Professor Alan Barrett:

I apologise for interrupting earlier, but we will leave that aside. On the taxation issue and low pay, one of the defining features of the Irish taxation system is the extent to which low-paid people are excluded. If one compares us internationally, there have been substantial efforts to exclude lower paid people from the tax net. That applies in respect of both income tax and the USC. If the Deputy's concern is that we need to do more to exclude more people, that is a perfectly sane thing to suggest. Nevertheless, there are costs associated with it. The question is how far up the distribution one wants to go in excluding people. To the extent that there is a second defining feature of the Irish income tax system, it is the extent to which people start paying the higher marginal tax rate at relatively low levels of income. There was an ESRI paper on this a number of years ago which compared the Irish and the British tax systems. It made the point that one of the reasons we start taxing at a high marginal rate at relatively low incomes is that we exclude so many people at the lower end.

This is a political choice and, again, there are very good reasons we might want to do this. However, I do not understand the notion that in some sense the Irish tax system attacks lower income people and that moves are needed on the USC.

With regard to the housing issue, our opening statement was brief and we did not mean to include everything. We are fixated on the notion that the difficulties in the Irish housing market will be solved on the supply side. The likely impacts of injecting additional demand into a supply-constrained market at this stage are very clear. A number of proposals had been floating around and it was partly almost as a way, we thought, of getting over the macroprudential rules that if we could just get more cash to first-time buyers in particular, it would solve the problem as they could get deposits and could buy. For years we have had analysis, and many people in the room will remember the €5,000 first-time buyers grant. All it did was to increase the price of houses by approximately €5,000. We give the payment to one group of people but we may as well just give it straight to the developers and builders because ultimately they will get it. The analysis we carried out last year was on tax incentives in a market which is constrained in terms of supply and it demonstrated that, ultimately, tax incentive measures have very little effect on supply and, very often, their effect is to transfer money not to the people we are trying to help but to the people at the end of the line. This is not to suggest for a moment we do not welcome the measures announced on the supply side, in fact we think they are critical, but our argument is that the effort needs to be focused on the supply side and if we do things on the demand side they will not be as effective.