Dr. Tom McDonnell:

In regard to the Deputy's question on overheating, one of the reasons we have capacity constraints is because our infrastructure spending has been low for a long time. It is a type of chicken and egg situation. Given the investment rate in the economy is low now, excluding intangibles such as aircraft purchase and so on, which is essentially tax planning, I would not be concerned yet about getting to the point where we are bidding up costs, although one gets there eventually. The Deputy may recall that I said that for an advanced economy historically the investment rate would have to be 20% to 22% of GDP. Obviously, we cannot use GDP for Ireland any more but as a percentage of economic output we are still well below 20%. Even taking away the level effect from, say, 2015, we would still be well below in terms of the investment rate. I agree we need to be cautious. The point at which the economy starts to overheat is the point at which the ramping down of infrastructure spend as a percentage of economic output commences. When the economy is doing less well, spend can be ramped up. The purpose of rainy day funds and so on is to protect spend against the economic cycle and from short-term political considerations, which are the same everywhere in the world.

In regard to what all of this means at this point when the economy is probably close to capacity but still not quite overheating, given private investment is low and there is a lack of credit in the economy, there is certainly scope for increasing infrastructure. One area I did not mention is renewable energies in terms of potentially building up new industries never mind reducing imports or our carbon footprint. Bidding up costs over the economic cycle is a problem. The solution to that is, again, Keynesian management in terms of ramping up or down infrastructure spend to reflect the economy's position in the cycle. In other words, if the view is that infrastructure spend should be 3% to 3.5% on average over the economic cycle and if the economy is not underheating or overheating at a particular point in time, then the public spend on infrastructure should be 3% to 3.5%, with the percentage being adjusted depending on the level of overheating. In regard to long-term bidding up costs, I do not think it is an issue now.

In regard to construction employment, as I said earlier, employment in construction is 55% of what it was in the second quarter of 2008.

It is true that the figure for 2008 was not remotely sustainable. Even if one considers that only two or three out of five of those jobs might come back, one is still looking at scope for another 25,000 jobs on a two-out-of-five basis or 55,000 jobs on a three-out-of-five basis. Therefore, there is still scope for employment gains in that sector.

The income tax structure, including USC, is extremely progressive in Ireland. However, the pre-tax distribution of income in Ireland is very inequitable relative to many of our western European peers. Therefore, our income tax system is designed to do that much extra work to bring us back to the middle of the table in terms of Gini coefficients, the metric use for inequality of income. Ireland is in the middle of the pack in terms of inequality of income. If we reduce the progressivity of our taxation system, we will start to fall into the bottom half in terms of income distribution and that is obviously not an outcome that presumably anyone around the table wants. We must have a more progressive income tax system to compensate for the fact that the distribution of pre-tax income is so inequitable in Ireland.