Dr. Charles Larkin:

No, but the Revenue will keep track of the person because if he or she begins earning again, the Revenue will become very interested in being able to collect the payment from him or her. There needs to be a revenue collection system that operates at a zero marginal cost to add this structure to it.

To answer Deputy Catherine Martin, youth unemployment is a very serious issue. It is part of the reason why Rahm Emanuel has brought in a new policy in Chicago of moving towards a K-14 or kindergarten to the second year of college as opposed to a K-12 of kindergarten to 12th grade education system to try to reduce the number of people not in education, training or employment, or "NIETEs", as The Economistcalled them. The youth unemployment solution is more education. Many similar arguments can be found in economic history tomes about the debate which took place at the end of the 19th century regarding public finance of secondary education or the high school movement as it was called.

In terms of the monitoring of graduates in New Zealand, new bilateral agreements have been made between the New Zealand and Australian governments in order to share revenue information. One way that the immigration could be solved would be to redesign the Irish taxation system to make it American, which means that that tax is collected globally. If one is an American citizen, regardless of where one works or where on earth one is, one has to pay taxes to Uncle Sam. It is as simple as that. If that type of taxation system were used in Ireland, many of these problems would disappear. However, I am not sure if that is a policy decision the Government is ready to make.

The issue of the stay-at-home parent concerns similar issues to those I addressed in answer to Senator Ruane.

The issue of economic conditions is very important. The Irish Fiscal Advisory Council has been very, very clear that Ireland is a highly volatile economy. It is a small open economy which is subject to exogenous shocks. The shocks have upwards of two standard deviations effect on economic growth figures. There are very few countries which have that sort of sensitivity to external shocks.

As a result, the understanding of the Irish Fiscal Advisory Council about what to do with respect to Irish public policy amounts to wrapping it in as much cotton wool as possible because the fiscal position can change rapidly. That has been the lesson from the financial crisis and that is part of what informs the policy.

Deputy Byrne raised another question. I think his idea of having the ESRI carry out a comprehensive study of all the different scenarios and all the different plausible policy options is important. Evidence-based policy is essential, especially in this area because the price of getting it wrong is so high.

The 20 year time horizon was built into the model because of the idea of the plausibility of repayment and securitisation. When we are considering the net present value, the problem is compound interest over time. If we start with compound interest rates, even at low levels, then what I call the unpleasant fiscal arithmetic becomes very difficult very quickly.

Reference was made to general taxation alternatives. There are different ways of looking at the question. Ireland has a taxation system that is progressive, but it results in high levels of taxation as we go above 150% of average income. Average income is €35,000. In addition, Ireland, despite that skewed scenario, has a low revenue to GNP level in comparison with similar advanced western economies. That is something to take note of. It is also important to note that in many of the countries where an income contingent loan system has been successful, far lower headline rates of taxation apply and there is far more disposable income in the hands of the individual repaying loans. We have to be careful about the incentivisation for individuals to stay within the jurisdiction and pay.

Deputy Nolan asked another question relating to the issue of looking at Government balance sheet operations and special purpose vehicles or privatisation. Essentially, much of this is determined by the way in which we can approach the investment clauses in the European treaties. If we are going to create a special purpose vehicle, we must have a relatively high return that is equal to the five year moving average of the cost of funds to the State. Moreover, we must have it designed in such a way that 51% of the risk burden is held by private entity rather than the Exchequer. As a general rule, Government-guaranteed or Government-associated special purpose vehicles are frowned upon not only by the OECD in its fiscal assessment but by the IMF in its fiscal stress tests as well. They believe these vehicles are structured in such a way that they could become highly pro-cyclical at the very point when pro-cyclicality is not welcome.

I will address Senator Ó Clochartaigh's question. There is some good research when it comes to looking at the effects on households. In fact, two speeches given by the president of the Federal Reserve Bank of New York in the past fortnight have adverted to the impact of student loans on household formation. Such loans delay household formation for up to four years, if not more in certain circumstances. In the US context, these are mortgage-style loans, so the pain can be more acute. However, there is also evidence in the UK that the overall volume of the loan is taken into account in the assessment for scoring for mortgages. A person does not have to repay a loan following job loss. However, if that person is carrying a certain quantum of debt, then it is taken into account when lenders are scoring mortgages, just as if they were looking at other debt instruments.

The question of whether income contingent loans are not inherently costly is an open one. Many things may not be inherently costly but circumstances can make them so. That is part of what we argue about.

There was a question on the modelling of where the money is going. Part of what we have found in our analysis is that there has been a substantial increase in the amount of income going into the sector over time. However, this is not necessarily related to an increase in the amount going towards student education. Part of this has to do with the design of the system. Considerable cross-subsidisation is built into the structure. Part of the reason we have a large number of arts students in our system is because their full economic cost is rather low. The saving can go to subvent people who are in medicine and sciences, which are expensive. Unfortunately, this creates a situation whereby it can become encouraging to have a large number of those students, but those students will have employment mismatch upon graduation. This scenario has strong welfare effects as well. If we could analyse the Irish system in the way the US state university system is analysed, we could see how it becomes highly problematic because of the welfare losses brought about by this level of cross-subsidisation. Ideally, prices would be individually designed for each individual course. That is how it is done in state universities in the USA. That maximises the amount of welfare.

Reference was made to wrong courses and drop-out levels. This has elements of information asymmetry. It is also a question of avenues of progression. I know that other parts of the Department of Education and Skills are examining alternatives in apprenticeships and structures with the object of bringing people from levels 6 and 7 into levels 8, 9 and 10.

I noted the point that the movement of cost in education has in part been a function of access to debt. The increases in prices in the USA and the UK have been functions of the fact that they do not produce sticker shock. Due to the fact that we do not have a fully operational market in Ireland, we cannot easily determine what the price elasticity and income elasticity in respect of different prices for higher education would be, since other jurisdictions have a fully operational supply and demand function with prices.

Reference was made to the proposal being the Irish Water for education. That is a slightly problematic comparison. I would say that-----