Dr. Tom McDonnell:

While I do not have my figures to hand, the Deputy is right to make the point about interest rates. It would have a very damaging effect on the Irish economy. The Department of Finance stability programme update in April or May gave an estimate as to how much a 1% increase would cost in terms of jobs and economic growth. Given our very high private debt levels, an increase in interest rates would be a straight-up negative shock to the Irish economy, in my view, although it would perhaps bring some benefits to the banks. There is nothing we can do about it, unfortunately. The expectation is that interest rates will start to increase in 2019. One thing that might work against this is if Brexit has a more devastating effect than is anticipated. That might dampen growth and employment growth in the euro area, leading the ECB to postpone an interest rate increase. In that case, however, we are wishing for one bad thing in order to avoid another bad thing. Interest rates are going to go up.

There is no doubt that the Irish economy has been benefitting over the last few years from low oil prices and low interest rates. They have supported the Irish economy and that support is going to go away. The high rates of growth we are seeing at the moment should be understood as a temporary phenomenon. We should not get carried away with thinking that we have moved completely past the crisis. We do still have that burden in terms of households and businesses. That is all the more reason to be prudent now. To the extent that we are talking about fiscal policy, we should focus on things that will boost productivity rather than boosting income flows in the short term. That would be my perspective.

Deputy Calleary made an interesting point about regionalisation of VAT. It might then be prudent to have a system of regional authorities, perhaps not the 30 or so local authorities but a smaller number, such as Dublin, Cork, Limerick, Galway and two or three others, with a certain degree of fiscal power over commercial rates, property tax and even VAT. They might be allowed to set their own local economic plans. I suppose it would empower county councillors to have a proper executive and legislature. Without having that structure in place, however, regional VAT rates could be arbitrary. Would we be talking about special zones for particular counties? We could have issues in the adjoining county if, for example, there was a lower VAT rate in Longford than in Westmeath. Would Dublin have one rate and the rest of the country another? That could just push people out into Kildare and Meath for their shopping. We need to be very careful about this.

If different parts of the country had different fiscal powers in different areas, that would be one thing, but having regional VAT rates could have unintended consequences. However, I am certainly cognisant that the economy outside the M50 is not performing as strongly as is the case in Dublin. It should be noted that when a recovery happens, it tends to happen in the dominant economic zones first and then tends to spread out. We have not fully seen that yet but we are seeing unemployment rates, for example, falling across the board now. That should continue for another year and a half. It does not fully answer the Deputy's question about regionalising VAT. However, it is an interesting idea and over the next 12 or 18 months we intend looking at regionalisation of fiscal policy, for example, to see if it is viable. However, I do not have the answer yet.