Oireachtas Joint and Select Committees

Tuesday, 27 April 2021

Committee on Budgetary Oversight

Draft Stability Programme Update: Engagement with Minister for Finance

Photo of Neasa HouriganNeasa Hourigan (Dublin Central, Green Party)
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Apologies have been received from Deputies Lahart and Nash. Today the committee will engage with the Minister for Finance on the draft stability programme update. I welcome the Minister for Finance, Deputy Paschal Donohoe, and Mr. John McCarthy, assistant secretary at the Department of Finance.

Before we begin, I will explain some limitations to parliamentary privilege and the practice of the Houses regarding references the witnesses may make to other persons in their evidence. The evidence of witnesses who are physically present or who give evidence from within the parliamentary precincts is protected pursuant to both the Constitution and the statute by absolute privilege. If witnesses are giving evidence remotely, however, from a place outside the parliamentary precincts, they may not benefit from the same level of immunity from legal proceedings as a witness physically present does. The witnesses are again reminded of the long-standing parliamentary practice that they should not criticise of make charges against any person or entity by name or in such a way as to make him, her or it identifiable, or otherwise engage in speech that might be regarded as damaging to the good name of the person or entity. If a witness's statement are potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative that they comply with any such direction.

Members are reminded of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside the Houses or an official, by name or in such a way to make him, her or it identifiable. I remind members of the constitutional requirements that members must be physically present within the confines of the place that Parliament has chosen to sit, namely, Leinster House or the convention centre, to participate in public meetings. I will not permit a member to participate where he or she is not adhering to this constitutional requirement. Any member who attempts to participate from outside the precincts will be asked to leave the meeting.

I now ask the Minister to make his opening statement.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I thank the Chairperson. I am pleased to have the opportunity to be here today to discuss the draft stability programme update, SPU. The SPU sets out the Government’s macroeconomic and fiscal forecasts for Ireland for the next five years. It will be submitted to the European Commission later this month. At the outset, I stress that this is a purely technical document, with the projections based on existing Government forecasts and decisions. In accordance with the requirements under EU legislation, the macroeconomic forecasts set out in the SPU have been endorsed by the Irish Fiscal Advisory Council.

The speed and scale of response to the supply and demand shocks created by the pandemic have been the theme of the Government’s economic response. Since March last year, we have moved rapidly, using the strength of our public sector balance sheet, to replace lost private sector demand in order to ensure that firms, workers and incomes were supported and protected through wage subsidies, deferrals of tax liabilities, and income supports. Our overarching objective has been to support households and firms, as well as to limit the permanent effects of the pandemic.

As we look towards a cautious reopening of the economy over the weeks and months ahead, it is clear from the stability programme update that the relationship between economic activity and public health restrictions has weakened over each wave of the pandemic. Certain sectors of our economy have been better able to adapt to living with Covid. The adaptability and innovation shown by businesses is borne out by the high frequency, real-time economic information published by my Department, which shows that the impact of the current set of restrictions is around half that of last spring. Much of this is due to the flexibility of our domestic enterprises. Firms and consumers have innovated and adapted. Last month’s VAT data, up 8.5 % on the first quarter last year, shows that people have altered their behaviour. They are buying local and buying online.

As we all know, however, the pandemic has not impacted everyone equally. Those in contact-intensive employment have suffered the most, while many others, especially those with the ability to work from home, have had very little or indeed no reduction in income and are as well off as before. Equally, those who have continued to work have continued to pay income tax and many businesses that have been able to operate through the public health restrictions continue to pay corporation tax.

The strength of these revenues, as well as the extraordinary easing of monetary policy by the ECB, have enabled the Government to support jobs, incomes and businesses throughout the crisis. This is only right, as the huge impact of the pandemic has demanded a forceful response from the Government. This is what we have done.

The overall budgetary strategy remains one of providing strong, counter-cyclical budgetary support to the economy. With a value of almost €38 billion, or nearly one fifth of national income, the budgetary support provided by Government has been extraordinary. We are in a position to do this because of the supports of the ECB and the support for our public finances over recent years. The total value of payments paid to date under the Government’s three main support schemes, the pandemic unemployment payment, the employment wage subsidy scheme and the Covid restrictions support scheme, is now €13.5 billion. We have spent more than €7 billion on pandemic unemployment payments and around €5.5 billion on wage subsidies. While the response has been appropriate and necessary, the cost continues to be significant. Last year, a general government deficit of €18.5 billion, or 5% of GDP, was recorded.

In the medium term, the speed at which the economy can recover will depend on our vaccination efforts.

This was a constant theme, for example, in the recent IMF and World Bank meetings. They are the cornerstone of our domestic recovery. The programme is now being accelerated over the coming months. Of course, there will be week-to-week fluctuations and day-to-day challenges but the bigger picture is clear; we are on track to vaccinate a large majority of the adult population of our country by the end of this quarter. This in turn will allow for a more significant easing of containment measures over the summer, and with that a sustainable recovery can begin.

A conditioning assumption underpinning the projections in the SPU is that low levels of public health restrictions will be in place in the second half of the year, with minimal restrictions next year, which should allow economic activity to normalise. However, it is likely that this normalisation will be somewhat different from the pre-pandemic norm.

Based on this scenario, modified domestic demand, MDD, which is the best indicator of economic trends, is projected to increase by 2.5% this year. This will accelerate to 7.5% next year. The release of pent-up consumer and business demand will be the key driver of the economy in the near term. The recovery in consumer spending is also assumed to be supported by an unwinding of part of the excess household savings built up during the pandemic.

The cost of this pandemic is, of course, felt most particularly by those who have lost their jobs. When the number of people in receipt of the pandemic unemployment payment is added to the standard unemployment rate, the unemployment rate is projected to average around 16.25% this year, before declining to 8.25% next year. This level of employment is projected to increase by around 80,000 this year and 225,000 next year, although the level of employment will still remain below its pre-crisis peak until 2023.

Over the medium term, an important but still open question relates to the extent of any permanent destruction of the economy’s productive capacity from the pandemic, the so-called scarring effects. At this base point, evidence is extremely limited. The scale of such harm will become clear over time as more data becomes available. Of course, a key area of focus of our existing policies is to try to minimise that scarring. A preliminary estimate is that my Department is projecting domestic demand to grow at around 3.5% over the medium term. This means that, notwithstanding a reversion to trend growth over the medium term, domestic activity would still be lower by the end of the projection period than the level suggested by the pre-pandemic trend, with employment still lagging. I reiterate that the outlook remains very uncertain - for example, if more stringent health measures are needed for a longer period, the Irish economy could be 4.5% smaller by the end of next year than it would under the main scenario.

On the fiscal front and on a technical basis, a deficit of €18 billion is estimated for the year. This is based on existing Government policies. I repeat, as I said previously, there will be no cliff-edge to our most important supports but any extension to these supports will, of course, worsen our deficit. This year’s deficit will bring our overall debt levels to just under €240 billion, or 112% of national income, measured in a way that strips out some of the bigger influences of larger companies on our national income. To put this another way, our public debt is approaching €250 billion. Once the worst of the pandemic has passed, it will be necessary to address this by eliminating our deficit over time in a way that balances supporting the economy with continued sustainable national finances.

A deficit of just under 3% is projected for next year. This assumes that beyond 2022 all Covid-specific supports are assumed to be unwound. With a recovering economy, withdrawal of these supports should be sufficient to better align what we take in and what we spend. In other words, economic growth via increased tax revenues will be enough to close the gap between what that State earns and what it spends. There are, however, clear downside risks for our public finances. In particular, international corporate tax reform could weigh more heavily on this revenue stream than is currently assumed. Having said that, our public finances are in a better position to absorb the expected shock to revenue than, for example, a decade and a half ago. Our tax base is much wider than prior to the global financial crisis and, importantly, there is time to build up the resilience of the public finances before international reforms move to the implementation phase.

Overall, the pandemic has taken a severe toll on our health, our economic health and lives and livelihoods. However, the continuing progress of the vaccination programme and the collective effort of our country provides reason for optimism. We entered into this crisis from a position of strength and our economic model has proven its resilience. Together, we will overcome the pandemic, rebuild our economy and return our people to work.

Photo of Neasa HouriganNeasa Hourigan (Dublin Central, Green Party)
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I will now open the floor to members. Leinster House has been experiencing all sorts of technical difficulties today, so let us all keep our fingers crossed that we get through this session okay. The first speaker is Deputy Boyd Barrett.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I thank the Minister for his contribution. There was relief last week when he talked about no cliff-edge for Covid-related income supports but in recent days that relief quite quickly gave way, certainly on my part and I suspect on the part of many people out there, to deep concern at suggestions that the PUP payment might be cut in the near future for sectors where there are still large numbers of people unemployed through no fault of their own because of the impact of Covid measures. I want to get an assurance from him that people who have lost employment and income, as a result of the pandemic, are not going to be further punished because they happen to be in the sectors that are worst hit. I think it is important to put it that way. Some sectors have been hit much worse than others and they are going to be the longest impacted, or scarred, by Covid. The idea that there would be a withdrawal of PUP payments from, for example, taxi drivers, whose industry is on its knees, musicians, arts people, cultural workers, areas linked to aviation, certain parts of retail, and hospitality, and that they would be punished by cuts in the PUP in the short term, when we are still a long way from the recovery of those sectors, would be unacceptable. I want to get an assurance from the Minister that that is not the case.

I would like the Minister to comment on the reports that the Minister for Public Expenditure and Reform, Deputy Michael McGrath, is talking about troika-style monitoring of public service budgets, which is a very alarming echo of the austerity policies that failed us so badly in the aftermath of 2008. Surely one of the things we have learned from Covid is that in areas like health, ICU capacity, hospital capacity and public health infrastructure, we do not need retrenchment; we need more investment, more spending and more capacity building. The same can be said about education, higher education and, obviously, public housing and affordable housing. We do not need retrenchment in these areas. We need significant increased investment because big deficits in these areas have been further revealed because of Covid. Again, I want an assurance that that is not the case. Indeed, I could add climate-resilience infrastructure to that list as it needs significant increases in spending and investment. Any talk of troika-style retrenchment would be extremely worrying when we need to move in the exact opposite direction. Perhaps the Minister could respond to those points.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I thank the Deputy for his questions. Far from the Government looking to punish any parts of society or any citizens, the approach of the Government has been to sustain society while we have all been grappling with an economic crisis that has its origins in health and public health. That is why the Government has had the PUP in place for so long. We have sustained a higher level of income replacement for citizens because we recognise the need to support them at a time of significant challenge and that is what we have done.

What happened last year is the Government looked to begin to change and reduce those payments at the right time, as work became available and the economy began to reopen. The Government has not yet made any decisions regarding what the nature of the PUP will be later in the year. However, we will have to make decisions relating to that payment at the right time and look at how we can change it as the economy reopens. We can sustain emergency levels of expenditure and very high levels of support when we need to and many people do not have the option to work. However, as the economy begins to, and does, reopen, we will have to begin the work of moving some of the supports that are in place into line with the rest of the social welfare system. It may be the case that we will be able to sustain some of those payments for longer than we would otherwise be able to do. This what the Government began the work of doing in the second half of last year but we were not able to complete those changes because, obviously, we were then confronted with further developments within the disease and we reverted to a tiered level of payment on the PUP, with the highest level of payment being €350. The Government has not yet made any decisions with regard to the PUP but, as the economy begins to reopen and we move out of a health emergency, the very high current levels of spend will have to be considered and we will have to decide what their future will be.

As regards the arrangements put forward by the Minister for Public Expenditure and Reform, this is not about the changes in expenditure that are associated with a decade ago. The SPU indicates clearly that, as the economy returns to a degree of normality, the return of growth will do much of the heavy lifting that is required to close the gap between taxation and expenditure. What the Minister is recognising, and on which I agree with him, is that when we get to a point at which the health emergency is behind us, many of the very high levels of spending we have in place in particular Departments will need to be reviewed and adjusted. As the Deputy will be aware, our current working assumption is that the emergency levels of expenditure will come to an end at the end of next year. That is what the processes put in place by the Minister are seeking to do.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I will slightly press the Minister on that issue. The Minister for Social Protection, Deputy Humphreys, will bring a memorandum to Cabinet today. I am not sure what is in the memorandum, but it certainly raised alarm bells. It would be very helpful for the Minister for Finance to give reassurances to people, particularly those in sectors where there is likely to be quite a long-term impact from Covid. I previously referred to taxi drivers. They will be protesting on Thursday. Their sector will not recover until the music, entertainment, aviation and tourism sectors recover. It would be completely wrong to cut their PUP, as it would be to cut the PUP of workers in sectors such as music or entertainment where it is clear they have lost income and employment opportunities as a result of Covid and are likely to be the longest impacted by those factors. Assurances in that regard would be helpful.

It is not just about the fact that there are emergency Covid payments and public services. My point was that Covid has revealed significant deficiencies in spending and investment in several areas. It is important that we do not go backwards, to where we were previously, but, rather, recognise the lessons of Covid. We need to increase capacity in ICUs, hospital bed numbers and public health teams around the country to name just a few examples. Similarly, we need investment in schools such as in better ventilation, better quality buildings and smaller class sizes. Surely these are the lessons of Covid. Learning those lessons means increased investment and capacity building. I have given just two examples. Housing is another I could add. Any talk of just returning to the situation pre Covid would not be learning the lessons of the pandemic in terms of going to the new and better normal that has been much spoken about.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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A key feature of where we have been economically is that the country has been able to fund what we have done in the past year for two reasons. First, it is due to the support of the European Central Bank, ECB, and, second, when we came into this crisis, what we were collecting in taxation was approximately equal to what we were spending. Our national finances were in a position of broad balance. There had been a primary budget surplus since 2014 and we were due to run quite a significant surplus for this year. All of this was a massive help in the context of funding the significant measures we have had in place during the pandemic.

In the SPU, we are planning to increase current expenditure each year by 3% to 3.5%. We still plan to increase current spending when we have beaten the pandemic and as we reduce the emergency expenditure that is in place. We have a plan that shows that, before any decisions are made on top of it, growth alone would help our national finances to achieve much of the recovery and that in the aftermath of that we can continue to increase spending. It is not just an argument in respect of going back to where we were. It is about recognising that as we see an improvement in the health situation, we will have to consider how we begin the journey of ensuring that what we spend is approximately covered by what we collect in taxation.

Photo of Brian LeddinBrian Leddin (Limerick City, Green Party)
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I thank the Minister for appearing before the committee, his statement and his efforts in managing the finances in the past 15 months since we entered the pandemic. It is a difficult time for everybody but it is obviously so for him in his position.

I am very interested in the issue of the wall of cash to which he alluded in his statement. The savings of many people have increased during the pandemic. The concern is that, as we reopen the economy, there may be a spending splurge, which may lead to inflation. We may see money leaving the country. People and families may be inclined to go overseas on foreign holidays when they can and the purchase of new vehicles may increase significantly if we do not seek to curb it, if that is the right thing to do. We probably should seek to stimulate economic activity in Ireland rather than seeing much of those savings go overseas.

For environmental reasons, I am particularly interested in the risk of a significant uptake in the sale of new cars. The new petrol and diesel cars that are sold this year will be the ones generating emissions in 2030 when we are trying to cut emissions by more than half their current level.

I would very interested to hear the Minister elaborate on the challenge of dealing with the wall of cash, inflation and money leaving the country rather than stimulating economic activity within our borders.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I thank the Deputy for his kind words. It is a challenge that we will face, as will every other economy that has been closed for a period and is beginning the process of reopening.

In terms of where we are now, if he looks at where we were in 2020, we estimate that our household savings ratio, that is, the portion of income that is not being consumed, reached almost 24% across that year. That is approximately double where we have been in previous years. If we look at the comparison between February 2020 and February 2021, there was an increase in deposits of approximately €11 billion during that period so there has been a very considerable increase in savings.

Regarding how much of that will be spent, at what rate and where, the stability programme update has relatively conservative assumptions regarding this. We are assuming that these savings will be released gradually back into our economy. Our assumption is that the willingness of families to spend those savings will be dependent on the degree of optimism or certainty they face regarding their own future, particularly in terms of where we are with employment.

In terms of what we can do to respond to that challenge, the first thing is to see how we can get our economy open in a sustainable way. There is a way in which these household savings are not facing significant bottlenecks in terms of how that investment can be released into our economy. Second, we have to consider what we can do to try to encourage that money to be spent in ways that are more conducive to public goods within our economy and the sustainable development of our economy.

To use the issue the Deputy raised of cars, he will be aware of all the changes we made in the latest budget where we fundamentally changed our motor taxation system and also our taxes in respect of the purchase of a car to make it more aligned to public goods and reduction of climate change. There are policy tools available to us in that particular area, for example, in our old VRT and motor tax regimes, that would not have been available.

Photo of Brian LeddinBrian Leddin (Limerick City, Green Party)
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I thank the Minister. I agree that very significant changes were proposed by the tax strategy group, TSG. Is the Minister open to further modifications for the refinements of its work this year?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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We implemented much of what was proposed by the group in the Finance Bill. There were some very small elements of what it proposed that we did not go with because I had a concern about the proportionality of it but the vast majority of what the TSG proposed in respect of the taxation of vehicles was implemented. In parallel to that we have expected increases in carbon taxation, which are due to happen in this year's budget anyway.

We have not begun the budgetary process yet in respect of any new decisions that might be made in that area. As is always the case in respect of a budget day decision, although I am perhaps saying it earlier in the year than I have previously, we have not made any decisions on this and any decisions will have to await budget day. I am conscious that we made some very fundamental changes in this area very recently and I will want to see how those will bed in and affect behaviour. There are some positive signs that the Deputy will be aware of that they are having an impact in terms of the kind of vehicles being purchased but we barely have a quarter worth of data under our belt yet.

Photo of Brian LeddinBrian Leddin (Limerick City, Green Party)
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I thank the Minister.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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I thank the Minister for coming before the committee and my apologies if any of my questions are repetitive. We have had a clash with the finance committee which the Taoiseach was appearing before.

I want to talk to the Minister about the Covid-related expenditure. The SPU points out that of the €12 billion Covid-related expenditure available in 2021, only €2.5 billion will be available in 2022. Can he outline what will comprise the €2.5 billion that will continue in 2022?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I believe that the figure for 2022 is actually €4 billion. The Government has not yet made a decision on the composition of that. That will have to be made on budget day. The Minister for Public Expenditure and Reform will have to engage with different Ministers regarding the composition of that for next year.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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The €4 billion the Minister talks about is €2 billion Covid-related expenditure and €1.5 billion for the increased unemployment payments because he has planned that the PUP will not continue into 2022. Is that correct?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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That is correct and that is a corollary of the fact that the SPU is prepared on a no policy change basis. Currently, we have only made decisions on the PUP up to the end of this year so any decision on the payment for the rest of this year and even for next year will change those figures.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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If it based on a no policy change basis what is the €2.5 billion of Covid-related expenditure for? Where is the policy regarding that?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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The Minister, Deputy McGrath, looked at measures that would be needed, for example, to support semi-State companies, the continuation of social distancing within public transport and some of the measures that are in place in our schools and made a judgment on the need for that to continue into next year. That is related to decisions the Government has made that are implemented in our current expenditure ceilings.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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We expect that the extra €1.9 billion for health is gone. The extra money for transport and for education, the €400 million, is gone and all the supports for employment are also gone. Is that the right interpretation of what we are reading in terms of the SPU?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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On the Deputy's point about employment, it does not assume the continuation of the EWSS, for example, next year. That is the case. The Deputy is correct with regard to employment. My expectation is that inside the €2.5 billion there would be figures that relate to health. That is a matter directly for the Minister, Deputy McGrath, but I will double-check that with him and confirm it for the Deputy.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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Late last year, the Minister planned to cut the PUP. He set out a plan to cut it in January and again in subsequent months. We disagreed with that plan but regardless of the political decision the plan was abandoned as we saw how Covid got a grip on society. It appears now that the plan is about to be refloated in the second half of the year. Is that the case or is it scaremongering? Will the PUP continue for the remainder of 2021?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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The Government has not made a decision in that regard. We have said we want to provide clarity on income and business supports in the coming weeks. We have not made a decision on that but it is the case that over time, as our economy reopens, we will have to change these payments in a very careful way. For example, getting our national finances back into a healthy position and recognising that we have a debt of €250 billion means that as our health situation improves we will have to consider the future of some of the emergency supports we have had in place. We did that last year. The Deputy disagreed but if and when we get to a better place regarding public health, the Government will have to reconsider them.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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At the end of this year, how many people are projected to be unemployed as a result of Covid-related unemployment, not including those who are traditionally unemployed?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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We expect an average rate of unemployment for this year of 11%. We expect a significant improvement on where we are at the moment. We expect total employment this year to grow by 80,000. Next year, we expect unemployment to fall to approximately 7%, with an average of 8% to 8.25% for the year overall. I do not have what that equals in terms of numbers of people.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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An unemployment rate of 11% at the end of the year would equate to 260,000 people unemployed. Taking the traditionally unemployed total of 128,000 out of it, it will leave approximately 130,000 Covid-related unemployed. Some of those sectors potentially will still not be able to return to work because of public health guidelines. I am thinking of those who worked in areas such as tourism, aviation, where there are mass gatherings and so on. There was a commitment given in the past that their payments would not be cut as long as Government decisions basically prevented them from returning to their job. Does that commitment still stand?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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The way the Government dealt with that matter last year was, as we changed public health guidance to allow businesses to reopen, we would over time change some of the payments, for example, the PUP. That is what we did last year and the Government will have to carefully consider how we do this across this and next year. We are not in a position to continue to maintain very high levels of emergency expenditure as our economy is successfully reopened, which is what we are looking to do.

If the Deputy is looking for a commitment from me that the PUP will continue to be around in an unchanged way, I cannot give it. If he is looking for a commitment that any changes we look to make on it will be made in a careful way and that we will look to integrate it with how we manage the public health of our country, that is absolutely what we will look to do.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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The SPU projects the deficit falling by 0.2% by 2025. Is that a Government target?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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The Government has not yet made a decision on what our medium-term budgetary anchor will be.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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When will that be decided?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I imagine we will aim to conclude on that work, as things stand now, before the summer.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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Will we have a summer economic statement this year? We did not have one last year.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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Yes. It is my aim to do a summer economic statement but if the SPU has taught me anything, it is how difficult it is to do that with all the uncertainty we are confronting at the moment. As things stand, it is my aim that we would do that.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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The SPU shows a year-on-year core spending increase of 3.5%. The Irish Fiscal Advisory Council says this only covers wage inflation, inflation and demographic pressures and does not deal with Government priorities. I take that as an acceptance that it will be beyond 3.5%. The Minister has said in the media that 3.5% is prudent and in line with the growth trajectory of the economy. Given that this 3.5% growth in expenditure does not cover many of the programme for Government commitments, where does the Minister think expenditure growth needs to go? Would he be satisfied with 4.5%, 5% or where is his thinking on this? Does he accept it will be higher than 3.5%?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I expect it will be higher than 3.5% but how much higher it will be depends on two factors, the first of which is the decisions the Government makes over time in the management of the Covid levels of expenditure we have. Second, it depends on the Estimates process and the work the Minister for Finance, Public Expenditure and Reform does. That work is yet to be done but I expect it will be higher than 3.5%

Photo of Neasa HouriganNeasa Hourigan (Dublin Central, Green Party)
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That is Deputy Doherty's time. I will bring him in for a second round if he wants. I call Deputy Michael Healy-Rae. No sign. We will move on and allow Deputy Healy-Rae to come in at a later time. I call Deputy Canney.

Photo of Seán CanneySeán Canney (Galway East, Independent)
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I thank the Chair and the Minister. This has been an unprecedented 12 to 15 months we have lived through. To say we have given out €13 billion in PUP and wage supports is a statement in itself. The only good thing about that is that money is going to people rather than to corporations or whatever. It is, and will be, in the economy because people will have money and they are paying their bills to keep going.

Looking at where we are and where we are going, there are a few questions. We talk about investment and about housing and technology being two places where investment is very much needed. I had a discussion this morning locally in a Zoom meeting about housing, the dysfunctional nature of it and what solutions we can put in place to make housing one of the triggers to economic recovery, as well as providing much-needed homes. There is a lot of talk about affordable housing, social housing and whatever else. The important thing is that the private housing market is not working at the moment. I believe the cost of building a house has gone up substantially in the past number of years due to the fact we want to build a better standard of house. We are looking at having a house that is more passive and uses less energy. Long term, we will get the benefit from that, but the initial capital cost for developers or anybody building a house is added to considerably.

As well as that, a large volume of housing is not occupied in towns and villages and for which we are not taking any regard, in terms of the help to buy scheme or the Rebuilding Ireland home loan scheme. For instance, with the help to buy scheme, if it is a second-hand house, the buyer will not qualify for support. For first-time house buyers, it is imperative we get young families back into towns and villages and give them the same chance as if they were buying a new house. A large number of houses lie vacant in our towns and villages and it would not cost the same as building a new house. We seem to be dead against the idea of supporting that in a real, tangible way.

The Rebuilding Ireland home loan scheme will only support the purchase of a house. It will not support the refurbishment the buyer will have to carry out on a house. For example, someone could buy a house in a village for €70,000 or €80,000 and put in another €70,000 or €80,000 to have a modern living space in a town or village for a family, as opposed to spending €200,000 or €300,000 on a new house, including buying a site, building a house, etc. There seems to be a lack of commitment to that.

The Society of Chartered Surveyors Ireland lately, in a presentation on the cost of building apartments in Dublin, stated that more than 70% of the space in Dublin over ground floor retail is vacant.

That is a great deal of space that could be used for people to live in, and one might ask why we are not taking it up rather than being driven mainly to support only people who are buying or building new houses. If we are to get the economy to grow and grow, while at the same time increasing the potential for people to work in a blended way in the regions, towns or villages, that is important. In the previous Government, it was a battle at times but we got the national broadband plan in place, which has proven to have been a very solid decision at the time. If there is any way in which we can accelerate the programme, we should do it. It is only in the past year that people have realised how much they are missing out on broadband.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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On the Deputy's second point, the Government will do what we can to speed up the delivery of the national broadband plan. The Deputy and I were involved in that decision in the previous Government and time has proven it to have been the correct decision. I understand that the difficulty in speeding it up is related not to funding or even to the contract but rather to the impact of the public health restrictions and the fact that they have not allowed the work needed for this project to go ahead. I hope our exiting public health restrictions will allow that work to accelerate.

On the question regarding the help to buy scheme and whether it should be made available to existing properties, there are inflationary challenges and risks with such schemes. The way in which we have prevented those risks developing is by making the scheme contingent purely on the building and completion of a new home. We have tried to make that policy focus as much as possible on the delivery of additional supply. My concern is that if we were to focus such schemes on existing housing stock, although I think the Deputy is suggesting buildings that might require work in order for them to be liveable, it would not have as great an impact on the release and creation of new homes. It would mean doing work on structures that exist or even on existing homes, and I do not believe that is the route this scheme should go down.

On the other hand, the Ministers, Deputies Humphreys and Darragh O'Brien, through the rural regeneration and development fund, have been making grants available to towns and villages throughout the country to put in place plans that allow homes to be delivered in towns and villages. I think that is the way we should do it and I understand it is the way we are doing it, namely, by servicing land and sites in the centre of towns to allow homes to be either completed or delivered there. That is the best way of delivering the priority the Deputy outlined, which I share.

Photo of Seán CanneySeán Canney (Galway East, Independent)
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The properties I am talking about are not houses at the moment. They are derelict structures in towns and villages, and young people are willing to get involved in them and take on the challenge of doing them up and living in those towns and villages. There is no incentive for them to do that, however, and in some cases, services such as sewerage may not be there. This would not add to inflation. The Minister stated he wants to increase the supply of housing, and this is one of way of doing so and at the same time rejuvenating towns and villages. The schemes currently in place through the Departments of the Ministers, Deputies Humphreys and Darragh O'Brien, are there to provide public areas and public realms and buildings, but there are private properties too and people just need a bit of an incentive. I think it would be a game changer.

The next issue I want to raise, in the context of future budgets and the NDP, relates to construction cost inflation. It has been reported that because we closed the construction industry, we have lost up to 40,000 people who have gone to the UK to work. We need to get them back. They are people with skills such as engineers, project managers, quantity surveyors and so on as well as skilled labourers. When we come to implementing the NDP and try to regenerate the economy through capital expenditure, the level of inflation in construction may be different from that of overall consumer price inflation. There may be a spike in inflation in construction because material prices are increasing as a result of many factors, including the lack of supply of native timber and other resources and the increase in the price of steel, which is a scarce commodity at the moment. In the context of the NDP and the funding in that regard, we may not get as much buck for our pound as we think we will. What kind of contingency planning will be done to account for that?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I absolutely understand we are facing an inflationary risk in the pricing of raw materials, an issue that has been raised with me by businesses. On the other hand, the great challenge we faced in construction over recent years concerned the degree to which construction was competing with other priorities apart from housing within the economy, such as the delivery of commercial property, the building of hotels and other priorities that obtained at that point. My expectation, for the short term if not longer, is that in respect of some of the other priorities the construction sector was seeking to deliver ahead of housing, a rebalancing may occur that allows a greater priority to be given to the delivery of housing within the economy. While I accept there are issues with the pricing of raw materials and there will be issues with how we rebuild the number of workers we will need to get our construction sector up and running again, it is possible that the demand for some of the other things the construction sector has wanted to deliver in recent years may change.

From a capital point of view, we are going to continue to invest heavily in the delivery of homes. The total level of voted capital expenditure, before the Government adds to it in the coming period, stands at between €10 billion and €11 billion per year. When the previous Government, of which the Deputy was a member, started in 2016, that figure was between €3 billion and €4 billion. It has increased significantly and, unlike during the previous crisis, we are not planning to cut back on it. That will play a very positive role in delivering our priorities in housing and elsewhere.

Photo of Michael Healy-RaeMichael Healy-Rae (Kerry, Independent)
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I thank the Minister most sincerely for taking time out of his busy schedule. I really appreciate it. It is very good of him to come before the committee to assist us in our work. I will try to be helpful in telling him about some of what I have been hearing on the ground.

I have had discussions with people involved in the tourism sector in recent days. As the Minister will know, the county I represent, County Kerry, is the premier tourism capital of Ireland and of the world. The hoteliers and all the business people have told me they are finding it difficult to get employees to fill positions in their businesses. For varying reasons, they lost their employees during the pandemic. They redeployed to other sectors that were able to stay operating. I have first-hand experience of dealing with some projects that were allowed to continue during the pandemic. For instance, it is ironic that those managing some of the larger public contracts taking place throughout the country are also finding it difficult to get people with the varying skill sets required to work on the ground. I am telling the Minister this because as Minister for Finance I genuinely want him to hear it. I am only saying it to be helpful. I presume he knows it already. Deputy Canney rightly highlighted in his excellent contribution what is currently happening in the housing market as a result of the cost of materials having greatly increased. I would make a special plea to the Minister on behalf of the Rural Independent Group which, as he will know, has flagged the issue of VAT imposed on insulation material. We are encouraging the owners of private houses and businesses to insulate their homes and the places where we work to conserve energy and thereby reduce fuel bills. It is a big disincentive for the State to charge VAT on those goods. I would be worried about that. The Minister might closely examine that area when future budgets are being adopted.

In recent days, I have outlined my concerns about the timing of the introduction of carbon taxes and what they will mean for every man, women and child. I hope the Minister heard those concerns. All of us are interested in protecting the environment. I appreciate we are all only custodians of the environment but we cannot cripple people with taxes. I believe in and adore democracy. I appreciate and fully respect the right of people to vote for whoever they want to elect to different positions. I have nothing but the utmost respect for a person who gets to the position of being a Minister, and in particular a Minister for Finance and all that entails. However, I am worried about the future in that we are giving control of carbon budgets to a group of people who are not elected and were not put into their positions by anybody in the public domain. I have grave concerns about that. If we as legislators are entitled to vote at budget time that is fine, and we live in a democracy. If other Deputies vote through a measure that I do not like, my attitude is that is fine because that is democracy. However, I am concerned when I see a group of disciples being brought together. We are being told that this group will tell the Irish people in future how much tax they will pay in terms of carbon tax and what areas will be affected. I have no problem with the Minister for Finance introducing a budget and our voting on it but my God if we are going down the road of unelected people having a say in the future finances of our people, I would have grave concerns about that. I must put that on public record. It would be wrong of me to say it in other forums and not to say it in front of the Minister.

I sincerely thank the Minister for his work. I acknowledge he is in his ministerial role at an extremely difficult time. I respect work and people I see working and doing their jobs. I know the Minister is doing that. I might not agree with everything he does or with what his Government does but I appreciate the reasons he does it. I also appreciate the reason those in government think every decision they make is perfect and right, but I would not agree with all of those all the time. A number of sectors of society have been closed for a long time. I would not have agreed with that decision but what is done is done. As a representative of those people, be they people involved in different areas of hospitality, hairdressers or beauticians, I know they are not happy. The fact that people were not allowed to go mass and up until today only ten people were allowed to attend a funeral has greatly upset many people. While those in government might have thought they were acting in the best interest of the health of the people, they alienated themselves from many people because people did not agree with what they were doing. I thank the Chairperson for the opportunity to make that contribution and I will stay quiet now.

Photo of Neasa HouriganNeasa Hourigan (Dublin Central, Green Party)
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I thank the Deputy. Does the Minister wish to respond?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I will indeed. I thank the Deputy for his contribution. The first thing I would say is that I never pretend for a moment that any decision I made is perfect. All I can do, which I do my best to do, is weigh up the pros and cons of every decision. I make a decision motivated by the public good and then justify that decision to the Oireachtas and to our country. It is in that spirit I will quickly deal with the different points the Deputy made.

First, on his point on carbon taxing and his concerns, I assume, regarding the new carbon emissions reduction legislation that has been brought forward by the Government, he would be the first person to make the case for the beauty of the countryside in Kerry, its environment and its biodiversity. That legislation has been brought forward by the Government with the aim of being able to protect that or minimise the harm to it for the all the generations to come and even for this generation. That is what has motivated the legislation that has been brought forward. Decisions on carbon taxation will always be decisions that are made with respect to the finance Bill by the Oireachtas and the Minister for Finance. If the next Dáil is unhappy with the decision-making process that has been brought forward in the Bill from the Government, the democratically elected members of that Dáil can change the structure of that decision making if they so wish. The structure that has been brought forward by the Government to deal with the issue of carbon budgets is the subject of legislation, which in turn depends on the consent of the democratically elected members of our Oireachtas.

On the Deputy's point regarding VAT on insulation materials, I cannot give any commitment about that but I will certainly have a look at it and consider it in terms of decisions that will be made later in the year.

On the Deputy's final point on the hospitality sector and the difficulty employers face in potentially getting their staff back to reopen our hotels, restaurants and so on, I am aware of that challenge. It has been being raised with me directly in the context of employees who have moved from one part of our economy to another. In some cases, employees have left our country and now face the challenge of getting back into the country. We will have to consider those issues in terms of how we can reopen our economy in a sustainable and safe way. At the heart of the employment challenges those in the hospitality sector face is they being able to indicate credibly to those returning to work in hotels and restaurants that they will be working in hotels and restaurants that have every prospect of being able to stay open and not be closed again. That is what the Government is trying to do. We want to ensure that what we reopen we can keep open and that we can have public health policy in place that will allow businesses to stay sustainably open as opposed to having to close and our having to shut them as we have done during the last year. I am aware of the concerns the Deputy has raised. That is why we are hoping to safely and sustainably open new parts of our economy to create more certainty regarding continuity of employment within them. That in itself is difficult, which is why the decisions we are making at the moment are very finely balanced.

Photo of Neasa HouriganNeasa Hourigan (Dublin Central, Green Party)
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I thank the Minister and call Deputy Patricia Ryan.

Photo of Michael Healy-RaeMichael Healy-Rae (Kerry, Independent)
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Could I just-----

Photo of Neasa HouriganNeasa Hourigan (Dublin Central, Green Party)
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Sorry, Deputy Healy-Rae, your time is up. I will get through another round of questions.

Photo of Michael Healy-RaeMichael Healy-Rae (Kerry, Independent)
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Okay, thank you, Chair.

Photo of Patricia RyanPatricia Ryan (Kildare South, Sinn Fein)
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I thank the Minister for being here to answer questions; it is appreciated. I will ask about pensions. Can we ensure that every older person who has been resident in Ireland will receive full pension payments? We know the current system is not working in that regard. Can we dramatically reduce the bureaucracy by having only one test for assessing payment and eliminating the very complicated conditions that are a part of the current systems?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I am afraid I am going to have to disappoint the Deputy. Perhaps she can explain the issue to me a little more as our session goes on. I am not aware of all of the detail regarding the relationship between residency and qualifying for an old age pension in our country. I know what the criteria are for a contributory pension, non-contributory pension and so on. I am aware of that. Perhaps the Deputy would explain further her concerns about residency.

Photo of Patricia RyanPatricia Ryan (Kildare South, Sinn Fein)
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I am concerned that the current system and the proposed new system leave large numbers of older people with only partial or low pensions. I want to see a change there. Is there anything there on which we can work?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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We have a commission at the moment that was put in place by the Minister, Deputy Humphreys, that will be reporting back to the Government in the coming months. One of the issues at which I will be looking is the sufficiency of contributions that people have made and what that will mean for their future pension provision. We expect a report back from the commission on that and other topics before the summer.

Photo of Patricia RyanPatricia Ryan (Kildare South, Sinn Fein)
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I look forward to seeing where that goes. I am also interested in the Minister's opinion on the effect of community wealth building and how it can assist with the fallout from Covid-19. I have read the circular on Government procurement. Does the Minister have any developments planned in this area?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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Did the Deputy say "community wealth building"?

Photo of Patricia RyanPatricia Ryan (Kildare South, Sinn Fein)
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Yes.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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Does she mean social capital and the resilience of local communities? Is that the issue to which she is referring?

Photo of Patricia RyanPatricia Ryan (Kildare South, Sinn Fein)
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Yes.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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The resilience of local communities and the work they have done from supporting local authorities to the work done by sports associations to home help to delivering meals to our elderly has been incredibly important over the past year. The Minister, Deputy Humphreys, is making different decisions to look at how we can support those parts of society in the important work they are doing. If the Deputy has any particular priorities or views as to how that should be done, it would be helpful for me to be aware of them.

Photo of Patricia RyanPatricia Ryan (Kildare South, Sinn Fein)
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I would like to come back to the Minister down the road in that regard, if possible. Deputy Canney spoke about housing. Many people who do not qualify for the Rebuilding Ireland home loan come to my office because they are not first-time buyers. Some of them are in second-time relationships and earn slightly above the threshold for social housing. Those people are falling through the cracks. Are there any plans to address their needs? Is it possible that we could harness some of the power of the substantial savings that are out there with some sort of housing bond that could help our councils to build more social housing?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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The main way in which we are trying to enable our local authorities to build more housing is through the scale of the budgets that we are making available to them. The funding for the Department of Housing, Local Government and Heritage has significantly increased to allow our local authorities to build more housing directly. The Land Development Agency will begin its work mainly in Dublin. It is looking to find ways in which it can deliver affordable housing at a greater scale than has been possible in our country to date. In short, the way in which we are looking to meet the need to which the Deputy referred is through the amount of money that we are making available to our local authorities for them to directly build housing. As the Deputy knows, our local authorities have been open for longer than would have been the case with the private sector for the delivery of privately-owned homes in recognition of the issue the Deputy is raising.

Photo of Patricia RyanPatricia Ryan (Kildare South, Sinn Fein)
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There are existing council homes in my constituency and the budgets to maintain them are very low. In some cases, homeowners looking for something as simple as new windows or doors might get the front windows done this year and the back ones done next year. Can the Minister see an improvement around budgets in the near future in that regard?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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While I do not have the detail in front of me, I recollect that funding was made available in last year's budget, as it was in previous budgets, to deal with voids. I am sure the Deputy is familiar with that issue from her local authority. That funding has increased. I am most familiar with the housing work of Dublin City Council, which has put considerable effort into void conversion and I believe that work is going well. There is always a case to be made for trying to put more money into this area and I know that is a case that the Minister, Deputy Darragh O'Brien, is pressing at the moment.

Photo of Neasa HouriganNeasa Hourigan (Dublin Central, Green Party)
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I will now open a second round of questioning and ask Deputies who would like to come in to put up their hands. While Deputies are organising themselves, I will ask a quick question.

The Minister spoke a little bit about the challenge of writing the stability programme update, SPU, this year because of the degree of uncertainty and the dynamic situation in which we are living, including the reliance on vaccines, etc. My question relates, selfishly, to the operation of this committee but also to other fiscal bodies that will be looking at what the Government is doing. One of the matters that has been raised at our committee is an issue around scenario analysis and planning. We are projecting a certain amount of growth but, obviously, we are not entirely sure whether that growth will be as we project it. We are not entirely sure, even with pronouncements from President Biden on tax changes, what companies will do in terms of corporation tax. We do not understand growth in the medium term or what either higher or lower revenues will do to our decision-making processes. In terms of oversight for committees such as this, fiscal bodies or the work of the Minister, is there scope to improve scenario analysis or planning for the Government and those of us who are reading reports?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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This is covered off in the stability programme update that I know the committee has considered. We get into the issue of trying to look at different scenarios that our economy could face in that update. In particular, we look at what different scenarios relating to the spread of the disease could mean for our economic forecasts. The scenario analysis we have done here is more advanced than we have had to do in recent years. We cover off the different risk assessments and risk matrices in tables Nos. 17 and 18 in the stability programme update. My view is that limitations in our modelling are not preventing these scenarios being more detailed. It is, rather, limitations in our ability to forecast and the uncertainty of future developments. If our scenarios are in any way insufficient for the committee, it is not due to the challenges that we have with modelling and the models available to the Department of Finance, but it is a reflection of the fact that so many things could happen in the future. We have to make reasonable assumptions regarding the most likely things and, on the basis of that, make our forecasts. For those who believe our forecasts should be more accurate and sophisticated, as some do, I ask for their help as to how we can form a better view of what the future may hold. We have seen how unpredictable it is over the past year.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Deputy Doherty and I have asked questions about the PUP. I am still getting slightly conflicting signals from the Minister and would like to get a bit of clarity on the PUP. Some sectors will, of course, recover, As public health restrictions are lifted, people will be able to go back to work and they will not be on the PUP, so the Minister will not need to maintain it for them. In respect of continued public health restrictions or the scarring effect on particular areas, a few of which I have mentioned, such as aviation, music, entertainment, certain areas of hospitality and tourism, since people's loss of employment and income results from Government public health policy, can the Minister give an assurance that he will maintain supports for those groups because otherwise he is, in effect, punishing those worst hit by the pandemic? This would be pretty ironic considering, as the Minister pointed out, some people have not been impacted economically at all and some sectors of our economy and some of the wealthiest people and most profitable businesses have done extremely well during the pandemic. It would be grossly unfair to pull supports from the worst affected while others have done extremely well in the pandemic. The Minister should give assurances that he will not do that at any point when the loss of income and employment is not the fault of these people but is a consequence of the pandemic and measures the Government took to address it. If the Minister does not give this assurance, people will be very angry.

Another question I put to the Minister last week to which I have not received an answer is in the same ball park. Why has the Government consistently refused to extend schemes like the CRSS and the CBAS, the grant support schemes for people who have ongoing fixed costs that they cannot cover because of loss of revenue, to people who do not have rateable premises? Those groups have been as badly hit - in some cases, even worse - as those with premises but the Minister has refused to extend the grant support schemes to them. Again, I refer to musicians, taxi drivers, people in events and so on. Why is the Government not giving them support when they are some of the worst hit when it comes to covering their fixed costs and when the debts they are accumulating are going to make it very hard for them to recover?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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In the spirit of an exchange, there is something I would like to get the Deputy's views on. I heard him continually make the case for zero Covid, particularly when we were dealing with the consequences of the third wave in our country. Given that we have not met the criteria of zero Covid, as he described, I would really be interested in hearing whether he is supportive of us reopening the economy in the way we are doing at the moment. I am interested in hearing his views on this but I will answer the questions he put to me because he has put serious questions to me. I am interested in hearing whether he, as a leading proponent of zero Covid, still stands by that view when we have levels of community transmission that are higher than he would have indicated as being safe in respect of our economy reopening.

To deal with the questions the Deputy put to me, because I accept I am before this committee to answer its questions, although I believe in debate and argument on matters, the Government has not made a decision on the future of the PUP but it is a general payment. It is a payment that we make available to everybody and is at a level that is significantly higher than other rates of job support payments we make available to people, for example, through the jobseeker's payments. It is significantly higher than that. As we get to a place where our economy is reopening, we are going to have to make decisions at the right point about what the level of that pandemic unemployment payment is. What the country will not be able to afford is a situation where our economy has reopened and is approaching a degree of normality and programmes like the PUP, the employment wage subsidy scheme and CRSS are unchanged and still exist in their current format. That is where the Deputy and I differ. Over time, as employment grows, I believe our deficit will need to fall to keep our country safe from other challenges we could face.

Regarding the Deputy's question on the CRSS, for months in the Dáil, many Deputies called on me to bring in a scheme to support businesses that were required to close due to public health guidance. That is what the CRSS is. It is an immensely powerful and successful policy tool and has been acknowledged as such by all those on it. It will pay out probably over €500 million to businesses that need it most. I was asked to put in place a scheme for businesses that were required to close. That is what I did through the Revenue Commissioners and both the Revenue Commissioners and I stepped up to doing that. We then acknowledged that there were businesses that were not supported by that scheme. That is why a variety of other schemes were brought forward that look to address the needs referred to by the Deputy. Schemes like the tourism interruption scheme introduced by the Minister for Tourism, Culture, Arts, Gaeltacht, Sport and Media and the Covid-19 business aid scheme introduced by the Tánaiste and Minister for Enterprise, Trade and Employment involve tens of millions of euro and try to meet the different needs that are there. I acknowledge that there are still some businesses and citizens who feel they are not getting the support they need or deserve but we have now spent €12 billion on these different schemes to meet those needs, so I can assure the Deputy it is not for lack of effort or intent on our behalf and we are looking to address the issues to which he referred.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I assume the Chairman is not going to allow me to respond but if the Chairman gives me time to answer the Minister's question, I am happy to do so.

Photo of Neasa HouriganNeasa Hourigan (Dublin Central, Green Party)
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I am prepared to give the Deputy a minute.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I do not think the Minister quite explained why some people are excluded. On the point about zero Covid, we would not be in such a precarious situation having to decide between high circulation levels of the virus and reopening after a long period of lockdown if the Government had introduced a zero Covid approach at the appropriate time and not made the mistakes it made in December and January, which have left us in a much more protracted period. The truth is that there is tremendous fatigue and there will be no stomach for trying to reimpose even harsher restrictions. However, the Minister should do everything to avoid a fourth wave so there should not be premature accelerated reopening, which could produce a damaging further wave and greater lockdown. There should be mandatory quarantine to keep the variants from coming in and completely destroying the vaccination programme and the progress that people's hardship has achieved.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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As the Deputy would no doubt say to me, that was not the question I put to him.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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It was my answer.

Photo of Brian LeddinBrian Leddin (Limerick City, Green Party)
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I wish to follow on from Deputy Canney's points on the help-to-buy scheme. If I heard the Minister correctly, his concern is that we would end up effectively renovating homes that are already lived in and not actually reactivating vacant homes. I encourage him to take this very seriously and to think about it because we have some very good Government policy at the moment between the rural strategy, the town centres dispersed policy being developed and the remote working strategy. I think there are 200,000 vacant homes spread across the State. It will not be possible to reactivate all of them but a substantial portion of them could be reactivated as homes, particularly for young families, to bring life back to our towns and villages.

Perhaps there is a way around the Minister's concerns and we can be creative in introducing some kind of modification of the help to buy scheme so that young people, in particular, are supported in purchasing what are essentially vacant private structures. The benefits would be entirely positive and align with Government policy. I would be interested in hearing more of the Minister's thoughts on this suggestion.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I hear the Deputy's point on this matter. My view is that it is a priority. As he stated, we have good policies in this area in terms of how we develop our town centres, but the way this needs to be implemented will vary in different towns and from local authority to local authority. For example, if we have homes that are in an exceptional state of disrepair, the family that he is referring to may need more support than they would for a home that had not been lived in for a while and might need less work. That is the kind of issue that is better dealt with by grants from our local authorities than through varying the help to buy scheme. If this is the priority that many local authorities assert it is, there are clear opportunities in the rural regeneration fund and the ample funds that are being made available for town centres for some of that money to be reprioritised or diverted local authority by local authority to deal with it. For example, the Minister for Rural and Community Development, Deputy Humphreys, has made more money available to deliver hubs in various towns and villages across the country to take advantage of the roll-out of broadband. Perhaps local government should accompany that by using a small amount of its money to assist in the rejuvenation of homes near those hubs in a way that is well designed for each local authority area. That is how it should be done. It would avoid any inflationary or price pressure risk that could come were we to change the help to buy scheme.

Photo of Brian LeddinBrian Leddin (Limerick City, Green Party)
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I thank the Minister.

Photo of Mairead FarrellMairead Farrell (Galway West, Sinn Fein)
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I apologise, as I was at another committee and I hope that I do not revisit questions that have been asked. I am sure the Chair will not be slow in telling me if I do.

I wish to ask about a matter discussed by the Committee of Public Accounts recently, that being bogus self-employment. Our PRSI is low by EU standards. It will be examined by the newly established Commission on Taxation and Welfare, which has been given a far-reaching remit to recommend changes to the taxes we pay and the entitlements we receive. Will the commission go beyond headline tax rates and examine areas of avoidance through, for example, bogus self-employment? If it recommends tax increases, will the Minister accept them?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I will not. Any decision on taxation has to reside with the Minister for Finance and the recommendation that he or she makes to the Government. I will be informed and advised by what the commission will do, but given that it has not even begun its work, it would not be appropriate for me to say that I will automatically accept the outcome of said work. I will be informed by it and I am sure I will accept many of the commission's recommendations, but I would have to see the work and the commission's output before I decide on whether to accept all of its recommendations.

Photo of Mairead FarrellMairead Farrell (Galway West, Sinn Fein)
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There was news today that Germany and Italy had stated they would be behind President Biden's proposals on a 21% corporate tax rate. Will that have an impact? What is the Minister's view?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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It was Germany and France. They are restating long-known and well-held positions on corporate tax levels within the EU. I am not at all surprised by what they said. They have in other fora recently stated that they wanted to see an increase in corporate tax rates across the world.

Photo of Mairead FarrellMairead Farrell (Galway West, Sinn Fein)
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In recent months, two major banks have announced that they will pull out of the State. We have discussed our crisis in credit provision. We are all aware of the importance of credit in fuelling the engine of the economy. Having two major fuel sources leave will have an impact. There have also been discussions - I am not sure whether it was at this committee or the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach - on the role that the credit union sector will play. We have heard from the sector that it feels it is not able to use all of the resources that could be used. In recent months, we have heard growing talk of a State-owned lender or public bank. That would probably be a longer-term strategy. What are the Minister's views on same? What role can the credit union sector play in the here and now? Do some of the regulations need to be relaxed to give credit unions greater powers? Not only can credit unions play a strong role, but many of the bank branch closures are happening in more rural areas, meaning that a great deal of local knowledge is lost. That is concerning for local business people in particular. What role will the credit union sector play? I would also be interested in the Minister's views on a public bank.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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It is a little early to be declaring that we have a credit crisis. We still have large domestic banks that are well capable of competing with one another to meet the credit needs that our economy will have.

Credit unions will be able to play a larger role in meeting the economy's credit needs in the years to come, particularly in the context of the changes in branch networks. Those changes are not only happening in Ireland, but in many other parts of Europe as well. A number of the issues that the credit unions raise with the Deputy and me are the consequence of the regulations that the Central Bank has in place to keep those unions safe and protect them and their members. I support the independence of our regulator and the decisions it makes in that regard. That said, we are engaging with the credit union movement. The programme for Government contains a commitment to reassess the legislative framework for credit unions. We are doing that work. The Minister of State, Deputy Fleming, and I are working on some proposals in that regard.

Concerning the Deputy's question on the setting up of a public bank in Ireland, I do not support such an initiative for a number of reasons. First, the level of State involvement in our banking sector at the moment is already advanced. We are a minority shareholder in one bank and the majority shareholder in two others. Our starting position is a high level of State involvement from an ownership point of view. Second, the Deputy touched on non-bank entities such as our credit unions - there is also An Post, which she did not mention but I am sure she would - that are capable of responding to consumer needs that they believe are not being met. Third, we vowed a decade ago that we would never again build a direct link between the balance sheet of our country and our banking sector. A public bank is a way of tightening that link and creating new kinds of risk for us in future. I do not see the case for it. It would take a long time to do. Instead, we need to take stock of where our banking sector stands at the moment and determine what our more appropriate policy priorities are in the context of the exit of KBC and Ulster Bank.

Photo of Mairead FarrellMairead Farrell (Galway West, Sinn Fein)
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The Minister held an interesting tax seminar last week. At a meeting of the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach last week, we had a discussion on Biden's proposal for a global minimum corporation tax rate, an issue on which the OECD has launched a base erosion and profit shifting, BEPS, process. In a recent RTÉ interview, the Minister stated: "I’ve been saying this moment has been coming for years; it’s now happening, and it will have consequences." He has stated elsewhere - I do not recall where - that our regulations on CFCs, transfer of pricing rules, limitations on interest deductibility and so on have been strengthened and will be strengthened further. Some people would argue that those factors would have given us a competitive advantage. In light of these potential changes, what preparations is the Minister making to formulate a new industrial strategy to ensure we will flourish?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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It is US President Biden who is bringing forward these proposals. Irrespective of the impact we will have to deal with, he is the Head of State and Government of the United States. The Deputy referred to him as "Biden", but we should respect the offices other people hold. I do, even though the proposals he is bringing forward will create consequences for us. The election of President Biden is deeply positive for the world and for how we can engage with each other in a co-operative way.

Turning to the substance of the Deputy's question, on the issues relating to CFCs, changes to how we tax hybrid entities and other commitments I have made in respect of changes to aspects of our tax law, I will continue with that because irrespective of the challenges that President Biden's tax proposals may create for us, we will address those challenges in a safer place if we have resolved some of the issues that exist regarding technical parts of our tax law that create opportunities for aggressive tax planning. I will continue with those policy changes.

As for whether we need a new industrial policy, even though the challenges that could be created by the OECD and by changes in US tax policy will be significant challenges for our country, I believe we have the measure of them. Our policy strengths, and the strengths we have with regard to education, the diversity of the economy and the breadth of employers that are now in Ireland, both domestic and international, mean we will be able to overcome these challenges and pursue new opportunities. On the specific tax issue the Deputy mentioned, I will examine, through engaging with the OECD and directly with a number of colleagues in much larger economies, how we can influence an outcome that respects tax sovereignty and the need for small and medium sized economies to be competitive. That is a large project that will take up a large part of this year. I look forward to updating the Deputy and the committee on it.

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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I welcome the Minister's statement on the need to ensure the vigorous pursuit of policies that are helpful to Ireland in the international arena. If we do not do it, nobody else will do it for us. The use of the OECD as a means of achieving that objective is to be welcomed. Is it expected that Ireland's peripheral geographic position in the European Union will be taken into account in a meaningful way in whatever restructuring of taxation policies takes place? Will sufficient provision be made to ensure that this country has an even chance of surviving in the competitive world of taxation and high finance?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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It is up to me and the Government to make the case for that. The truth is it will not be automatically given to us. This is the most intensely competitive area of negotiation one can imagine, and other countries will not wish to afford undue recognition to small and medium sized economies as they make the case for the kind of change they want to see happen. That is their prerogative and I respect that. It is up to us to make the case for tax competition within certain parameters being a legitimate policy response to the disadvantages of size or location. In short, it will be up to us to do that and up to me to make the case for it. I do not expect it to be automatically recognised by other countries. They will make the case for their national priorities and it will lie with us to do the same for ours.

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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I am glad it is in the Minister's hands. I have no doubt he is looking forward to the challenges ahead. I hope the outcome will be as anticipated and I am reassured in that regard. In this context, does the Minister expect to receive a certain degree of solidarity from our EU colleagues, notwithstanding that they may have other issues too?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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Certainly, in small and medium sized member states of the European Union, there is a really good understanding of the case we are putting forward. Solidarity tends to be in relatively short supply in the context of foreign direct investment and of investment that can build tax revenues within the jurisdiction of each country. On the case we are making for small and medium sized countries also having the expectation of being able to be competitive, and on the right to determine an economic model within certain parameters that contributes to our competitiveness, many other countries share a similar view. It will be up to us to work with them to make the case the Deputy and I are discussing.

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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I presume that, as the Minister indicated, he will emphasise the availability in this country of a highly skilled workforce and the high standard of education, and that this should not be held against us in the debate that lies ahead. If we are in a position to produce a high-quality product, whether in materials, technology or whatever the case may be, it should not naturally follow that we become disadvantaged in whatever business we are in. I understand the Minister is pursuing that at that level.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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Absolutely. I will definitely make the case that the issues such as those for which the Deputy has made the case for many decades, as a member of our party and a Member of the House, should be advantageous and should not disadvantage us in the negotiations under way. We made a significant statement last week on corporation tax policy and the negotiations under way. The statement was scrutinised throughout the world and has provided a good basis for the political engagement we are having. It is a really important area for Ireland now. We have made our case, and our diplomats and I will make the case in the negotiations that will take place before the OECD meets before the summer. I am engaging with other finance ministers on the subject as well.

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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I thank the Minister.

Photo of Seán CanneySeán Canney (Galway East, Independent)
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We have all been talking about what has happened in the past year or year and a half. We need to think about the confidence that we have for the future and the potential in the country post Covid to ensure that we get ourselves up and running again.

I am sure the Minister knows about this but I want to reiterate it. The European Union has downgraded the Northern and Western Region from developing region to region in transition. The Northern and Western Regional Assembly has made the case that we can receive positive discrimination in getting European funding because we are now in a lesser region. Taking into account our strategy on remote working, blended working or whatever, we have the potential to develop the Northern and Western Region because it is an area in transition. We can get a bigger percentage of the structural funding from Europe because we are in a different category.

How can we best do that to ensure that we develop this region and bring it back up again while at the same time creating facilities and infrastructure to attract people to come, live, work and raise their families? I am not necessarily talking about Galway city. I am talking about the smaller towns and villages. It comes back to the point about the vacant properties that are not homes but can and should be homes if we insist. There is potential to do something positive. I ask the Minister to outline his thoughts. I believe we have a fantastic opportunity to get more funding from Europe. If we have a will there will be a way to do it.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I have not seen the report the Deputy mentioned, and I would be very interested to see it. We need to make the case within the European Union for those areas in which we might be able to get further funding. When the Deputy sends me a copy of the report, I will certainly consider it and see if the Government can be of help on the matter.

Photo of Seán CanneySeán Canney (Galway East, Independent)
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This is not something to go to Europe and make a case on. We need to provide the projects and then look for the funding. I imagine the European Union informed the Department of Finance last year that it had reclassified the Northern and Western Region as a region in transition. It has downgraded it in economic terms due to the lack of funding that had been made available per capitaand this is what it has come up with. I will ask somebody in the Northern and Western Regional Assembly to send that report on to the Minister along with its submission on how we can use this and positively discriminate in favour of the region. Now is the time to look at that. We should be aware that instead of getting 40% of funding for projects from the Structural Fund we can get up to 60% funding. This is how to bring our region back up again.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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The only reason I am not informed about it in the way the same way as the Deputy is that this area is more formally the responsibility of the Department of Public Expenditure and Reform rather than the Department of Finance. When, as Minister for Public Expenditure and Reform, I worked with the Deputy, I would have been aware of and would have been dealing with issues like that, but it now sits with the Minister, Deputy Michael McGrath, which is why I cannot give the Deputy a more comprehensive answer. As I have said, I am very happy to look at the report and engage with the Minister, Deputy Michael McGrath, to see if any projects can be put forward for such funding.

Photo of Seán CanneySeán Canney (Galway East, Independent)
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I wish to make one last comment, which is positive. Last week I got three phone calls from business people. One of them who was starting up a new business has invested in property in the region and expects to be up and running with the project in September. It is a good-news story. These are young business people in their 30s. I will be directing them towards Enterprise Ireland which will be able to provide supports.

Another company owner, employing 25 people at the moment, sees the potential to expand that to 50 people. They are looking at doing that now. They are not waiting for supports or someone to tell them what to do.

An out-of-work carpenter started to make little pods in his own back garden. He now has such a demand for them that he is looking for space for his workshop. There is great potential, but we need to ensure we support them in every way we can through LEOs, Enterprise Ireland etc. Sometimes Enterprise Ireland is looking towards export potential which may not develop for several years. I was surprised to get three similar phone calls from three young people who see the potential and want to drive ahead. There is great potential in indigenous enterprise within the country. We need to harness that, embrace it and shout about it from the rooftops because it is very important to give other people the confidence to do the same.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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That is a great note on which to end our exchange. Despite the challenges we are facing, Irish companies are innovating, employing people and growing. In these debates and discussions, we inevitably focus on the difficulties and areas on which we disagree. However, one of the reasons the very worst has not come to pass for our economy over the past year has been down to the resilience and innovation of Irish companies and Irish entrepreneurs, the women and men who run these companies and work in them. We are all working to try to give them the kind of support they need to keep going and to get the success that they deserve.

Photo of Seán CanneySeán Canney (Galway East, Independent)
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I agree wholeheartedly.

Photo of Neasa HouriganNeasa Hourigan (Dublin Central, Green Party)
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We will end on that note as we have reached the end of our two hours.

Photo of Michael Healy-RaeMichael Healy-Rae (Kerry, Independent)
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May I just have 30 seconds?

Photo of Neasa HouriganNeasa Hourigan (Dublin Central, Green Party)
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The Deputy may have 30 seconds. I will hold him to that.

Photo of Michael Healy-RaeMichael Healy-Rae (Kerry, Independent)
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The Minister and his Department have a very simple and important fund for existing small businesses which have been adversely impacted by the Covid crisis. That fund is a loan that can be given to businesses for five and a half years. It is administered through AIB. My understanding is that the money is being made available essentially for free. However, when the business takes up the offer of the money and does it through AIB, I believe it ends up paying - do not hold me to this - 4% or 4.5%. Is that not an extraordinary handling fee by a bank that was bailed out by the taxpayers? If I am wrong in what I am saying, I ask the Minister to correct me because that is my genuine understanding.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I cannot comment on the specific case the Deputy has mentioned. We do not make the money available. That money comes through the Strategic Banking Corporation of Ireland, SBCI. The money is not made available for free to our banks, but at a very low interest rate. However, the banks then price up on the loan they make available to companies to reflect two things. The first is the cost to the banks themselves in administering the loan; second is the risk profile of the business to which they are lending. The interest rate will be higher than the rate at which SBCI lends to the bank. That is just being driven by the cost of the loan being administered. It also reflects the risk of the business receiving the loan.

The Strategic Banking Corporation of Ireland loans, and especially the one that is about supporting growth in the future, have been really heavily subscribed and very successful. It is a loan scheme that is working very well at the moment, despite some of the concerns the Deputy may well have.

Photo of Michael Healy-RaeMichael Healy-Rae (Kerry, Independent)
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I appreciate the clarification. I was not sure if this was what I was hearing. I am grateful for the response and thank the Minister.

Photo of Neasa HouriganNeasa Hourigan (Dublin Central, Green Party)
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I thank Deputy Healy-Rae. Due to Covid-19 regulations we must adjourn the meeting at this point. I thank the Minister, Deputy Paschal Donohoe and Mr. John McCarthy for their attendance today, and for their assistance to the committee.

It is proposed that the committee will next meet in private session at 9.30 a.m. on Thursday, 6 May 2021.

The select committee adjourned at 5.30 p.m. until 9.30 a.m. on Thursday, 6 May 2021.