Oireachtas Joint and Select Committees
Wednesday, 21 September 2016
Joint Oireachtas Committee on Housing, Planning and Local Government
Estimates for Public Services 2016: Vote 34 - Housing, Planning and Local Government
I welcome the opportunity to discuss with the committee progress to date in 2016 on expenditure and outputs relating to my Department's programmes. The plan was that I was to be accompanied by the Ministers of State, Deputies English and Catherine Byrne, but I am sure they are on call if we need them.
The Revised Estimate for 2016 for my Department was initially published in December. The Estimate was subsequently revised to take account of the transfer of functions from my Department to the newly configured Department of Arts, Heritage, Regional, Rural and Gaeltacht Affairs and was discussed by the select committee on 30 June. A further transfer of functions from my Department to the Department of Communications, Climate Action and Environment took place in July. On foot of this, the gross budget for my Department in 2016 stands at €1.383 billion. That represents a gross reduction of €109 million on the Estimate published in December. The Revised Estimate published in June also reflects a reclassification of the water conservation grant as a result of the suspension of water charges.
Following my recent engagements with the committee, members will be aware of the absolute priority I attach to meeting the housing challenge. In 2016, the overall Exchequer provision for housing has increased by €145 million. The combined capital and current housing allocation for 2016 will result in an Exchequer investment of some €821 million to support the delivery of housing programmes. In addition, certain local authorities are funding a range of housing services from surplus local property tax, LPT, receipts to the value of over €112 million, bringing the total housing provision in 2016 to €933 million. Some €121 million of Exchequer funding has been spent on capital housing programmes to date in 2016, with a further €65 million being spent by local authorities from LPT receipts, the bulk of which has been used to support the construction and acquisition of social housing units. Expenditure on capital programmes typically ramps up towards the end of the year and I expect that to be the case this year in the capital housing programmes. Some €210 million has been spent to date by my Department under the current expenditure housing programmes and this has been supplemented by spending totalling €22 million by local authorities from LPT receipts.
The funding available under the housing programme in 2016 will see the housing needs of 17,140 households being met under a range of social housing initiatives. The year-to-date position shows that very good progress is being made, with over 10,400 households already supported in 2016. I am strongly committed to meeting the overall target this year and my Department will continue to monitor progress closely so that any issues affecting progress in certain areas can be compensated for through accelerated progress in other areas.
The publication in July of Rebuilding Ireland: An Action Plan for Housing and Homelessness reflects the priority being afforded to housing. The plan provides for €5.35 billion funding over the period of the plan to support the delivery of 47,000 units of social housing by the end of 2021, through build, refurbishment, acquisitions and leasing. In addition, €200 million is being provided for the local infrastructure housing activation fund to boost supply through investment in key enabling infrastructure. Implementation of the actions set out in Rebuilding Ireland: An Action Plan for Housing and Homelessness will be a key priority for the Department in budget 2017.
Turning to my Department's water programme, the bulk of the spend relates to the rural water programme. Some €17.5 million is allocated to that programme this year. The priority under the programme is the need to address water quality problems in group water schemes with funding also provided for group sewage schemes.
An amount of €110 million was originally provided in 2016 for the purposes of meeting demand under the water conservation grant. With the suspension of water charges and the grant, this funding has instead been paid to the local government fund to be used to meet a portion of the revenue shortfall to Irish Water as a result of the decision to suspend water charges and to cover the costs of readjustment to the financial supports for the group water sector. Some €300,000 was retained in the water conservation grant subhead to cover some nominal administration costs that will arise in 2016.
The money in the local government fund comes principally from motor taxation and local property tax, which is collected by the Revenue Commissioners. Local property tax continues to provide a sustainable, stable and alternative source of funding for the local government sector. The 2016 allocations of local property tax to local authorities are based on the same mechanism and principles that were agreed by Government in the previous year, namely, 80% local retention to fund the delivery of public services and the remaining 20% being redistributed to provide top-up funding to local authorities that have lower property tax bases due to variances in property values and density across the State.
These measures are necessary to ensure a balanced system of funding for local authorities. The Government has devolved more powers to local authorities by giving elected members discretion to vary the rates of LPT by up to 15%. This allows for greater transparency and accountability at a local level. Some 11 local authorities voted to reduce the LPT rates for 2016, compared to 14 in 2015 and, hopefully, we are moving in the right direction there.
The income sources to the local government fund this year are estimated to be motor tax of €1.075 billion, LPT of €437 million and a payment from the Exchequer of €396 million. My Department will make payments estimated at €1.921 billion from the fund in 2016. Apart from support for water, the main payments from the fund are LPT payments to local authorities of €453 million and payment of €348 million to the Department of Transport, Tourism and Sport for the maintenance of non-national roads and public transport.
The Department's Vote also provides funding for the social inclusion and community activation programme, SICAP.
The programme is managed and overseen through the new local community development committees as the new governance model for local and community programmes in each local authority area. The 2016 allocation of over €42 million will allow further good progress to be made in this vital area of front-line support provision. Some €36 million has been spent to date in 2016. A total of 5,119 of the 15,986 individuals who had received employment support payments by the end of June 2016 had participated in labour market training, 925 had progressed into full-time and part-time employment, while 2,996 had progressed into self-employment.
I look forward to hearing members' thoughts and contributions on the mid-year review. I have made some briefing material available to the committee to assist it in its deliberations. With my officials who are the experts in this area, I am available to respond to questions or queries members may have. Obviously, the Minister of State, Deputy Damien English, also plays a part in putting these numbers together.
The Chairman is saying that a lot. We share the same constituency.
I welcome the Minister and thank him for his comprehensive report. I will be brief. It is clear that the Minister is driving a multi-stranded action approach to housing and providing the appropriate funding in that context, which is to be welcomed. I would like to ask about the funding of local authorities, the matter with which I am most familiar. I know that we are dealing with the figures for 2016, but local authorities are preparing their estimates for 2017. Traditionally, they never seem to receive an indication of what their allocations, or projected allocations, will be to enable them to plan for the future. That is the complaint we constantly receive from chief executives, councillors and the corporate policy group. The Minister has provided details of income for local government. I ask him to take with him the message I am transmitting on behalf of those involved in local government. It is a message rather than a question. Local authority chief executives, managers and heads of finance need to be aware of their allocations in order that they can prepare for the future. They are making preparations, even though very little information is available to them. I would like to leave that message with the Minister.
I will be brief. The Estimates before us cover a period of just seven days more than the last set of Estimates we discussed. On 30 June we were able to get the figures up to 23 June. We are now in September and only looking at the figures up to 30 June. It really is a waste of time. We are only comparing the movement of figures for just seven days. I do not understand why we could not be given the figures up to September.
I have concerns about the local government fund and the property tax. Local authorities in some counties are being forced to spend additional funds on housing programmes. That is all very well and good, but they are facing severe challenges in other sectors of their operations. We might need to look at that issue as we move forward. It is not possible for all of the funds to be spent on housing because of the Lansdowne Road agreement. Some local authorities have taken on additional staff to ramp up their efforts to deal with the housing crisis. That comes at a cost.
In his opening statement the Minister mentioned that the Exchequer provision for housing was increasing by €145 million, bringing the total to €983 million. It is important to note for the public record that this funding will facilitate various housing initiatives to meet the housing needs of over 17,000 households. I know that we had a long debate about the Minister's housing action plan, but I would like to know how the Exchequer provision to tackle homelessness compares to that provided in 2014 and 2015. Will the Minister provide details of his proposals in this regard? I expect that this year's provision represents a substantial increase. It is important for the Minister to expand on this matter in the interests of making information available to the public.
Water provision is obviously a very controversial topic. The public needs to have confidence in public policy. In his opening statement the Minister said €17.5 million had been provided in the Estimates for rural water programmes. This funding is essential to support many of the group water schemes around the country that are providing quality water for those who have always been paying for the supply of water in rural areas. Following the suspension of water charges, how much is it costing the Department and the State to subsidise Irish Water? It is very important in the public interest to have clarity on this question as part of the debate that is ongoing. I respect the fact that an independent commission is looking at this area. There is a lot of populism in the public debate about the issue of water charges. If the taxpayer is having to fund and subsidise Irish Water, that obviously means that substantial funds are being transferred from other essential services funded from the public purse. I ask the Minister to expand on this. I know that €110 million that had been provided for the water conservation grant has now been transferred to the local government fund to assist with this process. If the Minister could give us more information, it would add to the public debate on the provision of quality water services. If we are to expect the taxpayer to fund the provision of water services in its entirety, it is important for us to understand how much it affects the Estimates.
I agree with the requirement that 80% of the local government fund, which essentially comes from motor tax and local property tax receipts, be retained for local services in the various local authority areas. The other 20% is redistributed among local authorities. This system of funding equalisation helps those local authorities with a relatively low rates base to continue to deliver public services. Local authorities are allowed to vary the local property tax rate charged by 15%. I understand 14 local authorities reduced the local property tax rate last year and that 11 have done so this year. Are the same local authorities reducing their local property tax rates all the time or is there a variance? I ask the Minister to give us some information. At a time when local authorities and councillors are, rightly, demanding extra funding for the provision of public services within their remit, it is essential that local councils adopt a responsible approach to the local property tax. They should not reduce the rate for the sake of it. Property tax reductions have a direct impact on the provision of public services in local authority areas ad we should discuss the issue. I would like to hear the Minister's views on it.
I would like to speak about housing. The Minister hit the nail on the head when he said each local authority was different. Rural local authorities are not receiving the same amount as councils such as Dublin City Council. They do not have the tools to take in high incomes. I know that the Minister will look at rural counties such as Carlow when he is putting his housing programme in place. Many local authorities in rural counties are not bringing in enough money to fund housing. I know that the Minister will consider all of the different aspects I have raised with him. Rural councils do not have the money they need, which is there is homelessness in rural areas. The position is different in the capital city.
I would like to return to the issue of the funding of local authorities. As the Minister has met representatives of the local authority in Carlow, he is aware that it has a €2 million shortfall in capital funding this year. It just does not have the tools to bring in extra funding. I do not know whether the local authority will pass a budget this year. I believe the Department needs to receive extra capital funding on behalf of the taxpayers who have paid their taxes during the years. The Minister has told me that other local authorities are looking for funding also, but I emphasise that this is a serious case. I have never before seen budgets like this at local authority level. The pre-budget meetings are taking place. The Minister needs to address the capital funding of local authorities that are in need.
We are always talking about the fiscal space. We are told that €1.1 billion is available for allocation next year. I know that the Minister will address this issue by providing funding for local authorities. We hear about funding and the fiscal space, but this is something we will need to address as we head into a new year in January.
I believe the Minister is examining the best ways to deal with the question of housing, but every area is different and if he does not address every area, he will not solve the homelessness problem.
As I said, water charges are a problem. People pay many taxes, but I understand the Minister's ministerial colleague spoke on a radio programme yesterday about abolishing the universal social charge, USC. Ultimately, we have to be practical and make sure that every local authority passes a budget this year because if they do not, we will have a local authority housing crisis that will need to be addressed.
As I said, rural local authorities are very different in that we get much less funding and because of that, we are delivering very few services. Unless the Minister addresses all those issues, we will be in serious trouble.
Local government funding has always been a major issue. When I was a member of a local authority, we were always fighting over it. I am aware that most of the local government funding comes from property and motor tax, with the Exchequer topping it up. With regard to the discretion that was given to local authorities to reduce it by 15%, local authorities should not be penalised as a result of that or lose the Exchequer funding if a shortfall arises. That is important because issues have arisen in some local authorities with the delivery of services, which are proving very difficult. The Minister should take that on board.
I have always believed that funding from motor tax should be used for what it was intended, namely, the road network, infrastructure and so on. There should not be any variation from that.
On the road tax issue, if we use that purely for roads we will have to find other funding streams for the many other areas it funds. The Department of Finance is very strong on not ring-fencing funding from any given tax for any given purpose unless there is a direct relation between the polluter pays principle or an incentive around conservation. The provision of water services is an obvious example of that whereby we try to link the cost of capital investment with a charging system that encourages conservation, better management of water and so on. In terms of broad taxes, much of the money from road tax goes into roads. That money is collected, goes to the Exchequer and the Exchequer decides on the most pressing needs in terms of the overall revenue streams they have to meet expenditure demands.
On the point made by Deputy Ellis that local authorities should not be penalised for reducing local property tax, if a council makes a decision to reduce its income, that is a local democratic decision. The point of trying to introduce more local decision making around revenue raising and taxation with the local property tax, LPT, is that if people decide they want to increase a tax, they have more money to spend. If they decide they want to reduce a tax, they have less money to spend, but they cannot reduce their revenue stream deliberately and then say the Government has to give them the money. We cannot have that. Otherwise, we would have local decision making on the basis of being popular, reducing taxation collection and simply relying on the national Exchequer to pick up the tab every time. We need a mature discussion on balancing streams between local and national Government in terms of the money that should come from the LPT, the central Exchequer or direct levies or charges for certain types of services or whatever. That happens in every country.
I would like to see more decision making at local level so that councillors, with their management teams, can make decisions on what their areas need, how they will fund that and the tools they have to be able to do that. Unfortunately, like the issue of water, local property tax became a political issue. People are making political decisions, and because they did not agree with its introduction they will maximise what they can do in terms of undermining it by reducing it by 15% a year. That is a decision that has been taken by some, and there is a consequence for that, namely, they have less money to spend.
We are trying to transfer revenue raising decision making powers from the centre to local authorities, where possible. There are some local authorities that do not have a big percentage of their overall income coming from LPT. That is the case in Carlow, for example. Even if they decided to increase the LPT significantly in Carlow, say, by the full 15%, it does not solve the problem-----
-----in terms of a major financial problem arising. I take the Senator's point, but I am making the principal point in that regard.
What is encouraging is that the LPT issue is settling down. We have gone from having 15 or 16 local authorities reducing it to 11 for this year, and I hope we will have even fewer next year. I hope we will start to see a small number of local authorities making the decision to increase LPT when it makes sense for them to do so. I believe there are some local authorities who will do that this year. I can give a guarantee here today that we will not reduce funding coming from the national Exchequer as a result of that. If they increase the LPT, they will have extra money to spend. If they reduce LPT-----
For next year, in terms of the reallocation, we have said that of the balancing fund or the redistribution fund, whatever one wants to call it, the decisions we have made will ensure that, effectively, no local authority will get less than they got last year. However, there is still an opportunity for local authorities. Some have made the decision; others will make it in the next few days or weeks. There is an opportunity, if they want it, to consider increasing funding streams from the LPT. That is the only point I would make on that. I do not want to over-emphasise it.
I will address some of the other issues. Senator Coffey raised the costs arising from the suspension of charges. Having formerly been in that Department, I am sure there are various things happening that are frustrating for the Senator to watch, given some of the challenges, mainly political, that he had to deal with around water. I will shortly make a submission to Government on the 2016 costs arising from the suspension of water charges and on the potential cost in 2017 in different scenarios. The 2017 position will be dependent on the report of the expert commission on funding domestic water services and the consideration of that report by the Oireachtas. That is only a guesstimate at this stage.
In summary, for 2016, the previously envisaged operating subvention for Irish Water this year was €479 million. Irish Water has estimated the shortfall in net domestic revenue from the suspension of water charges to be in the order of €181 million for 2016, bringing the total subvention requirement to €660 million. The cost of the additional €181 million will be met through the savings on the water conservation grant, which now will not be paid - that is €110 million; the conversion of an already provided working capital loan to Irish Water of €58 million, which was already factored into the budget; and savings of €13 million arising elsewhere in the local government fund.
Essentially, because we have matched off the water conservation grant estimate with the reduced revenue stream due to the suspension of water charges, along with the €58 million fund that was effectively a working capital loan to Irish Water from the Department, the shortfall is €13 million after that, which we need to find in savings this year, but we will not have the benefit of that next year.
We could fall back on it this year. Let us be honest about this. If the Oireachtas decides to do away with water charges, we still need to progress and deliver on the significant capital expenditure programme that Irish Water needs, and that will have to come through other revenue raising and, I presume, general taxation. That would limit our ability to be able to spend in other areas and clearly undermines the water conservation incentive that comes with having some link between what people pay and how much water they use. That is not to mind the other legal issues around water framework directives and the rest of it. That is the issue in terms of revenue streams. We will have a long debate about that once the commission reports. I know people have strong views on it and I do not want to trigger a debate on water. We are covered for this year because of the water conservation grant and the €58 million earmarked for a capital support programme. We will be able to find the €13 million shortfall.
The potential scenarios for 2017 will be considered as part of the 2017 budget. We will have an opportunity at a later date to discuss those when the commission reports or, potentially, in the context of the budget. We must plan for the different scenarios. The choices we make have big consequences. Regardless of the way this is cut, we must invest billions of euro over the next five or six years in water infrastructure and it must be paid for. The only question we must decide is whether it is to be paid for through general taxation, a combination of general taxation and direct charging that tries to incentivise conservation and water management or by reverting to the previous charging system. These are the choices on which we want the commission to make recommendations.
I thank the Minister for clarifying that. He has made it very clear how he is covering the shortfall this year and the concerns around next year. Essentially, the €13 million referred to are savings achieved somewhere within the local government fund. Correct me if I am wrong but is that not €13 million less being available for local services in local authorities?
The Minister clarified the €2 million figure relating to the Carlow local authority. He met those representatives. We must be practical. Everybody is paying much money on property tax. I know people have seen what I hope are good changes. At the end of the day, when we see so much homelessness and so many people on hospital waiting lists, it is important this budget addresses such issues. People are paying enough. That is the reality. They do not have any more. That is what needs to be addressed in this budget. I am glad the Minister clarified the issue regarding different local authorities. It is crucial that every local authority is looked at on its own merit, as they cannot be compared. If the Minister realises that, he will be half-way to solving the different problems we have.
I wish to clarify a point raised by Senator Coffey. I do not want to let it go. We think the €13 million will probably be accommodated through a reduction in the overall amount of money going back to the Exchequer. It is something that must be negotiated with the Department of Public Expenditure and Reform. I would not like to give the impression that local services are being cut as a result of it. However, I do not want to give the impression either that there is no cost here as there is a big cost. If we decide not to have a revenue stream coming from water provision to domestic houses, there will be big consequences in terms of the flow of money in and out of government, never mind the other consequences that I am sure we will debate at length when the commission reports. This year is manageable because of the anticipated spend that is now not going ahead in the way that we thought it would at the start of the year. Next year it will become a much more difficult issue to manage, depending on the choices we make around water.
I have raised before the practical operation and timing of the property tax and when the decision is to be made. Most local authorities are now being asked to make that decision but they are not making the decision on the estimates for another six or eight weeks. This is the political reality of what local authorities are dealing with on the ground. They are being asked to maintain the current level of property tax but there is nothing on the allocation of money for spending. Politicians are being given the option to opt out of the vote. In Wicklow, last year we tried to tie in where the 15% would be spent. When we took the vote, we wanted to say clearly where the property tax was to be spent. We were not allowed to do so because we cannot do it. The political reality was that people were able to vote against it because it made no difference. When the estimates came out, what these councillors wanted were contained in them and they were able to vote against the property tax measure again. Is there any way the property tax decision can be taken when we see the estimates?
That is a very fair question and Senator Boyhan made the point earlier. We are asking councils to sign off on local property tax decisions now - whether they go up or down - but they are not passing their budgets for another couple of months. This happens because the Revenue Commissioners insist on getting earlier decisions around the local property tax. It poses real problems for both the executive teams and the councillors. They will know 75% or 80% of the budget for next year but there are other variables of which they will not be fully sure. These might include the Lansdowne Road agreement, etc. There are other issues that will be decided upon in the budget and they may change, up or down, the figures being considered. It is difficult for councils to make decisions around local property tax and how they may be able to use extra money without seeing the full picture.
Ironically, before this meeting we had a conversation lasting 15 or 20 minutes on this issue. Some of the chief executives are asking me if we can consider trying to match the two processes. We will speak to the Department of Finance and the Revenue Commissioners about that to see what we can do next year. It would be difficult to do it this year. If we are to expect progressive decisions around local property tax, the least we can do is say to councillors they can see the full picture, including what they can gain or the cost of cutting the tax. Maybe the ideology could be taken from the debate around property tax and whether a person is for or against it. Perhaps we could have more pragmatic decisions around improving revenue streams for local services, which is ultimately what we want to reach.
Some local authorities will not pass budgets so what exactly will the Minister be able to do for them? As the Minister indicated, issues arising from the Lansdowne Road agreement are starting to have an impact on local authorities. What will the Minister be able to do for those authorities as it is where we are at?
Local authorities are not on their own and there is ongoing conversation between the finance team in my Department and the financial teams within local authorities. They meet almost on a monthly basis and there is a structure for discussion around that. Nothing should be coming as a surprise here. Some local authorities have real financial difficulties, although I will not name them publicly. There are two with real difficulties and they have signed off on a financial plan to get them out of that difficulty over time. We are helping them do that. As it is coming close to a time for a decision, others are arguing they are in difficulty because of a shortfall and they must be helped. One must be clear. We do not want to get into political decision making around budgets so the councils that shout loudest get bailed out by a ministerial decision.
This requires proper, professional financial management within local authorities and interaction with the Department so the authorities can be as certain as possible as to what is likely to come down the line. We need to work out together how we can get everybody through the budgetary process. That is what we are trying to do. As I stated, a small number of local authorities have genuine historical difficulties with which we need to try to help them.
I was a local authority member for a number of years and passed budgets. Therefore, I have a reasonable idea as to how the system works. I acknowledge the funding structures have changed somewhat since then. The legal position is that if a local authority will not or cannot make a vote through a budget, the Minister must put a commission in place to run its finances. I really do not want to do that.
I do not expect that I will. Even through the very difficult years, namely, over the past seven or eight years, that has not happened.
My Department will work with everybody, from chief executives and party leaders to councils and financial officials, to try to get the numbers into shape for the passing of a budget. I do not expect we will have to use any other emergency powers or any other such measures. I take the point that the council of which the Senator was previously a member has expressed some concerns. We have been talking to it in that regard, and we will try to work through that.
I thank the Minister, Deputy Simon Coveney, the Minister of State, Deputy Damien English, and the departmental officials, who are always here en masse, for attending this morning. I thank the members for their co-operation, which I appreciate. We did have to rush through many items today. If members have any supplementary questions, they might direct them to the clerk and we will obtain the answers for them.
Senator Coffey asked a question I did not answer. When we decided to do away with the water conservation grant, we needed to make a consequential decision to increase funding for the rural water programme in respect of the capital support programmes that were needed. Effectively, as a result of the decision, the conservation grant was not going to many people in rural areas who would previously have been paying for water anyway. Even though the conservation grant is not being paid because people on the mains systems are not paying water charges, there were many people who would have been receiving a water conservation grant through a group water scheme. To compensate for that, we have agreed with the representative body for group water schemes on what is needed. It is very happy with it.