Mr. Tom Parlon:

On behalf of the CIF, I thank the Chair, Deputies and Senators for the opportunity to meet them to address this important issue which will have major implications for the delivery of housing and general construction projects.

Since the publication of the Finance Bill 2022, the CIF acknowledges that the 10% levy has now been reduced to 5%. We also understand that pre-cast products have been excluded from the Bill although it remains to be seen how that will work in practice. Despite these changes, CIF expresses concern about the serious risk to Housing for All, the National Development Plan 2021-2030 and to general commercial construction activity.

The CIF has written to the Minister on the matter and submitted an accompanying policy document outlining the rationale for these concerns, many of which still apply. The CIF is calling for an urgent regulatory and economic impact assessment to be carried out as a first step before the levy is introduced. Given the exceptional inflationary environment, the CIF also recommends that its introduction be deferred for up to two years to allow the necessary time for the above review to be undertaken and for the industry to make the appropriate provisions. The industry has been subjected to supply-chain and material cost increases not seen in 40 years. The introduction of this levy, the application of which still remains unclear, appears poorly timed. The most recent wholesale index for construction materials is available on the Central Statistics Office, CSO, website where the extent of recent inflation on construction materials can be seen. The general construction and house-building sector requires time to recover from these supply-chain disruptions and material cost increases. The CIF has repeatedly highlighted the damage that has been done to industry balance sheets and cash flow. Many projects that have been tendered now carry an additional cost risk as these legislative changes will not be compensated under public works contracts. Therefore businesses that have no responsibility for the defects will be expected to fund the levy from their resources. This is simply unfair and damaging to an already financially stressed industry.

The levy is a blunt instrument which is not targeting those responsible for defects. The first-time buyer and the public and private client will ultimately pay the costs of this and the potential budgetary revenue from the measure is unlikely to be achieved due to its wider consequences. This is a quality control issue for the suppliers of raw materials and manufacturers. For example, the quarries supply raw materials to the concrete product manufacturers which are then processed and supplied to the industry. The Sale of Goods and Supply of Services Act is in place to ensure that goods placed n the market are of merchantable quality, that is, that they work for the intended purpose for which they were produced. Contractors, developers and home builders should have confidence that manufacturers and suppliers comply with the law and that Government is enforcing the law in conjunction with its own certification and standards regime. How can a civil engineering contractor building a BusConnects corridor be held responsible for the supply of defective concrete blocks? The levy is likely to inflate costs for first-time buyers and on projects like commercial offices, foreign direct investment, and transport, all cost inputs will have to be passed on. If it is not passed on finance for development would not be forthcoming and contractors would suffer financial stress. All of which would have major negative consequences for the delivery of Housing for All and the national development plan. The Construction Industry Federation, CIF, is asking the Government to strongly consider the following significant downside risks of the levy and their impact on its viability as a revenue generating solution to support any redress scheme.

It will have a negative effect on the affordability of housing and lead to the likely pausing of further developments. Currently all input cost increases are difficult to recover in the house building sector as the consumer, and in particular the first-time buyer, is limited in their ability to borrow more to fund cost increases. The Society of Chartered Surveyors Ireland, SCSI, has said before, and the committee will hear from it shortly, that the 10% levy will lead to cost increases of between €2,000 and €4,000 per house. Even at 5% this could result in a €2,000 increase. The market is now at its limits in terms of ability of a householder to increase the price point to the consumer. This will impact significantly on viability and project assessment in 2023 and it comes on the back of interest rate rises, costs associated with new building regulations, and planning and local authority development charges. Even timber frame construction requires an outer leaf of blocks and concrete bases, concrete footpaths, retaining walls, boundary walls, culverts and manholes, etc. An estimated 2,000 blocks are required for timber framed homes.

The levy, alongside the significant price volatility of concrete, is creating uncertainty for public and private clients and contractors. The rising energy costs are likely to lead to further cost increases for concrete in the coming months. This is putting many projects in jeopardy. The uncertainty means that contractors are unable to tender projects. It is likely that the levy will lead to substantial cost increases forin situ concrete, blocks and mortar, and foundation piles. These products are used across projects in residential, commercial and civil engineering construction. The levy will lead to significant uplift of the cost of these project costs. The majority of contractors are earning margins between just 1% and 3%. The uplifts could represent up to 25% of a contractor's margin thereby seriously undermining their funding capability and the viability of development. For those unfortunate enough to be in contract, they will be required to absorb it on top of all the other inflationary costs that they have had to absorb over the last three years.It is not sustainable and could put contractors out of business or terminate projects.

The CIF is making a number of recommendations regarding the application of the levy. First, an urgent regulatory and economic impact assessment should be carried out as a first step. Second, given the exceptional inflationary environment, the levy's introduction should be deferred for up to two years to allow the above review to be undertaken and the industry to make appropriate provisions for it. Third, those responsible for the defects in the manufacturing process should be held responsible under measures that are targeted and surgical. Other methods such as statutory inspection standards, certification and licensing should be considered as these could help protect future homeowners and clients. Fourth, we also recommend that the Sale of Goods and Supply of Services Act be strengthened for manufacturers and suppliers into the industry with the introduction of mandatory inspections by local authorities or National Standards Authority of Ireland, NSAI, officials. Finally, the industry needs a national product testing centre to ensure independent testing of construction products supplied into the sector.