Professor Stephen Kinsella:

I thank the Chair. To give the committee an idea of the issues I wish to cover, it is not necessarily only about the budget, it is also about how we are choosing to conduct fiscal policy for our small open economy in this particularly uncertain time. To start with the headline, budget 2023 focused almost exclusively on the current problems. That is completely understandable but it leaves us in a quandary because many of the problems we have to solve are longer-term structural ones. I will get on to that.

A key issue that has not come out that much in public conversation is what the forecasts of the Department of Finance in the budget documents are telling us. I will address that momentarily. It is clear that we now expect inflation to be with us until at least 2025. We understand, from previous contributions, that this will hurt economic activity. Growth is expected to slow to 1% or 1.2% next year. The economy as a whole is expected to grow and give rise to a surplus in the State's finances, but we will also see a range of regressions through the period.

An important point in the broadest context is just how big the State is relative to previous years. The first chart on my slides depicts general Government expenditure in billions of euro. We will spend €111 billion this year. That is approximately the same amount as when the banks were bailed out in 2009. It is approximately €30 billion a year more than it was at the onset of the 2007 crisis. That is an important point. We are growing the economy each year but not necessarily having the most in-depth conversation about what that growth means. Like most economists, I tend to look at modified domestic demand - how much people are going to spend in the real economy on goods and services. As members can see on the slide, that demand will be down next year. The forecasts, shown in grey, are modified down relative to the summer economic statement of only a few months ago. The market and market participants, particularly CEOs of major banks and other commentators, are suggesting that it will be lower again next year. That creates a sense of uncertainty with respect to the conduct of economic policy at the same time as we are seeing gushing corporation tax revenues coming in from the buoyant multinational sector.

As Dr. Healy stated, while the change across different household types from 2021 to 2023 leaves everyone better off in nominal terms, they will be worse off in real terms. Members can see from my slides that a couple on a fixed income of €49,000 with one earner will be 3.4% better off but, when one corrects for inflation, they will 11% worse off from the 2021-23 period. Members can see that a person on the minimum wage is slightly worse off again. All of these combinations mean that it will be very difficult through 2023 to have an economy that is growing in statistical terms but will not feel like it is growing. Members can see that it is growing over time but that it will create a problem going forward because growth is not experienced quantitatively; it is experienced qualitatively. People feel like things are just getting slightly worse, and that can have a corrosive effect on many things.

The second point is that budget 2023 forecasts show that we are moving to a larger State. There is very little public debate on how we are going to pay for this. The excellent report of the Commission on Taxation and Welfare, of which I am sure members have copies, is essentially a phone-book-size menu of policies that we can use to think carefully about the State. If one looks at the forecasts of the Department of Finance which are shown on the screen, income tax as a share of the national wage bill is rising quite substantially in the next couple of years, while total tax as a share of modified national income is also rising. Although in political terms the report of the Commission on Taxation and Welfare has, if one likes, been discarded, the forecast of the Department of Finance indicates that this will have to be dealt with in some sense.

There is no doubt that as we move into the future, the size of the State will have to grow. We have an older population and a climate and biodiversity challenge, and migration is also a major issue. This is the major point of my remarks. Budget 2023 did not advance or change the structural questions that we have in this country. We did not see a big change with respect to offshore wind, for example, which is the largest single opportunity Ireland has to exploit natural resources and generate growth for ourselves for another 50 years. We did not see large changes to climate change or biodiversity. We saw nothing to really think about how our inward and outward migration challenges will be met. Of course, we are rapidly running out of time in which to solve this problem of the ageing issue. Every year that we delay, the problem gets worse.

In my previous appearances before the committee, I have urged, cajoled, harassed and harangued members to consider programme- or performance-level budgeting. This is vital. The State is growing. We are asking taxpayers to pay more. As we are doing so, we should find ways to reassure them that their money is being well spent in order that social trust is restored and is as high as possible in the services for which everyone pays. Programme budgeting is well worth doing. It is a type of budget classification. Simply put, one will spend money on health - one will simply allocate it to a particular programme and then should be able, at a certain point, to understand whether or not the programme is doing well on the basis of key performance indicators, KPIs. This should be considered. The OECD has an excellent report on which I am sure it would be happy to brief the committee if invited to so do.

Multi-annual spending ceilings are very important and a welcome addition. The Irish Fiscal Advisory Council has made the previously that they are a welcome addition to the set of fiscal armature of the State. They were slightly breached this year, but for good reasons.

Reviews of the fiscal rules are coming. It would be very good if the committee were in a position to understand how those rules might affect behaviour, particularly of the two Ministries with responsibility for finance going forward. A suggested action for the committee is that some kind of pilot programme of programme-level budgeting should be considered and sourced.

The key question is how to rebalance the contributions of multinationals and the domestic sector to economic growth. This is the big problem because it feels like ti is not a problem. There is loads of money coming in from corporation taxes, which is great and is essentially funding all the activities of the State going forward.

However, it represents both upside and downside risks to the State. Overall contributions by tax head from the multinational sector are around 83% over time. I have provided a table which breaks it down by sector. The table comes straight from the Commission on Taxation and Welfare. The chart shows that the contribution to gross value added per sector. Simply put, multinationals do almost all the growing for our economy in the post-austerity era.

My final point is from research that I have just completed. I have generated a map of the Irish economy, made up of little dots that are sectors. Healthcare is up the top. I have coloured them by the percentage of the multinational employment. The lighter green dots illustrate where there are lots of multinational employment and the darker green where there is very little. The chart is based on about 2.2 million data points. The chart shows that multinational activity is concentrated on a bunch of sectors. There is very little chance of people moving between them and very little knowledge transfer between multinational sectors and the rest of the economy. This will become more of a problem as we move to become more of a knowledge economy.