Mr. Seamus Coffey:

I thank the Chairman and the members for the opportunity to speak before them again. In terms of examining the issue of the country-specific recommendations, I will make some comments on where they come from and then focus briefly on some of the particulars with regard to Ireland before dealing with issues the members might want to raise.

Following Ireland's exit from the EU-IMF programme we have become more familiar with what is termed the EU semester. One criticism that might have been levied at the EU in the run up to the crisis, and particularly during the crisis, was that certain parties took their eye off the ball in regard to imbalances and risks that had built up in certain member states. It appears now that the EU has responded in the sense of overkill because as I am sure this committee is aware, a huge range of documents are now produced by the EU on an annual basis that examine issues across the entire spectrum of the economy for each of the 28 members. It starts in November with the annual growth survey, moves on to an alert mechanism report, followed by a macro-economic imbalance report and then the Commission staff working document that finally leads to the Commission's country-specific recommendations that were published a fortnight ago. It is a barrage of material and, in a sense, the EU has gone a bit too far because I do not know if anyone reads it in detail any more. There is simply too much material and by the time one gets to the detail, much of it has been lost in the noise, so to speak. We have gone from a position where the EU as a whole did not look at what was happening in individual countries and now it is looking at it in too great detail when perhaps it should focus on particular issues.

It does seem to be learning from that. Even though it is our second year in the process it has been going since 2011. If we look at Ireland, in the first year we got seven country-specific recommendations across a broad range of areas. This year we get four. The four are part of the set of seven so they have carried through but they have dropped three, and that is not simply because we have met them. The three that have been dropped relate to active labour market policies, issues relating to performance small and medium business financing, and issues relating to the costs of legal services in Ireland. In its report the Commission states that we have made some progress on the first two of those but limited or little progress on the last one regarding legal costs.

Those country-specific recommendations are not included this year. This year, we are down to four. One that appears regularly in regard to Ireland is looking at the public deficit. There is then the issue of the work intensity of households, and Ireland's standing as having a very high propensity of very low work intensity households. There are many households in which nobody is working. There are then issues relating to apparently high health care costs in Ireland, particularly in the area of pharmaceuticals, and also the way we fund our hospitals via block grant rather than through activity-based funding. Finally, there is the issue of addressing the carryover from last year in regard to mortgage arrears.

One issue with the country-specific recommendations is that, by and large, they are just concerns. Reading through them one can see they contain very few concrete proposals. Essentially, the Commission is highlighting these as problems and it leaves it up to the individual members to solve them. It identifies the problems and asks them to address them.

The only one that has a numerical target is the deficit where it requires a reduction in the structural deficit of 0.6 percentage points of GDP. In terms of our own documents - not only do we have a barrage of documents from the EU but we have Ireland's stability programme update, SPU, and our national reform programme update - if members read the stability programme update, as our fiscal council has done, they will see that the intention is that we will not meet that structural deficit reduction target in 2016 whereas the EU rules require us to reduce it by 0.6% of GDP. If members read the current targets in place they will see that the SPU published by the Department of Finance states that the intention next year is to reduce it by 0.3%, which is half the required target. However, when it comes to work intensity, health costs and mortgage arrears, no numerical targets are mentioned; they just list these as problems. The issues in regard to solving them are left at national level and the EU next year will say whether much, some or limited progress has been in regard to those targets.

Moving away from the deficit one, issues regarding very low work intensity have been highlighted for Ireland for a number of years. It comes from the SILC, survey of income and living conditions. In that survey, 23% of people are said to live in households with very low work intensity, essentially where there is no work taking place. That is a complete outlier in EU terms. It is the highest in the EU. The EU average is approximately 10% of people living in households with very low work intensity; we have 23%.

There are some doubts about the figures, and concerns have been raised that there may have been some measurement issues in that we are such an extreme outlier something else must have been going on. Figures from the quarterly national household survey put the number at 17%, which is the second highest in the EU. The Central Statistics Office, CSO, is examining these two figures and trying to decide what is the actual figure. Whatever the figure is, Ireland is quite high in this respect.

We must examine the reason our figure is so high. Is it something we need to fix, a structural problem or simply a demographic problem? One issue that stands out in the case of Ireland is the number of lone-parent households. The 2011 Census of Population showed there were approximately 1.7 million households in Ireland and of that number, 180,000 were lone-parent households. More than 10% of households in Ireland are headed by lone parents, which compares to approximately 5% across the EU. We have far more high-risk households, and for lone parents it is much more difficult to enter into employment given child care costs, issues relating to the supports available, and the possible loss of welfare benefits. One reason low-work intensity is higher can come down to demographics but do we want to change that? Do we want to force single parents into the workforce or are we happy to have them at home rearing their children? While the EU might raise this issue as a concern and for us to reduce the number, it is up to us to decide whether it is priority.

Regarding mortgage arrears, there is more probably more emphasis here to do something about that. The EU states that we should have a system in place that sets out what we are trying to do in this area, what represents a sustainable solution, how long should such provisions should last, and what can happen to people who cannot reach a sustainable solution. We still have a hodgepodge of solutions, including interest-only payments, arrears capitalisation, hybrid split mortgage or the possibility of participating in a mortgage-to-rent scheme, and there are very few repossessions taking place. The EU would like to see something happening in terms of defining what represents a sustainable solution. It states we should do this but that no progress has been made on it.

On the health area, the EU notes that we seem to have relatively high health care expenditure. Given that we have a relatively young population, our health care expenditure is towards the highest in the EU. It also has issues with the way we fund hospitals. We generally give them a block grant in that they are allocated their money for the year and they use that for their needs. That practice tends to disadvantage the more effective hospitals where more procedures are carried out. They will spend more money and by October or November they tend to run out of money, whereas hospitals in which fewer procedures are carried out can better balance and manage their block grants throughout the year. The EU is asking us why we do not fund hospitals on an activity-based system, whereby if a hospital does more in terms of providing more health care, it will get more funding. There is a change to move away from the block grant system to more activity-based systems.

There are also the long-running concerns about how much we spend on pharmaceuticals in Ireland. The prices for them appear to be higher here. We appear to have a greater level of expenditure. It is unclear why that is the case, whether it has to do with agreements relating to the large presence of multinationals in the pharmaceutical sector here or that we are such a small market we cannot get the price lower. It is an issue that has been raised time and again, with little of no progress has been made on it. Those are my brief comments on the process and some of the specifics in regard to Ireland.