Committee on Budgetary Oversight díospóireacht -
Wednesday, 12 Jul 2023

Summer Economic Statement 2023: Discussion

An Cathaoirleach

I welcome the Minister for Finance, Deputy Michael McGrath, the Minister for Public Expenditure, National Development Plan Delivery and Reform, Deputy Donohoe, and their officials.

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

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or any official, either by name or in such a way as to make him, her or it identifiable. I remind members of the constitutional requirement that they must be physically present within the confines of the place the Parliament has chosen to sit, namely, Leinster House, in order to participate in public meetings. I will not permit a member to participate where they are not adhering to this constitutional requirement. Any member who attempts to participate from outside the precincts will be asked to leave the meeting.

I invite the Minister for Finance to give his opening statement.

Minister for Finance (Deputy Michael McGrath)

I thank the Chairperson for the opportunity to attend the committee alongside my colleague, the Minister for Public Expenditure, National Development Plan Delivery and Reform, and our officials to discuss the summer economic statement published on Tuesday of last week, which sets out the fiscal parameters for budget 2024.

I will begin by briefly outlining the economic and fiscal context for the upcoming budget. Our economy has weathered a series of unprecedented challenges remarkably well. The level of modified domestic demand is well above its pre-pandemic peak, with little if any evidence of scarring to the economy from the shocks. The underlying strength of the Irish economy is particularly evident in the labour market. There are more people at work than ever before, with the unemployment rate at its lowest in modern history. Inflation is on a clear downward trajectory and the ongoing easing in energy prices will help support growth through the remainder of the year.

On the international front, the economic outlooks remains uncertain and weak. According to the OECD's summer economic assessment, global GDP growth this year is expected to be 2.7%. With the exception of the pandemic-hit year of 2020, this is the lowest annual growth rate since the global financial crisis. Growth is expected to see a very modest improvement next year. Much of the growth is disproportionate and is expected to come from China and emerging markets. Growth is slowing in many of our key export markets as the impact of significant monetary policy tightening in most regions weighs on demand. The outlook among Ireland’s main trading partners is particularly weak, with growth of 0.9%, 1.6% and 0.3% projected this year in the euro area, the United States and the United Kingdom, respectively. Irish exports will not be immune from weaker external demand, although headline exports may continue to benefit from the resilience of exports in some multinational-dominated sectors.

In addition, we cannot ignore the potential impacts of the war in Ukraine. The uncertain course of the war could very well lead to further disruptions in global energy and other commodity markets, including food.

To summarise, on the domestic front, it is clear that the economy is operating at full capacity, having rebounded strongly following a series of negative supply-side shocks. Internationally, however, the overall outlook remains muted, with downside risks to the fore, despite the fact that energy prices and inflation are now, thankfully, on a downward trajectory. I am, of course, acutely conscious that despite our strong economic performance, there are still may challenges facing our economy and society, and I am particularly conscious of the impact of the high level of inflation that our society has been experiencing for the past while, and the income that is having on households and many businesses all over the country.

Core inflation has been more persistent than expected, reflecting continuing capacity constraints, lagged pass-through of energy prices and some evidence of growing profit margins. The rise in interest rates, while necessary to curb inflation, has placed a greater burden on households and businesses. This also has implications for government borrowing over the medium term. We have demonstrated consistently that we will act when appropriate and as needed to maintain public services and protect incomes. Over the past two years we have made available €12 billion in direct support to help offset some of the impact of inflation. However, it is important to emphasise that Government has a responsibility to strike a delicate balance between addressing the issues of today and ensuring that we are prepared for the challenges of the future.

At the headline level, our public finances are performing well. For the first half of the year we are, broadly speaking, where we expected to be in respect of tax revenues. Significant budgetary surpluses are in prospect for the next several number of years. However, beneath the surface, there are real vulnerabilities. The Minister for Public Expenditure, National Development Plan Delivery and Reform, Deputy Paschal Donohoe, and I have said on many occasions that the exceptionally high growth in corporation tax we have seen over the past several years is not sustainable. These receipts are welcome but will not last forever. Estimates by my Department suggest that half of the entire corporate tax yield this year is potentially windfall in nature and that is why it is so important that Government follows a fiscal strategy that strikes the right balance: one that allows for continued investment in our public services and infrastructure, but also maintains our public finances on a positive path.

I believe the strategy which Government set out in the summer economic statement, SES, last week achieves this. Budget 2024 will comprise a total package of €6.4 billion, consisting of slightly above €1.1 billion in taxation measures, and new core expenditure of just over €5.2 billion. This brings core spending growth in budget 2024 to 6.1%. I recognise that this is above the original 5% target that was set out in Government's medium-term strategy two years ago but, as the committee will appreciate, that strategy was framed in a radically different context. A realistic fiscal strategy must take into account the prevailing economic environment. Adjusting the fiscal parameters for budget 2024 makes sense in a context where even though inflation is easing, prices remain elevated. It give us the additional flexibility that we need to maintain the real value of public services, to invest in the productive capacity of our economy, and to adjust tax credits and bands so that workers do not face a higher tax burden just because their wages have risen.

Is there a vote?

An Cathaoirleach

A vote has been called, but I notice that there are four Government representatives present and four non-Government. We have the same online. Are we happy to proceed? Agreed. The Minister may proceed.

Deputy Michael McGrath

I thank the Chair. The strategy set out in the SES also represents an important step forward in how we approach the issue of windfall corporation tax receipts. Across the period 2024 to 2026, €2.25 billion of this windfall will be deployed to support additional infrastructure projects. This form of capital investment will be contingent on windfall receipts remaining at elevated levels and it is intended that investment will be used for projects that can actually be delivered within the time period. The Minister for Public Expenditure, National Development Plan Delivery and Reform will provide more details on this.

We are also very much aware of the risks of using temporary windfalls to fund permanent spending. We are not going to make that mistake. Instead, we recognise that these revenues are temporary. We will take advantage of some of this windfall to build improvements to our economy that will continue to pay dividends long after these transient receipts have fallen away. We are also setting aside some of the windfall to build up our fiscal buffers and ensure that we can face future shocks from a position of strength. Some €6 billion in windfall receipts have been transferred to the National Reserve Fund over the past 12 months. In addition, work is currently well under way on proposals for a new long-term savings fund that will allow us to invest excess tax receipts to prepare for the challenges on the horizon, including the long-term structural pressures from an ageing population, and the digital and climate transitions.

Parallel to that, we are working on proposals for an additional public investment fund to be utilised during an economic downturn. In the past, during challenging economic times, we have had to cut back on capital investment, which has had a negative impact on employment and our future growth prospects. It is intended that this fund will help maintain capital investment during an economic downturn, thus supporting jobs at a critical time, and ensuring that major infrastructural projects are delivered. I intend to bring proposals in this regard to Cabinet over the coming weeks.

The strategy announced in the SES is a roadmap for building on the progress that we have made. It ensures that we have the flexibility to respond as needed to the challenges of today and those we will face in the future. We have come a long way over the past few years, but there are more challenges that must be addressed, and the SES provides a roadmap for how we will do so. I thank the Chair.

An Cathaoirleach

I thank the Minister. I will ask the Minister, Deputy Donohoe-----

Deputy Bernard J. Durkan

I just got word from the Whip's Office that I have to go to vote. I am not allowed to pair.

An Cathaoirleach

Well we still have five against five, so we are okay.

Deputy Bernard J. Durkan

I am sorry about that.

An Cathaoirleach

Best of luck to Deputy Durkan. We will proceed.

Minister for Public Expenditure, National Development Plan Delivery and Reform (Deputy Paschal Donohoe)

I thank the Chair. The Minister for Finance, Deputy McGrath, has covered off the general economic outlook, so I will go right to the section of my speech that focuses on our medium-term expenditure strategy.

As the committee will be aware, the two most recent two budgets utilised a dual approach of revising our medium-term expenditure strategy while utilising supplementary non-core funding for external challenges. This combination of temporary and permanent support measures was a conscious attempt to avoid adding to inflationary pressures and the Government will continue with this balanced approach to the public finances.

In line with best practice, as the overall economic picture stabilises, we are committed to a path back to the medium-term expenditure strategy growth rate of 5%. However, we are also acutely aware that price pressures remain in the short term, and on that basis, the strategy for budget 2024 will be to continue to help society to deal with the challenge of higher prices in our economy. In drafting our expenditure policy, therefore, we will once again strike a balance between the need to maintain services and improve living standards, while consciously trying to avoid adding to inflation. It is in the context of these short- and medium-term considerations of the economy that we have framed our strategy for the SES.

The objectives are twofold: to ensure that the level of core expenditure growth is sustainable and that investment in expenditure protects and delivers improvements in public services. The framework must be responsive to the economic landscape and is, therefore, part of the whole-of-year budget process. While the expenditure strategy was developed, it was designed against the backdrop of a long-term inflation rate trend of 2%. With a rate of 8.1% in 2022 and an expected rate of 4.9% for 2023, adjustments were made to the strategy in those years to respond to the economic landscape characterised by external shocks. The present strategy will take account of the nature and residual effects of exceptional globally-driven events. Another adjustment to the strategy is required to respond to the impact of higher prices and the maintenance of higher prices.

As we did last year, we are taking an approach that looks to maintain and improve public services while trying to avoid adding to inflation. Since late 2021 and early 2022, inflation has increased above the trend rate of 2%, and this has posed a risk to the value of public services and the purchasing power of households.

The Government is conscious that while price pressures remain high for now, the forecast rate is for a drop for 2024. The adjustment to the expenditure growth strategy takes account of the expectation that inflation rates will gradually return to the trend.

The summer economic statement sets out the key parameters for budget 2024. The parameters are comprised of three main components, each of which I will outline separately in more detail. These components are core expenditure, the day-to-day operation and services delivered across the public service and the investment in the capital assets that produce them which is the vast majority of annual public expenditure; non-core expenditure, that is the spending on non-routine and temporary exceptional items such as the response to the war in Ukraine, Covid and Brexit; and a new, temporary component of limited windfall receipt capital investment that will be invested in capital and long-term public priority projects like the climate action fund. This is separate but additional to the core and non-core elements that the committee has discussed in the past.

Compared to the position set out in budget 2023 the new parameters will see core spending increase by 6.1% for 2024. This delivers a total expenditure ceiling of €95.5 billion for 2024 as set out in the summer economic statement. This funding will support and improve core services to households and business; continue the extensive humanitarian response to refugees from the war; and continue to support an economy dealing with the legacy impacts of the Covid pandemic and Brexit. This adjustment will result in an increased overall expenditure package of approximately €5.2 billion. This is around €1 billion additional over that set out in the stability programme update. A further €1.1 billion is provided for tax measures and additional amount of €250 million from windfall receipts is being made available for additional capital investment. Therefore, the largest component of the expenditure element of the budget is core expenditure, that is our day-to-day current spending. For 2024, €91.2 billion of core expenditure will provide for both the ongoing support of and improvement in public services and additional public investment. This funding includes €2.3 billion, or approximately 3% of the core current expenditure base, to meet existing levels of service costs. This includes funding for demographic developments; funding carry-over costs from previous budget decisions; and meeting existing public service pay commitments such as the extension to Building Momentum. There will be a €0.9 billion increase in national development plan capital expenditure. This will result in the overall core capital investment reaching some €12.6 billion with an additional €0.2 billion as part of the national recovery and resilience plan, NRRP. This represents an increase of approximately 8%, in line with the national development plan out to 2030.

Some €2 billion will be available for new current expenditure measures next year. This must accommodate priorities across a wide range of policy areas including spending on social protection, which currently accounts for around a third of core current spending; and government commitments in relation to housing, climate change, childcare and health and any charges with regard to public pay. I will be working with my Government colleagues in the coming months to agree on the various measures to be included in the budget in line with Government priorities, to ensure we sustain our investment in public services.

The next component of the budget is non-core expenditure. For 2024 the Government is providing €4 billion of non-core expenditure, that is spending that is not part of the day-to-day recurrent expenditure, or core to the work of a Department. This reflects the Government's two-pronged approach to fiscal policy and expenditure management, where non-core funding has been used as an additional tool to strengthen our response to economic and social issues.

This funding will provide mainly for the continuation of our extensive humanitarian support for refugees from the war in Ukraine of €2.5 billion and continued Covid measures where required of €750 million. The revised strategy provides an increase of 6.1% in core expenditure for 2024. This is a €1 billion increase in funding and resources for budget 2024 but must accommodate a range of priorities. We cannot meet all the competing demands on public expenditure but we can provide support to those most in need, continue to invest and improve our public services and invest in our public services.

The final component for the 2024 budget strategy is for the provision of additional capital investment from existing budget surpluses. Following discussions with the Minister for Finance I can confirm that for 2024 out to 2026 there will be an additional €2.25 billion of capital funding allocated to the delivery of vital infrastructure projects and other Government priority projects such as the climate action fund. This funding is additional investment that will be sourced from the Exchequer windfall receipts. Recognising the capacity constraints across the economy, it is intended that the additional funding will target suitable projects that are ready for development.

This year has presented further challenges to all of us but careful management of our economy and public finances has allowed us to respond to many of these challenges while overseeing the growing health of our public finances. Our economy and our people continue to show resilience. The policy path set out in the summer economic statement continues the dual strategy of adjusting public expenditure growth with the use of supplementary non-core funding for external challenges. Importantly the strategy signals that with price pressures forecast to ease as we move into 2024, we can plan for a smooth return to the overarching anchor of 5% public expenditure growth from 2025 onwards.

An Cathaoirleach

With the agreement of Fine Gael, Deputy Doherty will go first as he must leave the meeting early.

Deputy Pearse Doherty

I thank the Chair. I welcome the Ministers. I am under pressure so I will start with a question. Yesterday, the Minister spoke about the scope for one-off measures. How will that be calculated in terms of the summer economic statement? Where is the scope for these measures? Will they take effect in 2023 or 2024 or, indeed, both? Will the Minister clarify the funding source for the measures whether it will be windfall receipts, discretionary tax raising on budget day or under-spends in departmental profiles?

Deputy Michael McGrath

At this point the Government has not decided on any additional one-off or temporary measures. We have indicated it is likely there will be some but the budget is still three months away. It will be a matter of judgement closer to the time, given the circumstances we face, such as inflation and the cost-of-living pressures people are under come October. The pathway in relation to changes in wholesale energy prices and prices for energy customers will be a consideration. We are three months away from the budget and we will take a view closer to the time about what may be appropriate. Last year we were in a different space. Inflation averaged more than 8% across last year. It is now about 5.5% and falling but we are conscious that price levels remain really high for individuals. No decision has been made but it is likely there will be some measures.

On how they will be funded and the spread of time for their application, no decision has been made as to whether they will be immediate or spread over a period of time. Last year, some were within year, 2022, and others were provided for in the following calendar year but we are not at the point of making that decision. It would be funded with additional in-year expenditure for any expenditure that occurs within 2023. It is not the case that we will have to raise additional discretionary revenues to fund it.

We are conscious, of course, that the Minister for the Environment, Climate, and Communications, Deputy Eamon Ryan, is bringing in measures in this regard, including a temporary solidarity contribution in respect of fossil fuels and a market cap on non-gas electricity generators. This will raise some revenue this year and some more next year. We have committed that this revenue will be recycled and returned to people either by way of reduced market charges or by Government decisions to introduce different measures.

Deputy Pearse Doherty

It could go beyond that. Is that possible? Is that what is being said? It could eat into the general Government balance, potentially?

Deputy Michael McGrath

It is open to the Government to make that decision, but we have not made it at this point. We are still so far out from the budget that we think it is too early to come to a firm view as to what might be appropriate.

Deputy Pearse Doherty

The idea that some of these revenues may come from windfall taxes, though, has not been ruled out given these measures will be once-off in nature. Would it be fair enough to say that?

Deputy Michael McGrath

Anything additional to what we are setting out here would be once-off or temporary nature. We have, though, made no decision as to the detail of any of these measures in this regard yet. It is just far too early.

Deputy Pearse Doherty

Turning to the long-term savings vehicle, the Minister outlined that he wanted to address the longer-term challenges the State will be facing arising from having an ageing population, demographics and health issues. The Minister has departed from this position. I understand he is now talking about two different funds. One would be a capital fund. The other would be what the Minister had initially intended. This is a welcome departure. We need a catch-up investment plan. Regarding the two funds the Minister is now talking about, has he any estimation, and I am not asking him to give me the numbers, in respect of where he sees the sizes of these funds relative to each other. Does he see them as equal? Does he see one as a small fund and one as a large fund? Is this something on which he can elaborate?

Deputy Michael McGrath

There is a sequence to this. The first step will be for the Government to make a formal decision to establish a long-term savings fund and a countercyclical public investment fund. I anticipate that the Government will make this decision in the coming weeks. The decision to be taken then is concerned with how much money we will put into the respective funds and it is one we will take in the context of the budget. This is a question the Minister, Deputy Donohoe, and I will discuss and consider. We will also engage with the party leaders before coming to a final view as to how much money should be populated into these respective funds.

In terms of scale, it would certainly be the case that the long-term savings fund will be of a far greater magnitude. The idea of the public investment fund, principally, is to ensure that in the event of a downturn or a shock, capital expenditure will not suffer in the way it did in the past when we had a cut of about 60% from peak to trough. In the event, then, that we hit a shock or a downturn in future, this fund is intended to enable us to continue to invest through the economic cycle and smooth out the level of public capital investment over that time. This is the essential purpose of such a fund. This is all subject, though, to a formal Government decision, which I expect will be made in the coming weeks. There will need to be a general scheme. The Oireachtas Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach will of course have an opportunity to undertake pre-legislative scrutiny on such a proposal. I anticipate that it will be in the early part of next year when we will, hopefully, pass legislation to set up such funds.

Deputy Pearse Doherty

That is fine.

Deputy Michael McGrath

I am not in a position, however, to put figures on these proposals. As the Deputy knows, though, we published the scoping paper-----

Deputy Pearse Doherty

Yes, I got that.

Deputy Michael McGrath

-----to set out scenarios In this regard.

Deputy Pearse Doherty

That is helpful. I am sorry for interrupting the Minister, but I have a few other questions.

The problem for this committee is that we are reading about these proposals. I am not going to get into an argument, but we sometimes find out more information from reading The Irish Times and the Irish Independent. Articles have been published today suggesting that this fund will have a minimum of €35 billion or some figure of this nature by 2030. I know the Minister has not done this but somebody obviously has provided this information. The contents of these articles tend sometimes to be accurate and a bigger and longer conversation is to be had concerning this committee and the preparation of the budget, but I will move on.

Regarding capital project delivery, what we have seen here is that an extra €250 million will be allocated from windfall capital investment in 2024. Will the Minister outline if this is the money that is being set aside for the national children's hospital? We understand there is a bid in with the HSE. Will the Minister elaborate on what this bid is?

An Cathaoirleach

These are probably questions for the Minister, Deputy Donohoe.

Deputy Pearse Doherty

Yes. The Irish Fiscal Advisory Council, IFAC, has made it clear that when we look at the allocations set out in the national development plan, we can see that two things have happened. We are spending less. Capital spending has been revised downwards, while inflation has increased. We are going in the wrong direction in capital spending. I know this is increasing nominally but we are not meeting our targets. We are getting less bang for our buck and we are spending less than was planned. This is crazy given the pressures we have in housing, etc. The IFAC has pointed out that what was planned to have been done by 2025 will have been missed by 24% in terms of capital spending. This causes alarm bells to ring. Spending approximately €250 million next year, or €2.25 billion to 2026, does not cut it. What rate of construction inflation has been factored in? What will this do to the real level of capital expenditure in 2023 and 2024?

Moving on to the tax base, and this question is for the Minister, Deputy Michael McGrath, that underpins the summer economic statement, does this include the application of pillar two of the OECD tax agreement, which will see us having an effective corporate tax rate of 15% and which will have a benefit for us? Does it include the increases in the carbon tax earmarked for next year? Does it include the non-indexation of income tax rates and bands? How are the windfall tax and the solidarity contribution in the energy sector factored into the taxation context? There is a bit of detail involved in these aspects but I ask the Minister to answer as best he can.

Deputy Michael McGrath

I will take some of the Deputy's questions and the Minister, Deputy Donohoe, will comment on the capital expenditure issues.

Deputy Pearse Doherty

Perfect.

Deputy Michael McGrath

I have not provided any figures either on the record or off the record concerning what will be going into a future savings fund, but we published a paper which set out scenarios. Perhaps those figures which have been quoted came from that. I do not know. We hosted a policy conference yesterday in the Central Bank of Ireland on the idea of future-proofing the public finances. We had several international speakers and there was much helpful advice based on the international experience of setting up and operating such funds. We can certainly take that on board in future. We do, though, have significant decisions to make because we are in the fortunate position of running significant budget surpluses. I believe the context of a budget is the appropriate time to set out a plan for the management of the finances for the next period of time.

This will include looking at the national debt to explore if it makes sense to reduce it, if there are opportunities to reduce the annual servicing costs and the appropriate scale of a long-term saving fund to meet the costs that will definitely be coming our way. Consideration must also be given to the role of a public investment fund in respect of ensuring we can sustain high levels of public capital investment over the next several years. Feeding into all that, of course, will be an understanding of where we are going to be on the fiscal side of things. We will be refreshing all the forecasts we have, including the macroeconomic forecasts but also the fiscal and budgetary forecasts, on budget day. All this has to be worked through to ensure the decisions we are making in respect of the national debt, the savings fund, the investment fund and where we are in terms of future surpluses are all fully integrated and co-ordinated. This can really only be done in the context of a budget.

Turning to some of the Deputy's specific questions, the implementation of pillar two is factored in and assumed from 1 January 2024. The Oireachtas has already legislated for the carbon tax increases until 2030, so this is baked into the base level in terms of our numbers. Regarding taxation, as the Deputy knows, the spending rule is a net one. The figure we have put in for taxation of €1.1 billion for next year is a policy decision but this does approximate to the amount of revenue non-indexation would generate in the event of a Government deciding not to do anything with the tax system. It does generate approximately that amount. This is why the full 6.1% of expenditure increase is on the expenditure side. The tax side, essentially, would generate that amount of revenue if we were to do nothing. We could go further, but we would then have to raise additional revenue by way of further discretionary revenue-raising measures.

Deputy Paschal Donohoe

I will come in on the questions which were relevant to me and I thank Deputy Doherty for posing them. We have not made any decision as to where the €250 million will be allocated. As I noted in my contribution, we will do all we can to avoid spending that money in any way that adds to inflationary pressure within the economy. Regarding the critique from the Irish Fiscal Advisory Council, IFAC, that was referred to, if we are in a period of prolonged inflation it undermines the purchasing power of our capital expenditure plans. However, on the other hand, IFAC, has also warned us that it has also indicated it has concerns regarding how we are already planning to increase capital expenditure by €2.25 billion and it offered a critique of that as well. Therefore, we have to get the balance right. We are bringing forward additional capital expenditure to allow new projects to go ahead and preserve the real value of our capital expenditure in the time ahead. If we were to add any more than that into our economy in the time ahead, particularly across next year, it would further provoke the inflationary pressures about which IFAC warn us so much. Therefore, on one hand, I accept the value of our spending plans could be affected by high inflation, but on the other hand, adding further to our capital spending plans in the time ahead has already received some critical comment from IFAC and we have to get the balance right.

Deputy Bernard J. Durkan

I congratulate the Ministers for their astute management of the economy at a time when there are some challenges visible, some not so visible and it requires a steady hand. One of the most important things is that there would be correlation between the totality of Government debts and the windfalls or otherwise of taxation that may be, and is, in excess of expectation. I am glad to see the Ministers have made this provision. It would be very unwise to ignore the totality of debt while at the same time having the resources. I am aware there are competing demands which affect a large sector of our population, including those who are less well-off and those who are in precarious circumstances, sometimes not of their own making. In general, I welcome the statement. It is well-constructed and well put together. Insofar as can be done, the Ministers have provided the necessary supports where and when required. One area still remains. I am not so sure if this is authentic or not but I noticed somebody from the European Union, or somewhere in Europe, in the past couple of days mentioned that Europe could help us with solving or resolving our housing crisis. Housing inflation, in terms of rent for mortgage, is massive at the moment and it is impacting very negatively on a whole plethora of people. The fact of this matter is that it does not show up every day but when people come to see us in our various clinics and tell us about the €2,500 and the €3,000 rent that is expected of them, while still not owning a house, we realise there are problems. If there is a possibility of availing of any provisions that might come from Europe, while avoiding interference with the market and so on and so forth, I ask the Ministers that it would be done.

The last point I want to make is on a really serious matter. I compliment the Minister for Housing, Local Government and Heritage, Deputy O'Brien, who has done huge work to date, and I agree the scene is set. The problem is that the houses are not coming quick enough. While inflation and everything else takes its toll, and there may be other threats coming down the road, whatever the situation is, without a shadow of doubt, there is an urgent need for Government to identify how best a positive intervention can be made on housing to give the younger generations some hope. It is not just the younger generations. There were many people who were misled into believing over the years that renting was the way to go. There were advertisements on television and radio telling people to rent as it was the best value for money. Well now they know. The situation is that unfortunately a lot of people fell for that. It could never have been a solution to the housing problem because it did not involve providing extra houses. As long as we have that shortfall, there will be problems. If there was one single thing I would ask to be done in the forthcoming budget, insofar as it can be done, I would definitely home in on housing.

An Cathaoirleach

I thank Deputy Durkan. There were some observations and commentary and a number of questions to go through.

Deputy Michael McGrath

I will talk about the debt issues with which the Deputy began and the Minister, Deputy Donohoe, will come in and outline what we are doing on housing by way of direct expenditure support. I welcome the Deputy's comments. We do not talk about the national debt enough. It is a real burden, not only on this generation but on future generations, and that is why we have to make sure it is sustainable into the future. Looking at the stability programme update, the forecast this year is general Government debt of €223.5 billion and the net debt is approximately €40 billion less than that when the cash reserves and other financial assets held by the National Treasury Management Agency, NTMA, are taken into account. That is a debt ratio of almost 79% at the end of this year using GNI*. If we were to use GDP which is the standard measure across Europe, we are closer to 40%, a much better position. However, at the headline level, our gross debt on a per capita basis is high in the developing world and of course we have to service that debt every year and are paying close to €3.5 billion this year on interest to service the national debt. The NTMA has done a really good job of removing those refinancing chimneys that had been there. It has extended out the average maturity profile to something in the order of ten or 11 years at this stage and the average rate across the portfolio is approximately 1.5%. The NTMA has really taken advantage of the very favourable conditions in recent years, knowing full well those conditions were not going to last into the future. One of the considerations the Minister, Deputy Donohoe, and I, are now taking into account, while also looking at projected surpluses, is what we can do to make our debt more sustainable because we cannot predict refinancing costs into the future. Even in recent times, we have seen an increase in the cost of borrowing. It is now around 3% for Ireland in terms of ten-year money but because of the favourable economic situation and the fact that we have had upgrades to our credit rating, we are now borrowing on a par or less than a number of core eurozone countries including France, Belgium, the Netherlands, Finland and so on. That is a real gain from an Irish point of view. If we compare it to the UK borrowing costs for example, it is approximately 5.5%. We are in a good position but we have to make maximum use and take advantage now of the projected surpluses we have. However, there are choices to be made and they are not easy. There are lots of things we want to do in the short term, while at the same time making provision for the future to make sure the debt, and indeed our public finances, are sustainable into the future.

Deputy Paschal Donohoe

I thank Deputy Durkan for his questions. I will comment on what he said with regard to housing. I agree with every word he has said regarding the impact not having enough homes available for society has on families and on individuals who are looking to buy a home or are worried they might not be able to afford the rent or might not have rental accommodation in the future. I am as aware as the Deputy is of what that means to those who are affected by this kind of deep anxiety and concern about their future.

If one looks at where we are in the second half of this year, there are some important and positive signals regarding housing output. At the half-point of the year, building has started on almost 13,000 homes. We believe the momentum for the second half of the year will be stronger. The Government is confident that we will meet or exceed our target of 29,000 homes for the year. If we look beyond this year, planning permissions granted in the first quarter of this year were 40% higher than in the same quarter a year ago. I know we have a journey ahead of us to meet the needs Deputy Durkan described but these figures are better than they have been for many years in the economy. In the context of this being only the second year since the construction sector was shut for most of the pandemic, these are strong figures on which the Government will build in the time ahead.

I will conclude with my next point as I know my time is nearly up. On expenditure and the level of support available, the overall budget for housing in 2023 stands at €4.07 billion. This is a massive increase since the Government was formed in 2020. If that is taken as the benchmark, the increase has been over €1.5 billion.

We are also seeing the Land Development Agency begin to fulfil its potential. All of those figures, combined with local authorities getting a social housing programme well under way across the country, will mean the output this year in homes built and citizens moving into them will be more positive than it has been for some time. We want to build on that. The Minister for Finance, Deputy Michael McGrath, and I know we need to do more and better and we will.

Deputy Bernard J. Durkan

I thank the Minister.

An Cathaoirleach

Deputy Canney has brokered an agreement with his colleagues to speak at this juncture.

Deputy Seán Canney

This is a very interesting discussion because we often find ourselves in a position where we do not have money. Now we are in a position where we have a great deal of money. The skill required now is to determine how we manage and balance that with what we need and with future needs. That is why it is important the committee had a discussion with Professor Stephen Kinsella some weeks ago. He had an interesting take on what we should be doing with the windfall revenue we have. He stated we should use it to invest and use the interest to pay for the future developments we need.

When people see that the Government has a great deal of money at the moment, the demands become bigger. It is how one manages that demand while delivering at the same time. As a member of the Joint Committee on Disability Matters, I believe we need to invest in disabilities and all that goes with it in terms of the additional cost of having a disability and living with a disability. We need to take the first steps to meet what was delivered to us in the Indecon report in 2019.

On housing, our biggest challenge is not so much money but the capacity to do what we want to do. The more we delay, the more it will cost. Deputy Durkan spoke about housing and the Minister answered by outlining how the targets for this year will be met, noting also that the indications from planning are that numbers are beginning to grow. There is, however, something fundamentally wrong with how long it takes to get projects shovel-ready.

There is a strong emphasis on modular building, off-site construction and all of that. While that helps, the biggest help needed is in the time from inception of a project to getting construction started on site. As an emergency measure, we need to do something for housing in the short term and help the dysfunctional private housing market. We need to tackle that immediately so that we do not end up relying completely on social housing for everybody in the country. There are people who want to build but we lack sewerage infrastructure, especially in our towns and villages. Some of the money the Government is talking about allocating for capital expenditure should be used to address that. We have a pilot scheme for sewerage worth €50 million. To be honest, we should be looking at ten times that figure over the next five years to address this issue head on. I ask the Ministers to comment on that.

Inflation is the biggest evil facing us and we do not know where it is going. We heard the sobering figure that the national debt has cost us €3.6 billion this year in interest payments alone. We have to pay attention to that all of the time.

People see that we have a lot of money and everybody wants a piece of the action. It is very important that we get the right balance and deliver some of the gains we need, especially with vulnerable people and in housing.

There are some shovel-ready projects in all of the Departments which should be targeted immediately to see how we can get them done. I will give the Ministers one simple example. The western rail corridor is ready to be done. If the Government were to agree to do that project, it could be done over the next two and a half years and there would be immediate economic benefits.

Deputy Michael McGrath

I thank the Deputy for his contribution. I will say a few words in the first instance and the Minister, Deputy Donohoe, will then make a contribution.

First, on the idea of a long-term fund, that is exactly how it would operate, the idea being that one would invest money in the fund and it would generate a return. It would depend then on one’s investment strategy and risk appetite, where and how it would be invested and so on. There will then be an annual income or revenue from that fund. While that will not fully meet or offset the costs of ageing and the costs we know are coming our way with respect to demographics, it can be of significant help. There will also be costs with respect to the transition to the digital economy of which we must be very conscious. That is essentially how it would work.

The longer one can allow the fund to build up and earn a return, the larger the return one will get every year. That will offset decisions which one would otherwise have to make. Future Governments will know as we do now the direction of travel of our demographics. We are in a good place now but these will change rapidly. We know of all of the projections about the extra costs so it would be negligent not to make provision for that now, knowing what is coming our way.

The Minister spoke a moment ago about our commitment to housing. Deputy Canney is right to point to the constraints and the bottlenecks that we will have to address. The Minister has made more resources available to An Bord Pleanála and we are now beginning to see decisions coming through the system.

We are also committed to a programme of major planning reform and the relevant Bill will proceed through the Oireachtas. I acknowledge that the committee has done significant work on it in pre-legislative scrutiny. The Minister, Deputy Donohoe, has brought forward amendments to public works contract side and the whole process of burden sharing which will help. The Minister, Deputy Harris, has done an enormous amount of work on apprenticeships. I believe we will hit approximately 9,000 new apprenticeships this year, which is very positive and badly needed. We have more work to do on funding to ensure that there is private capital and private sector funding.

Home Building Finance Ireland is doing a lot of work. We are looking at new products which can be brought forward there to ensure that more private capital can be provided. We have already made a multi-annual commitment to Uisce Éireann in respect of water and wastewater.

It will be a matter now for the Minister, Deputy Donohoe, to weigh up all of the different demands that will be made on the capital side but, looking at the budget for next year, it stands at over €13 billion. That is the starting point and it is a very sizeable budget, even in European terms.

Deputy Paschal Donohoe

I thank Deputy Canney for his questions. I will build on the points made by the Minister, Deputy McGrath. The Deputy touched on the importance of responding to and supporting citizens who have a disability with respect to the particular support they need. I am very aware of this issue.

I have no doubt this will be an important issue when I sit down with the Minister, Deputy Donnelly, in September. One can look at the scale of the change in how, for example, we support those who have a disability or an illness through social protection. In 2012 we were spending €3.3 billion and for 2022 the figure stood at €5.3 billion. That is just a sign of the efforts being made at the moment to support those who are coping with a disability or an illness or who are caring for somebody in such a situation from a living standard point of view and an income point of view. What that means for individuals is we currently have 431,200 recipients of payments designed to support those who have a health need or are caring for somebody who has such a need. Within our health budget the portion of expenditure aimed at supporting those who have a disability is high and as I said, the Minister, Deputy Donnelly, will be raising this with me shortly.

Returning to the point the Deputy made on housing, I emphasise the importance of the points made there by the Minister, Deputy Michael McGrath, on the apprenticeship programme. This morning I met Skillnet Ireland, SOLAS and the Secretary General of the Department of Further and Higher Education, Research, Innovation and Science, which is the Department overseeing all this. There is exceptionally good work going on there. We already have more apprentices either registered or being trained in our economy than we did at other points when our economy was growing really quickly. I participated in a good discussion this morning on the changes we will need to look at to do two things, namely, to encourage more small- and medium-sized construction companies to avail of the apprenticeship opportunities that are there and to get them to provide those and to think about how we can ensure apprenticeship programmes are still seen as valuable and attractive in an economy at full employment where wages are going up. I am very optimistic about what our apprenticeship programme is going to look like within a year. We will play our role and I will play my role in supporting that.

Huge work is likewise under way on modern methods of construction. I am conscious roadmaps tend not to be the most exciting titles for documents, but we now have the Roadmap for increased adoption of Modern Methods of Construction in Public Housing delivery and the work going on in that is really encouraging. The Minister, Deputy Coveney, is going to take the lead in looking at how can build up the scale of this sector within our economy because it will allow us to get the homes quicker, cheaper and they will be more resilient from a climate perspective.

I will end with a real-life example of this. O’Devaney Gardens, which everyone here will be familiar with, is about to move into the next phase of delivering hundreds more homes and most of the homes are being built off-site. They will be constructed in O’Devaney Gardens but not built there. That is an example of the change under way. There is lots of work under way there at the moment.

Deputy Aindrias Moynihan

I thank the Ministers for the economic statement and the answer. There is a great deal to take on board on it. I will home in on two particular issues. When one stands back and looks at all the economic indicators, each one is stronger than the next. It is in a strong position. Unemployment, for example, is at a record low. At the same time the Government has large sums it is putting towards capital spending. Are the Ministers satisfied there is capacity to deliver on that spend from a human and economic point of view? They are looking at figures of €250 million, I think, for next year. That would be a significant increase. Are they satisfied there is the capacity to deliver on that?

Deputy Paschal Donohoe

I am, but it is the reason the more significant increases in expenditure are back-weighted to 2025 and 2026. If we were to be spending €1 billion extra in capital next year I would have serious doubt about whether the capacity exists in our economy to turn that into additional homes and facilities for our economy and our society . The decision we have made to build up the additional capital over a three-year period is the right thing to do from a capacity constraint perspective. The second aspect will be challenging to do. Where at all possible, we will try to prioritise projects that either have planning permission or are being built and can be developed further for that additional capital. We do so in the expectation those projects that have planning permission or are ready to go will be the ones that will be best able to command the people to build the project. There is a real balance here. While we will face many calls to spend much more on capital than we are planning to in our capital budget of around €13 billion, as the other Minister said a moment ago, if we were to increase it significantly beyond that it would contribute to inflation in our economy. Big increases in capital expenditure could have a really big impact on our labour market and the heat within it and a big knock-on effect on inflation. It is a difficult argument to make that we should not spend more for fear of generating inflation, but we are at a point where that is real risk for us.

Deputy Michael McGrath

I will add a note of caution to the Deputy's accurate comment that the economy is going well. There are real risks and the world is not in a great place, in many respects. We see the geopolitical tensions. We do not know what will happen in Ukraine, how long the conflict will go on, what it could mean for the price of energy, food and so on. There are real risks there. We are all very conscious of the migration crisis and of course the climate crisis, which we are seeing more and more evidence of with each passing day. We have seen the response to inflation from central banks. It is now acting as a real drag on economies, households and businesses. We must also be conscious that as a small, open, trading economy we are so dependent on external forces and the external environment. Many of our main trading partners are growing very sluggishly, if they are growing. That has a real impact and we need to be conscious of that. The economy in Ireland is doing very well and the labour market is very tight and really strong and our public finances are in good shape. That gives us options with respect to the choices we can make about the future, but we should not be blind to the risks, because they are real. In my current role I get a market risk report every day, as the Minister, Deputy Donohoe, did when he was in the role. It looks at all the major metrics one would expect a Minister to be examining when looking at the health of an economy and the risks we are facing. We need to be alive to that because the risks are real and there is much uncertainty about the economic outlook globally. We are very much part of that and dependent on the external environment.

An Cathaoirleach

We must suspend again for a vote. I have been warned not to use my discretion to make whipping decisions for the Government.

Sitting suspended at 6.59 p.m. and resumed at 7.18 p.m.

An Cathaoirleach

Deputy Moynihan had the floor. Is he happy enough with his answers or does he want to elaborate or ask more questions?

Deputy Aindrias Moynihan

I want to go in a different direction.

An Cathaoirleach

You are free to do so.

Deputy Aindrias Moynihan

We have looked at economic indicators and their impact on the budget. The budget is also supposed to deliver for society. We have a framework being constructed to measure the values significant to society. It is the well-being framework, which looks at a range of issues. I will home in on two: housing and biodiversity. While many indicators are positive, these two are showing up negatives. Housing is strong and positive on delivery and we are seeing that every day with construction and houses being delivered. However, the inequality indicator for housing is a strong negative.

Biodiversity and environment are also showing up a negative indicator. I want to try to get an understanding. Because the framework is intended on steering the budget, how does the Minister see these indicators influencing budgetary ambitions? Where would we see this being reflected in the forthcoming budget?

Deputy Paschal Donohoe

I thank the Deputy for recognising the work that is under way in our well-being framework. It is laid out in the summer economic statement where we go through the different pillars that we have, as the Deputy will be aware, of looking at how we are doing under important areas that influence quality of life and well-being and then we evaluate our performance over a five-year period. For what it is worth, I increasingly think when we are thinking about the performance of an economy that where you are with life expectancy and educational attainment are every bit as important measures of economic development as where you are with the GDP and other measures that we would look at a lot more, and that is parking and leaving aside entirely their intrinsic social value.

To deal with what impact they have, for example, the issues in relation to biodiversity are issues that have been raised in the past with the Minister, Deputy Michael McGrath, and will be raised with me when Deputies are reaching agreement about the amount of funding that is available for the Department of Housing, Local Government and Heritage. The additional funding that the Minister of State, Deputy Noonan, has received for his areas are directly driven not only by the case that he makes, but also by the recognition of the Government of how important biodiversity is in our well-being and in the natural environment.

The issue the Deputy raised there in relation to equality of access to housing and all the fairness issues that are there, it is a recognition of those issues that is driving our public and social housing building programme, which, I believe, will show even more visible signs of progress all over the country in the next year. It is a direct factor as well in the funding the Government has made available to the Land Development Agency to deliver our cost-rental programme. These issues influence discussions that happen in government. I hope we can build even more on the well-being framework that we have here in the time ahead.

Deputy Brian Leddin

I welcome the Ministers today. It is great to have them before the committee.

I congratulate both Ministers for their stewardship of the economy. While there are many challenges remaining, many of them are the challenges of success but there is a solid foundation, as they set out in the opening statement, to address many of those challenges. We have done a lot in the past few years and I expect there will be much more done in this budget and the next one.

I would like to ask about the public spending code. There is a question for me around the interface of policy-making and modelling and I have had a number of conversations with experts on this. As a system, we lean on cost-benefit analysis which is a kind of modelling but in many respects the models cannot capture many of the intangibles - the costs and the values of many decisions, particularly on capital spending. I would say that there should be acknowledgement that models cannot do that but there should still be provision for making decisions, accepting that there are intangibles. For example, time savings is probably one that a value can be put on but if it comes to a public transport project, how does one value the ability to be able to work on one's commute on a bus or train? There are all these other intangibles. There is induced demand - positive induced demand as well as negative induced demand. My concern is that, because the models are not an exact science, we lean too much on them and, therefore, we make decisions around major capital projects on what is not quite an exact science. There is lots of evidence of it. The counterargument is that we have to be prudent in how we spend public money. Of course, there is a good reason we have the public spending code. I am merely concerned that we perhaps lean too much on the models. My question is, how do we account for those aspects of projects? When it comes to sustainable projects, transport projects and other sustainable infrastructure, I would nearly argue that there should be a lower threshold for deciding whether these projects should be agreed because they are fundamentally good and when it comes to projects that perhaps are unsustainable the threshold should be higher. I would be interested to hear the Ministers' views on how we can reform the public spending code process and the modelling process such that we are less conservative and such that we capture many of these things that are difficult to measure.

Deputy Paschal Donohoe

I thank the Deputy for his question and for his kind comments earlier on.

I will talk about business cases first and maybe broaden it out to the public spending code and how these issues are dealt with. The Deputy is correct that it is difficult in a business case to place an economic value on something that is intrinsically social or is a real proper public good. The way I have seen this dealt with in our business cases - I saw one only yesterday on this topic - is the business case carries out an analysis of those economic factors that we are familiar with that are easy to quantify but, accompanying that, I see increasingly text and recognition from my Department and from other Departments stating the economic benefits and the other issues that we should consider the value of, which are difficult to quantify. I see that happening on quite a broad basis now.

In my experience of public spending codes, what they allow you to do is evaluate inside the parameters of a Department what is the best use of the money that is available to it. It rarely gets to the place of evaluating the public spending benefit of a hospital versus a metro but what it would do for the Department of Transport to say, out of all of the different options it has, what are the best projects and, because the Department of Transport would have its own ways of evaluating, for example, the benefits of reduced commuting time and the benefit of the impact of something on road use, it enables one to make a choice between existing projects of the same kind. Then, most of the time, the framework for non-economic benefits should be roughly the same.

I see this recognised in public spending code decisions. In relation to the national development plan, NDP, there is a whole section in the national development that is devoted to green and climate-friendly investment. It is one of the key strategic areas of the NDP. I happen to think there are few projects in there that do not make sense to do economically but, of course, by grouping green projects together, it means that we recognise the non-quantifiable benefit in a more easy and accessible way.

It is an important issue that there is a high level of awareness of now in making decisions on public spending projects.

Deputy Michael McGrath

If I can add a point, I will be brief. We also have to bear in mind what sits above the public spending code and the approvals process and assurance process is the programme for Government where we set our political priorities. That is what determines the capital allocations across the different Departments. Within that, the decisions have to be made. For the significant capital projects, doing a strategic assessment board, that looks at the options and asks what are the options and what is the best way of delivering on the objective that the project seeks to deliver, is an important part of the process of delivering a major project as well.

Deputy Brian Leddin

I was not alluding to programme for Government interpretations but I appreciate the Minister's point that there are commitments in that regard. I very much welcome his answer.

I raise an issue with the Minister, Deputy McGrath, that I previously raised with the Minister, Deputy Donohoe, when he was in his former role. There is an objective in budgets to have a more targeted approach to the supports for electric vehicles, EVs. We are really ramping up those supports. It is right to do so because there is a very ambitious target to be met in this regard. There is a precedent whereby taxi drivers have been supported with a grant for EVs to the tune of approximately €36,000. That was very successful. There is an argument for the same to be done for other cohorts. While acknowledging the risk associated with broadening such supports to many cohorts, there still is an argument to consider one particular cohort, which is the home help sector. The people involved are generally low paid and car dependent. They generally use their own car, which means it is often the family car being used for work. Through no fault of their own, they are responsible for a lot of mileage and, therefore, emissions. It might be a little challenging to define that cohort but, if we can define it, we could perhaps consider a time-limited support. The cohort may include related healthcare workers. Such a support makes a lot of sense and would align with our ambition to reach the target number of EVs. Separate to the environmental benefit, there is a huge social benefit as well in such a support.

Deputy Michael McGrath

I am at the early stages of looking at all the different taxation issues that arise in the context of the budget. The vehicle registration tax, VRT, relief for EVs expires in law at the end of this year. A decision will have to be made on the future of that relief. The Deputy has put in a number of parliamentary questions on this issue recently. Linking relief through the tax system to particular occupations is very challenging. If we are seeking to help people who are carrying out a social good and vital front-line public service, there may be other ways of doing it. Doing so through the tax system is not necessarily the best way.

Deputy Brian Leddin

We might look at grant support, much like what was given to taxi drivers. That is the way to do it. The challenge would be defining who makes up the eligible cohort and not opening a Pandora's box. I accept the difficulty in that but there is still a strong argument for introducing such a support. I do not expect the Minister to make a decision on it here and now.

Deputy Michael McGrath

The immediate decision I have to make in the context of the budget is regarding the VRT relief of up to €5,000 for the purchase of certain EVs below a particular threshold. The Minister, Deputy Eamon Ryan, has reduced the grant support that is available. I will have to consider the matter. As we seek to encourage and support people in that transition, we have significant targets to meet. We must take that on board when we make the decision. The relief is due to expire in law and I have a decision to make. If I wish to extend it, I must provide resources as part of the tax package in order to continue the support.

Deputy Brian Leddin

I thank the Minister.

Deputy Richard Boyd Barrett

I thank the Ministers for their engagement with the committee. One of the new challenges we are facing is that of labour shortages, which are posing difficulties for our ability to deliver a lot of the housing, other infrastructure and services we need. Everybody is looking for workers at the moment. The argument the Ministers are making is that we cannot just allocate loads of money to do things if we do not have the capacity to deliver them, because that just creates inflation. I get that. On the other hand, a lot of things need to be done and they need to be done urgently. There must be a significant focus on how we increase our capacity.

I have not seen the latest figures on migration. They always seem to be a bit delayed but the Ministers might know more than we do. Does they know how many people are leaving the country? We have net immigration at the moment but I would like to know the figure for how many are leaving. Anecdotally, we hear lots of young people in college and so on saying they cannot afford to live here and are going to leave. I do not know the exact figures. The last ones I saw indicated that 40,000 to 50,000 people are leaving per year. There are more coming in but in a situation in which we have labour shortages, if we can convince people to stay, it would increase our capacity. That is something on which we should be focused. How do we get young, educated people, whom we paid to educate, and who, in may cases, do not want to leave, to stay? Are the Ministers thinking about that and, if so, what ideas do they have on that front?

We hear a huge amount about the housing issue. I know we cannot solve it overnight but we can do more. I will not get into that debate now. There is a significant and growing cohort of people who are over the thresholds for income support to pay their rent. As we have discussed at this committee, the Commission on Taxation and Welfare has said there should not be cliff edges in eligibility for supports. In that regard, we need to think about housing income support for people who are over the social housing income threshold. We have acknowledged the need to provide cost-rental and affordable housing for that cohort but it will be quite a while before it is delivered on the sort of scale we want. In the meantime, those people are renting or find they are not able to afford the rents charged. I suspect that is a big reason some of them are leaving the country. I ask the Ministers to think about that. It is still very difficult to find accommodation but if people can find a place and they are below the social housing income threshold, they will get approximately 85% of their rent paid through the housing assistance payment, HAP, scheme, if they can find a HAP landlord. If they are over that threshold, they get zilch. Would it not be sensible expenditure to assist people on a modest income of €50,000, €60,000 or whatever who are facing extortionate rents? I am not saying that is the solution to the housing problems. The solution is the provision of more affordable, cost-rental and public housing. In the interim, however, would it not be sensible to give some assistance to people in that cohort, tapered based on income, to enable them to pay their rent?

Another group that should be considered for support comprises those who are coming into the country. I have heard anecdotally that while many of the Ukrainian people who have come here are working, there also are a lot who are not working because of childcare issues. They cannot afford childcare but they could potentially be contributing by working and helping us to deal with the skills shortages. The same is true of asylum applicants. Are people going into the direct provision centres and finding out what skills residents have, what they want to do and so on? Is anyone trying to help them to get into the labour force rather than leaving them to rot in direct provision? Helping them would be good for them and good for our society. It would increase our capacity and labour force and all the rest of it. The Ministers should think about that.

The Ministers are saying we have all these surpluses but if we spend all the money, it will be inflationary. The Government does not want to overdo it and wants to put money aside and so on. I get that. However, there is also a distributional question that is not often considered. In essence, inflation has worsened the plight of the vast majority of workers in terms of their real income but, at the same time, we see profits have gone up.

A redistribution is happening with inflation and we should be addressing that. I say this every year but this is an idea whose time has come. The other way we can spend more without having the inflationary effect, and this has been stated by the Irish Fiscal Advisory Council, IFAC, among others, is to raise extra revenue. Surely the time has come for wealth taxes. Our committee is now looking at the notion. If huge numbers of workers are losing out because of inflation while a relatively small group of people are doing quite well, we need to think about raising additional revenues through redistributive taxes that take some of the enormous growth in wealth and income for a small group and redistribute it to those who are losing out as a result of inflation. I ask the Ministers to respond to those points.

Deputy Michael McGrath

I will respond first and I know the Minister, Deputy Donohoe, will want to add some points. Overall, we have a highly redistributive tax system. In particular, our income tax system is highly progressive. The top 25% of earners pay approximately 85% of all income taxes. On the wealth side, we have well-established capital taxes, both capital gains tax and capital acquisitions tax. We have a property tax in Ireland, which I do not think the Deputy supports. Property is the main form of wealth for most people in the country, which is an important point.

Deputy Richard Boyd Barrett

We will not go over that chestnut.

Deputy Michael McGrath

We can if the Deputy wants to. The population grew by 8% from 2016 to 2022. It has probably gone up by another 150,000 since then, principally, I acknowledge, due to Ukrainians and international protection, IP, applicants coming to the country but also due to net inward migration.

There are people leaving the country for many different reasons. People will always leave because they want life experience, to work abroad and to experience living abroad and so on. However, there are many people coming here because of the quality of life and the economic opportunities. The Deputy is right that housing is a constraint. He said that is a push factor for some young people who are leaving Ireland and that is undoubtedly the case for some. He also pointed to childcare as a constraint in the activation of people who are here. That is true. That is why we have significantly increased investment in childcare and reduced the cost. We need to ensure that works for the providers as well as for the parents. We must ensure a good career pathway for the workers in the sector.

The Deputy made an interesting point about housing income support. Many people in that bracket should be looking at the combined benefits of the help-to-buy and first home schemes. People who are at a level of income who previously would not have imagined being able to buy may now be in a position to do so. We have a job of work to do to highlight the interaction of those schemes and ensure they are fully understood.

The Deputy is right about cost rental. That is the very cohort of people it is intended towards. The Land Development Agency, LDA, is now working on the next phase of its development for the years ahead. As a Government, we will have decisions to make about backing it and providing extra capital and support. The plans are exciting and are coming to fruition. We need to scale it up and deliver more.

Deputy Paschal Donohoe

I will add two points. I thank the Deputy. My first point relates to the fairness dimension to the inflationary impact, which the Deputy is right about. Those who have the least suffer the most when prices go up. However, there is a great case to be made for the efforts of the Government in recent years to support those who have the least when prices have affected them. My Department has looked at this issue by income decile. If you look at the lowest income decile against a headline inflation rate of 11.4%, the combination of permanent, one-off measures and wage growth led to growth in income for that decile of 19.1%. The income growth for those who have the least has exceeded the impact of inflation during that period. For the second lowest decile, disposable income has grown by 18.2% at a time when inflation was at 11.4%, as I said. For the third decile, the relevant figure is 13.8%. A combination of the one-off measures that were brought in and, in particular, the increases of core welfare rates brought in by the Government and the Minister, Deputy Michael McGrath, last year has had a big impact to cushion those who have the least from soaring prices.

Like the Deputy, I represent such people. I know, even considering the figures I have laid out, that the average does not capture everybody's experience. There are always people whose life experience is not captured by that average trend. However, the cumulative impact overall of decisions the Government has made has played a big role in helping those who are on low and fixed incomes in the face of rising inflation.

Deputy Richard Boyd Barrett

As a matter of interest, does the Minister have the figures when the one-off payments are stripped from the calculation?

Deputy Paschal Donohoe

Stripping the one-off payments against headline inflation of 11.4%, just under 8% in permanent measures is the relevant figure. The impact of the one-off measures is approximately 10%. The one-off measures matter. That €200 or €400 that people are getting is every bit as valuable as an increase in their core social welfare rates. It is money.

I will make the following point lightly because the Deputy and I have debated it before and the night is old. There is a further argument for not spending the surpluses we have, which is that I am absolutely certain a point will come when that surplus will not be there anymore. I am certain of that because so much of it is driven by corporate tax. All the work the Department of Finance has done, which the Minister, Deputy Michael McGrath, is driving on, has shown how much of that is at risk. I am forever struck by the inconsistency that there is no fiercer opponent of global capitalism than the Deputy but he is willing to spend the benefits of it.

Deputy Richard Boyd Barrett

It is the workers who create the wealth. There is no contradiction.

Deputy Paschal Donohoe

The Deputy cannot ride both horses.

Deputy Richard Boyd Barrett

Have we not learned that lesson from RTÉ?

Deputy Paschal Donohoe

I will leave my contribution at that.

Deputy Rose Conway-Walsh

This is a useful discussion. I thank the Ministers for their statements. In his statement, the Minister, Deputy Michael McGrath, said that the expected global growth of 2.7% is the lowest annual rate since the global financial crisis. If we were to get an external shock, not even a huge one, would we be prepared for it as things stand?

Deputy Michael McGrath

I believe so. The Deputy is right to point to the risks. They are real and the global economic outlook is very uncertain. We have seen a weakening of demand, including for some of our export base. We are not immune to those changes but in terms of our preparedness, the way in which the economy and public finances have been managed gives us the capacity to respond. In response to the Covid-19 pandemic, we put in place up to approximately €30 billion of measures. We had a surplus last year of €8 billion and are projecting a €10 billion surplus for this year. Even after making provision, as the Minister, Deputy Donohoe, has, for €4 billion of non-core measures to look after the people who come here from Ukraine and elsewhere and providing an extra €2.5 billion for capital, we are still projecting a surplus for next year.

Of course, that surplus is not certain because it has not yet happened. Last year's one did. We are half-way through this year and we believe we are on target to achieve our projected outturn. We have put a lot of that money away. This does help us to prepare for shocks that could come our way, but Deputy Conway-Walsh is right to point to our vulnerability as a small open economy.

Deputy Rose Conway-Walsh

I say it because I am mindful of the time just before the financial crash when I put to an economist our overreliance on the construction sector. He said everything would be fine and we would have a soft landing, except, and he almost whispered it, if there were an external economic shock. Sometimes we see the parallels. I do not want to dwell too much on it.

Deputy Michael McGrath

The obvious risk we have all been highlighting is the windfall nature of perhaps half of the corporation tax receipts.

Deputy Rose Conway-Walsh

Yes.

Deputy Michael McGrath

This is why the support of Deputy Conway-Walsh and her party would be very welcome, if it is forthcoming, on the overall proposal that we put resources away. We cannot spend money that we do not believe we will continue to have in the future. There will be a decision to be made by Sinn Féin as to whether it supports the overall plan. We will work through the detail.

Deputy Rose Conway-Walsh

Yes.

Deputy Michael McGrath

It is important because buy-in across the political divide for such a plan is crucial to it continuing and lasting.

Deputy Rose Conway-Walsh

I understand that. I want to tease out some of it. I am glad that the Minister is looking at the dual function aspect. I am very interested to see what the breakdown will be in terms of how much is kept and how much is invested. In that sense, is the Government considering investing in physical assets such as land and infrastructure in the State?

Deputy Michael McGrath

We already have the Ireland Strategic Investment Fund, which manages investments of between €14 billion and €15 billion. Some of this includes the remaining shares that we hold in the banks. Some of that money is invested globally but much of it is invested in Ireland. Essentially, the return from the global portfolio is recycled and invested in assets in Ireland, including on climate, housing and a range of areas. Alongside this we will have the public capital programme of more than €13 billion next year.

With regard to the plans for the future these are all subject to a Government decision and will be the subject of considerable debate and scrutiny of the Oireachtas. The idea with regard to a long-term savings fund is that it would be invested globally. That is not to say that some of it could not be invested in Ireland. From the point of view of managing risk, Ireland is a small open economy. This is a fund that we expect to deliver an annual return. It will be run like any other sovereign wealth fund of similar scale.

Deputy Rose Conway-Walsh

I am very conscious of time. I have several other questions to ask. I am asking about this because of regional disparities and how we will meet the challenge of keeping down inflation and trying to control it while recognising that the west and north-west region has a real problem. It is in the bottom 7% in the EU in terms of infrastructure. There is an issue with competitiveness. How does the Government plan to balance this in terms of regional investment while keeping inflation low? Deputy Doherty asked what construction inflation has been worked into the figures and the shortfalls. How will the Government meet these challenges? Perhaps that is more a question for the Minister for Public Expenditure, National Development Plan Delivery, and Reform.

Deputy Paschal Donohoe

In terms of how we will deal with the regional and fairness issues that Deputy Conway-Walsh has referred to, it will primarily be by ensuring that in the national development plan we have an allocation of our capital in a way that is consistent with the national planning framework. The goal of the national planning framework is how we drive regional development and the plan lays out goals. We will need to spend the increased capital that is available to deliver against the national development plan priorities that call out regional fairness.

Deputy Rose Conway-Walsh

If we have already missed those targets by 24% how will we catch up?

Deputy Paschal Donohoe

What is the 24% that Deputy Conway-Walsh is referring to?

Deputy Rose Conway-Walsh

It is what Deputy Doherty asked about. It is with regard to the national development plan projections being missed in terms of the allocations and the spending being revised downward.

Deputy Paschal Donohoe

What Deputy Doherty was referring to was the IFAC analysis that if inflation sustained over a period the real impact of our spending plans could decrease by 24%. That risk is there. On the other hand, IFAC warned us against the consequences of spending more on capital. This is separate from the regional development issue to which Deputy Conway-Walsh referred. They are different issues.

Deputy Rose Conway-Walsh

Does the Minister think that business as usual in terms of the national development plan and the pace we are going at will address the regional imbalance?

Deputy Paschal Donohoe

I do. I do not accept that it is business as usual. If I look at the work that is under way, for example, in the context of the rural town development fund overseen by the Minister of State, Deputy Joe O'Brien, I can already see the benefits it is having. That is not to mention the overall focus on four cities apart from Dublin and what this will do. There is a five-cities approach at the heart of all of this. This is before I get onto the work under way to develop our offshore wind potential. We had a very successful auction earlier in the year which I believe will have a significant effect on where the centre of economic gravity is in our country. I do not accept that it is business as normal. I support the work of the Minister, Deputies Humphreys, and the Minister of State, Deputy Joe O'Brien, which will make a continued difference to the issue that Deputy Conway-Walsh is highlighting.

Deputy Rose Conway-Walsh

Deputy Canney asked about the western rail corridor. This would be a key infrastructure project in the west. He pointed out it is shovel-ready.

Deputy Paschal Donohoe

This will be a decision for the Minister for Transport, Deputy Eamon Ryan, in the context of the various asks and needs that he will have. We already have very ambitious plans for rail development. The Minister for Transport views the project favourably but, ultimately, we will not be able to do everything.

Deputy Rose Conway-Walsh

That is why I want more for the west. I am not being parochial but I am very concerned about the imbalance.

Deputy Michael McGrath

We can also point to the national broadband plan, which the Minister, Deputy Donohoe, supported from the very beginning. With regard to regional connectivity we are helping to build the investment in our regional airports through the regional airports programme. All counties are experiencing population growth according to the census up to 2022. If we look at the plans of IDA Ireland and Enterprise Ireland they are skewed in favour of the regions. We have regional enterprise plans. We have tight labour markets throughout the country. There is a bit of balance needed.

Deputy Rose Conway-Walsh

Both Ministers are satisfied that the regional imbalance is being addressed in the way things are being done.

Deputy Michael McGrath

Our work is never done. Of course, there are many things that the Government needs to do and deliver. A great deal of progress has been made in the regions and in rural areas. I can point to all of these things, along with the roll-out of the national development plan, which is being expanded. It is getting a bigger budget.

Deputy Rose Conway-Walsh

Can we expect the EU infrastructure competitiveness figures that show us in the bottom 7% to change? How soon can we expect it to change?

Deputy Paschal Donohoe

The infrastructure figures from the EU do not capture the national broadband plan, which is the biggest project of its kind we have ever undertaken. The economic benefit of the plan will be felt outside of our cities. To reiterate what was said by the Minister, Deputy McGrath, we are making a difference. I know we are making a difference in terms of the employment figures we see outside of our cities and how they are improving. I know we are making a difference in terms of the successes IDA Ireland is reporting. We always need to do better and we want to do better.

Deputy Rose Conway-Walsh

With regard to the broadband plan, if the Minister tried to make a mobile phone call or connect to a meeting from Belmullet on a Monday he would find it extremely challenging and extremely unpredictable.

Deputy Paschal Donohoe

I can still remember your party's opposition to the national broadband plan. Do you remember it?

Deputy Rose Conway-Walsh

It is not working in the way the Minister might-----

Deputy Paschal Donohoe

Well-----

Deputy Rose Conway-Walsh

I have to correct the Minister. Our opposition was to the manner in which it was done.

Deputy Paschal Donohoe

That is a pretty theological opposition.

Deputy Rose Conway-Walsh

No, it is not.

Deputy Paschal Donohoe

On the one hand, you are against the national broadband plan-----

An Cathaoirleach

That argument is over.

Deputy Rose Conway-Walsh

We are not against it, no.

Deputy Paschal Donohoe

Now you are saying you want more of it.

An Cathaoirleach

Thank you.

Deputy Paschal Donohoe

Good arguments are never over.

Deputy Rose Conway-Walsh

You are being deliberately-----

An Cathaoirleach

The decision has been made, the process is ongoing and the results will be for all to see.

Deputy Patricia Ryan

With regard to the projected increase in age-related expenditure, what provisions will be set to replace the National Pensions Reserve Fund, which was decimated in 2010 to recapitalise the banks?

My second question is about the Government intention, stated on page 28 of the annexe, to increase social insurance contributions to partly offset age-related expenditure increases. Would the Minister see an alternative measure being re-evaluating the current charitable status of vulture funds, bringing them into tax net and using those receipts to fund increased expenditure rather than further burdening ordinary people?

Deputy Michael McGrath

I thank Deputy Ryan for the question. She has highlighted a really important issue about the age-related costs. We have estimated that by the end of this decade, the cost of providing existing levels of service to an ageing population will be €7 billion to €8 billion higher than at the beginning of the decade. The Social Insurance Fund has recovered very well from the economic shock of Covid 19. It is in surplus and is projected to be in surplus for the next number of years. However, the reality of the demographic pressures we will face will become more acute as time goes on. That is why we have to make provision for the future. The setting up of this fund will not negate the need for future governments to make other decisions. I am not suggesting for a moment that a long-term savings fund will mean that future governments can avoid difficult decisions, because that is not the case. However, it can make a very important contribution to meeting those costs. That is why I think it should be a priority for the remainder of the term of this Government and Oireachtas that we complete that body of work.

Social insurance and the level of contributions will also make a contribution to that. The Minister, Deputy Humphreys, is working on a PRSI reform roadmap. The Government has been very open and upfront with people that the price for keeping the pension age at 66 involves us paying more in over time. That will mean both employers and employees paying more PRSI over time. The detail of when and how much is the subject of a Government decision. I know the Minister, Deputy Humphreys, is working actively on that at the moment. When it is ready, she will bring proposals to Government to make sure the PRSI system is making the necessary contribution to sustain the level of pension and other social supports that have to be funded into the future.

Deputy Patricia Ryan

I thank the Minister for his response.

An Cathaoirleach

That concludes today's proceedings. I thank the Ministers for making themselves available, for presenting their summer economic statement last week, and for bringing it to the committee to elaborate on it and respond to questions.

As a committee we have been seeking to arrive at various forms of consensus in our efforts to help and ensure the upcoming budget meets with as much approval as possible, notwithstanding the nature of our game that it can never be unanimous, of course. However, it has to be recognised that the economy is performing reasonably well. There is a record number of people at work and the unemployment rate is at a record low.

We have responded, in a way we would never have envisaged some years ago, to the great shocks that could possibly have dented the country's finances, such as Brexit, the Ukraine war, the cost of living and the impact they have had on us. I also stress the note of caution that has been sounded regarding the difficulties in the global economy and the possible impact that may have on our exports and so forth.

We also note the plea for political buy-in from across all parties and none regarding the impending setting up of a vehicle to manage and maintain an income from the proper investments that could be yielded from the windfall tax receipts. It is worth noting that the same political divide across all parties and none ten years ago could acknowledge then the impact of the over-reliance we had on property-related receipts and the impact that had when a bigger outside shock hit as well. If people are conscious of the commitments they made to their electorate at that time, they should not stray too far from the Government's intention in that exercise in the coming months.

I want to touch briefly on a constraint in the economy in the area of energy, something that was mentioned in the Ministers' statement. I have spoken often and at length about our unfortunate incapacity on the part of EirGrid, the Commission for Regulation of Utilities, CRU, and the relevant Departments to meet some of the ambition that has been there for the past ten years to facilitate the sort of energy provision and capacity that is needed to meet the demands of a growing economy and the essential infrastructure that is needed for many top technological companies who we congratulate and welcome in coming here. We have great expertise in our students and workforce to entertain those companies to locate here, but they have to be able to store their information here too. Any threat to that is something we should be conscious of. The Minister, Deputy Donohoe, mentioned the recent auctions that have been held that have the capacity to make a major contribution to the economy and to the regions.

We also note, as the Minister, Deputy McGrath, said earlier, that the impending planning and development legislation will also play a role in addressing many of the planning deficiencies that exist in relation to providing the sort of infrastructure that is needed at a faster pace than has been the case over recent years. It is essential that happens. I would plead with those in other parties and none to be conscious of that expectation. The realisation of that ambition is something that needs to be taken seriously when that large Bill is produced in the autumn and brought into the Houses thereafter. It will address housing and planning in that sphere but especially the area of energy and the major infrastructure projects that are needed to carry on and to be in a position to take advantage of the sound economy we have now, but conscious of the pressures that will come to bear because of the international scene.

Against that backdrop and notwithstanding those points, I thank the Ministers again and look forward to further engagement, when and if necessary. I know they are always available to meet with this committee and we are more than willing to help and assist in any way we can, together with the various stakeholders who also want to make a contribution. Thank you very much indeed.

The select committee adjourned at 8.08 p.m. sine die.