Oireachtas Joint and Select Committees
Thursday, 3 June 2021
Committee on Budgetary Oversight
Budget Priorities Exiting Covid-19 Pandemic: Discussion
We have received apologies from Deputies Richard Boyd Barrett and Pearse Doherty. Today the committee will engage with Dr. Stephen Kinsella and representatives of Social Justice Ireland on budget priorities. Ba mhaith liom fáilte a chur roimh Dr. Stephen Kinsella, associate professor of economics from the University of Limerick and Dr. Seán Healy, chief executive; Ms Michelle Murphy, research and policy analyst; Ms Colette Bennett, economic and social analyst; and Ms Susanne Rogers, research and policy analyst, from Social Justice Ireland.
Before beginning I explain some limitations to parliamentary privilege and the practice of the Houses regarding references to other persons in evidence. The evidence of witnesses physically present or who give evidence from within the parliamentary precincts is protected pursuant to both the Constitution and statute by absolute privilege. However, if a witness is giving evidence remotely from a place outside the parliamentary precincts, he or she may not, as such, benefit from the same level of immunity from legal proceedings as a witness physically present would do. Witnesses are reminded of the long-standing parliamentary practice that they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable or otherwise engage in speech that may be regarded as damaging to the good name of the person or entity.
Therefore, if their statements 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 they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable. I remind members of the constitutional requirements that members must be physically present within the confines of the place in which Parliament has chosen to sit, namely, Leinster House or the Convention Centre Dublin, to participate in public meetings. I will not permit members to participate where they are not adhering to this constitutional requirement. Therefore, any member who attempts to participate from outside the precincts will be asked to leave the meeting. Ach anois ba mhaith liom tús foirmiúil a chur leis an gcruinniú. I invite Dr. Kinsella to make his opening statement.
Dr. Stephen Kinsella:
Thank you very much Chair for the opportunity to speak to the committee. I would like to discuss some competing priorities for budget 2022 and budget 2023. For a moment there I sounded like the former Minister for Finance, Michael Noonan.
I have been asked to speak about a post-Covid world but I am afraid I do not believe one will exist for two reasons. The first reason is biological: the evidence so far suggests Covid will become endemic. It will simply become a part of the life that we all expect to live with. It seems unlikely therefore we will ever be post Covid in any strict sense. The other reason is socioeconomic: I do not believe the pandemic has changed anything. It has accelerated previous trends around digitalisation, decarbonisation, and decentralisation. We will have to use fiscal policy to construct bridges between the gaps between the past and the future that Covid has created, in particular in areas such as retail where there are large numbers of jobs. The pandemic has also accelerated the level of anger felt by the public around the key issue of housing. In Ireland in particular we have become very used to the phrase, anger is not a policy, but post Covid I think anger actually is a policy because it is a policy variable. By altering expectations around policy formation and action, anger is now an economic variable. Therefore, it will alter our physical reality as the pandemic recedes.
One measure of this is the recent Red C poll results, looking at which party, if any, the respondent believes is best equipped to deal with a particular issue over the next five years. Most parties were in the middle. To illustrate a simple fact, on the issues of the Covid pandemic such as job creation, education, crime, the economy and health, the Fine Gael Party seems to be doing quite well relative to Sinn Féin and it is on housing and the rental market that this is markedly not the case. The ESRI's report on housing, which was produced today, is a reasonable summation of where we are with respect to housing policy and the need to use fiscal policy to address housing policy, which will be a key feature post Covid.
I draw the attention of the committee to a book by Eric Lonergan and Mark Blyth called Angrynomics. It is about how anger is used as a policy variable and how it is weaponised by those who would try to attain power using it. It is a very good dissection of the current policy tool that remains as a variable.
Turning to the outlook for 2021 and 2022, I reproduce forecasts and the figures are outlined in the submission for all major bodies for the Irish economy. They show an expected growth rate of between 4% and 4.5% this year and 4.8% and 5.2% in next year. I believe all of these forecasts are on the downside and it is likely that we will see higher levels of growth than this for two reasons. The first is that they do not include the economic recovery plan spending, which was announced this week. Second, as any economist who has studied the Irish economy carefully will be able to tell the committee, when the economy is allowed to rebound it rebounds much faster than most people can tell, including the people whose job it is to monitor it.
From these forecasts it is clear that domestic demand will expand, so people buying and selling things to one another within the domestic economy will expand following a release of savings across the economy. We have a very high savings rate in the economy and there are tens of billions of euro waiting to be spent. An operational question is where that will be spent, but that is perhaps for another day. It is clear that not all areas of the economy will benefit from this expansion of domestic demand. Uniquely in my experience as a professional economist, these forecasts all predict a strong expansion of economic activity to beyond pre-Covid levels without a correspondingly sharp reduction in either general unemployment or youth unemployment. In the past, in every single economic expansion that I have studied, every single increase in GDP and domestic demand has been associated with a sharp fall in unemployment and youth unemployment. The current forecasts by the Department of Finance, the IMF, the Central Bank of Ireland, the Irish Fiscal Advisory Council, IFAC, and the ESRI do not show a correspondingly sharp reduction in either youth unemployment or general unemployment. The way to look at that is to focus on the actual numbers. The Department of Finance's stability programme update, SPU, assumes a reduction in overall unemployment from 16.3% this year to 8.2% in 2022, and 6.7% in 2023. The IFAC assumes a reduction from 15.8% this year to 7.4% in 2023. While we assume a return to growth rates that are above the pre-Covid level, we are not assuming a corresponding fall in unemployment to its pre-Covid level. That suggests a pre-planned amount of structural damage in the system that fiscal policy post Covid will need to address.
To be fair, while the economic recovery programme, outlined on pages 14-15, has a focus on youth unemployment in an expansion of key programmes, the key assumption across the policy documents I have studied in preparation for this appearance before the committee is that young people, who have endured not only Covid but an unequal experience of the post-austerity period from 2013 to 2020, particularly with respect to building up equity in assets like pensions and housing, will experience above average unemployment rates even as the economy around them expands, prices rise, and those already owning assets like housing continue to do well. This is an unsustainable process and, much like the expansion of private credit in the boom period, unsustainable processes always stop.
The chart on page 4 shows just how deeply sectoral the nature of this shock has been. Essentially, in finance and insurance, information and communication, manufacturing and public administration, the wages, if one likes, have found themselves rising, whereas, all other areas from construction to transport, hotels, real estate and in particular the arts have been hammered. This will not be a surprise to any of the members of this committee. However, it is important to understand that in addition to looking very carefully at youth unemployment and youth activity - they very much overlap - we should also look at areas in which these sectors can be maintained, and repair as much as possible of the damage to the balance sheets of these firms.
A good example of this is that the employment wage subsidy scheme payments were just 5% of total earnings in all sectors of the Irish economy in the first quarter of 2021 but they represented almost 50% of total earnings in the accommodation sector. This is an extraordinary statistic. Half of the people in a particular sector were sustained by a single payment. This is a very good example of the deeply sectoral nature of the damage Covid has done. It also gives a strong rationale for fiscal policy to ameliorate the damage in this area.
It will come as absolutely no surprise to any Deputy that retail, tourism and accommodation are the areas to focus on in the budget for 2022. While some of the sectoral damage caused by Covid will be repaired by a simple reopening of the economy and, as I said at the very beginning, we will see a very large increase in the economic activity as the economy reopens, some firms quite simply will not be repaired. There is a deep correlation between these sectors and youth unemployment, particularly as 46% of those on the pandemic unemployment payment are under the age of 34. Where businesses in these sectors or subsectors fail, the State will need to be there to help.
I want to discuss budget deficit figures. The Government is targeting a budget reduction to within its legally mandated fiscal bounds by 2024 or 2025. It puts the economy on a glide path in budget 2022 towards a resumption of normality, albeit with a much higher stock of debt thereafter. What is important is to recognise that fiscal consolidation is inevitable once the economy opens up. Fiscal consolidation is not necessarily austerity but if it is poorly designed this is how it will feel, particularly to those whose supports are being withdrawn. Closing the budget deficit will become important not in budget 2022 but in budget 2023 and beyond. With respect to the binding fiscal rules, the European Commission recently stated the general escape clause of the Stability and Growth Pact will continue to be applied in 2022 and is expected to be deactivated as of 2023. There is a very important point to be made on when fiscal rules will begin to bind again, and the degree to which it will be difficult to explain to the public why the extraordinary largesse of the State cannot be extended by another year to them, given the amount of demand in the system.
Three options exist for closing the estimated gap shown in the figures. One is to allow growth and reopening to do most of the work while investing in structurally transformative elements, such as digitalisation and decarbonisation. Another is to raise taxes, particularly on employers and the wealthy. The third is to reduce public spending. The need to position the State's finances for some kind of balance does not chime at all with rising demands for ever larger capital spending, particularly on housing. Therefore, it is probable that public anger will continue to rise. I thank the committee for its time and attention.
Dr. Seán Healy:
Social Justice Ireland welcomes the opportunity to make a submission to the Oireachtas Select Committee on Budgetary Oversight on budget priorities post-Covid-19. How we plan our finances, and what we choose to prioritise post-Covid will have profound implications for the future of our economy and society. Covid-19 has exposed and exacerbated weaknesses that already existed in Irish society. These include a totally inadequate supply of social housing, a two-tier healthcare system, climate change, growing inequality, homelessness and environmental goals not being met to name but a few. However this past year has shown us that change is possible.
During the last economic crisis, Ireland's austerity approach led to insufficient investment in social services, such as childcare and education, and in infrastructure such as social housing, public transport and rural broadband. Investment is essential for a number of reasons. These include securing economic development, protecting communities with initiatives such as community healthcare networks, keeping unemployment as low as possible with initiatives such as a substantial State-led childcare programme, ensuring critical infrastructure deficits are addressed, and tackling climate change at the level required and ensure that the transition to a low-carbon economy is just and fair.
Ireland needs a new and fairer social contract. To promote human well-being and address current challenges, Social Justice Ireland proposes that such a new social contract should be based on a guiding vision and policy framework focused on producing five key outcomes. These are a vibrant economy, decent services and infrastructure, just taxation, good governance and sustainability. However, it is essential that these five outcomes be pursued simultaneously and not in sequence. Previously the focus was on the first of the five outcomes with the idea that if the economy is right everything else will follow. This simply does not happen. We need to deal with all five simultaneously. They are interdependent. Ireland needs good services and infrastructure to deliver a vibrant economy. Just taxation and good governance are required to deliver any or all of these outcomes. Sustainability is required in the economy, on the environment, and in society itself for these outcomes to be achieved. All the choices for budget 2022 and beyond set out in our presentation today, in the briefing documentation we have supplied to committee members and in the supplementary analysis are all focused on delivering these five outcomes simultaneously and in as short a timeframe as possible.
As the Government deliberates on budget 2022, it must recognise and acknowledge four major imperatives. Its primary focus should be on increasing employment and delivering infrastructure and services and not on reducing the deficit. A high level of borrowing will be needed in the next few years if Ireland is to increase employment and deliver the infrastructure and services required. This borrowing must be affordable, and it is the correct thing to do for the future of the economy and society. Action is required to increase the overall tax take and to adopt policies to broaden the tax base.
In framing the budget, Social Justice Ireland proposes that for 2022 and 2023, or until Ireland reaches full employment if earlier than 2023 which we do not believe will happen, the fiscal stance adopted by Ireland should be determined by an unemployment target rather than a deficit target, in recognition of the role domestic demand plays in sustaining domestic employment. The State should begin to plan now for the additional tax measures necessary over the long-term to finance the government expenditure required to finance universal services and income supports for all our citizens.
The first budget priority on which we want to focus is poverty reduction and social welfare. Without the social welfare system, 41.4% of the Irish population would have been living in poverty in 2019. This is the most recent year for which we have figures. Such an underlying poverty rate suggests a deeply unequal distribution of market income. In 2019, social welfare payments reduced the poverty rate by more than 28 percentage points to 12.8%. Since then, however, we have had two budgets where core social welfare rates were not increased. This is profoundly retrogressive and will lead to Ireland losing the gains it has made in tackling poverty in recent years.
Core social welfare rates should be benchmarked. More than a decade ago, budget 2007 benchmarked the minimum social welfare rate at 30% of gross average industrial earnings and today that figure is equivalent to 27.5% of the new average earnings data being collected by the Central Statistics Office. In 2021 this would equate to €222.08, implying a shortfall of €19 between current minimum social welfare rates at €203 and this threshold.
Given the importance of this benchmark to the living standards of many in Irish society and its relevance to anti-poverty strategy and approaches, it is critical that the current gap be addressed and that core social welfare rates should be increased by €19 per week over the next two years, starting with an increase of €10 per week in budget 2022.
The second budget priority we identify is housing. The pandemic highlighted both the spectacular failure of successive Governments to address the challenge of housing, particularly for the most vulnerable, and the need to think beyond privatisation to more sustainable housing. In our recently published ten-point plan to deliver housing for all, we called on the Government to implement a series of measures that would address the scale of the current challenge with the scale of response required.
Initiatives that should be contained in budget 2022 include expansion of Housing First to families, providing wrap-around services and supports for children and parents; acquisition of an equity stake in properties in mortgage distress, leaving families in situwhile increasing the State’s housing stock; and, most important, the building of 14,341 social homes each year for the next ten years at an annual investment of €3.3 billion. It was interesting to read this morning's ESRI report, which more or less makes the same recommendation. We find that interesting because we have been making this exact recommendation for quite some time. We are glad to see the ESRI coming along with us at this stage.
We also need to prohibit the sale of State lands suitable for residential development and use this land to build social housing. We must address housing affordability on the supply-side rather than investing in demand-side schemes that artificially maintain high house prices. Finally in this area, one of our priorities is to close all tax loopholes for large-scale investment vehicles purchasing residential properties.
Our third priority is unemployment and particularly youth unemployment. Much of this was highlighted by Dr. Kinsella already. In our recent employment monitor we highlighted that 21% of people whose employment was affected by Covid-19 do not expect to return to the same job after the pandemic. In the absence of other employment opportunities, this suggests the potential for a transfer of these individuals from these schemes to jobseeker's payments. It is likely that will happen, so a large increase in unemployment numbers seems inevitable, with rates of between 12% and 16% of the labour force possible. Furthermore, the pandemic is also likely to reveal a large youth unemployment problem.
Budget 2022 needs to allocate resources to address these challenges and minimise the scale of the increase in unemployment and the growth of long-term unemployment. Specifically, we believe the budget should resource the upskilling of those who are unemployed and at risk of becoming unemployed through integrating training and labour market programmes and adopt policies to address the worrying issue of youth unemployment. In particular, these should include education and literacy initiatives, as well as retraining schemes. The budget should expand the age profile for apprenticeships and training programmes to include older workers who may need to reskill. It should also recognise the challenges of long-term unemployment and of precarious employment and adopt targeted policies to address these. We must also resource policies to address the obstacles that face women as they return to the labour market.
Our fourth priority for the budget concerns taxation. Budget 2022 offers an opportunity for the Government to reform some aspects of the current taxation system in the interests of enhancing fairness and sustainability. Whereas 2022 is unlikely to be a year of major taxation initiatives, it is an opportunity to make some overdue changes that would also provide some additional revenue, particularly in the area of tax expenditures.
There are a number of approaches available to the Government in reforming the tax base. The proposals we consider a priority are reforming tax expenditures, setting minimum effective tax rates for higher earners, reforming corporation tax and introducing a new minimum effective corporate tax rate, introducing a site value tax to replace the current property tax, the taxing of second homes, taxing empty houses and underdeveloped land and the taxing of windfall gains.
The committee should recommend that the tax expenditures should be prioritised and considered in this budget and that tax expenditures should be incorporated into the budget arithmetic so we get on budget not just what we always get, which is expenditure on infrastructure and services, etc., on one side but that we can also get the expenditure that is going on tax breaks, principally although not exclusively for the corporate sector. There is also substantial scope for reducing tax expenditures and there are other recommendations in the document about those expenditures.
We support a universal basic income pilot. Given our long-standing advocacy in this area of basic income, we welcomed the inclusion in the programme for Government of a commitment to examine basic income and run a pilot in Ireland during the lifetime of the current Government. In May 2021, just a few weeks ago, we hosted a seminar and published a document outlining a proposal for such a pilot. The proposal also outlined a timeline for the development, introduction and evaluation of the pilot.
There are limited cost implications associated with the pilot we have proposed and budget 2022 should commit to introducing this pilot and funding the evaluation process to accompany it. Ultimately, there are important lesson to learn from this pilot that can inform longer-term developments in this area. Any pilot must be scalable to the national level. It would involve, for example, setting the rate at which basic income is paid at a level that allows it be scaled to the national level. The recent seminar that I referred to presented a model and fully costed proposal that would allow a universal basic income in Ireland that would be revenue-neutral. It is very important.
In concluding, we have a proposal for the committee. Social Justice Ireland believes this committee plays a key role in the budget process but the need for budgetary oversight does not end when the budget is announced. We believe the committee should play a greater role post-budget to provide oversight of how the allocations are spent and to review the adequacy and efficacy of budget allocations. This would provide valuable information in advance of subsequent budgets and allow for greater clarity and focus. Social Justice Ireland would, of course, be happy to contribute to that process after budget 2022.
Social Justice Ireland believes fundamental changes are required if Ireland is to address these challenges. A new social contract is needed and it can be developed and delivered. In responding to Covid-19, the Government made the changes required to protect both society and the economy. Changes, some of which were dramatic, were delivered. The common good featured prominently in planning and delivery. The State, the only institution with the required capacity to address the pandemic, expanded to meet the challenge. This was very welcome and is in stark contrast to the approach taken after the crash of 2008. Mistakes were made in responding to Covid but lessons were learned; protecting jobs and services and a minimum standard of living were the priorities. Now is the time to build on this progress. I thank the committee.
I thank Dr. Kinsella and Dr. Healy for their broad-ranging presentations. I would like to take up a few points, first with Dr. Kinsella. He stated that anger is going to become an economic variable. I ask him to expand on that, and where he sees that being an issue. I will link it to two other points. What exactly does he mean by the statement that anger has become something that is being measured? It is being measured almost as much on an economic level as an emotional level. Dr. Kinsella made an interesting comment in his presentation. He stated that he predicts "an expansion of economic activity to beyond pre-Covid levels of economic activity without a correspondingly sharp reduction in either general unemployment or youth unemployment". Why does Dr. Kinsella think that? Is it because wage subsidy scheme payments represented almost 50% of the total earnings for the accommodation sector? I am assuming Dr. Kinsella is including the hospitality sector in that. I ask him to respond to those two points, namely, on anger as an economic variable and general and youth employment not reducing in parallel with economic growth.
Dr. Stephen Kinsella:
People are angry all the time. The Government does not necessarily need to respond linearly to the demands of people who are angry for some reason. There are a few ways of answering the question. I will start from a political-economic angle. If the issue is housing, or what we might call the spatial realm, and the median voter wants to be a homeowner and they cannot be a homeowner, then by definition, as politicians react to what the median voter wants, they will be encouraged or almost forced by the need to cater for the median voter to expand housing provision. That is one causal mechanism that could exist.
Another way of looking at it is through the concept of societal anger. Here, I will use the terminology that Mark Blyth and Eric Lonergan use in their work, Angrynomics. They distinguish between moral outrage and tribal energy. Tribal energy is simply the idea of saying, for example: "Those people are not like me. I do not want them. I like people like me." Somebody who is hungry for power can exploit that tribal energy. The moral outrage issue is simply one around fairness. For example, issue X is simply not fair. Where a sufficient percentage of the population believes that issue X is not fair or is not being fairly dealt with, that moral outrage, which is entirely justified, can be used via a popular uprising or activist movements to effect large-scale policy change. That is what I mean, in concrete terms, by the idea that anger is a policy variable. Just because some people are angry, it is not a particular reason to change policy. One can see particular-----
Dr. Stephen Kinsella:
It is the broad-based nature of it. As I said, it is about the median voter and the median household. It is about the fact that we now have very large societal consensus around this issue. One can see the diametric difference in an issue such the handling of the pandemic versus housing. I have demonstrated one variable; I could show five more. It is a policy variable because it alters expectations. By altering expectations, it alters behaviour today.
On the question of how anger can be measured economically, it can be measured economically by looking at the degree to which the pronouncements of policy and the actual allocations of funding alter with respect to expressions of anger.
The second point the Deputy raised concerned forecasting beyond our pre-Covid activity and why, given an expansion of economic activity that will be vast, particularly in the third and fourth quarters of this year, we will not see a resumption of unemployment levels at their pre-Covid levels. The answer is related to hysteresis. Hysteresis is a fancy word for economic scarring. For example, it occurs where certain sectors of the economy are scarred by the crisis that has come upon them. The canonical explanation or understanding for this is demonstrated through the example of the introduction of the motor car. When it was introduced, there were many people who worked with horses whose skills were no longer needed. It is the same idea. It is often used in the context of technological change. Obviously, Covid-19 has spurned lots of technological change. We are talking to each other on Microsoft Teams. That is the perfect illustration of what I am talking about. I did not get into my car and drive up to Dublin. I did not book into a hotel the night before the meeting. That is all demand that is no longer happening. It is the perfect example of hysteresis. If people do not go back into the offices, then people who sell sandwiches in sandwich bars do not have jobs.
I have two quick questions in the limited time left. Are we now in the middle of a new industrial revolution?
Dr. Kinsella spoke about housing, anger and the median voter. The ESRI report that will be published tomorrow mentions an extra spend of between €4 billion and €5 billion. The document appears to deal exclusively with social housing provision. It does not appear to deal with affordability, which, from my perspective, is as big an issue with the median voter. If Dr. Kinsella is going with the policy being proposed by the ESRI, capacity constraints are not addressed. Currently, with the supply of labour available, our capacity to build in Ireland is around 15,000 units per annum. It is all very well to talk about spending money, but it must be demonstrated how it will be done. The ESRI report itself mentions spending money, but does not state how the capacity constraints can be addressed and how the affordability aspect can be dealt with. What we are finding on the ground, is that young couples cannot afford to purchase homes because they are not becoming available on the market for them. It is not just a supply issue. It is an internal supply issue within that supply in that there is a reduced supply to first-time buyers.
Before I pose my questions to Dr. Healy, I ask Dr. Kinsella to clarify the following. Are we in the middle of a new industrial revolution? Although I welcome the ERSI report, I cannot see how it addresses the affordability issue. It addresses the issue of spending money in a very macro way. There is no point in throwing money at something unless there is the capacity to deliver it based on that funding. I would like to have seen the ESRI report address those capacity constraints. We need to build many more houses, both social and affordable. While the report addresses social housing and the issue of spending money, it does not address the constraints on building that social housing and the affordability aspect. I ask Dr. Kinsella to comment on that.
Dr. Stephen Kinsella:
I will mention three things here.
We discussed hysteresis, which causes larger than expected levels of unemployment. It creates a vast retraining problem. The Deputy asked in particular about capacity constraints. The labour supply capacity constraint is solved using retraining.
As to whether we are in the middle of an industrial revolution, we absolutely are but it relates to energy generation. By the time this decade is over, we will be in a situation where the majority of energy generated in this country will be renewable. That is a sea change. The last time that happened was in the 1940s, with the opening of Ardnacrusha. It is genuinely amazing. How those energy generation technologies alter the social, economic and urban fabric are all open questions that people smarter than me will be able to answer. We are in the middle of an industrial revolution.
The ESRI report specifically examines how to borrow more to incentivise and invest under conditions of very low interest rates. The point the ESRI is making is that should the Government decide to spend more on this issue, it can do so. That is the important point. However, the report, which I have only read once this morning and so cannot claim expertise on - one normally needs to read something three times before really understanding it------
Dr. Stephen Kinsella:
I thank the Deputy. The important point is that, as the Deputy correctly stated, it is blind to the funding allocation and capacity constraint issue. It is probably not the place of an economist to say how this stuff should be delivered. It would be more appropriate to put that issue into the hands of other experts. Dr. Kieran McQuinn, the lead author of the report, is one of the best economists in the country and very well versed in how the macroeconomy of this country works. If he says we can afford this kind of stuff, I am fairly sure that we can. It is a political question and a question of delivery, as the Deputy stated, in terms of how one would use that €4 billion to €5 billion to deliver which types of homes and where and under what conditions. Those are very important matters but they fall outside the scope of the study.
We will come back to Deputy Moynihan, who is having connection issues. Go raibh míle maith agaibh as bhur gcur i láthair. Bhí sé an-suimiúil éisteacht leis an méid a bhí le rá agaibh. Is dócha go mbaineann an chéad cheist atá agam le Social Justice Ireland. The first question I have is for Social Justice Ireland. We have heard a lot of talk about the infrastructural deficit, especially in housing. We have heard it from the IMF and now we have the ESRI clearly saying we need to double investment in capital spending in the context of housing. It points out that billions of euro will be needed to fund the construction of housing and that this can be done without creating undue economic risks. This is something I have been pointing out for a long time. It is good to hear certain commentators and even some politicians agree it is time to focus on it.
We are also hearing that there is a need to focus on the deficit. That seems to indicate that some people have not learned the lessons of the previous crisis. Social Justice Ireland indicated that one of the priorities for budget 2022 should be to focus on creating employment and delivering infrastructure rather than simply focusing on reducing the deficit. What risks does Dr. Healy see to the economy and society from pursuing a deficit reduction first approach? Does he consider that to be a call for austerity via the back door?
Dr. Seán Healy:
The simple answer is "No". We do not believe this is a covert call or whatever for a back door austerity situation. We set out in our document to the committee detailed proposals relating to taxation. What we look at in that context are three key issues: the need to increase the overall tax take, adopt policies to broaden the tax base and develop a fairer tax system. We have been addressing these for some time. In terms of increasing the overall tax take, we set out what we think the tax take levy should move towards. We are not talking about massive increases but ones that are well within the capacity of the economy and society to bear. In terms of broadening the tax base, we are proposing, for example, continuing to reform the area of tax expenditures and the further enhancement of procedures within the Department of Finance and the Revenue Commissioners to monitor on an ongoing basis the cost and benefits of all current and new tax expenditures. We think there should be a sunset clause on every tax expenditure but-----
I was not suggesting that Social Justice Ireland is calling for a return to austerity. My apologies. I think Dr. Healy may have misunderstood my question. My question was more regarding the fact that he is clearly talking about an infrastuctural deficit we have had. I am in complete agreement in that regard. It left us on the back foot going into this crisis in terms of small classroom sizes, etc. We are now seeing a significant focus from the IMF and the ESRI on our infrastructural deficit in the context of housing. My concern relates to the commentators and politicians whose focus is not on this infrastructural deficit that we clearly have. I believe that if we focus on capital spending, such as in the area of housing - the ESRI stated we need to double our capital spend on housing - that will have a knock-on effect on employment, etc., as well as dealing with the housing crisis. Is Dr. Healy of the opinion that the narrative of those who are focusing simply on the deficit in the short term - I was going to say long term, which would have confused the whole thing even more - rather than focusing on these massive infrastructural deficits is in some way about bringing austerity in through the back door? My apologies. I think Dr. Healy thought I was suggesting he was in favour of a return to austerity, which is not what I was saying at all.
Dr. Seán Healy:
That is okay. We have set various proposals regarding how one can broaden the tax base, increase the tax take and develop a fairer taxation system. We would certainly argue against any austerity approach being taken. In fact, we have specific proposals in respect of housing and what needs to be done in that regard. We have recently put them forward in a ten-point plan. I ask Ms Rogers to say a few words on that aspect to give the committee a better picture of our proposals in that space.
Ms Susanne Rogers:
I will not go through all ten points but, rather, just pick out those Dr. Healy highlighted in his presentation. Expanding Housing First to families is vital. Damage is done by virtue of being homeless. Wraparound supports and services are needed to ensure those families are supported as they move from homelessness back into secure, stable and long-term accommodation. That security of tenure piece seems to be missing. That is really what any housing system, be it social or affordable housing, cost rental or private market, should be affording citizens. That security of tenure piece is really missing, particularly in the private rental market.
Acquiring an equity stake in properties in mortgage distress is also an interesting piece. Mortgage to rent has been in place since 2012, which I keep having to remind myself is almost ten years ago. As of 31 March 2021, they had 1,179 applications completed across a span of almost ten years. Thus, whilst mortgage to rent is working for some households in long-term mortgage distress, it is, again according to the Central Bank's latest data, not doing anything for the 30,000-odd households that have been in mortgage arrears for more than two years.
The number of households in mortgage arrears for ten years or more is 5,266. The fact they are still in arrears shows there are no solutions available to them. Anything that could have been done more than likely has been and they are at serious risk of losing their homes. This is now 30,000 households that could be added to social housing lists, which is not what we need considering the lists are quite sizable. According to the official housing lists, 61,000 households are on the assessment waiting for social housing. To that can be added those on HAP, and the rental accommodation scheme, RAS, because households in receipt of them are not secure and still have a social housing need to be met. That is where we would be looking for those 14,500 social homes to be built each year. Everybody has mentioned the ESRI report, which is fantastic. The recovery plan announced yesterday mentioned 33,000 homes to be built across, private, social, affordable and all those other categories and again we welcome that.
I thank Ms Rogers. Unfortunately, I only have two minutes left so I must move quickly on but what she said was interesting.
Dr. Kinsella recently wrote: "It would be unwise to bet the house on corporation taxes bringing us into the black". In the context of global tax reform, which the Government is assuming will reduce corporation tax receipts gradually by €2 billion, IFAC noted the impact could be faster and greater and the IMF has recently raised concerns on that as well so I am interested in Dr. Kinsella's view. Does Ireland need to begin preparing an alternative industrial strategy, one which creates an indigenous high value-added sector that can open up new revenue streams to offset potential losses in the FDI sector? What are his views on the' new proposals from the US for a 15% global minimum tax, rather than the original 21% first mooted?
Dr. Stephen Kinsella:
I thank the Vice Chairman. I have three main points. I have been writing about the risks to Ireland's business model from changes to international corporation tax since 2011. I am someone who believes there is both an upside risk and a downside risk to increased corporation tax revenues. It could well be the case, for example, that changes in the international tax regime increase the State's corporate taxation revenue. Thus there is an upside risk to us from corporation tax changes simply because the devil is never in the dynamic when it comes to tax; it is in the detail. As such, that is a key issue. If that happens, we will end up in a situation where a larger percentage of our overall tax take comes from one source, which is fundamentally unstable. One of the great virtues of wealth taxes is they tend to be quite stable. These are income taxes and they fluctuate with business cycles. As it happens, the Irish structural situation is such that when things go badly for the domestic economy the international part of the economy, the multinational part, ends up saving the day. This in part explains the post-austerity period and what explains the current state of the State's finances now.
On the second part of the question about whether there is a risk to the economy such that we need a new industrial strategy, I find myself in violent agreement with the Vice Chairman. It is high time we consider the generation of a new industrial strategy that does not substitute for, but complements, the one that has existed since 1958.
To the third part of her question, there is a way to tie in the structural transformation supports around digitalisation, decarbonisation and particularly restructuring the workforce that are coming from the European Commission, with the need to transfer to this new industrial strategy. I would very much like to see that happening. For example, I am aware there is an artificial intelligence, AI, strategy coming. We should have had an AI strategy five years ago when one was promised to us. AI is not some fancy thing that young fellas on the docks with goatees get to use, it is a very important business-to-business technology and we as a country do not yet have a strategy for AI, and it is just one transformative technology. Thus, I agree with the Vice Chairman 100%.
Gabhaim buíochas leis an Leas-Chathaoirleach as an gcur i láthair agus as an eolas. There are one or two points I wish to raise. The pandemic hit different people in different ways and some people were more sheltered from it. We have seen, for example, the way savings accumulated for some people while others fell behind because of it and suffered serious loss of income. There was brief reference in Dr. Kinsella's presentation to those funds now being unleashed back into the economy. Does he have a view of how that might be steered, where it will be spent or where it would best benefit us for it to be spent?
Second, the point was made that there is no expectation of a sharp drop-off in unemployment and youth unemployment in particular. That is a real concern for a group of people who have been hit on the double over the years, and nearly on the treble. I acknowledge the economic recovery plan was only published earlier in the week but what is Dr. Kinsella's view on the impact of that on youth employment in particular, where there are JobsPlus apprenticeships, placement schemes and so on? What impact would he see those initiatives having on youth unemployment or is it something he sees as being a stubborn problem despite those efforts? If that is the case where else would something need to be done? I ask because there seems to be a wide range of initiatives from placement schemes to the likes of the JobsPlus scheme, apprenticeships, SOLAS programmes and so on.
Dr. Stephen Kinsella:
I thank the Deputy. His first question was where those savings will go. It is probably important for members to get a sense of what the savings rate is. It is the percentage of unspent income relative to the volume of that income. For most years it is approximately 10%. Since 1995 the average has been between 10% and 12% savings. It is upwards of 24% this year so there is a wall of money and the question is where does that go. I am very sorry to tell the Deputy that I do not know. The reason I do not know is we have not created the channels by which that expenditure can be funnelled.
What I mean by that is that there is no Guaranteed Irish-like website one can go to to say "I understand you have all these savings, so here are 100 Irish companies you can spend money on" or "Here is a charity you can donate to" or anything like that. There is no overarching infrastructure to shape those funds into the areas that we know need to get healed, if you like. One of the very good things about this is-----
Dr. Stephen Kinsella:
I would channel the savings into three places. First, I would channel them directly into our city centres. The idea is of the city centre as destination rather than simply as retail park. Second, I would channel the savings into Guaranteed Irish business. Third, I would channel them into the worst hit sectors. I am thinking of two in particular, namely, the arts and tourism. Such words are overused, but the arts sector in particular has been decimated. "Decimated" means that only one in ten of a number of things is destroyed, so the word is actually an underestimate by a factor of nine. Those are the areas. Regardless of that, I think most people, when they are allowed to spend money, will spend their money. We will be able to see in September and October where the damage the crisis has done has not been repaired. I think we can take an empirical approach to that.
To the Deputy's second point about youth unemployment, we should understand what youth unemployment does. A single year of unemployment between ages 16 and 24 reduces one's lifetime earnings, so it is not like one is out of work and then one gets back into work and it is grand for ever. It literally reduces the path of one's income for the rest of one's life. That results in lower living standards, poorer health and lower tax revenue for the State. As social ills go, youth unemployment is one of the worst. Dr. Healy was really strong on this, and I agree 100% that having as low a youth unemployment rate as possible is a very good measure of the well-being of a society.
To the third part of the Deputy's contribution, on the economic recovery plan, pages 14, 15 and 16, I think, of the plan have very reasonable measures relating to youth unemployment but, without being critical of them, they are all expansions of existing schemes, if I am not mistaken. What this effectively means is that by expanding the existing schemes, which are welcome, one tackles the kinds of problems those agencies and schemes were set up to deal with. The agencies and schemes might have been set up to deal with a problem in, say, 2014. That is not 2021's problem. There is probably a reasonable argument to tie together what Deputies Kieran O'Donnell and Mairéad Farrell said. There are vast infrastructural deficits in our country and an oversupply of labour in particular areas. It feels like training is the function to map one to the other. The question is what that training is and what it can be used for afterwards. While there is a focus on youth unemployment because of its long-term damage, I do not want to let the moment pass before noting that another area of significant damage is older workers who are, say, 52 but who are effectively barred from the labour market because the skills they have in the job that does not exist any more do not map to any existing labour market conditions. A policy suite that addressed both those ends would definitely be welcome because not only are we in the midst of a housing crisis that is taking up all the airwaves but we also have a massive pensions problem, which is the other big asset allocation issue of our time and which receives less than 1% of the coverage the housing issue receives. It is at least as important and is a deeply gendered issue because it affects women far more than men. It is one of the key issues. Deputy Moynihan asked me where there is something that needs to be done. The Pensions Commission is just about to start its work and we are talking about auto-enrolments. If one adds up auto-enrolments, increases in employer PRSI, which are being flagged, local property tax changes, which are being flagged, and any kind of income tax increase, that will feel a lot like a return to the 2014-16 period unless we get large amounts of growth.
Those are my unfortunately unstructured comments in response to the Deputy Moynihan's perceptive questions.
May I ask one further brief question, please, for clarification on youth unemployment? Go raibh maith agat as an am, a Leas-Chathaoirligh. I agree with Dr. Kinsella on the loss of income and the social ill of youth unemployment, but would he also take into account the fact that so many younger people have been spending the college year at home, locked away in the bedroom? Would he count that as part of the social ill? Is that in the mix or is it just a matter of the loss of income? Does Dr. Kinsella recognise the fact that students have lost out in that regard as well?
Dr. Stephen Kinsella:
It is a separate issue. I have spent many an hour being beamed into hundreds of students' bedrooms so I know exactly what Deputy Moynihan is talking about. However, while students have had a very hard time, that is a very separate issue, to my mind. I think students are very resilient and will get over this unfortunate period.
I thank the witnesses for their presentations. I will not delay the committee too long because I have to go to another committee meeting. It was interesting to listen to what both Dr. Kinsella and Dr. Healy had to say. One of the things I have a concern about in where we are now is that we are pumping a lot of money into supports and then I hear Dr. Kinsella say the 2020 fiscal rules will come back into play again. Will we have a cliff edge in that regard and, if so, where will we go from there if we are trying to build an economy? It is being said that the economy could itself write off all our deficits but we could also have a rise in taxes and spending cuts. These are all the options we have. One of the concerns I have with all this is that right now we have pent up savings and a lot of money being put into supporting the economy, business and people who are out of work, which is all good and needs to be done. However, are we fuelling an inflationary economy?
Coming to social justice and what is going on in housing, one of the concerns I have is that we are talking about building so many units every year and saying we will make sure that between the private sector, social housing and so on we will build more houses. The truth of the matter is that at the moment the cost of building houses is rising substantially. We are also looking at increasing densities. I am afraid we will get back to creating ghetto-type developments and over-itensification and to providing housing in units and boxes for people and that we will not provide the amenities and social services required with all that.
I am concerned we will have a kneejerk reaction to situations in the private housing sector. In my rural constituency in Galway, we cannot get houses to rent and we cannot build houses in our towns and villages because we do not have the infrastructure. We have a housing crisis right across the country, not just in the cities or whatever. How do we temper all of that to make sure we deliver 35,000 houses and how do we actually deliver them? Has anybody come up with a plan for that? The cost of building these houses is rising rapidly from an inflationary and regulatory point of view. We are putting more and more into passive houses, insulation and so on. That is all very well and good, but we are putting houses out of the reach of first-time buyers and out of reach of social delivery. We will get less units because we are putting more cost into delivering them. What is the reaction of Dr. Kinsella and Dr. Healy to those two comments?
Ms Colette Bennett:
There were many issues in that one comment. The cost of building has not expanded all that much. For example, an A-rated three-bedroom unit in Ballymun was delivered at a building cost of €230,000. The cost of provision of these houses is not on the construction side, although much more could be done on procurement. It is more about the land. That is why our ten-point plan for dealing with housing mentions not selling off State land capable of residential development use, because retaining the cost of land and making sure local authorities are enabled to develop it for residential units would actually reduce costs overall.
I feel very strongly about the issue of ghettoisation because it is something that is particularly levied at social housing developments or social and affordable housing. We think and hear about these areas becoming ghettoes. That does not need to be the case. In fact, a significant amount of work on this, and the research that backs this book, was done in the 1990s and early 2000s by Professor Tony Fahey. Ghettoisation has nothing to do with houses or people but has to do with the surrounding infrastructure. That is not alone education, roads and shops but also community policing, mental health services and community healthcare networks. Things that are taken for granted in more affluent areas as part of a housing development should be applied to social and affordable housing developments to build sustainable communities. We have seen very good examples of it in Limerick. We need to see more of them.
On the push for passive housing, we have seen a push for greater retrofitting particularly in the economic plan but also in budget 2021. That absolutely needs to happen. We have more than 200,000 houses throughout the country, currently, in the lowest energy efficiency, F and G, bands. They need to be retrofitted and that will come at a cost. We have proposals on how that cost should be factored in, whether it is through loans or paying it off through utility bills. Again, when we look at making grants available for retrofitting they tend to be quite regressive in that they benefit higher income households, which can afford up-front costs. This is opposed to those who desperately need to have their housing retrofitted, need lower utility bills and who are still probably on solid fuel central heating systems, but who cannot afford that chunk of up-front fees to be able to apply for a grant to repay it. That is absolutely needed.
Building newer homes passively will save in the long term on having to retrofit those homes. It is a saving over time. I understand costs are higher but, as I said, developments in Ballymun, for example, were able to build at an A-rate and still provide three-bedroom housing for €230,000.
To come back on that, I know the houses in Ballymun have been delivered. I am talking about the here and now and going forward. There is inflation in construction. A quotation for the price of materials will only last seven days. The cost of materials is going up exponentially right now for three reasons: a lack of supply of native timber; Brexit; and supply chain issues due to the Covid pandemic. For instance, insulation materials cannot be manufactured because the resin used in bonding the insulation has not been produced and there is now a world shortage. The price of steel is going up because China has booked the world's supply and pre-ordered it and so on. The house that will be built during the rest of this year, and next year, will cost much more than the €230,000 in Ballymun or wherever it was built. We have inflationary pressure coupled with the fact that many workers went back home to eastern European countries during the Covid pandemic and may not come back to us. We have an inflationary situation. How do we deal with that?
On the concentration and densities of houses, it is all very fine that we need to put in all the social services we talk about but they come at a cost. They have to be built into the cost of the unit to deliver it. This is a problem in the private sector where the cost is so high to deliver a house and the rules will not allow a first-time buyer to get a mortgage to buy it. We have the perfect storm at the moment. I am concerned about projections for how many houses will be built based on what I can see happening on the ground. It is something we need to have a reality check on. That is just a comment. The witnesses do not need to answer.
Ms Colette Bennett:
The Deputy mentioned inflation, Brexit, the impact of Covid and the impact of the replacement of native tree species with Sitka spruce, which has been policy for quite some time. That will not necessarily drive up construction costs all that much. Again, if we reconsider how we do procurement in this space and look at it on a national level as opposed to a regional or county basis, we can certainly impact measures there to drive the cost of materials down.
In terms of building social infrastructure around housing developments and what that might mean for housing costs, again, this part of the social infrastructure is absolutely needed. If it does not happen now, it will come at a cost and at a societal cost. We know, for example, that less equal societies have higher crime rates and worse health, so it comes at a cost across a number of areas in that case. Factoring in that cost now will actually save money in the longer term.
In terms of the cost and affordability generally, our proposal is for over 14,000 social units per annum at a cost of €3.3 billion. We welcome the ESRI report today that mentions a doubling of the housing budget and an increase in social housing provision. Part of the reason that we welcome that, and we have been driving it for a number of years, is because when people are accommodated properly - not through social housing solutions but in actual social houses and social housing developments - that frees up at least 60,000 units that are currently on HAP and more which are in RAS. That frees those private properties back into the market. That, together with Central Bank constraints on credit, should drive down house prices. That is why we are very much against the notion of an equity stake at the buyer side and these demand-side incentives. They should be at the supply side instead because demand-side subsidies, as we have seen with help to buy, only serve to maintain artificially high house prices whereas if you have sufficient housing stock - we need to double our current housing stock within the next ten years - that frees up stock in the private sector that can create more affordability and drive down house prices.
Dr. Stephen Kinsella:
Maybe I will just answer the first part about a fiscal cliff-edge. The European Commission has to say that the fiscal rules are going to bind again. I was a little surprised that they said "2023" and not "2024". There are advanced discussions happening at the European Commission on how to change the fiscal rules and by the time we get to 2023, there may be a different set of fiscal rules. For the moment, it is absolutely the case that should the fiscal rules come to bind in the current form, fiscal consolidation is inevitable. That is why I wrote the way I did. It is inevitable the Minister for Finance of the day will not be able to stand up in the Dáil and spend €18 billion, or even €4 billion or €5 billion, in those conditions.
I welcome our guests. I recall the many interesting exchanges we have had over the years. Dr. Healy and I have had more than one. It is good to renew the debate.
First of all, I agree entirely in relation to the housing situation. I said that many years ago. Dr. Healy will recall, at a meeting that I had with him more than 20 years ago, I predicted that the biggest single issue to face this country in the future would be a lack of housing, and so it is.
Their estimates are short of what is required. There is more required than the 14,000 referred to in some cases or the 10,000 referred to in other cases. As long as we keep having a target that is short of what is required, we always will be behind.
How we build those houses is a different issue and we have to find a way to do that. The houses, incidentally, will be built by the private sector - public authority houses have to be built - because they are the only people who are in the business of building by contract. It has to be done as quickly as possible. There are economies of scale that we can get out of that. We can get reductions there.
In relation to the cost of the houses, I do not want to delay the meeting by getting into the proof of the pudding. I saw situations where housing land became available scot-free. That happened because land was zoned. It made not a whit of difference to the price of the houses. It was all a different situation then. Costs had gone up and there were all kinds of excuses put forward.
I heard the phrase "post-austerity" used on a number of occasions. Austerity is something that you have choices in. You can decide to have an austerity measure to correct something in the economy or you can choose not to. It should have been named "post-bankruptcy" because this country was bankrupt when there was so-called "austerity". We had better realise that. If we do not realise that, we are missing the target completely and avoiding facing up to the issue. The country was bankrupt. The banks had no money. We can blame it on however we like. I have spoken about this on many occasions. The banks had no money. The institutions had no money. The State could not be paid. The State's servants could not be paid. There were measures taken to cut people's salaries, left, right and centre, as a means of coming to an affordable way of running the country. That is a subject that angers me when I see it, and I am coming to the anger bit in a minute.
There are indications of anger. As I have said on many occasions in the past as well, anger does not pay the bills but it creates other problems. There are indications of expressions of anger. We should well read into history and see where they went in the past. We have to do what we have to do. We have to explain to the people who are angry.
Incidentally, it is not the same people who are affected. The people who are angry are not necessarily the same people who have been impacted harshly in the economic situation. It is other people who seek to capitalise on that. That is what is happening in relation to the targeting of individual groups in society.
It is appalling that a country that had set such high standards internationally as this has so many people with these pent-up views and you only have to scratch the surface when they let them roll free. We have to reject that. We have to explain to people who are expressing such anger that if they want to go there, there are consequences for everybody and we never again want to go in that direction.
I am not asking anybody to respond. This is a commentary of mine. Dr. Healy and I have had this commentary on many occasions in the past. I would claim that I made predictions then that have been proven, unfortunately, correct. That is why I emphasise the importance of the housing.
Housing is part of our taxation system. If a person has an affordable house - I would emphasise the "affordable" bit - he or she can rely on the future and can plan. Otherwise, he or she cannot. If the person is in somebody else's hands, if some landlord or institution has control of his or her housing, then the person cannot control it and can never rest easily. Incidentally, I am not a communist or anything like that. I am merely pointing at the situation that we have seen develop around us. We do not seem to be able to respond quickly enough to stop it from getting out of hand.
There are scores of other issues that upset me. I am nearly getting into the area of the anger now and I would want to be careful about that. We need to revise our housing requirements upwards on an annual basis. Many times in the past, I have tried to point that out.
This point goes back to anger. Anger begets anger. That is a lesson we should keep in mind. On every occasion where wild expressions of anger were allowed to run free in the past, there came a position where there was retribution, reaction and really serious issues. It would not be fair for me to go on about my various rants over the time.
There is much discussion now on what the level of national taxation on corporation profits should be. It may not be all that bad. It is at a certain level, a manageable level. It might not be the worst thing that ever happened. However, what is of crucial importance is that we do not all live in New York or in the centre of Europe. We in this country have to get to those markets and we have a geographical disadvantage. There has to be some correction at all times which gives us an even chance with all of our competitors globally because we depend so much on our export markets.
Go raibh maith agat, a Chathaoirligh. That is about as much as I can say on this sitting. There will be another time.
Dr. Seán Healy:
Could we make a short comment on two of the aspects that Deputy Durkan raised, because they are very important?
One is about the targets being too low. The second is about the anger and the groups that are in anger. When the poorest and most vulnerable in society are being treated in a particular way, they may get angry and that has consequences.
We will deal with the housing issue first where our targets are too low. Perhaps Ms Bennett may wish to deal with that.
Ms Colette Bennett:
Our targets are based on setting 20% of all housing stock as social housing. That is done in other European countries that we wish to emulate and this would effectively double our social housing provision.
On overall housing provision, I note that the economic development plan has a target of 33,000 units per year. That is very good as a starting point but what that covers, however, is what is necessary to account for demographic changes and obsolescence. It does not account for the legacy need of decades of insufficient construction. Again, when we talk about what we are looking at specifically, we are talking about social housing provision. Our target would cover the current need into the future. As to the private provision, that is worthy of greater consideration. The 33,000 units is greater than what was set out in the Rebuilding Ireland plan, which was anywhere from 25,000 units per year to 25,000 units on average per year. This is certainly something that needs to be expanded further.
Dr. Seán Healy:
I ask Ms Murphy to say a couple of words on this issue and I am aware that we have time constraints. I agree that anger does not pay the bills but, at the same time, the people who are the poorest and most vulnerable in society have been treated in a particular way and there are some serious questions there as a consequence of the anger that is there.
Ms Michelle Murphy:
The challenge is that the one thing that the past period has done is it has taken away the attention from income adequacy because we have had the pandemic unemployment payment. Now there is the potential for a very large number of people moving from that to the jobseeker's allowance and then, after six months, to a means-tested payment at a rate of between €200 and €300, which is significantly lower than the top level of the pandemic unemployment payment, and that is why the benchmarking issue is key. Benchmarking the core social welfare rates to 27.5% of average earnings is one of the key means of reaching our own national poverty targets. There is a gap there of approximately €20 and we will be looking for a €10 increase in core social welfare rates in budget 2022 and another €9 to €10 in budget 2023, which is vital. If welfare rates had been benchmarked in 2016 at that rate, an extra 12,000 adults of working age would have been lifted out of poverty. If the benchmark was raised by 1% to 28.5%, 28,000 adults would be lifted out of poverty. That is going a very significant way to meeting our poverty targets.
One other issue on the point of anger is youth unemployment and older workers who were in vulnerable positions and training. We have to look back to the learnings from the previous crash with, for example, the youth guarantee. The pilot was very good. Insufficient resources, however, were put into the guarantee itself and the outcomes from that. This time around we need a task force, and to be completely sure that we have new training in place for those new jobs that are going to come on scheme. These have to be well-paid jobs and we have to keep these young people connected to the labour market. There has to be an outcome for them. This caused significant problems in other European countries in the levels of youth unemployment during the crisis and the lack of prospects for young people.
As to older workers, one certainly has to look at a county and regional level at what is there, how these workers traineeships are offered, and how they are transitioned. People have to be given opportunities. If not, then that anger will come. It is vital that we get our training, skills and our industrial strategy right. Some €22 billion is available from the European Commission in funds for youth unemployment. We have to ensure that whatever proportion of that we get is used very well.
I thank the Vice Chairman and the guest speakers for attending and for their presentations. I am glad that Deputy Durkan got that off his chest. I can assure him that the poorest constituents who come to my office are those that are suffering in society.
I will address my first question to Dr. Kinsella. When he appeared before this committee two years ago he called for the introduction of fiscal stress testing for the public finances because of the volatility of certain tax heads. He asked for the introduction of automatic rules that would set ceilings and floors on spending to deal with the increased volatility. Does he feel that his advice was listened to and what more can be done to make improvements in this area?
Dr. Stephen Kinsella:
I thank the Deputy very much and I also thank the committee for repeatedly listening to me.
I have made a number of recommendations down the years. The first was around fiscal stress testing of medium-term expenditure ceilings. IFAC has gone some way towards doing this. I convinced my colleagues on the council to examine this and some of the fiscal stress testing methodologies have been adopted there. These have not been looked at in the overall stability programme updates or anything like that.
We can argue in a certain sense that the Covid-19 pandemic is the perfect fiscal stress test. We have seen what happens to the income tax take, for example, when one sector of the economy, the low-wage sector, is hit. We know what that looks like now. That is the first part, in that the council has not necessarily listened that carefully, which is a pity. I would very much like to have seen more of that work being done, particularly in respect of the corporation tax issue. We have said that losing €2 billion might be the impact of that. If it is more than €2 billion, we are in very deep trouble.
The second issue that I raised, I believe, a year ago was the idea that this committee has a much deeper connection with the office of the Comptroller and Auditor General such that it formalises at a secretariat level structured dialogue processes, somewhat like the ones that the Higher Education Authority has with universities, whereby the committee is not just scrutinising next year's expenditure but is scrutinising the performance of the public sector as to that expenditure from the previous year. If the Oireachtas gives the university sector €1 billion, how was it spent? What is a good allocation of money? What did we learn from that experience? As we go into the next allocation phase what do we, as the public, know about programmes that work and those that do not. My argument there is that it is only through that feedback mechanism that the system will learn and will then get to programme-level level budgeting, which is very important. We do not know, for example, whether the provision of cancer care in the mid-west is better, worse, or anything in between than the provision of cancer care in Dublin. We have no idea as to the allocation of funding.
To answer the Deputy's question, a great deal has been done but there is certainly more to do to address these issues.
I thank Dr. Kinsella very much and I am aware of the time constraints and I will move quickly onwards. Turning to Social Justice Ireland, I have read its previous pre-budget submissions with interest and I look forward to its next one. One thing that stood out is that in just 15 years, it is expected that more than one in five of our population will be aged over 65. As Sinn Féin spokesperson for older people, I agree with all of Social Justice Ireland's proposals relating to older people, particularly the restoration of cuts to housing aid for older people and for people with different income abilities. Social Justice Ireland has called for multi-annual budgeting, which is something that every group that I have met has mentioned is a barrier to their work. I am interested to hear if Social Justice Ireland has any new proposals in the area of older people that I could assist it with.
Ms Colette Bennett:
I thank the Deputy. In respect of older people, pension provision inadequacy was also mentioned by Professor Kinsella and the fact that it is a very gendered issue.
We have an expanding ageing population and it is a key factor in terms of the dynamic between housing policy and pensions policy. Long before now, the State pension was meant to provide for a person's living expenses but it was never intended to provide for accommodation expenses on top of that or certainly not accommodation expenses the likes of which we are seeing now. The adequacy of the State pension is important. We are very concerned that the new pensions commission is dealing with the State pension only, not with auto-enrolment. Such policy incoherence will give rise to a serious issue because when we look at the adequacy of the State pension into the future, we must also consider adequacy of income now and into the pre-pensionable age. For example, people on lower incomes who may be captured by the auto-enrolment system, of necessity, are facing having a reduced income now to pay for an inadequate income in the future. Social Justice Ireland has a policy proposal for a universal State pension based on residency, which we put together in 2018, but we had been advancing it for quite some time. It is not connected to a person's household status, so it loses that gendered element. Pension provision and income adequacy are important factors when it comes to a standard of living in older age.
Deputy Ryan mentioned our proposals on reinstating the 2010 level of housing grants for older people and people with disabilities. That is something we are still progressing because the latest data show that it has decreased again and fewer people are in receipt of it. We know, for example, that a significant proportion of older people are living in substandard accommodation, both through data available from EUROSTAT and through the Irish longitudinal study on ageing, TILDA, and happiness studies. That is something that must be addressed and increased. Increases were made last year but they were not sufficient to address the current need and the future need. Again, housing is a factor. At the time, the Departments of Health and Housing, Local Government and Heritage produced their policy statement on housing for the older population and we would like to see some of the recommendations starting to get implemented because it focused on the spectrum of need.
Approximately 3.7% of the population will need nursing home care and we want to see adequate nursing home provision. We saw the damage inadequate nursing home provision can cause in the early stages of the pandemic, so we need to see more adequate provision and enforcement of standards in the sector. That requires resources. We would like to see the funding report on nursing homes that was meant to be published in November 2019. It was delayed again in October 2020 due to GDPR concerns, but we would like to see it because it will feed into the resourcing allocations for nursing homes and for care provision. We want to see an increase in home help hours and home help packages. While the number of people accessing home help has increased, the number of hours has decreased, so last year for those lucky enough to receive home care provision, it was less than the previous year. A really interesting point to come out of the latest set of data from the performance report in the HSE, dated September 2020, is that the year-on-year waiting list has decreased by almost 5,000, yet we have not seen a similar increase in the number of people providing care. There is something about the data that does not make sense. The support of members would be gratefully received if it were possible to look into that a bit further. Regarding the spectrum of housing, we know that we need greater supports for those who have their own homes under the nursing home support scheme but also in terms of social and affordable housing provision for those who want to downsize and rightsize their housing and those who want to live within their communities but in more supported accommodation.
Ba mhaith liom mo bhuíochas a ghabháil leis na daoine atá ann inniu. I thank Dr. Kinsella, Dr. Healy, Ms Murphy, Ms Bennett and Ms Rogers for their attendance and for their assistance to the committee. The committee's next meeting is in private session at 3 p.m. on Wednesday, 16 June 2021.