Oireachtas Joint and Select Committees
Wednesday, 8 February 2017
Committee on Budgetary Oversight
Macroeconomic Outlook: IBEC
2:00 pm
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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We will resume in public session. I welcome from IBEC: Mr. Fergal O'Brien, director of policy and public affairs; Mr. Ger Brady, senior economist; and Alison Wrynn, who is seated somewhere at the back of the room. They will be dealing with the macroeconomic outlook, labour market developments, public capital investment and budgetary priorities. Before we begin, I remind members and witnesses to turn off their mobile phones as the interference affects sound quality and the recording of the meeting.
I want to bring to the attention of the witnesses that they are protected by absolute privilege in respect of the evidence they to give to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and continue to do so, 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 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 parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official, either by name or in such a way as to make him or her identifiable.
I invite Mr. O'Brien to make his opening statement.
Mr. Fergal O'Brien:
I thank the Chairman and members of the committee for the invitation. It might be useful in my statement to focus on what we regard as some medium-term budgetary priorities rather than on the pre-budget activity for budget 2018. To kick off, I will share some reflections from the business community on the state of the economy, the impact of some of the challenges we are seeing from Brexit and from policy reform in the US and our assessment of the economic context for budgets over the coming years.
It is fair to say the economy is now facing very significant challenges. It is also very positive that we are coming into this period of challenge on a very strong footing. Despite the challenges we have all had in terms of assessing the GDP metrics of the past couple of years - and, clearly, there has been a lot of volatility within those GDP metrics - the core indicators of the economy, such as domestic demand and, crucially, employment, remain incredibly strong. During the course of 2016, employment growth accelerated again. The labour market is probably the single best indicator of what is happening out there in the real economy. It is in great shape.
In terms of the risks of Brexit, for many firms, it has already impacted on their businesses. We have probably seen the impact most clearly in two sectors of the economy. The first is our food and drinks industry. Since June 2016 we have seen double-digit year-on-year monthly declines in the value of our food exports. That is already happening and we have considerable pressure within our food industry. The other area where we have already seen the immediate impact of Brexit is in our retail sector. The core fundamentals of the economy - earnings, the absence of inflation, and strong wage growth are all incredibly strong. That is not translating to the expected buoyancy in the retail sector at present. In the course of last year, we saw that after the vote, the growth in retail spending started to slow quite significantly. We have been seeing much more activity in cross-Border shopping and we have also been seeing more retail activity going online. They are the two sectors where we see risks. Notwithstanding that, other sectors of the economy will be stronger this year and they will compensate for some of the weaknesses. In Brexit-affected sectors, particularly construction, we will see a notable increase in activity this year. We will see it in housing completions and other elements of construction. Our overall assessment from a budgetary perspective is that we will still have very favourable economic fundamentals and strong GDP growth. We do not see any significant risks to the short-term budgetary outlook. That is our assessment.
I will talk a little about what we regard, from a business community perspective, as the most pressing medium-term reform priorities which we would like to see reflected in budgets over a number of years. We have two main issues we would like to highlight. One is our wider investment agenda; the other is personal taxation reform. The business community believes the investment agenda is the single most significant challenge facing the country from both a business and socioeconomic and quality of life perspective. Right now, Ireland has the lowest level of public capital investment of any country in the EU. It is under 2% while the European average is around 3%. In addition to that, we have the fastest growing population and we are most likely to have the fastest growing population for decades to come. In many ways that creates the perfect storm in terms of the pressure on our infrastructure system and what has up until now been an inability to address that. That is already evident in terms of housing shortages. Increasingly, the 3% growth rate in the number of people at work is very evident in the return of congestion we are seeing in our major cities. We must also remember that when we had the money the last time around in the Celtic tiger period, we did not finish the job in terms of a national infrastructure provision in a whole range of areas from education to health and housing. In terms of transport, we did not connect all of the regions to Dublin. The north west, in particular, remains a significant black spot in terms of road connectivity and, crucially, we did not connect the regions to each other.
Looking at the big challenges on the medium-term horizon as we try to address the national planning framework and the vision for the country out to 2040, one of the key things we will have to grasp is that almost 50% of our economic activity is happening in the Dublin region. We had previously put our own estimates on this but last week in the documents published by the Department of Housing, Planning, Community and Local Government, 49% was the figure put on it. This is clearly unsustainable going forward. It is sub-optimal for Dublin and for the rest of the regions. IBEC, as a national organisation, really wants to see a much better spatial distribution of that economic activity across the regions. The best way to do that is to have a long-term vision that creates the framework through which we can achieve that and, crucially, to have the medium-term budgetary framework underpinned by capital investment plans that will deliver the infrastructure in the regions in order to spread the economic activity. Without that infrastructure investment and provision, we will continue to see Dublin over-congested and we will continue to see the regions lagging behind.
We have a particular interest in the all-island economy. For over 20 years, IBEC has been involved on a joint business council with our sister organisation, the CBI in Northern Ireland. As members can imagine, the level of activity through that joint business council has scaled up significantly over the past year with the prospect of Brexit. We have shared the connected report with the committee. What we are trying to focus on is what an all-island investment plan might look like and to try to further develop that all-island economy, particularly in the context of the demographic ambition we see for the all-island economy. We think there will be a population of 10 million people on the island by 2050. Right now Ireland is the only country in the world that has a smaller population than it had 180 or 190 years ago. The potential for population growth is very significant. It is really important. In the context of that national planning framework, we take that long-term strategic view. Crucially, we take an all-island perspective on the investment needs of the economy.
I will make a number of other points and then I will be happy to take questions and comments from the committee.
In terms of the limits and why we have not achieved investment spending, we think that the appropriate level of public capital investment should be 4% for the economy. Ireland is currently below 2% and the European average is 3%. There are two significant limiters. The first one is the European fiscal rules. They do not give sufficient recognition to Ireland's demographic growth as the fastest growing population in Europe. Ireland also comes from a weak starting point in terms of the stock of our existing infrastructure.
We think the fiscal rules make sense in terms of managing the day-to-day expenditure of the State. They do not incentivise a government that wants to prioritise the tough growth and prosperity enhancing medium-term issues of infrastructural investment, education and innovation. They are the three components of our spending that will make a difference in the long term to the overall productive economic capacity of the State and, ultimately, the quality of life and prosperity of people. We call on the committee's support to challenge these fiscal rules. We think they are overly restrictive and that they put an unnecessary constraint on our ambition in terms of investment spending. We have the cheapest money in history that we are not accessing because of the constraints of the fiscal rules.
The other arbitrary constraint on our investment spending ambition is the limit on public private partnerships within the capital investment plan. Again, this is a self-imposed limit by Government. We think it is an arbitrary cap. It prevents private sector money from investing in public capital projects, particularly in the context of the opportunities that we now have with the more active role being played by the European Investment Bank in terms of having a presence in Ireland. Hopefully, we will have a public finance environment that can co-finance projects. We need to ensure that we give an opportunity to private money and seeks project investment opportunities. Unfortunately, the current PPP framework does not enable such activity, which we think is a significant issue.
I will make a few final comments on medium-term taxation issues before handing over to the Chairman and committee for comments and questions. In addition to the infrastructure issue, the taxation reform priority is a significant medium-term budgetary issue that needs to be examined. It has come into sharp focus with Brexit. From a labour market and skills perspective, Ireland is uncompetitive when compared to the US, the UK and many other European countries in terms of the effective tax rate that high skilled workers must pay in the Irish economy. We have one of the lowest entry points to the top rate of tax in the developed world. I refer to €33,000 below average earnings, which has a high top rate of tax. For high skilled workers, that gives us a very uncompetitive personal tax rate.
In the context of opportunities that might arise from Brexit, we know from everyday feedback from our members and businesses that prospective employees turn down jobs because of the rate of tax they would have to pay if they moved to Dublin. That situation is a significant challenge. When one compares the average personal tax system in this country with international metrics one discovers that it is not a high tax system on average. The amount of personal tax paid in Ireland is not particularly high compared with other countries. When one considers at how early income earners are hit with a penal tax rate of over 50% then Ireland stands out. This fact has become an issue in terms of attracting and retaining skills but also in terms of incentivising people to work overtime, accept promotions and competing with the social welfare system. In the context of a very tight labour market the personal tax system in Ireland is a significant issue.
I have outlined two medium-term issues. We ask the committee for its input, feedback and, ultimately, support in terms of how we can progress that through a medium-term approach to budgetary decisions.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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I thank Mr. O'Brien for his interesting presentation. His opening comments on the two major issues that face the Irish economy, as he perceived them, are Brexit and what he described as policy reform in the USA. In terms of a political euphemism, his latter description was exquisite.
Eamon Ryan (Dublin Bay South, Green Party)
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I thank Mr. O'Brien for his attendance. I must leave shortly to ask the Minister for Transport, Tourism and Sport a question in the House. I am particularly interested in IBEC's document entitled Connected: A prosperous island of 10 million. I attended the launch of the national planning framework that took place in Maynooth last week. Mr. O'Brien is right that we should use this opportunity to rethink our capital spend, increase it and invest in long-term infrastructural projects that will overcome visible bottlenecks. I also agree with his assessment that we must balance the development that takes place outside of Dublin with what happens in Dublin for its sake as well as that of the rest of the country while keeping the energy of Dublin. The city of Dublin must compete with other international capital so investment is not an either-or matter.
I am concerned, having read the report, that IBEC seems to be going towards seeking almost 1,500 km of new motorway or an advanced upgrade of dual carriageway. Cities are where economic development has occurred. It seems to me that such economic development has occurred where life has been brought back to the centre of cities. That is where we have a real problem. Cork city has been hollowed out in the past 20 to 30 years. Galway city is a disaster in planning terms. Everyone that I have talked to in Galway has told me that new roads will not solve the problem but we are going to spend €600 million on another ring-road. Galway has suffered from bad planning and needs urban public transport to address the problem. I am concerned that IBEC's network version for the future it is all motorways and dual carriageways. I do not think that we can afford such motorways and dual carriageways and the necessary investment in public transport in the cities of Cork, Galway, Limerick and Dublin for two reasons. First, the budget is low. Second, what has characterised our development in the past 20 or 30 years is this incredible doughnutting because everyone lives 20, 30 or 40 miles away from our cities and has to try to drive back into the cities. No matter how many motorways and dual carriageways are built the system will not work. As we have seen in Dublin, those cars will eventually arrive at the M50, which will be clogged as sure as eggs are eggs. That is the biggest threat to our long-term viability. People refuse to travel to Dublin because they know the city is a transport disaster.
Why does IBEC not champion investment in public transport as a critical economic investment? Why does IBEC talk about motorways and advances in dual carriageways but does not recommend a light rail system for Cork or using the existing rail lines in Limerick and Galway? We should aim to develop the centre of those cities and encourage people to live there. We should not have an ever extending commute that has characterised this country for the past 50 years. If we do not make that fundamental shift no amount of financial investment will work. Instead, we will become uncompetitive and people will have a lousy quality of life. Why is IBEC obsessed with motorways and roads but not with public transport?
Mr. Fergal O'Brien:
The document we have presented today is only an element of our policy priorities around the all-island economy and the road investment for same. We see this year's mid-term review of the capital investment plan as an opportunity to put forward priorities on a much broader range of issues. As part of that we have lots to say about light rail and public transport. That investment is needed.
I share the vast majority of the views expressed by the Deputy. In many ways, we have tried to deliver the 20th century solutions that were never finished in terms of the needs of the economy. We also need to get on and address the 21st century solutions in terms of how we develop our cities, have smarter cities and have integrated public transport. We did not finish the job in terms of the basics of road infrastructure, which must be addressed. It is not the only part of the solution but it plays an important role.
Let us consider the quality of road infrastructure between our second and third cities of Cork and Galway. Most European countries had reached that standard in the post-war era and maybe beforehand. The infrastructure is simply not fit for purpose. If one considers the road connectivity to the north west one will realise that it is simply not fit for purpose. If one considers the dynamic that we created with the last capital investment plan before the crash, in terms of all of the roads and motorways leading to Dublin, we think that has been a significant contribution to the current spatial imbalance.
I agree with the Deputy about an investment plan. We will be putting those views forward in our mid-term review of the capital plan. It needs to be much broader than roads. We will have lots to say about those. In the context of finishing a road plan that was started when we had money in the 1990s, this is still the priority and needs to be finished. We need at the same time to move on with public transport and the more sustainable development of our cities. The UK has been effective in generating strong debate about its northern powerhouse. If we are serious about having a counterbalance to Dublin and an Atlantic corridor effect, that has to be underpinned by road development that will be of the 20th century standard that is not there now.
Eamon Ryan (Dublin Bay South, Green Party)
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In Mr. O'Brien's city of Kilkenny, the historic city is being knocked down in order to put roads in place. That is very 20th century. I am shocked that IBEC thinks that the approach it has to take now is to stick in the 20th century for another ten or 20 years and then we will get into the 21st century.
Our competitor cities are moving in the direction of smart travel and away from the use of cars towards not just public transport but also walking, cycling, pedestrianisation and public spaces. That will not come cheap. If IBEC keeps us stuck in the 20th century for another ten or 20 years, we will arrive 20 or 30 years late with cities that will not work. If those cities do not work, our economy will not work. That is the priority. Mr. O'Brien says that the priority is more motorways and interconnected highways. It is not, it is making our cities work. I was involved in the planning of the M50 but not another single car can be put onto it. There is no extra capacity. The problem cannot be solved by more traffic coming in on more roads. It is the same in Cork, Galway, Limerick or Waterford, but Mr. O'Brien says we have to go the road route. That is an incredible strategic mistake from IBEC. I do not hear it from the Dublin Chambers of Commerce or other business people because they know the reality of what is happening. Why is IBEC stuck in the 20th century?
Mr. Fergal O'Brien:
I do not agree that we are stuck in the 20th century. My point was that we did not finish that job in the 20th century and it needs to be finished now. Motorways might not be a priority for a Dublin business organisation but they are for a national organisation. We deal with businesses in the west, the south west and north west, and the south east. There are some good motorways into the south east but the latter is not connected to the south west. The regions are not connected to each other. Every time we ask our members in those regions to name their number one issue they will talk about access, infrastructure and skills. IDA Ireland does great work to promote the regions. Without a quality infrastructure, that has to start with the basics of a quality road network, supported by public transport, those regions will not prosper and we will not get a redistribution of the excessive amounts of economic activity that is happening in and around the M50. It is not the only priority and I would appreciate if it were not presented as such. It is one of our priorities. Dublin needs significantly more public transport investment.
Joan Burton (Dublin West, Labour)
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I thank Mr. O'Brien for the overview he provided at the beginning of the session. He referred to the fiscal rules and the fact that Ireland is locked out of them by the way that Mr. Juncker has chosen to put out potential investment packages, which are heavily dependent on large-scale private operators being able to take up those opportunities. Ireland does not have the scale that appears to be required. The Minister for Finance has referred to some changes that may be of benefit but through IBEC's international contacts, how would Mr. O'Brien see us changing the fiscal rules to our advantage? What would he prioritise? Does he have any example of other countries that have been capable of doing that while perhaps also having experienced difficulties during the economic crash?
I find the revised Estimate presented recently for the children's hospital really shocking. As a committee with responsibility for budgetary oversight, we have not yet received any detailed analysis and I do not think anybody has, apart from a reference to construction inflation. I think this is at the heart of some of the difficulties relating to construction in Ireland. I am very scared that we are again on the road down which we went in the 2000s, when the Celtic tiger period was at its height and when construction companies felt they could ask what they liked. As we are hostage to them, there is very little that can be done. We constantly hear stories of overpriced and poorly-built houses and apartments that people mortgage their lives for. These cases emerge regularly. I am concerned that the old practice of having a contract figure but then using the courts on every occasion, or some other form of arbitration, to up the subsequent price is now returning to our construction system. It makes public financing extremely difficult because while there may be sub-contractors possibly sharpening their price offers, they will then to through the back door going to arbitration or the courts for anything and everything. There was a long delay regarding the Dublin Institute of Technology as a result of contract issues. That was a very large contract for a very large company that resulted in a long delay. I am really concerned that the children's hospital will face into the same process. Does Mr. O'Brien have any insight to offer on that matter?
Mr. O'Brien dealt extensively with skills training in his presentation, upgrading for people in the workforce. I say this on the day when we have heard very sad news about Hewlett Packard, with 500 jobs lost. Do the witnesses have a view? Some of those people are very highly trained. I assume they may get other job offers elsewhere but the people in Leixlip are in a deep shock about what has happened.
In Germany and Austria, employers buy into the concept of apprenticeship. What would it take to get similar buy-in from Irish employers to go after apprenticeships for the 30% or 40% of secondary school students who may not initially want to, or be interested in, going to college but who would love an apprenticeship?
Why are there almost no girls taking up apprenticeships? Does IBEC have any proposals on that? Is Mr. O'Brien aware of employers that would be willing to give more women an opportunity? Does he have a view of what role is available or possible for the public service, which is a major employer, to offer work experience and apprenticeship and traineeship-type programmes in conjunction with the various structures we have developed to ensure that as far as possible everybody gets a chance to gain work experience and qualifications? Maybe they can do a traineeship followed by an apprenticeship and, as happens in Germany and Austria, if the person wants to go further academically he or she can do that. Employers are key to this. Does IBEC have any proposals on that?
Mr. Gerard Brady:
The reason the fiscal rules do not work for us is that we came into them at the very bottom.
Fiscal rules, basically, are about the treatment of how much one can grow the capital expenditure rather than about the size of the capital expenditure in the first place. We came into it at the very bottom of the downswing in terms of capital expenditure. The second reason is around the way the rules treat investment, which is pretty much the same way they treat current spending. There are some differences such as they allow for the amortisation of capital spending over four years. For any household buying a mortgage that would not make sense. Businesses that invest in capital would depreciate it over the lifetime of the asset. The fiscal rules treat it as a four year depreciation period which means that the cost of capital is upfront rather than over the period.
The reality from a State financing perspective is that the cost to the State of capital, if it is debt financed, is the interest on the debt taken on, and some of the capital costs over time. We do not do that and we do not treat it, in its net present value, as a separate entity compared to current spending. As a result, in effect one has projects that would make sense over a 30 year period. With regard to projects such as social housing or retrofitting of buildings it is cheaper for the State to pay for rent allowance under the fiscal rules in the short term. As we all know, governments have short life spans and in many cases politicians have short career spans so it is very hard to get people to buy into it, but not in all cases. It is very hard to get people to buy into spending their fiscal space on something that may not have an effect in the very short run.
The other issue is-----
Joan Burton (Dublin West, Labour)
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Can I ask Mr. Brady if it is open to us to interpret the rules in a more flexible way now that Ireland is out of the period when the troika had a lot of control over our affairs?
Mr. Gerard Brady:
Some flexibility has been brought into them over the last couple of years but there is not a huge amount of flexibility on the investment side. We now have a European Investment Bank office in Dublin, and there is some flexibility around the EIB in the fiscal rules, although not a huge amount. This means we may have some flexibility over the coming years. We are coming out of a certain period of the expenditure rule, which governs the overall fiscal framework, and into a new one and this means we will have a little bit more space for capital spending over the coming years.
Deputy Burton asked if there were other examples of countries that have fiscal rules that work. The UK is a good example. It had a golden fiscal rule for a target for investment as a percentage of GDP and it treated investment and current spending differently. It had that rule for around 15 years under the Labour Government. It worked very well. In a European sense, we would look for an extension of that depreciation period of capital and more flexibility around the size of projects before private financing can work under the fiscal rules. The debt rule is there so if these things happen it does not mean that states are suddenly going to build up a huge amount of debt. The debt rule would still be in place to take care of that and there is still a brake on it. It does not make sense to us that Ireland has a planned current surplus this year of €2 billion. Half our capital programme is being paid for from savings at a time when interest rates are at record lows in the history of interest rates - as Mr. O'Brien said in his opening statement. It does not make a huge amount of sense. Those would be our three priorities on that front.
On cost issues, the committee will appreciate that I do not have the details of the children's hospital project. There are definite capacity constraints in the construction sector with more and more demand coming in. There is a build-up in demand for capital infrastructure from Government, a build-up of investment in private companies and a build-up in housing demand. Attention has been drawn to the lack of skilled labour in the sector, which will eventually push up the costs. Labour is a large part of costs for any construction project and if there is a lack of skilled workers it will have an effect. With regard to products for infrastructure, a large part of our supply chain comes through the UK or is based in the UK and this has Brexit implications that must be fully worked out.
Mr. Fergal O'Brien:
Reference was made to fiscal rules elsewhere in Europe. I will be in Brussels tomorrow with our business federations group and this is on our agenda for discussion around investment priorities. In catching clearly the global mood around the failures of policy and the effects on quality of life for people as a fallout of the global financial crisis over the last decade, it seems to us that infrastructure ambition is a real opportunity to address that. This is something that the EU can really mobilise around in a commitment to deliver better quality of life, prospects, and long-term economic prosperity for its citizens. We are trying to create that sense of ambition through our business community links. This is why investment in roads and other projects is so important in how it crystallises some of that vision for the future of the State. We are trying to have that conversation in Europe. Many EU policy makers are very entrenched and deeply conservative in some of their fiscal thinking. We are trying to make the argument for differentiation between day-to-day discipline and the investment agenda. We are getting a lot of support.
I shall share some observations on the children's hospital project from what we see in the construction industry, which has clearly been significantly depleted during the downturn years. It appears to us that if a more certain medium-term outlook is created for the projects that Ireland plans to undertake, and if we give more advance notice of the scale of proposed construction activity within the economy, then we will create more competition. Ireland does not have a good pipeline of projects and therefore we do not get some of the international players active in the local market and we do not get some of the indigenous companies scaling up their capacity. If Ireland could create more certainty around the future investment needs and plans and more clarity on the pipeline of projects that will be undertaken in the medium-term, it would enhance the capacity of the construction sector. It would ultimately lead to better quality, competition and value for money for the Exchequer.
Clearly, the planning system is also an issue. Planning delays add a lot onto construction costs. Policy certainty and efficiency in planning decisions can have a big impact on the final costs of projects. Ireland does not have a good track record in this regard. In some cases it has not been good on project deliverability, on policy certainty or on a planning and administrative system that can allow for smooth and quick delivery of projects. There are a lot of obstacles that developers, project financiers and the construction sector must deal with in delivery projects.
On the skills shortages, the Deputies will know from their time in engaging with us on apprenticeship schemes that the business community and IBEC members really want to see this new initiative succeed. There is a lot of passion right through our industry groups and trade associations for this measure, as seen in the initial round of proposals. There are frustrations that it is not happening quicker and that accreditation for the new apprenticeships is not coming through as quickly as it should. In some cases we will also need to have sufficient resources allocated. Having seen the initial bids that were successful in phase 1, and which will hopefully be earmarked for further phases, our sense is that at the industry and trade association level - be it in medical technology, in finance or in retail - there is a lot of ambition to make this new apprenticeship model work. There is demand coming through from businesses.
Deputy Burton raised the gender issue. A lot of businesses in technical, software or engineering sectors that were traditionally male dominated are increasingly conscious of this issue and are well organised in their networks in promoting policies to get a better gender balance in some of those sectors. Hopefully some of the learning, especially from the technology industry that has done a lot of work in this space, could also be fed into some of what we are trying to do through the apprenticeships, particularly in roles that traditionally would have been dominated by males.
The committee asked about the public sector and what role it could play around experience for job seekers, internships or apprenticeships. It is a crucial employer in the State.
One of our experiences in IBEC was we facilitated an exchange programme between the private and public sectors. We got a lot of interest in the private sector. We did not see as much interest coming through from the public sector to take up those exchange opportunities.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Lots of workers from the private sector wanted to work in the public sector.
Joan Burton (Dublin West, Labour)
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In that regard, in the context of today's meeting I took down the recent glossy Action Plan for Jobs and the Action Plan for Education. I can find nothing concrete on apprenticeships or traineeships - however one wants to describe them. For a lot of children, both working class and middle class, these are an essential avenue to gaining a highly desirable skill. Moreover, many of them go on to form their own firms. A look around IBEC's membership will show that such persons are key SME founders. The Government places significant focus on regional and rural development but I do not see that happening unless there is more upskilling and more apprenticeships. Micro-enterprises can start off as a one, two or three-person outfit and then can scale up at a local level provided they have reasonable access to credit.
Is there one thing IBEC would suggest to us as a committee? As I say, these are lovely plans. They are beautiful, I am sure many trees died for them but my point is there is nothing specific in them. Certainly, speaking to IBEC during my period in government, I would have seen this. Does IBEC have a suggestion?
IBEC pays a training levy. It is not fully spent. Can IBEC explain why it is not spent? Those involved in the education field could identify ways of spending it. What is the lock on that?
Mr. Fergal O'Brien:
The committee could usefully make some contribution to the debate on the training levy. Business is paying hundreds of millions of euro into the national training levy over which it has no input or influence in terms of allocation. That is something must be looked at, both in the context of funding for higher education and the challenges that are there. We saw the commitment in last year's budget to a funding model for higher education. The national training levy has to be part of that. It is time for a significant overhaul and an examination of the purpose of the national training levy and the governance around it in terms of how allocation decisions and budget decisions are made out of it.
As for whether there is a single item around the apprenticeships, we continue to be very involved with the Apprenticeship Council to support their implementation. We are getting the bids through from industry. It is a matter of getting out there and making them happen, and making sure we do not have any blockages in accreditation or governance of the apprenticeships that have been approved but for which in many cases we have not seen the rubber hit the road. Clearing blockages would probably be our main request.
Joan Burton (Dublin West, Labour)
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The one most commonly referenced is the hospitality and restaurant trade. Is there any light at the end of that tunnel? All over the country, one cannot get chefs. Many young people, no doubt spurred on by all the fantastic television shows of contestants cooking and becoming celebrities, are interested in a way that they were not interested ten or 20 years ago. It is a fashionable business to be involved in. Does IBEC identify a particular road block that is preventing action? One is talking about a country where we are developing a good tourism product.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Deputy Burton has asked the question a few times and need not repeat it three times.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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I did not mean to cut across Deputy Burton. On her point about apprenticeship, is there a role for politicians or Government? The perception that exists in this country for those who are leaving second level, and for their families even more so, is that one has to go to third level and if one does not go to third level, one is a failure. We ourselves created that perception, possibly in coming from a position where so few of our parent's generation went to third level. It has created an industry of courses, as I stated previously. There are courses, which I will not name on this occasion, in third level institutions in this country that provide no prospects for students and yet students leaving second level every year take them up, and we have those real problems that Deputy Burton raised, in particular, in the hospitality sector.
I deal with a language school in Kilkenny that brings students from Germany and Austria and places them in businesses to learn English and the last two students who came to me were Austrian. These 19 year old students had a full-scale debate with me on how negatively they perceived corporation tax rates in Ireland. Both of these guys were doing apprenticeships in office management, not going to third level. How do we change the perception that exists, whether we like it or not, that unless one goes into third level on leaving secondary school, one has failed? Does Mr. O'Brien have any advice? It is a big question. How does he think we can do that?
Mr. Fergal O'Brien:
I am happy to share some of the material that we have worked on through the Apprenticeship Council. At its core, we need to recognise we have taken a significant first step in terms of the new model. In terms of where we were five years ago, we now have a great opportunity.
On the Chairman's point about the perception, awareness and the brand of apprenticeships, there is quite a journey to go. We need to continue to showcase those success stories and showcase what is achievable through apprenticeship programmes. That will take time. It may be as much a communication, branding and awareness challenge. On a number of occasions, we have raised the particular challenges of the lack of sufficient career guidance in second level education. During the crisis years, one of the issues that affected the quality of decision making from school leavers was that we had poor career guidance. Even before the crisis, we probably did not have a sufficiently good model either. We should address the resourcing of career guidance and ensure that we are prioritising the branding, the case studies and the experience sharing of what is coming through the new apprenticeship models. Apprentices now are very different from what people would traditionally have perceived them to be, that is, predominantly, in the craft sector.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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I thank Mr. O'Brien.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I thank IBEC for its presentation.
I welcome three specific areas that IBEC highlighted in its presentation. The first of these is the need to challenge the fiscal rules in the area of investment. I suppose related to that is the good, simple and straightforward idea of a target percentage of GDP for capital investment. Frankly, the latter is something the committee should push. If one does not, as IBEC has highlighted well, with a growing population and a significant investment infrastructure deficit we will encounter serious problems. We are encountering such problems and they will get worse. I very much welcome that and agree with IBEC.
I also welcome and agree with the strong emphasis IBEC placed on social housing in its document and the need to significantly ramp up investment in that and look for a derogation on the fiscal rules, if I understood IBEC correctly. In that regard, does IBEC also think that the state aid rules are a problem for us in ramping up investment?
I firmly believe they are holding us back from being able to invest in a number of areas, including social housing and forestry, the potential of which I think we need to discuss further. Maybe the witnesses will comment on that.
Do the witnesses think there is a bit of alarmism going on with regard to Brexit, which everybody is talking about? Frankly, we do not really know what it is yet. I heard Donal O'Donovan, who is not exactly on my side of the political spectrum, correctly saying at the weekend that when the dust settles from all the political hyperbole, rhetoric and position-taking, things will settle down when it is seen that it is not really in any anybody's interests in Europe, Britain or elsewhere to create too much friction between the economies. Regardless of what we might think about the nasty racist ideas of UKIP and Theresa May, etc., the real economic imperatives and connections will assert themselves as the need for less friction becomes evident. It is already evident here between the North and the South and between this country and Britain. Nobody here thinks the discordant approach makes any sense. Do the witnesses agree that things might settle down in this respect? Many of the negative impacts we are already feeling relate to currency fluctuations. What is the view of the witnesses in that regard? My feeling is that the problems in this regard will settle down too. It is even possible that when things settle down, the English currency might increase significantly in value again. I think it will. People like a currency, like the Swiss currency, that is outside the EU and is-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Stable and expanding away from the big ones.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Yes, stable. I would be interested to hear the witnesses' take on that. Some of us have been saying for a long time that this country's economic model has a significant overreliance on foreign direct investment. The dangers of that have been highlighted in a very strong way in the context of the Brexit debate. We can see it again today with the Hewlett-Packard announcement. We need to be talking about much greater diversification of the economy and the development of a diverse indigenous industrial base. Will the witnesses comment on that?
I welcome the witnesses' general commitment to social housing. I agree with them that the voluntary housing bodies do not really have the capacity to deliver the scale of social housing that is required. This is a big weakness in the Government's proposal but why do they believe we are similarly unable to rely on the local authorities? They spoke about a different model. I remind them that the most successful period of social housing construction in this country was delivered by local authorities. That was when it worked. Obviously, there are problems such as the running down of capacity, but I think they could be reversed.
I strongly disagree with the witnesses on the education front. Given the importance of generally upskilling and encouraging people into education, why on earth does IBEC support the introduction of fees and loans? I think it is bonkers. That is my serious opinion. It will certainly limit access to education for some people. It will be a disincentive for people. It will leave a massive financial overhang for people. I do not see why on earth IBEC would favour that.
Mr. Fergal O'Brien:
I will respond to the Deputy's questions about education, Brexit and investment before handing over to Mr. Brady to talk about social housing, state aid and the enterprise model. We have already spoken about the need for infrastructure. The other crisis in our economy is the lack of spending in education, particularly in higher education, which was a real victim of the downturn. We are asking the higher education sector to do more and more in terms of volume, activity and expectations, but we are not resourcing it. It is clear that despite the vagaries of the international rankings, our universities are not performing at the level that is needed. That there are three Scottish universities in the global top 100, versus the situation in Ireland, gives us an indication of how far behind we are and where we need to be.
I will explain why we favour the fees and loan model. We have the fees right now. The fees are the registration charges that people have to pay to go to university. We do not have any support framework around those fees. We think the solution to the higher education resourcing problem should have a number of parts. The State will need to pay more. Employers are happy to have a conversation about how they can contribute to the cost of higher education. We spoke about the reform of the national training fund that is needed. If we are serious about getting enough resources into higher education, we need a proper fees model. I would respond to the Deputy's concerns about access by saying that if the model I have mentioned is accompanied by a sufficiently robust system of loans, access difficulties should be no worse than they are now and most likely will be better than they are now. We currently have fees without a proper loan model. We would favour a proper loan model supporting a sustainable fee structure in the future. At the same time, the State should be spending more money on higher education and employers should be coming to the table to make a contribution.
The Deputy also asked about investment. I would like to share with the committee a statistic that relates to the 4% target. We have seen public debate in recent weeks about the allocation of an extra €2.6 billion under the mid-term review of the capital plan. An extra €6.5 billion will have to be spent if we are to reach the 4% investment target by 2020. We are a long way short of that target, even with the potential additional commitments in the mid-term review. That might focus the mind when consideration is being given to the impact of the annual budgets over the coming years.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Is an extra €6.5 billion needed each year?
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Apple would pay for all that.
Mr. Fergal O'Brien:
-----such as the European Investment Bank and public private partnerships. There are many solutions. That is the scale. I mentioned the percentage target to focus the mind. It would involve the investment of an extra €6.5 billion.
The Deputy is right when he says that the implications of Brexit to date have mainly related to currency. While we have been here before with regard to currency, this time is different and we are seeing much more significant impacts because people are expecting a permanent change in the trading relationship. The problems caused by the supply-chain reaction of the currency have been more significant than the problems we would have seen if the currency was the only issue. People are changing where they are sourcing their products from. That is definitely happening in a way that is not justified by the currency alone. I agree with the Deputy that the trading relationships between Europe and the UK will be put back together when the dust settles in the long term. Our big concern relates to the impact on our economy of the kind of dislocation we will see in the interim. We could well go over the edge of the cliff because of a failure to reach transitional agreements. The mutual interests of the big European trading blocs and the UK might well mean that the pieces get put back together over time, but we could have a lot of carnage along the way. Our main concern is that Ireland could be in the firing line when that carnage happens. The current arrangements might get put back together, but not before we get a lot of economic pain.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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"Carnage" is Mr. Trump's word.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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We have not mentioned that gentleman's name up to now.
Mr. Gerard Brady:
I agree with Deputy Boyd Barrett that state aid difficulties will become more acute because of Brexit. When the UK is outside the EU, it will not be subject to state aid rules. It is already coming after some of our indigenous enterprise base with offers of state aid and it will continue to do so. At the moment, the EU's state aid rules confine such aid to rescue and restructuring. For example, an Irish company that is in trouble because of Brexit would essentially have to go through liquidation before the State could help, even if that company was viable in the long term.
It also causes issues around investment in terms of how much one can do with voluntary and private sector partners. There are issues.
On the question of social housing and the role of the local authorities, the big difference between the 1940s and 1950s when we were previously able to ramp up social housing is that the State had more or less derogated its responsibilities in education and health. There was no social welfare system, education system or health system that was being funded primarily by the State. The State had more space to be able to spend on social housing. Under the current fiscal rules and because of the level of retirements in particular and loss of capacity in the social housing sections of the local authorities, it will take a long time before the local authorities are able to ramp up that expertise. In the context of Deputy Burton's question, there are skills capacity issues as well in that it will be difficult to compete for the necessary skills at a good level.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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May I ask a supplementary question? One could argue that what Mr. Brady seems to favour is a new State construction company
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Is it not the case whether it is the Northern Ireland Housing Executive model, the local authorities, or the private sector, one has capacity problems?
Mr. Gerard Brady:
What we have seen in the past is that the funding of social housing is procyclical. When the Government wants to cut, it cuts social housing along with the rest of the capital budget. The advantage of a single larger entity rather than 30 odd smaller entities is that one is able to get institutional funding, such as pension funds and the like, to invest through that body in an acyclical manner. One will be able to build at a time when the State is not able to finance the build. That is the main advantage of the Northern Ireland Housing Executive. Let me give the Deputy an example of how successful it has been. There are about 20 social houses for every person in the Republic of Ireland, there is about 35 houses for every person in the North. One would have an extra 100,000 houses in the North because they have continued to build even at times of fiscal constraint they are able to source outside funding because it is a larger body that is able to work with larger users. It is the same issue the local authorities face. Dublin probably does not face that issue, but smaller local authorities do. They face the same issues as the housing bodies, they are too small for large institutional investors to work with, the scale of the housing they undertake and their capacity is too small. That is where our view comes from.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Although most of the problem is in the areas where one has the bigger local authorities. There is not a massive problem-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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The Deputy should ask the questions through the Chair.
In Kilkenny there is a significant shortage of both private and public housing and the waiting list in County Kilkenny has grown exponentially in the past few years. It is not a particularly small population but it would be in a lower category than the Dublin authorities.
Mr. Gerard Brady:
Acyclical funding is essentially the reason that we prefer a bigger body and it can source outside funding.
On the enterprise model, I do not think anybody questions that foreign direct investment, FDI, has been incredibly good for the country. Can we do more on the indigenous side to complement FDI? Absolutely. FDI is still important. It is the reason that we stand out from other European countries which in the 1950s would have been at the poorer end of European countries. The FDI model is the main reason we have caught up and passed out many of the large central European countries.
We still have a significant number of challenges that will be made worse by Brexit. If one thinks of the sector where Irish indigenous industries have succeeded, food is probably the main one and it is facing an existential crisis of some magnitude. Aircraft leasing is another sector where we have done very well. That has been built on the back of the FDI model of globalisation and all of that. There are still major challenges in terms of building up the indigenous enterprise base. The FDI model is sustainable in that many of the foreign companies are embedded here and have invested serious levels of capital in the country and are not going to move overnight.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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May I put a question?
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Deputy is it directly on the contribution?
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Mr. Brady mentioned aircraft leasing. What is aircraft leasing contributing in terms of real economic benefit?
Mr. Gerard Brady:
It pays about €300 million in corporation tax every year. There are some 2,000 people in high paid jobs involved in it. It is one of our largest sectors. Irish aircraft lessors, not just Irish-based lessors, control about 40% of the European market for aircraft leasing. It is a major piece of the world economy. In effect the global aircraft sector has moved from buying to leasing aircraft.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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There are many company----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Deputy Boyd Barrett cannot keep interrupting. There are other members who wish to put questions.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I am sorry.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Deputy Boyd Barrett is normally very well behaved.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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There is a conversation here.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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It does not quite work like that. Is Mr. Brady finished?
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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We might come back to it, but we have other members offering.
Lisa Chambers (Mayo, Fianna Fail)
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I apologise for being late. I found it quite interesting when the witness spoke about the rise in population and the direction in which we are going. It is good to be reminded of that in the context of our work.
One of my main interests is the road network and transport. I am a west of Ireland Deputy and am based in Mayo. In terms of public transport and road infrastructure, we fare the worst in the country, I know from talking to businesses - we actually had an IBEC briefing last year and I spoke to some of our major multinational companies such as Allergan and Baxter - that the road and the rail network is a major problem in terms of retaining the business they have. One of the points they made to us is that not only are they trying to keep what they have but when new contracts come on line they are competing for contracts with others in their company who are based in other countries around the world. I would be interested to hear the views on the importance of upgrading the road infrastructure in the west, in Mayo and in Donegal in particular. I would also like to hear IBEC's views on the western rail corridor and Knock Airport which are major infrastructural projects that we would like to see advanced.
Would IBEC discuss the TEN-T funding available and how it will work for Ireland? I have more questions Chairman.
Mr. Fergal O'Brien:
I thank the Deputy. As she rightly states, businesses in the west, particularly in the north west, are very concerned about the access infrastructure. It has a very significant impact on inward investment decisions and sustainability of the existing jobs for indigenous companies. It has a major impact on the cost of getting product to market. In the context of Brexit it becomes a renewed challenge. Ireland will be the single most remote member of the European Union post Brexit. We will face additional complexities and delays of getting product to market through Border checks, through a UK landbridge and we do not know the challenges and delays that will occur. These factors are all becoming more significant. I think it is clear from the national infrastructure map that we did not finish the job the last time in terms of connecting the west and the north west of the country with Dublin and we have made no progress in terms of connecting the regions to each other. They would be our two immediate priorities in terms of road upgrades. The rationale for an N4 and N5 upgrade is very significant. When one considers the strength of the enterprise base and what it is contributing to the local economy it more than pays for itself to make that road investment.
The other major issue we need to take into account when we look at the 2020-2040 vision for the country is that if we plan on the basis of current trends, we will get a very different answer from planning on the basis of what the potential of the region would be if it had sufficient infrastructure. We have to take a certain approach of build it and they will come to the provision of infrastructure, otherwise we will create a self-fulfilling prophesy for many of the regions that they will continue to decline over time. Our north west region is the only part of the country that had a falling population between the census of 2011 and 2016. Everywhere else the population of the country is rising. Clearly there is a correlation, we think, to the poor level of infrastructure of that region.
The western rail corridor has not been a very significant business issue. It needs to be able to support itself predominantly from a socio-economic basis and if those arguments can be made, it would be important for the tourism infrastructure in particular. It would support businesses though tourism.
Lisa Chambers (Mayo, Fianna Fail)
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What about freight? Is there a value for the transport of freight on the rail network?
Mr. Fergal O'Brien:
There are some opportunities. Clearly where we have good rail infrastructure, there are business opportunities around freight.
The key priority for most larger businesses and SMEs is having the high-quality road network that can get product to market in a flexible way as quickly as possible. Rail freight very often does not have that kind of flexibility, but it does suit some industries of larger volumes and intensive industries. The key priority is really the road upgrade.
Mr. Gerard Brady:
I might add one or two things on the subject of the road infrastructure in the north west. In particular, 50 projects were either stalled or cancelled at the end of the last capital programme because we ran out of money. Half of them are in the north west. We also have a situation on the N4 and the N5, where the freight levels are actually higher than on some of our motorways at the moment. There is a Brexit implication to that as well. There are three access roads to the north west in general. Two of them run through the North. If we end up with a hard Border, there could be two customs posts on the A5 and the Enniskillen road. The N4 will then take all of the traffic going to the north west. There is already capacity on the Longford bypass with about 14,000 cars a day plus about 1,000 heavy goods vehicles. The capacity is about 10,000 vehicles. It is already unsafe in terms of capacity and it is only going to get worse.
Lisa Chambers (Mayo, Fianna Fail)
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Is this the Longford bypass?
Lisa Chambers (Mayo, Fianna Fail)
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It is about 4,000 cars above capacity daily.
Lisa Chambers (Mayo, Fianna Fail)
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What benefits does the witness see in a rail link to Foynes Port for freight given the additional pressures? We only have one freight link and that is from Mayo straight to Dublin. There are parts of that line where there is only one carriageway. If that goes down or is blocked, that is our freight blocked for the entire western region. This is something businesses are telling us. They are concerned about increasing their capacity, attracting new contracts and investing further. If that line is blocked for even half a day, it means that their businesses are seriously hit financially. There is no alternative route.
With regard to the western rail corridor, it would be lovely to have a link from Claremorris as a commuter base into Galway and on to Limerick. There would then be a potential to grow the population in Mayo because of the offshoot from Claremorris to Castlebar and Ballina. There would be a potential for a commuter belt outside of Galway. The witness is saying that he is interested in spreading the population load between the cities. If we want to see Galway and Limerick increase in population, surely we should be looking at connecting those cities to the wider areas, including Mayo, Sligo and Roscommon. We need these supportive industries to advance these projects.
It is interesting to look at the maps. There is a 1739 map of our road network and a 2015 map. What is clear from those two maps is that there is nothing in the north west in either of them. We have not addressed the issue in the last couple of hundred years. The north west is consistently left isolated. It is the same with TEN-T funding and this is why I am asking the witnesses for their views on this. The west of Ireland does not feature on the map. We were not included. It goes from Cork to Dublin to Belfast, with a little offshoot into Limerick, courtesy of the Minister, Deputy Michael Noonan. The north west was left off it. How are we supposed to advance our infrastructure if we are not even included in the pot to access funding? What do we do next?
The potential is there for County Mayo to be a commuter area to the larger cities. Sligo should be promoted in that regard as a major economic hub in the north west with access to Donegal, Sligo, Leitrim, Roscommon, Mayo and into Galway and Limerick as well. That whole region has potential. I am glad that the witnesses have said "build it and they will come" and spoken about self-fulfilling prophecies, because the lack of investment has led to the decline in that region. Had we invested a number of years ago, we would not have seen our population go down so much. I am surrounded by Dublin Deputies on this particular committee so I am fighting the good fight for the west. I apologise, Chairman.
Tommy Broughan (Dublin Bay North, Independent)
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Hands off Dublin.
Lisa Chambers (Mayo, Fianna Fail)
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I do not wish to diminish in any way any funding going to Dublin. It is our capital city, it should be supported and it supports the rest of our economy as well. There are plenty of people from Mayo living and working in Dublin. It is not to begrudge any funding going into Dublin. However, if we are serious about balanced regional development, we need to start looking at the north west. It is left off every map that one looks at.
I asked previously about what we should do about Knock Airport. This is about our industries, and not just our multinationals, because most people in the west of Ireland are employed in the SME sector and in companies employing one to ten people. Access to that airport and the potential for growth around that airport is not being considered. Nothing is being done. That airport is the best economically-run airport in the country. It is the most efficient airport in the country, hands down. It has been met with a blocked wall all of the time. What do we do?
Mr. Fergal O'Brien:
The key issue is reframing the whole envelope of what we can provide for infrastructure investment. That is why we would go back to the fiscal rules. The Deputy is absolutely right to identify initiatives such as the TEN-T, the European Investment Bank and whatever funding streams we have. We have arbitrary caps in the system that are limiting our take-up of public-private partnerships. Crucially, we need a larger capital investment envelope. Without that, we are not going to solve the infrastructure deficits for Dublin or for the regions. That is really the issue that we would like the committee to coalesce around.
In terms of the particular challenges to the north west, there are absolutely rail freight opportunities for certain industries. We have many businesses in the north west that report that to us as a priority. An improved road network is the most significant priority. In terms of Knock Airport, one of the things in our connected document is a vision for a C-ring right around the country. Knock is positioned right on that C. If it has north-south connectivity, crucially, and better east-west connectivity, it could really be a much more effective air connection for the whole west and north west of the country in a way that at the moment it probably is not, because the road network leading to it is just too poor. That is probably the policy intervention that would have the most impact. As we continue to see congestion around the M50 and the greater Dublin area, many people will look at travel times getting in and out of Dublin airport and seek alternatives. Building an improved infrastructure to support Knock Airport is something we see as very important from a business and tourism perspective. Building that C-ring right across the country by spreading that catchment up to Northern Ireland and Derry-----
Lisa Chambers (Mayo, Fianna Fail)
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I have one final point, Chair. It was mentioned in one of the briefing documents that existing planning does not take account of the additional impact associated with tourism and business visitors, which is becoming increasingly evident right throughout the year. In particular, I am going to focus on the north west again. The Wild Atlantic Way was launched with much fanfare. It has been a massive success. Tourism to not just to Mayo, but across the western region including Donegal, has increased. I am glad to see that the document reflects the fact that planning is not acknowledging this. We are all very happy-clappy that we have the west of Ireland when the tourism comes. We can send the tourists down for their hot whiskeys and their walks along the hills, but we have no interest in actually providing the infrastructure and the resources to the people living there all of the time. If we start to suck the life out of the west of Ireland, as we have been doing for the last ten years, there will be nothing left to go and visit because there will be nobody there to run the local shop and pub and to provide the accommodation for these visitors that we all say are very necessary to the entire economy of our country.
From IBEC's perspective, we need to see it fighting more for infrastructural projects in the west of Ireland. Our voice is quite weak at the national table. We have not been listened to in the last number of years. As I said, we are left off any map one looks at. IBEC represents huge businesses in that region. The briefing it organised for the west in Allergan last year was hugely informative and we were all sitting around the table on the same page. However, as a national voice, I do not hear IBEC standing up for the west often enough and speaking about the impact a lack of investment in that region has, not only on the west but on the entire country. I ask IBEC to take on board the need a stronger voice for the west of Ireland in any future policy documents and campaigns it runs.
Mr. Fergal O'Brien:
I just want to comment on two specifics. In the national planning framework, we will be putting forward many detailed ideas from the business community, focusing on more effective regional development, including in the north west. In the mid-term review for opportunities in the capital investment plan, there is a big opportunity to see some strategic projects delivered for the north west in particular, given the dearth of investment that it has endured in recent years.
Lisa Chambers (Mayo, Fianna Fail)
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Will IBEC +be putting in its own submission to that?
Tommy Broughan (Dublin Bay North, Independent)
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I apologise for missing the earlier discussion. One of the boards of which I am a member, the Northside Enterprise Centre, is a member of IBEC and receives a large amount of interesting information from it. I apologise if members have asked the question I am about to ask. Did IBEC submit to the Minister for Public Expenditure and Reform, Deputy Paschal Donohoe, a fully costed budget, similar to what this committee tries to do? The summary of recommendations and costs in the submission collates various proposals on tax cuts and expenditures. Is an overall figure provided elsewhere in the document?
IBEC probably makes a strong case every year on the need to attract and retain highly skilled workers. Its submission refers to the effects of taxation on highly skilled workers. The Minister repeatedly asks the Opposition to produce a menu of alternatives. What menu will IBEC offer? For example, it opposes changes to the 9% VAT rate for the tourism sector, a tax on sugar and so on. How does it propose to maintain expenditure? Social housing and health, which are major issues for the workforce, are strictly rationed and the effect of this rationing on ordinary families has been the subject of considerable media publicity this week. Does IBEC agree that we should continue to ration housing and health or should we spend the money needed in these areas? If so, how does it propose to achieve this?
IBEC refers to staying the course and the witnesses probably referred earlier to the budgetary rules, particularly in respect of the capital plan. I welcome their comments on the capital plan and I hope IBEC's viewpoint will be shared by our European colleagues in order that we are given greater wriggle room to develop infrastructure in the west, as outlined with great eloquence by the previous speaker.
On the regions, decentralisation failed because it proposed scatter-gun development across the country. Cork, Limerick, Galway, Waterford, Sligo, Castlebar, Kilkenny and a cluster of three towns in the midlands benefitted from decentralisation. We should also consider a second tier of towns such as Wexford as locations for decentralisation. Deputies who represent the Dublin region sometimes become a little depressed because Ministers invariably knock the city when announcing plans, arguing that this or that cannot be done. I understand the population of the four Dublin county council areas has reached 1.4 million and the population of Leinster is approaching 2.5 million, which is the population of Wales. I do not see much wrong with this. Munich, a world class city, is the capital of Bavaria, a German state of roughly the same size as Ireland. This country needs a world class city as its capital, which will necessitate building a metro to the airport and completing similar projects. At the same time, this should not prevent Cork, Sligo and other places becoming classy cities. It is possible to achieve both objectives. The Taoiseach and Minister for Housing, Planning, Community and Local Government, Deputy Simon Coveney, presented a false dichotomy on this issue the other day.
Dublin is the capital of the State and we want it to be world class city, rather than third or fourth rate city. If one looks back to the late 1980s before the docklands were developed and the Luas was built, it was a third rate city, with a desperately low level of resources provided for third level education and so on. We need to develop Dublin as well as the other cities.
Is IBEC being too sanguine about Brexit? Other members probably asked that question earlier. The witnesses indicated that retail is in a little trouble. Agricultural exports, especially food, are critical to the economy. Recently, we heard that as much as one fifth of companies in the city of London may move to Ireland, which would be incredible. However, one also hears that food companies may move to the United Kingdom. Does IBEC need to do more hard research on Brexit?
Mr. Fergal O'Brien:
I will address some of the Deputy's questions. We included costings, which can be found in the annex to our submission document for last year. The crucial point in respect of priorities is that we need to resize the envelope. We fully accept the day-to-day pressures on services that must be delivered, for example, health, education and social services. We continue to make the argument for tax reforms that would pay for themselves over time. The best way for the State to finance all of this is to take the capital envelope out of the equation. If we do so, we will have far more resources to address day-to-day needs. That is by far the most important issue. I empathise both with the committee given the challenge it faces and the Government given the decisions it must make. It is impossible to meet the public service needs of the State, with its growing population, within the current budgetary framework. Removing the capital envelope from the budgetary framework would allow us to address the most urgent priorities and start to build for the future in a way that will support a sustainable economy.
On our Dublin focus, as I stated, IBEC is a national organisation. However, having 49% of economic activity in the State inside the M50 is sub-optimum. It is not good for the Dublin region or the rest of the country. We want to see a stronger, more prosperous capital with the type of infrastructure it needs but Dublin is being choked, which is not good for the city. This is not about spreading activity outside of Dublin but about ensuring future growth is more equitable in its distribution. It is not about taking things out of Dublin but about giving the capital the infrastructure and services it needs to be a global city. The reality is that cities will be the future in the sense that the wealth and prosperity of nations will very much depend on them. We need Dublin to be as good as it can be and this will require a more equitable distribution of the focus of economic activity as between Dublin and the regions.
IBEC is concerned about Brexit. While we have not yet seen many of its impacts, apart from in retail and on food and some other traditional manufacturing industries, we are concerned that we will face a significant dislocation. Much of the commentary on Brexit focuses on the proportion of Irish exports that go to the United Kingdom. This significantly undervalues the nature of our economic linkages with the UK to the extent that exports to Britain are much more job intensive than exports to other countries because of the nature of the industries involved. Brexit will cost many more jobs that would be reflected in the proportion of trade with the UK. We are, therefore, concerned about the issue.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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I welcome Deputy Lahart. As a local authority member in Dublin for about 800 years, I am sure he will bring his wealth of experience to the committee.
John Lahart (Dublin South West, Fianna Fail)
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I thank the Chairman and ask the witnesses to forgive me absence. I was attending another committee meeting. I read the documentation circulated by IBEC and I will focus on two or three areas. I have been interested in apprenticeships for some time. If I recall correctly, IBEC was not at the forefront of the previous iteration of proposals on apprenticeship. However, I remember reading a very good proposal from SIPTU. As it was an area of great interest to me and one that should have been addressed a little earlier, particularly in the context of the crash, I was interested to read and hear IBEC's views on apprenticeships.
I will ask the witnesses a few questions and respond to some of their comments. To follow up on comments made by the Chairman, there are some very poor third level courses and they need to be called out because they do not do students any favours. I remember reading statistics which showed that college attendance was dependent on postal address. Almost 99% of students living in Dublin 6 and 6W are likely to attend third level, whereas the proportion of young people in Dublin 15 and other postal addresses who attend third level courses is much lower.
My first instinct was I could not believe that 99% of students in Dublin 6 and Dublin 6W wanted to go to third level education. IBEC has a really important role to play here. When they set up the apprenticeships commission in the UK there was a former apprentice on it, along with captains of industry and many other leading players. Their ambition and objective was to get to a point where every parent would consider an apprenticeship for their child. They may not actively engage in it, but parents would consider it as an option. We need to get to that point. When I was in school a quarter of my class left after the old intermediate certificate to do apprenticeships, and they were the ones who succeeded.
We must not just look to Government for this. IBEC and business have a huge role to play in terms of bringing about a really big and significant culture change. It ought to be possible that if people engage in an apprenticeship they can end up gainfully employed and trained. Equally, if they so desire - as in Germany - they could end up being a PhD in that particular area of training if they are ambitious in that way. Therefore, we need a dual system that allows somebody to move forwards and backwards in the education system. We do not have it now.
In Denmark, 45% of apprentices are female. Apprentices account for 11% of their working population. One key thing is that in Denmark one can qualify to become an apprentice at any age between 18 and 60. Therefore, the opportunities for retraining are huge.
Mr. O'Brien mentioned the national training fund in that regard and also in regard to third-level fees, which I thought was interesting. I would like to probe that further. What does Mr. O'Brien think IBEC can usefully do to begin championing it? I know we have broadened the base but in Denmark there is a range of 250 apprenticeship programmes, so we are still narrow. They do everything from hairdressing to fitness, right through to sheet-metal working and tourism. What can IBEC do practically to bring about a culture change on this? It is not just a policy change.
John Lahart (Dublin South West, Fianna Fail)
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Google did not show that. It did not appear.
John Lahart (Dublin South West, Fianna Fail)
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Please do.
Mr. Fergal O'Brien:
We have done quite a lot. I have one colleague, Mr. Tony Donohoe, who is on the National Apprenticeship Council. He devotes a lot of his working life to promoting apprenticeships, so we are passionate about making them succeed. I would be keen to work with any member on any suggestions and ideas they may have.
At the most practical level, there are two streams to what we are doing. First, we have over 40 trade associations within IBEC. We have encouraged all of them to be business-led in identifying the demand for apprenticeships. A number of those have put bids in for the new apprenticeship programmes. They are coming from trade associations that are part of IBEC. Thankfully, many of those have already been successful in round 1. Hopefully, we will see more of them being successful in the subsequent round of the apprenticeship programme.
Second, we have a responsibility to promote the relevance of apprenticeships to the business community, and we do that on an ongoing basis. We do numerous events, including on the skills agenda. We see labour shortages continuously coming up as a big issue for business. We are continuously reminding our HR community, CEOs and other business decision-makers that they need to do more as individual businesses to support the success of apprenticeships.
We are beginning to see that culture change. It is going to be a long battle and we have been coming up against some challenges along the way, but I think we are making progress. IBEC will not be found wanting in lending its support in practical ways to ensure that new bids are coming through from industry groups for new apprenticeships where business needs them. We will encourage as many businesses as possible to get involved by supporting new apprenticeship programmes and taking apprentices into their businesses. That is IBEC's responsibility and we are doing it.
I might take the opportunity to catch up with the Deputy bilaterally and share some of the work that we have been doing. We have been very involved in this space.
John Lahart (Dublin South West, Fianna Fail)
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I was making a note to myself there to follow up on an aspect of it. Deputy Brophy and I are not party colleagues but we were colleagues on South Dublin County Council and both of us now represent the same constituency. My sense was that public bodies, State companies, semi-State companies and local authorities have been slow on the bidding part, yet in 20 seconds one can think of scores of areas where apprenticeship programmes would be not just appropriate but also incredibly useful. That is something we can push for. It is disheartening to hear that the private sector has been driving the bids. It is almost as if the State has said: "That's for you guys out there. It's not for us."
I am interested in the area of international education. With Brexit there will only be five or six countries left in the world that can position themselves to offer this. It is a potentially lucrative area, but we have been slow to respond. A number of moves are being made on it but I am asking Mr. O'Brien to say whether or not he sees potential in this area. If so, what kind of potential is there? I have scratched the surface by meeting some of the players to try to find out about it. They maintain that if this area is driven from Government it could reap huge and significant rewards for the country. I just wonder what Mr. O'Brien's view is on that.
Mr. Fergal O'Brien:
I will make a few brief comments before handing over to my colleague, Mr. Brady, to take this on. We are coming from a good starting point in Ireland with this history and reputation of international education. That is both in terms of Irish students going abroad - and Mr. Brady might share some of the evidence on that with us - and our reputation of being welcoming to immigrants and international students. Right now, however, one of the biggest challenges we face concerns the cost and availability of suitable accommodation.
John Lahart (Dublin South West, Fianna Fail)
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I am sorry to interrupt Mr. O'Brien but the biggest challenge right now - it was in the newspapers recently - is health and travel insurance for international students who come here. Instead of costing a token €100 per year, they want international students to take out the same kind of private health insurance that any of us would have. This is despite the fact that, in most cases, if international students get seriously ill they are cared for until they are ready to be repatriated. This is a big issue coming down the track and we need to get involved in it. That is a big issue aside from accommodation.
Mr. Gerard Brady:
There are definitely opportunities in Brexit from the third-level perspective. I would argue that capacity is an issue. It may not be the main one but it is a big issue for student housing in particular, which has knock-on impacts in the rental sector. In parts of Dublin, one sees a lot of private rental housing being almost pushed out by extra demand from student rental. Student housing has particular relevance both in terms of the housing crisis and attracting foreign students. It is one of the things we addressed in last year's budget submission. For example, the VAT rate on student housing in the UK is zero, while here they pay the full VAT rate. A zero VAT rate would reduce costs and encourage third level institutions to get into that area.
According to figures we have gone though recently for a piece of work we are doing, Ireland has the highest rate of students going abroad. In any given year, about 12% of Ireland's third-level student population are abroad at a foreign university. The EU average is only 2%.
Irish people are far more likely to go abroad to go to international universities, which lends to our reputation abroad.
There has been a great deal of focus in the Brexit debate on immigration. Ireland has the highest rate in Europe of non-nationals and the most educated non-nationals in its labour force. About 70% of non-EU nationals in the Irish labour force have a third level education. About 60% of EU national are educated. In spite of the fact that we are the second most educated country in Europe after Finland, we have far higher levels of education among non-nationals. Ireland has been a success story in many ways in the international transfer of skills. That is hugely important. We see some of our international partners, in particular the US and the UK, move away from the globalised skill set and the feedback that comes from companies all the time is that this is one of the key pieces of the 21st century. We are moving to a services-based economy. We are moving to a more high-skilled economy with a lot more flexible movement of labour. Essentially capital is following labour, rather than the 20th century model of labour following capital. Because Ireland has been so successful at that there are really good opportunities out there for us as long as we do not succumb to the same issues that some of our neighbours have and that are happening in the US right now.
John Lahart (Dublin South West, Fianna Fail)
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Is Mr. Brady talking about isolationism and protectionism?
Colm Brophy (Dublin South West, Fine Gael)
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I wish to sound a cautionary follow-up on Deputy Lahart's point. From work I did on the housing committee at the start of this Dáil, there is potential for great growth in terms of the third level sector and the ability to attract international students. I think some of that is being realised but I think - a hobbyhorse of mine - there has to be a correlation between the willingness of third level institutions, particularly in Dublin, to engage in expansion and course building with the ability to try to attract in third level students and the almost compulsory requirement to provide accommodation. What we are seeing - I believe we will see a horrendous scene if this is not addressed in the Grangegorman area - is a displacement of traditional housing where local people will not be able to acquire accommodation because of it. I would be supportive of any incentive to provide student accommodation but there is a necessity from an industry side to be willing to get into that and from the colleges side not to take on the notion that adding 1,000 or 2,000 students to a third level institute of technology or university, no matter how commercially beneficial it is to the college, without correctly assessing the impact it has on the greater community can be damaging on a whole host of levels. Consequently, I share the worries about the accommodation side.
Mr. Fergal O'Brien:
We face a challenge with the institutes of technology because they do not have the capacity for borrowing to deliver some of this infrastructure in the way the universities do. There is an opportunity for us, together with the European Investment Bank, to look again at some of the borrowing frameworks for the institutes of technology to see if this infrastructure can be delivered to meet growing demand. Right now that is a significant prohibitor.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Mr. O'Brien referred in his opening statement to difficulties in terms of off-balance sheet funding for PPPs. Will Mr. O'Brien elaborate more on the issues in that area? The Minister for Public Expenditure and Reform is reluctant to even go down this route because there is uncertainty as to what can be deemed to be off-balance sheet and what is on-balance sheet.
Mr. Fergal O'Brien:
Yes, this is a crucial issue. Our view is that we have put an arbitrary constraint on the level of public private partnerships we can have in any public capital programme or in any commitment to the State. That decision at that time was partially influenced by growing uncertainty in terms of off-balance sheet and on-balance sheet assessment coming through EUROSTAT and the wider European Commission framework. Some additional clarity has been brought to those rules in the past year but I think there was a wider policy decision as to what degree of public private partnerships we were willing to take on. There is resistance in the Government to taking on more public private partnerships and as a result of that resistance we are missing significant opportunities in terms of the capital that is available.
We will not be able to deliver these infrastructural needs without the use of private money. That is the reality of the challenge we face. We have placed an arbitrary cap in the capital plan on PPPs which we think is no longer relevant and should be reviewed. We would greatly appreciate the support of the Committee on Budgetary Oversight in doing that. I would be very happy to come back with more detail at a future date if that was something the committee wanted to go into in greater depth.
Colm Brophy (Dublin South West, Fine Gael)
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While I accept part of what Mr. O'Brien said in his response, there is a very valid point which the Department and the Government were considering. If one develops PPPs to such an extent and they come back on to the balance sheet through a ruling of EUROSTAT, there are major implications for the State. The cautionary approach still needs to be exercised. I take Mr. O'Brien's point that we have moved to such a point in terms of EUROSTAT rulings that almost nothing can qualify. Sin scéal eile. As long as there is an outstanding possibility at a future point in time for a ruling that the PPP comes back on to the State borrowing requirement, it is best to take on board the element of caution. We do not want to put ourselves in a situation where we deem a number of project to be PPPs and then find out to our cost that they come back to haunt us.
Mr. Fergal O'Brien:
I think we have become too cautious. One of the things we are not very good at in this country is assessing the cost of doing nothing. Right now we are doing nothing about our infrastructure. It is potentially one of the biggest misreads of the economy we have ever seen that we have not seen this recovery come through. We have not seen the strength of the demographic pressure, the numbers that have gone back to work, the numbers that are commuting and we are not delivering an infrastructure to keep pace with what is happening in the economy. It is a missed opportunity but it has also been a very significant misread of what is happening in the economy and one of the biggest disappointments-----
Tommy Broughan (Dublin Bay North, Independent)
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Are we meeting depreciation levels?
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Before the last budget, there was unanimity - as there was with the view of the witnesses - on the fiscal rules and about how inflexible they are. In theory we have many European officials here who have stated that there is the capacity for some flexibility if one is restructuring but in practice it does not seem to be applicable.
What strikes me in this era of Brexit and reform of the Common Agricultural Policy, particularly in respect of disadvantaged areas, the witnesses would not know about it but rural politicians know a lot about it-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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That is fair enough, you both definitely know about it, but-----
Colm Brophy (Dublin South West, Fine Gael)
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Living in Dublin contributing to that over dependence in Dublin.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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It strikes me that because of our increased peripheral nature in the European Union, that we are unquestionably the most peripheral member state. We have no land border with another member state now. In terms of the Common Agricultural Policy and disadvantaged area, we should be making the case that one cannot compare the small businessman who is trying to do his best to succeed, the small farmer who has 30 acres of marginal land south of Munich with the farmer in west Limerick who might have 30 acres of good land but who has to get his product thousand of miles across borders. I am strongly pro-European but I refer to our increased peripheral nature within the European Union.
We, as politicians, and Government will have to make an argument about our peripheral location into the future and I am sure we will have the support of IBEC in making it.
I thank Mr O'Brien, Mr. Brady and Ms Wrynn for their attendance. We will have further meetings on the subject and I have no doubt Mr. O'Brien will appear before the committee again. Deputy Broughan was the instigator of some of these meetings.