Oireachtas Joint and Select Committees

Wednesday, 26 September 2018

Committee on Budgetary Oversight

Ex-ante Scrutiny of Budget 2019: Minister for Finance

1:30 pm

Photo of Colm BrophyColm Brophy (Dublin South West, Fine Gael)
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Before we begin, I give the usual reminder to members and witnesses to turn off mobile telephones. I welcome the Minister and his officials and thank them for making themselves available to give us our pre-budget briefing. The Minister is accompanied by Mr. John McCarthy, Mr. Joe Cullen, Mr. Gerry Kenny, Mr. Pat Leahy and Ms Ruth Sutton from the Department of Finance and by Mr. John Kinnane and Mr. Ronnie Downes, the new assistant secretary, from the Department of Public Expenditure and Reform.

It is a particularly busy time for you and your officials. The committee values the opportunity to engage with you on the budget. The purpose of today's meeting is to enhance the level of engagement and scrutiny on the budget process by the Oireachtas. We have produced a number of pre-budget scrutiny reports to date as you will be aware. Our aim in doing so is to offer further constructive feedback to you, as Minister. I wish to acknowledge the Department's assistance to us in this process to date.

Before calling the Minister I will read the statement on privilege. I advise our guests that by virtue of section 17(2)(l) of the Defamation Act 2009 witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a 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 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 the Minister to make his opening statement.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I thank the committee for the invitation to the meeting to discuss the forthcoming budget and I welcome the contributions members will make in this regard. I also thank the committee for its recent report which I had an opportunity to read in the last few days.

The budget will be presented to the Houses of the Oireachtas on Tuesday, 9 October next. Over recent months, many elements of our reformed budgetary process have taken place. In June, the summer economic statement was published, followed by the national economic dialogue. In July, the Government published the mid-year expenditure report and the tax strategy group papers in respect of budget 2019. These are all new features of our budgetary process, which I hope make options clearer. Earlier this month, my Department published its second annual debt report and an analysis of demographic trends and their input on sustainability of the public finances. As I set out in the summer economic statement, I am committed to not adopting a budgetary policy that would further increase the deficit and result in additional borrowing.

The focus of budget 2019 will be to sustain our recent progress and to maintain our careful management of the public finances. The summer economic statement laid out what we believe is the appropriate policy on the basis of what is right for the economy. From a budgetary perspective, this facilitates the building up of fiscal capacity to help deal with future risks and potential shocks. In terms of our current position, we are in good shape. With gross domestic product, GDP, up by 2.5% in the second quarter of the year, quarter on quarter, and up 9% year on year, it is encouraging that robust growth is being recorded across all sectors of the economy, both domestically and in our international traded sector. There was an annual increase in employment of 74,000 jobs in the year to the second quarter of 2018, bringing total employment to over 2.25 million. We are close to approaching what could be termed full employment.

The next set of official macroeconomic forecasts will be produced as part of budget 2019, following the Irish Financial Advisory Council, IFAC, endorsement process which is currently under way. We must be mindful, however, of new challenges in the wake of the growth we are now experiencing in our economy. Internationally, some of the other risks are being widely recognised. They include a general rise in protectionist policies and the unpredictability of the international tax environment. Ireland, as a small, open economy is particularly exposed to these risks and we must be careful in our budgetary policies and continue to look after our public finances while, of course, meeting the needs of our society.

In 184 days, our most important trading partner will formally leave the European Union. While a transition period remains our baseline assumption, there will still be a major structural change in our economic relationship with the United Kingdom. It is important to be clear that the agreement on a future relationship can only be finalised and concluded once the UK has become a third country, that is, after it leaves the EU on 29 March 2019. This is why agreement of a status quotransitional arrangement is so important. It is in the interest of everyone that a future relationship agreement is concluded as quickly as possible after the UK leaves the EU to provide certainty sooner rather than later.

I note that the committee's pre-budget discussion document points to the possibility of a no-deal Brexit outcome as a potential budgetary risk. With Brexit some things are going to change and we are planning accordingly. The risk of a more adverse outcome than expected is one of the principal reasons that the Government has put in place careful measures in the case of a failure to reach a Brexit agreement. The measures include: targeting a balanced budget over the cycle, including using windfall receipts to reduce public debt; rebuilding our budgetary buffers, including the establishment of a rainy day fund; increased capital expenditure; and the significant suite of measures to support small and medium enterprises, SMEs, announced in previous budgets.

In terms of other risks, I note the committee’s recommendation that the Government consider using fiscal policy to decrease Ireland’s dependence on imported oil and gas. As an energy importer, Ireland is adversely affected by increasing oil prices. However, I hope the careful policies of recent years have placed Ireland in a stronger position to deal with any shock which may materialise, including a shift in oil pricing.

Reducing our public debt and its servicing costs remains a priority. Our current debt level equates to €42,000 per capitaand is the third highest in the developed world. That is why we remain steadfast in the pursuit of sound budgetary policy. Legislation has been drafted on the Government’s proposal for a rainy day fund. We are committed to initially seeding the fund with moneys from the Ireland Strategic Investment Fund, as well as setting aside some of the high levels of corporation tax for the purpose of creating the fund. This means the risk of permanently increasing expenditure on the basis of transient receipts is reduced. With this in mind, a contribution of €500 million to the rainy day fund will be provided for next year, in addition to the €1.5 billion planned for this year.

The Government recognises the clear supply and affordability constraints in the housing market. In my previous two budgets, I introduced significant increases to both capital and current allocations of the Department of Housing, Planning and Local Government. The capital budget has increased by 145% since 2016 to over €1 billion, which reflects the Government’s position that the only way to solve the current issues in the market over the long term is to build more homes, including social housing, student accommodation and affordable homes for people on average incomes. Some of the measures introduced include the allocation of €200 million for the local infrastructure housing activation fund, LIHAF, and the introduction and subsequent increase in the vacant site levy from 3% to 7% for the second and subsequent years. I also increased the rate of commercial stamp duty to help rebalance the construction industry. These and other measures are helping to boost supply. The latest figures from the Central Statistics Office, CSO, show a 34% increase new home completions from last year. The number of planning permissions granted for residential development is now 39%. Clearly, however, we have some way to go and I will continue to work with the Minister for Housing, Planning and Local Government, Deputy Eoghan Murphy, on the various initiatives in which his Department is engaged.

Regarding our current fiscal position, the €32.4 billion of tax revenues collected, which is up €1.6 billion or 5% on the same period last year, were broadly on target, highlighting that our budgetary position is continuing to improve and we are closing in on a balanced headline budgetary position.

Turning to expenditure, maintaining a sustainable public expenditure policy requires focus not only on the quantum of expenditure each year, but also on the quality of that expenditure. In tandem with the policy of sustainable current expenditure increases is the role of capital spending and how it can reduce risk and strengthen the economy. Indeed, I welcome the ESRI’s advice published today highlighting the need for an overall approach to fiscal policy in this year’s budget. I agree that, given key infrastructural deficits in areas such as housing, along with the possibility next year of a more adverse than expected outcome in the Brexit negotiations, a non-contractionary budget is appropriate. That is why €1.5 billion has been allocated towards increased capital investment next year, an increase of almost 25%. This allocation will allow us to ensure a sustained increase in the delivery of social housing, offer additional schools places and make progress on key projects.

Systematic information about the efficiency and effectiveness of expenditure is crucial. Over recent years our framework has undergone significant reform. Many initiatives are now in place that focus on what is being achieved by public spending. Underpinning this progress has been a number of structural reforms that support targeted improvement. The committee has made a number of recommendations. The aim of this process is to embed an evaluation mentality in the public service, with the goal of avoiding reactionary budgets and large annual shifts in expenditure. It should also maintain an ongoing evaluation of the effectiveness of existing levels of expenditure. Other structural reforms include performance and equality budgeting, including establishment of the equality budgeting expert advisory group, an area this committee has considered.

We have made good progress in the area of climate proofing through tracking climate-related output targets in the annual Revised Estimates Volume, REV, and ex postevaluation of climate-focused expenditure programmes. These reforms are aimed at increasing transparency and accountability.

Ensuring the implementation of Project Ireland 2040 is of the upmost importance to this Government. That is why we published an expanded investment project and programme tracker, which builds on the work of the programme delivery board, which has met on a number of occasions. The projects it is working on include improving information flows for project monitoring, establishing the Land Development Agency, establishing a construction sector group and progressing the four development funds. Addressing these issues will ensure that projects outlined in the national development plan can be delivered on time and on budget, and that the objectives set out in the national planning framework are achieved on a value-for-money basis.

I note the committee’s recommendation that consideration be given to increasing carbon tax over a number of years. While I consider that carbon tax can play an important role in reducing national emissions, in any analysis of the carbon tax it is also necessary to consider not just its potential to reduce national emissions, but also other economic and social impacts. The ESRI, as part of its joint research programme with my Department, has produced initial research which will inform my decisions. I am informed it is developing a multi-annual model for the same purpose.

The committee’s report makes a number of other recommendations that I will consider. I thank the committee for the opportunity to attend. I will do my best to answer any questions.

Photo of Colm BrophyColm Brophy (Dublin South West, Fine Gael)
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Thank you. I call Deputy Michael McGrath.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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I welcome the Minister and his officials. Unless I missed it, I did not see any reference in his opening remarks to health overspends in the HSE and the Department of Health. What we have in terms of published information are the Exchequer returns, or the fiscal monitor, for the month of August, which shows that up to the end of August current spending in health was €312 million over budget. We are reading reports in the media that the Minister informed Cabinet recently that the overrun could be €600 million but we are also reading that the HSE believes it could be higher - €750 million has been mentioned or even, in a worst-case scenario, €1.1 billion of an overrun. It is well past time we had clarity. We have a published figure of just over €300 million of an overrun. Can the Minister inform this committee where we are in regard to health spending in 2018 and what he expects the outturn to be for the calendar year? What is the impact of that and how does he intend to address any overspend?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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The overspend at the end of August is €343 million on the HSE subheads. I want to reaffirm to the Deputy what I said before the summer, which is that a Supplementary Estimate for the health Vote will be needed. As for what the final figure will be, I am still working with the Department of Health to clarify the final figure because it will be a crucial input into my budgetary framework. I have not informed Cabinet or elsewhere regarding what that figure will be because the work is under way but in the last number of years we have brought in Supplementary Estimates of between €500 million and €600 million. I expect and know that, nearer budget day, I will be able to confirm what that is. One of the key pieces that is requiring a lot of work from me at the moment is that much of this depends on the kind of activity we expect to happen in the fourth quarter, and where we are going to be in terms of planned recruitment. All that work is still under way in terms of what impact it will have on the budgetary position.

Photo of Colm BrophyColm Brophy (Dublin South West, Fine Gael)
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I should have said at the start of the meeting that, in keeping with what I have done at previous meetings, I am allocating five minutes for an initial round of questions per Deputy and will then come back for more questions. That has facilitated everybody on previous occasions.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Thank you. To recap, because this is critical in terms of the budget and looking forward to next year, there is an overrun of €343 million by the HSE to the end of August. Does the Minister have a figure now as what he estimates it to be for the full year? How is he going to make up that shortfall? Are there going to be underspends elsewhere or are we looking at cuts in services and stalling on capital expenditure? If the overrun is, as is suggested in some repots, likely to be up to €1 billion, does it have a knock-on impact on budget 2019 if the Minister cannot make up that overspend by way of underspends elsewhere or additional tax receipts that are unforeseen?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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There are many different figures moving around regarding what it could be. What I am very conscious of, as Minister for Finance, is that once I say what the figure is, that is the figure on which I am accountable to the Oireachtas and that is the figure against which a Supplementary Estimate will be brought in. I am taking care with regard to indicating what that figure is because I am still in the middle of a lot of engagement with the Department of Health on it.

To deal with the other questions the Deputy has brought to me in terms of how that figure would be paid for and what the impact would be for next year, it will be paid for through a combination of three different matters. First, we will have underspends across other Departments, which are natural at the end of the budgetary year. They happen every year and they are likely to happen again this year. We are dealing with that now as part of the bilateral engagement I am having with many other Departments. Second, on where we expect to be on tax revenue, I will know where we are going to be with our September figures very soon. At that point, I will have to make a decision and a call regarding how we expect our October figures to land. Third, as we move through the year, we occasionally have slight buffers that are built in that allow us to deal with difficulties as they develop. To answer the Deputy's key question, I do not intend, as we move through this, to have to implement any decision that impacts on service delivery or on planned capital projects elsewhere.

There is one point I did not touch on, namely, what impact I believe it will have for next year.

There are still many moving parts to the budget. One of the two decisions I will be obliged to make next week will involve a final cut in respect of economic growth for next year. As members know, we always publish that as part of our budget documents on the day. More than the decision, the information will be our best judgment regarding the tax outlook for the year. It will not be easy to ensure that the budgetary framework will be unchanged for next year in light of the pressure relating to the area of health but I am working hard to ensure that it will not be changed from what I outlined in the summer economic statement. I have at least a further week's work to do in respect of that matter.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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I have one further issue. Perhaps I can come back in later. In respect of the impact of a no-deal Brexit on our economy and budget, the Minister spoke about the baseline assumption being that a transition period up to the end of 2020 will be agreed. If that does not happen - a possibility for which we must be prepared - does the Minister have an assessment of what would be the impact on the economy and on the budget for 2019 of the UK crashing out of the EU without any deal or transition period being agreed? I understand that the recruitment of up to 1,000 customs and veterinary inspectors has been approved. Where stands that process and when does the Minister expect the additional people to be recruited?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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According to the figures to date, a shock in the form of either a very hard or disorderly Brexit would be equivalent to three quarters of a point to a full point of national income growth over a period. My expectation is that if we were faced with a disorderly Brexit, that shock would materialise over the year as opposed to over a number of years. Regarding the impact of that on the budget overall, it would just be one of a number of systemic issues with which we would then need to deal.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Is the Minister saying that, in terms on the economy, it would reduce growth by up to 1% next year?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I can only give the Deputy my judgment because this is an event, were it to occur, that would clearly involve many unknowns. What we have said in the past is that there would be an impact of three quarters of a point to a point. In terms of what impact that would have on our budgetary framework, the answer is that it would be significant.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Is the Minister saying that it is his and the Department's assessment that if the UK did crash out of the EU next March, our economy would still grow by perhaps 2% or 3% next year instead of 3% or 4%? Is that the assessment?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I think it is likely that our economy would still grow but it would be at a significantly lower rate. In terms of what we said and the medium-term impact of a shock like that occurring, it could be worth three to three and a half growth points over the years afterwards. If that was to occur, it would be a significant shock for our economy.

To answer the Deputy's question regarding what we can do to mitigate against and deal with that, we would need to focus immediately focus on three areas. The first would be the budgetary impact, about which I have given an answer with all the caveats and conditions I can, because it would be an event that would have many consequences. The second would be how we would respond to and deal with the exceptional swings that would be likely to occur in terms of the value of sterling were something like that to happen. This would have many difficult consequences for our trading economy. The third risk we are working on would be the impact on our financial sector because, as the Deputy is aware, not only do we have banks that are active in the UK, we have flows of money, insurance contracts and exchanges between Ireland and the EU, of which the UK is a member. This why following the informal summit that took place in Bulgaria earlier in the year, a working group is now in place between the Bank of England and the ECB to consider issues such as this.

To answer the Deputy's final question regarding where we are with regard to recruitment, I understand that we are in the early phases of that process but I will see if I can furnish more information about that matter to him. This recruitment will be funded by me in the budget and I will outline to the House on budget day how we will pay for it.

I have one concluding point to make to the Deputy. In any scenario along the Brexit spectrum, the UK will still become a third country. I reiterate what I said at an IBEC event a number of days ago: we are working hard to secure an outcome but the trading relationship between the UK and the EU will change. This will mean that there will be many new obligations on Irish, European and British companies so the customs officials we are hiring and what we are doing on the agricultural front such as the additional staff who are being hired there will be needed.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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The summer economic statement sets out the amount of discretionary spending that is available to the Minister in budget 2019. That was estimated at €800 million given that the Minister was not going to use €900 million and was going to put €500 million into the rainy day fund. Less than two weeks out from budget day, does he expect that figure to increase or decrease or is he confident that this figure will remain the same?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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If there is any change, I expect that it will be around the margins. I am not expecting a big increase. Were I to expect a huge change in the budgetary framework, not only would it be apparent to all members in terms of the growth forecast we will publish, I would be informing colleagues of it so it will be a shift around the margin if that even occurs.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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I want to discuss the health overrun. I am quite surprised the Minister did not mention this in his opening statement in light of the level of overrun at the moment and what is speculated. I want to focus on how we deal with this for 2019. We will use this for argument's sake but if there is a health overrun of €600 million or €500 million - it could be less or more - what percentage of that will be recurring as opposed to a one-off?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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That is one of the matters on which I am working with the Department of Health because the key issue is not just the magnitude of any potential overrun but how much of that goes into the base. My experience in dealing with matters such as these in health expenditure is that the majority of this expenditure does go into the base.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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That is my understanding as well. When we are looking at a majority, we are looking at it in the range of it being close to 90% or thereabouts. Would that also be the Minister's understanding?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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A bit less at times. One of the variables tends to be what happens with regard to the State Claims Agency or capital expenditure. It is a majority of that expenditure but that is a key element with regard to what impacts my budget 2019 calculations.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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If we are to believe what has been put out there in the media, namely, that the over spend projected for the end of the year is likely to be just in excess of €600 million with the vast majority of that recurring, this means that the health budget would need to increase by that amount plus the amount to deal with demographics and inflation just to stand still. Is that what the Minister will announce on budget day? Will he announce that the full recurring amount, which I assume will be calculated by the Department of Health, will be put into the base along with the other components which deal with demographic changes?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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That is correct. That is why I must put so much focus on understanding how much of that expenditure will be repeated into 2019 but the framework outlined by the Deputy is correct.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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Again, I want to tease it out using indicative figures. If we are looking at an overrun of €600 million and are saying that over 80% of it is recurring, this is about €500 million that would have to go into the base. How would that be dealt with? If only €800 million in discretionary spending is available in budget 2019, is there an automatic conclusion that this spending is now reduced from €800 million to €300 million using those indicative figures?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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No.

I would look to the end of the year regarding what the revised and final expenditure figure would be for 2018 and then decide how much of the additional expenditure of that goes into the base for 2019 and how much of that is going to be covered by tax revenue, about which I can make a determination that is likely to continue into 2019. The delta between the two will influence the degree to which it influences budget 2019 choices, if at all.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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Obviously, if there is no tax revenue then that has not already been identified, it has to come out of the €100 million discretionary funding.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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It could influence other budgetary choices that I make as well. I have always said there are choices I can make on the overall stance for the budget that might require tax changes elsewhere.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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Discretionary revenue increases, I presume. Where is tax revenue at this point in time projected to come in at the end of the year? We know some of that buoyancy is coming from corporation tax. Does the Minister genuinely believe - it would be astonishing if he did - that we should be funding underspending in health by a buoyancy in corporation tax receipts where, everybody in this committee knows, there is a genuine likelihood that they will not present in a number of years at the same level?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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Yes, this is a matter that I will be looking at in the next couple of days because we are now seeing, across a number of tax headings, a really strong performance. We have seen this in taxes in the labour market and we are also seeing it in corporation tax. I will have to make an adjudication next week as to what degree any of that is sustainable for 2019. That will determine how much of this is likely to go into the base. The other thing that is going to happen is an examination of where we are in other Departments, at savings that come out of these that are also likely to carry forward into next year. This is what we are doing, Department by Department. We are not looking at where they told us they were going to end up but where we believe they are going to the end up at the end of 2018. That is a fundamental factor in influencing what my base will be for next year.

Photo of Colm BrophyColm Brophy (Dublin South West, Fine Gael)
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Can I remind the Deputy that he has one minute left?

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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I will put two small questions together.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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In my experience the small questions are sometimes the trickiest. If the Deputy puts them together I am not sure it will make it any easier for me.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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The Minister can tell me afterwards.

We know that the health overrun is mostly due to recruitment. It is suggested time and again that this was predictable and demand-led. The HSE was here before the health and budgetary committees and presented all of this to us. How come the Department has got the health budget so wrong? This health overrun is again not a minor amount of money. The Department basically underfunded health in last year's budget, which was something I made a point of saying to the Minister on budget day.

The second issue is that the Minister mentioned that there is a €1.5 billion increase in capital investment. The housing crisis is a huge crisis with massive implications for those in the middle of it. I have made the point before that it is man-made, it is not a natural disaster. It is because of the Minister's Government's policies that have underfunded social and affordable housing. Is it not the case that of the €1.5 billion only €200 million has been identified for housing or could the Minister tell me if he has revised those figures, and intends to increase the amount of additional capital going into housing in budget 2019?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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In dealing with the Deputy's first question on whether I knowingly underfund the health service, the answer is no. I made decisions which I take responsibility for and that I worked on with the Department of Health. What is an issue for us is the fact that we are seeing overspends developing in both pay and non-pay areas. Much of this is concentrated in our acute hospital groups.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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The Secretary General wrote within weeks-----

Photo of Colm BrophyColm Brophy (Dublin South West, Fine Gael)
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Deputy, I-----

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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Just a small point. The Secretary General wrote within weeks saying that there was going to be an overrun.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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Chairman, can I just finish/ I will finish off answering the question but I am available and will spend the afternoon here to answer any questions that the Deputy may have. What is compounding the overrun is that our expectations on income that would be coming into our hospitals have not been met. We have a lot of work to do now, which we are in the process of completing, to understand fully what that is, and what the impacts will be for budget 2019.

On the Deputy's latter question on housing, the housing budget overall, as part of Rebuilding Ireland and the national development plan, allocates a further €7.5 billion for social housing. The housing budget for 2018 is a figure of €1.8 billion which is 38% higher than the provisional outturn in 2017.

On the Deputy's final question on whether the amount of money that will be available for housing in next year's budget will go up, the answer is yes.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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That was not the question.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I will come on to answer the Deputy's question. The Deputy put a question to me and I am going to answer it.

The particular question the Deputy asked me was the degree to which we have already committed higher funding for housing for next year, as part of Project Ireland 2040 and the national development plan. We have committed additional funding for it. I do not have the figure in front of me here but maybe my officials in the course of the answering of the questions can get it for me, and I will share it with the Deputy. I have a fairly good idea of what the figure is but given the sensitivity of the matter, I want to give the Deputy the right one, and I will give it to him later on in the hearing.

Photo of Colm BrophyColm Brophy (Dublin South West, Fine Gael)
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In order that we know where we are, the next speaker will be Deputy O'Brien, then Deputies Broughan, Boyd Barrett, Lisa Chambers, Cowen and Burton. If everybody can bear with me that is why I am being very direct on time today. When everybody has had an opportunity to come in for a single round of questioning, if we have time still left in the meeting, we can do a follow-up. I call on Deputy O'Brien again.

Photo of Jonathan O'BrienJonathan O'Brien (Cork North Central, Sinn Fein)
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As to the health overspend, why are we not able to predict it? The Minister has said that one of the drivers is the acute hospital sector. We know that every year. For the last five years, the acute hospital sector has been the area where we have seen that overspend. What is the Minister's difficulty in predicting the drivers within the overspend?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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We make assumptions every year on how that Vote is going to perform. The challenge we have is that the overspend is of a level that is higher than we have seen before. Much of that is attributed to what we have seen happening in the acute hospital group. I made decisions on the allocation of funding for that. As the year went on, it was obvious that the demand from those parts of the health services has grown. I am going to have to deal with the consequences of this as part of budget 2019. I will explain how I will fund it on budget day.

Photo of Jonathan O'BrienJonathan O'Brien (Cork North Central, Sinn Fein)
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On the overspend in the acute hospitals sector, is the Minister concerned that the third quarter of the year is always the quarter where a significant increase is seen?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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Yes, I am. This is why I am taking care in naming the figure because there is a lot of debate under way and views expressed on what it is. When I put a figure to this committee, it cannot change because that is the figure that then goes into a Supplementary Estimate. One of the reasons I am taking care now in concluding my work with Minister, Deputy Simon Harris, is because what the Deputy has said is correct. Normally when we get into the fourth quarter, we find that recruitment has accelerated. This becomes a consequence for budget 2019, for the reasons that Deputy Doherty asked me about, because that then carries forward into 2019.

Photo of Jonathan O'BrienJonathan O'Brien (Cork North Central, Sinn Fein)
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What steps are being taken in the Department to ensure we are not in the same position next year?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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We are trying to get the balance right because we have commitments overall in recruitment for the year that we want to meet. I want to ensure that any decisions we make for this year do not affect service provision given the great distress that can cause for our vulnerable citizens.

Photo of Jonathan O'BrienJonathan O'Brien (Cork North Central, Sinn Fein)
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If I can touch on housing, why has the Department made a decision not to go above the figures in terms of planned house-building set out in the capital plan? In light of the current crisis, is there a particular reason we are not spending more on housing?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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Does the Deputy mean beyond what I have already indicated?

Photo of Jonathan O'BrienJonathan O'Brien (Cork North Central, Sinn Fein)
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Yes.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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The only reason we have not made a decision beyond that is that it is a consequence of the budgetary process. If we make a decision on the provision of more social and affordable homes and home hubs, we have to make a resource decision on it and that is being done at the moment in the budget. It is not complete yet. If we were to make such a decision, that would then change the housing figures to which the Deputy is referring.

Photo of Jonathan O'BrienJonathan O'Brien (Cork North Central, Sinn Fein)
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Would the Minister agree that if we ramped up house construction, it would not pose a risk to overheating the economy?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I think there is a balance that we have to get right. What the Irish Fiscal Advisory Council noted about this is interesting. It stated that there is a degree to which, if house-building goes beyond a certain level in a certain period, it can pose a risk to the economy. Against that, there are two things. First, the lack of housing at a certain level also poses challenges for businesses and their role in our economy. Second, as I need hardly tell the Deputy, the social and personal difficulty that is being caused by the lack of homes weighs very heavily upon me. I need to get that balance right. If we make a decision that we are going to put additional resources into the economy to provide more social homes, I may decide that it is paid for out of additional measures which of themselves can have an effect on the economy that can offset the inflationary risk to which the Deputy referred. What is uppermost in my mind is the grave difficulty that tenants, people who are homeless and those who are concerned about their futures face. I am trying to navigate my way towards doing that.

An example of the way in which I try to use a tax measure to affect the composition of our overall economy is what we did in the context of stamp duty on commercial property last year. While we put more money into certain areas, increasing stamp duty on commercial property played a role in dealing with inflationary pressures that were beginning to develop in that sector a year ago.

Photo of Jonathan O'BrienJonathan O'Brien (Cork North Central, Sinn Fein)
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The Irish Fiscal Advisory Council identified that sector as being at the greatest risk of overheating in the heat chart it provided in respect of the economy.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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It has. The chairman of the Irish Fiscal Advisory Council, Seamus Coffey, has always been consistent in making the point that we could get to a level of house-building that could itself pose a risk to the economy. I do not believe we are at that point yet. As already stated, the social consequences of the right number of homes being available are immense. I have to respond to that. If we were to decide to put more resources into having homes built, many options would be open to me regarding how we could pay for it and things we could do that might mitigate against the effect on the economy of the construction of those homes. They affect what we can do on a tax level and also refer to how we might allocate money between different Departments.

Photo of Jonathan O'BrienJonathan O'Brien (Cork North Central, Sinn Fein)
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I will go into more detail on those questions in the second round.

In the context of the rainy day fund, can the Minister give us some more detail on what type of fund he is proposing and what discussions he has had with the Commission on its establishment?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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My intention is unchanged from what I said in the summer economic statement in respect of seed funding of €1.5 billion and additional funding of €500 million. The engagement I have had with the European Union and the Commission has been very positive.

Photo of Jonathan O'BrienJonathan O'Brien (Cork North Central, Sinn Fein)
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Was it positive in the sense that if we want to access the rainy day fund, there will be no issue?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I think they would be happy with the triggers we have set out in respect of how that funding would be accessed; they currently understand the rationale for it. There is flexibility within the Stability and Growth Pact regarding the kind of conditions the economy could develop that would allow the release of funding. The Commission would see the rainy day fund - I know there are differing views on it among committee members - as an example of the kind of budgetary resilience that we should be trying to build up at this point in our economic cycle.

Photo of Jonathan O'BrienJonathan O'Brien (Cork North Central, Sinn Fein)
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What kind of conditions? Are we talking about an event of natural disaster or once-off event following which we could access it? Is it not also true that if we wanted to access money from the rainy day fund over and above the expenditure benchmark, that would be against the fiscal rules?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I will answer the first part of the Deputy's question and I might then ask him to clarify the second part. On the criteria under which funding could be accessed, the terminology they use is "severe economic shocks" or natural disasters. It would be up to us to be able to define what they are. I have proposed that this should be a Cabinet decision but also that it should be subject to debate in the Dáil.

The Deputy might talk me through his second question again so I can answer accurately.

Photo of Jonathan O'BrienJonathan O'Brien (Cork North Central, Sinn Fein)
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In terms of the expenditure benchmark, if we wanted to spend over and above what would be allowed or would be recommended, and we wanted to access the rainy day fund in order to do that, is that permissible under the current fiscal rules?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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No. I would have to raise revenue in order to do that.

Photo of Tommy BroughanTommy Broughan (Dublin Bay North, Independent)
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Is the Minister considering going down the Charlie McCreevy route and introducing a special savings scheme? Is consideration being given to that to dampen down overheating? Unlike the Minister, who never seems to have money for necessary spending, Mr. McCreevy used to say, "When I have it, I spend it." Is the Minister thinking of a special savings scheme?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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No.

Photo of Tommy BroughanTommy Broughan (Dublin Bay North, Independent)
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That is it.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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That is it.

Photo of Tommy BroughanTommy Broughan (Dublin Bay North, Independent)
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I will move on to the long debate we have had about VAT in respect of the 9% rate. Was the Minister impressed by the study conducted by his Department, which did not seem to find huge arguments in favour of retaining the 9% rate?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I have been impressed by the cases that have been put forward by both sides of the debate. The protocol on tax strategy group papers is that they are views of the Department rather than of the Minister. They inform choices I, as Minister, make. Clearly, I have also met representatives of the Irish hospitality and accommodation sectors who hold a diametrically opposing view. As a former Minister with responsibility for tourism, I am aware of why they hold those views. At this point, I cannot give the Deputy an indication of what I am planning to do because I am still in the throes of looking at what our likely expenditure is going to be next year and then deciding how we pay for it. If I begin to comment on any tax measure here today, we will not have a budget.

Photo of Tommy BroughanTommy Broughan (Dublin Bay North, Independent)
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Actually, on Leaders' Questions this morning, the Taoiseach provided a broad outline of the budget. He said it is going to have three pillars, namely, general balance, a big capital investment programme and then tax cuts for the squeezed middle. He gave us a flavour of it in response to Deputy Howlin's questions about the top earners and their tax rates. This committee has spent a lot of time talking about tax expenditures and trying, with the help of the Parliamentary Budget Office, to estimate the vast size of tax expenditures. The Minister is coming along now with new tax expenditures. Can we take it that whatever tax cuts he and the Taoiseach are finalising, they are going to be somehow sustainable?

A few months ago, for example, Revenue told us that a top tax rate of 43%, as a number of us have proposed in the past, would raise upwards of half a billion euro. The committee reports and agreed reports also mention change that could be made in capital acquisitions tax, CAT, and so forth, though I would not agree with some of those changes. We need to make sure that is going to be sustainable and that we are not handing on a poisoned chalice. Fine Gael and Fianna Fáil are working this budget out together. Can we take it that these changes will be sustainable?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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Any changes we make will be sustainable, affordable and in line with the kind of changes we made last year. Deputy Broughan began to outline what I am planning to do with expenditure, but if he looks at what I am doing, he will see that the key driver for our expenditure growth for next year is investment in capital expenditure: hospitals, schools, and homes. I think that the Deputy will agree with me on this. Looking at where we are with regard to current expenditure, much of the expenditure growth we have elsewhere is on profile and in line with how the economy is growing, the pressure on the health sector and one other exception notwithstanding.

I will deal with the charge that I am in some way looking to be unsustainable by illustrating the scale of how different we are now as opposed to the past. In budgets deployed across the so-called tiger period, the combined value of the tax and social welfare packages amounted at one point to between €1.6 billion and €2.6 billion. The combined value of any package that I have put before the Dáil has amounted to between €800 million and a maximum of €1 billion. Both expenditure growth and income and social welfare packages are considerably lower than they were in the past. The Taoiseach was correct in his broad outline of where it is we are going, and I will be filling out this outline between now and budget day.

Photo of Tommy BroughanTommy Broughan (Dublin Bay North, Independent)
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I have a final question. Can we take it from what the Minister has just said that, come budget day, he will read out a gender equality budget statement alongside the budget itself? This committee has done much work in this area, and I know that the Department of Public Expenditure and Reform also has its own programme on this. Will the Minister do this and will he respond to the committee's report on gender budgeting? Will he be using the ESRI's SWITCH model to evaluate the budget before he stands up to deliver it?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I will be making reference on budget day to where we are with regard to equality proofing and equality budgeting. I would manage the Deputy's expectations, however, by saying that we will not yet be in a place where we can extend this approach to all Government expenditure. We are working on equality proofing six specific areas: education, business, transport, culture, health, and children and youth affairs. We will include an update on where we are in the equality budgeting and the gender proofing of budgets in these and, perhaps, other specific areas when we publish the Revised Estimates Volume in the aftermath of the budget. We are working with the expert advisory working group on equality budgeting and we have a good work plan laid out for how we are going to make this work come alive over the coming year. Some of the experts who have appeared before this committee have, I think, acknowledged that the Department is trying to work to make this happen.

Photo of Tommy BroughanTommy Broughan (Dublin Bay North, Independent)
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It is somewhat disappointing, however, that there is no such statement, or at least that it will not appear in the big budget volume itself. It is disappointing that we are not more proactive on this matter. We have heard that the SWITCH model can be used for this. We have liaised with the Scottish Parliament and with other jurisdictions that have embarked on this course, and this is perhaps something that the Minister needs to prioritise.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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In response to the Deputy's question, I have should have said that we do our own SWITCH model internally and we look at the distributional consequences of the decisions we make. It is fair to say that this model is not at the level of sophistication of the model published by the ESRI, but the ESRI is the leader in SWITCH analyses, most particularly the recently retired Professor Tim Callan. We have a model but it does not have the full weight of the ESRI model. We will have to make many different decisions which will feed into the SWITCH analysis at the final moment.

I acknowledge the Deputy's disappointment at where we are in terms of gender proofing and equality budgeting. It would be a big ask, however, to be able to apply this to all Government expenditure. We expect to end up in line with what other countries are doing in this regard. There are approximately 90 countries carrying out this kind of work across the OECD. Austria is the leader in this field. Indeed, I met the Austrian finance Minister before I came here. The work we will bring before this committee on particular Departments will be substantial, but we have some way to go before we apply this to every cent we spend.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I thank the Minister and his officials. One narrative I often identify with the Minister and his Fine Gael predecessors is that he is prudent and pragmatic whereas some of us on the left are reckless and profligate. I put it to the Minister that the opposite is true. I would like him to answer questions in two particular areas where I think he is being reckless, profligate, and wasting and planning to waste large sums of public money that could be far better spent solving some of the very serious problems facing this country.

Let us start with housing, the biggest problem facing us. There is a social crisis engulfing the country and the ESRI is the latest to state that this is going to get worse, not better, and this is after seven years of a Fine Gael Government. Aside from this crisis, however, I put it to the Minister that the Government's Rebuilding Ireland plan is proposing to waste enormous sums of money in a very profligate way. We have been saying this for years but it has been more or less confirmed in the spending review for 2018 from the Department of Public Expenditure and Reform. This sets out the Rebuilding Ireland targets and points out that out of 137,000 social housing units, only 33,000 will come under build, a further 6,000 under acquisition, and the rest will come under leasing, the rental accommodation scheme, RAS, and the housing assistance payment, HAP, all of which will be paid out of current expenditure. Just under 100,000 of these proposed units will come under ongoing current expenditure that is going to continue to increase as opposed to carrying out construction and acquisition which, as the report points out, leads to current expenditure decreasing over time. There may be a greater capital cost up front but, over time, the ongoing cost to the Exchequer will reduce.

Why is the Minister doing this profligate and reckless kind of spending which will create a massive hole in the public finances in the future? Picking up the Minister's point about inflation, surely this spending will also fuel such inflation? He is proposing a social housing provision model in which we will have no control over the costs of the delivery of that housing or over the property prices and rents that will be charged by the private sector. We can see that rents are spiralling as the private sector manipulates the market. Is this not a guarantee for massive inflation in the housing sector and a repeat of all the mistakes of the past?

The second matter on which I ask the Minister to respond is tax reliefs where, again, he is being absolutely profligate. There is no prudence whatever in the massive outflow of tax expenditures, reliefs and allowances, which are not being monitored or reviewed but which are being abused. I take the most obvious example, which is linked to housing. I have asked on successive occasions about section 110 relief which, so the public knows, means people who bought into Irish property and retain their investment for seven years will pay no capital gains tax or tax on rental income.

Photo of Colm BrophyColm Brophy (Dublin South West, Fine Gael)
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The Deputy has one minute.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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When we ask how much tax is forgone on that relief, which has fuelled the vulture funds' grab of Irish property, we cannot get an answer. Does the Minister not consider that the public and the committee at least deserve an answer on how much tax is being forgone on section 110? While the Minister does not agree with a financial transactions tax, can he provide an answer as to how much revenue would be generated if one were imposed? Can he examine section 481 tax relief for example? While I stress the need for a lot more investment in film, Mel Gibson is suing the producers of a film made in this country-----

Photo of Colm BrophyColm Brophy (Dublin South West, Fine Gael)
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I thank Deputy Boyd Barrett

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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-----because he alleges expenses for the film were inflated in order to defraud that tax relief.

Photo of Colm BrophyColm Brophy (Dublin South West, Fine Gael)
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Deputy Boyd Barrett went way outside what he should have said in his comments.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I do not think the Deputy is reckless and profligate.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Thanks.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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He put forward costed ideas on the funding of expenditure. My view is that the proposals he put forward regarding how he would pay for that expenditure would ruin the economy. He is not being profligate, but the ways he has of paying for these policies would devastate job creation and retention in Ireland. That is different from being profligate. To deal with the questions the Deputy puts to me, I note first on the point he makes on the composition of our housing policy that he is incorrect. Up to 2021, we are looking to provide an additional 50,000 social housing homes of which 33,500 will be built, 6,500 will be acquired and 10,000 will be leased. That is the make-up of the figure up to 2021. In relation to why we are using leasing programmes-----

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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What about the RAS and HAP figures?

Photo of Colm BrophyColm Brophy (Dublin South West, Fine Gael)
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Allow the Minister to finish.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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We are using leasing and RAS programmes as social housing output builds to the point we want it to get to. What is the alternative? Does Deputy Boyd Barrett think it would be tenable for me to say that while homes are being built, we will not provide support to people who need it? That would be wrong. While we are getting our social housing output up to where we need it, we are using these programmes to ensure people who need support to have roofs over their heads, which they deserve, get it.

I do not have an answer on the revenue from a financial transactions tax but I will get one for the Deputy. I know it is an issue the Deputy has raised in the past. This is an example of why I do not believe the Deputy's policies are uncosted, rather I believe they would cause huge harm to our economy. If we were to introduce a financial transactions tax, as glamorous as that sounds from afar, it would have an immediate effect on the financial services sector which employs tens of thousands of people. We would find ourselves as an outlier in implementing something like that at a time when the only silver lining available to our economy is where we might end up from a financial services perspective post-Brexit. The policy would, again, harm the creation and retention of jobs.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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The Minister did not answer on section 110.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I do not have an answer in front of me on section 110.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I know. I want to know when we will get one.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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The Deputy moved quickly to where we are on a financial transactions tax but from my recollection of what he said to me, if the information on section 110 is available, I do not have it to hand. If it is available, I will get it and send it over to the Deputy.

Photo of Lisa ChambersLisa Chambers (Mayo, Fianna Fail)
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I thank the Minister for attending. I will focus on Brexit. The Minister outlined a number of measures in his statement which, by the way, we received only 14 minutes before the meeting commenced. It would have been preferable to get it a little sooner. On the sector-specific supports the Government is going to put in place, the events at Salzburg last week have raised more concerns about the potential for a no-deal Brexit. I understand that we are preparing for that possible eventuality and hoping it does not happen. Even if there is a deal with a free-trading arrangement with the UK, we are still looking at a drop in GDP, going by the Copenhagen report, of up to 4% and a reduction in exports of 3.5%. If the UK reverts to World Trade Organization rules, we are looking at exports going down by 7% and a loss in wages of nearly 9%.

There are huge risks to our economy in the very near future. While I welcome the fact that the Government is increasing our fiscal buffers to provide a rainy day fund, which is Fianna Fáil policy, it is a longer-term strategy whereas Brexit is next year. I am particularly concerned about the agrifood sector which stands to be affected most. Yesterday, I met Enterprise Ireland which is doing a great deal of work to help Irish companies diversify their markets. Even that agency acknowledges, however, that not every product will have the same capacity to move markets. Areas outlined included beef and mushrooms. We are looking at a potential drop in beef exports, even with a free-trading arrangement, of up to 18% and at the same drop in dairy exports. These are huge impacts on our agricultural sector and on agrifoods. As with many other Deputies, I met IFA representatives today. They are looking for specific supports in this budget, in particular €200 per suckler cow and access to low-cost credit. There must be a specific focus on the sectors most affected. Even with minor changes, these sectors will be affected massively. I ask the Minister what plans he has for sector-specific supports for agrifood and whether he will publish details of his contingency planning for a no-deal Brexit. I have submitted a freedom of information request on behalf of my party, which was rejected, appealed and rejected again. Will the Minister, therefore, provide us with the information on his contingency planning for a no-deal Brexit?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I am pleased to be able to tell the Deputy that sales of Irish food, drink and agricultural products generally have increased by 6% since last year. Amid the changes we are seeing, the industry continues to do well. On future supports I might put against it, that will be the outcome of the budgetary process which I am in the middle of. I can point out to the Deputy what I have already done. We have done three particular measures. First, we have looked to put more resources and support behind organisations like Bord Bia to allow them to continue with the work they are doing to target overseas markets. Second, we put a loan fund in place earlier in the year to make working capital available to farmers looking to diversify their businesses. Third, I have worked with the Minister for Agriculture, Food and the Marine, Deputy Creed, to deal with matters particular to his Department. For example, we made additional funding available last year for particular rural development programme measures relating to sheep farming. All of this work has had an effect on the performance of Irish agriculture.

The Deputy asked whether I could publish details of contingency planning. I did not know the Deputy had submitted a freedom of information request, nor should I know. I was not involved in the decision-making process in relation to it nor should I have been. This is a matter that is entirely independent of me. I imagine one of the reasons for the refusal is that there is a provision within the freedom of information legislation on the deliberative process under way within Government in reaching decisions. Publishing work related to contingency planning would have two immediate effects. First, it would affect the negotiations under way at the moment.

We should think carefully about doing anything that might undermine what are incredibly sensitive negotiations.

It is best to lay out exactly how we plan to manage worst case scenarios in sensitive areas of the economy only when I can demonstrate that it is necessary to do so. It is important to discuss this with the country. I outlined to Deputy Michael McGrath what would be the effects of a disorderly Brexit. I can only give members a view because those effects are cushioned in great uncertainty. However, Brexit would cause major disruption for the economy. If I were to outline how we would deal with Brexit, it could undermine the sensitive work that is under way.

Photo of Lisa ChambersLisa Chambers (Mayo, Fianna Fail)
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I disagree with the Minister. As everybody is aware, all member states are making preparations for all possible eventualities. Outlining details of our preparations would not undermine or negatively effect the negotiations in any way.

I appreciate that the Minister will not answer questions on the VAT rate today. However, I want to make a case for businesses in the west and rural areas. The impact of the VAT rate is different across regions. The Minister must bear in mind that while businesses are doing well in the capital, it is a different story for hotels and restaurants in County Mayo and elsewhere on the western seaboard. Not all hospitality businesses are doing the same level of business. That regional imbalance need to be reflected in budgetary policy. I appreciate the Minister's point that different VAT rates cannot apply in different areas, but other mechanisms can be employed to try to achieve a better balance. I ask the Minister to bear that in mind.

The Minister dealt with the overrun in the health budget when responding to questions from other Deputies. I want to touch on the issue of orphan drugs. Every year, new drugs become available for different ailments. The health budget is expected to respond from the existing budget because there is no specific budget for orphan drugs. I ask that the Ministers for Finance and Health examine this issue. We know these drugs will come down the line every year and we will have parents and children protesting outside the gates of Leinster House to ask for medication they believe they need. There should be a separate budget to deal with this type of event. The health budget cannot be expected to deal with unexpected costs of such magnitude. I ask the Minister to discuss with the Minister for Health what can be done to address an issue that will arise every year. We should not put pressure on families to try to compete for access to a health budget that is already massively overrun. It appears we are set to continue on that path.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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On Brexit, will be as prepared as we can be for dealing with the different developments that may occur next year. As somebody who is involved in the discussions on Brexit, I respectfully take a different view from the Deputy. While we may reach a point at which we will need to articulate what we will do if certain developments arise, it would not be helpful to do so now.

On the VAT rate, I understand the point the Deputy makes very well. It has also been put to me by the Minister for Rural and Community Development, Deputy Michael Ring, the Minister for Transport, Tourism and Sport, Deputy Ross, and the Minister of State at that Department, Deputy Brendan Griffin. If one considers the third point made by the Deputy, the need to pay for new drugs, we have to raise the money to pay for those new drugs.

Photo of Lisa ChambersLisa Chambers (Mayo, Fianna Fail)
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I understand that.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I know the Deputy understands that. Ultimately, we will have to make choices regarding how we do all of that. The Deputy feels as strongly as I do about the need to make further progress on housing. If we stand by the need to adhere to the fiscal rules, as the Fianna Fáil Party does, it will mean making choices about how we pay for resources that become available beyond what I announced in the summer economic statement. There are no easy choices left regarding how we do it. That is what I am reflecting on at present.

Photo of Lisa ChambersLisa Chambers (Mayo, Fianna Fail)
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I thank the Minister.

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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I return to the issue of health to ensure we have absolute certainty on the matter. The Minister indicated it will be a week before he can make a final decision on the implications of an overrun based on the information that will emanate at that time. He stated that, based on previous years, the overrun in health spending could be between €500 million and €600 million and supplementary budgets of that order had been introduced in the past. He also said this would not have implications for the €800 million available in the overall budgetary package because excess tax revenue is expected and other Departments will underspend their budgets. Without knowing the figure for health spending, does the Minister have an estimate at this juncture for excess tax income and does he have figures on underspends in other Departments? More important, can he inform us what Departments are underspending? Which Departments failed to live up to their commitments to the taxpayer? Members of the public would be interested to find out where and why these underspends occurred, especially when one considers the demands that are placed on us, as public representatives, in respect of critical infrastructure such as rural and county roads. Deputies have received representations from different sectors and those advocating on their behalf in recent weeks and such meetings will continue for the next number of weeks.

The ESRI and others are evaluating a mechanism by which a cohesive approach can be taken to the carbon tax for a period of years. Is it the Minister's belief that he should commit to ring-fencing some of the revenue from the carbon tax to soften the blow to sectors that will bear the brunt of its impact, namely, the agriculture, haulage and peat excavation sectors? The latter was a driver of the economy and job creation in my region in times past. Would it not be fair and appropriate that these sectors would have revenue from carbon taxes at their disposal to be used for innovation enterprises to replace these industries and jobs? This would allow them to lead in the advancement of alternative forms of energy provision that would have a manufacturing benefit in future?

The sale of Bord Gáis in 2014 generated income to the State of approximately €950 million. A commitment was give at the time to make €500 million available for an off-balance sheet model to provide social housing. This never materialised and under budget 2015, €10 million per annum was to be provided for social housing pilot projects for 20 years. That still left a shortfall of €200 million. I have asked about this issue previously. Where did the money provided for in the commitment given in 2014 go, especially considering the expectations that we would have a meaningful impact on implementing the provisions of the agreement between my party and the Government, notably in regard to affordable housing?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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What was the first issue the Deputy raised?

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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I asked the Minister about the health overrun, and his assertion that the €800 million available to him in the budget would be cushioned by receipts in tax in excess of what was expected and underspends by some Departments. I asked for the figures in this regard.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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The Deputy asked if I knew what the tax forecast will be for the entire year. I will have a good idea of what that figure will be at the end of next week because at that point I will have the figures for September. My officials will look at trends in the economy and give me their informed view as to what these mean for the rest of the year.

To clarify my earlier point on budget overruns in health not having an impact on budget 2019, I am working to ensure they will have no impact on the budget for next year and I have some work left to do on that.

This will depend on the decision I make as to the final figure the Department of Health will need and, second, as we debated earlier, how much of that figure will translate into the base for next year. This work is under way at present.

To respond to the Deputy's third question-----

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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Sorry. I asked about the underspends.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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Yes, I am coming to that. That is No. 3. I have it written down here. The Deputy asked for the underspends by Department. I do not have that available to me but I can get it for the Deputy. It is published so I will be able to get it for him quickly. The fiscal monitor outlines where we are Department by Department in respect of their profiles, so we will be able to give that information to the Deputy. To deal with one matter upfront, what is different this year from the case in the past is that the Department of Housing, Planning and Local Government will spend the full allocation it has available to it. The Deputy has raised this with me because this has not been the case in previous years.

To respond to the Deputy's fourth question about carbon tax, yes, we would use some of the revenue, were such a tax to be increased, to try to deal with sectors that would be adversely affected by it. I must make the broad point, however, that if such a tax change is made, most of the revenue will be used to address issues which colleagues have raised with me this afternoon, principally what we want to do in housing and our future health needs. Yes, I would look to leave aside a portion of the revenue to deal with adverse effects that could develop by sector and to see how we could accelerate our progress in respect of an economy that is less reliant on carbon. I have answered the question about Bord Gáis for the Deputy in the past but I will have to get the answer again as the committee goes on. I do not know it immediately.

To respond to one other question that was pending, Deputy Doherty asked me earlier for the figures available for additional housing for 2019 that are already built into the ceilings we have published. It is €160 million on build and acquisition and €100 million for programmes such as LIHAF and the retrofitting of homes.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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I am conscious that we are meeting in the week of the tenth anniversary of the bank guarantee. In this context, is the Minister's Department seeking or has it sought to recruit consultants with a view to reviewing bankers' pay? Their current limitation, I think, is around the €500,000 mark. I understand there has been some avid pre-budget lobbying on the part of bankers to stress their poverty and how they need a pay rise. Given that the economic figures and the atmosphere at present are very similar, I think, to the period 2005-07 - in other words, there has been a massive expansion of the economy but there are also really serious problems - what is Deputy Donohoe's position as Minister for Finance on bankers' pay?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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The Deputy is correct - we have gone out to tender for consultants that would give me an assessment of our position on banking pay and compensation. I think that report is in the early phases of being done and that I will get it later this year. Banking policy stands as it is, which is consistent with that of the time when the Deputy was in government. A matter I increasingly have to deal with is that we have so many banks now located here in Dublin and Ireland that, because they are foreign and not domestically owned, they are not subject to our banking policy in respect of remuneration. This is then an issue for banks that the State owns. As I said a moment ago, however, a review on this is under way. I announced this as part of the decision I made to vote against a resolution on remuneration at the AIB AGM and I will receive a report on the matter later in the year.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Have we learned anything? I am aware of the L'Oréal principle - it is because they are worth it - but does the Minister really think these people in sharp suits are worth €500,000 a year each? I am outraged that the Departments of Finance and Public Expenditure and Reform between them would literally turn their backs on any learning we might have had from the time when the boom got boomier, as it is getting now, notwithstanding a really serious infrastructural deficit, whether it be a matter of fixing rural roads, to which the previous speaker referred, or the really awful housing and health crises. People are stretched to understand why this Government cannot perform in housing or health. What is it that bankers do that merits more than €500,000 a year? I can think of many people who do really valuable work but they would not dream of putting their hands out for half that figure. Has there been a period of reflection in the Departments of Finance and Public Expenditure and Reform on learnings from the crash? I am shocked, as I think almost everyone in the country will be. It is heartbreaking to hear the Department say this.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I am implementing a policy that is the same as that when the Deputy sat around the Cabinet table. All I am saying-----

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Excuse me. When I sat around the Cabinet table, I insisted-----

Photo of Colm BrophyColm Brophy (Dublin South West, Fine Gael)
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Deputy Burton should let the Minister answer.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I am answering the Deputy's question. I know she does not like to be reminded of her time in government-----

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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I do like to be reminded of it.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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-----when I make these kinds of points to her but, as I have said to her, the policy I am implementing at present is the policy that stands. All I have said to her is that we are assessing it, and I have explained why. The reasons certain salaries exist in certain sectors are a matter of great reflection for me. Banking is a leading example. The number of international banks that have now massively increased their presence here in Ireland and in particular the growing effect that technology companies are having on wage levels and on competition for talent within that sector are having an effect on the ability of banks that we own to retain staff. All I have said is that this matter is worth reviewing. I am under no illusion that if we were to make any change in this area, there would of course be massive public concern about it. We will increase investment in infrastructure next year by a quarter, or 25%. An additional €1.5 billion will go into hospitals, schools and housing, and this is happening because it is needed. It is all under way.

Photo of Colm BrophyColm Brophy (Dublin South West, Fine Gael)
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Deputy Burton has less than a minute left.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Does the Minister propose to compensate people on social welfare for the impact of the proposed increased carbon taxes, which would hit people on social welfare, particularly pensioners, extremely hard? Does this in effect mean we can anticipate that everyone who receives a weekly social welfare income will see a €5 a week increase? I cannot see how the Minister can do less than that if he is to change carbon taxes. It is almost impossible.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I know, but, as I have already said, were there to be a change to the carbon tax, there would be effects elsewhere, particularly within our society, of which I am mindful and to which there would be an expectation of a response. That answer still stands. As for changes in general social welfare rates, the Deputy will understand, as someone who was involved in the process herself, that we have not made decisions on that yet.

We have a significant amount of work to do before we reach that point. Members of the Labour Party are as aware as anyone of the challenge in regard to climate change, the scale of which is commonly acknowledged. The Climate Change Advisory Council has strongly recommended a move on carbon taxation. If Deputy Burton believes the carbon tax policy should stay as it is, that is understandable. If it is to be changed, however, I know what the effects would be elsewhere and that I would be expected to respond to them.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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I have one further brief question.

Photo of Colm BrophyColm Brophy (Dublin South West, Fine Gael)
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There will be an opportunity for Deputy Burton to come in again after other Deputies have contributed. I call Deputy Heydon.

Photo of Martin HeydonMartin Heydon (Kildare South, Fine Gael)
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I apologise for missing the beginning of the meeting. I thank the Minister for his attendance.

Mindful of Deputy Burton's reference to comparisons between now and ten years ago, it is fair to acknowledge that our tax base is now considerably wider than when the boom was getting boomier, as it were, and the crash happened. We are now in better shape in that regard. I acknowledge the work being done by the Minister in bringing us towards balanced budgets, growing our economy and reducing the national debt, all of which must be done. Maintaining careful management of the public finances is essential in terms of the importance of sustaining our recent progress. I support the prudent approach being taken, including the establishment of the rainy day fund, which is of assistance in sustaining progress and an example of how we have learned from the mistakes of the past. Although this may initially sound contradictory, I also support the 25% increase in spending on our overall infrastructure outlined by the Minister and provided for in Project Ireland 2040. Although there may be some small risks in terms of overheating the economy, to which reference has been made, the bigger risk is that we fail to compensate for the lost decade in terms of building schools and hospitals and increasing hospital capacity and so on.

On climate change, in a year in which we have had three very substantial weather events so far, it is very important that the budget continues to make strides in terms of reducing our overall emissions because climate change cannot be denied. As a member of the Joint Committee on Climate Action, a meeting of which is under way and which I will have to attend shortly, I recognise the importance of a co-ordinated whole-of-Government approach to the issue. That committee has only been meeting for a month but the point that has been conveyed by almost every witness who has appeared before it is that no single Department can fix this issue. It cannot be the responsibility of a single Minister. Rather, a whole-of-Government approach must be taken. It is as important an issue for the Minister's Department as for any other.

It is important that we consider vulnerable groups which would be particularly adversely affected by any possible changes. I will not repeat the earlier points that were made. I had several questions that have been addressed.

I have raised the issue of the betting tax, which is as relevant now as ever before. I do not expect the Minister to comment on this because I appreciate he will not speculate on possible budget measures. I point out, however, that from a high of 20% in 1984, the betting tax was reduced to 10% in the 1990s, 5% in 1999 and 2% in 2002. I never saw any justification for the decision to lower the betting tax from 2% to 1% in 2006. It was a mistake. Betting activity has changed significantly in recent years. In 2001, €68 million in betting tax was collected at a time when the betting industry had a turnover of approximately €1 billion. That turnover has increased fivefold. Approximately €5.5 billion worth of betting activity takes place in this country, but less tax is being collected than when the turnover was €1 billion. That is not right and should not continue. The net income from betting tax in 2017 was €52.2 million. There is a very strong case for increasing the tax, in particular in light of the issue of problem gambling, the challenges which young men in particular in this country face, and the prevalence of online betting. It is an area where steps must be taken. We did an amazing job in putting in place a tax on remote operators which many people thought we would be unable to implement. The Minister's predecessor as Minister for Finance, Deputy Noonan, told me that we needed to let that system bed in. There has been a considerable increase in the amount that tax is bringing in. In 2016, €31 million was collected, increasing to €50 million in 2016 and €52 million in 2017. That €20 million or €21 million extra coming in online is due to that system having bedded in. There is a very strong case for increasing the betting tax. That is the one point I will make rather than contribute on issues which have been addressed.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I will take the Deputy's view on board. That issue was also covered in the tax strategy group papers. It is a matter on which Deputy Heydon and the Minister of State, Deputy Halligan, have strong views. Account will be taken of all of that as we make decisions next week.

Photo of Colm BrophyColm Brophy (Dublin South West, Fine Gael)
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As agreed, we will now go back to Deputies who wish to make another contribution. The first to indicate was Deputy Jonathan O'Brien. We have time for a relatively brief round of questions.

Photo of Jonathan O'BrienJonathan O'Brien (Cork North Central, Sinn Fein)
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I have some brief questions. I am unsure if the Minister will be able to answer them because I know he cannot reveal any budget measures. On the Sláintecare report, the Minister is aware that it recommends an additional allocation of €396 million for its implementation next year. Is it the intention of the Government to begin the implementation of Sláintecare? If so, will the full allocation be made or will that be determined based on the Minister's negotiations and discussions with the Department of Health on its overrun? Will that have a bearing on how quickly we can implement Sláintecare?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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It is still to be determined. I cannot divorce the costs of the implementation of Sláintecare from the funding needs of our health service as it is organised. Deputy Jonathan O'Brien would not thank me if I were to make a decision which, for example, affected the number of home help hours or the availability of nurses in our hospitals to fund a package of measures under Sláintecare. It falls to me and the Minister for Health, Deputy Harris, to try to find a balance but we have not yet agreed on that. We hope to be in a position to make progress in that regard.

One of the challenges I face is that various commissions and groups make recommendations about their policy area. The trick is to pull all those requests together while being mindful of the consequences for the national finances. More resources and support will be allocated to Sláintecare. I acknowledge that much work was put into it by the Members of the Oireachtas involved in its drafting, but there are many competing needs that I must try to meet. I refer to our discussion on housing. I could probably discuss the education sector with the Deputy all afternoon. We must try to knit those needs together.

Last night, Deputy Jonathan O'Brien fairly stated that I do not have a monopoly on solutions. He is correct in that regard. I must try, however, to find a way for us to fund progress on all of the solutions people want me to implement. That is why the preparation of the budget is demanding.

Photo of Jonathan O'BrienJonathan O'Brien (Cork North Central, Sinn Fein)
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The Minister will appreciate that I have not held this brief for very long and am still learning it. On the underspends in Departments, he indicated that the overspend in health will have to be built into the base if it is determined that it is a recurring cost and that he will try to mitigate that partly from taxes which have exceeded expectations. We know that some are running above what was predicted, especially corporation tax. He also stated that he would try to offset or mitigate some of the overspend by utilising the underspends in other Departments. If there is a consistent underspend in a Department, is the reason for that identified? Is the underspend then deducted from the base the following year or is the budget allocation made without reference to such underspend?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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That is a very prescient question because when a Minister for Finance engages with Departments that have an underspend in a particular year or part of year, such Departments normally assure the Minister that the money will be spent by the end of the year. That is what normally happens.

Photo of Jonathan O'BrienJonathan O'Brien (Cork North Central, Sinn Fein)
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It does not always happen.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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It does not always happen, to put it mildly. The reasons vary from Department to Department. The most frequent issue relates to capital expenditure in December, which can sometimes be reliant on where we are in the planning or procurement process. With procurement in particular, sometimes things can happen in December that are genuinely outside the grasp of a Department. By that point it will have shifted into another budgetary year. Even if a Department has persistent capital underspend, it will always assure me that this year is different and that it will spend it all. Effort is put into all of these aspects to try to make a judgment call on where the Departments will end up at the end of the year.

Photo of Jonathan O'BrienJonathan O'Brien (Cork North Central, Sinn Fein)
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The final question is on taxes and the forecasts. I have not studied this but I am aware from studying the health budget that it is the fourth quarter where we always see significant pressure, perhaps because of recruitment issues. The August 2018 figures for excise duty were €249 million less than predicted. Are these cyclical figures also, such as in a quarterly cycle, or would we be confident that there is usually an increase in taxes in the fourth quarter in certain areas? We are almost €70 million under profile in stamp duty also. Are those figures based on different quarters that may be more profitable than others?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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On the Deputy's first question, the key factor to where we have ended up in customs and excise duties has been the pre-loading that took place in cigarettes in advance of plain packaging being introduced. As I look into the remainder of this year, the trend that has been established across the first three quarters of this year is likely to continue into the final quarter. This is certainly something I will be mindful of when making future decisions on tobacco. We need to consider the degree to which additional increases will give the kinds of yield we may have got in the past.

With regard to stamp duty on commercial property, the Deputy will be aware that in the first quarter of the year we got off to a little bit of a slow start considering where we were versus the profile, but we were ahead of the previous year. That has improved. As we move into this year, we are still a bit behind, but I am cautiously optimistic that we will deliver at or near our target. It is an incredibly lumpy tax and, if a small number of big commercial property transactions take place in the final quarter, they can have a substantial effect on where we end up in the year. Given the magnitude of the move I made on stamp duty on commercial property, which I do not believe was expected by all, it may have had an effect at the start of this year. I believe we will do okay there.

Photo of Jonathan O'BrienJonathan O'Brien (Cork North Central, Sinn Fein)
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The final query is about VAT, in which we are some €80 million behind.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I think we will be fine in VAT. It is my expectation that we will be fine overall. While that is a lot of money for any of us, it is a very small percentage of where we are in the total tax take for VAT.

Photo of Jonathan O'BrienJonathan O'Brien (Cork North Central, Sinn Fein)
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I thank the Minister.

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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I wish to stay on the health figure. Nothing disappoints people more than hearing of such a large overrun in the Department of Health and they do not see it on the ground, especially when they are part of the unfortunate queues in waiting lists, home help hours and the delivery of other HSE services. Let us consider the recent history of this. Last year, for example, how much extra funding did the previous HSE chief, Mr. Tony O'Brien, seek from the Minister to keep the HSE standing still this year?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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Mr. O'Brien did not seek any additional funding from me-----

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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I know that. How much did he seek from his line Minister?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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From his line Minister? It works the other way around. The funding is agreed between the Department of Health and the Department of Public Expenditure and Reform. From the funding that is available, the service plan is then worked out.

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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Is it not widely known that Mr. O'Brien would have sought it from the Department of Health, which in turn would have sought it from the Department of Public Expenditure and Reform, which in turn may have sought it from current underspends to meet the gap that this year was €800 million?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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It is fair to say and it is publicly known that Mr. O'Brien wrote a letter on this. With respect to the Deputy, when we are doing the budget each year, we have many stakeholders in the budgetary process who make their views known around how much additional funding is needed. It only falls to my two Departments and then to the Government to knit it all together.

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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I greatly respect that and I understand the responsibility the Minister has. The responsibility comes with the pleasure of office and the perks that go with it.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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That is correct.

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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We are glad to be able to accommodate the Minister insofar as we can. Having said that, something has emerged over recent years that appears to allow us all to believe that it is normal for there to be an overspend in the Department of Health of €600 million or €700 million. It is, unfortunately, not very normal for the public. The public does not see that spend on the ground. I want to do my job effectively, properly and sincerely by helping and assisting those who are most vulnerable, be they children or the elderly, but there is a very large discrepancy between what the HSE believes it requires to stand still and what the Departments of Health and Public Expenditure and Reform believe. In the meantime we are overspent and current expenditure underruns are funding this. The Minister is then in the unenviable position of having to raise revenue sources elsewhere other than from taxation or borrowing, which I understand we cannot do. That makes everyone's job more difficult. Those who feel it the most are the people in the queues or those who cannot avail of home help. The package of care needed by people with Alzheimer's or dementia and their carers is not excessive but it is a long way short of €800 million. There is a frustration there. The last thing we would expect to see is this overspend becoming the norm and that no one can get a handle on the health budget. As Deputy Jonathan O'Brien has said, the Minister has the Sláintecare programme - another measure that has full support from members of all parties and none - and the Minister has to proceed along that path in parallel to this problem.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I accept the thrust of Deputy Cowen's argument. I am not looking, nor will I present to the Deputy a narrative, to normalise this. Last year, where we ended up in terms of the scale of the Supplementary Estimate the Department received, combined with the budget allocation I made available to the Department, showed a significant improvement in comparison with where we had been the previous year. We saw a smaller Supplementary Estimate and we had seen a good budget allocation for it as part of budget 2017. I am not looking to normalise this. This is why I am taking care in answering questions put to me by the Deputy. Once I indicate what that figure is, that is what it becomes. As I put together the budget for 2019, I am taking a lot of time to focus on the figure for the existing level of service for the Department of Health. This is the figure that is needed to maintain all the services it has. I am taking a lot of care in agreeing that figure with the Minister for Health.

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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Okay. I just hope that shortly will come the day when the Department, the HSE and the Minister can come to an agreement on a figure that is a lot closer to each other's figure than that currently or in recent years.

On the national development plan and the additional €1.5 billion next year, can the Minister make available to the committee the various allocations for Departments in order that when he says there will be more expenditure on schools and hospitals next year, we can begin to narrow down exactly where that will be, notwithstanding the expectations beyond that into the 2040 programme or any negative effect as a result of Brexit, for example, as discussed earlier, which could mean difference in output?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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The short answer is that I will but to be clear about the Brexit effect, I referred to a hard or disorderly exit with many conditions around that. Later on in the process, it may be appropriate to spell out in greater detail what that would be but, as I said, there are many unknowns in terms of what a disorderly Brexit would look like. At a minimum, we can expect that the kind of changes we might have seen happen across a couple of years can be done in a single year, and an even shorter time period than that, so the effect, at a minimum, could be what I referred to earlier. However, on budget day and afterwards, it may be appropriate to outline that more fully.

Photo of Colm BrophyColm Brophy (Dublin South West, Fine Gael)
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We are heading into our final few minutes but I will call Deputy Burton, as promised.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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I want to raise an issue I have raised with both the Minister and the Taoiseach on a number of occasions, that is, the question of the section 39 hospice organisations. As he will be aware, hospitals recruit on a particular basis. Hospital staff of various grades have been the beneficiaries of the pay restoration, which was initiated when I was in government. However, the hospices recruit exactly the same staff for whom there is a lot of back and forth between hospitals and hospices. It is a good experience having that happen but it means that from the beginning of January, hospices had to pay the increase without any reimbursement from the Government of the cost of the increase. The annual cost of the increase currently for the hospices involved in Cork, Limerick and Donegal, St. Francis Hospice, Raheny and a number of other hospices, is €1.126 million. The retrospective element is estimated at just under €1 million.

The Minister's presentation indicates that he is approaching the forthcoming budget in the knowledge that there are significant flows of moneys into the Exchequer and while we have a total mess in housing and health, nonetheless, he will meet his targets. He has gone on the record publicly, as has the Taoiseach, in appreciation of the valuable work hospices do. All of us know through relatives and personal experiences among our broader families and friends that dying in a hospice in Ireland from a serious illness is a different experience from being in a busy general hospital with screens around the bed. The Minister has expressed his support and sympathy for the hospices on a number of occasions. In the context of a relatively small amount in this case, I cannot understand the reason he failed to act. Nobody can understand the reason the Minister for Health is unable to influence the runaway budget in his Department. It is usually the case that part of a Minister's job is to meet the budgetary targets; that is what they commit to try to do. All Ministers have difficulties but this has been brought to an art form in the Department of Health. We have a situation where the money is pouring in but, partly because of demographics and other reasons, the deficit is growing. I do not believe the Minister denied that it is possible the deficit this year could be in excess of €800 million, and that it might even reach €1 billion; the Taoiseach indicated the same to me. Why would the Minister single out the hospices for the kind of treatment he and his Taoiseach have decided on?

Also, in practical terms, given my ministerial experience and my own professional experience, the hospices have developed an in-hospital service where hospice staff go into busy general hospitals to try to help patients, and the hospital, when they are approaching end-of-life. That has been a good service. They have a service level agreement for that with the HSE. The service is saving costs for the HSE, which is not functioning optimally, to put it mildly, yet those who took the cuts, which are documented cannot get the Minister and the Taoiseach to agree to a restoration process. The Minister has been sent the documentation. In the context of a dysfunctional health service meeting any of its budgetary targets, I wish he could explain that.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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Many great things are happening in our health service. While I acknowledged earlier the great pressure being caused by the current state of the housing market in respect of tenants, people who are homeless and people who want to buy a home, more homes are being built and more planning permissions are being granted.

To deal with the issue the Deputy has raised, that matter is now back in the Workplace Relations Commission, WRC. While it is in the WRC, it would not be appropriate to comment on it because that has been dealt with by mediation.

The reason it is different from other parts of the health service is the individuals who work in section 39 organisations work for employers other than the State. That is why they are section 39 organisations. I might share with the Deputy some of the figures involved in the implementation of a move to the State paying all future wage increases across all organisations, and the revenue consequences of that. I can tell the Deputy they are many multiples of the €1 million she referred to earlier. However, the matter is back in the WRC. I appreciate and have had first-hand experiences, as we all have had, of the work they do locally and within constituencies. I hope the issue can be resolved within the WRC.

Photo of Colm BrophyColm Brophy (Dublin South West, Fine Gael)
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The Deputy can make a quick reply because we have exceeded our time slot for the meeting.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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This is an important issue. People are dying in all the cities and we cannot sort it out.

Photo of Colm BrophyColm Brophy (Dublin South West, Fine Gael)
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I am sorry, I do not dispute the importance of it. I was just making a comment. For clarification, the Deputy has probably had longer time than almost members to put questions to the Minister, so there is no unfairness in making this point to her. I ask her to be brief in putting her question.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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The WRC process is under way. The hospices are not part of that because the people they recruit are members of nursing bodies, doctors' unions and other unions related to health service staff. That means that currently, as I understand it, most recently from the lead SIPTU negotiator, a broad framework offer has been put on the table by the Government, which I believe has been welcomed by the unions, for the other section 39 organisations.

They will be offered pay restoration with a small back pay offer to be paid in January and backdated to October. I ask the Minister to indicate that he will make a similar arrangement for hospice staff. They are coming from general hospitals into hospices and do not fit into the Department's particular categories because they are in general health unions, which deal with those issues specifically.

Photo of Colm BrophyColm Brophy (Dublin South West, Fine Gael)
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I thank the Deputy and call the Minister.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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It will be appropriate to answer that question after the WRC process has concluded and not before. The Deputy has made a fair point that organisations involved in this process might not be directly represented at the WRC, and I am sure that is the case. Many other organisations, however, are paid for by the State but their employees do not work for the State. If the principle is established to pay all future wage increases under public sector wage agreements to staff of every organisation that provides services on behalf of the State, but which are not State-owned, there will be major financial consequences.

I have asked that I be informed, organisation by organisation, how each organisation stands. Most of this work has been done and this has infused some dynamism into the process. I have evidence that some organisations have been able to pay wage increases to their staff to match what has been happening in the current phase of the Public Sector Stability Agreement, PSSA. At a bare minimum, I need to know the financial status of all of the different organisations at play here and understand their ability to pay. The challenge I face, however, is that if this principle is established, it will have consequences that will stretch beyond the health sector.

Photo of Colm BrophyColm Brophy (Dublin South West, Fine Gael)
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I thank the Minister.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I say all of this with great appreciation for the work that these organisations do.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Is this not so different from the bankers?

Photo of Colm BrophyColm Brophy (Dublin South West, Fine Gael)
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I thank the Deputy and I thank the Minister and his officials for their engagement with all members. It has been a full engagement. The budget is upon us and, therefore, our thanks extends to them, not just for today's meeting, but for all of the engagement they have had with us in the run-up to the budget.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I thank the Chairman and the committee for their time.

Photo of Colm BrophyColm Brophy (Dublin South West, Fine Gael)
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The select committee adjourned at 3.45 p.m. sine die.