Dr. Tom McDonnell:

I would agree that the overall tax and social welfare system is highly redistributive. As a result, we moved to the middle of the table in terms of overall Gini coefficients after tax and benefits. It is essentially the workhorse we use to reduce poverty and inequality within society and it is doing a good job. We would be concerned, if there was tax reform, that it would move away from that model and, by and large, it would be difficult to construct cuts to income taxes in such a way that they would not be regressive. As Deputy Burton has pointed out, the income tax ratio compared to GDP and the implicit tax rate on labour are not high in Ireland and we have to be cautious in terms of an ageing population not to undermine the tax base.

In terms of the Governor's letter, I think that it would be sufficient to adhere to the expenditure benchmark. The expenditure benchmark will be reasonably tough for this year and next year and even from 2019 onwards. We are really only talking about €3 billion per year in the context of an economy that is growing very fast and increasing by multiples of that year on year. The debt to GDP ratio will incline anyway and we will have to adhere to the debt-brake rule, which actually will not matter in the case of Ireland. I, therefore, think the Governor's concern will be assuaged anyway if Ireland adheres to the expenditure benchmark. One could argue that the forecast for potential GDP and the reference rate are too high. If that is true, and actual growth does not materialise as is hoped, then the dynamics could deteriorate. However, we update the fiscal space every year, so if there is such a deterioration, it should be caught reasonably quickly. Also, it is based on ten-year averages.