Dr. Tom McDonnell:

NERI's analysis of the available evidence is that the economy is not yet overheating. However, this is likely to change before the end of 2019 in the absence of a negative external shock such as a disorderly Brexit, which could quickly catapult us in the opposite direction. The various Brexit permutations mean that short-run forecasting is particularly uncertain. Nevertheless, the medium and long run sustainability question should continue to guide the fiscal stance taken by the Government.

The overall fiscal position is reasonably solid, at least ostensibly, with a neutral headline general government balance, GGB, of 0.0% of GDP in 2018. In addition, our view is that the structural or cyclically adjusted balance was marginally in surplus in 2018. Effectively, the public finances are now in balance, notwithstanding our high debt level.

Baseline average output growth of 4.5% is feasible over the 2020s. This sets a baseline for sustainable average annual nominal increases in public spending net of discretionary revenue measures. When we take into account demographic and inflationary pressures, the real per person increase will be close to just half this amount. Regardless of what form it takes, Brexit will marginally reduce potential output growth over the 2020s and this will, therefore, impinge on the annual fiscal space available to Government. However, the effect of Brexit on the amount of fiscal space available each year can be overstated. I am happy to talk about that further later.

The other major source of uncertainty relating to the budgetary position is the sustainability of corporation tax receipts. The surge in receipts in recent years caught policymakers and analysts by surprise. Changes to the treatment of corporation tax at EU and international levels, which are likely over the next two years, may undermine the flow of revenue from this source, at least domestically. it is, therefore, contentious whether some of those corporation tax receipts should be considered part of our structural tax base at the moment. This suggests a more cautious fiscal stance until we have greater certainty regarding future revenue yields.

NERI has produced a number of papers in recent years showing that Ireland's per capitapublic spending and per capitaGovernment revenue are both below average compared to peer high income EU countries, which refers to all of the other countries in the EU with a GDP per capitaof 30,000 or greater. I refer the committee to the accompanying submission and I am happy to discuss this in greater depth.

Given increasing demand pressures, Ireland's position in the economic cycle and the negative implications for inclusive growth and public services, a package of discretionary revenue measures that reduces net Government revenue would be an unwise course of action for budget 2020. Ireland faces a number of emerging challenges as we approach a new decade. These include Brexit, climate chaos, precarious work and inequality, housing and homelessness emergencies, a two-tier health system, the fiscal implications of a growing and ageing population, and the fragility of an industrial strategy based on tax-sensitive US multinationals. In particular, the risk of a no-deal Brexit has increased since the start of this year. Now is the time to invest in our people, public services and infrastructure. A substantial increase in productive investment, which will happen over the next few years, is the only way we can ensure our future prosperity in a sustainable and inclusive way. Brexit does not change this fundamental reality. Fundamentally, Brexit should not change budgetary policy in Ireland over the medium term. Good policies will remain good policies.

ICTU advocates for a radical progressive vision for Ireland's economy and society. Its submission for budget 2020, which is currently being finalised and will be submitted over the summer, will outline a series of proposals that will start us on the journey to realising that vision. Congress has consistently argued for an inclusive equality-proofed budget that places the welfare and betterment of the majority at its very core and prioritises higher living standards, particularly for workers and their families, to be delivered through a transformative programme of investment in infrastructure, services and service delivery. In particular, the budget submission will articulate the need to invest more in a wide range of different areas, including social and affordable housing, healthcare, childcare and education, clean and renewable energy and public transport. Achieving these goals means abandoning attempts to cut taxes on a net basis. Such policies will help overheat the economy and will harm workers in the long run. Congress proposes new taxes on capital, particularly on wealth and property stocks, to raise money for productive social and economic investment.

In principle, Congress supports an increase in the carbon tax but that is contingent on an accompanying and linked climate justice fund that would channel the revenue raised in the form of a dividend for every person living in Ireland. Our plan would reduce greenhouse gas emissions while the average household in the bottom half of the income distribution would see their purchasing power increaseafter the introduction of the linked carbon tax and annual dividend, that is, they would receive more in the form of a dividend than they would expect to pay in carbon tax. Households who change behaviour and opt for less carbon intensive modes of consumption will see their gains increase.

We are happy to take questions.