Professor Alan Barrett:

It seems like a long time since Deputy Crowe asked this question and I will tread softly. He put a terribly interesting set of questions and I would like to deal with some of them. There was an underlying philosophy behind his questioning that the Union is, in some sense, trying to impose something that might be contrary to his political perspective. Some of the recommendations that have been made make perfect sense either way where there is an extremely left wing government or extremely right wing government in place. With regard to the proper analysis of public expenditure, whether a state spends 90% of GDP or 10% of GDP, thorough analysis makes perfect sense. With regard to many of the issues the Commission talks about such as investment in health, education, child care and so on, it does not matter what part of the political spectrum one is on, there is a technical dimension to many of the recommendations - I am terrified to upset Deputy Brophy on this - which is about the efficient administration of an economy as opposed to a major philosophical or ideological push. It is important to read some of these documents in that context.

During the crisis years, when it came to the issue of fiscal policy at EU level, I was one of the original members of the Irish Fiscal Advisory Council and while we stood over the recommendations we made in Ireland about the need for austerity, one of the points we often made was that if we had been in Germany, we would have argued for a much looser fiscal policy.

A lot of economists would accept that the Europeans, in a sense, got fiscal policy wrong during the austerity period but the Americans and British got it right. The Europeans lagged behind an awful long time. Let me put it like this. There are elements of the question that I agree with and there are elements that I disagree with. The notion that it is all part of some sort of right-wing push I do not necessary buy.

I shall focus the question in much more narrowly on the issue of the fiscal rules. This links with a question that somebody else has asked and I apologise for not remembering his or her name. The fiscal rules, at one level, I see as almost like a necessary evil. Let me develop the theme along the following lines. Deputy O'Rourke made reference to the fact that interest rates are at an historically low level, and they are. A normal and straightforward economic analyst would say that we should be borrowing, quite substantially at the moment, to fund the sort of infrastructure that we need. At an economic level that would make perfect sense. The problem is, and this is where I shall be very delicate, political parties of all colours, when given the freedom and flexibility to spend above and beyond what the fiscal rules currently suggest is prudent, tend to go a little bit further. This is where one has the political realities and economics. If there was a purely mechanical economic dictator running things one would say, "Yes, borrow to fund whatever." Unfortunately, the Irish political system has managed to bankrupt the country about three times since Independence. The fiscal rules act as a very useful buffer against that and are a constraint. I often have mixed feelings about the fiscal rules. At one level I think it would be good to see investment and looser fiscal policy. However, when I look back on the 1980s and the most recent period I realise they were dark periods. Sorry, I have given a mixture of responses but we can chat further later on, if needs be.

On the issue of broadening the tax base, there is a general economic principle. I think we would all agree around this table that one of the great difficulties as we moved into the economic collapse was the fact that the tax base was narrow and unsustainable. When the economic tide went out the ordinary people of the country suffered an awful lot. Let us remember that most public expenditure goes on less well-off people. They are the ones who lose the most when the tax base is simply unsustainable. Designing it in such a way that it was so fragile was a really bad idea.

In terms of broadening, there was a lot of broadening done during the time. If one takes property, tax and the USC, for example, there was a lot of broadening. When the Commission talks about this issue I think the worry is that we will role back on the progress that has been made.

Sugar tax was mentioned. To be perfectly honest, the big area of potential tax broadening is in the area of environmental taxation. The national mitigation draft plan was published a number of weeks ago. There is a general consensus that Ireland will not make headway with greenhouse gas emissions if we do not impose serious prices and taxes on a lot of the environmental bads. Again, we can agree or disagree as to whether that is a good idea. In terms of the future, a substantial broadening of the tax base would be in that area.

Another question was asked about targets for economic and social issues. I always enjoy coming to the Oireachtas to talk about the work that the ESRI has done in this area over the years. The ESRI, for many years, led the charge on the measurement and monitoring of poverty so it was possible to put targets around poverty elimination. Nobody in Ireland measured the rate of poverty in the late 1980s. The institute starting doing so in the late 1980s and early 1990s and carried out a substantial programme of work over the years. Eventually the Central Statistics Office took over the work. There is no doubt that social targets are just as important and the ESRI has played a strong role in this work over the years.

I shall row back on some of the questions and I might hand some of them over to Dr. Morgenroth. Let me quickly deal with the question on soft tax revenues, which is an issue that arose once or twice. This matter is not easily understood. Clearly, in the context of the growing economy and growing employment we would expect all tax heads to grow at a particular pace.

I raised the issue of part-time and temporary contracts. We are creating lots of jobs. Could it be the case that a substantial proportion of these jobs are not of good quality? If so, it could be reflected in tax.

Colleagues have talked about another issue. Let us remember that our tax take has been lower than expected. If the expectation was incorrect, in terms of taxation forecasting, then that is where the problem could lie. It may not be so much the underlying economics. It could be a forecasting issue. I assume that the Department of Finance and the Revenue Commissioners are working on the matter. We do not have a straightforward answer but I have outlined one of the suggestions that has floated around.

Deputy Haughey asked a question that is linked to the query raised by Senator Craughwell. Deputy Haughey asked whether the ESRI has a particular view on the Cassells report as to which option should be explored. I shall give my personal perspective and I do not know if Dr. Morgenroth has a different perspective. I do not have a strong view on the funding and just have an observation. I think it is well understood that we need to fund our universities in some shape or form, that the current situation is unsustainable and it is not consistent with the sort of modern economy that we are trying to build.

Senator Craughwell began by saying that education is a public good. Again, sorry for disagreeing but I think his belief is only partly true. The biggest beneficiaries of third level education are the people who get the third level education. Let us consider the wage premium or increased earnings one receives over one's lifetime that are associated with getting a third level education. The notion that all taxpayers should fund the third level education of all people just does not sit easily with me. I do not think I am being ideological but there is a sense of fairness.

I shall not comment on which approach to third level funding is the correct one. Let me identify the most important issue that we must confront. While I do not necessarily see education as being a public good, I think education is probably the greatest producer of social equity that exists. If politicians were serious about social equity and social justice they would ensure that whatever resources are available are focused on the people who need it most. We have learned from the experiment with free university education that it did not make a serious inroad into the differential socioeconomic make up of Irish universities. It is still the case that if one grows up in particular parts of Dublin one's chances of going to college are minuscule relative to the probability if one grows up somewhere else. That is the policy challenge. One must solve the funding problem in combination with the social justice issue. I do feel ideologically strong about the matter. I do not know if we can agree or disagree on the matter.