Professor Alan Barrett:

There was a very focused question on whether we still stand over the concern about the use of tax breaks. The answer is "Yes". Let me put it like this: it is possible these elements would have an effect. Going back to the discussion we had about the new procedures for evaluating tax expenditures, the burden of proof is very much on people to say that they should give absolute certainty that by reducing taxes, more houses would be produced. They should be shown the channels through which this would happen so that the proposal and context of the blockages that we know to exist could be evaluated. That is the type of analysis we presented. We are saying to people that they should demolish our analysis and if it turns out to be wrong, that is absolutely fine. The burden of proof is there. I make a similar point about the tax break for first-time buyers that was mentioned. Again, any sort of basic analysis would indicate that injecting demand into a supply-constrained market will have one and only one effect. If people want to explain how it could be otherwise, that would be absolutely fine.

The Deputy also spoke about the merging of the USC into PRSI. He asked a very valid question in that if it goes to the Social Insurance Fund, a black hole would be left. I agree with that entirely. We spoke before this committee last year and our argument was that USC should be left where it was and that nothing should be done to it. We felt at a certain point that the train had left the station and there was a very strong political view that USC was either going to go or going to be merged.

Then we made this proposal of enhancing the social insurance dimension because we thought it was more likely to get political acceptance. On linking it to the pension issue, everybody accepts that we need to do more on pensions in Ireland, but very few people are willing to say that we should start imposing the charges. This is not without good reason. We saw a blend of economics and political possibilities here under the USC, but it came from us accepting that, politically, there seemed to be a view that USC was not going to stay where it was.