Dr. Nat O'Connor:

I thank the members of the joint committee for the invitation to talk to them today. As they know, TASC is an independent, progressive think-tank. We are proposing that for budget 2014 the discretionary adjustment not exceed €2.7 billion. Even within this figure, we are very much focused on the revenue side. We argue that there should be no further cuts to public services beyond those agreed in the Haddington Road agreement. At the same time, we are proposing that €1.5 billion be allocated from the new strategic investment fund for Ireland as a counterbalancing measure to offset the contractionary effects of this budget.

We acknowledge the strong public interest in lowering the deficit and controlling the extent of the national debt. However, the deficit adjustment can be achieved in a number of ways. Looking at this as a think-tank and thinking about the medium-term, we believe there are risks that the current consolidation path, particularly further cuts to public expenditure, will have medium-term social and economic consequences that will be very severe and negative. Large-scale fiscal consolidation has a substantial contractionary effect on growth and employment. These effects are more pronounced when unemployment is high, monetary policy is constrained, there are credit constraints and our major trading partners are simultaneously consolidating. There is a lot of international evidence that shows that even a small open economy can have a high fiscal multiplier. More important, sustained cyclical unemployment will raise the structural rate of unemployment. In other words, we will have longer, higher long-term unemployment which will reduce labour supply and lower the long-term potential output of the economy.

We are proposing a series of adjustments focused on the revenue side. This is not because we are focused on revenue. We went through a process of elimination looking at alternatives. Ireland has a very low level of investment. Therefore, there is a need for investment. We have the lowest level of public plus private investment in the European Union. That is crucial for our medium-term growth. Ireland's tax base, however, is only three quarters of the European average. Our social insurance base is incredibly low, perhaps the lowest in the European Union. If one made the entire budget adjustment for this year and next year just by increasing employers' PRSI, employers' PRSI still would not reach the European average level and one would have achieved a figure of €5.1 billion. That is how completely different and off the scale Ireland's social insurance system is compared to those of our European partners. That is why we are focusing on that issue.

IMF spending forecasts show that between 2014 and 2018 public expenditure in Ireland as a proportion of GDP will be, on average, ten percentage points below the EU average. Therefore, we will not be able to achieve western European standards of public services if we are not willing to maintain the level of expenditure.

We are very much concerned that the cuts to public services will deepen inequality in society through false economy because we will have to pay for this in the future. For example, homelessness and mental health services need an increase, not a decrease; hence, the handout members will have received proposes a range of revenue measures that are evidence based and which we believe would work. They are all sourced from official data.