree. Ms King mentioned the need for investment in health, housing, early years education, broadband and so on. What are her two priorities for budget 2019? I take it housing would be one of those priorities. I am particularly interested in investment in the early years education sector and the impact that would have in terms of female participation in the labour market.

My next question is to the ISME witnesses. On skills shortages, have ISME members raised with the organisation concerns that they will be affected in this regard over the next two to five years and what sectors will be most affected? On the public-private sector pay gap, how does ISME propose it be addressed in the upcoming budget?

I agree with the witness on insurance costs. The speaker will be aware that Fianna Fáil, particularly Deputy Michael McGrath, has done a considerable amount of work on insurance costs, not just this year but over the last several years. We are working very hard on that, but if the witness has any specific recommendations for budget 2019 in that regard it would be great to hear them.

I would agree with the Dublin Chamber of Commerce that Dublin's success is Ireland's success. As somebody from a rural constituency on the west coast, I still think our capital needs to thrive and do well. There are many people from my own constituency working and living in Dublin. I did that myself for several years. However, the witnesses spoke about using the rainy day fund as an insurance policy for the national development plan. In Fianna Fáil, our view is that the rainy day fund is there to prepare for a downturn if it happens. In any budgetary process, from household budgeting to Government budgeting, it is always prudent to have some funds in reserve for when the unexpected may hit. That is one area where we will need to keep some funds in reserve. The national development plan as proposed should be funded separately to that, and there should be funds in place to ensure its continuance year-on-year and Government-on-Government.

In regard to the gap in female participation in the labour force, how is that specifically affecting the Dublin Chamber of Commerce's membership, and do the witnesses have any specific recommendations as to how we might address that in budget 2019?

Ms Mary Rose Burke

I will address some of the queries and then bring my colleagues in. When it comes to the buffering effect on the national development plan, we are very cognisant of the fact that in the recent crisis, 80% of the savings to the Exchequer came from stopping capital expenditure. That is not a costless decision. We are suffering the consequences of that now with a bottleneck arising from that lack of infrastructure spending. When we refer to the rainy day fund, we feel that there should be a commitment to capital expenditure that is funded, and that there should be provision in the rainy day fund so that those projects can go on if there is a challenge to the Exchequer. First, that would ensure that they actually get delivered. However, we also have to be able to signal to large operators that upskilling and scaling up in Ireland are worth their while because there will be a pipeline of infrastructure projects and it will not be stop-go based on which stage of the economic cycle we are in.

We echo concerns about the 9% value-added tax, VAT, rate for the hospitality industry. Obviously occupancy rates and prices in Dublin are fairly buoyant, but we are cognisant that it is not the same for the hospitality sector throughout the country. We feel that this needs to be there to make sure that we continue to get regional balance.

I will ask Mr. Sharpe to address the participation rate and how we see that.

Mr. Fergus Sharpe

Regarding the impact of low female workforce participation on members of the Dublin Chamber of Commerce, we should say at the outset that there is a lot we could achieve here compared to our northern European counterparts. The gap in labour market participation between men and women is currently 10.4%. That is around the EU average, but that does not take into account the fact that there are wide variations in the EU, particularly between northern and southern Europe. There is a gap of about 25% in Malta, while in Northern Europe countries like Denmark and Sweden achieve a gender gap in labour market participation of about 5%. Our gap is double that. If we could even get that 5% into the workforce, it could ease a lot of pressure in terms of skills availability and wage costs.

There is certainly a lot of business feedback to support the impact this is having on business. Overall, more than three quarters of Dublin members report that the cost of childcare has a material impact on their business. It affects both cost and availability of staff for 40% of our members. It solely affects the availability of staff for a quarter of members and solely the cost of staff for one member in ten. That is according to our most recent business risk outlook survey.

Regarding our specific asks, we welcome the single affordable childcare scheme as a positive step in the right direction. We would like to see a significant expansion in fiscal support for that scheme in the coming year, specifically with a view to increasing female labour market participation. Second, we would like to see an examination of the impact of the tax system on the decision of a second earner in a household to return to work. This is something which tends to affect families and working couples, particularly at a higher income level. Based on our engagement with officials in the Department of Finance, whose counterparts in the Department of Children and Youth Affairs we will engage with in the coming week, there has been no official study looking at the impact of this on female labour market participation. We would like to see a proper examination of how the tax system serves to discourage second earners from returning to the workforce and how that will interact with the new affordable childcare scheme.

Mr. James Coghlan

With regard to the question on the VAT situation, I would not disagree with the member. A lot of the discussion around the 9% VAT rate relates to hotels in Dublin city centre. The same clearly does not apply to rural hotels. The 9% VAT rate cannot be seen solely with respect to hotels. The 9% rate and the old 13.5% rate essentially related to labour-intensive Irish indigenous companies. It went across a broad range of sectors, and I think that if we made that decision in one fell swoop without thinking of the consequences it would be a very difficult situation for an awful lot of people.

For example, I read last weekend that there was an Economic and Social Research Institute, ESRI, report looking at productivity in the multinational sector and the indigenous sector. In the small to medium enterprise, SME, sector, profit is 30% of wages on average. If wage costs account for 30% of a company's cost structure and profit is 10%, most people would not regard that as unreasonable. In other sectors however, profit could be a multiple of wages. The ability of SMEs to withstand significant reductions in sales, through VAT increases or increases in costs such as insurance, is very limited. We do not have a highly profitable SME sector in this country. That is a fact. We need to be really careful about putting it out there that if we make this change we will get €500 million and there will be no impact on the SME sector. That is complete nonsense.

A member asked about the public sector pay gap. It is a tense topic when it comes up. I think the first report of the Public Service Pay Commission was supposed to include international comparisons in its scope. The last time I looked there was one page on the international comparisons in the report. There is a bunch of European studies on this topic. There are some ESRI studies. The ESRI did a report called Comparing Public and Private Sector Pay in Ireland: Size Matters by Elish Kelly, Seamus McGuinness and Philip J. O'Connell in 2012. That is worth looking at. I think the European Central Bank wrote some papers on the topic. There are at least two or three European papers on the topic. The research is there. If the Public Service Pay Commission is going to write a paper, it should really put all the evidence and data in there. If we are going to make decisions on this stuff, let us make value decisions. Let us not just make it up as we go along. Let us look at the evidence, see what it says and if we are going to make a decision, make that decision. However, we should do it in full knowledge of all the evidence available to us, both within Ireland and in the European context.

Mr. Neil McDonnell

To round out that point, the international comparisons we were promised in phase one of the Public Service Pay Commission need to be finished before any further reports are generated. We are not naive. We know there is not going to be a reduction in public service pay. However, there needs to be a recognition of the value of public service pensions. Second, when the pressure comes on it is fair to ask public sector workers for efficiencies and modernisation in exchange. Across the board, members know the pressures that are there in health, education and justice. There needs to be change. There should be no concession on pay where there is no concession on change.

On skills, I refer to the sectors of IT, construction, engineering, transport and logistics. Regarding the insurance issues that need to be sorted, the bullet points are to benchmark the book of quantum internationally; remove the judicial discretion on awards once we have a new book of quantum; strengthen the Personal Injuries Assessment Board, PIAB; introduce moral hazard for refusing PIAB awards when claims are taken to court; pass the Bill affecting perjury, which I know is already before the Seanad; and establish the Garda insurance unit.

Ms Patricia King

Deputy Chambers asked about VAT. I will make three points if I might, to try to deal with the questions raised. The VAT rate was introduced when it was in order to pass on to customers. The crash had just happened and it was an attempt to try to keep life in the restaurant and hospitality sector in the main.

The National Competitiveness Council, in its most recent report, points out that this is what has happened in the hospitality sector. One of the largest increases in prices was in restaurants - up 8.4% between 2013 and 2017. Irish hotels and restaurant prices are now 20% above the EU 28 and eurozone average. The CSO estimates that inflation in restaurants and hotels was twice the rate for all items between 2010 and 2017. It certainly did not succeed in doing anything on price.

As to whether it will deal with jobs, there are lots of statistics, not only on Dublin, on bedroom price rates, etc. The Irish Hotels Federation has published its own statistics on this and one can see where this is not only a Dublin issue but happens right across the country. The price levels in the west and the mid-west are not the same as those in Dublin but there are price hikes in all of the hotels. The hospitality sector is doing well.

On the jobs issue, a majority of the firms in this sector earn a small proportion of sector turnover and, in fact, do not employ large numbers of people. The reason I say so is many of them do not have a turnover. Those referred to in the constituencies mentioned do not have a turnover that requires them to register for VAT in the first place and, therefore, it does not apply to them. That is the first point. The second point is that two thirds of the revenue in this sector goes to 5% of firms with an annual turnover of more than €2 million. That tells one the reduced VAT rate is being sucked up by big profitable global companies in this country that do lots of fast food and all the stuff I am sure I am not allowed to mention. The committee members know the companies I am talking about. They are loving it and they are eating it up. That is the main part. If one goes to any Revenue, CSO or other statistics, one will find that is the case. We are handing them a reduced VAT rate and they are loving it. Every year, they make more profits than they made the year before.

The tourism sector and Tourism Ireland will tell the committee in any presentation they make that the profile of tourism in Ireland is changing a great deal because of their work. Tourism Ireland is going to Asia, etc. The statistics for the UK are available. One in 20 who visits from the UK is an Irish person. Half of UK visitors are visiting family and friends. Those are the statistics.

On the Brexit fund, we have had discussions with the Department of Business, Enterprise and Innovation to try to get to a situation where, for instance, in agrifood, which, as the Chairman and I both know from sitting on the Brexit stakeholder forum, is the first vulnerable sector according to the indications of all the figures, we have worked out a strategic plan which either reskills or retrains those workers or supplements job acquisition in other sectors as with the Globalisation Fund, and that we have that ready rather than waiting to go to a canteen and tell 50 workers their jobs are gone. We want to be ready with that Brexit assistance fund. We, as a movement, can work with employers to identify those employments and to identify the ways and means of doing it.

Finally, on the participation rate, data tells us that instead of looking holistically at unemployment we should be looking at what is the participation rate. Ireland's rate is lower than that of most in the EU. We are at 67% for female participation. No doubt a major contributory factor to this is the high cost of childcare. We are second highest when it comes to couples. We are highest in terms of the provision of childcare for lone parents. It is one of the strongest features in dealing with participation. Of course, young girls are better performers than young boys in school. They are coming out of the education system with good skills yet we end up in a situation where we are losing. It behoves everybody to deal with the female participation rate in the economy.

Deputy John Lahart

Deputy Lisa Chambers asked a number of the questions that I had an interest in and they have been covered. I thank the three organisations for their interesting presentations.

We are cognisant of external challenges arising from changes to trade policy in the United States and Brexit. The nature of our economy means we will always be exposed to external threats. We should do what is within our control and in that respect the focus of our submission is on investing in infrastructure and indigenous businesses. While Ireland's successful industrial policy, in which we are a world leader, has primarily focused on foreign direct investment, in the longer term we also need to develop indigenous Irish businesses to enable them to reach a multinational scale while being headquartered and grown in Ireland. I ask Mr. Harrison to talk us through some of our specific recommendations to support indigenous Irish business.

Mr. Vincent Harrison

We made a number of specific proposals on growing Irish businesses. While we highlighted competitiveness between Ireland and the United Kingdom, our focus is not solely on Brexit. It is appropriate that Irish businesses are being encouraged to open establishments in the UK to prepare themselves for the period after Brexit and we are also inviting UK businesses to open establishments in Ireland. This is where competitiveness and some of the differences in tax treatment move from the theoretical to the wholly practical. To develop a business of scale in Ireland, it is necessary to move outside the Irish market. The UK is typically the first location to which companies move to grow their business and markets.

On the tax system, we propose an increase in entrepreneur relief. The current structure of the relief incentivises cashing out of a business early in the cycle. Our proposal to increase the lifetime cap to €15 million would encourage Irish investors to maintain their base in Ireland and grow their business. We also propose allowing income tax relief on dividends to entrepreneurs, perhaps within the same cap. This would focus the relief on the entrepreneur retaining an involvement in the business, rather than having all of the tax incentive generated at the time of the disposal of the business.

Our proposals address the stage at which businesses might be considered for sale and the practical issues of establishment in the UK. They are driven by the objective of enhancing the ability of small-scale indigenous businesses to become large-scale companies. As noted, we are making these proposals against the backdrop of an over-reliance on multinational investment and with a desire to build up this sector in Ireland.

Ms Mary Rose Burke

I ask Mr. Sharpe to address the issues raised regarding research and the key employee engagement programme, KEEP.

Chairman

We have only one minute left.

Mr. Fergus Sharpe

That is not a problem. Having lobbied for the introduction of a key employee engagement programme in recent years, we welcomed the introduction of KEEP. As the committee will have heard from other witnesses, many of the practicalities in the programme make it unworkable for many SMEs. The key issues are related to evaluations and, in practical terms, the obligation to issue share options at market value, which creates a compliance burden and a legal risk for SMEs. While guidance was issued, only one paragraph was published and this is creating uncertainty and discouraging many SMEs from engaging with KEEP.

A second issue is the restriction on the total market value of share options offered to an individual to not more than 50% of his or her annual remuneration. In the start-up scene salaries are often relatively low but high risks and high rewards are offered to skilled specialists. While KEEP is intended to facilitate this approach, the restriction to 50% of salary mitigates against it.

Other issues arise but I will address only two of them. First, on the restriction of qualifying individuals to the service of one company, people will often work in a group, even at a start-up level, and they are excluded under this scheme. That has been an issue. A second issue is the decision to confine KEEP to full-time employees.

Deputy Richard Boyd Barrett

There seems to be general agreement that we need more expenditure on housing, including affordable housing and public housing, and infrastructure. While I agree with that - I do not see how anyone could disagree - I do not understand, based on the submissions made by ISME and the Dublin Chamber of Commerce, where we will get the money for this expenditure. The witnesses argue for reductions in taxes to incentivise small and medium enterprises. If we provide further research and development tax credits to SMEs, open up the knowledge development box to SMEs and reduce VAT and capital gains tax, as the witnesses propose, where will we get the money for all the infrastructure and housing we need? Something does not add up.

My answer to all of this is straightforward. In my view, tax expenditures are not the best way to help the domestic economy. I ask the witnesses to comment on that. We are losing large amounts of money through tax reliefs. Surely we are foregoing far too much revenue through tax reliefs. Even the European Commission has made that point. The major beneficiaries of tax reliefs are the big multinational corporations. Property speculators are also doing very well and making enormous profits. Why would we give away more in tax reliefs when common sense suggests we should reduce them?

I was also slightly confused by the statement in the ISME submission that a "collective amnesia of how the fiscal and property crashes of 2008 occurred in Ireland has infected the trade unions, the public services, and a plurality of Oireachtas members." While I fully agree that there is amnesia about the fiscal and property crash, I do not see how it is largely manifested in the trade unions or public service. I am not sure what the expression, "a plurality of Oireachtas members" means. The amnesia appears to be largely in the Government and relates to what happens when property speculators are allowed to control the housing market and given tax incentives to do it all over again. They are evidently engaging in rampant speculation and profiteering, while delivering little affordable housing. I ask the witnesses from ISME to comment.

What are the witnesses' views on labour shortages?

Chairman

The Deputy has one minute.

Deputy Richard Boyd Barrett

I would like to ask all the witnesses what they think. It seems we have a problem or we could be reaching the point at which we have a serious problem with labour shortages in a number of key areas. I would like to hear what the witnesses think about this. I would have thought that one thing we absolutely must support - they probably agree with this - is the provision of affordable housing. Many of our young people will leave or are already leaving.

I will make one last point on the social housing side of things. Do the witnesses agree that expenditure on the housing assistance payment, HAP, rent allowance payments and so on rather than the direct provision of public housing is very badly misplaced? Although the Government talks a great deal about-----

Chairman

We have Deputy Boyd Barrett's questions. I will start with a response from congress and work through the other witnesses.

Ms Patricia King

Yes, we agree that this money is very misdirected. Our judgment is that there should be a massive effort now regarding the construction of social and affordable housing and that it should be at the level of 10,000 units per year. It is clear that what is being done falls far short of that if one considers that the number of social houses built in 2017 was 780. That is far off the mark. From our point of view, any plan should entail the construction of 10,000 units per year.

Under HAP, the private market is expected to provide social housing. As market rents increase, the same bad accommodation is available at a higher price. The State is strongly engaging in the market now and is partially responsible for the rent rises because there is such a scarcity of new units coming on stream to provide social and affordable housing. The State is moving around in circles. It has identified public lands and states it has identified money for housing construction. If it has the main pieces in place, why not just go ahead and do it? That sounds like a simple question but it deserves an answer from someone. From our perspective, we hope and expect that the budget will start to provide an answer to that question. We agree with Deputy Boyd Barrett on the misdirection of funds through HAP and various schemes.

I will not deal with the issue of amnesia. Some groups on the employer side make statements about us to which I do not give much credibility because they are nonsense. I do not have time for them. The other issues relate more to the attitudes of the employer groups. If the Deputy does not mind, I will leave my responses at that.

Chairman

The Dublin Chamber of Commerce wants to come in on this point.

Ms Mary Rose Burke

A number of issues have been raised. When it comes to the issue of affordable housing, we absolutely agree that expenditure on housing assistance does not increase the stock of housing. The problem is one of supply and demand. The lack of supply is causing the problems. State intervention in the private market to acquire or rent private accommodation does not help matters. We could get a much greater effect from the moneys being spent if local authorities built social and affordable housing. That must be part of the solution. Expecting the market to solve a housing issue is the reason we are in this position. Solving housing problems is not the purpose of the market.

On labour shortages, we have the results of surveys showing the number of our members who anticipate taking on new hires and the number of open jobs in small and medium enterprises and major multinationals. We have a labour shortage and there are issues surrounding recruiting abroad, particularly for skilled candidates. Sometimes these roles are filled and the employee leaves after three or six months because he or she cannot find housing. Housing is the single biggest barrier to people moving here to take up roles. It is also a barrier to Irish people being retained in jobs. Housing is, therefore, a highly topical issue.

As we indicated, the impact of affordable childcare on female labour market participation is a key issue. This is a cohort of the population whose members generate considerable costs in terms of education and development and then suddenly leave the workforce because tax or childcare issues impact on the rational decisions of the couple or family in question.

On our proposals for tax reliefs for entrepreneurs, we are mindful of the over-reliance on foreign direct investment in our industrial policy. While this policy has served us well to date, given the changes with Brexit and in the US, we need to focus on growing indigenous businesses. The proposals we have made are modest in terms of their cost but address the issues. Entrepreneurs are choosing to exit businesses too early because it is the only way for them to realise some of the value. Alternatively, they choose to move to Northern Ireland or the UK. We are, therefore, already seeing a loss to the Exchequer in terms of revenue that would be gained if these businesses were allowed to grow and develop in scale here and provide employment.

Some of the issues we have addressed concern signalling to the market. We have been very successful in our industrial policy in respect of foreign direct investment, FDI. Our success in this area has been well recognised internationally. However, we now find ourselves in a position when it comes to indigenous business that the UK is more attractive on every single measure. We are suggesting not only that we attain UK levels of competitiveness but that we exceed them when it comes to small and medium-sized enterprises.

All of the measures we propose are set out in the preliminary recommendations document. One measure, the proposal to adjust the cap on qualifying gains for entrepreneur relief from capital gains tax from €10 million to €15 million, would generate a cost of €2 million. While the cost of the relief would increase from €54 million to €56 million, the adjustment would send out a signal that Ireland is a place that welcomes and supports entrepreneurs. Our proposal on the research and development, R&D, tax credit, would not generate any additional costs as it is a timing issue. It is a matter of whether research money is provided upfront or is reclaimed over a period. While the total cost would be roughly the same, for a cash-strapped start-up company, it is important to access research funding early as it could go out of business within the three years for which it must wait for it.

The costs of our proposals are not material. What is significant is the direction of travel and the signalling to entrepreneurs that this is a country where it is attractive to set up, grow and retain a business and one which does not incentivise entrepreneurs to exit early. All of those provisions are in the recommendations document. The recommendation on capital gains tax, CGT, is to encourage people to invest in high-risk Irish businesses rather than international blue-chip businesses. The issue for us is more the impact of the recommendations than their cost.

Mr. Neil McDonnell

The amnesia to which we refer in a very broad, catholic sense of the word concerns the tax base. Back in the day - and this is why we were asking people to think back to 2008 - we had a known exposure on transaction taxes. Lo and behold, when these revenues disappeared, we were left in the position in which we now find ourselves. Our exposure is on income tax, particularly sectoral income taxes, and corporation tax, which I know is a whole other issue and there are dangers that could potentially undermine that. The question for the members, as legislators, is if these two tax heads came under severe strain, we will return to the pain and suffering faced by the public sector, in which an awful lot of pain was absorbed ten years ago, and the private sector, which absorbed 300,000 redundancies. That is what the word "amnesia" refers to.

Regarding tax reliefs, which is what I believe Deputy Boyd Barrett was referring to, oddly enough, we probably agree with him on that point. I think he is reading us wrong on this because our point is that these reliefs are being structured for multinationals. The Department of Finance admits there is no penetration of these reliefs. If the Deputy listens to what Dublin Chamber of Commerce and ISME are saying, he will understand that there is no penetration of the key employee engagement programme, KEEP, the employment and investment incentive scheme, EIIS, the knowledge development box or any of these schemes. They go straight over the heads of small businesses, which are not able to avail of them. Therefore, arguably, while the members, as legislators, are meant to design tax reliefs that have socially desirable outcomes, they are not having these outcomes for the sector that is employing half the working population. That is our dilemma. The schemes need to be structured. We are not saying we should get a pass on tax. There is a quid pro quo in that the State and society would also get something useful.

Lastly, regarding income tax, Deputy Boyd Barrett asked where the money would come from. This will be a difficult issue. We have made no secret of the fact that we effectively cut and paste the Irish Tax Institute's 20 key asks into our submission. We reconfigured them in the order that our members found most valuable. Income tax is levied in such a way that once a person's income exceeds the average industrial wage of €36,000, his or her tax bill starts going upward very quickly.

In many ways, that productivity is a good thing but above €70,000, one is at Nordic and German rates of taxation. The difficulty is when one goes back the other way, where we are at low or no taxation. We know we have huge, long-term issues such as the pension deficit. We will not necessarily openly agree with the trade union sector on this but we know that social spending and the social insurance take have to increase. It is likely that that will have to be paid by the individual. People will have to pay for themselves in the long term because they live so much longer after retirement age. The Deputy will probably hear responses that he will like from the employers' sector on this but we need to think about how we will have a sustainable tax system in the long term.

Deputy Barry Cowen

I thank the various groups for coming in and for their presentations. Some were very specific and others were quite broad. It is coming near to the time where we have to be much more specific, especially when one sees the statement made by the Minister for Finance today. It behoves us all to look at the realities that exist and make recommendations based on the realities that we can work within. We also have to be mindful that we are talking about a budget for 2019. We are not necessarily talking about the next five or ten years, or anything like that. When one looks at the specifics and hears what the witnesses have been saying, it boils down to three things. Those are: housing; the cost of living and the cost of business, particularly with regard to insurance and housing and its impact on the ability to generate jobs, especially in cities where costs are exorbitant; and the area of infrastructure. Looking at what is available and how we address those issues, if one compares and contrasts what was envisaged last year, it was €3.2 billion, while the Minister talked about €3.4 billion today. It is really €3.9 billion, because €500 million is a given for the rainy day fund, something that we stitched into our agreement with the Government, and it is not up for discussion, as far as we are concerned. Thereafter, the Minister talks about €2.6 billion already being committed. That is made up of €1.5 billion for the national development plan, €400 million for demographics, €400 million for public pay and €300 million as a carryover. We are now at €2.6 billion.

The witnesses, my constituents, those in my party and I need to know about the €1.5 billion committed to the national development plan in 2019. Where, specifically, is that being spent and what, specifically, is that being spent on, so that the witnesses can evaluate whether that is value for money and if it will yield progress in areas in which the witnesses have concerns? We will ask the Minister to elaborate on that in the short term so that the witnesses can evaluate that and make further contributions if necessary. That leaves €800 million, notwithstanding the commitment that has been made at our insistence about the public pay issue for new entrants. That is a €200 million cost in one year. Whether that is agreed between Government and the unions over one, two or three years, we will support that. That is a given. It might well be back to €700 million.

Now we are talking about priorities. Where are the priorities? We all recognise and acknowledge that there is a crisis and emergency in housing. It not only impinges on the poor unfortunates in the midst of that with regard to social and affordable housing, it also impacts on jobs, the ability to attract jobs and to allow people to meet the demands placed upon them. We do not want that transferred to wage demand. We want the Government to address that with regard to the cost of living that the witnesses mentioned. From what ICTU is saying and in response to the questions put to us by others, it is not necessarily an issue whereby one increases the level of funding towards the provision of housing, whether social or affordable. It is how it is spent. It is not being spent wisely or appropriately, and it is not yielding a return. What do the witnesses believe the solution to this is? It is not just throwing more money at it and saying that local authorities will build them. Unfortunately, they are not building them. We believe an agency is needed to attract not only Government funding but private funding that can take charge of State lands, build these units and lease them back to local authorities for 100 years. That is the sort of innovation that we want to hear and see rather than more of the same. It is easy for me to say that local government is only spending 20% of what was spent on social housing in 2008 and to increase that by 20% would improve it all of a sudden. It does not. We saw that with health in the past.

To get back to the Dublin Chamber of Commerce, its issue is with infrastructure and improving the atmosphere in which business can flourish, and how development and specific spending on the capital side can improve that, whether on the Luas in Dublin or public transport issues in less populated areas, how that is improved and how business in those areas can improve. One cannot be in a qualified position to make judgment on that until provision for the extra spending in the development plan is qualified and quantified. Have the witnesses any specific proposals? I welcome what is being said about insurance costs and the concrete proposals put before us. We would like to see more of that. My colleague asked a question with regard to ICTU. Start prioritising. We would all like to see improvements that I hope will happen over time but, with regard to the 2019 budget, we have a job to do in this committee, and thankfully it is being done in an open and transparent manner and people can see that nothing is going on behind closed doors, so do not be afraid of making firm, concrete proposals that we can analyse.

Acting Chairman (Deputy Colm Brophy)

I ask the Irish Congress of Trade Unions for the first response to Deputy Cowen.

Ms Patricia King

I ask my colleague, Dr. Ger Gibbons, to deal precisely with the issues of housing that the Deputy has raised.

Dr. Ger Gibbons

Our proposals were devised before the summer economic statement so we have not had the opportunity to look at that in sufficient detail. As Ms King said in her opening remarks, looking at it in the broader sense, Ireland is a rich country but we spent approximately 85% of the average of our peer countries, France, Germany, the Benelux countries and the Nordic countries. That amounts to an underspend of approximately €12 billion a year. We will not get to that. That will take a number of years, a decade or so, if we decide to achieve that level. We agree that the underspend of what is proposed, the net fiscal space this year, is considerably less than what it should be. In our pre-budget proposals, we will propose additional revenue measures of approximately €1.3 billion. That would include things such as the abolition of the 9% VAT rate that the Department of Finance has estimated would raise approximately €500 million. We propose that approximately €500 million in additional spending be allocated to social and affordable housing next year. In rough terms, that could build over 2,500 social and affordable homes next year, if we decided to do that. It was done in the past, in the 1940s and 1970s. It should not be beyond us. We went from 600 homes in 1946 and 1947 to approximately 11,000 in 1950 and 1951. It has been done in the past so it could be done again.

Deputy Barry Cowen

They are trying to do it and obviously cannot.

Dr. Ger Gibbons

Absolutely. We are saying that it needs to be done with more vigour.

Ms Patricia King

With regard to the Deputy's point, there is some form of systemic dysfunctionality. I will not delve into it too deeply here because there are bigger and better people who know what the dysfunctionality is. In part of our campaign on our charter, which many members of the committee are familiar with and met us about, I visited quite a number of local authorities. When one rounded up the discussions there, their ills were all blamed on the Department. I had several discussions with officials from the Department. When that was all rounded up, where did that go? I am saying this in simple, plain terms. It is not easy to resolve. The committee is, in my opinion, homing in on a very strong point of issue that needs to be dealt with by the establishment. There is an extended labour-employer economic forum which will start in July and one module will be housing, at which the trade unions will take the opportunity, working directly with officials and the Minister involved, to see if we can unlock some of this and at least have people identify what the obstacles are. If one identifies what the problem is, one has a far greater chance with it. Both are heavily unionised with regard to employees working. Maybe we can unlock some of the pieces there.

It is true that there is an issue that must be dealt with, apart from money and capital investment. The system has to be unlocked to allow it to happen.

Ms Mary Rose Burke

We see the national development plan as part of the solution, with a focus on city-led regions. I will ask my colleague Mr. Sharpe to go through some of our priorities for the national development plan.

Mr. Fergus Sharpe

We agree with Deputy Barry Cowen. We would welcome more detail on the breakdown of spending under the national development plan in the coming year. The Dublin Chamber of Commerce has been clear on its priority projects. I take the Deputy's point that we are taking a one year view, rather than the full lifespan of the plan, but many of the projects we are discussing are a decade long and we believe much of the funding plan needs to start soon. Metro north is a key project, to serve both Swords and the growing population of the county of Fingal which now has the third largest population in the country, as well as to connect the airport and the city centre. It includes the DART expansion programme that includes the DART underground project, which has been postponed repeatedly and redesigned for about half a century, as well as the electrification of the Hazelhatch and Maynooth lines. These are things that could be done in a shorter timeframe. Specifically, on the DART underground project, the National Transport Authority has been keen to maintain enough funding for it to be kept live, which would be an achievement in itself in the coming year. BusConnects is important, as is the eastern and midlands regional water supply project. Members will have heard about recent events in Skerries and fears about further water shortages in the capital in the coming days. That is an issue that must be addressed urgently.

Deputy Barry Cowen is correct about the effectiveness of spending on social housing. We have been very clear that there has to be a shift from reliance on the private sector to deliver a public good, namely, social housing. Reliance on the housing assistance payment, HAP, and continually pouring money into it is not a solution. It adds pressure on the private rental sector without improving the size of the overall housing stock. We would be open to having an agency. Our submission to the Department of Housing, Planning and Local Government last year during the review of the Rebuilding Ireland action plan suggested something along these lines. We suggested residential development in the greater Dublin area, which is the epicentre of the accommodation crisis, be joined with infrastructural planning and that there be a central agency for that purpose. We are agnostic on its structure, but there should be a point of co-ordination. Our hope is the metropolitan area strategic plan that forms the subsidiary level of the national planning framework will be the means by which it will be brought together, but we would love to see a single point of accountability to drive it.

Chairman

I thank Mr. Sharpe. We now turn to ISME for the final response on this issue.

Mr. Neil McDonnell

We are often asked that question. I am sad enough to carry around a 1994 payslip to illustrate the scale of the problem now. In 1994 when I was 28 years old I was on a Defence Forces salary of £20,600, which was enough, pre-benchmarking, to buy me a house in Lucan for £53,000. My 28 year old equivalent today is on a salary of €38,000. Not only can he or she not buy the same house, he or she cannot even afford to rent it. We need substantial intervention at local authority level. My 28 year old equivalent today would require a salary of around €98,000 to buy the same house. We all know that that is not going to happen. Unfortunately, some people think this will be passed on to small employers to pay €98,000, but that is not going to happen either. There must be an intervention to provide social housing via local authorities or some other solution as otherwise it will all break down.

Mr. James Coghlan

Everybody agrees that there is a significant housing issue, on which various actors have done very detailed work and about which enough has been said. However, we need to get back to investing in infrastructure and things that will bring long-term economic benefits. That must be the measure.

Deputy Barry Cowen mentioned the cost of doing business and the cost of living. For small and medium enterprises, SMEs, these are significant issues. The National Competitiveness Council is constantly raising them, insurance being only one example of many factors to be considered. It is a fact that the cost of living in Ireland is the fourth highest; it is 23% higher than the European average. Why is that? Disposable income would go considerably further if the cost of living in Ireland was at a level comparable to the average European rate. Why is that not the case? Perhaps it is because the cost of doing business is very high. One must go through an SME's profit and loss accounts line by line to see what makes up the high cost of doing business that is leading to higher prices and, in turn, a higher cost of living. The Deputy has come up with a net figure of €700 million, but one cannot think in terms of one year.

Deputy Barry Cowen

I do not doubt that, but, of course, there is forward planning that is much more encompassing. However, with reference to the committee's task to make recommendations to the Minister in respect of the budget, that is what we must stick to.

Mr. James Coghlan

Our submission includes some comments in that regard. For example, it is time for a step change. We have largely had the same industrial policy, namely, on planning, since Seán Lemass and T. K. Whitaker in the late 1950s. That stuff worked well for many years and is still doing so, but perhaps it needs to be tweaked a little. However, this is the time to have a strategic review of industrial policy and perhaps add a third leg. IDA Ireland is doing a great job when it comes to foreign direct investment, Enterprise Ireland is doing good work when it comes to exports and local enterprise offices, LEOs, and so on when it comes to microbusiness, but where is the policy on small and medium-sized enterprises? There is none. Our big statement is that it is time we had a strategic review and to think ten years out. That might add to our output, which would create the ability to meet some of the spending needs we will have into the future.

Chairman

Two Deputies will now make a comment for about one minute each. This session will end at 6 p.m. or half an hour beyond the time indicated. We must be fair to everyone. We will need to take a short five minute break. I call Deputy Maria Bailey who will be followed by Deputy Jonathan O'Brien.

Deputy Maria Bailey

I do not know how short I can be, but I will speak quickly.

My response to the Dublin Chamber of Commerce is that we recognise childcare is a huge challenge. Do we recognise the flexibility required in our family and working lives? Deputy Kate O'Connell and I have developed a policy on flexible childcare and childminders in the home. I might send it to the chamber as I would like to hear its opinion on it.

Mr. Sharpe answered the question about the national planning framework.

In response to Ms King and Dr. Gibbons of the Irish Congress of Trade Unions, Government spending must prioritise spending aimed at mitigating risk and enhancing resilience in the economy. If the reduction in the VAT rate for the hospitality sector was to be removed, coupled with an increase in the national minimum wage, what negative effects for the industry would they anticipate? I ask the question in the context of the 148,000 people employed in the hospitality sector, including 15,500 in the Border counties and 50,000 in Dublin. It is easy to make a sweeping statement without understanding what the outcome and knock-on effect would be. I imagine there would be job losses were the reduction in the VAT rate to be reversed.

I also wish to correct the record. It is important that I do so. Ms King said no houses were built or provided in County Wicklow. Members will know that housing provision is a priority for me. In 2017 in County Wicklow 35 houses were provided under the heading of build-acquisition-leasing, while 437 were provided under the HAP scheme and the rental accommodation scheme, RAS. The HAP scheme is only a short-term solution until we get supply up and running. No one has ever said where we are going to house people while we do that. The target in 2018 in County Wicklow is 214-----

Chairman

That is very good, Deputy, but we are-----

Deputy Maria Bailey

It is important to make the point because sweeping statements are being made that nothing is happening. The record needed to be corrected.

Chairman

I thank everyone who has come before the committee today and I thank the Deputies for their questions. I acknowledge the unfortunate constraints of time and I hope the witnesses appreciate I was not trying to shorten anybody but to let everyone have as much of an exchange as possible. I thank the witnesses for coming in. We will have a second session so we will go into private session for five minutes to allow a changeover of people.

The committee went into private session at 6.05 p.m. and resumed in public session at 6.08 p.m.

Deputy Maria Bailey took the Chair.

Acting Chairman (Deputy Maria Bailey)

This is our second session today with stakeholders to discuss the pre-budget priorities. I apologise for delaying the witnesses for almost 40 minutes, but they heard the conversation at the previous session.

I remind members and witnesses to turn off their mobile phones as the interference affects the sound quality and transmission of the meeting.

From Social Justice Ireland I welcome Dr. Seán Healy, director, and Mr. Eamon Murphy, economic and social analyst. From TASC I welcome Dr. Shana Cohen, director, Mr. Robert Sweeney, policy analyst researcher on inequality, and Ms Sinéad Pembroke, researcher. I thank them for making themselves available and for being so patient.

I remind the committee of the format of the meeting, namely, that I will ask each stakeholder to begin with an opening statement. Witnesses are asked to limit contributions to five minutes, and we will then open the meeting for questions and answers.

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

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

I invite Dr. Seán Healy to make his opening statement.

Dr. Seán Healy

We have been waiting a while and it is good to be here. I thank the committee for this invitation. We are grateful for that and for the opportunity to meet the members of the committee and present some ideas. We have supplied the committee with a copy of our Budget Choices policy briefing, which sets out a fully costed budget, comprising all the expenditure and all the sources of financing, producing a balanced budget at the end of the day.

Budgets at the end of the day are about choices and they are critically important to shaping the future of society. The reality is that ten years ago we had a crash of serious proportions. The damage done through the economic and budgetary crisis of the last decade is still being felt by Ireland's vulnerable people. Despite the tremendous recovery in the economy with our getting close to full employment, low unemployment and having tremendous success on a variety of different fronts, the reality still is that almost 800,000 people are living in poverty, the largest proportion of whom are children. We still have a housing crisis, which has removed the most basic of social nets from those living on the edge, and we still have not found the political courage to say that Ireland is a low revenue economy that needs to raise some new taxes, not for it to become a high tax economy but to fund vital social infrastructure.

Interestingly, 15 years ago when we as an organisation were trying to get the Government of the day to deal with the then housing situation and to address some other issues, we were constantly warned about the danger of making those kinds of proposals because they would kill the goose that was laying the golden egg of the Celtic tiger but that goose got cooked. We cannot make any kind of investment because we do not have that money. I remember preparing a detailed policy briefing and meeting the then Secretary General of the Department of Finance for an hour and a half. He said there was no way they could deal with the housing issue to which I replied that a few years down the line we would have housing issues. I was told they were not dealing with it and there was no engagement of any kind. The time for dealing with it was apparently wrong again then.

Now we are in a new space. We hear that everything is flying but we also hear that we should not spend money because the danger is that it could overheat the economy. That raises the question as to whether the time is ever right. We as an organisation are saying that now is the time; this is the time. We need to address the key infrastructural deficits we have. Ireland has the resources and the capacity to build a fairer future for everybody. That would involve us raising a certain amount of additional tax over a period of time. We have set out on page 3 of our briefing document the way in which we calculate that. It would not even change our position with respect to our relative total tax take. If we compare all the taxes across Europe, our proposal would not turn us into a high tax country, it would just maintain our current position. We believe that over a few years we need to raise an additional €3 billion to deal with matters such as the demographic issue, the fact we will have many older people, the housing issue, infrastructural issues such as public transport, rural broadband and a number of other issues. Now is the appropriate time to do some serious work on that.

We talk about the importance of vision. Every politician would acknowledge that they have some vision of what the future should be. We suggest that people need to work for five outcomes - not in any particular sequence but they need to be worked on together - if we are to have a society that values human dignity, equality, human rights, solidarity and sustainability and those types of principles. It is not a question of getting the economy right and everything else will follow. We have been there over and over again and that does not work. The five outcomes to be worked for are a vibrant economy, just taxation, decent services and infrastructure, good governance and sustainability. On page 3 of our briefing document we set out in some detail what that means, which I will not go into now. In the context of where we are at, we would strongly argue that budgets need to be both economically sound and socially fair.

Deputy Colm Brophy resumed the Chair.

Dr. Seán Healy

We are very strong on the choices in our proposals, which when put together are economically sound and socially fair. The European Union's country-specific recommendations for the 2019 budget propose that we should limit the scope and number of tax expenditures, broaden the tax base and prepare for age-related expenditure increases, with all of which we agree. We also welcome the emphasis on the need to improve infrastructure and skills, with which we agree. We also agree with the EU's focus on the need to pay special attention to digital skills, taking account of the new digital strategy and the way the world of work will be transformed by artificial intelligence and so on and the implications of that. We do not believe the Commission has put enough emphasis on the need to address poverty, social housing and healthcare on the scale required. It mentions them but does not give them the priority required.

The sustainable development goals are another matter we consider to be very important. Everybody is familiar with the chart in that respect, which is very colourful setting out the 17 goals, the detail of which we have all grasped. Ireland played a major role as co-chair of the group that put those goals together for the United Nations. Now they are three years old. There are not supposed to be merely a chart on a wall or a desk, rather they are meant to be implemented. All countries have a responsibility in that respect. Let us do that now. We do not believe the plan that the Government has put in place to implement them is sufficient or on the scale required to address them, but it is a beginning. There will be a voluntary report made to the United Nations in July. We are part of a group putting together a shadow report to assist in that. When the Government makes policy decisions, we recommend it should badge each policy decision by the appropriate sustainable development goal. In our policy briefing, which sets all our proposals on the budget, at the top of every page we list the relevant sustainable development goals that apply or that are being met with those particular things.

We propose a slight increase in taxation and investment, particularly in one-off items that do not recur such as social housing, public transport and so on. The proposals we have included are detailed later in the briefing document, which I will cover later. We propose an investment of an additional €1.25 billion in social housing, bearing in mind that we have close to 90,000 households on waiting lists for social housing. As for the idea that if we provide 3,500 social housing units, that would be great gaisce, the scale of what is required needs to be seriously taken on board. The current programme for housing is not of a sufficient scale to deal with the problem that exists. Substantially, that would be our top investment.

Our second would be on healthcare and disability. We propose an investment of more than €1 billion, including a one-off allocation of €500 million to get Sláintecare up and running. We also propose an investment of more than €500 million in a rural development programme to provide for regional development with a very strong focus on resourcing communities because communities have lost out badly. They have not recovered the types of funding they had ten years ago.

On the tax side, the key issues are standard rating all discretionary tax expenditures, removing the tax refund element of the research and development tax credit and introducing a minimum effective corporate tax rate of 6%. We also recommend that taxation on diesel and petrol be equalised, that VAT on the accommodation sector be raised to 13.5% and that VAT on food be raised to that level next year.

There is a detailed run-down of our proposals on expenditure, income and tax changes on pages 16 and 17 and a balancing thereof on page 18. We are happy to answer any questions on those figures. We have a policy framework to deliver the five outcomes I discussed - a thriving economy; decent infrastructure and services; just taxation; good governance; and sustainability. We argue that our approach is economically sound and socially fair and would move Ireland towards delivering a fairer sustainable future for all.

Chairman

I thank Dr. Healy and call Dr. Shana Cohen.

Dr. Shana Cohen

I thank the Chairman for inviting the Think-tank for Action on Social Change, TASC, to contribute to this session. We appreciate the opportunity to offer our input.

TASC is an independent organisation and is not politically affiliated or associated with any institution. We examine issues related to inequality and democracy in Ireland and the EU. The research to which we will refer today and which is in the presentation sent to the committee was largely conducted in partnership with the Foundation for European Progressive Studies in Brussels, which receives money from the European Parliament. Because of who we are as an organisation and our interests, we wish to emphasise in our remarks the importance of addressing the causes of economic and social inequality in the budget. Inequality is not the same as poverty, although reducing poverty rates is a critical objective. Inequality relates to differences in income and access to resources in general such as housing and jobs, which in turn provide economic security and enhanced well-being. We are focusing on inequality because it concerns the relationship citizens in Ireland have with each other and the opportunities they have to improve their lives. It also affects how people view themselves and society, their emotions concerning their social position and their individual self-confidence and ambitions or hope for the future. As shown by the data we sent to the committee, Ireland's inequality rates are approximately average for the EU but, as we noted in our Cherishing All Equally reports and the presentations we sent to the committee, that standing is due to the high level of income transfers from the State to the bottom 40% and the income distribution. As mentioned in the previous session, it can be misleading to compare Ireland to other European Union countries as they have very diverse economic and political histories. In the table presented to the committee, we focus on comparing Ireland to other countries with small, open economies and the United Kingdom.

We believe the budget should aim to address at least some of the obstacles to economic opportunity and the achievement of individual aspirations. Despite the uncertainty of Brexit, as mentioned in the previous session, and the current political and economic challenges to the European Union, Ireland's economic growth is strong and the Government is in a position to invest in areas needed to help individual citizens and households gain more security and establish goals. It is the right time to seriously address economic inequality in the European Union. The table illustrates that our inequality research has shown that the top 10% pay the least in comparison to similar other small, open economies but receive the most in governmental income transfers amongst these countries. Transfers paid essentially refer to taxation, especially the category tax on income and social insurance contributions. The low share of transfers paid by the top 10% in Ireland reflects their low levels of social insurance contributions. The transfers received comprise mostly State benefits such as the old age pension, unemployment benefit and family and child allowances. The top 10% in Ireland particularly benefits from child and family allowances in comparison with the other countries, probably because of the fertility rate in Ireland.

The bottom 40%, on which TASC is focusing, depends heavily on transfers because of low wages and-or lack of secure employment. The research, which compares Ireland to other EU economies, shows it is an outlier because of the low percentage of wages within overall income. Labour income is close to half of pre-tax income in most of the other countries studied but in Ireland it is only a quarter. In the United Kingdom, the most inegalitarian country we have studied, the bottom 40% earn just over a third of their income through the labour market. The flip side of the weak earning power and low wages in the labour market in Ireland is the high levels of transfers received and the low levels of transfers paid. The bottom 40% in Ireland receive almost three quarters of their income in transfers from the State and pay just 4% of their income in transfers or taxes.

We recommend addressing this imbalance by investing in public services such as childcare, which was mentioned frequently in the previous session, that enable more people, especially women, to work and by investing more in social housing. To save time, I will not go into that in detail. I wish to emphasise that investing in public services such as childcare or healthcare avoids the stigma of means-tested benefits in income transfers which tend to segregate particular income groups. Inequality creates social divisions and addressing it requires a strategy to promote social solidarity. It also affects growth. The report sent to us on gender budgeting cites the International Monetary Fund, IMF, as stating that equality can promote growth and, in particular, labour force participation by women. To save time, I will not address female labour force participation in Ireland as the statistics were mentioned quite frequently in the previous session. The gap in the participation rate between men and women in Ireland is close to the European Union average but, of the EU 15, only Greece, Spain and Italy have a larger gap between men and women, so it is an issue in Ireland. Furthermore, going back to the point on low wages, the National Women's Council of Ireland indicates that 70% of part-time workers are women, which prevents them from saving or accessing the necessary support services to improve their position. That again raises the issue of childcare. Not surprisingly, approximately one quarter of the Irish female population is at risk of poverty.

We make four recommendations based on our research. The first is to invest in childcare, although I will not go into the details of that because of what was mentioned in the first session, and to build more social housing, which was also dealt with. On childcare, a point that was not made is that it is good for children and is not just about women's labour force participation. The Government early years strategy report, Right from the Start, published by the Department of Children and Youth Affairs in 2013, identified enhancing and extending quality early childhood care in education services as one of its five priorities. It made a number of recommendations, including that investment in early childcare and education services increase incrementally each year to achieve the international benchmark of 1% of gross domestic product, GDP, by the end of the strategy. The report was published in 2013 and current investment is under 0.6% of GDP. Childcare should not be thought of solely in terms of women's participation in the labour force and it should be remembered that it is good for children.

We did not recommend a figure for healthcare because that was dealt with in the first session. However, we wish to point out that increased access is required, according to our research. Many of the people with whom we have been in touch through our studies do not have access to healthcare because they make too much money but those people may have insecure employment or wages that are too low, so we need to figure out a way for them to access universal primary care in particular even if their wages exceed the threshold to qualify for the medical card.

We recommend two revenue-raising mechanisms. Mr. Sweeney will deal with questions on the first recommendation, which is to raise €294 million by adding a third rate of income tax, of 43%, for incomes above €120,000. The second recommendation is to raise revenue of €1 billion by standardising pension tax relief at 20%. I will conclude by further explaining the pension tax relief. We want to protect universal payments, about which there is no argument, and we believe there is scope to reduce tax subsidies which disproportionately benefit those in the top income brackets. In particular, approximately three quarters of tax relief on private pension contributions benefit the top 20% in terms of income distribution, which group is arguably least in need of such relief. One could say that pension tax relief is ostensibly a way of incentivising savings but it functions more to shelter the incomes of the already privileged. In terms of cost to the Exchequer, the Irish system is among the most expensive in the OECD in spite of our relatively young population. Recent analysis by the ESRI shows that granting tax relief at the standard tax rate of 20% rather than the marginal rate of 40% would yield savings of approximately €1 billion. It further notes that the impact on savings behaviour is likely to be minimal. One does not want people stuffing their pensions full of income because they are trying to protect it from taxes. Our recommendation is to generate revenue through changing the tax relief. I will conclude as I know we are short on time. We welcome any questions from the committee.

Chairman

I thank Ms Cohen. I will now open the discussion to questions from the committee. Deputy Boyd Barrett was the first member to indicate.

Deputy Richard Boyd Barrett

I thank the witnesses from TASC and Social Justice Ireland for their contributions and their good work. I agree completely on the revenue-raising exercises they are talking about. It might be worth elaborating on the logic of how they came to their proposals. It is not talked about much by the Government or the main Opposition party or even some of the think tanks. They talk about prudence, sticking to the rules and not overheating the economy. What is completely left out of the debate most of the time is the need for and viability of increasing the fiscal space through raising extra taxes on sectors that could actually afford it. That could involve the tax reliefs and expenditures currently going to big business and the very wealthy or the fact that higher incomes could be taxed more without taxing those people out of existence. It is great that the witnesses raised those points. Do they not think that we could be a bit more ambitious in that regard?

We need a lot of money to go into public housing. Dr. Healy is right to say that. The list is 144,000 if we include people on housing assistance payment, HAP, and rental accommodation scheme, RAS, transfer lists. If we do not have a housing programme that aims to get close to building that amount of housing, we are not going to solve the problem. Should we not be more ambitious in our revenue-raising efforts? Why stick at 6% for the minimum effective corporate tax rate? Our current rate of 12.5% is low by international standards and, as we all know, nowhere near what is actually paid. It is currently more like 2% or 4%, so why only go to 6%? Why not set a minimum effective rate at 12.5%? Fianna Fáil will definitely scoff at that.

On the higher incomes, we should have one band over €120,000 according to TASC's proposal. Why not more? I honestly ask if anybody really needs an income of €200,000 to €500,000. To my mind, we should have a much more steeply progressive tax system. There was a time, going back to the 1950s and 1960s, when very high incomes had punitive tax. I think a Labour politician once said he would tax them until the pips squeak. Why not be more ambitious in that regard? Have the witnesses any comment on financial transaction taxes? It is a big area in which I think we could raise extra revenue.

On housing, there is quite a bit of debate on what the hold-up is at the moment. I would say it is that on public land, the Government is in insisting on a mixture of social and affordable housing yet it refuses to define affordable housing, which means no schemes can get going because nobody knows the official position on affordability. That thinking is based on the idea that we have got to have mixed tenures but now it is becoming a reason for nothing happening. I believe there is a stigma attached to building public, social housing. That has been the excuse for the various public private partnerships, PPPs, selling off bits of public land, mixed tenure and all that.

Dr. Seán Healy

As to whether we could be a bit more ambitious on the total tax take, we are being fairly ambitious with the total we are proposing. It moves us closer to the European average although we would still be below it. As to why a 6% minimum effective corporate tax rate, we see that as a pro tem item. Our view is that the European Union is moving towards a consolidated situation with regard to corporate tax and that we are likely to head towards a corporate tax rate of 17.5%, much as that might hurt everybody in the Irish political system. Through all the crashes and everything else, the one thing they would never give way on was the 12.5%. It is a kind of icon. I think it will eventually be 17.5% and then I would put the minimum effective corporate tax rate at 10% or 12.5% - we could argue about that. There should be a minimum effective corporate tax rate. If it was put at 6%, it would bring in an additional €1 billion. That is an extraordinary amount. It would come from a relatively small number of sources that are currently paying 1% and 2% by their own admission.

We have not suggested any increase in income tax because we do not believe it is necessary. We are very positive about the financial transaction tax. We did a lot of the research that is behind the proposals for the Irish Government to take it on board. We have not included it here simply because we need to implement it jointly with eight or ten European countries of substance. There are about ten European countries interested in doing this and it will be much easier once Brexit has taken place, whatever kind of Brexit we have. The main resistance to it in the European Union has been from the UK. France and Germany were positive about it.

On the other tax issues, we have suggested things like applying standard rating to those non-pension discretionary tax breaks that cost more than €10 million a year. That would yield €480 million in 2019. That is a very substantial source. Another suggestion is to remove the tax refund element for unused research and development tax credits. We consider the capacity for corporations to pick up unused tax credits to be really scandalous. There is €168 million in that space. We are all in favour of giving the research and development tax credit but one should not get it unless one puts the money in. There is an issue there.

The Deputy asked what we think is the hold-up on the housing question. I think there is almost an ideological resistance to public builds. It seems to me that it has to be done by the private sector in some way or other, according to the Government. As for the resistance to doing work at local authority level, my opinion comes from discussing the housing issues with local authority officials, who believe all of that is going to be taken away from local authorities in the same way that they saw water being taken away. They do not want to put in a big investment and make a big effort and then see it all gone. They are saying to the Government that if it is going to take it, it should take it. The Government does not seem to be ready to take it.

I agree with the comment made in the previous session that we need a housing agency of substance. We ourselves have made some very concrete proposals, including the first serious effort at designing a cost rental system that would allow the public and private sectors plus housing associations and other stakeholders to work together. We have made a very serious effort at putting together a proposal that would not be negatively addressed by the fiscal rules, in other words, the Government would not have a veto on the thing.

That would mean in effect that the money would not automatically all go on to the Government's balance sheet because it would be run as a company. I would see NGOs, the private sector and housing associations involved in it, as well as the Government because the State has much to offer in that space too. There is much that can be done in housing. The failure to deal with what is happening is a scandal because of the fact that supply is not keeping pace in any way with demand. We need to crack this. I have no problem with radical different ideas about how to do it. It just needs to be done. It will cost us money and we have to be prepared to invest.

Dr. Robert Sweeney

On the question of why we are not more ambitious, TASC, the Think-tank for Action on Social Change, decided to focus on areas which we have been researching over the past year, namely, childcare and social housing, as well as health. For that reason, I did not advocate other revenue-raising mechanisms such as raising employer’s PRSI because that is typically not used to fund social housing. There are many ways to raise revenues to fund social programmes. We decided to advocate the things we did because they are pretty uncontroversial. On the issue of pensions, as Dr. Cohen mentioned, most of the subsidies go to the already better-off. The ESRI analysis showed it would raise around €1 billion. Similarly, on the top rate of income tax at 43%, those figures come from Revenue. There are obviously many ways one can do this but one has to deal with the political realities in place, as well as the appetite for them among the public.

It is true that income tax rates were much higher in the past. One also has to look at what other countries are doing. Ireland cannot go it alone in terms of increasing revenue. One has to be cognisant of those two off-setting matters.

Chairman

We are being advised by almost every second group that attends the committee about what they consider is the precarious nature of the current receipts from corporation taxes and the necessity not to use any windfall expenditure, etc. How does Dr. Healy propose to square that circle where, as he alluded to himself, a disproportionate amount of corporation tax comes from a small base of companies?

On the revenue proposal on diesel, the committee is in the process of working on it. There is no question that Dr. Healy has a solid proposal on it. It would result in a substantial rise which would impact on the ordinary person commuting to work, however. Through a series of incentives, we shifted - probably disproportionately - our car vehicle fleet to diesel, meaning many members of the public would get caught out in that proposal. There is also the impact it would have on the haulage and transport industry. Where does Dr. Healy see the real impact of such a substantial hike in that particular area and how that might affect matters?

Dr. Seán Healy

Everyone is saying corporation taxes will not last. We suggest it should be dealt with in one-off expenditure that one does not have to repeat over the next following years. For example, if one builds 10,000 houses with €2 billion, one does not have to build them next year. We propose the money should be used in that way and not put into recurring expenditure which we may not have next time. That would be the main protection.

We have between 25 and 30 suggestions about what to do with taxation. One of the issues is broadening the tax base. That is more important to us, then chasing some of the other stuff.

The issue with the minimal effect of corporate tax rate at 6% is for fairness purposes. There is something profoundly wrong with a situation where somebody with a relatively low income winds up paying 40% on PAYE, along with other levies, social insurance and so forth, while a corporation that is making hundreds of millions of euro in profit only pays 2% in corporation tax. That is ridiculous and profoundly unfair.

Chairman

However, the corporation could be possibly employing thousands of people.

Dr. Seán Healy

Yes, that is correct. However, under our proposal, they still get to keep 94% of their profits. That is not a bad deal by any count. I am not surprised people think we are a tax haven and we get all of this bad press as a result. There is an issue with that.

On diesel and petrol duty, we made a mistake because we believed what we were told about diesel being more sustainable and environmentally friendly. In turn, we then created this space between the cost of diesel and the cost of petrol. We are saying this needs to be rebalanced. We need to increase diesel duty by six cent per litre and reduce petrol by six cent a litre and bring them together. A commercial diesel rebate scheme of five cent a litre should also be put in place because so much of the transport of goods and so forth is diesel powered. There is a hit involved but it is of a scale which is doable without causing significant problems.

We make an argument that the basic tax credits that PAYE workers get should be made refundable. In other words, people should benefit from the full value of them if they do not currently do so. That is an initiative which should be targeted only at the low paid. We have 100,000 people in poverty who have jobs. That grouping needs to be targeted. It is a straightforward way of actually putting a fair bit of money in that direction.

In the earlier session, there was a large focus on auto-enrolment and pensions. I see that as little more than a mechanism for putting more money into the private pensions industry. We need a public pension scheme. We have a contributory and non-contributory pension. Many people do not get the full contributory pension because they did not make enough contributions or get enough credits in their work life. We suggest turning the old age pension into a universal State pension, paid at contributory old age pension rate. Most of the funding would come from standard-rating the pension break. TASC and ourselves suggested this should be eliminated because it is a targeted at the top 20% who are the real beneficiaries of that. The pension should be turned into a universal pension with no gaps and no people falling through it. That would be a much better investment in pension policy.

Subsequently I would be quite happy to see the Government develop funds that people could invest in against their pension or to build up a private pension. I would like to see the Government make some effort to create funds that get away from the huge losses to people paying their pension contribution through the pensions industry.

Dr. Robert Sweeney

Ireland's corporation tax is precarious because we are so dependent on a small number of companies. One way to address that is to raise taxation from alternative sources so that if for instance there is a drop in corporate tax revenues for some policy reason at EU level it does not have such an impact on Irish revenues.

Chairman

I will not respond to all the points the witnesses have made. I would have some differences of opinion on several but I want to state clearly we are not a tax haven, according to the Organisation for Economic Cooperation and Development, OECD, and every other examination. We have a very transparent standard.

If we had more time we could have a longer argument about the effective rate of tax in respect of the 12.5% versus the number of companies who pay it and the witnesses' comments. I am very conscious that it is almost 7 p.m. It has been a very long day and I appreciate the witnesses spent much of it observing the first session. I thank them for coming in to the committee. We appreciate the input in both of today’s submissions and those in our earlier session. I thank the members who are here and particularly the witnesses for giving us their views.

Dr. Seán Healy

If we can be of any help to the committee in working out numbers or considering possibilities it should not hesitate to contact us.

Chairman

Many witnesses come in and provide advice. I appreciate that.

The select committee adjourned at 6.52 p.m. until 4 p.m. on Tuesday, 3 July 2018.

Committee on Budgetary Oversight díospóireacht - Tuesday, 19 Jun 2018

Priorities for Budget 2019: Discussion

Ms Patricia King

Mr. Neil McDonnell

Ms Mary Rose Burke

Mr. Vincent Harrison

Ms Patricia King

Mr. James Coghlan

Mr. Neil McDonnell

Ms Mary Rose Burke

Ms Mary Rose Burke

Mr. Fergus Sharpe

Mr. James Coghlan

Mr. Neil McDonnell

Ms Patricia King

Mr. Neil McDonnell

Ms Patricia King

Ms Patricia King

Ms Mary Rose Burke

Mr. Vincent Harrison

Ms Mary Rose Burke

Mr. Fergus Sharpe

Ms Patricia King

Ms Mary Rose Burke

Mr. Neil McDonnell

Ms Patricia King

Dr. Ger Gibbons

Dr. Ger Gibbons

Ms Patricia King

Ms Mary Rose Burke

Mr. Fergus Sharpe

Mr. Neil McDonnell

Mr. James Coghlan

Mr. James Coghlan

Ms Patricia King

Ms Mary Rose Burke

Mr. Neil McDonnell

Dr. Seán Healy

Dr. Seán Healy

Dr. Shana Cohen

Dr. Seán Healy

Dr. Robert Sweeney

Dr. Seán Healy

Dr. Seán Healy

Dr. Robert Sweeney

Dr. Seán Healy

Committee on Budgetary Oversight díospóireacht -
Tuesday, 19 Jun 2018