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Committee on Budgetary Oversight díospóireacht -
Tuesday, 18 Sep 2018

Priorities for Budget 2019: Discussion (Resumed)

I remind members and witnesses to turn off their mobile phones because they interfere with the transmission. It would be very much appreciated if they did so.

I welcome the delegates from the Construction Industry Federation: Mr. Tom Parlon, director general, and Mr. Dominic Doheny, president. I thank them for making themselves available to the committee. I welcome also the delegates from Chambers Ireland: Mr. Ian Talbot, chief executive, Mr. Paddy Malone, PRO of Dundalk Chamber. I thank them both for making themselves available. I apologise for the delay in starting this part of our committee meeting today.

I advise witnesses that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by it to cease giving evidence on a particular matter and they 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 are 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.

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 thank the delegates again for attending today. I will start with Mr. Tom Parlon. I invite him to make his opening statement.

Mr. Tom Parlon

I thank the Chairman. I am delighted to have the opportunity to address the members of the Committee on Budgetary Oversight. I am just thinking that the attacks normally do not come from this side of the table; from my experience, it is the other side of the table that might choose to have a go sometimes.

I am the director general of the Construction Industry Federation. Mr. Dominic Doheny, its president, is here with me.

I want to give a little background information on the Construction Industry Federation. We represent the entire construction industry. That includes contractors that build infrastructure, commercial and industrial development, housebuilders building everything from one-off housing to developments with 1,000 units and, very important recently, specialist contractors, particularly mechanical and electrical contractors, who build the industrial buildings that attract the likes of Google, Facebook, BMS, the big farmers and so on.

There are approximately 40,000 enterprises working in the construction industry. The bulk of these are considered to be SMEs with fewer than ten employees. Overall, there are about 140,000 people working in the industry, and every month for the past four years nearly an extra 1,000 have been added. This is a big record and indicative of very clear growth. It is a Central Statistics Office figure. Simply put, the economy and society are dependent on the industry for construction but also for employment and opportunity in every community in Ireland. Mr. Martin Shanahan, CEO of IDA Ireland, stated recently that every sector in the economy depends on construction for its ability to do business and its competitiveness. When construction works, Ireland works. The more competitively this industry can deliver construction, the more competitive the economy is generally.

On a positive note, data show that on an annual basis the volume of output in building and construction increased by 20.6% in the first quarter of 2018 compared with the fourth quarter of 2017. Output volumes increased by 30%, 10.1%, and 8.1%, respectively, in residential building, civil engineering and non-residential building work. There was an increase of 18.1% in the value of production in the same period. The value of construction reached approximately €20 billion in 2017, which is just 7% of GDP. On the front page of The Irish Times today, in line with the fact that the National Ploughing Championships are being held in Offaly, the Central Bank states agricultural output has surged to €8 billion. The figure for construction is two and a half times that. It is widely agreed that Ireland requires the industry to account for about 12% of GDP for sustainable economic and social development.

Members will note from our budget submission that we did not have a major shopping list and that we are focusing on the alignment of State bodies and regulatory agencies behind construction rather than on taxation policy measures. Essentially, we believe the majority of key policies have been put in place at national level by successive Governments. What is needed now is better alignment of the State's agents and resources with industry to deliver housing, infrastructure and, important, the workers the industry now requires. The focus is correctly on resolving the housing crisis in the near term. We outline a number of suggested actions derived from the experience of our members on the front line of housing delivery. Our budget submission, however, focuses on two other areas that we are warning must be addressed if the housing crisis is to be solved. Without adequate delivery of infrastructure, residential development will stall, and nationally the thousands of homes we produce will not form the vibrant, dynamic communities that we need.

Second, our budget submission sounds a clear warning that the industry is now facing a wider skills shortage that we must address. For example, a 2018 survey carried out with DIT found that 81% of federation members hired tradespeople but that only 14% of these companies believed there was a sufficient number of skilled tradespeople in the market.

A report we produced in 2016 stated we would require an additional 110,000 workers to deliver on the Government's Rebuilding Ireland strategy and the national development plan. Since that time, the ambition of these strategies has increased while there has been no co-ordinated policy intervention to increase the number of qualified workers - including graduates and apprentices and those in the trade, craft and professional or technological areas - being produced by the education and training system.

To overcome the skills gap in the immediate term, the industry will source foreign labour to meet demand. In the medium term, it is imperative that our own education and training system produce more suitable graduates to ensure we retain the talent, experience and the intellectual property produced in the construction industry over the next decade.

Construction has always had a major impact on employment. As output in the industry increases so does the number employed. Direct construction employment now stands at 137,300 people, just in the first quarter of 2018, and that was an extra 3,900 people since the last quarter of 2017. This translates into almost 6.2% of the total Irish workforce. From 2007 to 2013, the construction industry lost approximately 160,000 jobs, which represented almost 65% of all construction jobs according to the CSO. That loss was the more severe in construction than in any other sector. It is, therefore, in the interest of the wider economy for the Government to work with the industry to attract more skilled workers into construction, particularly from within the education system and the Diaspora. In our budget submission, we call for a number of initiatives that are required to increase the number of apprentices coming into the industry and also to increase investment in traineeships. Delaying action now may mean skills shortages in the near future at a time when demand for construction will be at its highest – this will see increasing wages, rising business costs and a loss of value for money for the Exchequer.

The three issues in our budget submission, housing, infrastructure and skills, all impact on our industry’s ability to build the housing and infrastructure our economy and society require to sustain our recovery. If we work together, we can deliver 35,000 houses per year and the €116 billion infrastructure plan while rebuilding the construction industry and, for the first time in decades, putting it on a stable and sustainable footing for the future. The timely implementation of the national planning framework, NPF, and the National Development Plan 2018-2027, NDP, is paramount, especially in areas such as transport, housing, health and education. Failure to deliver will damage competitiveness of the wider Irish economy with resultant negative impacts on employment, gross domestic product, GDP, growth and exports. We have engaged with State agencies and Government bodies over the past few months to improve the efficiency of delivery of construction activity. Local authorities, An Bord Pleanála, the Office of Government Procurement and SOLAS have all given us a clear message that these bodies are not adequately resourced or motivated to facilitate the delivery of housing, infrastructure and skilled workers.

Important processes controlled by the State that impact on the delivery of construction, such as planning, waste, utilities connections and procurement, are delaying delivery of essential construction. In this budget submission, we are also calling on the Government to increase ambitiously investment in research into construction products and services. Increased innovation is a key step towards improved productivity in the industry. Every euro invested in research into efficiency and productivity in construction will provide good returns to every other sector in the economy. This will improve the competitiveness of the economy and benefit all other sectors. I will quickly go through some areas. In regard to people, the apprenticeship model requires fixing in a number of key subsectors, particularly the wet trades - mainly plasterers, block layers and tilers. A recent survey carried out with the Dublin Institute of Technology, DIT, found that 71% of CIF members do not hire apprentices anymore as they are unable to afford the cost. To repurpose the model, we are suggesting that employers’ PRSI contributions be zero rated for those engaging apprentices in trades in need of stimulus. In addition, SOLAS should introduce apprenticeship trainee grants for a limited time until the shortage of construction apprenticeships has been addressed and payments of apprenticeship fees in phases 4 and 6 should be reintroduced, as part of the apprentice’s training, from the significant national training fund budget that the industry contributes to annually. This measure was removed in 2014. I understand from a recent meeting in the Department of Education and Skills that the national training fund has an excess of close to €400 million at the moment that cannot be accessed.

I ask Mr. Parlon to heed the time if he can.

Mr. Tom Parlon

Our Diaspora is a pool of expertise stored in other jurisdictions at the moment unfortunately. We are trying to target that group. Relocation to Ireland, however, is a major challenge with the cost of car insurance, high rents and lower salaries all cited as issues. We are not making it easy for our Irish people to relocate here. In one area, a skilled worker with seven years experience in construction in Australia, the United States, Dubai or Canada will find that the qualifications he or she gained there are not recognised by Irish authorities.

We have raised this issue for quite a while with SOLAS but it has still not been addressed. We also recommend that the Government introduce a tax allowance for relocation costs to assist the skilled Diaspora return to Ireland and co-fund with industry a marketing campaign to attract people home. Mr. Talbot will probably say there is a skill shortage in his area and right across the board, so we are all competing with each other. We have to promote each particular area, the benefits of each and we will be seeking co-funding for that. Due to the volume of construction activity in the pipeline, we must make it easier for companies to source foreign talent. Similar to other sectors such as information technology, IT, we must now put construction trades on the eligible list for work permits for skilled workers from outside the EU. Due to the introduction in the industry of a minimum wage, recommended by the Labour Court and approved by the Government through last year’s sectoral employment order, these workers will receive good wages and have good conditions. The delays of a minimum of 12 weeks in the work permit section before any permit application is even being considered is ridiculous and does not make any sense in these times of scarce labour supply.

Finally, we need to increase the level of research and development and innovation in the area of construction products and services. Ireland could be an international exemplar in several construction related areas such as data centre construction, building information modelling, BIM, lean construction and other construction practices. To facilitate this, we are asking the Government to establish a national construction research and education forum to increase funding to construction related areas at third level and within the research community.

Delivery of infrastructure is key-----

I am sorry but I ask Mr. Parlon to be brief. Perhaps he could paraphrase slightly as members will have questions.

Mr. Tom Parlon

That is fine and I appreciate that. Infrastructure is key to delivering for Irish society. Public procurement and how contracts are awarded to the lowest price tender is having a detrimental impact on the industry, on members of the industry and on the quality of products. It is not just in construction but across the board. We need a sustainable procurement system that will deliver quality construction and, of course, realistic and robust pricing. We have proposed using the globally recognised "most economic advantageous" tender criteria which takes on board quality standards as well as price etc. It is also important that there is early contractor involvement so that the contractor can be involved at the project management and design stages. Housing is a major issue that everybody is concerned about. We are asking the Government to extend the help to buy scheme beyond 31 December because it provides surety to first-time buyers and to the banks lending to the builders providing the first time houses as well as much stability. We feel that is critical to give confidence to the banking system and the house building community.

The last budget announced Home Building Finance Ireland, HBFI, which was a positive initiative to fund smaller builders that do not have access to international funds. We are nearly 12 months on and there is no sign of that initiative being put in place. We believe that if the HBFI was in place, it has the potential to make house building viable in areas like Tullamore, where our President is from, Portlaoise, Sligo and Kilkenny. Those are areas where-----

I ask Mr. Parlon to move along please. He has been speaking for 15 minutes at this stage and it is too long as an opening statement.

Mr. Tom Parlon

That is fine. Brexit is clearly a concern for everybody but a more robust investment in our construction industry would be quite a buffer to some of the dangers that it poses. I thank the Chair and the members.

I thank Mr. Parlon and I am sure there will be plenty of questions for him. I call Mr. Talbot to make his opening statement. He has heard my remarks on brevity. Every member has a copy of his statement in advance so I ask him to keep it as tight as possible.

Mr. Ian Talbot

I thank the Chair and the committee for inviting us. I am going to share a brief period of time with my colleague, Mr. Paddy Malone as well. We will try to rattle through it as quickly as possible. To set the scene, our budget recommendations over the last three years have focused mainly on the need for investment to make up for the lost decade during our economic recession.

The year 2019 will be important for Ireland as we confront an uncertain world not just limited to Brexit. Our economic competitiveness is increasingly under threat from the high cost of doing business and the general high cost of living across Ireland. Government must focus on addressing the issues contributing to these high costs, from making child care more affordable to increasing the delivery of housing. It must also ensure the secure and affordable provision of energy for all businesses and communities across the country as we face into our obligations for the future in terms of climate change and control. While the economy is performing strongly, the threat to Irish businesses posed by Brexit is severe. Further, Ireland is uniquely exposed to increasing volatility in global trade as other states become increasingly protectionist.

In drafting our submission, we consulted with our chambers, who make up a network of 41 affiliated chambers located in every major town and city and region in the country and represent businesses of all sizes and across all sectors. The message we heard from the network in these consultations was clear: we must focus on the delivery of Project Ireland 2040 and the national development plan if we are to ensure continued growth and we must take steps to boost our competitiveness and resilience, particularly ahead of Brexit.

Turning to infrastructure and a sustainable future through investment in infrastructure, budget 2019 will be the first budget following finalisation of Project Ireland 2040 and it is critical that investments announced in the national development plan begin and that the strategic plans set out in the national planning framework are followed. Investment in infrastructure has been a major concern of business for the last number of years following a decade of under-investment. Given the limited budget package available, the priority must be on capital spending that will address growth-constraining infrastructural deficits and will enable all of our cities to compete for investment and jobs as they drive growth and unlock the potential of their wider regions. Government must ensure that the plans laid out in the national development plan and set in the national planning framework are committed to, met and monitored closely with appropriate key performance indicators, KPIs. We must ensure that Ireland moves closer to the highest levels of public investment in infrastructure in the OECD, the current average at OECD level being 3% to 4% of GDP.

Chambers Ireland has in the past called for the establishment of what has become known as "a rainy day fund". We would like to see the establishment of an equalisation fund to ensure that future shocks to our economy do not lead to a decline in capital investment. We could use this equalisation fund to bridge any gaps in capital investment. Given that we are about to enter a period of economic volatility, we support the commitment of the Minister for Finance, Deputy Donohoe, to the establishment of a rainy day fund. In addition, given the national development plan is underpinned by projections of the economy's potential growth - assumed at a minimum of 2% over the period 2022 to 2027 - we believe that using the fund to support the delivery of the national development plan, should growth fall below the required 2%, would ensure that we do not find ourselves unable to maintain investment in capital infrastructure in times of recession. We also recommend that the Government monitors corporation tax receipts and transfers any revenue generated above profile to the rainy day fund.

I will now hand over to my colleague, Mr. Paddy Malone, from Dundalk Chamber, who will speak in particular about Brexit and tourism.

Mr. Paddy Malone

I will focus in my comments on the Chambers Ireland position on Brexit. Dundalk has its own view on Brexit, on which I am happy to take questions later if members so wish. There is unanimous acknowledgement that once the UK departs the EU the Irish economy will suffer badly, with many Irish businesses likely to suffer adverse consequences. It is likely that current uncertainty is damaging confidence and delaying decision making and investments, which will have an adverse economic impact into the future.

Chambers Ireland carried out a survey of its members, which found that while Brexit presents some opportunities, its presents far more challenges; it will result in a reduction in trade, the return of a hard border with Northern Ireland and it will also have a negative impact on tourism, particularly tourism from across the Border. The number of people crossing the Border to visit areas such as Carlingford Lough, Bundoran and Ballyshannon has decreased and these communities are feeling the difference. In addition, the value of sterling is dropping. The almost certain reduction in trade between Ireland and the UK will have a disproportionate impact on indigenous firms in that they will be less able to react and find a European market.

We have that problem. Most of the members we represent are SMEs. Their first toe in the water in exporting was to the UK and some of them have never gone beyond it. The Government must ensure businesses are supported to diversify markets, upscale their staff, as required, and ensure the tourism industry remains competitive and continues to attract visitors from the UK. The Government should continue to make funding available through the Brexit loan scheme and to expand the funds to support more businesses that may wish to innovate in response to Brexit.

The Strategic Banking Corporation of Ireland, SBCI, ran a seminar in Dundalk last week and we had 200 people without even having to try to attract an attendance. Last March, 500 people attended when we had a similar joint event with Newry and there is huge concern in the region.

SBCI does not see itself supporting retail or other sectors which have been specifically damaged and it is a point Chambers Ireland has made to SBCI.

The tourism industry is a significant source of employment across every region of Ireland. The UK is the single largest source market for the tourism industry and provides a high percentage of the regional tourism business in Ireland, with 41% of UK visitors staying outside of Dublin in 2016. The problem is that with sterling dropping in value, whether it is cross-Border tourism or east-west tourism, that figure is going to fall.

In a recent survey, Chamber Network found that the impact of Brexit on the tourism industry was one of the top three concerns of members. For that reason, we believe the reduced 9% VAT rate for the hospitality sector should be retained.

In addition, it is now more crucial than ever that we promote Irish tourism abroad and seek to attract new visitors from outside of the UK and traditional sources. We must increase the capacity of State agencies to promote Ireland as a destination for new markets to reduce our reliance on the UK, the US and traditional markets.

Mr. Ian Talbot

To conclude, the committee will note that our submission is very comprehensive but we have only touched on some of the core points in this discussion. We make a range of recommendations to Government on how we can support and encourage a culture of entrepreneurship, how we can boost labour market participation, narrow the gender pay gap and support our workforce by tackling issues, such as housing shortages, climate change, skills gaps and investment. I want to stress that making strides towards decarbonising our energy supply is very important.

Ireland is in a strong economic position as we go into budget 2019 with risks ahead. It is an opportunity to prepare for those difficulties ahead, where careful planning and smart decisions will ensure our prosperity is sustainable, so that we are ready to seize all future opportunities and weather the threats. I thank the committee.

I thank you both very much.

I am now going to open the discussion up to members who can ask questions of the two groups. I call on Deputy Michael McGrath.

I would like to welcome our guests and thank them for their patience. I will be brief. I will start with Chambers Ireland. In relation to some of the proposals in its submission on the tax environment for SMEs and for indigenous enterprises, in particular, an issue that keeps coming up is the CGT entrepreneurial relief. Chambers Ireland is looking for an increase in the qualifying threshold from €1 million. It is £10 million in the UK. All the representative bodies consistently highlight that issue. In the view of Chambers Ireland, would it make a real difference if that was increased? Are we missing out on investment, on high-potential start-ups that might choose Ireland as their destination of choice, if we moved on that? Can Chambers Ireland give us a sense, in real terms, of what impact that would have?

Mr. Ian Talbot

We keep coming back to these recommendations. Some of it is because of comparisons with the United Kingdom. We can expect the UK to be even more aggressive in the taxation area as Brexit moves ahead, so we need to be cognisant of our immediate competitors. If we look at areas such as productivity, there are plenty of statistics on productivity that say overall productivity in Ireland looks strong, but there is a very significant difference between the FDI company productivity and that of indigenous companies. From memory, I believe it is 5% for the FDI sector and only 1% to 2% for indigenous industry. We believe we need to do everything we can to encourage indigenous industry to be stronger, more productive and more innovative. Any incentives in the space of capital gains tax and other incentives are welcome. We not looking for reliefs but for encouragement or carrots to incentivise people to get out there and use their intelligence and make the economy more productive.

We feel that there are opportunities there.

Mr. Paddy Malone

I would like to make a number of points on that. I am an accountant by profession although my wife believes it is the other way around. What we find is that the entrepreneurial relief has some appeal but it is not enough. There are a number of businesses in the Dundalk area that have gone into Newry, because the relief is there and they know it. When one is sitting down talking to a business and trying to convince it to stay here it is not possible. Deputy Breathnach will probably be aware of the business I am thinking of, which got a lot of publicity recently.

Many entrepreneurs in Ireland make their money and walk away at an early stage, earlier than they should. The tax relief does not encourage them to build the pot up any bigger, to scale up. When they walk away, they do not go again. They are not quick enough to go back in again. I believe if they built things up to a certain size, they would have a better confidence in going again. Scalability is another issue. They are out too early and we are losing out as a result.

I was involved in one business this week which sold out at less than €1 million and the expectation is that it is going to be fantastic. The guys were quite happy and they did not see a reason for staying on any longer.

My colleagues will no doubt ask about Brexit so I will move on to the Construction Industry Federation, CIF.

I will ask Mr. Parlon about construction inflation, an issue I hear a lot about from people in his sector at the moment. Does he have an estimate of what type of inflation we are looking at now for materials and labour across the construction sector, both commercial and residential, but with a particular focus on residential? We do not want prices to keep going the way they are going. They are going further and further beyond the reach of people, particularly first-time buyers. Can Mr. Parlon give us a sense of what is going on out there in real-life construction projects and the pressures that are there, with costs rising?

Mr. Tom Parlon

The big challenge for the industry is that the costs are rising but the tender prices are not rising accordingly. One of the biggest costs was the introduction of the sectoral employment order, SEO, last year which caused a 10% increase in wage rates right across the skilled workforce overnight.

Was that the sectoral employment order?

Mr. Tom Parlon

A statutory instrument is read into law here and the following day all skilled rates are increased by 10%. We have lobbied Government and there has been no facility to recover that increase. I just noticed out of the corner of my eye concerns expressed over one of our companies which is in financial difficulties. There is no question that it is a difficult environment, with the rate of real inflation. The chartered surveyors have have come up with a figure, I believe, in excess of 6% in the last 12 months. Labour is an increasing cost, which is way beyond what the SEO rates are. If one is hiring bricklayers or blocklayers at the moment, they can practically name their price, because they will move on to another site. Likewise most of the commodities, as soon as they become scarce, have been moving in that wrong direction. The facility to take advantage of that when one tenders, very often particularly regarding State projects, arises where it could be 12, 18 or 24 months before one can go on site following the awarding of the tender. One is then stuck with the fixed price. That is a real concern and is a big challenge for the industry.

When one adds in materials and labour costs, and considers the blended rate of increase, are we at double digit figures, percentage-wise, a year?

Mr. Tom Parlon

I do not think so, no. This is where it is so competitive. I have been saying repeatedly that if and when the Government puts its social housing tenders out, they will get a very competitive response. Offering the lowest price is forcing people into going in below-cost, which does not make any sense. That ends up with cutting corners and people not getting paid in the supply chain, and so on, and probably results in a poorer quality product.

I was at an event this morning where a developer-architect from Dallas told me that construction inflation in Dallas has been running at 1% per month for the last 48 months. We are not anywhere like that. Inflation is a factor and people are scarce.

Product is under pressure now as well. I know that some particular product suppliers who had had their particular facility mothballed over the last number of years are now opening them up. That is expanding now. If we move from the 19,000 houses we built this year to 35,000, however, that will obviously cause inflationary pressure. There is no way around it. Clearly, if the Government starts tendering for the big capital projects it has promised then this will also bring its own inflationary pressure.

Mr. Dominic Doheny

I will just follow on from where Mr. Parlon left off. As Mr. Parlon said in his opening statement, construction is very broad. We can categorise construction inflation into housing, commercial, civil engineering, etc. Housing is probably where the committee's focus is and it is probably the most labour-intensive sector in the construction industry. Inflation will obviously be higher than what the Society of Chartered Surveyors Ireland, SCSI, has said, and it has put it at an average of approximately 6%. I do not think that it is in double digits yet, but for housing it would definitely be just under the level of 10%. That does not factor in the land, however, that is purely for construction. Land brings a completely different result.

I have one final question and it has two parts. Perhaps the witness could be relatively brief. With regard to finance, what is the environment like for getting access to finance and what is the cost of that finance? Typically, then, are the pillar banks lending? I know that it is only up to approximately 60% of a project and at 4%, 5% or 6%. Are builders and developers still paying international funds 10%, 12%, 14% or higher for money, which is then of course added straight on to the price charged of the end consumer? Could the witnesses comment on that? They have acknowledged the home building finance initiative legislation which has yet to be enacted. There will not be a cent released by the anniversary of the announcement, which is really disappointing.

My second question concerns the vacant site levy. What is the feedback from CIF members who own land and are now faced with a 3% levy in respect of 2018, as I understand it, which will be payable next year? It is payable in arrears and will then go up to 7% the following year. Is this working? Do members know where they stand? Are local authorities on top of this and is the information being made available?

I must ask the witnesses to be very brief in their answers as three other Deputies are waiting to come in and I am conscious of our time overall.

Mr. Dominic Doheny

I will answer as briefly as I can to what was a long question.

It was a rather long question in the end.

Mr. Dominic Doheny

Finance is extremely challenging and has become even more challenging. It all depends on where the question is directed but with regard to housing, development finance is extremely difficult to get. The pillar banks are tapering off on this activity at the moment and our members are very much turning towards the mezzanine funders again. These funders are at somewhere between 8% and 14%, depending on the location as it is very demographic-sensitive. One then obviously has to factor that percentage into the end product, which makes some end products unviable. That is a major challenge.

Those who are buying the houses, meanwhile, need mortgages. At a national meeting recently we put the following question to our members. If we had 10,000 extra houses in the system at the moment, would they sell them? The answer was "No" because even if buyers qualify for the potential rules, the availability of mortgages is not there. Most banks are capping out mid-year or towards August, with the applications for the balance of the year then pushed into the following year. This is a major issue at the moment.

The second question concerned the vacant site levy. We as an industry absolutely support the Government's initiative on this. We do not support land-hoarding. One must analyse the matter in great depth, however. There are parts of the country where people might qualify for the levy but where viability is a major issue. If they cannot prove to their banks that their lands are viable then they will never develop them, but the lands will grow more expensive as the levy is applied every year. Some county councils are more active than others in this regard, but we would put a major question mark over viability. The farmers got an exit from this recently, but we have members who have land which is not viable, where they cannot build, for which they cannot get finance, but upon which the levy is being applied. We would put a major question mark on that.

I thank the witness.

Deputy Maria Bailey took the Chair.

I wish to focus on Brexit, which is my own portfolio. I have the same question for both groups, who I thank for their presentations and for being here to take members' questions. Our work as the Committee for Budgetary Oversight is to make budgetary recommendations to the Government. What are the witnesses' recommendations for budget 2019 with regard to Brexit and the construction industry? What are the recommendations of Chambers Ireland with regard to the businesses it represents? I am aware that Mr. Malone has particular issues around Brexit, particularly in respect of Northern Ireland. I would welcome the witnesses' suggestions as to how we could help in that sphere, though we are of course limited. I would also like to hear Chambers Ireland's view on the Brexit loan scheme as it currently stands. Are there improvements that could be made to it? I have heard criticism that the term of credit is quite short and that the credit is not as affordable as it could be.

Mr. Paddy Malone

In response to the question of Brexit and supports, we see that the Government has made some movement on the Strategic Banking Corporation of Ireland, SBCI, and on the availability of funding coming through the pillar banks. This is to be welcomed. The encouragement to look for alternative suppliers and customers is also moving along well and the local enterprise offices, LEOs, particularly the office in Louth, are doing an excellent job in that regard.

As for problems, however, the volatility of sterling is causing particular problems for the retail sector and we are looking for some kind of support for that area. The SBCI will not support retail per se. It will help develop an Internet presence or other such techniques but there are no supports for a straight-forward shop in a town, for example. What we are looking for here is a rates step-down. Louth, in particular, is having its rates revalued at present. Without moving the Border from north Louth to south Louth, we would say that one could reduce the rates by a certain percentage in the most northerly area, Carlingford. Dundalk is next, where one could reduce the rates by a slightly smaller percentage, followed by a slightly lower reduction in mid-Louth, which is where Deputy Breathnach is from. Drogheda might then get some reduction, but not as much. These kind of relieving provisions would help greatly.

What is critical, however, is clarity over the movement of goods. The movement of people is also indirectly related to this issue as 3,000 people cross the Border in Louth each day out of 26,000 crossings on the entire island. I have two employees who travel from Monaghan, travelling in and out of Northern Ireland and through Cullaville in south Armagh to get to work. They then have to reverse that process. One of them said to me that she did not care about being late in the morning but was very anxious to get home in the evening to pick the children up. I cannot argue with her. The implications then of Brexit for a whole host of projects, and for the cost of doing business in the Border area, is significant. Any measures that can target the region would be a help.

A further suggestion in the Chambers Ireland submission is that the living city initiative be extended to every city designated in the national development plan. As Deputy Breathnach will be aware, I have been banging on about this since 2000 and this should have been done for Dundalk years ago. Dundalk has a population of 40,000 and is three times the size of Kilkenny. Kilkenny has the living city initiative allowance, however, and we do not. Dundalk is an industrial town that in the 20th century saw a huge shift away from its traditional heavy engineering base. We then had the impact of the Troubles in Northern Ireland and for 40 years we were bleeding with little help from anybody.

Deputy Colm Brophy resumed the Chair.

Mr. Ian Talbot

In response to Deputy Chambers's question, we have indeed heard comments that the Brexit loan scheme is inflexible. We also hear that people are generally nervous about investing, however, and so are not applying. Overall, then, the Brexit loan scheme is a good scheme but is only one part of the huge amount of resources we need to put into this. Many of those resources are going to need to be in areas such as training and education with regard to dealing with customs procedures, language skills, improved understanding of EU regulations and how they might work in other countries. We need a whole range of supports. Things could always be a bit better and it would be nice to have cheaper rates and so forth but the loan scheme is just part of a range of supports. It is not a solution in itself.

Mr. Tom Parlon

Mr. Malone is obviously in the heat of things but I will come in briefly.

The Government stakeholder meeting on Brexit, which was held in the college in Dundalk, coincided with the WuXi Biologics announcement of an investment of several hundred million euro in the town.

Mr. Paddy Malone

That was the first major manufacturing investment in Dundalk in 40 years, which highlights the point I was making about the Troubles.

Mr. Tom Parlon

The Chinese had no concerns and Combilift has just announced a massive investment there. I was in its facility recently.

The consequences of no deal are so stark that nobody will go there, though maybe we are being a bit complacent about it. Our industry suppliers such as precast players are large and export to the continent to the tune of millions of euro. Roof tile suppliers and companies such as Condron Concrete Works in Tullamore and Shay Murtagh Precast Ltd in Mullingar bring dozens of truckloads of supplies to the UK, as do our cement manufacturers. We built up massive capacity and when our industry dipped the UK was the only outlet. The consequences of no deal would be horrendous but I believe that, at the end of the day, people will back off from it.

Mr. Dominic Doheny

Our members in manufacturing see a solution in opening up new depots in the UK. They will decamp business from their existing Irish facilities and that is a major concern of ours. The cost of insurance has not been talked about much. At the moment, 30% of our construction liability is written in the UK and we are hearing that the insurance companies which are writing it do not have an appetite to open up European or Irish bases. If that happens we will have to turn to Europe for competitive bids and that will mean insurance costs will go up, meaning our input costs go up too.

Mr. Parlon's bucket list is much shorter this year, which is great. I would not be supportive of a relocation tax because I am in favour of fairness in society. Some people in the construction industry who were burned in the downturn stayed in the country and fought their way through and it would be unfair to them. I would like to see other mechanisms pursued and the 2040 plan gives certainty that there will be Government investment in infrastructure and housing over the next 20 or so years. When people see sustainability in the sector they might come back here. I spoke to Deputy Chambers about insurance, which can be a big barrier for anybody who has been out of the country for over five years and wants to come back and set up again. That is an area on which we could focus.

There are also mechanisms in the 2040 plan to address infrastructural challenges such as demographic challenges, climate action and competitiveness. People often think it is just about building a house but it is about the infrastructure around that, which is far more complex. Multi-annual funding is required for Irish Water and we need to seriously look at the subcontracts that will be involved in that.

I fully agree with what was said about the problems with procurement. These go back a long way and have not yet been dealt with. I have never believed that the lowest price is the best price and I always question somebody who comes in too low on a bid as there must be other problems in such cases, which lead to issues around the transfer of risk. I also agree with what was said about the extension of the help-to-buy scheme, which is due to finish shortly. When it was first announced, people said, "But we are not building anything in that price bracket." However, it allowed for certainty in the construction environment in that price bracket in order that banks could give mortgages at that level.

I was not aware of the work permit delays, and I am normally very au fait with the area. I was delighted to hear the points made about that issue. The skills shortage is leading to inflation and we are hearing stories about prices being agreed but people walking off a site because they can get more on another. A huge volume of work is being done by Engineers Ireland, as well as the witnesses present today, in the form of expos and other things which can incentivise people to come back here.

It all comes back to the statutory roadmap which we have for the next 20 years, which gives certainty in the sector whatever the strand of construction or engineering. It will incentivise students to go into apprenticeships, construction studies, mechanical and civil engineering work or other STEM subjects. Significant work is being undertaken in primary and secondary schools, especially in third and fourth class in primary schools. It will not fix the problem tomorrow or next year but there is a long-term plan. The mentality of the short-term quick fix has gone. The 2040 plan does not get enough recognition for being a strong roadmap which gives certainty in the sector.

I agree with the majority of the report but I am concerned about reducing commercial rates. I fully accept that the suggestion is being made in good faith but I wonder how we would then supplement the income of local authorities. Is there an alternative?

Mr. Paddy Malone

Louth has the lowest collection rates in the country. The last time I appeared before the committee, it was below 50%, which led several members to email me asking for the correct figure. I gave them the exact figure, which was 49%. It has exceeded that but not significantly. The rates need to be rebalanced and reduced on a temporary basis. I argued this with the Taoiseach and he said it could not be done because of EU rules. We should seek a derogation for three, four or five years, just to let everything settle. I do not want the Border moved from between Armagh and Louth to between Drogheda and Meath. I want a derogation that comes down through the system. The fact that rates are being revalued at the moment gives an ideal opportunity to do this.

Businesses in the Border region are not paying rates. The collection rates for Donegal, Monaghan and Cavan local authorities are almost as bad, though I do not know exactly what they are. We need to recognise the fact that we are not collecting rates and that if we are only collecting 52% or 53%, it means PayPal, Horseware and other companies are paying while firms on main street in Dundalk and Drogheda are not paying anything. We need to get them to pay something. They might make an effort to pay something they can afford to pay, rather than not even try to pay.

Mr. Tom Parlon

I thank Deputy Bailey for her positive comments. It is expensive for someone to voluntarily relocate. I appreciate the points she made about certainty in the 2040 plan but the Government needs to do more that just tell us about these things. It announced a construction sector group as part of the plan, to be chaired by Mr. Robert Watt, Secretary General of the Department of Public Expenditure and Reform. We welcome this as it will be a good opportunity for us. It proposes a project tracker and this will give more certainty. Our expatriates are well tuned into what is happening here and they hear reports, which the Opposition then usually rubbishes, making them wonder if the projects will happen at all. If the project tracker states that, for example, the Cork-Limerick motorway is due to reach a certain stage in the first quarter, they will be able to see that.

If a person is out of the country for more than two years, they lose their no-claims bonus, which can be up to 50%. I know of one insurance company which sought details of foreign insurance policies when assessing applications. There are simple actions we can take. The help-to-buy scheme is a no-brainer. There were issues about the cost but house building is a major contributor to the Exchequer. If we can double house building, it will be a bonanza for the Exchequer and, while there are issues about VAT, the scheme provides compensation to first-time buyers. The Central Bank restrictions and the lending maximum of 3.5 times a person's income have put a limit on what a first-time buying couple can afford and they have kept massive pressure on the price of houses.

That is a positive thing because it is stopping the inflation that is happening.

Within that, the first-time buyer grant is an absolute essential. One thing about relocation is that if someone has been living abroad for the last few years they do not get the first-time buyer grant. I understand that those people did not make a tax contribution, but maybe it could be revisited at this stage. Getting the diaspora back here is essential to building the infrastructure called for in rebuilding Ireland. Those people immediately become taxpayers, and if they have not contributed previously there is an opportunity for them to contribute then.

We are investing €100,000 of the money of the Construction Industry Federation, CIF, and its members in an initiative to promote the positives of construction. However, that is small fry compared to what it is going to cost to launch a campaign on TV or in cinemas. That is a positive initiative. The industry has a lot of positives. One that is never mentioned is that it is the only industry in the country that has its own compulsory pension scheme. That is a positive that we will be promoting.

Mr. Ian Talbot

I thank Deputy Bailey for her comments, particularly on rates. Just to make it clear, our network has a chamber in pretty much every town in the country and it is each chamber's responsibility to work with its local authority. Mr. Malone's ideas are being pushed with Louth County Council. Chambers Ireland generally helps its members to make their arguments with their local authorities in regard to what is needed for business, the local community, etc. We also take a very strong view that local authorities need money to carry out activities. For example we have been very strong supporters of the local property tax, and we welcome more councils taking advantage of the flexibility to adjust rates by 15%. We do not rush to judgment in favour of cutting property tax. We say that if local authorities raised a couple of million euro more, it could be spent on these activities. It would be possible to generate income and launch community-based initiatives by using that property tax wisely.

I will be as brief as possible. I would like to pay compliments to both organisations. They perform great services locally and nationally. I have a few questions. I am not sure of the wording here - I refer to the strategic housing development, the more than 100 buildings that go directly to an Bord Pleanála. It has been suggested that this body is almost as slow as the local authority, if not slower. Would the witnesses comment on that and on how that could be improved?

Moreover, I refer to the provision of strategic land bank moneys. In County Louth there is one scheme, and to my understanding it is no further along in opening up possible land developments. Granted, that is over two years. I am told it will take another three. How can those be improved?

Obviously there is a need for additional apprenticeships, but I have been experiencing particular difficulty with importing the skills and getting clearance for them. How can that be improved? People who are staying in hotels and bed and breakfast accommodation are asked for such items as household bills, which in the main they do not have. How can we fast-track that?

I have a serious concern about the issue of procurement in a pre-Brexit or post-Brexit situation. Mr. Parlon referred to the issue of road construction. The main players from the north east and the Border counties tend to operate in the south of the country. However, the massive players are Northern Ireland rural construction companies. What has been done to ensure that those gaps are filled? If standards are not the same, or if there is any deviation, we could be left with a dearth of opportunities to open and expand road construction.

I know Mr. Malone will not like to hear me saying this. WuXi Biologics and the various developments that Dundalk was able to attract were referred to. It was probably able to attract them because of the chamber of commerce and the excellent communication between the colleges and the local authority to bring about improvements. Is there a danger that places will become unattractive because of the unavailability of housing? That is a serious concern I have. We are dealing with students and an influx of people who are coming in from outside to help provide employment in these factories. Unless we do something strategically to ensure that the landbanks are there, I worry that places are in danger of becoming no-go areas because people will not be able to get accommodation.

I ask speakers to keep their replies quite brief. The Dundalk budget select committee is currently sitting.

(Interruptions).

I am conscious of time for everybody involved. It is 6.30 p.m.

Dundalk is an exemplar.

Mr. Dominic Doheny

Within our organisation we have done a poll on people's experience with the strategic housing unit. As Deputy Breathnach said, it is for housing schemes in excess of 100 units. The feedback we are getting is that it is working very well once it gets to the board. However, that is not when the process commences. The process commences with the informal meetings that one has to schedule with the local authority, etc. That is where the delay is. We were recently before the board, and we voiced our concern about delays that our members are experiencing in scheduling those meetings and the prolonged engagement, or lack of engagement, we have with the local authority before the issue reaches the board. The board members took account of our concerns and said that they would look into them. That is an area of great concern for us.

I will refer to procurement, which Mr. Parlon will also address. That dovetails into the Deputy's last question on the unavailability of manpower, etc., in the regions. I also chair the regional committee of the Construction Industry Federation. Procurement is extremely hot. The lack of any sort of common procurement policy across all agencies is causing major concerns. Let us take for example the HSE, the Department of Education and Skills, the local authority or Irish Water. While we have a national procurement organisation, its policy is not adopted by all. That is a major concern. There are different rules in every county. There is no commonality between them, and therefore our members are losing out hugely. I am sure that Deputies experience that on the ground.

Local contractors are the backbone of a lot of local communities. If we start losing the small and medium-sized local contractors a cohort within the community will be lost. If people can be employed locally it is a reason for them to stay at home. If procurement is not addressed, there is a risk of losing that cohort within our industry, which is a major concern.

Mr. Tom Parlon

There is no question that the point Deputy Breathnach made about WuXi Biologics, foreign direct investment and the cost of housing is a concern. Clearly we have to be careful about voicing concerns in that we might be cutting our own throat. It has not stopped the investment yet, but it is a growing challenge. That is why we need to invest in both resources and encouragement. There are massive delays with the likes of An Bord Pleanála. There was a period when it did not have enough people and issues were going on forever. In the section of the Department of Employment Affairs and Social Protection that deals with work permits, there is a ridiculous 12-week delay before an application is even considered. Where would one find the likes of that in any commercial business? The Department says it does not have the resources, people are on leave and so on.

I refer also to the Environmental Protection Agency, EPA. The very strict regulations with regard to building waste are now a factor. The waste may be soil and stone, and if construction takes place on a brownfield site, God knows what is there. All that waste has to be examined and a determination made on whether it needs to go to a special landfill. In some cases it has to be exported. One cannot get a section 27 licence from the EPA because it does not have the resources to examine it.

We are a budgetary oversight committee, not an environment committee so I will bring us back to-----

Mr. Tom Parlon

There are concerns for the industry in this regard in the context of spending. Has the State the capacity to build the additional houses or to spend the €116 billion? I believe that we have more capacity than State agencies at the moment. They have run down their personnel and that needs to be built up. We met the Minister for Finance and his officials earlier and we said that is the big focus. The Government's own bodies should be examined and some investment should be put into them.

Mr. Ian Talbot

I thank the Chairman. I will briefly stick out my proud chest on behalf of Mr. Malone to give my thanks for the work that Dundalk and all of our chambers of commerce around the country are doing to profile and promote their local areas.

On procurement, we should recognise some of the great value that is being put in place through the Office of Government Procurement and the work it has done to develop skills, but there is still a job to do. That group was set up at a time when the economy was going backwards and it did a great job to save money at the time. Now as we need to expand significantly, we need to look at how the expertise it has built up is rolled out and, as Mr. Parlon said earlier, consider the economic value rather than just the cheapest price. Second, on the point of whether housing will hinder job creation, there are many issues at play. We have covered some in our submission such as maximising the workforce available and making sure that people in houses in an area can go to work because child care facilities, for example, are provided. Do we also need to improve the use of the housing stock that we have so that people move through a life cycle of housing stock? In that case the right mix of apartments, family homes and retirement homes is also needed. There are many things we can do beyond asking whether we can just get bricks and mortar out there. In the short term, trying to maximise the number of people we can get working is an objective.

Deputy Cowen has indicated that he has a brief question and I ask the witnesses to keep their replies equally brief.

I apologise for being late and I thank the witnesses for their submissions. Mr. Parlon and Mr. Doheny mentioned in their submission the lack of available finance at competitive rates. That is something we heard last year and a commitment was made in the budget which has yet to be rolled out on the ground. Is the CIF any closer to accessing that funding following its deliberations with the Department? Some €750 million was announced in the budget but it has not come to fruition.

Mr. Dominic Doheny

We are still waiting for it. It was promised last year and it still has not been brought to market yet. It is a major obstacle to the roll-out of houses especially and, as I said earlier, the pillar banks have a significant restriction on lending to developers. Even for sites with planning permission a lot of private equity has to be brought to the table before a development can be brought over the line. That is leading many developers to re-engage with the mezzanine funders and they charge between 8% and 14% depending on the location and demographics. That is making many demographic areas unviable for housing delivery.

I thank Mr. Doheny. With that reply, I will draw our session here to a conclusion. I thank everyone for attending. There was a good exchange with the members and we covered a lot of ground. I note again the delay at the start but we thank the witnesses for bearing with us.

The select committee adjourned at 6.40 p.m. until 2 p.m. on Wednesday, 19 September 2018.
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