Dr. Kieran McQuinn:

I will deal with the questions on headline issues such as the fiscal rules and debt financing and Dr. Doorley might join in to respond to the questions on the impact of Covid on inequality.

I will make a number of points in response to what Deputy Boyd Barrett said. Rightly or wrongly, we are very heavily governed by what happens at a European level. Clearly, it is the European fiscal rules which have overseen our fiscal strategy in broad terms in the past ten years. I am sure we probably discussed this at previous Oireachtas committees. The Deputy might have seen what we published where we were very critical of the European response to the financial crisis, and the austerity-led response is perhaps the way people would couch it. From a technical point of view, the way we would have said it is that the idea of governments collectively across Europe pursuing a contractionary fiscal policy, which is what they did after 2010, at a time when nearly every single European country was running very substantial large negative output gaps, which showed that there was huge capacity in those economies, just did not tally and it did not make sense to a lot of commentators. Fortunately, the debate has moved on quite a bit in the past ten years, in particular among many more senior and more influential policymakers at a European level. That was why to a certain extent I instanced the comments from the executive board member of the ECB. It is interesting to note that these comments are now coming from places like the ECB, and even in German policy, which would traditionally have been regarded as very conservative as far as fiscal policy is concerned.

The underlying issue is clearly the low interest rate environment, as Deputy Boyd Barrett correctly pointed out. That is enabling us, as with most other countries, to borrow quite significantly at present, but the borrowing cost as a fraction of GDP for example or as a fraction of our total revenues is quite low relative to where it was previously when our borrowing was not as substantial but the interest rates were very high. It is very analogous to the mortgage market. People can take out large mortgages when the interest rates are very low but when interest rates are at running at 13%, 14% or 15% then clearly the scale of the mortgage one can take out is much more reduced. That does beg the question, as the Deputy correctly identified, as to where we see interest rates going. As I indicated to a previous speaker, I think all of the focus in all of the analysis that I have seen that I respect, does suggest that low interest rates are something that will be with us for quite some time. There is a broader issue here about the growth potential and dynamics within the European economy. They had been very much reduced in the past ten to 15 years. Europe is not growing as significantly as it did in the 1980s, 1990s and early 2000s. In the absence of the key trends being reversed in areas like demographics, where it is clearly incontrovertible that we are heading for a much older population, in particular in countries like Germany, and in the absence of a major turnaround in productivity, which has been slowing down gradually across western economies, it is hard to see how interest rates are going to escalate over the medium to longer term. I fully agree that it is something we need to be very careful about and we need to keep an eye on, because if interest rates do start to climb, we are in a lot of trouble. The only consideration is that an awful lot of other countries will be in similar trouble as well, so policymakers are very much focused on this issue.

On the point Deputy Boyd Barrett made about raising taxes and the need to increase or broaden the tax base in response to the crisis, there are very valid reasons and arguments there in certain areas. Property tax is one area where one could look to increase the tax burden going forward. We pointed out that we felt there should have been increases in property tax, in particular given the very sharp rate of house price inflation in recent years. We are confident about the future prospects of the Irish economy, but as a general point, when one is talking about the scale of this crisis and its impact on the economy, if one were to start increasing taxes in the manner in which they have done in the UK for instance very recently, the danger is that one could choke off the recovery. That is something we would be concerned about. Perhaps it is a case of seeing the economy recover over the short to medium term and then one could have a debate or policy discussion on where one might wish to broaden the tax base and where exactly one could do that. Dr. Doorley might wish to contribute now.