Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

First, I apologise to everyone who is in front of the committee today. Unfortunately, we had a motion, and a vote on that motion, that has delayed us significantly. I apologise that the witnesses have been kept waiting.

I welcome Dr. Nat O'Connor and Dr. Tom McDonnell from TASC and Dr. Seán Healy, Sr. Brigid Reynolds and Ms Michelle Murphy from Social Justice Ireland. Members have been circulated with the submissions received and a summary paper in advance of the meeting. The format of the meeting will be that both groups will make brief introductory comments not exceeding three minutes, and we will then proceed directly to a question and answer session. The clerk to the committee is acting as timekeeper and will notify me when the three minutes have elapsed. I reiterate that we must keep it very tight because of what has happened.

I remind everyone that all mobile phones must be switched off. I advise the witnesses that, by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the joint committee. If they are directed by the committee to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise nor make charges against any person or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing ruling of the Chair to the effect that they should not comment on, criticise or make charges against a person outside the Houses or any official by name or in such a way as to make him or her identifiable.

I call on the representatives of TASC to make their opening presentation. After they have done so, I shall call Social Justice Ireland.

Dr. Nat O'Connor:

I thank the members of the joint committee for the invitation to talk to them today. As they know, TASC is an independent, progressive think-tank. We are proposing that for budget 2014 the discretionary adjustment not exceed €2.7 billion. Even within this figure, we are very much focused on the revenue side. We argue that there should be no further cuts to public services beyond those agreed in the Haddington Road agreement. At the same time, we are proposing that €1.5 billion be allocated from the new strategic investment fund for Ireland as a counterbalancing measure to offset the contractionary effects of this budget.

We acknowledge the strong public interest in lowering the deficit and controlling the extent of the national debt. However, the deficit adjustment can be achieved in a number of ways. Looking at this as a think-tank and thinking about the medium-term, we believe there are risks that the current consolidation path, particularly further cuts to public expenditure, will have medium-term social and economic consequences that will be very severe and negative. Large-scale fiscal consolidation has a substantial contractionary effect on growth and employment. These effects are more pronounced when unemployment is high, monetary policy is constrained, there are credit constraints and our major trading partners are simultaneously consolidating. There is a lot of international evidence that shows that even a small open economy can have a high fiscal multiplier. More important, sustained cyclical unemployment will raise the structural rate of unemployment. In other words, we will have longer, higher long-term unemployment which will reduce labour supply and lower the long-term potential output of the economy.

We are proposing a series of adjustments focused on the revenue side. This is not because we are focused on revenue. We went through a process of elimination looking at alternatives. Ireland has a very low level of investment. Therefore, there is a need for investment. We have the lowest level of public plus private investment in the European Union. That is crucial for our medium-term growth. Ireland's tax base, however, is only three quarters of the European average. Our social insurance base is incredibly low, perhaps the lowest in the European Union. If one made the entire budget adjustment for this year and next year just by increasing employers' PRSI, employers' PRSI still would not reach the European average level and one would have achieved a figure of €5.1 billion. That is how completely different and off the scale Ireland's social insurance system is compared to those of our European partners. That is why we are focusing on that issue.

IMF spending forecasts show that between 2014 and 2018 public expenditure in Ireland as a proportion of GDP will be, on average, ten percentage points below the EU average. Therefore, we will not be able to achieve western European standards of public services if we are not willing to maintain the level of expenditure.

We are very much concerned that the cuts to public services will deepen inequality in society through false economy because we will have to pay for this in the future. For example, homelessness and mental health services need an increase, not a decrease; hence, the handout members will have received proposes a range of revenue measures that are evidence based and which we believe would work. They are all sourced from official data.

Dr. Seán Healy:

I thank the joint committee for the invitation and the opportunity to speak to members today and answer questions.

Social Justice Ireland is an independent think-tank and justice advocacy organisation. As the Chairman stated, we have forwarded to the committee our policy briefing on budget choices, which we published in June. In it we advocate reaching the €3.1 billion reduction but by including €500 million of the €1 billion available as a result of the IBRC changes and so on. Taking this out, we are talking about a figure of €2.6 billion. We are doing it completely on the tax side. We propose changes in expenditure that would lead to reductions in expenditure, but we also propose to use that money to increase expenditure in other areas, principally because of the high level of cumulative hits suffered by many people who are on the margins, vulnerable or in the middle. Those on middle and lower incomes have suffered dramatically as a result of the cumulative impact of the hits over the five years.

We promised in June that we would produce a document about investment that would be carried out in an off-the-balance sheet way.

We have now published it along the lines we suggested and it has been supplied to the committee. It is entitled, Investing for Growth, Jobs & Recovery. In it we propose a €7 billion off-the-balance sheet investment package over a three-year period which would generate an increase in economic growth and which, using the Government's own multipliers, could lead to the creation of up to 84,000 jobs. It would provide up to €2.9 billion in additional revenue as a result of this investment. The result would be that a major part of the money could be paid from the gains in terms of increased tax revenue and reduced expenditure because people would be off social welfare and not depending on things like medical cards.

That is the basis on which we have presented. We have been driven very much in that direction by our conviction that there will be no jobs without investment, that there will be no recovery without jobs and that we will be stuck in austerity without recovery. Investment is the critical issue. In that context, we draw attention to the fact that Ireland has very low levels of investment. We can talk about this during questions, but we are standing out with the lowest level of investment in the European Union. Given that starting point, we cannot expect to recover without serious additional investment. We welcome what the Government is doing with investment, but it is not on the scale required to get us out of the mess in which we find ourselves.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I call Deputy Sean Fleming and will give five minutes to each of the main spokespersons.

Seán Fleming (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

I thank the delegations for their presentations. We are snowed under by the amount of documentation we are getting from the different organisations, but I thank the delegations for their very professional presentations and being here today. I have a few observations on TASC. I know it has mentioned savings under the Haddington Road agreement and said there should be no further cuts. That obviously concerns the pensions and payroll bill. I accept that and it is agreed. We supported the agreement. In the summary TASC does not talk enough about front-line services provided by public service workers. I do not get from its presentation a concern for the delivery of services to people on social welfare. It is more concerned about the staff delivering the service rather than the service provided. It was specifically excluded from the Haddington Road agreement, but it is Government policy to proceed with a targeted redundancy package in the next year or so involving up to 7,000 people. Does TASC believe it should go ahead? It is Government policy to do this.

I thank Dr. Healy for his presentation on behalf of Social Justice Ireland. I understand what he is saying about an increase in social welfare rates. A person about whom I am equally concerned is the low-paid worker. This is the person who goes out to work and is on the minimum wage of about €300 or €400 a week. He or she is regularly worse off than the person whom Social Justice Ireland proposes be given an increase. Will Dr. Healy develop that point for me because I suspect his time was limited and he did not deal with that issue?

Social Justice Ireland proposes a tax of one third of one cent on each text sent by SMS through mobile phone operators. Is it proposing that this be extended to Facebook and Twitter because many young people have moved on from text messages to Facebook and Twitter?

In respect of social housing, will Dr. Healy give me a quick observation about Social Justice Ireland's views on the need to provide loans for persons who want to buy houses and are unable to obtain loans from the banks? Yesterday I heard about a case in my constituency in which a house in Mountrath was on the market for €40,000. It is an adequate house and values are low. One of the pillar banks into which we have put billions of euro has refused to give a loan on the basis that it does not give loans for houses valued below €90,000. Here we have a bank stating it will not give loans to persons who can buy cheap houses. I find this incredible. The person concerned had to put up one third of the value. The bank would not give a mortgage of less than €60,000 and the house is on the market for under €40,000. We need something through the local authority system or the banks to provide funding for those who buy get low-cost housing.

Dr. Nat O'Connor:

We are concerned about the cuts to front-line services because not only are people seeing cuts to their disposable incomes through tax changes and cuts to welfare but also those on lower incomes disproportionately rely on public services. Part of the reason we are proposing to make no further cuts is precisely because of the effect they have on communities. We also know these effects are often geographically concentrated. Unemployment is not neatly spread across Ireland. Unfortunately certain towns and communities are dealing with acute unemployment because of the numbers of people previously employed in construction or couples who worked for the same employer and lost their jobs, with the result that entire families suffer unemployment. Maintaining the public service is vital for people in that situation.

In regard to the Haddington Road agreement, we are pragmatic in what we are proposing because that arrangement has been agreed and will not be changed. We set out costed measures that would address the deficit without assuming we could undo that kind of agreement.

Seán Fleming (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

Does TASC support the targeted redundancy plans?

Dr. Nat O'Connor:

No, not as such. In the ideal situation we would be strengthening public services but we are trying to be realistic in what we can propose in one year.

Dr. Tom McDonnell:

A side point about the additional redundancies is that we know from evidence and modelling in Ireland and abroad that the impact of reducing public sector employment is quite severe. It is one of the most damaging things one can do in terms of headline macro-indicators, such as employment, GDP growth and savings, as well as the deficit. We would consider it to be one of the last places to go and it is something we would not support.

Dr. Seán Healy:

In regard to our proposal to increase social welfare rates by €5 per week, which we have shown can be funded, we were conscious of the needs of low paid workers. We have done much of the research that has exposed the situation in which such individuals find themselves. Consequently, we also propose an increase in tax credits of €5 per week. This is not a dramatic sum but it would put an additional €5 per week, or €260 per year, into the pockets of low paid workers, who would be the main beneficiaries. An increase of €5 per week will not make much difference to those on high incomes but it will have a dramatic impact on people on low pay. We are proposing an increase in both, therefore. We also proposed that tax credits be made refundable on the basis of research we have carried out over a number of years. The only beneficiaries of making the two main tax credits refundable are those on low pay. This is why we fully costed a budget to show how these approaches can be funded.

We do not consider the text tax as being extended to Facebook because it is a free platform. However, we produced a number of proposals in respect of nutrition, texts and Internet gambling taxes, where we see that a certain amount of money can be raised. The money would not change the entire face of the budget but it would make a difference.

Social housing has been a major concern for us for quite some time. The problem with the Government's current approach is highlighted in the story Deputy Fleming told. It has moved towards a situation in which it has more or less eliminated financing for local authority construction of private housing. The problem is that 100,000 households are in need of social housing and on waiting lists. There does not appear to be anything in the current process to address that problem. It is basically depending on the private sector to deliver but if options are offered by the private sector and the banks are not providing the level of loans that would make a difference to low to middle income people, we have a serious problem. We would go further than Deputy Fleming suggestion of a service for financing low cost housing for those on low to middle incomes.

Part of the investment programme we propose would see an investment in social housing and trying to meet those needs.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I thank both groups for coming in. Dr. Healy's presentation proposes to take €500 million of the €3.1 billion from the promissory note. He proposes that €2.6 billion would come from the tax side. There is commonality between both groups regarding where the measures would come out of the budget. Will Dr. Healy give me the headline figures as to where that €2.6 billion would come from? He talks about investment in growth of €7 billion in terms of jobs, and we would all welcome that. Will Dr. Healy define what he means by "off the balance sheet" and indicate where that would come from over a three year period and where he would see that being directed? He refers to 84,000 jobs it would generate.

Dr. O'Connor and Dr. McDonnell of TASC referred to an adjustment of €2.7 billion, which is very much in line with Social Justice Ireland's figure. TASC's presentation makes a number of observations and, again, I would like the headlines. TASC sees the €2.7 billion coming entirely from tax. Will the witnesses give the headlines as to where those figures come from? TASC compares us with Europe and reports the largest difference in terms of cost of employment. Will the witnesses comment on our marginal tax rates here, which are 52% and 56% respectively for PAYE and self-employed workers, and how that feeds in? When examining jobs and impact, there are two factors: the employee's take-home pay and the cost to the employer. For many SMEs, employers' PRSI is an additional cost. Will the TASC representatives comment on that? I am coming at this from the theme of jobs. We are all working towards the same aims, perhaps in different ways, but I seek more detail.

Dr. Seán Healy:

I thank Deputy. All the numbers are on page 16 of our Budget Choices document. There is a carryover from budget 2013. Our estimate is €613 million. That is using the Government's own documents; we are not making any of this up. The numbers we put in here come from other reliable sources.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Is Dr. Healy talking about €2 billion for the current year?

Dr. Seán Healy:

Yes, but it is a bit more than that because we lose taxation in some cases where there is a decrease.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Material, material.

Dr. Seán Healy:

We would introduce a minimum effective corporate tax rate of 6%. The rate is 12.5%. Most corporates pay 11% to 11.5%.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

It is very transparent, yes.

Dr. Seán Healy:

A small number are paying 1% or 2%. We are saying there should be a minimum effective corporate tax rate of 6%. That is tied to the capacity to use tax breaks. We are saying there should be a limit to the level of tax breaks that could be used in any particular year by any corporation, particularly the large transnationals which use them extensively.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Does Dr. Healy see that impacting on jobs?

Dr. Seán Healy:

No. Not at all.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Why not?

Dr. Seán Healy:

Because it is a very small amount of money to those particular corporates which are particularly involved in financial services. The money they are making in Ireland is for the most part covered well by having 6.5% of their profits being written off.

In fairness, we have a system under which the PAYE sector has no choice but to pay a very high percentage of its income. On the other side, we are asking the corporate sector to make a very small contribution and I believe it could be done.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

In the limited time-----

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I am sorry, Deputy, but there is no time.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Fr. Healy is not looking at this in an holistic way. The taxes that are paid are a combination of corporation tax, VAT - in many cases multinationals would not be paying this in terms of exports - PAYE and PRSI in respect of the people they employ. Can he see the model from which I am working with regard to jobs?

Dr. Seán Healy:

We have done that. We are very careful about this. Job creation is the critical issue for us, the same as it is for the Deputy. What we are trying to do is to increase employment. As we have pointed out, without investment there will be no jobs and without jobs there will be no recovery. We need jobs, but they are not coming forth on the scale required to get us out of this mess any time soon.

To return to the other elements, we would increase tax on online gambling, which would yield €100 million. We would standard-rate the tax break on all pension contributions-----

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

That is similar to tax.

Dr. Seán Healy:

-----but we would introduce a universal pension. It could be fully funded. Next Monday we will publish a full study which will show what the implications would be of introducing a universal pension through to 2040. All the numbers are included. I am conscious of the time limits, but there are a number of other elements.

On the other question the Deputy asked-----

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I am sorry, Dr. Healy, but I will have to stop you in order to teach people to be tight on time. I will stop this contribution, but if we get an opportunity towards the end-----

Dr. Seán Healy:

I was being careful. I did not answer the question and it is not because I do not have an answer. The answer is in the submission.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

We might get back to it towards the end.

Dr. Seán Healy:

I would like to show from where the investment would come and to where it would go. We have answers to both.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Good. I call Deputy Pearse Doherty. I am keeping to the time limits.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

The representatives of both organisations are very welcome to the meeting. I welcome the presentations they have made. The main issue is not the individual proposals but the fact that there are options. Despite the fact that both organisations are looking at the same type of macroeconomic analysis, a number of proposals have been brought forward and what the committee and the public need to hear is that there are always options.

To delve into the detail - I might return to this later - the focus of Social Justice Ireland is on taxation measures. The €600 million carryover is included; I think its figure is just above this sum. However, there is no carryover in its accounts on the expenditure side and the Government estimates the figure to be approximately €360 million. TASC has included the figure for the expenditure carryover. How realistic does it believe that carryover figure will be, given the overspend on health services and the possibility - there is talk about this in the media - that we might need a Supplementary Estimate for that Department?

I commend both organisations for pointing to the need for a stimulus package. This is something that has been missing in the debates, although both organisations have put this forward in the past. We must focus on it and see more Government consumption to get people back to work to help lift the economy.

With regard to the wealth tax proposal from TASC, the organisation will be aware that I have drafted legislation on a different wealth tax proposal. It involves a 1% rate. Some think all wealth tax proposals must be the same. Like income tax, one can raise them to different rates. TASC states the €150 million yield from its wealth tax proposal, a figure of 0.4%, is likely to be conservative. Will its representatives discuss these figures?

The last issue I wish to raise is the matter of pensions. Both organisations have dealt with this issue and it is one Sinn Féin has raised time and again. Approximately one fifth of the adjustments required this year can come from the standardisation of pension reliefs. Social Justice Ireland points to the analysis carried out which shows that 80% of the reliefs go to high earners. I support the proposal brought forward by both organisations, but what impact would this have for those who are saving for their pensions in the future?

I am playing devil's advocate here. We know there is a pensions time-bomb and in that context, how can the delegation justify standardising pension tax reliefs at this point in time?

Again, I commend the delegation. I will support many of the proposals put forward, which will be included in our pre-budget document to be published soon. Some proposals, however, my party will not support. In particular, I am concerned about the proposed nutrition tax and how that could impact on lower-income groups in society. I am also concerned that the focus is on increasing excise duty on alcohol rather than tackling below-cost selling. I ask the delegation, time permitting, to deal with that issue.

Dr. Nat O'Connor:

I will quickly go through the six main blocks of our submission to illustrate how we arrive at our totals and will attempt to incorporate answers to the questions posed. The first block is €377 million raised on wealth, wealth transfers and passive income. All the research available shows that of all forms of taxation, this would have the least damaging effect on jobs. We have a wealth tax proposal for €150 million. My colleague, Dr. Tom McDonnell, can elaborate further on that, having written a 60-page technical paper on wealth taxation which forms the basis for that estimate. We also propose to reduce tax breaks for landlords, whose income is passive. This is less damaging to jobs.

The second block is the pension tax reliefs. We can raise €580 million by standard rating the tax break and reducing the tax-free lump sum. In answer to the question as to how this will affect ordinary people saving for their pensions, we know that 80% of the benefit goes to the top 20% of earners. Most people would not be affected by the tax break changes. They would only affect those at the top. At the moment we have a situation where high earners can get their tax back at the marginal rate and walk away with a tax-free lump sum of €500,000. This is egregiously inequitable and it is unusual to have tax-free lump sums in any pension system. We view this as a major issue.

The only labour taxation we would introduce is a third band of employer's PRSI on that part of salaries above €100,000. This would affect fewer than 50,000 workers, all of whom are on the high-pay end of the scale. It would also have the least damaging effect on consumption in the economy and would bring in €162 million.

The fourth area is excise duty and we recognise that there is a regressive effect associated with introducing taxes on, for example, saturated fats and sugar. However, there is both a short-term and long-term gain in terms of public health benefits and encouraging people towards more healthy lifestyles. Such taxes also include an element of choice in that people can choose not to consume these goods, thus avoiding the tax. While we recognise its regressive effect, we would view the overall package of measures we are putting forward as broadly progressive.

My colleague, Dr. McDonnell, will deal with the issues of the marginal tax rate, jobs and the wealth tax.

Dr. Tom McDonnell:

I will pass on my paper on wealth tax to committee members.

On the question of employment, we were very conscious of the need not to increase the cost of employment. In that context, within our budgetary submission, new labour taxes amount to less than 10% of what we are proposing. Most of what we are proposing are new forms of capital and consumption taxation. We acknowledge that there is a regressive component within our budget related to the nutrition tax, excise duty on alcohol and so forth but we would urge the committee to look at our submission in its entirety. It is hugely progressive and is aimed at minimising negative employment effects. It should be noted that all taxes have costs as well as benefits, public spending has benefits and the issue is really about weighing these up against each other. Any contractionary measure is going to have a negative effect on employment and growth.

On the issue of the wealth tax, the €150 million estimate is conservative, in our view. We used €150 million ---

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

My apologies, Dr. McDonnell but I must stop you there. I have let these slots drift to seven minutes but I really want to make sure that everybody can contribute to the discussion in the time available. I call Senator Hayden.

Aideen Hayden (Labour)
Link to this: Individually | In context | Oireachtas source

I thank both organisations for their presentations and for the documentation they provided, which is very informative. In particular, I compliment Social Justice Ireland for the excellent briefing material it provided.

Starting with TASC, I note that it is proposing an investment of €1.5 billion but it does not go into detail on how it sees that money being invested.

I am thinking in particular about how we might stimulate the domestic economy. We need to ring-fence that investment in order that it benefits the domestic economy. In this context, I am mindful that the percentage of the economy accounted for by the construction sector has decreased from 20% to 5%.

I have noted TASC's proposal with regard to social insurance costs. TASC accepts that this is neither the time nor the place to do anything in this area that might have a negative impact on employment. I wonder whether its representatives have considered a timeframe in that respect.

I would like to refer to the specific proposals made on page 4 of the TASC document. TASC has proposed a reduction from 75% to 40% in the proportion of mortgage interest relief that can be claimed in the case of rental properties. When this measure was withdrawn completely during the 1990s, it had a very negative effect on properties available to rent and the market generally. I wonder whether TASC has considered the possible impact on the availability of property to rent and the housing market generally of the fact that some 30,000 of the country's 150,000 buy-to-let properties are in mortgage arrears for more than 90 days.

I would like to comment on TASC's proposal with regard to capital acquisitions tax. I note that capital gains tax has not been included in the proposal. I wonder why an increase from 33% to 35% has been proposed, rather than providing for all of this income - earned and unearned - to be taxed at the same rate.

I am trying to be as quick as I can. I note that Fr. Healy has proposed that we stimulate the economy. I think we were all cheering him on when he said austerity did not represent the way forward. He has suggested an investment of €500 million could come from the savings on the promissory notes. Would he be in favour of an even higher level of investment? In his initial presentation he mentioned that his group was proposing an increase in expenditure of just €50 million in the social housing area. Focus Ireland, for example, is arguing in favour of a €400 million investment. I do not think the €50 million investment proposed would make a substantial impact on the 100,000 households actually on housing waiting lists.

I echo Deputy Pearse Doherty's concerns with regard to the bad nutrition tax. It is pretty well accepted that poorer families are more likely to consume poor food. I appreciate that our guests are proposing that the moneys saved go directly into the health system. Would they suggest the money be ring-fenced for school meals, for example? If that were done, it would not be a savings measure per se. Instead, it would be an investment in our children's futures.

I have a slight reservation about the proposed text tax purely from the point of view that texting is the method of communication of many young people. I know a young person who sends at least 150 text messages a day. It could be a little ageist, to say the least, as a proposed taxation measure.

Dr. Seán Healy:

I will try to respond to both sets of questions. I did not get an opportunity the last time to do so.

We did not include the carry-over expenditure for two reasons. We actually have an excess. Our adjustment figure is over €3.1 billion. There was a certain amount in that regard. The main reason we did not include it was that we did not believe several key items would be on target. In our analysis of budget 2013 which was published the day after the budget was announced we made the clear point that all of the literature showed that health care expenditure could not be reduced by more than 3% per annum while expecting the system to survive or remain in place. It was proposed to reduce it by 5%, but that was never going to happen and it is not going to happen. We were not being presented with real numbers. We think the credibility of some of the numbers is very questionable. We consider some of the other numbers we have been given, particularly for growth, to be highly incredible. We have supplied the reasons for holding that opinion on page 4 of our investment briefing which has been furnished to the joint committee. It shows that the real levels of growth which would have to be generated in order to reach the projected levels after taking so much money out of the economy would have to be at Celtic tiger levels. That is not going to happen. There are quite serious issues in that regard.

On the issue of pensions, our view is that the impact of our proposal on people already making savings would be twofold. First, they would make a fairer contribution in terms of tax, and second, the pensions industry would not make as much money as it has been making. It has been the great winner in terms of that particular tax break.

On the question of the €500 million for the promissory note and whether I should go higher on that, our view was that the Government is not likely to go higher than that and that is why we developed this proposal for €7 billion in off balance sheet investment. It is correct that on our budget proposals there is only €50 million on the books for social housing, but there are several hundred million in the investment programme we put beside it. However, that would have to be done on an off balance sheet basis if we are to get that level of investment.

Perhaps Ms Murphy would like to talk about the nutrition tax.

Ms Michelle Murphy:

Yes. We would like to see that money ring-fenced and to see it go back into the health system. We would see school meals as being one part of it and would see the rest going into education as a whole. We would see it educating parents on nutritional diet and good and bad food to give people a choice. The long-term cost to the health system of people who consume junk food or food that is high in salt and trans fats is huge and we ultimately pay for that. This tax would be a way to reduce those costs, educate people and help people eat healthier food.

Dr. Nat O'Connor:

I wish to comment on a few issues. In regard to the stimulus, we stress that we propose investment rather than stimulus. One can do lots of things in the economy and have a short-term stimulus, but what is important is that the strategic investment fund is put into areas such as home retrofits, broadband connections and the retraining of people who are long-term unemployed. This would have a long-term effect on the economy in terms of our future growth path and also have a short-term stimulus effect.

With regard to the rental market, there is a problem where people who bought to rent are in arrears. However, giving them a tax break that will keep them in that limbo situation will not resolve that. We now have insolvency procedures to help bring about a resolution for people in that kind of debt. This should proceed so that housing goes back into the housing market and becomes available. Only then will we get a more plentiful and cheaper supply of housing. Continuing to provide a tax break for a rental market that is not working will not improve the situation. There is a need for many other improvements in the rental sector, such as stronger tenancy protection and the need for larger institutional landlords to play a role. Now, because we have a housing stock through NAMA, there is an opportunity to try to create this, but this would fall under a different policy area. I agree there are serious issues in the rental sector, but a tax break on passive income does not improve the situation. Doing away with that could release valuable funds for other areas.

The nutrition tax would amount to approximately €100 per household per year. We would not see this as an exorbitant tax, but it would still bring in a significant amount of money for the Revenue, approximately €188 million by our calculation. We see this as important taxation, but it would not be an onerous burden in terms of the household grocery bill.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I must stop Dr. O'Connor now and ask him to bank his replies so that I can bring in Deputy Boyd Barrett.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source

I thank TASC and Social Justice Ireland for producing interesting and progressive alternatives to the austerity agenda which has been pursued for the past few years and which most of us would agree has failed appallingly.

I welcome the emphasis on jobs, investment, no further cuts and seeking revenue through taxation measures. That is the way forward. I would probably go further in some areas, but I would like to study carefully the good ideas presented today. TASC did not mention corporate tax in its presentation. Why not? The need to address corporate tax seems a glaring issue to me. Somebody said we have a transparent corporate tax system, but I believe it is about as transparent as a muddy pool. It is inexplicable that when everybody else is being screwed, corporations that make hundreds of millions or billions in profit pay tax of only 1%, 2% or less.

It seems to be, as Social Justice Ireland has rightly pointed out, that the issue is effective tax rates and not the nominal rate which is not being paid by the really big players. I would ask the witnesses from Social Justice Ireland why would they not go higher. We are proposing 12.5%. Why can they not pay 12.5% when everybody else is being screwed with taxes at the moment?

I do not think either witness mentioned the universal social charge. That is one of the most onerous of the austerity taxes that has been imposed on people and one of the most economically damaging, as it has hit the consumer power of low and middle income people very hard and the high street as a result. Our suggestion is that we significantly reduce the USC burden and impose that on those over €100,000. What do the witnesses think of that?

There is a real problem with the taxes on cigarettes, alcohol and a possible health tax. I understand the point being made about health and we all want to encourage people to live more healthy lifestyles, but what evidence do the witnesses have that imposing taxes - which they acknowledge will be regressive and will disproportionately hit the less well-off - actually change behaviour? I do not really think they do. The net effect will be to hit people quite hard. The witnesses said that €100 per year is not such a big hit. I would suggest that in a scenario where 1.3 million people are hovering on the poverty line, €100 makes quite a big difference.

Finally, can the witnesses elaborate on off balance sheet investment?

Dr. Seán Healy:

First, EUROSTAT data are showing that Ireland's current level of investment is the lowest we have ever recorded for any EU country since they started collecting comparable data. Therefore, we have a very low level of investment in the country. Second, Ireland's net worth has declined dramatically. The new figures that are now being collected by the CSO show that Ireland's net worth fell by €124 billion in recent years and almost 40% of that is due to money that we had to pay to banks. Third, there has been a decline in domestic demand, which has continued every single year.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source

What does Dr. Healy mean by off balance?

Dr. Seán Healy:

What I mean by that is that we look at sources, including the Irish strategic investment fund, commercial semi-State borrowing, domestic pension funds and so on. Groups like the credit unions have substantial sums of money, but they are blocked by investing it due to particular rules. It seems that those rules are meant to achieve safe investment, but that can surely be done by simply putting the supports in to make sure that it goes in that direction. We can raise €7 billion from these sources and from the European Investment Bank, which can contribute half of that total. On the other side, we should spend this on renewable energy, new social housing units, primary care facilities, energy efficiency, eliminating school prefabs, on early childhood care and education, public health care facilities, non-national road improvements, water services and facilities and a whole lot of other things. If we go down that route, we believe that 84,000 additional jobs will be created and we will get €2.9 billion in additional tax revenue and savings. It seems to us that there should not be a blockage that can allow us to pay off a fair bit of the capital in that off balance sheet way from the increased tax take and savings that will be made by taking people off the live register and so on.

We are strongly in favour of broadening the tax base rather than trying to concentrate on any particular area. We try to come up every year with ways of broadening the tax base, which is very important.

Dr. Tom McDonnell:

There was a variety of questions from the three members, all related to various types of capital taxation and the broader tax system. I will make a couple of brief points. The questions were about wealth tax, capital acquisitions tax, capital gains tax, corporation tax and the appropriate rates for each of those. The members of the committee asked us to look at wealth tax last year. We have done that for this year rather than going for corporate tax which is much more intricate in terms of the policy changes required because it is not simply a case of increasing the rate from 12.5% to between 15% and 17.5%, the problem is the interaction with other tax jurisdictions. That is not to say that we will not do something in the future. We have not costed it and therefore we have not incorporated specific proposals for this budget. Instead we have looked at wealth taxation and at capital acquisitions tax. There is strong evidence that taxing inheritance, gifts and passive income causes the least distortion and damage to the economy and therefore we have focused particularly on those areas. They are also some of the most progressive types of tax so in many respects they are the perfect taxes. I can speak at greater length later about the wealth tax or give individual briefings on it because otherwise I would probably go on for too long.

In response to the question of why focus on capital acquisitions tax rather than capital gains tax they are, despite their similar names, very different beasts. Capital acquisitions tax is a form of wealth tax. Capital gains tax is a transfer tax albeit on wealth assets. We believe that in the long term all income should be taxed progressively but also collectively but we are a long way from being anywhere close to that and there are technical difficulties including capital gains and income from other sources.

In respect of increasing the universal social charge for high earners, we are attempting to glean €160 million plus through the employer PRSI measure which, in response to Deputy O'Donnell's point, will not actually increase the marginal rate. Deputy Boyd Barrett is absolutely correct that USC is quite regressive in its impact on low-income workers compared with other taxes. He is also absolutely right that the employment effects are most damaging at the bottom and although we have not called for a specific reduction in USC at the bottom in our submission, we absolutely accept the point that those forms of taxation are very damaging to employment and should be avoided at all costs in the same way that, for example, a reduction in tax credits should be avoided at all costs. Unfortunately, we have seen some policy choices with which we would not have agreed in that area quite recently.

In terms of investment, I echo Dr. Healy's point that investment in Ireland is at a horrifyingly low level. It is not even sufficient, arguably to account for deterioration year on year and depreciation in the capital stock. For a country to thrive into the future and to maintain a high level of potential output and high quality of life for its citizens, it needs to invest year on year. It needs to invest in its economy. That means investing in human capital through retraining and upskilling the construction workers who do not have the skills for the future needs of the economy. It also needs to invest in physical infrastructure and in new technologies. Failure to do so condemns us to a lower level of potential growth for the foreseeable future and there is a vast body of empirical and theoretical work that supports that point. We urge that there be no cuts to the capital budget and that serious consideration be given to using the ISIF to invest in the economy. By investment I mean human capital as well as physical capital. The point is not stimulus in year 1, it is what the economy will look like in three, five, seven, ten and 20 years' time. I think that answers most of the questions.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I will give Dr. Healy a few minutes to pick up on any points that were missed and then we will conclude this session.

Dr. Seán Healy:

I wish to highlight three points. We need a step change; we need the scale of investment to increase dramatically, not just because it provides a stimulus but because it is the key to jobs and it is key to that infrastructure, both human and hired capital that has been highlighted by Dr. McDonnell. Unless we get that investment we will not get the jobs on the scale that is required. That is the first point.

The second point I wish to highlight very strongly is that there has been a cumulative effect over the past five budgets and certain groups have taken a much bigger cumulative hit. These are groups which did not have much space in the first place nor much scope to take hits. They have taken a much larger proportion of hits. I always give the example that if a person is 1 yd from a cliff face and another person is 1 mile from the cliff, the person who is 1 mile from the cliff can go a lot closer and can travel a lot further than the person who is only 1 yd from the edge. It is very easy to push over the people who are close to the edge. In our view no work is being done other than by Government on the cumulative impact. We are doing our best, without any support from the Government side, to look at the cumulative impact. We would like to see some support for our work because it is important to look at the cumulative impact.

My final point has to do with the overall policy framework. As has been pointed out by TASC, looking ahead not just two or three years’ time but five, ten or 20 years, there are five key policy pillars which need to be considered. Macro-economic stability must be ensured. This includes the investment to which we referred as well as balancing the budget and reducing the debt. There must be a move towards just taxation. To do this the Government must do two things at least, namely, broaden the tax base but also increase the tax take closer to the European average - at least bring it in that direction. There is a need to enhance social protection because there is a quite serious problem with social protection in that services are being degraded, people do not have enough to live their lives with dignity and poverty levels are rising. The fourth issue is to reform governance to include policy evaluation, a rights-based approach and the promotion of social dialogue. The fifth and final pillar in our view – although they are all important and no one has a priority over the others – is to create a sustainable Ireland. Sustainability has to be at the core. We should not be doing things now that will not be sustainable five or ten years from now. I refer to balanced regional development, indicators of progress and well-being, combating climate change. These proposals are explained in some detail in page 5 of our submission and there is a reference to a much larger exposé of our views on the elements of real recovery which was published last April.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I invite Dr. O'Connor to make some brief concluding remarks.

Dr. Nat O'Connor:

I will reinforce the point that we need to take the medium-term view of where we will be in five years' time. If we are to have a tax system that is three quarters less than the European average - and presumably public spending that matches this level - what kind of a public service will we have? If people have lower taxes in that scenario they will have to put their hands in their pockets far more often to pay for services. It is a question of efficiencies. It is not always more efficient for someone to buy his or her health services by paying €50 or €100 for every visit to a GP. We have to examine the balance of efficiency; some things are more efficiently done in a public setting and some are more efficiently done in the market. We do not have a balance in place that looks anything like other small European economies. We need to look at what we want to achieve after the deficit has been consolidated. I echo Dr. Healy's point that there is a lack of a positive analysis of the institutions, the structures which will bring about prosperity, jobs, balanced regional development and so forth.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I thank the witnesses for their attendance this morning. Their contributions have been very informative and are appreciated by the committee.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I welcome the delegates to the meeting. The submissions received and a summary paper have been circulated to members in advance of the meeting. The format of the meeting will be that each group will make brief introductory comments not exceeding three minutes, after which we will proceed directly to a question-and-answer session.

I remind everyone that all mobile phones must be switched off. I advise the witnesses that, by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the joint committee. If they are directed by the committee to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise nor make charges against any person, persons or entity by name or in such a way as to make him, her, them or it identifiable. Members are reminded of the long-standing ruling of the Chair to the effect that they should not comment on, criticise or make charges against a person outside the Houses or any official by name or in such a way as to make him or her identifiable. That is the technical stuff I must read out on each occasion.

I will now call on the representative of the Society of St. Vincent de Paul to make some brief comments, followed by representatives from Barnardos, the Simon Communities in Ireland, Respond!, Threshold and Focus Ireland. I ask witnesses to try to keep their comments to three minutes and will stop them at three minutes because I intend this to be a question-and-answer session if at all possible. We will start with Mr. McCafferty, representing the Society of St. Vincent de Paul, who has three minutes.

Mr. John Mark McCafferty:

I thank the Chair. The Society of St. Vincent de Paul is present today in coalition with a number of other organisations, namely, the Make Room coalition, which comprises Focus Ireland, Threshold and ourselves. We also are in coalition with Barnardos and Focus Ireland from a child poverty perspective. The Society of St. Vincent de Paul is making this presentation on behalf of the families we assist, primarily, as well as the volunteer members of the society, our donors and supporters. From that viewpoint, the cumulative impact of austerity measures to date on those families and individuals has been devastating. We oppose further reductions in social expenditure as the people we assist and those who are struggling throughout Ireland have suffered enough. It obviously is the responsibility of the State to lead and make the choices that will tackle Ireland's budget deficit in a fair and equitable way. Alternatives to cutting social expenditure to meet the budget deficit targets have been proposed by various commentators, a number of whom spoke to the joint committee earlier this morning.

The Government can choose, we believe, to close the gap between Ireland's revenue and expenditure while protecting vulnerable persons and the services on which they rely.

Further cuts to the budgets of Departments which impact negatively on the services needed by individuals, families and communities are unacceptable to us. We are asking the Government that resources are found and the best approaches adopted to protect the social services and those supports, and we are looking at alternative options. We are advocating that growth be stimulated by utilising a portion of cash reserves to deliver vital and strategic social infrastructure, improve efficiencies in the provision of public services and generate revenue from resources, including business, corporations and those with higher incomes and assets that can afford to make a greater contribution to Ireland's recovery.

More specifically, we are advocating for a living income, both in and out of work, reduced child poverty and better energy affordability. We are seeking a living income in and out of work through the protection of social welfare rates for those of working age - that is set out in the programme for Government - and to urge that the eligibility for payments and associated secondary benefits not be eroded any further.

As employment is critical to tackling poverty, family income supplement, FIS, is crucial and needs to be retained, with the assessment continuing to be based on net income. In addition, the withdrawal rate, the payment rate and the qualifying thresholds must all be maintained. FIS provides great income support for families who are working and a higher level for those who are working than those who are not.

We are also interested, like Barnados, in focusing on reduced child poverty and increased well-being. We see the key to that being child income support payments that are reformed in a way that protects the incomes of families who are struggling and makes family income or a better alternative available to families on low wages. Also, we are looking for early childhood care and education to be protected and extended.

Another area is better energy affordability. We spend a great deal of money and time trying to tackle the energy debts of families and we are looking for enhanced retro-fitting programmes and financial inclusive services. That is of relevance to the committee.

Mr. Fergus Finlay:

In the short time available, I will make a number of brief points. In common with all our colleagues, I am grateful for the opportunity to present before the committee.

It frequently seems to us in Barnardos that somebody somewhere in charge of public policy regards children as being the cause of the mess we are in. Since austerity began, successive Governments but principally the current Government have cut €450 million from child income supports. Since austerity began, the support given to families to get their children back to school has virtually been halved. Since austerity began, the numbers of children in consistent poverty have gone up year after year to the point where there are one in nine children living in consistent poverty in Ireland. Since austerity began, every single Barnados project, of which there are 40, has had a waiting list it used not have for children and families who desperately need help and support. Since austerity began, we can report on the basis of hard facts, hard evidence and hard experience that there have been significant increases in the stresses and stains associated with poverty, including increased mental health difficulties, depression, alcoholism and drug use. Since austerity began, anti-social behaviour among young people has been steadily increasing because of the lack of supports available there. As I stated at the beginning, it almost seems to us as if someone somewhere has decided that children caused the crash. They did not. They have paid a disproportionate share of what needs to be done.

Our simply message to the committee and to the Government is: "Enough already." There cannot be further cuts in income supports in the next budget. There must be some effort to reflect the fact that there are hungry children in Ireland. We are feeding children every day of the week, not because it is a good way for children to socialise, make friends, etc., which was why we used to do it, but because they are hungry. All our projects will report children being hungrier on a Monday than they are on any other day of the week because there is nothing in households at the weekend. I strongly believe that the time has come for public representatives to say, "Enough is enough", when it comes to austerity and children.

Ms Niamh Randall:

As mentioned, we are part of an alliance with the Society of St. Vincent de Paul, Focus Ireland and Threshold. Rather than repeat what one another is saying, we will divide our presentation into various sections. Mr. Bob Jordan from Threshold will speak first, followed by Mr. Mike Allen from Focus Ireland and then me.

Mr. Bob Jordan:

Threshold is a national housing charity that works with approximately 20,000 of the poorest households in Ireland. The private rented sector has grown quite considerably in the past five years. It has almost doubled in size, to the point where approximately one third of people in Dublin are living in private rented housing. When one thinks about the discourse we have on the housing crisis, we talk about keeping people in their family homes, but we need to talk about protecting people in the private rented sector who are renting their family home. It is not beyond the realm of possibility that, in the next five years in one of our cities, there will be more people renting than who own homes. The rental rate in Galway city is already 40%. This Government policy does not reflect the scale of people living in the private rented sector.

Unfortunately, the private rented sector has absorbed people who traditionally would have got local authority housing, in addition to people who have been locked out of home ownership over the past five years. That has been taken for granted but cannot be taken for granted any more.

Let me outline the current problems that our clients are facing. People come to us every day who simply cannot find anywhere to live. Rent supplement has been cut so much that they do not have a housing option in their area anymore. They will be among the next homeless. People approached us who have been displaced from their housing. Unfortunately, the Department of Social Protection has been part of this process because it cut their payment and told them to find cheaper housing in a market where costs are rising. There are people living in substandard accommodation. The scale of mortgage arrears in the buy-to-let sector is well documented. Some landlords have not visited their property in five years, never mind carrying out repairs. There are people in substandard accommodation paid for by the State. There is also the issue of receiverships and repossession. Banks are stepping into the private rented market and, unfortunately, not adhering to the rules that exist. It has got very messy.

What we want to see in budget 2014 is an acknowledgement that we need to protect access to affordable accommodation for people on low incomes. We also need to protect people in their homes. There have been some attempts to do this over the years. The rental accommodation scheme has been introduced. It looks good on paper. Certainly, tenants are not paying top-ups like they are paying under the rent supplement scheme; it is better-quality accommodation. The problem, to some extent, is that landlords are wriggling out of those agreements now and local authorities are not really putting up much of a fight.

A new payment is supposed to be introduced for people on long-term rent supplement, namely, the housing assistance payment. We warmly welcome it because it removes one of the biggest negatives associated with rent supplement, such that people will be able to take up work and get some help with their housing costs. That needs to come forward quite quickly but we need to take account of the fact that when the payment is introduced there may need to be some incentives for landlords to ensure that they actually take up the scheme because we are worried about that.

Mr. Mike Allen:

I thank the members for the opportunity to make a presentation. Focus Ireland is a homeless charity. We worked with over 8,000 people last year. This is almost a 25% increase in the number we were working with in 2010.

Our work divides into three key elements, one of which is the core part, namely, moving people out of homelessness into sustainable dwellings, with supports as necessary. The second part is preventing people from becoming homeless and the third is working with people while they are homeless. Regarding moving people out of homelessness, I concur fully with what was said by Mr. Bob Jordan of Threshold on problems in the private rented sector so I will not repeat those points. I will come to questions on social housing at the end. Suffice it to say that it is becoming harder and harder for organisations to move people out of homelessness. As Mr. Fergus Finlay was saying, sometimes one feels the agencies of the State are working against one rather than actually trying to assist one with the common purpose of moving people out of homelessness.

With regard to people moving into homelessness, people should now be familiar with the figure that approximately seven people per day register with the local authority in Dublin as newly homeless. This is an extraordinarily high figure. Focus Ireland, which deals with all the families who are homeless in Dublin, was working with eight families per month this time last year and is now working with an average of 16 per month.

Most of them become homeless out of the private rented sector or due to other factors such as family breakdown. When one looks at the reasons people become homeless, most of them are shockingly avoidable. With a bit of effort, imagination and insight, it could be transformed.

If more people are coming in and fewer people are moving out, what is happening with homeless services? What is happening is that homeless services are being cut. The HSE cuts have happened over several years - sometimes twice a year. While this Government and the previous Government have until recently protected section 10 funding, this year's funding has been cut by over 3%, which means a cut of 7% to 10% in many of our services. Funding for youth homeless services has been even more savagely hurt. The most extreme form of poverty in the developed world is homelessness. Luckily, we do not have starvation but we do have homelessness, and if we mean anything by protecting the vulnerable, it should mean protecting people who are homeless.

One of the key contributions we are making in this pre-budget submission is an investment in social housing. Over the past decade or more, there has been a complete reversal in the way the Irish State has seen the provision of social housing as its key function. In recent years, we have the provision of social housing as the function of the private sector with the State buying, renting or leasing it from the private sector in which it is built. Without going back over whether that should have happened and why it happened, it is quite clear to everybody that this process has failed and that we need to start re-investing in housing. We know Social Justice Ireland and TASC spoke about investment programmes this morning. We want to contribute to that by saying that the most significant thing we could invest in is social housing and that this would create jobs and homes.

Ms Niamh Randall:

I also thank the committee for meeting us this morning. I am here representing Simon Communities Ireland which is based all around Ireland in places like Cork, Dublin, Dundalk, the midlands, the mid-west, the north west and the south east. We work with people at risk of homelessness and people who are currently homeless. We also support people to help them move out of homelessness. One of the key things I wanted to mention this morning is the fact that this Government has committed itself to ending long-term homelessness by 2016 by using a housing-led approach. Simon Communities Ireland is very supportive of this approach and believes it can be achieved but only with sufficient resources, political will and national direction. It must be achieved for all the reasons outlined here this morning.

Cutbacks in funding for housing support, health services, probation, welfare and drug and alcohol services have knock-on effects and contribute to homelessness. The current climate also gives great cause for concern. As Mr. Allen mentioned, cuts to the 2013 budgets are being announced. They are not all confirmed and it is September 2013. These will have a very significant effect on homelessness in the future. Not only do they undermine our service delivery, they also undermine efforts to end rough sleeping and long-term homelessness. The cuts must end. We are at crisis point and homelessness must be prioritised in budget 2014.

Obviously, there are very specific pieces in terms of access to housing and looking at increasing the supply of social housing. What is also key is ensuring there is some kind of ring-fencing in terms of social housing for people moving out of homelessness. Again, if homelessness is to be prioritised, this must be a key part of that. If we are to look in terms of housing supports, because a comprehensive, housing-led approach must have support for people in housing, many people will need support to move out of long-term homelessness. As was mentioned, there have been successive cuts in HSE budgets since 2008. There has been a rapid increase in opiate use. We have seen figures in recent weeks relating to that and community mental services. These are critical to ensuring we end homelessness in the long term. It is also essential to ensure we have action in terms of prevention and early intervention because it is only through them that we will ensure we end homelessness by 2016.

Mr. Ray Fanning:

I thank the Chairman and members of the committee for the opportunity to address them this morning and to raise our issues of concern. Respond! is Ireland's largest housing association with more than 5,000 homes developed over the past 30 years. We currently manage approximately 4,000 units of housing along with a number of day care centres and child care centres for after-school and preschool programmes.

We also provide a homelessness service for women who suffer domestic violence. We are also a FETAC and HETAC accredited college. We can provide a broad range of activities.

What we propose in our submission could be implemented without great cost to the Government. We are trying to unlock €50 million in private investment in social housing. We have held a number of discussions with institutions in Ireland and the UK. The UK has more extensive experience of delivering social housing through pension funds and other means. There are a number of obstacles to delivering housing, most of which arise from the payment availability agreement and the current level of capital advance loan facility, CALF, funding. The charge that local authorities have on their houses needs to be released if we are to be able to provide collateral so that private investors have security over existing stock. If we are asking somebody to provide €25 million to build houses, there will be a period of up to two years in which nothing is built. The question arises of what security he or she will have in the meantime.

We are also calling for a more responsive and flexible capital advance loan facility. We welcome that the Government has provided this facility but it offers up to 30% capital funding without set criteria on what one will get. One might ask a bank for 85% in the assumption that CALF will provide 15% only to find that it is providing 10%. The criteria are not clear. Furthermore, a programme of €50 million might deliver 450 houses, thereby providing only a small uplift in the current number for a significant investment. If 20% of that money is provided through CALF as a 2% loan over 30 years, the loan cannot be drawn down until the houses are ready for delivery. This means that one would require 25% of €50 million, or €12.5 million, in bridging finance at a time when it is impossible to get bridging finance.

Payment availability is paid at a rate of 92% of market rent. Investors have pointed out the danger that the market rent could drop. We ask the Government to set a floor for market rents below which rates will not fall. They could increase with inflation because we will have mortgage increases down the line but we need some kind of floor.

Currently payments are not made on voids lasting longer than 13 weeks. According to the local government indicators, the turnover times for local authorities are 29 weeks but approved housing bodies are expected to turn around a void in 13 weeks even though the local authorities have the housing lists. We ask either that the period be extended or that the clause be removed altogether.

Our last proposal is that allowance be made within the payment availability agreement and differential rent for us to be able to use these funds for community development and education programmes rather than solely for mortgage repayments.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I ask members to prioritise their questions and take into account the possibility that several witnesses may wish to respond. I will give members ten minutes each and I will stop them when that time has elapsed to ensure everybody gets to contribute prior to lunch.

Seán Fleming (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

The main issue I want to deal with is homelessness. The representative from the Society of St. Vincent de Paul spoke about beginning the delivery of free access for GP care. Does the society propose to commence the delivery process with children given that they are often the people about whom families are most worried? It is frightening to think people are afraid to visit a GP because of the costs involved.

Reference was made to gender proofing the budget. That certainly did not happen in the last budget.

Women and families were targeted. Child benefit was cut, maternity benefits were taxed and last year there were changes to the one-parent family payment situation, which I found most difficult. It happened in July this year that, depending on the age of the youngest child, some people were switched from one-parent family payment to jobseeker's allowance. The income disregard for a person on jobseeker's allowance is approximately €60 compared with approximately €110 for the one-parent family payment, so some people lost €50 and, as a result, they gave up their jobs. That forced lone parents, who are mainly women, to give up their jobs.

The most striking statement I have heard here so far today is that, shockingly, most homelessness is avoidable. We should chew on that because it is becoming more and more an issue. Much of it is not based only on financial issues. A document from the Society of St. Vincent de Paul discusses child and adolescent mental health services. Some of these are difficulties where a teenager or person in their early 20s has a child, cannot get on at home and moves out. I find the local authorities are sometimes unsympathetic to this issue. One of the reasons there are more voluntary organisations such as the ones represented here is that local authorities did not have the interest in looking after families. They just built houses and collected rent. Many local authorities are telling people in their 20s, 30s and even 40s and 50s that there is room available in their parents' houses - who might be in their 70s - and they are not allowed into the housing list. I am concerned not just about those on the housing list, but about the people I cannot get onto the housing list in Laois. They are being told there is accommodation available but for all the variety of what the witnesses called the shocking reasons families have difficulties, they cannot live in that house. How would the witnesses see that being addressed?

The shocking situation of youth homelessness is not a financial but a societal problem. The anti-social issue comes in. Teenagers and people in their 20s can be obstreperous, cause problems and be guilty of anti-social behaviour. The policy of local authorities is to evict people in those situations, and local authorities are quite happy to have those people with anti-social behaviour problems in private rented accommodation and not under their control in their houses. They will not allocate a house to a family where they know there is a difficulty but will leave it to the private sector. Local authorities have outsourced many of their problems and voluntary organisations are picking up some of them. Some of them, shockingly, are avoidable, and that is the theme I would like most of the responses to cover.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

To whom are Deputy Fleming's questions addressed?

Seán Fleming (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

There are several organisations here. I will let the Vice Chairman decide.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I will stop the discussion at ten minutes. Members should bear that in mind and not speak too long because they will use up the response time.

Mr. Mike Allen:

I thank Deputy Sean Fleming. One must first consider the cost of failing to prevent homelessness. When the families to which I refer become homeless, the cost of housing them in cash terms is enormous. Then one must consider the consequences for the children. On average, 33 children per month are experiencing the trauma of homelessness, and we must consider the cost of that.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source

Is that 33 extra children? Is it an increase?

Mr. Mike Allen:

Yes, it is an increase each month. Those are children with their families. The two things I point out in terms of prevention are advice and information. Mr. Jordan will say more about this. We find many of the families that become homeless neither sought nor received advice before they became homeless. Focus Ireland's advice and information service is entirely funded from voluntary fund-raising. Mr. Jordan can speak for himself about the difficulty in getting State funding for this crucial service which will save people a great deal of trauma and money.

Regarding anti-social behaviour, there is a very under-used resource in Focus Ireland's community settlement work. In a number of local authorities in Limerick, Sligo and, to some extent, in Dún Laoghaire, we have a team which works with local authorities which are about to evict families because of anti-social behaviour, particularly by their adolescent children. We have a very high success rate in doing that. The amount of money and trauma that sort of intervention saves is out of proportion with the fact that it is so little used.

Mr. Bob Jordan:

Deputy Sean Fleming raised a very important issue because the funding for homelessness is largely focused on the problem that has happened already. There is very little funding available to stop it happening in the first place. Threshold, as a housing charity, provides advice and advocacy that saves people from losing their accommodation. One of the things we would like this committee to support on behalf of the four organisations is a change in legislation around the funding mechanism for homelessness. Section 10 of the Housing Act 1988 is largely out of date but is so focused on providing funding for emergency services through State bodies that organisations such as ours get nothing from that well, and it is very important.

Most people would say local authorities are committed to tenants and try to do the best for them. Local authorities have been asked to run schemes in the private market, such as the rental accommodation scheme. The Department of Social Protection runs the rent supplement scheme. There is less commitment around keeping people in their homes in those schemes. We have seen rent supplement slashed in the last couple of years without any consideration of the consequences. Tenants were asked to break the law and do the impossible. They were asked to break legal agreements with landlords. Our organisation is trying to get tenants back on the housing ladder. Landlords have turned away from rent supplement in droves because not only have the payments been cut, the rules they are supposed to adhere to are being broken by the State itself. If there is a commitment to a new scheme, such as the housing assistance payment, HAP, scheme, there must be follow-through to protect people in those homes when we put them into the private sector.

Ms Niamh Randall:

I reinforce the point that homelessness is avoidable. The key point is that the causes of homelessness are structural causes such as poverty, inequality and exclusion. When one speaks to people who are homeless they often say their tenancy broke down, they were kicked out of home, were asked to leave or whatever. When one drills down further, one sees that it is usually family dispute, family breakdown, domestic violence or violence in the home, all of which would have come to the attention of somebody at some point along the way, but nobody intervened. It is absolutely avoidable, and prevention and early intervention are the key issues in terms of anti-social behaviour, advice and information, and a range of other matters.

We have people who are stuck in long-term homelessness. We do not know the figure because official data collection systems do not collect that information. However, we know a large body of people are stuck in long-term homelessness, and the longer people remain homeless the greater the impact on their health, well-being and personal welfare. The housing-led approach, which is Government policy, is a very effective way of working with people who are homeless and moving them into independent living with support as required. There is rapid re-housing, so when people become homeless, rather than remaining in emergency accommodation or temporary support services, they would be rapidly re-housed with the necessary supports which means they would not necessarily have the longer-term effects of being long-term homeless.

Mr. Ray Fanning:

On trying to provide housing, one of main thrusts of our submission, I raise the Government's mortgage-to-rent scheme, which tries to keep in their own homes people who have experienced mortgage arrears difficulties for the last two years. Of 1,330 applications for it, only 60 have got through in the last two years. It is a very low number. Some 1,270 families who have applied for it are waiting to hear if they can progress. At an average of €100,000 per house, that is €127 million. The emphasis is on getting affordable housing programmes, AHPs, such as ourselves to try to come up with that money to buy. We have voluntarily said we will participate in the scheme but how do we come up with this €127 million unless we unlock some of the difficulties around taking the risk? We have willing investors but we must take some of the risk out of it for them.

In the three years from 2008 to 2011, we were developing 1,550 houses with no difficulty. We have our own architectural design teams and quantity surveyors. We are quite skilled at developing these houses and are ready to do it, but we must unlock some of the existing difficulties to provide more security for the people who are willing to give us the money.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I compliment all of the organisations on the great work they do. First, I seek a quick response from each organisation on what is the bottom line in the budget for them. I realise they have had general discussions, but we might as well talk in plain language here. What is the bottom line for each organisation, taking account of the themes coming across at this meeting, which are child poverty linking with the overall issue of family poverty, housing, the RAS and the housing assisted payments scheme which is the new scheme in the offing? Many of the representatives come from a background where they have a strong involvement in how the process works. What is their bottom line?

Mr. John Mark McCafferty:

I must respond to a question directed at the Society of St. Vincent de Paul earlier. I will then respond to the Deputy.

With regard to free GP care, it is those on the lowest incomes first. Then there is the size of the household and the number of dependants.

On gender proofing, the largest group we assist comprises lone parent households, that is, families headed by lone parents. We are carrying out a piece of related in-depth research which we will provide for the public later in the year or early next year. Clearly, big barriers have been placed on lone parent incomes as a result of the recent changes. We are very much in favour of assisting lone parents back into the labour market but into quality jobs and using an infrastructure of early childhood care and education which are really important. One cannot just cut the eligibility levels and simply let the market prevail.

With regard to the bottom line, our families and those we assist have come to the end of tether with the cuts, both in terms of income supports and services. Our bottom line, therefore, is that there should be no further cuts in that regard.

Mr. Fergus Finlay:

If I was asked to put a bottom line in a sentence, I would echo what was said by the Society of St. Vincent de Paul. Every Member of the Dáil and the Seanad should take a type of Hippocratic oath at budget time not to make matters worse. Do not do any more harm than has been done. If I was given the liberty of having a second bottom line, I would ask people to look at the services that are increasingly starved of funds. These are State services, as well as voluntary services. The Dáil is debating legislation to establish the Child and Family Agency. Before that agency is established in law, it has been obliged to cut its budget. It has been set up without enough money to do the job it has been set up to do. Already, before the law has even been passed, it has had to cut its budget. It is crazy to establish a child and family agency with specific tasks and not to give it enough money to carry out the most basic of these tasks. However, my bottom line is not to make anything worse. Things are bad enough.

Mr. Ned Brennan:

Our bottom line is that the Government take away the obstacles in doing our job properly and efficiently. Two years ago, in the Government's housing statement, this sector was put centre stage to deliver social housing. In the intervening two years there has been nothing but obstacles put in our way. Our hands have been tied behind our back, a hood has been put over our head and we have been pushed into a river and told to find north. The obstacles include the PRTB, property tax and charities regulation. There is regulation followed by regulation and more regulation. It is a case of one obstacle after another. Take away the obstacles. We will do our job if the Government supports us and removes the various things that are preventing us from being able to move it along.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I have a particular interest in what is being done on housing. I will ask the other groups to respond and then return to this issue.

Mr. Bob Jordan:

We need a stimulus in the budget for housing construction. A total of 93,000 houses were built in 2006. Most people regard that number as too many, but last year it was 8,500 and most people would regard that number as too few. It is the job of the State to step in at this stage. There is an emerging housing shortage. That is now showing in urban areas where property prices are starting to increase and rents are beginning to rocket. It is the job of the State to step in and anticipate needs into the future. It takes time to build housing.

Second, when we talk about keeping people in their family homes, tenants must be included. We should not have a situation where mothers, children and an entire family must be uprooted for the sake of a €10 cut in rent supplement. It is very shabby treatment of people in the private rented sector. Certainly, the rent supplement scheme should not be touched again. If a new scheme is introduced, it should have more security of tenure built into it. In other words, it would accept that these are people's family homes and that they should be protected.

Mr. Mike Allen:

It is the type of question one hates to be asked. In terms of the financial bottom line, I agree with Mr. Jordan. As we say in our submission, it is the recognition by the State that it needs to invest in the construction of social housing. There is an advantage in speaking after others have spoken. The other thing I would say is that there should be no cuts in services. However, if the only thing we can say is "do not make matters worse", is that what we have come to as a nation? Taking advantage of hearing others say this - I am not criticising what others say by any means - I have to say it must be about people. It is the children that Barnardos talks about, the families we are working with and the individuals. Of course, there must be number crunching, but somewhere along the way, in the trauma of the crisis we have been through, the State has lost and is brutalised. It has become impossible for it to recognise the damage it is doing to the human beings who are the citizens of the State. That must change. There must be a fundamental bottom line about what the entire project of having a nation, reforms, change and a Government is about. Unless we have that, everything else is really just banging our heads against brick walls.

Ms Niamh Randall:

There are three options presented at budget time this year. The first is that we continue with incremental cuts. What we will see is incremental growth in terms of homelessness and the impact on people who are poor and vulnerable. The second is that we opt for larger cuts which are part of the threat being suggested. That will just result in a more rapid increase in the number of homeless persons and in the impact on people who are poor and vulnerable. The opportunity presented is to prioritise homelessness. In recognition of the organisations I am representing here, homelessness must be prioritised. It is prioritised by giving access to housing, about which my colleagues have spoken, and ensuring there is support for people to remain in housing once they have accessed it.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

To return to the issue of housing, how many houses has Respond! Housing Association built in the past two years?

Mr. Ned Brennan:

Two.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

What was the number the association was typically building?

Mr. Ned Brennan:

In 2007 we had 1,200 houses under construction.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

What has been built since?

Mr. Ned Brennan:

We have built virtually nothing since. We have had nothing on site. We are in the process of acquiring 55 houses from the National Asset Management Agency.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Turn-key houses.

Mr. Ned Brennan:

No, we had to finish a scheme. They were partially built on a ghost estate. We are completing these houses which will be ready for letting next month.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Let us boil it down to finances. With regard to the security issue, there is bridging finance for a period of time before the houses are built. Is there a security issue in that regard? How would that work? I presume these are private investors who would provide funding and they are looking for security. Is it for the existing housing stock? The local authorities have total charge.

Mr. Ray Fanning:

They have a first charge.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

They will not share-----

Mr. Ray Fanning:

They have a first charge over all of the mortgages on a property. Some of the properties that we built perhaps 20 years ago are coming free of these mortgages now, but it is insufficient to provide-----

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Are these tenant purchase schemes?

Mr. Ray Fanning:

No, they are all care and support and capital assistance schemes, CAS, that we have built during the years. They all have a first charge mortgage on them to local authorities. They are non-repayable mortgages. As they are advertised every year, it is of no cost to the State to say, "We will release those mortgages if you will be able to provide further housing stock in our areas".

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Where is the issue arising? Normally, there are two sides to every argument. What is the reason being given? Is it new territory?

Mr. Ned Brennan:

It is new territory. This is the first time the State is being asked whether some of the equity could be released in our existing housing stock. It is the legal arrangements made where we enter into a mortgage to secure the State's interest in the provision of social housing. This is the first time to ask if we can have some of these mortgages released to act as equity to leverage some private finance to deliver new social housing.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Thank you, Mr. Brennan.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

I have a number of questions, some of which are specific to one organisation, while others are for all of the organisations to answer. I welcome the presentations. The aim of the alternative budget proposals put forward is one that I endorse. I am not sure who made the point during the presentations but it is true that the budgets have focused on numbers instead of people. That is something we should always remember. I recalled in my budget speech last year leaving Leinster House after the votes on budget night the previous year, walking down Grafton Street and seeing a homeless person in a doorway. I wondered about the maze of motions, resolutions that had to be passed, the Minister getting to his feet and so forth and what it all actually meant to that individual. There was much emphasis in the presentations on homelessness, but if there was one thing that the Minister could do that would have a genuine impact on that individual who slept rough on budget night two years ago, what would it be?

Do all of the organisations support the concept of equality budgeting? We had a debate on this earlier in the year and the Sinn Féin Party has drafted legislation on it. Is it something that the various organisations support?

I refer to the issue of school uniforms, which is being discussed in the media today. My party has been calling for action on this for quite a while and I am glad there is some movement on the issue now. It does not take a rocket scientist to tell schools to allow parents to buy sewn-on crests. Mention was made of school uniform programmes in the presentations.

On the issue of school meals, I have a question for Barnardos. I welcome the presentation from Barnardos, which proposes that the Government maintains the current level of support for school meals. However, as Mr. Mike Allen pointed out, we are now at a situation where we are just trying to retain what we have. The Department of Health released a report last year indicating that 21% of children go to school without a breakfast or a meal at night. How is it that we are only demanding that the Government keeps the funding as is, rather than increasing it to target those children?

A number of organisations have called for mandatory schoolbook rental schemes. The Minister issued guidelines on book rental schemes at the start of the year. I wish to determine whether the organisations are seeking the introduction of a system similar to that operating across the Border, where core textbooks are provided to pupils? The situation here is an absolute scandal. The schoolbooks market in this State is worth between €55 million and €60 million, including core and non-discretionary books. The State provides €15 million every year by way of a grant for schoolbooks and yet we still have children starting school in September whose parents are facing bills of €200 or €250 for books. I am seeking clarity from the organisations. Are they referring in their submissions to schoolbook rental schemes, which are already operating in many schools or are they proposing that the State moves in, increases the book grant to €30 million this year, providing half of all core books and builds on that in the years ahead?

Reference was made to the fact that children are being targeted. We know that child benefit is being targeted again in this year's budget. It has already been announced that the fourth, fifth and any subsequent children will be subject to a drop in child benefit this year. Is the call here to reverse that decision, given that it will only bring in €6 million?

On the mortgage-to-rent scheme, witnesses spoke about incentives and the fact that more clarity is needed. The Department budgeted for 250 mortgage-to-rent applications to be processed this year but as far as I know, only 47 have been completed to date. What additional clarity is needed? The issue of NAMA housing was also mentioned. Does that play a role in the context of social housing and in terms of those under threat of homelessness?

I am glad that attention has been drawn to the issue of tenants and rent receivers. That is an issue that has been lost sight of in the debate around repossessions. I welcome the proposals on a code of conduct for receivers, banks and tenants. Finally, we all know that capital expenditure by local authorities on housing has stopped and that the voluntary sector is not building any new housing. At the same time, we have an enormous housing waiting list of more than 110,000 families. We also have people whose homes will be repossessed in the future. Last week, this committee dealt with the banks, who indicated to us that in recent months they have issued 17,000 legal letters seeking voluntary or legal surrender of houses, many of which are family homes. Where do we need to go? Figures were provided by one of the organisations suggesting that we need to move from the current position of 7% to the European average of 20%. Where do we need to go this year?

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

There are less than five minutes remaining in this slot so I ask contributors to be as brief as possible.

Mr. Fergus Finlay:

The Deputy raised the issue of child hunger and I am not sure what to say about that. I think it is a scandal that any society would stand over a situation where children are hungry in school. It is utterly and completely counter-productive in terms of education. Children who consistently go to school hungry are most at risk of dropping out. If we are not prepared to invest the tuppence ha'penny that it costs to ensure children have adequate nourishment at school, we are just trailing as a society.

Where schoolbooks are concerned, we made a detailed submission earlier to another committee of this House. We share very similar views to the Deputy. As he correctly says, the State makes an investment every year of approximately €15 million. We proposed a mechanism whereby, over three or four years, that investment - not necessarily increased but properly managed - could stock every school with the core books which could then be available to children when they arrive in school, free of charge or at the most nominal rent possible. The Minister for Education and Skills must say to schools that if they do not show common sense about issues such as schoolbooks and school uniforms, he will regulate to make them show common sense. We have seen that the Department is prepared to do it for school enrolment policies and I do not understand, frankly, why it is not doing it for something as basic as books and uniforms. It would not cost the State a red cent to do that. It makes no sense to me that it is not prepared to do that.

Mr. Bob Jordan:

The Deputy asked a very good question regarding NAMA. The focus has been on social housing provision. Approximately 1,500 NAMA properties have been identified by local authorities but only 400 have come on stream so far. The process is very slow. The more important issue regarding NAMA is the fact that it is now one of the biggest landlords in the country. It has 10,000 properties rented out. How many of those, if any, are available for people in need of social housing support? We really need to get to the bottom of that because we need to ring-fence that accommodation. Deputy Doherty asked about the priority for those who are homeless. The priority is to have ring-fenced housing for people to come out of homelessness. At the moment, the only mechanism available is the rent supplement scheme and homeless people, like everybody else, have to bat within the rent supplement limits. It seems preposterous that an extra €50 per month could move somebody permanently out of homelessness but we are still stuck with these limits. That is the answer in that context, but NAMA has not answered the question about the social dividend. It is treating the State as a commercial customer but that is not what the original legislation intended.

Mr. Ned Brennan:

While the release of NAMA properties is of some assistance in meeting housing need, the biggest obstacle is the lack of funding and investment. Our hands are tied in terms of being able to leverage additional funding from the private sector, either here or in London. As we point out in our paper, that is where the real obstacle lies. As an organisation, we only have a finite amount of resources available to us on an annual basis which is generated by our rents. We only have a small amount of money that we can use to leverage finance. We need to go and borrow somewhere else. As I said to Deputy Kieran O'Donnell earlier, we need to unlock some of the equity that is in our existing stock.

The only body lending to the voluntary housing sector at the moment is the Housing Finance Agency. If an organisation approaches the HFA for funding, however, it will be met with a request for a debenture or a floating charge across its entire stock of property. There is no charity that will enter into an arrangement whereby all of its properties are locked up for a period of 20 years in order to raise enough funds to buy 50 houses. It is absolutely crazy. The HFA's floating charge is another major obstacle for the voluntary housing sector. The removal of such obstacles, which would be relatively simple to achieve, could unlock the sector, enable it to be productive again and start to deliver housing again.

That answers Deputy O'Donnell's second question, which related to the small obstacles that need to be tackled. If they are tackled, we will have an opportunity to get back into the markets and start delivering social housing again.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

That is the end of this slot. If the members have any further questions, I will see if I can squeeze them in at the end. I call Deputy Ó Ríordáin and Senator Hayden, who are sharing time. I would like both of them to ask questions before I invite our guests to respond.

Aodhán Ó Ríordáin (Dublin North Central, Labour)
Link to this: Individually | In context | Oireachtas source

I welcome the witnesses. Representatives of Chambers Ireland, the Small Firms Association and the Irish Business and Employers Confederation will address the committee later this afternoon, after this part of the meeting has concluded. They will tell us that taxation is satanic and that the measures being proposed will strangle the economy, etc. Other people like to use the word "fraud" as often as they can during discussions on social welfare in order to undermine the social welfare budget.

The first of my two main questions relates to the long-term structural tackling of poverty, for example, by means of preschool provision. We need to tackle things like maternal depression, educational disadvantage and illiteracy. What can we do in this budget to tackle such issues at a root and branch level to ensure the situation is not worse five, ten or 20 years from now for the most vulnerable children with whom we are dealing at present?

My second question might be a loaded one. I will ask it anyway. The witnesses do not have to answer it. It relates to the posturing that was done last year by the two parties in government. One party demanded higher taxation and the other party demanded an across-the-board cut of 3% in social welfare payments. What kind of damage would an across-the-board cut of 3% in social welfare payments do to the people with whom these organisations are dealing every day?

Aideen Hayden (Labour)
Link to this: Individually | In context | Oireachtas source

I will mix my questions a little. I will ask some practical questions and invite the witnesses to comment on some observations. I should advise the committee that I have an interest in Threshold as the chair of the organisation. I will try to focus my comments on the other organisations.

The common themes that are emerging relate to children being hungry and children being cold. That is just a reality. When we discussed these issues with TASC and Social Justice Ireland earlier, both of them advocated the imposition of what are loosely termed as "fat taxes" - taxes on goods that have high levels of saturated fats, added sugars, added salts, etc. According to Social Justice Ireland, a bad nutrition tax could yield €15 million. TASC estimates that such a tax could yield €188 million. Would the organisations that are represented at this part of the meeting support the imposition of such a tax if the receipts from that tax were to be ring-fenced specifically to provide nutrition to children through the school system? I appreciate that such a measure would not deal with these difficulties outside the school year, but it would be a step in a particular direction.

I have been struck by a number of the proposals that have been made by the various organisations. Many of the suggestions involve simple things that could easily be implemented, such as the making of minor legal changes or the introduction of systems that could assist people. I refer, for example, to the installation of meters in people's homes to help them to monitor their fuel costs, etc.

I wish to ask about some of the big-picture issues that arise in this context. I have been struck by a number of common themes that have been emerging from the housing organisations. As we go forward, how we will secure housing supply from the voluntary housing sector, from the local authorities or generally coming into the housing system? It is quite clear from some of the information that was presented in the Focus Ireland documentation that investment in housing has fallen off a cliff. It has ceased to exist. It was quite interesting to note the commonality among all the organisations about the need to address how we secure housing supply and, more importantly, how we protect the housing supply that is made available to those at the lowest end of the ladder.

If there is a common consensus among the agencies that we have a housing supply problem, what is the most important measure we can take to protect available housing for the poorest people? I know from statistics that have been produced by the Dublin City Council housing strategic policy committee that the number of people emerging into homelessness has doubled in the recent past. Many of the people who are now coming into homelessness are different from the standard profile. They are not all single males. Many of them have families. Many people have become homeless because they have housing problems, rather than because they are coming out of care or prison scenarios.

I notice that the submission we received from Simon Communities Ireland suggests that enhanced rent supplement limits would be of assistance. I would like the representatives of those communities to explain how we can stop rents from escalating out of control if there is no supply. Have any of the organisations considered the potential imposition of rent controls if rents escalate beyond a certain point? Have they called on the Government to put such controls in place? It is clear that displacement is happening in the market at the moment. People are being pushed out by other people who cannot secure housing.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

The Senator has spoken for five minutes.

Aideen Hayden (Labour)
Link to this: Individually | In context | Oireachtas source

I will ask one more question. There seems to be general agreement that the housing assistance payment is critical for labour market activation, which has been mentioned by representatives of all bodies, and in the interests of securing good housing for people at the lower end of the scale. Perhaps the witnesses can elaborate on the measures the Government should take in this budget to make the housing assistance payment come forward as quickly as possible.

Mr. Ned Brennan:

The biggest problem with regard to housing supply over the last 50 or 60 years has been the absence of a national housing plan. We have no direction in this area. We really need a national housing plan that analyses what the need is and where it is and comes up with some sort of imaginative solutions to meet those needs. Those solutions may involve the private supply of housing, as mentioned by Mr. Jordan, or the supply of social housing. A national housing plan is absolutely essential at this time. There is enough brains and expertise in Government circles and Government agencies to compile a comprehensive national housing plan, which is essential at this time.

Mr. John Mark McCafferty:

I would like to respond to a number of the points that have been made. I am still catching up with Deputy Pearse Doherty's questions. We will be dealing with equality budgeting on budget day. The action that is being taken with regard to school uniforms is very good news for Barnardos, ourselves and the National Parents Council. We are finally getting somewhere after a great deal of lobbying, advocating and chipping away. It is not rocket science, as the Deputy said.

Deputy Doherty also raised the issue of school meals and wider issues of nutrition. I would be in favour of a more nutrition-oriented approach to the provision of school meals. There needs to be better co-ordination between the Departments of Health, Education and Skills, Social Protection and Children and Youth Affairs, all four of which have an interest in child well-being, youth well-being and the education system. The Department of Social Protection funds the school meals programme. A better and more effective nutrition-based school meals programme can be achieved if there is enhanced co-ordination on the part of the four Departments.

The Deputy also mentioned the school books schemes. A number of matters arise in that regard. In our submission, we advocate a more indepth study of how the existing book rental schemes, which we want to protect, could be further advanced and extended to schools that do not run school book rental programmes at present.

We would welcome with great aplomb any reversal in the child benefit cuts. We are looking to protect child benefit and family income supplement. We are in favour of an enhanced child income support structure that rewards work while ensuring families do not lose out as a result of any proposed changes. The possibility of a 3% cut in social welfare was mentioned by the Deputy. That would involve a reduction of approximately €5.50 in weekly social welfare rates. Our red line, to take up the phrase used by someone else, is absolute cuts to income supports and services, a key one being the social welfare rates to people of working age.

This would be devastating. People are already telling us that the cuts heretofore have been devastating.

Mention was made of families in cold homes. We are at the forefront in pushing the regulator to roll out pay-as-you-go meters in both the gas and electricity sectors and we are feeding in to consultations on smart metering, which will come on stream over the next two to three years. With rising energy bills, the retrofitting programme under the better energy and energy affordability strategy - probably one of the Government's best kept secrets - is key to tackling what will only be rising energy prices, something over which the Government has almost no control.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

We must finish this slot, but I will give everybody a final minute to wrap up at the end of the meeting. I will move on now to Deputy Boyd Barrett.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source

I thank all the organisations who have attended. I have some specific questions about some of the issues raised, but I want to start with the generality of what is common to many of the presentations.

Nothing enrages me more than the issues that have been raised. I am sick of the situation, because it is a most inexcusable and inexplicable crisis. Whatever else a government of this country could say, the one thing we could do is put roofs over people's heads. We have properties and we have the workers who could build properties where needed. It is time we started to scream loudly about this. I do not believe the media has fully grasped how central this issue is to everything. Housing is at the heart of the global crisis. The wrong approach to housing was taken, with sub-prime markets and property developers building houses for profit rather than for people, crashing the Irish and the global economy, with devastating economic, social and human consequences. After all of that, the Government still has not got the message that if we do not put roofs over people's heads and do not protect children, we can forget about everything else. This would be so achievable. As I said to Mr. Mike Allen of Focus Ireland yesterday, there are many finer details to this. However, the bottom line is that the Government almost fully privatised housing in the past ten to 15 years, which has been a disaster. We must reverse this completely.

Rents are high and are out of people's control so that they cannot manage to source private rented accommodation, but a large stock of social housing would work towards keeping rents down. Such a stock would also prevent a property bubble. Unemployed building workers, one of the hardest hit groups in society and whose families are suffering the consequences, could be put back to work building social housing. We could also save the State revenue by building social housing, so that we do not spend €500 million a year subsidising private landlords, many of whom are increasingly slum landlords. The ones who can get higher rents do not want to be part of the rent allowance schemes and what is left available for those who need to rent is the rubbish. People are being forced to rent the rubbish and the situation is getting worse.

It is extraordinary that in response to all of this, the Government's plan is, essentially, to make the rent allowance scheme permanent through its long-term leasing schemes. Not only will such schemes not provide decent social housing and mean more subsidies for private developers, NAMA and the banks, they will not work because the banks and the landlords do not want to be part of those schemes. Two or three years ago, some of them thought they wanted to go into them, but now that rents are increasing in Dublin, they want to get out of them. Half of the people who come to my clinic are people whose landlords are manufacturing reasons to evict them, either by increasing the rent or some other means. The rent cap reductions have made the situation worse. The current position is a time-bomb or social volcano.

My question for the panel is, should we not get back to the housing action campaigns of the 1960s and early 1970s and start screaming about this situation? We should mobilise the 100,000 people on the housing list, the homeless and so on to put this issue in the Government's face, so to speak, in a way that it cannot ignore it. What Deputy Ó Ríordáin said is true. This will be an issue for a day, if the media bothers covering this discussion, but in the next few days it will be off the agenda. It will be lost with the discussion on fiscal advisory councils, macroeconomic projections, IBEC, industrialists and so on. However, if we solved this issue, we would go 70% or 80% of the way towards solving the problem.

Investment programmes were mentioned. Should we not be more specific and ambitious? Should we not say the Government should spend between €500 million and €1 billion a year for the next five years to build 40,000 or 50,000 social housing units? If it did that, it would get its money back. We could easily work out a model to repay the money, based on how much is going out in rent supplement and various leasing arrangements every year, a model even the European Investment Bank could understand. Should we not group together and present a model that would create jobs, put people in houses and save the State money?

Mr. Bob Jordan:

In 2004, a report by the National Economic and Social Council stated we needed to have 200,000 social housing units by 2012. We have fallen far short of that. Between housing associations and local authorities, we have approximately 150,000 units. Obviously, we need a multi-annual social housing building programme. We and other organisations have identified the need to gear up to organise an additional 9,000 social housing units a year. That is the investment that is required. Social housing exists for a reason. When things go wrong, we cannot depend on the type of volatile private housing rental market we have currently. It is necessary that a proportion of our housing stock is social housing. We have identified a figure of approximately 15%, but it is just about 9% currently.

Mr. Ned Brennan:

The problem is that we have been talking about housing, not homes. The focus should be on delivering homes to people. Today's discussion is about people, not anything else. It is about the supports people require to have a reasonable standard of living. In the absence of a national housing plan, we are just stumbling from crisis to crisis. After the biggest boom the country has ever experienced, we have gone through a period of austerity and we now have 110,000 families on waiting lists. Fifty years ago, in 1966, when the first piece of modernising housing legislation was passed, there were 50,000 families on waiting lists. Now, some 50 years later, the figure is over double that. In the absence of a national housing plan, we will continue to stumble from crisis to crisis. That is the position. That is the response to Deputy Boyd Barrett's questions. We need a national housing plan.

Mr. Ray Fanning:

Senator Aideen Hayden picked up on this, and everything Deputy Boyd Barrett has said is 100% correct. He is speaking to the converted here and he has picked up on some of the smaller stumbling blocks. I mentioned issues such as the subordination of mortgages and setting a floor value for rent that would allow us remove obstacles to allow us achieve some success in the private finance area.

The mortgage-to-rent scheme has excellent merit in that it can keep people in their current homes. However, it will not provide even one additional home for all those on the housing lists. Deputy Doherty asked why it takes so long to set up these schemes. It is because there are four parties involved, the home owner, the financial institution, the housing agency and the AHB, which is expected to come in at the end and provide finance. Sometimes this is where the process can stall. Where does the AHB get the finance if everybody is looking for a debenture over everything, not just the properties?

It is all the assets and the balance sheet. If that is locked down with one organisation, one is prevented from borrowing anywhere else. These are the small little things but we have gone from mad lending sprees to a complete belt and braces approach where nobody is prepared to move.

Ms Niamh Randall:

Senator Hayden asked a particular question about rent supplement, so I would like to follow up on that. We made a point in that in our submission and we also made it clear that access to the private rented sector is becoming increasingly challenging, with rents increasing and the properties available decreasing, especially in urban areas. The answer to that is a supply issue. That feeds back into a query by Deputy Doherty earlier on, when he asked what was the key thing. It is supply because if we can get the supply piece going, we can move people out of emergency accommodation. We have not specifically looked at rent controls in our organisations, nor within MakeRoom, but it is certainly something that we will look at and we probably should look at. Perhaps we can get back to the committee on that in respect of the rent controls issue.

The 3% cut in social welfare will push people over the edge and we will definitely see some of those people in homeless services in future.

Mr. Mike Allen:

In response to Deputy Ó Ríordáin, I understand that this committee and the Government are getting demands from different sources and there clearly is a resource demand on capital investment. It is really important to acknowledge that there is a range of issues that are not about additional resources, and that there are segments of the Government which are faced with a particular individual or family who are faced with a crisis and who are making savings by not responding, with the net result that another part of the Government is faced with enormous costs. I am not talking about costs in years to come, because that is true. I am talking about enormous costs now and tomorrow. There is a range of issues which are not about resource demands.

I agree with what Ms Randall said about the 3% cut. However, it needs to be remembered that there already is a cut in what people are getting. Families are facing inflation every day and there has been a profound erosion in the living standards of people on social welfare, and that has been left out of the question. Deputy Doherty asked a question about the man who was sleeping rough on budget night and who will probably be sleeping rough on budget night again. As a policy analyst, I would say clearly that the best thing would be a housing first strategy to give that man a home with supports, but if we were to ask him, he would ask not to cut homeless services because he needs a decent place tonight, mental health support and so on.

Mr. Bob Jordan:

A rent control model was proposed by Threshold in the original report by the commission on the private rented sector, and that needs to be dusted down right now. As Deputy Boyd Barrett pointed out, landlords are exorbitantly jacking up rents on the basis that it is market rent. That is the only control we have at the moment. Once people get into accommodation and pay market rent, they should not have to face an exorbitant increase every year. Senator Hayden asked what incentives might be required for the housing assistance payment. If we are not going to outlaw the practice of refusing rent supplement, then perhaps we need to look at the incentives we can put in place for landlords to keep housing low-income households. We have those in other jurisdictions. It is obviously based on the tax actually paid and receiving a tax break on that, but this will have to be examined because there has been wholesale seepage of housing away from low-income households and they are being pushed into homelessness.

Mr. Ned Brennan:

I wish to make two points. First, we call on the Government to stop tinkering around with the mechanisms, such as the PRTB and so on, and concentrate on the core issue, which is removing the obstacles so that the sector can deliver social and family housing. Second, an opportunity has presented itself with the European Investment Fund in respect of cohesion and regional structural funds for the period 2014-20. If this was brought into the heart the scheme in respect of the retrofitting of thousands of local authority houses and apartments, it would be a real stimulus to the economy for job creation and delivering quality houses to people in need. The sector certainly has the skills and the abilities to play a lead role in that initiative.

Mr. Fergus Finlay:

I did not get a chance to answer a couple of questions that were asked. Senator Hayden asked about a fat tax, for want of a better word. Personally, I would be completely in favour of a tax of that kind and I would love to see it ring-fenced. It is a real challenge to persuade the Department of Finance to ring-fence the proceeds of a tax because the Department officials have traditionally taken the view that we cannot ring-fence the proceeds of any tax, unless it is for the benefit of racehorses and greyhounds. This will be for the benefit of children and obviously they are of a lesser priority.

Deputy Ó Ríordáin asked about the choice between lower taxes and cuts in social welfare. It is a very uncomfortable choice. I am already quite uncomfortable about the fact that we are pitching for children against people who are pitching for those who are homeless. The idea that we can make any kind of equivalence of priorities between people who are disabled, sick or homeless and children who are hungry just strikes me as impossible. However, there is no doubt that a 3% cut in social welfare rates across the country will result in €5 to €6 out of every pension and out of the pockets of every child and unemployed person. It would raise around €600 million and would enable a pretty decent cut in the top rate of tax and I could not imagine a more immoral choice for any government to be thinking about at the moment.

Mr. John Mark McCafferty:

Deputy Ó Ríordáin mentioned preschool provision. We are looking for an increase from the 38 weeks per year to 48 weeks per year, and for a stress to be placed on quality. We see early childhood care and education as the transformer in breaking the cycle of disadvantage. We have had enough of austerity and enough cuts to income supports and services, so that answers the other question.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

That brings us to the conclusion of this morning's session. I sincerely thank everybody for being here with us this morning. It has been very informative and very useful. I know I rushed you at times, but unfortunately that is the way these committees often work.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I welcome the guests. The submissions received and a summary paper have been circulated to members in advance of this meeting. Each group will make a brief introductory comment not exceeding three minutes, and then we will proceed to the question and answer session. All mobile phones must be switched off. By virtue of section 17(2)(l) of the Defamation Act 2009 witnesses are protected by absolute privilege in respect of their evidence to this committee. If they are directed by the committee to cease giving evidence on a particular matter and they continue to do so, they are entitled thereafter only to a qualified privilege in respect of their evidence.

They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or an entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing ruling of the Chair to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable.

I call on Mr. Talbot of Chambers Ireland, Mr. Noonan of the Small Firms Association and Mr. O'Brien of IBEC to make some brief comments, after which we will have a question and answer session.

Mr. Ian Talbot:

Budget 2014 comes at another crucial time for Ireland's economy. We may well have reached an inflection point, as the downturn has abated and we are moving tentatively back into a period of economic stability and perhaps even growth. Employment figures are improving; retail sales indicate a slight upturn and our overseas visitor numbers, a vital metric for the hotel and catering sector, have increased. However, if these tentative improvements are to gain momentum, the Government must be resolute in building confidence. We note and applaud the decision to bring budget day forward. This shortens the period during which consumers and businesses are scared out of their wits regarding how hard or otherwise the budget will be. Again, this will support confidence and confidence is key.

Our core suggestions revolve around the following themes. First and foremost, do no harm. After more than three quarters of employment growth, budget 2014 must help by not driving employment costs any higher. There must be no new or increased taxes on employment, specifically in areas such as PRSI and responsibility for sick pay. This will build confidence among employers that labour costs will not rise and thus support decisions to hire rather than to get along with the staff they currently have. Second, there is a huge amount of pent-up demand for home improvements that could unleash consumer spending and spur employment growth in the construction and related trades. We have made suggestions around extending a special VAT rate for the home repair, maintenance and improvement sector below a specific value. That could incentivise consumers to invest in their homes and, in turn, spur domestic demand in terms of white goods, brown goods and so forth, all of which generate VAT at the 23% rate.

Third, we have made a series of recommendations to support micro, small and medium-sized enterprises revolving around support for working capital, including raising the qualifying amount for companies to use cash accounting for VAT, enhancing the profile of the seed capital scheme and improving the employment investment and incentive scheme. We will be pleased to discuss these in further detail, if required.

Fourth, we suggest using savings achieved from local authority mergers and the arrival of local property tax for targeted rate reductions on town centre businesses which, for the most part, are domestically focused and, as a result, highly challenged.

On the spending side, all Departments must ensure the decisions they take are job proofed. In particular, the Department of Social Protection must be sympathetic towards employers and the self-employed in balancing its budget. Similarly, the Department of Health must learn to live within its budget, rather than simply hiking charges such as a health levy and deal with the wider viability of the health insurance market.

It is essential that Ireland maintain a tax regime that supports our strong foreign direct investment sector. Accordingly, corporation tax must remain at a rate of 12.5% and the special rate of 9% for the hospitality sector must be continued to provide further security for a vital employment sector.

Mr. A. J. Noonan:

We concur with everything Mr. Talbot said. Our biggest fear is that there will be increases in employment costs. The flag that was flown last week about increasing PRSI for the self-employed was foolish, given the current state of the economy.

Capital gains tax has increased by 40% in the last couple of budgets. We have an innovative idea with regard to roll-over relief. In its previous incarnation, when the tax was 40%, there was roll-over relief. It was reduced to 20% and roll-over relief was abolished. Now it is back up in that league and we suggest something should be done in the area of the incentives provided in the past for qualifying enterprises, with a very narrow focus to encourage entrepreneurship.

Under the access to funding heading, we understand there is a need for a State bank, as stated in the programme for Government. While the banks are making slow progress, we believe they could go a great deal further. There is a review taking place of the employment and investment incentive scheme, EIIS. At one stage - Mr. Seán Murphy of Chambers Ireland will agree with me on this - there was €150 million drawn down under the scheme. It is now down to €20 million. It is obviously not working. A review is taking place and we encourage it to broaden the scheme to make it work.

The Government introduced the partial guarantee scheme last year. Again, there is a review taking place. Somebody compared it to giving birth and leaving the child to starve. It is not working and we do not know why. The banks do not appear to be very enthusiastic about it. Our recommendation is that where the banks will give somebody 70%, we must figure out how to get the other 30% for projects that are worthwhile in terms of entrepreneurship, job creation and growth. If we were to achieve this, it would be very positive.

Mr. Fergal O'Brien:

I thank the joint committee for the invitation to attend this meeting. It is very comforting to see so much common ground between the three business organisations represented.

IBEC has five very clear messages for the Government in advance of budget 2014 which I will briefly outline. First, we think now is the opportunity to deviate somewhat from our fiscal plan. This is the first time since the start of the crisis that we are recommending this. We believe that because of the out-performance we have achieved in the last year in particular, in terms of reaching our budget deficit target, and because of the benefit of the promissory note deal, we could do about €500 million less and still comfortably reach our budget deficit target for next year. Again, I echo the comments about confidence in the economy and the need to unleash a sustainable improvement in domestic activity and domestic confidence. We believe getting the scale and size of the fiscal adjustment right is absolutely crucial. We favour a €2.6 billion adjustment instead of a €3.1 billion adjustment. In particular, we strongly believe there is no room for additional further taxation in this budget. We did more in taxation than was promised the last time. There is approximately €500 million in taxes already in the pipeline and we accept that they will come through, but the other €500 million of planned tax increases should be dropped. That would be a big confidence boost for the economy.

Second, we very strongly endorse the messages of continued support for the hospitality sector. Here we have a stimulus measure that is working. It has put people back in employment. In our estimate approximately 25,000 jobs have either been sustained or created not just in hospitality but in other related sectors. The reduced rate of employer's PRSI has been crucial for many cost-sensitive sectors, particularly in parts of manufacturing that operate on very tight margins. That lower rate of employer's PRSI has been absolutely crucial in preserving employment. While the hospitality dimension of that jobs initiative package has probably received more attention in the public debate, the lower rate of employer's PRSI is of equal importance in sustaining, protecting and creating new jobs.

Third, on the issue of employment costs, it remains the key priority to get as many people back to work as possible. We have made some good progress in recent quarters and it is very positive that we are now seeing job creation across a large number of sectors in the economy. We must build on the momentum in the labour market. The best way to get people back to work is not to add to employment costs.

Fourth, the international tax offering remains crucially important, in particular to foreign direct investment and also to indigenous companies in supporting investment in research and development. There is a significant review of the research and development tax credit scheme under way. We believe this scheme is yielding significant benefits to the economy in retaining and attracting research and development activity, creating new research and development jobs and, crucially, putting Irish companies and firms in Ireland in a stronger position to get the manufacturing contracts subsequent to having completed the research and development here. These linkages between the jobs we are creating in manufacturing and what is happening on the research and development front are crucially important.

We do not have as much flexibility as we had previously around the tax offering and how the State can support business in the context of EU state aid rules, but we still have flexibility in the research and development area. We are getting value for money for what we are spending. I am aware that the tax credit scheme is a significant investment by the State, but it is an investment that is yielding benefits. We have carried out extensive studies of the scale of research and development activity, the numbers employed in research and development and the increase in the innovative outputs coming from industry. The scheme has worked and it is crucial that we do not do anything to undermine its attractiveness. Importantly it registers with the multinational investors in terms of the overall suite of measures and package of supports available and must be retained.

Finally, we would argue strongly that this must be a budget for entrepreneurship and investment. We have already heard some comments on the EIIS and how it is not working. We have a lot of practical, tangible ideas that we think would significantly improve that scheme and get some real investment into Irish business. Again, we would very strongly echo the concerns of other business groups around the capital gains tax regime. We have pushed that to the limit. It is now a disincentive for investment and, in particular, we are missing out on the opportunity for reinvestment in cases where companies are being sold and there are proceeds from such sales.

Seán Fleming (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

I will make a few observations and pose a few questions, if I may, following the sequence of the presentations. Turning first to Chambers Ireland, there seems to be agreement that the adjustment should be €2.6 billion rather than €3.1 billion. Chambers Ireland argues that the adjustment should all be by way of expenditure cuts. I would be happier had they been here to listen to the people we were speaking to this morning who had the exact opposite view. Both extremes are equally wrong, in my view. It is nonsense to talk about making the entire adjustment through expenditure cuts but equally, it is nonsense for people to suggest that there should be no changes to expenditure. We must do a balancing act in that context.

I was intrigued about some of the issues raised regarding local authorities. Reference was made to car parking charges but a report was published this morning suggesting that Ireland could impose much more parking fees. I ask the delegates to comment on that. They are asking local authorities to make a contribution but how much of the high parking fees are imposed by members of Chambers Ireland? I park in various places, in city centres, provincial towns and so forth, and it is not the local authorities who are responsible for some of the high parking charges. I ask the delegation to bring that point back to some members of Chambers Ireland.

On the issue of tax clearance certificates, the delegates argued that there is scope for modifying this regime to enable the inspector of taxes to apply appropriate discretion on the specific requirement for a tax clearance certificate when a business is receiving a payment from a public body. I ask the delegates to explain the problem here because the basic principle is correct, namely, that businesses should not get paid if they do not have a tax clearance certificate. I ask them to tell us what is wrong with the way it is operating at present.

There is a proposal to reduce capital gains tax to 16%, which is interesting. I understand the point that those who are investing in a business, having sold all or part of a business, should be subject to a lower tax rate than those who, for example, are speculating on the stock market. I ask the delegation to elaborate further on the rationale behind that proposal.

Ireland's rate of return on tendering decisions for public sector contracts is a very big issue. I have met a number of people in local small businesses who have lost out on contracts locally because nationwide contracts are being introduced. Many people are losing jobs as a result. In some cases, jobs are being exported to England. Even though the Department of Public Expenditure and Reform and the Office of Public Works believe they are a doing a good job by getting a reduced price, they are actually costing the economy serious money in some cases. The principle of what they are doing is right but I do not think they are looking at the issue in the broader context. I ask the delegates to give their views on that point.

The roll-over relief would be worthwhile if we could get people to do that. Reference was made to the maximum amount of benefits in terms of social welfare payments that should be going to any particular household or individual. I ask the delegates to be more specific on that point. We all know of households in receipt of jobseeker's allowance, disability allowance, domiciliary care allowance, carer's allowance, rent supplement payments and so forth. I know of households in receipt of €1,200 cash-in-hand each week from the Department of Social Protection. I ask for observations on that issue. I know some would say that if we hit such households, we are hitting those who are most disadvantaged in terms of disabilities.

In conclusion, there has been a remarkable consensus here about the cuts in expenditure that are required. I am happy the delegates agree that we do not need to make an adjustment of €3.1 billion. They have argued that €2.6 billion would suffice, but do they believe there is scope for going even lower than that?

Mr. Ian Talbot:

To take the questions in sequence, local authority parking charges are an issue that is consistently raised with us. There are 55 chambers around the country and our members are consistently arguing that local authorities could support local business by providing free parking in town centres for the first 30 minutes or the first hour. That is feedback we are consistently getting from our members. I accept that if one has invested in a car park, one is entitled to expect a return. Investing in car parks goes back to previous eras of tax reliefs and so forth. I do not have any particular views on that matter and I am not sure that many of those who made such investments are members of Chambers Ireland.

Regarding tax clearance certificates, there are some anomalous situations. Case managers in the Revenue Commissioners are taking absolute discretion in deciding how long they will issue a tax clearance certificate for. If, for example, one goes to Revenue to put some arrangement in place, the likelihood is that the case officer will then give one either a monthly or quarterly tax clearance certificate. A lot of private companies also ask for tax clearance certificates these days as a way of validating how well a company is doing, and in that context, this issue is not just about dealing with State or semi-State organisations. The moment one sees a business or individual with only a monthly or quarterly tax clearance certificate, one is immediately on high alert and one suspects there is a problem. Discretion is being used and such discretion is causing problems. Five or ten years ago, the process of obtaining a tax clearance certificate was quite cumbersome. Now the process is very streamlined and maybe the solution is for the Revenue Commissioners to issue all certificates on a quarterly basis, for example. That is what we were referring to when we spoke about how discretion can sometimes mean a business falls over at the last hurdle.

On capital gains tax, we have spent many years proving that as we reduced taxes, we generated more revenue. As Mr. Noonan said earlier, we have increased capital gains tax by 40% and the returns are coming down. We are getting close to 33% at this stage. We are all trying to encourage entrepreneurship and all of the organisations here today have proposed different measures, all with the same basic thrust, that is, to make people who are thinking about investing in a business believe that the State does support entrepreneurship. It is more about confidence-building measures than about the return to be had from the tax. Reducing capital gains tax is a statement that we, culturally, are supportive of entrepreneurial activity.

The Ireland rate of return issue is a tricky one. The wording that the Departments and semi-State bodies tend to stick with is the "most economically cost-effective" but one will get different answers if one looks at this from the perspective of an individual Department, a division or the economy as a whole. We are very concerned that, for example, a large number of local authority contracts are going to service providers in Northern Ireland, where a different minimum wage regime is in operation, as well as different working hours and JLC arrangements. The local authorities are potentially putting Irish companies and the Irish Exchequer at a disadvantage by going down that route. However, I admit that it is a very complex area.

The final issue is the roll-over relief, which I will ask Mr. Noonan to deal with.

Seán Fleming (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

That is fine.

Mr. A. J. Noonan:

We will have a seamless transition. The Deputy also raised the issues of social welfare and procurement. The roll-over relief is a similar issue to the capital gains one. The same point applies as that which Mr. Talbot made in the context of capital gains tax, namely, that it is about building confidence and giving entrepreneurs a chance.

On the issue of social welfare, the annual budget of the Department of Social Protection is €20.3 billion. The Minister attended our council meeting recently and she gave us an amazing statistic, namely that 4% of those on social welfare cannot afford to come off it because it would not be worth their while. We came across one example of a chap who lost his job. He was earning €40,000, was married with three children and was renting a house. He would have to be earning €70,000 per year to go back to work, which shows clearly that there is something wrong with the system. A report published a number of weeks ago indicated that the main issue is not the basic rates of social welfare payments but the ancillary services and benefits to which people are entitled. Having said all that, we want social welfare payments to go to the people who need them. We have no problem with that.

On the question of procurement, the schoolbooks contract has gone to the UK and hundreds of jobs have been lost. There would be a national emergency if 1,000 jobs were lost in one company, but because the job losses were spread all over the country, the impact is hidden. This is a huge issue and one that politicians will face on the doorsteps more and more in the coming years. I do not blame the OPW. It has political masters which it must obey. A principle has been set out and that principle is fine, but it should be applied in the context of the broader economy as opposed to the single issue of saving a few bob, because that will cost us a lot more in the long run.

Mr. Fergal O'Brien:

I might comment on some of the fiscal issues. The Deputy brought up the scale of the adjustment. He asked us to suggest the optimum split between expenditure and taxation measures. We think the adjustment should be €2.6 billion, as that would strike the right balance between easing back on the damage that will be done to the economy - we must accept that it will be a significantly contractionary budget - and making sure we hit the target comfortably and send the right signals to the market. It is difficult to strike that balance, touch all those bases and give confidence to the domestic economy. We are saying that €500 million of the €2.6 billion adjustment should be accounted for by taxation measures.

Seán Fleming (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

That will be carried forward.

Mr. Fergal O'Brien:

Yes. We are not saying it should all be on the expenditure side. Some €2.1 billion of the adjustment should involve expenditure. We should stick to the plan on the expenditure side. In last year's budget, the level of adjustment on the taxation side exceeded the adjustment committed to in the plan by €300 million. We see this as an opportunity to redress an imbalance in last year's budget. Crucially, if the Minister announces no new taxes on budget day, that will provide a fillip and unleash confidence in the economy. I do not mean in any way to underplay the difficult choices that will be made with regard to expenditure reductions. I am setting out what we think would be the best approach from an economic perspective, in terms of jobs, consumer confidence and business confidence. That is our view.

The crucial issue of capital gains tax is being raised by companies of all size in all sectors. It strikes me that Ireland is out of line with other countries in two ways. First, we do not distinguish between speculative gain and enterprise return. That is a significant issue. Second, we are really losing out because we are not giving people an incentive to reinvest. There is a missed opportunity here. The proceeds of business sales are being lost out of the State and out of the economy because there is no incentive for people to reinvest in other start-ups or in seed or whatever it is going to be. I will leave it there for the moment.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I welcome the witnesses, just as I welcomed those who were in attendance this morning. I want to touch on a few areas from the perspective of those represented by Chambers Ireland, IBEC and the Small Firms Association. I will park the multinationals because the research and development credits are extremely important. I want to talk about the domestic economy and small and medium-sized enterprises. I would like to hear the observations of the witnesses on the things that are coming across for the agencies at the front line. What are the issues that are causing businesses to be unable to stay in business, preventing them from expanding and, more importantly, making them unable to take on new employees? What are the elements that are working? What are the elements that the agencies would like to see involved? I have looked through the submissions. Many of the themes are the same. The Small Firms Association has spoken about a 25% rate of capital gains tax roll-over relief. Chambers Ireland has spoken about a rate of 16.5%. Has IBEC specified a rate?

Mr. Fergal O'Brien:

We have not.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Could the representatives of the agencies deal with that in the context of cash accounting? They might also pursue the issue of overdrafts in terms of access to working capital. I ask them to boil it down to basics. Each of them might give me a flavour of what it is like at the front line for small and medium-sized enterprises that are trying to stay in business. The groups that are under pressure - I refer to businesses employing 20 or 30 people - are the backbone of our economy and support the multinational sector. I would like to hear the thoughts of the witnesses on the matter. Perhaps a representative of Chambers Ireland might respond at the outset.

Mr. Ian Talbot:

I am happy to do so.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I ask Mr. Talbot to zone in on the issues in question. I do not want a general overview. I want a pinpoint analysis.

Mr. Ian Talbot:

I will zone in. I returned from Letterkenny an hour ago. I went there to meet representatives of Letterkenny Chamber of Commerce yesterday evening. Many retailers there were talking about the decision to bring the budget forward. They are all very hopeful that it will increase confidence before Christmas.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Okay.

Mr. Ian Talbot:

They have a sense of frustration because they know there are people out there who have money but will not spend it. Equally, there are people who do not have it and therefore cannot spend it. There is a huge confidence issue. The fear factor associated with the abolition of town councils is another huge issue for businesses in Letterkenny and a number of other towns throughout the country. They are worried about what they will be left with in terms of services. In cases where the county rate is currently higher than the town council rate, they do not know what balance will be struck and what rates they will be paying. Those were the big issues that were coming through in Letterkenny yesterday. I noticed a glimmer of hope that I had not seen in the last three or four years. People are starting to say they think the economy is a little better than it was. They are still nervous because anything could disrupt it again. There has been more stability in recent months. We are getting similar messages-----

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

There are green shoots, but Chambers Ireland does not want people to walk on those shoots.

Mr. Ian Talbot:

Yes. That comes back to the message on which we all agree. If the Minister can stand up on budget day and say there are no new taxes, people will take a degree of confidence from that. The Deputy also asked whether businesses are ready to employ people, which is another aspect of this matter. Those who are ready to employ are waiting for two things to happen. First, working capital is a challenge. Second, they would rather get by as they are than take on new people. They are choosing to squeeze their own time and that of the people they have with them.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

It is a safer option for them.

Mr. Ian Talbot:

Yes, it is safer than possibly having to face into making somebody redundant, which is an emotional issue for employers as well. It is very hard for small businesses to work out what to do and how to do it. If an employee is living in the same small town, it is not pretty to have to make him or her redundant. Employers are ducking those decisions.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I thank Mr. Talbot. Would a representative of the Small Firms Association like to comment?

Ms Aviné McNally:

I will respond to these questions. We would agree with much of what Mr. Talbot has been saying. We deal with small firms that employ fewer than 50 people. Those involved with such companies say that when they open their doors each day, it is crippling to have to wait for people to come in and spend money. Confidence and certainty are key issues for many of them. Business costs continue to be a significant issue for many of the people to whom one talks. One has to bear in mind that companies have really trimmed the fat on their businesses over the last couple of years. Obviously, they have to meet standard costs every day in order to keep their doors open. While many companies have taken their own cost bases under control, many companies in the small business sector find that other costs are being imposed on them from Government-administered areas. I refer to local authority commercial rates, water charges and energy costs, for example. Each company has to absorb such costs because it is very difficult in the current climate to pass them back down the chain to the consumer or customer. The other issue I would like to mention in this context was alluded to by our chairman, Mr. Nolan, in his opening comments about funding. Cash flow and access to working capital are significant issues, particularly for small businesses and microbusinesses.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

What is the general view of the association about its members' interaction with the banks?

Ms Aviné McNally:

Our statistics show that approximately one in four small firms is having difficulty accessing the working capital it is looking for. A great deal of work has been done and progress has been made, but there are some outstanding issues. We are more frequently coming across concerns regarding the reasons that requests for lending have been refused and the timeframe within which that information is being supplied. There is certainly a sense that the banking system does not have a great understanding of the difficulties being experienced by the sector that is applying for this credit. We are beginning to see evidence that the terms and conditions attached to loan proposals may be deterring companies from drawing down loans.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Yes.

Ms Aviné McNally:

They are some of the more common issues we are encountering at the top of the pile now. Cashflow is still an issue. It takes an average of 62 days to get paid at the moment. That can strangle a small firm. There is no doubt that the black economy is having an effect on the domestic economy. I understand the Exchequer is losing €500 million a month as a result of activity in the hidden economy. We all know it is not good for consumers, for businesses or for the State. It is a massive challenge for domestic-focused businesses. Some people would say it has been getting worse over the last couple of years, which tends to be a trend in difficult times anyway.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Has the organisation noticed that its members are looking to take on staff? It is clear that employment is growing. We are seeing green shoots, which is very positive. Is there any particular issue that would encourage employers - the Small Firms Association's members - to take on additional people?

Ms Aviné McNally:

I concur with what Mr. Talbot said about the fear factor in this regard. People are reluctant to re-employ because they are terrified of having to go through the tough decision of letting people go again. As we have all said, low employment costs would contribute to ensuring there is more job creation and would encourage people to consider filling positions that they may have available. Our own figures show that since 2010 - in just over two years - approximately €660 million has been spent on additional employment or labour costs.

That is a huge cost to be absorbed. Therefore, further costs cannot be imposed if we are to have any hope of creating employment in the small business sector.

Mr. Fergal O'Brien:

Again, there are very similar themes. If asked, business people are generally pretty uniform in their response that the biggest challenge is demand in the domestic economy. To cut to the specifics of the budget, there has been much discussion regarding what we are doing for the hospitality sector and what it is costing the Exchequer and how we will have to find the money. It is very important that we get a whole-economy analysis of the situation and that we look not at the cost of a measure but at the benefits it has brought to the economy - the extra spending it has brought in and the extra jobs it has sustained. We cannot just come at that by looking at gross cost on budget day. We must add up the benefits, because it is working and making a difference. There is also the wider issue of confidence in the economy to consider.

I will touch on some of the specific issues of cost as raised by colleagues. For the first time in four or five years, electricity costs have been heading to the wrong side of the EU average. These costs are registering with businesses again as a big concern. Back in 2008, we had particular problems regarding electricity costs and those pressures eased back after that somewhat. However, we are now back in danger territory where we risk losing investment and sustainability is threatened for any reasonable energy users because of our high electricity costs. Some type of emergency measure must be found to deal with this.

Another issue that arises a lot for larger-scale companies is health insurance costs. Over two-thirds of our members are paying the health insurance costs of their employees as part of their employee package. Those costs have increased substantially over the past couple of years. Householders take those costs also, but it is generally not understood that for many businesses these costs are an employment cost. When those costs are added on to health insurance costs, they become prohibitive.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Would it be a fair comment to say that confidence is returning and people are ready to spend and that if progress continues we should ensure the environment is maintained to promote this?

Mr. A. J. Noonan:

I suggest it is a very fragile confidence. That is right term to use.

Mr. Fergal O'Brien:

Yes.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Will Mr. Noonan expand on that?

Mr. A. J. Noonan:

I suggest it is a fragile confidence, but why is that? First, we are facing a budget. I concur with the point made earlier that it is a great idea to bring the budget forward. This saves the Government and us time and is positive. However, if, for example, something dramatic like a new tax is announced in the budget, confidence will be blown out of the water very quickly. Confidence will be gone and employers who are thinking of taking people on will decide to hang on and wait for another six months or a year. They then lose orders and the country loses out.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Clearly, from the figures coming through, SFA members are taking on staff.

Mr. A. J. Noonan:

Yes, but slowly. There is no gigantic rush to take on staff. It is a slow, tenuous process. My simple point is that if we want this to continue, the budget must be employer-friendly and must allow us to create jobs and wealth that can be distributed to people who need it.

Aengus Ó Snodaigh (Dublin South Central, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

I have a number of questions for the three delegations. Sinn Féin agrees with the need for a reduction of the overall adjustment required and if the Government listens to that call, we may be in a better place this time next year. We also agree with the retention of a 9% VAT rate. Two or three of the submissions made have mentioned that this rate has been beneficial. I will come back to this issue later because there have been some questions on it. Somebody mentioned that based on the lower rate, some 25,000 jobs were created. How many of those jobs are full-time jobs? Are many of them casual, part-time jobs that we associate with the hospitality industry? In terms of costs, is there any estimate of the financial benefit, other than the employment benefit, of retaining the 9% rate?

One of the difficulties I have with some of the submissions is that the proposals made do not include costs. One suggestion was to extend the 9% rate beyond the hospitality industry, but what would that cost the Exchequer over a full year? Mention was made of the cash-accountancy threshold and of its being changed to €2.5 million. How would that help members and how many SMEs would benefit from such a change? It sounds like a logical proposal and it is stated that it would have a zero cost overall. How many companies would benefit and what would the full benefit of the measure be?

I have a question for Chambers Ireland regarding corporation tax. Is there scope to provide for larger companies to pay a higher effective rate? We have debated the 12.5% rate and during the year we had discussion on the fact that some of the larger companies do not pay that rate whereas smaller companies do. Is there a desire in Chambers Ireland or any of the groups represented here to move towards an effective rate of 12.5% rather than a position in which some firms subsidise others?

Much of the comment and many of the proposals from the Small Firms Association related to social welfare. I disagree with some of the comments. While I accept that some of them may be true, the fault does not lie with those on social welfare. In some ways, it does not even lie with this or previous governments. Some of the fault lies with those who are in control of rented properties, particularly in Dublin and Galway, who have continually inflated rents in the private sector. This affects those who are on rent allowance renting in the sector. Rent allowance is a large portion of the secondary benefit mentioned. The rent issue needs to be addressed. Landlords should be persuaded to buy into the other schemes operated by local authorities, such as the RAS scheme. This would substantially reduce the disincentive mentioned. Any investigation would discover that the greatest disincentive to returning to work is either child care costs, which have not been addressed by the current or previous governments, or the failure to provide social housing. We must ensure that the rent allowance system operates properly or that local authorities run proper rental accommodation schemes.

Another issue is that of upward-only rent reviews. This question was raised in the general election and before it, but it seems no longer to be a key demand. Some people say the issue is constitutional. We are going to the polls in a short time and if the Government had been committed to dealing with the issue, it could have done so at that time. I have asked repeatedly whether the Government was going to address the issue by changing the Constitution and have been told "No." In the past year, I have not heard any calls from the business sector for the issue to be addressed. We have seen some larger companies here go into receivership or manage to negotiate by threatening to go into receivership. Some of them have been successful. Some companies have gone into receivership or put people on short term or laid them off.

The company obviously benefits but workers are laid off. That is one of the problems.

There has been a focus on domestic loans and mortgages and so on. From dealing with small companies, I know that they have major debt problems and, in some cases, they cannot get the loans they need to continue in operation. What is the state of play in that regard? How are small firms dealing with the banks? Are they managing to negotiate with them, or is it similar to the position on mortgages for households where the banks sit back and wait for the insolvency process?

My last questions are for IBEC. The representatives of the social NGOs this morning provided a cost estimate for their proposals. Will we see this from IBEC and the other groups represented? The NGOs are able to do this with very limited resources. I am not saying IBEC has unlimited resources, but it can call on greater expertise than some of the groups referred to. Do the representatives from IBEC accept that unemployment is sky high and probably being reduced through a high level of emigration and an increase in the number of part-time workers? Are we seeing a complete change in the nature of Ireland's workforce wherein it is becoming more casual? With the rise of zero hour contracts, we could be back to where we were in 1913 when workers would come in on a Monday morning and the employer would pick up some of them for the week. There also seems to be an increase in the level of dependency on the likes of JobBridge, JobPlus and other subsidised employment by the State. If we want a stimulus in the economy, we cannot be depending on these schemes in the future.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

The ten minute slot is for questions and answers. The questions have been asked and we have one minute left.

Aengus Ó Snodaigh (Dublin South Central, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

I have finished. You said at the start that you would give a little leeway, but I took a lot.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

The Deputy took liberty. We will add extra time in order that those questions can be answered.

Mr. Ian Talbot:

We have not compiled up-to-date figures for the 9% VAT rate, but it speaks for itself in terms of the generation of demand. Like everybody else, we are constrained by resources and cannot work out all of the numbers. We all approach the various Departments at times for help in pulling them together. I have spoken to colleagues of the Deputy about how we might price things.

For a company that is not using a cash basis for paying VAT, which is any company that has a turnover of more than €1 million and many under this figure, if an invoice was issued the week before last, the VAT is owed next week, even though the money might not be collected until Christmas. On a cash basis, the company will pay the money over as it collected, rather than as it is invoiced. Dublin Chamber of Commerce carried out some research and about 4,500 companies would be in the gap between €1 million and €2.5 million in turnover. The cost to the State is only a funding cost because the money comes in but on a slightly delayed basis. Originally, it was estimated that the funding cost would be about €100 million, but that has been cut back quite significantly and the estimate is now less than €50 million. That is an estimate if pretty much every company converted. It is a one-off small hit, but the money comes in eventually. We anticipate that if we get the confidence measures right, the overall growth in tax revenues from a boost in the economy would sort things out.

We never saw the upward-only rent review issue as a big issue around the country. It seems to have been generated as a big issue largely in the Dublin 2 area and we hear less and less about it around the country. Generally, we have found that landlords and business tenants around the country have come together and found sustainable solutions most of the time. We know that it is a source of anxiety for people who are still caught in one of these clauses; therefore, we have tried to come up with recommendations to ease the pain for such small businesses such as giving a double allowance for an old lease up to a capped amount.

The Deputy has spoken about companies that were performing well but then bought a property asset. They now have a good underlying business but a big loan with a not so valuable asset. In our experience, these companies just have to grind it out. We are now the best part of seven years into the crisis and many companies have managed to survive and grind it out. The survivors can keep going with a little confidence.

My final comment is on the 12.5% rate of tax. The difficulty is with the manner in which global companies use their global tax position. From our perspective, we fully support having a 12.5% tax rate. The Government will introduce incentives at different stages for investing in equipment, research and development and so on and we expect and believe companies are paying these taxes. There is an international dimension to the issue.

Mr. A. J. Noonan:

I will deal with the funding issue first. I think there was €50 billion outstanding in loans to the SME sector. Of that amount, €33 billion has to do with construction and property related activity. A company buys a building or factory and is left with it. Our understanding is that the banks are looking at it on a case by case basis and that they are trying to put viable solutions in place to keep the trading businesses going and sustain employment where there is a feasible business. It is difficult to get them to define "feasible", but that is another day's work. Our understanding is that they are not sitting on their hands and hoping the problem will go away. There is proactive work taking place.

I concur with the Deputy's points on social welfare. We have a social welfare system that is not fit for purpose. Where we have ancillary benefits and others holding people to ransom who are on welfare, this has to be taken into account. However, we make our comments as part of the overall structure and they are not targeted in any way at people on social welfare.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I have to bring this part of the session to and end and allow Senator Heyden to make her contribution.

Aideen Hayden (Labour)
Link to this: Individually | In context | Oireachtas source

I will take eight minutes and give Senator Paul Coghlan two.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

As it is a complete slot, there will be plenty time.

Aideen Hayden (Labour)
Link to this: Individually | In context | Oireachtas source

Mr. Noonan spoke about the banks getting real with small businesses.

Mr. A. J. Noonan:

I was dealing with Deputy Ó Snodaigh's question about the breakdown where SMEs have huge property debts.

Aideen Hayden (Labour)
Link to this: Individually | In context | Oireachtas source

The issue of the treatment of small businesses by the banks has come up at this committee on a number of occasions. I note that there is a proposal concerning the idea of a State investment bank that would be specifically geared toward small and medium-sized businesses.

How have members of the representative groups found dealing with the Revenue Commissioners? To what extent have the Revenue Commissioners given consideration to the difficulties of small businesses?

We met a number of NGOs this morning and there is wide consensus about the problem but very little on where the solution lies. One could say there is complete divergence on the proposed solution. This morning it was not to cut spending and this afternoon it is not to impose tax.

There is consensus on the failure of domestic demand to recover. One observation made this morning was that to cut benefits further would have a very severe impact on the domestic economy because research shows that people on low incomes spend more of their income locally than those on higher incomes. There would be a serious adverse impact on the domestic economy were we to cut social welfare payments.

There was also wide consensus this morning on the need for stimulus in the economy, particularly on the need to focus on the construction sector. The emphasis this morning was on social housing. I notice in IBEC's proposals there is less emphasis on the need for a stimulus package and more on how to use existing taxation and VAT structures to stimulate investment. While this is not part of IBEC's submission, does it have any thoughts on how the money should be spent were the Government to engage in a €1.5 billion investment package as TASC suggested this morning?

I was interested in the reasonable consistency between witnesses on capital taxation, capital gains and capital acquisitions tax. I can understand why that might be an issue if one wants to have an active business and to roll over assets. CAT is an issue if one has a family business but surely IBEC is not proposing that the Government should reduce these taxes outside the business area. I am interested in what IBEC said about tendering and the idea of an Ireland rate of return in tendering decisions. I have personal experience of this and it is my opinion that State and semi-State companies do not pay enough attention to their role in spending money and the impact of that on the economy. In several State requests for tenders, RFTs, some of the impositions on small and medium-sized companies are very onerous in terms of levels of insurance and other matters. IBEC states in its submission that State and semi-State organisations need to be more mindful of positive outcomes of awarding tenders. Does it have any proposals as to how that could go further, apart from simply being more mindful? Does it have any practical proposals for Government as to how that could be achieved?

It would be useful if IBEC's organisations were to cheer on the welfare to work scheme. The Department of Social Protection will transfer the rent supplement payment to the Department of the Environment, Community and Local Government. The rents paid in the future will depend on an individual's income so that if the person starts earning, he or she will not lose a benefit. Maybe IBEC's organisations could cheer that on as a Government initiative.

On the double rent reduction, I do not entirely agree that businesses have not closed because of upward-only rent reviews. In my own area, Dún Laoghaire, I am aware of several businesses that have closed because landlords have refused to renegotiate rents and have left the properties sitting there. It is impossible to understand how a landlord can leave a property sitting idle when he or she had a good tenant. The double rent reduction option is interesting but I see it being difficult to administer. It flies in the face of tax certainty. It is very difficult to see how a business would prove that its ability to trade has been affected by this. One would need proof that somebody is paying a sum above market rent and so forth. Could the witnesses explain that further?

Mr. Fergal O'Brien:

On the issue of costing pre-budget measures, I agree that the more clarity we can bring to this debate, the more useful it is. In our pre-budget submission, we have carried out some very extensive analysis on the jobs initiative package, the lower rate of VAT and the lower employer PRSI. The committee will see this in the annexe to our document. We have analysed the jobs being created and assessed the counter-factual if the measure had not been introduced. We conclude that the cost to the State looks like being in excess of half a billion euro, but the benefit is between €40 million and €140 million greater than that sum. In other words, we see a net gain to the Exchequer of the jobs initiative package of between €40 million and €140 million and we estimate that it is sustaining or creating in the region of 25,000 jobs a year. That is not just the 9% VAT, it is also the lower rate of employers' PRSI. All of the detail on that is in our submission. I reiterate that it is important to analyse those net benefits and not just growth costs in that assessment.

On the point about the growth in casual or part-time employment and whether there is any structural shift or more permanent changes in the labour market, it is far too early to judge. We are seeing what one would expect to see in any initial stages of economic and labour market recovery. Employers do not have the confidence to take on permanent employees. The labour market will first recover in the part-time, flexible and casual employment. We have observed that over several quarters. I took a lot of confidence and comfort from the fact that the most recent labour market numbers which we received in the past couple of weeks for the first time showed a significant increase in full-time employment. We will see more of that as confidence returns to the economy and as business and employers become more confident of their own outlook and have the confidence to take on full-time and permanent employees. It is far too early to say that we are seeing a structural or increased shift to casual employment. This is what we would expect to see at this stage in jobs recovery.

On the subsidisation of employment, given the severity of the crisis we have just come through, we need to do everything we can to attach people to the workplace. That is the first priority, to get as many as possible going back into work, even if it is not the nature or type of work they would like to be doing in five years’ time. Schemes such as JobBridge have been incredibly successful in bringing people back into the workplace. All the evidence coming from that has been that people are getting permanent and long-term sustainable employment opportunities. Of course, in something of that scale there will be exceptions and individual cases that have not been treated as they should have been, but by and large it works and is connecting people to employment. It is very positive.

I will touch on one or two of Senator Hayden's comments. In respect of investment priorities, we think the best stimulus for the economy at the moment is to reduce the fiscal adjustment. We have said that should be in the form of no new tax increases, but because of what has been achieved in the past couple of years around correcting the public finances, we now have a range of options. In particular, we are back into the market for public private partnerships. There are other funding options we can consider and we can achieve more in conjunction with the European Investment Bank.

Aideen Hayden (Labour)
Link to this: Individually | In context | Oireachtas source

I asked specifically about whether Mr. O'Brien was referring to off-books investment.

Mr. Fergal O'Brien:

Yes. The main infrastructure gaps are still seen in areas of education. Some of our transport network infrastructure such as strategic roads and access to ports need to completed. There is plenty to be done. I think we can do a lot of this outside of Exchequer funding, which would be the crucial priority for us.

On the issue of capital gains tax, CGT, and the economic rationale for a lower CGT, the universal feedback from business people is that this is now a barrier to entrepreneurship. We want to create a climate of entrepreneurship to help people to set up their own businesses and to take business risks in this economy. In our view, the excessively high rate of CGT is not the way to encourage this. In particular, we would like to see a distinction between the enterprise gain in supporting people in jobs and a speculative gain in the economy which we would regard as a different issue with regard to CGT.

Mr. A. J. Noonan:

The Revenue Commissioners were proactive at the very beginning and all through the crisis we have found them to be doing their best to co-operate with businesses which are co-operating with them in turn. Revenue is by far the most effective part of the public service.

I refer to the point about funding and providing a stimulus. There are plenty of opportunities such as by means of the reviews of different schemes. The EEIS is the follow-on to the BES which was a very successful scheme in its day. It provided a stimulus in its own way for small businesses and job creation.

Capital gains tax is just another tax. The key in the case of any tax should be the amount of revenue it earns. When capital gains tax was halved by the Minister's predecessor, the amount of tax collected was doubled. We need to be aware that this is the most important factor. Any measure that creates more money for the Exchequer, no matter how it is done, is a positive one.

A question was asked about procurement and many of the obstacles were identified in the question. Companies are required to have a significant turnover which many small companies do not have. I refer to the significant insurance issues and bonds which small companies cannot afford. The Competition Act forbids them to amalgamate in order to form conglomerates to tender for these projects because they could be seen to be operating outside the remit of the Competition Authority. Very many obstacles have been put in the way of Irish business when tendering for business in Ireland, whereas this is not the case for the UK or Northern Ireland companies coming in. These are some of the practical measures that could be taken.

Deputy Ó Snodaigh's question on social welfare has been dealt with.

Paul Coghlan (Fine Gael)
Link to this: Individually | In context | Oireachtas source

I refer to the question of in-town and out-of-town parking. We all know that provincial towns have been very badly hit because of bad planning which allowed out-of-town developments. What proposals, if any, are there to provide for a level playing pitch? What can be done to equalise the parking charges between in-town and out-of-town developments?

Mr. Ian Talbot:

My colleague, Mr. Murphy, is much more knowledgeable in this area as he has carried out specific research.

Mr. Seán Murphy:

It all ties together. The big problem in Dún Laoghaire, Arklow or Wicklow, for example, is presented by the Dundrum centre. It has almost nothing to do with landlords in Dún Laoghaire; rather it has to do with the fact that the footfall has moved to Dundrum because Dún Laoghaire-Rathdown County Council was chasing rates on a €20 million revenue base in Dún Laoghaire.

With regard to town council areas, the integration of town council areas into county council areas was endorsed by Chambers Ireland. However, the Department of the Environment, Community and Local Government has issued a guidance document on the AMAI website on the integration of town councils into their respective local authorities. It contains a specific reference that moneys will be ring-fenced for the old town council area to be run by the new municipal council entity which is a sub-committee of the county council. The problem is that it specifically states that if the town council-related councillors reduce rates, in particular, car park rates, the amount of moneys transferred from the county council area into the municipality area will fall accordingly. If they increase the revenues from town council parking charges, they will get a bigger chunk from the county council. Frankly, this is an incentive to have less flexibility in parking arrangements and to jack up rates for car parking in order that councillors can fund their pet projects.

For example, in Letterkenny there is free parking for the first half an hour, which is very satisfactory because it delivers a churn in retail spending and customers. It balances the playing field with the out-of-town centres. The view of Chambers Ireland is that the town council should not be addicted to car parking fees, as is the case. The window for free parking should be up to two hours every day, thereby facilitating families and consumers to come to the town centre as opposed to the outskirts. This issue is mimicked across the country in places such as Ennis where one of the big supermarket retailers wants to get out of town because many of the town centre parking spaces have been taken up by residents living over shops. Longford Chamber of Commerce similarly fought a significant court case at some cost to its budget to stop another big anchor retailer tenant moving out of town when attracted by lower rates and the ability to facilitate blanket parking in that area. These are the kind of measures Chambers Ireland supports. Talk of a blanket across the board 30% cut in rates will not be effective. If a business is paying €1,500 in rates in Portlaoise, a 30% cut will not be the deciding factor in whether the business stays open or closes. However, a targeted rate abatement or a rate reduction targeted at legacy or older businesses with low margins in town centres would be far more effective in supporting those businesses which are focused on the domestic economy and dealing with a 20% decline in demand, as evidenced by the ESRI. It is unprecedented in the 21st century, apart from Iceland. We need radical supports for town centre businesses.

Joe Higgins (Dublin West, Socialist Party)
Link to this: Individually | In context | Oireachtas source

I have listened to statements from the three organisations for many years and read their submissions to the joint committee. Essentially, these organisations are all supporters of Government austerity policies. They are endorsing a further savaging in the upcoming budget of public services and cuts of another €2.6 billion. This puzzles me. A colleague organisation of Mr. Noonan's organisation - ISME - is not represented at this meeting. It states it represents small and medium businesses. Apart from the fundamental immorality of working and poor people being forced to carry the cost for gambling bondholders and bankers in the European financial market system and having their jobs, services and communities savaged as a result, the cut in the ability of people to purchase goods and services, which is what austerity means, is hitting the members of the three organisations, especially small businesses. I have never understood, therefdore, how the organisations can hold such a contradictory position. They are supporting more cuts in the forthcoming budget. The one thing they will not tolerate is any increase in taxation.

I do not know if Mr. O'Brien reads the international financial press, but I am sure he does. Last year a number of dramatic articles were published in the Financial Times and The Wall Street Journal which reported that affiliates of Mr. O'Brien's and his equivalents in Europe - major European corporations - were sitting on €3 trillion of accumulated profits which they would not invest because they did not deem they would get enough profit in return. What is this all about? Why should these profits not be brought into the public arena and invested in public infrastructure and job creation initiatives, rather than engaging in this anti-social hoarding? These organisations will not tolerate anything more than 12.5% on their wealthiest affiliates - it is much less than 12.5% - and I see a significant problem in this regard. The ladies and gentlemen across the table have no problem in demanding more cuts to the incomes and living standards of workers on €23,000 to €25,000 a year who are completely under water. I ask the delegates to explain that contradiction.

What they are seeking are cuts - potentially - and a shorter time span in respect of some of these benefits. On what planet are our guests living? People who are on social welfare payments and who have been forced into unemployment are operating in the most extremely difficult circumstances, and now our guests want to pile more misery on them. However, they will not tolerate any such extra impositions in respect of the largest corporations and other interests.

What they are doing is blaming the unfortunate victims of the crash for causing it when everyone is aware that it was caused by the disastrous European financial market system, the speculative carry-on of those operating within that system and the behaviour of Irish developers. Unemployment in this country currently stands at more than 400,000, which is up 250,000 to 300,000 on the figure which obtained five years ago. Are our guests of the view that this huge additional complement of people on the live register were attacked by a fit of laziness and that is why they are unemployed? That is completely crazy. Senator Hayden - who comes at this matter from a different ideological perspective than me - made the point that the ability to spend money on the part of people who are the main customers of many small businesses will be cut further under the proposals that have been put forward. What has been suggested to us in this regard is nothing short of a complete contradiction.

Mr. Fergal O'Brien:

Deputy Higgins referred to a number of high level ideological and economic issues. Previous speakers also referred to what austerity is doing to domestic demand and its impact on the businesses we all represent. Let us be clear about it, Irish business people and the organisations which represent them do not have an austerity fetish. There is no obsession with pursuing austerity for the sake of doing so. Five years ago, the State was in great peril. There is no escape from that reality. At that stage, businesses were struggling to maintain credibility on international markets and raise finance of any sort. They were fighting for their very survival. From both a business and sovereign point of view, we had to stabilise the State. I think we have done that and it was essential that we did so for the sake of employment, business and our future economic sovereignty. There is no question that the adjustments we had to make were essential. Those adjustments hurt businesses. We have discussed this matter in the offices of IBEC, particularly in the context of the impact contractionary budgets have had on our members, their businesses and the people they employ.

When we say what we think needs to be done in order to fix the public finances, we do not say it lightly or in ignorance of its likely impact on the domestic economy and the many hundreds of thousands of households that will be affected. However, we see the suggestions we are making as being essential in terms of regaining our economic sovereignty, restoring economic stability, putting in place a platform to allow businesses to begin to recover and people to return to work and, hopefully, generating the activity and revenue we require in order to fund our public services in future years. That is the universal sense of the business community we represent in respect of this matter. It was not something they did out of an ideological desire. They did it out of necessity in order to stabilise our economy.

On the issue of companies hoarding profits and the debate on corporation tax, we operate in a very competitive international business environment. Businesses operating out of Ireland are doing the best they can to win projects and bring employment into the State. We do not operate in a bubble and we cannot afford to take an ideological view that would end up being counterproductive in terms of bringing investment and employment into the State. There are certain things that will be considered at international level in the context of business taxation and the degree to which the structures relating thereto have kept pace with the evolution of technologies and the structures employed by global businesses. The reality is that, at present, Ireland raises a great deal of money from corporation tax. In fact, it raises relatively more than most other states from this tax. This generates much employment because we have an offering that works for our economy and for employment creation. I am of the view that we would turn our backs on the latter at our peril. Those are the main comments I wish to make.

Mr. A. J. Noonan:

With regard to Deputy Ó Snodaigh's point, it is not necessarily that we want to reduce basic social welfare payments. We want those payments to go to those who need them. Many of our former members are now on social welfare payments. The Small Firms Association is, therefore, very cognisant of both its customers and its members in the context of the troubles they may be experiencing. The social welfare system is not very favourable to those who lose their companies. The latter do not automatically qualify for social welfare payments. That is a fact which should be taken into consideration. Some €20.3 billion is spent on social welfare annually. The point was made about savings and what we are calling for. We are calling for very simple things. We do not want any more taxation. If there is more taxation, we will be obliged to let people go and they will have to join the social welfare system. I made the point - I do not know whether Deputy Higgins accepts it - that there are 4% of people in the system at present who cannot afford to leave it. That is a shocking statistic. Those people may want to go to work but they cannot afford to leave the system. We are saying that they should be given the opportunity and the dignity of being allowed to work. That is our simple point.

Joe Higgins (Dublin West, Socialist Party)
Link to this: Individually | In context | Oireachtas source

That cannot be done by cutting their social welfare rates.

Mr. A. J. Noonan:

Deputy Ó Snodaigh identified a number of matters. He referred to landlords and all the benefits associated with them such as high rents, etc. Why does the Department of Social Protection not come up with concepts in respect of the latter in order that those who are on social welfare payments will not have their rates cut?

Joe Higgins (Dublin West, Socialist Party)
Link to this: Individually | In context | Oireachtas source

It also speaks to the very low levels of wages which are paid by many enterprises. That is the reality. How can someone survive-----

Mr. A. J. Noonan:

We have the fifth highest minimum wage level in Europe.

Joe Higgins (Dublin West, Socialist Party)
Link to this: Individually | In context | Oireachtas source

Could Mr. Noonan survive on that minimum wage? Would he like to be obliged to live on it? Surviving on the minimum wage is virtually impossible and Mr. Noonan is aware of that fact.

Mr. Ian Talbot:

I wish to make a few points. In the first instance, we are not supporters of austerity. Rather, we are supporters of a balanced budget. At the start of this process, we were faced with the prospect of being obliged to borrow €2 billion per month. At present, just €1 billion needs to be borrowed each month to pay the bills. Nobody can survive on that. A household could not survive on it and the State cannot survive it. As a result, we are supporters of a balanced budget. We did it before in the 1980s and we have to do it again.

On the 12.5% rate of corporation tax, I very much agree with the points made. We have invited companies to our shores and they have generated significant employment and brought with them many benefits. For example, we will be hosting our corporate social responsibility awards ceremony tomorrow evening. These awards allow companies to show off what they do in the social and corporate responsibility space. Much of that has been driven by some of the companies which have engaged in foreign direct investment into this country. A big point that is always missed is that these companies and their employees pay huge amounts of PAYE and PRSI. The companies also pay rates and other taxes, including water charges, etc., into local economies. They pay a lot of bills as well. It is not all about corporation tax. In fact, I think members will probably find that the amount paid in payroll tax is much bigger than that which relates to corporation tax.

In the context of the reforms we are seeking in the area of social welfare, I am sure Deputy Higgins agrees that we cannot have a social welfare system that acts as a disincentive to work. That is the issue upon which we have commented. The package of rates relating to social welfare payments are acting as a disincentive to work. We have to find a solution to that. There are many other areas to be addressed in this regard. For example, there are consistent overruns in the HSE. The latter keeps obtaining funding and this is partly done by way of levies and increasing the cost of private health insurance such as that offered by the VHI, Aviva, GloHealth, etc., and these go back into employment costs as well. The more we drive up employment costs, the fewer people will be employed.

Deputy Higgins made the point that if we reduce social welfare, people will have less money to spend in our members' businesses. If taxation is increased, the same thing will happen.

Joe Higgins (Dublin West, Socialist Party)
Link to this: Individually | In context | Oireachtas source

Not if one increases it in respect of people who earn over €100,000 or €120,000.

Mr. Ian Talbot:

I could well be wrong but I think single people move on to the top rate of tax at less than the average wage.

Tax rates also apply heavily at very low incomes here. The Deputy also made a point that we will not tolerate an increase in taxation. Our organisations have supported, for example, the introduction of property tax, which affects people earning more than €100,000. Part of the issues we have experienced in funding the State, probably going back to 1977, pertains to local authorities not having the money. As they were not generating the money from the users of their services, they funded themselves with measures such as development levies and planning. We need to get this right and that is the reason we have been supporters of property tax, albeit perhaps not exactly as it has been done, to fund local authorities to provide local services, including things such as housing, to people who need them in the areas in which they live.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Would Senator Barrett like to contribute?

Sean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source

Does the Vice Chairman have a time in mind?

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

As the Senator usually is brief, I am not obliged to hold him to a time.

Sean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source

I will live within the time budgeted. I welcome the witnesses and thought I was back in Kenmare - I note its winning of the Tidy Towns competition yesterday - when I saw Mr. Fergal O'Brien present. I also thank the witnesses for their submissions. I have concerns about the research and development tax credit and raised it with the Minister for Finance, Deputy Noonan, when he was in the Seanad on 20 March last.

I refer to the key employment provision for the research and development tax credit and note the amount of time an employee must spend on research and development to qualify was reduced from 75% to 50%. At the time Senator Kathryn Reilly and I, as well as many others, tabled amendments because that tax break was designed to do the opposite. One wants a research and development tax break to be spent on research and development, not to give the guy concerned time off from it. A total of 33 amendments were tabled in respect of those kinds of tax breaks, which are never evaluated. At the time, there were approximately 14 or 15 people in the ante-room to the Chamber, one of whom told Senator Gilroy that Members would never understand this issue. However, they did and had a pretty good idea of what the tax lawyers and accountants were up to, that is, the fiscal termites, as Mr. Vito Tanzi has called them. This is the problem I have with the business sector, in that while I support the 12.5% rate, people should please pay it. They are always seeking new dodges and both the OECD and the European Commission are concerned about this. It is a tax lawyer and accountant industry and to my mind, paying people not to do research and development as part of a research and development tax credit represents that kind of fiscal irresponsibility.

In respect of upward-only rent reviews, Senator Feargal Quinn will introduce a Bill on that issue in the future. I hope the Seanad has not been abolished in the meantime but the Bill will be appearing before the Seanad soon. This has been a barrier to enterprise and brings out the property fixation of Irish people. As far as I am concerned, the Irish private sector lost the plot for most of the decade before the collapse five years ago this month and asset price inflation is not entrepreneurship. Representatives of the banks appeared before the joint committee last week and the business community really must reform the banking system. They are still engaged in property speculation and joint committee members found they have not the slightest interest in what industry does, or at least do not lend industry any money. As the banks are in the various business associations, why have the witnesses not got hold of them, given them a good throttling and told them to get back to it?

I refer in particular to Ulster Bank, which was a bank based on industry in the north-eastern part of the island but which became completely based on giving two people massive loans to buy one house. Thereafter, prices shot up and Ireland experienced the highest house price inflation of any country for which The Economist keeps figures. It is up to the business community to tackle the activities of the tax lawyers and accountants and to seek proper bank reform because as far as members of the joint committee could ascertain last week, the banks have no interest in business. They would like to go back to the same way they were previously.

It is the same with stimulus packages, in that we were there before. It is the favourite lobbying industries of the bureaucracy and of whatever government is in power and that is called stimulus. I favour low tax rates across the board with no deductions or allowances, a simple tax system and as much restriction on lobbying as possible. The private sector, which I support, must seek reforms in its own sector because banks and accountants - I believe the only person who is suing the accountant at this point is Mr. Quinn - and the senior bureaucracy largely have walked away from a disastrous five years in the Irish economy. While I am a relatively new Member, I note the Parliament bore the brunt and one party which had 82 seats was reduced to 19, while the other party in government that had six seats now has no seats. However, I do not discern the rest of the Irish private sector or the central bureaucracy coming to terms at all with the disastrous performance that put an economy on the rocks in September 2008.

The voice of industry should be asking the reason no accountant walked the plank for preparing the accounts of banks that totally misled the market. There is a quote in Vito Tanzi's book that "Laissez-faire is all well and good until something goes wrong". We have paid out too many dud enterprises and useless banks and it will be extremely difficult to do much in the way of business in Ireland. The volume of retail sales has fallen by 25%, which is the reason there are empty shops. The private sector should be far more assertive in stating what it seeks to have reformed to make this a place for enterprise again and not to seek small tax breaks and allowances and so on. That is what got us into this trouble and while Members of the Oireachtas may be willing to do it, the private sector, the public sector trade unions and many people still have not faced up to how this economy crashed. There have been five years of recession and there is a good possibility of another five. I am afraid that Mr. Fergal O'Brien's proposal that we relax the criteria sends out all the wrong signals. While I acknowledge it is well-intentioned because I am familiar with the work he does, why not tackle the people who really caused this? Is bank regulation any better now? Are banks or accountants any better now? Is the construction industry any better now? I believe the answer to be "No" in all four cases. I admire and support what has been done in tourism but this is a crisis in which a business sector destroyed the entire macro-economy and we are not nearly there yet in respect of getting out of it. A completely different approach is needed to making this an enterprise economy again, rather than a lobbying economy.

Mr. Fergal O'Brien:

I will be happy to respond to some of Senator Barrett's comments. I will start with the observation regarding research and development and will connect it to the other issue of tax reliefs. Something that we have learned from the crisis is the importance of much more rigorous evaluation of all these expenditures. The Senator is probably aware that the Department of Finance is undertaking a detailed evaluation of that research and development tax credit at present. We got to the game far too late in respect of evaluating the property tax reliefs and had some of those recommendations be taken on earlier, we probably could have pre-empted some of the worst of the crisis. In respect of research and development, we are competing for mobile projects and we need to distinguish between domestic property reliefs and such mobile investment, and the aforementioned research and development activity is incredibly mobile. Within the multinational groups with which we deal, one has sites within the same company in Galway, Manchester, Utrecht and the United States, all of which are bidding for a mobile research and development investment project. We perceive the ability to use that credit to be a difference between Ireland winning or losing that mobile project and it does make a difference. We have undertaken extremely detailed research ourselves and made a 50-page submission to the Department of Finance based on survey feedback from approximately 300 companies. We were able to track what they were doing in research and development in 2003, 2007 and 2012. We were able to establish how many people were employed in research and development and what their investment was in research and development. Consequently, the scheme is working and I believe it stacks up from a cost-benefit perspective. We have looked at our own detailed evaluation and the Government will do its own.

As for the Senator's specific issue regarding the key employee element, the reason this was changed at the last time around was to reflect the realities of business, which are that we do not have many companies in which employees are 100% engaged in research and development. One tends to find, for example, that process engineers are out on the floor working with machines, as well as carrying out research and development. This is the reality for most manufacturing companies and the 75% limit was restricting such people from genuine research and development activity. As for the key employee component of the scheme mentioned by the Senator, very few companies are actually using it. As it is not working, we are not losing anything in terms of tax revenue. It is a shame that well-intentioned elements of our schemes are not being taken up and are not working. This was also evident in the employment supports area, in which there was a lack of awareness and information. When things are not working, we must change them and it was reflecting the realities of business that people were not full-time research and development staff.

They were doing other engineering, development and maintenance as well.

Sean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source

Will they be able to reform banks? I do not know where this economy will go with the present set of bankers, who seem to be largely the same ones who crashed the banks anyway. I am amazed that the rest of the private sector has let them off the hook.

Mr. A. J. Noonan:

Surely it is not up to us. We are not in charge of the Legislature. We cannot reform banks. Surely it is the Government and the Legislature that would reform banks.

Sean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source

We have a Bill to separate zombie banking and utility banking, but the private sector can help. Banks became property-based; do they even know any more what they should not be doing?

Mr. A. J. Noonan:

I can assure the Senator that they know now.

Sean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source

They took a ten-year holiday to play golf with builders and solicitors. We cannot operate without a banking system and I would say that, substantially, we do not have one now. We will do our bit but it really is up to these guys and the accountants to insist.

Mr. A. J. Noonan:

Senator Barrett has made a good point about the accountants.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I accept that those on the panel are not legislators but, as it stands, do they have the confidence in what we call the policy makers - the Financial Regulator, the Civil Service and the political establishment - and how they interact with business? Are there proposals that the panel could be putting forward to us that could change the way the business environment works in regards to the banks and other issues? Is there more that they could be doing? Do they have confidence that things will get done? Those on the panel come before committees such as this one and make their pitch because it is very much about the budget. They hear diverse ideological opinions and viewpoints when they are here. Are they being listened to?

Mr. A. J. Noonan:

That is a positive development. It means this committee has diverse and positive opinions within itself and it will feed into the budget process opinions that matter from all sectors and sizes.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Are the groups before the committee being listened to?

Mr. A. J. Noonan:

Sometimes.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

For instance, with regard to the Government and the public sector as it interacts with business, is enough being done?

Mr. Fergal O'Brien:

I will reflect on some of that. With regard to the quality of regulation, we have always felt it was a question of enforcement. Many building standards were never enforced. We do not need a great deal more regulation. We have some regulations that are probably useful. The same is the case on the banking side. What is important is the quality of enforcement. There is no doubt we have made incredible progress since the start of the crisis, particularly with regard to the quality and enforcement of financial regulation.

We still have concerns with regard to how some regulations are introduced and how new legislation is introduced. We are not seeing enough evidence-based impact assessment in advance of the issuing of new legislation. We are still subject to the ideologies and the vagaries of political opinion. It needs to be more evidence-based. We need more systematic approaches. I completely support Senator Barrett's comments about rigorous evaluation. Right across the policy-making and political system, we all need to bring more evidence to what we are talking about. Let us not have just ideology. If we are bringing in new legislation, let us ensure it is road-tested that so that it will neither cost jobs nor make it more difficult for businesses to operate. We are still seeing some legislation of this type, and that is a concern.

Ms Majella Fitzpatrick:

From IBEC's perspective, there has certainly been a greater desire to engage more on a practical level about what needs to be done to fix some matters, but that has transpired in a piecemeal way. As well as the issue of evidence-based policy, of which Mr. O'Brien spoke, there is a requirement to have a better whole-of-Government approach to some of these issues. Departments, Ministers and policy makers are anxious to enhance matters but then, due to a lack of communication and the lack of a whole-of-Government approach, one Department could do something that contradicts what another is trying to do. This is difficult in any organisation, not least one as big as the Government. There is that element - the lack of a whole-of-Government approach.

Many people have concerns about the considerable and entirely unacceptable level of unemployment. There are many useful employment schemes, aside from some - for example, the employment incentive and investment scheme, EIIS - that need a bit of work. We have tried to communicate this to our members, because employers simply do not know about them. They do not know about them because, coming back to a whole-of-Government approach, the schemes are spread over different Departments and it is impossible to get a sense of what is available and how it can be useful to the employer. There is a communications issue and, often, there is an issue of complexity. Things need to be simplified. It is not rocket science. We have been talking about it for a couple of years, certainly in these meetings. If there was a central portal to which companies could go, depending on their size, sector or whatever, to find the schemes that are most relevant to them and be able to work out simply how they would benefit from or participate in such schemes, it would have a significant positive impact on unemployment that cannot be underestimated. In the case of small business, as I am sure Mr. Noonan and Ms McNally would agree, companies do not have the time nor the resources to chase after such things.

Mr. Ian Talbot:

I will make three quick points on this. First, I am not sure there is still enough experience in various Departments to do a proper analysis. For a long time we did not have to do much analysis because the needles kept going up, but now we need analysis to decide what we want to invest in, withdraw investment from, or whatever. I am not sure the staff have the experience and expertise in sufficient quantities. For example, it is difficult to work out how the concept and execution of the health levy was arrived at.

The culture of risk-taking in the public service is very much that one should not make a mistake and end up in front of the Committee of Public Accounts with egg on one's face, and that drives decision making. It is not a good place to be. Businesses succeed because business people are prepared to take risks and analyse them. One must take risks to move forward, but the culture is not to make a decision at all or to retain the status quo rather than take a risk and make a decision because of the consequences if it does not work out. The reality is that if one takes risks they will not all work out, but if one has a good, balanced portfolio that has been analysed properly, a sufficient number will work out that one will be better off in the end.

My final point is about the speed of implementation. There are certain things that can be done, should be done and need to be done and that everyone agrees must be done, and it could take two years to do them. We need the right focus to get things over the line. One is better off focusing on a small number of actions and doing them properly than having 150 things going and completing none. Speed of implementation is key.

I do not like the phrase "public sector reform", particularly the word "reform". It is much more about evolution. There are now tools, capabilities, etc., that did not exist five years or 50 years ago and we all need to evolve with those. It is an evolution, not a reform. Evolution carries much less stigma. Reform always brings with it the suggestion that one has done something wrong. Evolution merely suggests that one is moving forward with the times.

Sean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source

The witnesses mentioned health insurance. The Milliman report shows that treatments that would take 3.6 days or 3.7 days anywhere else take 11.5 days here. We mentioned that to the Minister for Health, Deputy Reilly, and I think he asked Pat McLoughlin to look at it. It would be helpful if the business community were to state that it is a complete waste of money to keep people in hospital at a cost of thousands of euro a day.

According to the Wright report, only 7% of staff in the Department of Finance have any qualifications in economics. We cannot have that. That is not an appropriate way to respond to being bankrupt. I presume the corresponding percentage is lower in the other Departments. Sometimes that shows. We see in the Seanad that a Minister may be interested in reform, but the three or four civil servants behind the Minister keep passing him or her notes telling him or her not to do it. A strong business community should be alerted to what goes on in those situations.

Mr. Seán Murphy:

In the context of the health insurance in particular, I could not agree more with Senator Barrett. We did a paper on this in mid-2011.

The context and concept of a €300 million overrun in the HSE's budget at the same time as we are cutting carer allowances absolutely beggar belief. The solution the Department of Health has embraced is such that it is now going to charge those with health insurance for beds, regardless of whether they are in a public ward or a private ward. It will be the same fee. There is absolutely no incentive to improve productivity in the affected hospitals when what is being resolved is on the revenue side, rather than the reform side. There is a lack of recognition of price elasticity of demand and the fact that the hard-pressed 40-somethings and 30-somethings will pull out of the health insurance market, leading to its absolute collapse. It seems that all the Department of Health wants to do is keep on increasing the levy. What I outline is a prime example of the kinds of reforms we should be talking about. It is not austerity but reform to stay within budget and reward the most productive hospitals doing the most productive work, rather than actually giving a sop to those hospitals that are least productive and giving them a blank pay cheque each year to blackmail us into paying.

Mr. A. J. Noonan:

As the Vice Chairman will know, 95% of health needs can be met in a primary care setting. We have to move stuff out of hospitals and the money follow the patient.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I thank Mr. Talbot, Mr. Murphy, Ms McNally, Mr. Noonan, Mr. O'Brien and Ms Fitzpatrick for their submissions. The discussion has been very useful and insightful. What we heard was very different from what we had heard this morning, but it is very useful to our deliberations. I thank the delegates for attending.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I welcome Mr. Brian Keegan and Mr. Paul Dillon from the Consultative Committee of Accountancy Bodies - Ireland, Mr. Micheál O'Connor and Mr. Edward McAuley from the Society of Chartered Surveyors Ireland and Ms Evelyn Jones and Mr. Jim McCabe from the National Off-Licence Association. The submissions received and a summary paper were circulated to members in advance of the meeting. The format of the meeting will be that each group will make brief introductory comments not exceeding three minutes.

I remind everyone that all mobile phones must be switched off. I advise the witnesses that, by virtue of section 17(2)(l) of the Defamation Act 2009, they are protected by absolute privilege in respect of their evidence to the joint committee. If they are directed by the committee to cease giving evidence in respect of a particular matter and they continue to so do, they will be entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise nor make charges against any person or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing ruling of the Chair to the effect that they should not comment on, criticise or make charges against a person outside the Houses or any official by name or in such a way as to make him or her identifiable.

I now call on the representatives from the CCAB-I, the Society of Chartered Surveyors Ireland and the National Off-Licence Association - in that order - to make their opening comments. Their remarks should take the form of a brief introduction and we will then move to a question-and-answer session.

Mr. Paul Dillon:

I thank the Chairman and members for the opportunity to present some of CCAB-l's pre-budget recommendations. My name is Paul Dillon, I am a partner in tax practice and I chair the CCAB-l's taxation committee. I am joined by Brian Keegan, director of tax with Chartered Accountants Ireland. In addition, some of our colleagues are in the gallery.

CCAB-I is the somewhat unwieldy title for an association of the four main accountancy bodies in Ireland. Our 40,000-plus members work in all sectors of the community. We are a young profession, with the vast majority of our members being under 45 years of age. We derive our recommendations from the knowledge and experience of our members. Our emphasis in our pre-budget submission is in the area of taxation rather than that of public expenditure. We see one issue as being paramount in the context of budget 2014, that is, tackling unacceptably high levels of unemployment. In economic terms, we estimate that every job lost give rises to an annual cost of at least €20,000 in both income tax foregone and social welfare benefits paid.

We believe that key to fostering employment recovery is the recovery of the small to medium-sized enterprise sector. This sector employs more than 70% of all employees and has been particularly badly affected in the downturn. We need to get investment flowing into the sector. Members of this committee know better than most the difficulties of the banking sector and hence the lack of capital flowing into Irish business. There is an understandable reluctance - given the experience relating to property reliefs in the past decade - regarding the continued use of tax reliefs to drive behaviour in our economy. We believe, however, there is still a role for carefully targeted and managed tax reliefs. Accordingly, we have made recommendations for tax reliefs in key areas in order to make it more attractive for Irish investors to invest in Irish companies, rather than leaving money in less economically productive investments, and make it cost-effective for employers to retain key employees who contribute to innovation in their businesses. Good tax reliefs can still be effective as policy instruments. We have seen the benefit to which a reduction in the VAT rate for the tourism industry two years ago gave rise. Among all the other service sectors, the tourism industry has done well in retaining and sustaining employment.

The bad employment situation in the country would be much worse were it not for the success of IDA Ireland in continuing to attract investment and jobs from abroad. While tax is not the whole story, the Irish tax regime remains an important component of IDA Ireland's offering. We feel that the accountancy profession has the expertise to bring useful ideas to the budgetary process and debate. We again thank the committee for the opportunity to present some of these ideas.

Mr. Micheál O'Connor:

My name is Micheál O'Connor and I am president of Society of Chartered Surveyors Ireland. I am joined by my colleague, Mr. Edward McAuley. We thank the committee for the opportunity to make a presentation to it.

People may ask why the Government should invest further in the construction sector and a number of very important points must be made in that regard. The construction sector is now halfway through its sixth year of recession. This year's level of output will not exceed €7.5 billion. The latter figure is down from a peak of €38 billion. The construction sector is one of the leading indicators of real, sustained economic recovery. Continued investment in infrastructure is crucial to economic growth and to establishing the correct environment for economic recovery. The CSO has forecast that between 2011 and 2021, an additional 143,000 households will be formed in Ireland. This will happen as Ireland returns to positive inward migration. Public investment in infrastructure in order to support this increased demand is required, not only to maintain the quality of our existing infrastructure but also to anticipate new demands created by the new economy.

There must be continued investment in education and training, as Ireland must maintain an excellent standard in respect of both professionals and its skilled workforce, which is key to growth in the future. Public capital investment has fallen from 18% in 2008 to just 6% today. While the industry does not expect the Government to finance the construction and property sector alone, more needs to be done by the Government by way of direct investment and by creating the right environment for private investment. Furthermore, the optimum size of the construction sector should be 15% of gross national product, GNP, which at current levels should reflect a sector output of €18 billion, which is equivalent to 156,000 directly-employed people. At present, however, the construction sector has an output of just €7.5 billion and employs 98,000 people. Therefore, were the sector to return to optimum levels, this would create employment for approximately 58,000 people directly and a further 24,000 indirectly. Consequently, there is huge opportunity in this regard for employment creation.

The National Competitiveness Council supports continued investment in infrastructure and noted that developing and maintaining an export-friendly environment by utilising world-class technology and infrastructure to create and deliver goods and services efficiently to customers is important for competitiveness. Broadband, for example, is a key ingredient in this respect and it is worrying that Ireland has one of the lowest broadband connection rates in the OECD. One recommendation in our submission was for the publication of a multi-annual pipeline of public and semi-State capital projects, overseen and evaluated by improved governance of the construction sector, an improved planning system and streamlined procurement processes, including the creation of a chief construction adviser. A key consideration in this regard is not accepting below-cost tenders on public projects, as this only leads to the potential of a shadow economy, further insolvencies or potential disputes for costs in which contractors seek to recover below-tendered costs.

We also seek the development of building information modelling on public projects and recommend the review of the public procurement sector and public contracts. Again, this is highly important in the context of maintaining small and indigenous firms, which are finding it extremely difficult at present to compete in the public sector due to cost barriers, namely, the cost of tendering and the cost of pre-qualification.

As for improved governance and streamlined planning, the likes of Priory Hall is in nobody's interests and enforcement of the building control regulations is crucial. Building control authorities need to be adequately resourced to ensure timely registration of completion certificates and to foster a more effective inspection and enforcement regime, possibly through a ring fencing of a portion of the property tax. Furthermore, funding institutions have a role in ensuring that developments funded by them are compliant.

We in the Society of Chartered Surveyors believe now is the right time to invest. While the society's tender price index reflects that tender prices are on the increase, 3% higher than this time last year, they still have fallen approximately 33% from the peak. Furthermore, the IDA has warned of a lack of modern office space in the order of 70,000 sq. ft. to 120,000 sq. ft., which is required by multinationals. The IDA also noted that the right type of office accommodation is a significant factor for multinationals making investment decisions in Ireland. One solution is to fast-track the building of suitable office accommodation on "shovel-ready" sites around the key cities. The society also recommends the speeding up of the release and building of some of NAMA's commercial property portfolio of office stock on the market. In addition, the refurbishment of older office stock should be incentivised to encourage private and institutional owners to invest in upgrading the stock to modern standards and while building costs have fallen, a reduction in VAT rate to, for example, 5% on retrofitting office stock could improve office standards in a cost-effective and efficient way and could detract from the shadow economy. The society believes the implementation of the construction enterprise clearing house, as recommended by Forfás, is also important and welcomes the property asset management delivery plan recently launched by the Minister of State, Deputy Brian Hayes.

Another recommendation was the delivery of alternative funding for public works, coupled with measures to support improved bank financing of private construction. The society recommends that the Government maintains pressure on Irish pillar banks to support the private sector in improving the quality of new and existing buildings through appropriate funding measures. It also supports the recently-published Forfás report, which contained several key initiatives, some of which offered international opportunities for Ireland's skilled workforce. The society welcomes this proposal, as well as the focus on upskilling in the industry, which is absolutely crucial. The report also recommends access to finance for construction projects through the European Investment Bank and to create sustainable investment opportunities for significant deposit accounts. In addition, it would be highly welcome were the Property Services Regulatory Authority to create a commercial lease database to create much-needed property data. Similarly, there should be a review of the public works contracts to create more fair and reasonable terms and conditions.

Mr. Jim McCabe:

My name is Jim McCabe and I represent the National Off-Licence Association. We were established in 1991 and represent independent specialist off-licences around Ireland. We work with our 315 members and represent more than 5,300 jobs in the Twenty-six Counties, promoting the responsible sale and marketing and consumption of alcohol and sharing best practices within the entire trade. Our shops, including my own, are mostly family-owned. We are local to the community and there is a story behind everything we sell. We do not produce or sell mass-produced products as such or try not to. There has been a change from the on to the off-licence in recent years and off-licence sales now represent approximately 60% of the trade. However, the association only represents approximately 22% of that total, which is falling all the time as the multiples have the vast majority of this share. Since 2008, the independent trade has lost 3,000 jobs and 550 off-licences have closed. In the past year alone, 21 off-licences closed and ten have closed already this year.

In the association's budget submission to the Minister, we requested that there be no further increases in excise duty and that there might be a decrease in such duty. In addition, we sought the introduction of measures to ensure the selling of below-cost alcohol again be prevented. As for excise duty, the rate in Ireland is 62% higher than the normal European Union average and we wonder how this can increase further. The increase in tax last year was huge but the forecast that was meant to happen did not take place and in fact, spirits have fallen in value. Consequently, a diminution in returns is beginning in this regard and we believe that were excise duties increased again, it definitely would happen this year.

Eliminating the practice of below-cost selling would ensure that the State would recoup at least €21 million in losses that happen when someone sells for a price below the purchase price. In addition, it would mean that alcohol would be retailed in a responsible manner with no deep discounting, etc. This morning, a €12 bottle of wine was advertised on radio by one of the multiples as being on sale for €8, which is a reduction of approximately 50%. An increase in excise duty here might increase the normal price of the wine from €12 to €13 but the multiple can still sell it at €8 because there is no ban on below-cost selling. Therefore, increases in excise rates do not mean increases in prices. The whole market has collapsed in our business and if there is an increase in excise this year in the absence of something being done and legislation coming into play, our businesses will fall and decrease as we go along. I thank the joint committee.

Seán Fleming (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

I wish to make a few comments regarding the accountancy bodies. I note their submission and have to hand a summary recommending that no new taxes or tax increases should be introduced for the foreseeable future and they make the point that this is probably an important statement in respect of the budget. However, when considering the summary of the bodies' submission, at first glance I can count 20 tax changes they wish to make, each of which presumably constitutes a cost to the Exchequer, to assist business. While the accountancy bodies talk about no new taxes, they seek 20 variations to the existing regime in which they really are seeking a reduction in tax because I am sure each measure has been proposed to reduce taxation. They talk about limitations for research and development, an innovation tax band, the employment incentive scheme, an investment incentive scheme, a foreign earnings deduction, closed company changes, tax initiatives targeted at investment in the SME sector, a special assignee relief system, tax incentives to stimulate the property sector, pension fund encashment changes, VAT law changes and the penalty for incorrectly reporting offshore funds. I will ask only one question.

Maybe it was in Mr. Keegan's full document; I have only the summary. Did he have a costing for each of those 20? Sometimes a measure introduced in a budget seems like a good idea but five years later one finds it was of no consequence and was a Mickey Mouse adjustment even though there was quite a case for it. I can think of some that have been introduced that have not had any major practical effect. The Minister goes to all the trouble of making such changes and one wonders whether they are worth it.

There was mention of the need to reform the appeals process. Mr. Keegan might explain what is causing the difficulties. If it is affecting the collection of tax, it is important for all of us to hear that.

I will put two questions to the Society of Chartered Surveyors Ireland. What can we do to ensure that practically all contracts given out by State bodies in Ireland go to companies based in the State? Ireland is out of kilter with the rest of Europe. It would be a miracle if a non-French company got a construction contract in France from a public body. The same is the case in Italy or Germany. We are so good that we design our contracts to suit other European countries, while those countries design their contracts to suit the businesses in their areas. For example, there was the famous contract to print the leaving certificate examination papers that contract should have been designed in a way to suit the Irish industry. Every other country in Europe looks after its own interests before it looks after its neighbours' interests. We have got the balance wrong. Can the representatives give us advice in that regard?

There is the idea of making provision in the contracts of major construction projects to ensure that at least a percentage of young people who are unemployed or were in apprenticeships, as well as young construction workers, are getting some work experience. The society will say these will displace others, but there must be some mechanism to give young people a chance.

I will be charitable to the representatives of the National Off-Licence Association. I will not go there with them. The harm that cheap alcohol is doing in Ireland is severe. Most of this is perhaps being sold through the multiples. I would welcome if the Minister put an extra €1 on every can of beer in off-licences in Ireland. It would be a great day for the country. We will not agree on that. I cannot sympathise with anybody looking to make life easier in the alcohol trade. There is too much alcohol being taken in Ireland, especially by young people.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Does the panel wish to respond to those questions?

Mr. Brian Keegan:

I thank Deputy Sean Fleming for his questions. He made three points and I will address them in turn. First, on the recommendations we are making, it would be irresponsible of us to make any recommendations that would be too costly to the Exchequer. We believe, however, that certain targeted tax reliefs can yield benefits. For example, we are proposing changes to the employment and investment incentive scheme. There will be an income tax relief for people investing. As against that, it will give small to medium-sized enterprises a better chance to generate employment. We know there is a difficulty for businesses in attracting working capital and we think there would be a balance. Similarly, the research and development tax credits are already being granted to companies and what we would like is to see those credits filtering down to employees to generate sustainable employment and help them out. We are also talking about improving the regime for those coming in to work in the country. Our suggestion there is that 20% or 25% of something is better than 41% of nothing. The suggestions we are making involve tax relief but they are designed to ensure that the overall tax take would hopefully increase.

The second point Deputy Sean Fleming made was in connection with the appeals process. Is that correct?

Seán Fleming (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

Yes. It was mentioned that CCAB-I needs some changes to the appeals process.

Mr. Brian Keegan:

Indeed. If I can dispense with that quickly, we have an appeals process that was designed 50, 60 or 70 years ago, back in the days of direct assessment when the Revenue Commissioners prompted everything. We now have self-assessment. We are now working in an environment in which there is a local property tax on which every citizen in the country should have a right of appeal. Nevertheless, there are still only two appeals commissioners. Our concern is that a robust, independent tribunal mechanism is necessary for the credibility of the modern tax system in Ireland. It is simply a matter of resourcing and restructuring. We are suggesting that the kinds of change that have been applied, for example, in the United Kingdom be applied here to increase the number of appeals commissioners and simplify and reduce costs for taxpayers.

Seán Fleming (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

Is there a big delay there?

Mr. Brian Keegan:

There is a delay. We have been expecting a consultation process for almost two years. We are merely asking that such a process be prioritised because, in the interests of fairness and equity, there needs to be a more robust appeals process. That is not to say the existing commissioners are doing a poor job. We are saying there are only two of them and the costs, because we are using procedures that were designed 50 or 60 years ago, are too high. Our proposal is in the interest of equity.

Seán Fleming (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

I thank Mr. Keegan.

Mr. Micheál O'Connor:

I thank Deputy Fleming for his questions. On his first question, about companies based in the State working on public contracts, I suppose the real nucleus of that has been the public procurement process, in which there are selection criteria that are based on European legislation. That has informed the selection criteria to make them broad and not prejudice companies of any particular origin. However, it is a fact, given the circumstances in which the construction sector finds itself, that we as a broader economy should be looking to benefit indigenous companies. It is open to organisations to achieve this in terms of how the selection criteria are weighted - that is, a weighting based on whether a company is local or whether it provides employment in Ireland and operates within the Irish economy. That is something that, potentially, could be looked at by public contracting authorities in terms of how they weight their selection criteria. I agree that, potentially, there is an opportunity to do that.

On the Deputy's second point regarding upskilling or recruiting younger members into the construction sector, that is something that we would welcome. Certainly, the Society of Chartered Surveyors Ireland, along with a number of other professional bodies in the construction sector, is always keen to train and improve the skills of younger professionals and members, and, potentially, there is no reason contracts, both public and private, could not be structured in such a way that contractors would be required to employ a minimum number of apprentices or a certain selection of employees whereby they would be upskilled or given internships or something of that nature to bring them back into the construction sector and provide them with skills. Certainly, it is a issue about which we are concerned. The society of chartered surveyors recently published a report on the shortage of skills. Something that is becoming a concern is the lack of students going into construction courses at third level. It is often forgotten, when IDA Ireland and other bodies speak about bringing international companies to Ireland - although this is great for Ireland, which has been lucky down through the years in attracting probably more than its fair share of substantial heavy-hitting international clients - that the Irish construction sector has an indigenous skill force in construction for those high-technology industries, such as the pharmaceutical and semiconductor industries, and for us to remain attractive to international investors we must maintain those necessary skills in Ireland. We must continue to enact proper training and proper college courses, have proper numbers going through the college courses and continue to develop those skills because they are crucial to our long-term forecast.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Would Mr. McCabe like to make any remark?

Mr. Jim McCabe:

With regard to Deputy Sean Fleming's proposal of putting €1 on every can, as this is the finance committee, it would have to be careful that the necessary checks and balances are put in place first. As I stated earlier, excise on spirits has fallen this year. There is also the link to increased cross-Border shopping and illicit smuggling. In fact, one could find that Exchequer returns could fall. We favour minimum pricing, we favour the elimination of below-cost selling and we favour responsible selling. There are other checks and balances to put in place before we can look at that.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

If Deputies Kevin Humphreys and Higgins do not mind, I will let Senator Barrett comment first.

Sean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source

I thank the Vice Chairman and welcome the visitors.

I would be extremely cautious about suggesting tax reliefs.

I believe that is what Deputy Sean Fleming was saying earlier. The tax reliefs are partly why the country went on the rocks. A much better solution is to have a single low rate of tax across the board, with no deductions or allowances and fewer tax lawyers and accountants. If we are to have this chiselling away at the tax base, or fiscal termites, the country will be going nowhere. There is too much of a premium on lobbying. The Seanad debate on the Finance Bill this year covered nearly three dozen amendments because it bore all the hallmarks of lobby groups chipping away at the tax base. We are broke and that ought to be recognised. It is recognised by people on pensions and so on. What I describe should not be taking place. We need ideas from the private sector on how this country can be put together again but the problem with most submissions to the committee is that they assume there is a budget surplus somewhere. There will probably not be one for five, seven or ten years. We have many ideas on how to spend a surplus but we just do not have one. I do not share the view that the construction industry, which got us into so much trouble, is the one that will get us out of trouble. We tried the experiment and blew up the laboratory on the last occasion.

On page 8, it is implied the 12.5% tax should constitute the final liability. The problem is that most firms do not believe that. They are always seeking to pay less. That has been well documented. If it is a final liability, I support it, but if we are to have another round of fiscal termites chipping away, the country will not be able to afford it. This is an international problem. As one knows, the OECD and the European Union are investigating it also.

The tax avoidance industry is serious. When we raised it with the Department of Finance, it believed we meant tax evasion. Tax avoidance, whereby companies order their affairs to avoid tax, is much more serious than the issue of evasion. The accountancy profession has to face up to that. In addressing accountants, I am disappointed that nothing has been done about the big four and the accounts they prepared for banks on the basis of which the public representatives here paid €64 billion. The figure will probably end up at €90 billion. Do the accountants have any liability in that regard? Are the big four safe from professional scrutiny of what they were doing? It seems the accounts were not a true and accurate reflection of the banks; hence, we have no banks and we are now trying to invent the Department of Finance with tax breaks as a substitute for banks. The evidence presented here last week was that the banking system has not reformed. It still primarily sees itself as property-based and it is not interested in industry. That will seriously prevent us from ever developing this economy.

Page 17 refers to extending the seven year capital gains tax property tax incentive to shares in property companies. We did that and it bankrupted the country. It pushed property prices up faster than in any other country in the world. There is a reference to reviving the property construction and development sector. People such as the delegates have had a go at it already and hundreds of thousands of people have left the country. We have mass unemployment as a result.

Page 20 refers to the penalty for incorrectly reporting offshore funds. As far as most of my constituents are concerned, it could not be enough. The delegates want the penalty of 22% to be reduced and regard it as excessive. Offshore accounts have done so much damage to the social fabric in this country that the penalty should be increased. Creating offshore accounts is an activity we do not want as we try to put this country together again.

I see my old goalkeeping friend, Mr. Jim McCabe, across from me. I believe minimum pricing has already been declared illegal by the European Court of Justice. If someone wants to sell me something for X and we are asked to bring in a law stipulating it should be 2X, the industry pockets the difference. If we have to bring it up to 2X, it will be a matter for the Minister for Finance, Deputy Michael Noonan, the Minister for Public Expenditure and Reform, Deputy Brendan Howlin, and the Minister of State at the Department of Finance, Deputy Brian Hayes, who need the money. Minimum pricing is just a way in which the industry is seeking to line its own pockets. There is a view it might promote more temperance. We did that in the past by making publicans the richest people in every town in Ireland, allegedly promoting temperance. Preventing competition in publicans' businesses certainly made them a lot richer. I cannot see minimum pricing running for that reason. It will distort the market and put the money where it should not be. It will go from low cost producers to high cost producers. The European Court of Justice has already ruled against it.

In the private sector, we had the problems with accountants and banks. We have not really addressed those. What we can do with an empty Exchequer is pretty limited. It will be limited for three, four or five more years. That is the reality. The culture of the kind of lobbying I describe grew up and it accounts for the kinds of difficulties we have today.

Mr. Paul Dillon:

I will respond on two matters, the first of which concerns tax reliefs. We are not advocating a blanket tax relief for all areas in the sector. We are talking about specifically targeted and managed tax reliefs introduced to stimulate key areas of the economy. The view is that once those specifically targeted and managed reliefs have done their job, they should be withdrawn. It is hoped that by bringing funds into the SME sector, for instance, it will allow for growth in this sector, which would lead to an increase in the yield of corporation tax, employment taxes and VAT. We completely accept that some of the tax reliefs used in the past, while they may have been targeted correctly at the very beginning, were not managed and were let run too long.

The second point I want to make concerns offshore funds. This is a very technical area. It is not specifically about offshore bank accounts. This is where people have invested in collective investment-type funds and there is reporting on the tax turn. It is not simply about opening a foreign bank account in an effort to avoid tax. I refer to specific investment funds with a quite or very complex level of taxation depending on the type. If someone is ill informed or makes a mistake, he suffers from the imposition of a very penal rate of tax. It is not to do with tax avoidance. These are marketed funds that people can invest in.

Mr. Brian Keegan:

I am grateful for the amount of attention Senator Sean Barrett has paid to our submission. The rate of 12.5% was introduced by a coalition Government and sustained by two or three more coalition Governments. It was introduced by a Labour Minister. It was sustained by Fianna Fáil Minister and is currently being sustained by a Fine Gael Minister. It is almost hard to see any aspect of Irish fiscal policy that has got so much support across the democratic spectrum. The system is good and has been instrumental in ensuring people can get jobs here rather than get on a boat or aeroplane to get jobs abroad. It has made a real difference to the economy and we do our best to support that particular policy. Of course, it is tied into the area of tax avoidance.

One man's tax avoidance scheme is another man's legitimate tax relief. Investing in a pension is one man's tax avoidance while it is another man's tax relief. It is a question of degree. One of the distinguishing characteristics of the Irish tax system, which is to the credit of everybody involved, both in the public and private sectors, is the extent to which we regulate tax avoidance. Since 1988, we have had a general rule that ensures that if a tax relief is being abused, the Revenue Commissioners can overturn it. A comparable rule was introduced in Great Britain only on 1 July of this year. We have had a rule that requires businesses, when entering into a scheme that could result in unacceptable tax avoidance, to notify the Revenue Commissioners not at the time of making a return but in the same week in which the transaction takes place. We have an extraordinarily tight and robust system within our existing tax framework for managing and controlling excessive tax avoidance. As mentioned, the system is an example to the British, who have just implemented it, and it is the reason we can sustain and have sustained attacks from politicians in the United States and France and from the European Union infrastructure against aggressive tax planning. We robustly manage and control the system.

The opportunities for tax avoidance are very frequently the manifestations of Government policy. The Government wants people to contribute to their pension funds. There is pensions tax relief. The Government wanted people to produce decent rented residential accommodation. When I was going to college, one could not get a decent flat for love nor money.

Section 23, for all its faults, fixed this. It, arguably, went on too long but it fixed it. We had manufacturing relief that became the 12.5% corporation tax rate. The Minister for Jobs, Enterprise and Innovation addressed our annual conference some time ago and encouraged accountants to make people aware of the tax incentives and reliefs available to support business. We are happy to do this. I accept that aggressive tax avoidance is a difficult and dangerous activity that drags the country into disrepute, but we must see it in the context of an extraordinarily robust infrastructure in our tax legislation which stops the worst excesses.

Mr. Mícheál O'Connor:

I am from the Society of Chartered Surveyors Ireland. While the Senator did not refer to our submission, I hope he had an opportunity to review it. While we deal with the construction sector, we did not deal with or recommend the issue of tax reliefs in our submission. Furthermore, we are not a lobby group. Ours is an independent professional body and the aim of our submission was to make recommendations. We fully empathise and appreciate the fact that the public coffers are dry or certainly very short of finance. What we are doing is putting forward recommendations to see how we can create an environment for both private and public investment in infrastructure. It is crucially important that we continue to invest, have the right skills for the workforce and professionals, roll out broadband in a proper format and have infrastructure that is attractive to international investment and multinationals which have been the bedrock of the economy for so many years. A CSO statistic we put forward in our submission is that between 2011 and 2021, 143,000 additional households will be created in Ireland. Regrettably, we cannot sit on our hands and must provide for and act on this. If we were not to invest for another four or five years, we would be very close to the time when these numbers would materialise and run the risk of creating another property boom. Certainly, that is not something anybody wants. The Society of Chartered Surveyors Ireland did not recommend sustaining the boom because it was unsustainable. We recognised this, but what we are looking to do is to get back to a sustainable level of investment; create a sustainable construction and property environment; provide the right facilities to give our young people, workforce and professionals skills; provide the right environment for public and private investment; and maintain an attractiveness to foreign direct investment.

Mr. Jim McCabe:

Like Senator Barrett, our association has concerns about the viability of minimum pricing; therefore, we did not include the issue in our pre-budget submission. We are watching this space very closely. We simply said a ban on below-cost selling would automatically give the Exchequer €21 million such that the multiples would not be able to claim back on what they were selling below cost. An increase in excise will result in less money to the Exchequer because we are into diminishing returns. These are the parameters of what we were saying.

Joe Higgins (Dublin West, Socialist Party)
Link to this: Individually | In context | Oireachtas source

I am sure Mr. Keegan's accountancy bodies include those which represent small accountants, people who will help others like me when they are in the European Parliament and small businesses. However, I am sure they also include precisely the practices Mr. Keegan said were dangerous. Many people would put it much more bluntly in respect of robust tax avoidance by saying some elements in the accountancy profession are up to their necks in assisting the wealthiest corporations in the State to legally fiddle every cent of tax they can keep out of the public purse. It is fundamentally an anti-social activity from start to finish.

Against a background where poor people, working people and those on middle and low incomes have been hammered for five years by austerity and in carrying the can for a crash in the financial markets system and having incredible private bondholders' debts put on their shoulders, Mr. Keegan comes in looking for more, which is astounding. If I am reading his submission correctly, he wants a continued limit to changes to fundamental tax policy issues, including rate, residency and base, and corporate residency tax rules not to be tampered with. He saw a High Court case the other day in which a billionaire walked away with €47 million because he could legally fiddle the system to go off and live in Portugal having been handled a goldmine by the State or political parties in the State when they gave him a licence everybody knew was the same as handing over a goldmine. How can Mr. Keegan come in here and justify this and more of it against what the people are going through?

I make a similar point on corporation tax. Accountants and the big people they service do not really have much to fear because they have a massive coalition of most right-wing parties in Dáil Éireann, virtually all of the media which are huge corporate entities and every other establishment entity such that they may not even raise the idea of an increase in corporate tax. I raise the issue of corporation tax, not for small people who need help and who, in many cases, are in distress. However, it should be upped for the big people against a background where the people are being called on to carry the can to save their system. I made the point when representatives of the business sector were here before the current delegation that it had been reported in the international financial press last year that the major corporations of Europe were sitting on €3 trillion in accumulated profits which they refused to invest, at a time when there was 50% youth unemployment in Spain and Greece and a significant problem here. We need more tax from these sectors, not less.

I endorse the points made by others about greater incentivisation of construction. There must be a different way of dealing with this issue. Mr. O'Connor wants to see a reduction of 5% in VAT on labour and professional services for property repairs, energy upgrades, retrofitting, maintenance works, etc. Retrofitting should have been massively promoted previously. The Government is now trying to install water meters in every house in the country with a view to hammering households again for another €400, €500 or €600 which they do not have. I first entered the Dáil in 1997 and one of the first issues I raised was the need for an established national infrastructure to be put in place by law that would introduce water saving devices of a significant character in every home and construction contract for housing estates. The same could be done in the case of heating system. I do not think Mr. O'Connor's 5% VAT rate would do this, but it is something to think about in a broader, global fashion because one might as well have been talking to the wall as talking to the crowd who were there in 1997. The present gang is more of the same.

Perhaps Mr. McCabe might give us the address of the supermarket that was selling the expensive wine very cheaply. I am only joking.

Joe Higgins (Dublin West, Socialist Party)
Link to this: Individually | In context | Oireachtas source

There is a huge problem in this country with alcohol abuse and addiction. I do not think higher excise duty is the answer, just as I do not think higher excise duty on cigarettes is the answer. I vote against the latter in every budget because it is a cheap shot by Governments to raise more money on the basis of health concerns. However, the issue will have to be addressed and the question of availability undoubtedly arises. Everywhere one turns alcohol is almost knocking one down. The idea of a complete ban on alcohol advertisements and anything that promotes alcohol as seductive, sexy or beneficial should be considered.

Mr. McCabe represents the smaller businesses, as opposed to the big guys who need to be taken down to size. However, the political will to do this is lacking. Small farmers are suffering in the same way. They are being hammered by the prices the multiples are paying at the farm gate. When one goes to the shop, one sees what one's produce costs. This problem requires action of a type in which the current political establishment is not going to engage.

Mr. Brian Keegan:

I argue that 40,000 accountants are a large number of people. I will tell the Deputy a little about the profession. More than two thirds of the accountants in the country are under the age of 45 years. They are people with young families and big mortgages. They are struggling because they have been affected by the downturn as much as everybody else. Most accountants work in industry. They are the people who operate the PAYE and payroll systems and do the VAT returns. They help their businesses to stay compliant and remain on the straight and narrow.

The Deputy referred to another coterie of small accountants in provincial towns who are struggling to keep their businesses and doing their best to earn a reasonable or decent income. It is tough to hear respected elected representatives speak about groups like this being on the fiddle. They contribute a significant amount to compliance in this country. It is an extraordinary fact that 91% of people complied with the local property tax. Revenue's own official figures indicate that more than 88% of businesses comply and pay their taxes within one month of the due date. My profession makes an enormous effort to ensure Ireland's finances are on the straight and narrow. The Office of the Revenue Commissioners is not among the many Government agencies and areas which have legitimately given rise to concerns in the aftermath of the downturn. That is largely because more than 90% of companies rely on accountants to manage their compliance affairs. More than 70% of the self-employed rely on accountants to help them with their requirements. Who is going to pay for this, if not business? If we start charging companies 15% or 20% instead of 12.5%, they will have less money to pay the accountants, their suppliers and employees.

It is a question of balance. I respect the Deputy's view of the balance between how much the corporate and private sectors should contribute. Based on the experience for several years, it seems to us that if the corporate sector is doing well, more people have more money, whether through employment, fees or whatever else, and, by and large, people have a better standard of living. That is why we make this submission. We should send a clear signal that we respect business as the engine which will, I hope, pull us out of this recession. If that is to happen, we need to support businesses by providing clarity about the longer term. That is what informs our submission.

Joe Higgins (Dublin West, Socialist Party)
Link to this: Individually | In context | Oireachtas source

I ask Mr. Dillon to clarify the reference in his submission to removing disproportionate penalties for incorrectly reporting offshore fund events.

Mr. Paul Dillon:

Effectively, these are like unit funds in which individuals invest. They are subject to various complicated tax rates, depending on the fund involved. They might be marketed through banks and other financial institutions in which normal investors invest a lump sum such as from a redundancy or an inheritance. If one incorrectly reports the type of fund involved, a significant penalty applies for not ticking the correct box on Form 11 or the tax return. It is a technical point. The legislation determining the type of fund in which one invests is very complex, but we are not speaking about investments by large corporate entities. Normal or regular individuals may invest lump sums in these products.

Mr. Micheál O'Connor:

Deputy Joe Higgins asked about energy incentives and the 5% VAT rate. I commend him if he made recommendations on water saving measures in 1997 because he demonstrated foresight. Much has been done in recent years in this area such as the introduction of building energy rating certificates for all residential and commercial buildings. Sustainable Energy Ireland has done considerable work in recent years to promote sustainable building and energy efficiency. Our recommendation on VAT has also been considered in the United Kingdom. The intention is both to incentivise energy conservation in buildings, including energy saving measures, and deter the shadow economy. Concerns have been expressed that some of the renovation and refurbishment work could be done through the shadow economy. We argue that if the VAT rate on such renovations was reduced to 5%, it might bring a larger number of people into the tax regime.

Mr. Jim McCabe:

I welcome Deputy Joe Higgins' opinion that an increase in excise duty is not the answer. We fully support any move to address the health problem we face and have worked closely with various societies to that end.

In respect of the Intoxicating Liquor Act 2008, the then Minister for Justice, Equality and Women's Rights, Mr. Dermot Ahern, did not sign off on the separation provisions which would have prohibited the placement of alcohol beside non-alcoholic products in multiple stores and mixed traders. That provision continues to sit on the shelf because the Minister for Justice and Equality has not commenced it. That alone would be helpful. When somebody walks into one of our shops, he or she is making a conscious decision to buy alcohol. People who have been trained work behind the counter and can provide the proper service. The way things are going, we will not be around in a few years time and the multiples will be on top. We argue that now is the time to commence that provision. People who want to sell alcohol properly and seriously will stay in the business and the others will get out of it.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Mr. Keegan's submission called for support for Irish exporters to major markets in the United States, Switzerland and Japan. Why were these three countries identified as opposed to others?

The submission also called for urgent reform of the legal professional privilege rules and the tax appeals system. What problems are being encountered in these areas?

Mr. Brian Keegan:

There are already very good marketing supports for Irish companies sending executives to countries such as Brazil, Russia India and China.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

All BRIC countries.

Mr. Brian Keegan:

That is correct, and in the last budget the Government extended those supports to marketing efforts in some of the African countries. We identified the countries where there was greatest potential for further development and included them in the submission. We felt that, all things being equal, we might get more bang for our tax buck. If one is giving a tax relief, why not give it for investment in marketing in a country where there is a larger market and we might do a little better out of it?

Regarding legal professional privilege, the rules I mentioned earlier in connection with how accountants must inform Revenue if there is planning going on which is reportable are different for the legal profession. The legal profession has recourse to legal professional privilege. The reporting requirement is not as stringent. If we are all being genuine in tackling what is regarded as unacceptable tax avoidance, the rules should be the same for everybody.

The appeals process is down to ease of access, having a simple straightforward formula whereby a taxpayer, maybe not even with professional advice, can go to the Office of the Appeal Commissioners, put forward his or her case, get a quick ruling and get on with the business of the day. As the tax system matures and develops further, the gap that exists between the service – which is provided by very good people - and what is necessary will increase, so we are flagging that as a matter for attention.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

How long has the CCAB-I been in existence?

Mr. Brian Keegan:

The CCAB-I committee has been in existence for well over 20 years but this is the first time we have had an opportunity to present at this committee, and we are glad of that.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

On Senator Barrett’s comment, did the CCAB-I ever do a review of its role in the banking crash? There were comments on the big four which audited and signed off on the accounts of the banks? Everybody is blamed. The previous Government has paid its price. There has been reputational damage to the regulator and the Central Bank. Has the CCAB-I ever done any internal report on what its role was during the banking crisis and how it came about? I have seen old annual statements of banks in which the last comment is that their accounts have been audited and they have been found to be present and correct. Within 12 months that bank was no longer in existence as we knew it.

Mr. Brian Keegan:

We have. We have also carried out much work on individual instances, some of which are within legal proceedings and some of which we have been asked to suspend by agencies of the State as they completed their own investigations. We have also made very strong recommendations to the relevant Departments to suggest we should no longer be the body that regulates the auditing work of the so-called public interest entities, the large multinational companies and banks. It is a matter that is more appropriate for the correct State agency. We have made very strong representations on that and we would like to see a very positive outcome on it.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

To whom did CCAB-I make these recommendations?

Mr. Brian Keegan:

To the Department of Jobs, Enterprise and Innovation. We made a number of submissions, and if it is helpful and of interest,. I can compile those and make them available to the committee. Some of them are not very long and technical.

Sean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source

What State agency does CCAB-I have in mind?

Mr. Brian Keegan:

The Irish Auditing and Accounting Supervisory Authority, IAASA, is the State supervisory authority to which we already report as self regulators. It needs to go a step further and the IAASA should be the State agency responsible.

Sean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source

The IAASA said nothing on the issues the chairman raised. Does anybody recall IAASA saying the accountants were good, bad or indifferent in these banks? It is a virtually invisible body, is it not?

Mr. Brian Keegan:

I am sorry, but it is not for me to say. I cannot comment on whether somebody perceives a State agency to be invisible. The IAASA is our supervisory and regulatory agency and we have made representations to the effect in the public interest.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Who has asked CCAB-I to suspend activity? Was it the Garda Síochána or the Competition Authority?

Mr. Brian Keegan:

I do not have that information in front of me but I will get back to the committee on it.

Seán Fleming (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

On the question of the legal professional privilege which Mr. Keegan mentioned, if accountants give advice and are aware of a client’s tax-avoidance scheme, they must inform the Revenue. The same happens if it is provided by a member of the legal profession.

Mr. Brian Keegan:

That is correct.

Seán Fleming (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

In some of the big firms, which would have both legal and accountancy staff, could the accountants devise a scheme, give it to a solicitor and let the solicitor talk to the client to ensure the information is privileged and they do not have to report it? I am concerned about how the reply came back to me. Could Mr. Keegan deal with the avoidance of the accountants being in the loop because they are not speaking to the client?

Mr. Brian Keegan:

The system is known as the mandatory disclosure regime. If a series of transactions meets a set of criteria and they are entered into, the accountant must notify Revenue that this is happening. If, however, those transactions are being facilitated by the legal profession, all the legal professional has to do is recommend to client that the client advise Revenue. It is a different emphasis and burden of requirement. We are concerned. For this important area there should be a level playing field if possible. We understand the legal professional privilege is a concept which predates the tax system and is external to it, but there must be some mechanism whereby an even-handed approach can be fully taken.

Seán Fleming (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

Does Mr. Keegan understand the complication I have just raised? In a big firm, the accountant could be involved in the scheme that might require mandatory disclosure of information, but if the information has been committed to the client by a member of the legal profession in the same firm as opposed to an accountant, there is legal privilege.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Deputy Sean Fleming is saying that if the accountants construct it and the lawyers sell it, they have privilege.

Seán Fleming (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

It is the same old story as when the tobacco industry researched whether nicotine is addictive. It was always conducted by the legal profession and all the information they gathered was subject to legal privilege. I would be concerned. Is there a concern or am I overreaching it?

Mr. Paul Dillon:

I do not think so. My understanding of how the legislation is framed is that even if the accountants construct the tax scheme, they must inform Revenue. I do not think that simply funnelling it through a legal practitioner would work. If that were the case, the legislation would have no effect, even for accountants.

Seán Fleming (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

The witnesses would be keeping quiet about it.

Mr. Paul Dillon:

We would not be writing about it in our submission. Once we construct it or become aware of it, even if we were in a meeting with a law firm, we must disclose it to Revenue.

Seán Fleming (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

I thank Mr. Dillon.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I would appreciate if Mr. Keegan could get back to us on that other issue. Deputy Higgins raised the issue of insulation and saving energy in households. Building regulations have been around for a while and one of the issues we heard about in this morning's submissions was that the building regulations were not enforced and that is part of the problem. This relates not just to the Priory Hall case that is making headlines but nearly everywhere. There was no real enforcement of building stamps and regulations and that has contributed to some of the problems we have today. That would have been the Society of Chartered Surveyors Ireland's responsibility to some degree would it not?

Mr. Micheál O'Connor:

Not necessarily. We would have an element of involvement, perhaps through building surveyors, etc., but the issue of a certificate of compliance would normally be through the designer, which would, by and large, be the architect, engineer or professional of that nature.

While it is regrettable in terms of the building standards and the examples we have seen in recent years, by and large the vast majority of building and design companies in the construction industry have been compliant. We have seen some excellent building and construction in recent years, including the great motorway infrastructure we now have and some fantastic buildings such as the National Conference Centre. However, with a large industry - it was an exceptionally large industry at the time and bigger than it ever was previously - with a huge number of new entrants into that industry including some people who may not have gone through the correct level of training and so forth, there were examples where proper standards and regulations were not met. In that regard the Society of Chartered Surveyors Ireland welcomes the building control regulations. It is very important that is financed properly and that sufficient personnel are put in place so that when certification is rolled out, it can be done efficiently and quickly. We would welcome higher standards for building regulations and controls.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I am not sure what the committee could do. Decisions on excise are very much for the Minister for Finance. We do not like the idea of minimum pricing. If shops that sell food were not allowed to sell alcohol, how realistic would that be in regard to making an impact on alcohol consumption?

Mr. Jim McCabe:

As Deputy Higgins said earlier, the availability is a very important part of the problem we have today. Twenty years ago supermarkets could not sell alcohol and now it is possible to buy a can of beer in every corner shop. Responsibility is very important. We believe it is very important to make it difficult for people to sell alcohol, to have mandatory training as we have requested, to have a mandatory ID card as we requested, and to have the separation of alcohol from non-alcoholic products. Supermarkets have entire walls of cheap booze. The Minister for Justice and Equality has said the voluntary code is not working and he has promised to review it. However, nothing has changed with the Pampers still beside the Budweiser.

As small independent off-licence owners we tell a story of generations of winemakers, small distilleries and craft beers. Alcohol is not bad as such, but the way that it is sold is the big problem. The Minister can sign separation into effect straightaway - he does not need legislation. It is one step among many. We have worked with the Department of Health on other things and we are fully supportive of any measures. While we sell alcohol, it is up to the Government to legislate for us to sell alcohol. We welcome legislation, but it is not happening and it needs to happen.

Sean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source

We turn the tax breaks on and turn them off again. We have had to reduce the number of civil servants and before that the Wright report pointed out that 7% of the staff in the Department of Finance had qualifications in economics. We cannot rely on it to switch things off. As we are not that subtle in the implementation of Keynesian economics, we have 80,000 empty houses throughout the country and motorways built to cater for 55,000 vehicles a day with only 7,000 or 8,000 using them. That is the background. We do not evaluate properly - the Department of Finance is unable to do it, resulting in problems such as those mentioned in page 12 of the Chartered Accountants Ireland submission to extend the foreign earnings deduction to the United States, Switzerland and Japan. It was first brought in in the case of BRIC countries, which are very far away and there is a requirement to learn a new language. Then it was extended to eight African countries. Now we are not able to do business without a tax break in three of the most prosperous countries in the world. That is the fiscal termite effect - these things start small and get bigger. I would love to think they started small and were eliminated, but that is an illustration of it.

Section 5 of the Finance Act 2013 extends the key employee provision of the research and development tax credit so that the amount of time employees must spend on research and development in order to qualify is being reduced from 75% to 50%, which cut the amount of activity we are supposed to be promoting. I am concerned about provisions in the Finance Bill not being analysed. Had the Minister, Deputy Noonan, not been the chief Finance Minister in Europe at the time, he would have attended to some of these. The overall package has left us with an empty Exchequer and mass unemployment. These requests must go through rigorous analysis and be justified with a cost-benefit analysis. For example, whom does the film tax break benefit? We have too many of them at a time when we are reducing carer's allowance and pensions, and increasing school class sizes. We need to have a proper context in which the representations from the Irish private sector are assessed as to whether they are just enriching individuals or whether society as a whole is better off. Those are the examples that occur to me.

When we asked that the Irish Fiscal Advisory Council carry out an assessment of the tax credit, the Minister said that as such an assessment would significantly expand the mandate of the council, would require much larger resources in terms of staff and budgetary allocation, and would be likely to impede the fulfilment of its core functions, he was reluctant to move in that direction. The problem is that these matters are not analysed. Interest groups will promote them, but with a bankrupt Exchequer, I am not sure we can recommend much by way of concessions.

Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

As it is approaching 5.30 p.m., we will conclude. I thank Mr. Keegan, Mr. Dillon, Mr. McAuley, Mr. O'Connor and Mr. McCabe for their submissions and their participation in today's discussions. If they have detected a certain amount of fatigue from the members it is as a result of us having been here since 9.45 a.m.