Oireachtas Joint and Select Committees
Thursday, 15 July 2021
Committee on Budgetary Oversight
Summer Economic Statement: Minister for Finance and Minister for Public Expenditure and Reform
I thank everyone for being here this morning. It was a late night last night. Today the committee will engage with the Minister for Finance, Deputy Donohoe, to discuss the summer economic statement. I welcome him, Mr. John McCarthy, chief economist, the Minister for Public Expenditure and Reform, Deputy Michael McGrath, and Mr. John Kinnane, principal officer.
Before we begin, I wish to explain some limitations to parliamentary privilege and the practice of the Houses as regards references witnesses may make to other persons in their evidence. The evidence of witnesses physically present or who give evidence from within parliamentary precincts is protected pursuant to both the Constitution and statute by absolute privilege. However, if they are giving evidence remotely from a place outside of the parliamentary precincts, then as such they may not benefit from the same level of immunity from legal proceedings as a witness physically present does.
Witnesses are again 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 might be regarded as damaging to the good name of the person or entity. Therefore, if witnesses' statements are potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks.
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, either Leinster House or the convention centre, to participate in public meetings. I will not permit a member to participate if he or she is not adhering to this constitutional requirement and, therefore, any member who attempts to participate from outside the precincts will be asked to leave the meeting.
I ask the Minister, Deputy Donohoe, to give his opening statement.
I thank the committee for the invitation to appear here today to discuss the summer economic statement. I will focus on the current economic and fiscal outlook, and I look forward to hearing the committee’s views regarding some of the key issues in the medium term. After a difficult and unprecedented 16 months, we are beginning to see light at the end of the tunnel. The vaccination programme is well advanced, with approximately half of our eligible population now fully vaccinated. Restrictions are gradually easing and there are signs of recovery, albeit uneven, in the domestic economy.
Having said that, we cannot expect to return to the same world we occupied before. The pandemic has changed the way in which we work and live, and there will be lasting implications that will take some time to become clear. While our vaccine programme is going well, we must also be cognisant of the fact large parts of the global population, particularly in developing countries will not be immunised for some time, leading to the possibility of the emergence of further strains of the virus. This is the context in which the summer economic statement has been developed. It provides the context for the year ahead, with particular regard to the upcoming budget.
The summer economic statement incorporates an upward revision to the gross domestic product, GDP, projection for this year, which is now projected to grow by 8.75%. Projected growth in modified domestic demand remains unchanged at 2.5% this year and 7.5% next year, although all of this depends on where we are with our health. Put simply, I expect the recovery to continue and strengthen into next year. Households and firms are adapting. There is a move towards online transactions and investment in remote working technologies. As the public health containment measures ease, we can expect to see further recovery in the labour market.
It is unfortunate, however, that many firms face a difficult future in the post-pandemic world. The Government will work towards assisting these firms in the transition to newer and more sustainable sectors. We will also facilitate workers in retraining and upskilling. Our response since the outset of this pandemic has been to minimise the permanent fallout through the provision of supports to households and businesses. That said, to do this, budgetary policy took a countercyclical approach.
However, this has to work both ways to be effective. As the private sector and the broader economy begins to recover, we need to roll back on some temporary supports to prevent the economy from overheating and begin the journey to reduce our deficit.
These public supports have been massive. Taking into account the measures announced in the national economic recovery plan, €48 billion has been made available up to 2022 in the form of direct expenditure, tax measures and below-the-line supports. The committee is familiar with the larger figures: €8 billion in the pandemic unemployment payment; €6.5 billion in two wage subsidy schemes; and €650 million for the Covid restrictions support scheme.
As I have said on many occasions, we allowed indebtedness to increase in order to look after our economy and help our society. We also need to acknowledge, however, that as the worst effects of the pandemic pass and the economy begins to recover, we cannot continue to finance very large deficits. The current level of public spending is far in excess of what can be supported by the domestic tax base. Our public debt ratio is now among the highest in the world, and is due to exceed a of a trillion euro next year. Going forward, the Government’s budgetary strategy will involve an expenditure ceiling of €88.2 billion for next year for core public expenditure. In addition, we will also provide for a continuation of some temporary supports amounting to €6.8 billion. This will be consistent with a budgetary deficit of 6.2% of modified gross national income and 3.4% of GDP.
The deficit projection is higher than it was in April. This is due to additional expenditure to allow for continued investment in housing and other critical infrastructure. Expenditure ceilings are also being set for later years in order that the headline deficit will be approximately 2.8% of modified gross national income, or 1.5% of gross national product, by the mid part of the decade. Expenditure growth has been set at 5%, which is broadly in line with the trend growth of the economy. If actual economic performance deviates from expectations, automatic stabilisers will be allowed to operate fully to keep expenditure fixed. These projections cover the period 2021-25. They also include provision for tax measures of €500 million per year. Of course, all of these forecasts depend on conditioning assumptions regarding where we are with the virus.
Our future challenges will revolve around how we reduce the deficit to low levels by the middle part of the decade. Returning the public finances to a sustainable trajectory that will put us in the best position to meet upcoming challenges. I emphasise, in particular, the focus on reducing our deficit during the first half of the period relating to this plan, when, hopefully, our health situation will continue to improve.
We saw the value of balanced budgets before the pandemic. There will be a value over time in reducing our deficit. These pandemics may be once-in-a-lifetime events, but other longer-term issues will require challenging decisions in the months and years ahead. We need to finance two further transitions, namely, the transition to a carbon-neutral economy and the transition to a digitised economy.
Our population is, of course, ageing rapidly. While corporation tax has helped at times to plug the gap in some areas of public policy in recent years, there is a very real possibility that this revenue stream will soon begin to decline. Further agreement is needed within the OECD framework. International corporate tax reform, if and when finalised, could reduce our relative advantage in this area. My Department’s estimate is that corporation tax could be impacted by up to €2 billion annually over the short to medium term.
It is fair to say that we are facing into a better outlook, but there are still challenges ahead. We are by no means out of the woods. Many families and businesses know that to be the case. Our policy will continue to adapt to changing circumstances in order to build upon recovery and facilitate a move to a post-pandemic economy as smoothly as possible. I thank the committee for the opportunity to be here and I look forward to an exchange of views.
I will be as brief as I can. I welcome this opportunity to appear before the committee to speak on the summer economic statement, which was published yesterday, with my colleague, the Minister for Finance.
The summer economic statement is a key element of the reformed budgetary process and sets out the parameters for the forthcoming budget and our medium term budgetary strategy to 2025. The expenditure strategy outlined in the statement reflects the Government’s commitment to return the public finances to a more sustainable position while addressing our infrastructure challenges, including the key areas of housing and climate action, continuing to enhance our public services and social supports and ensuring a balanced recovery from the pandemic.
In line with the approach in budget 2021 and in the stability programme update, expenditure to fund temporary measures to address the impact of the pandemic is dealt with separately from expenditure on the delivery of core programmes and infrastructure. This distinction between core and temporary funding is essential to ensure the medium term sustainability of the public finances.
The strategy on core expenditure is to grow overall expenditure each year by 5%, on average, over the period to 2025. The average annual growth rate in core current expenditure is just under 4.75%, with total capital spending, including that funded under the national recovery and resilience plan, NRRP, growing by an annual average of over 8.5%, and reaching more than €13.5 billion in 2025. These increases in capital investment in the period to 2025 follow the significant increases in 2020 and 2021 and would see total capital spending as a percentage of national income, as measured by GNI*, increase from 3.4% in 2019 to 5% in 2025. Over the five year period 2021 to 2025, on a cumulative basis total gross voted capital expenditure, core and NRRP, would amount to over €59 billion compared to core capital spending of €29 billion over the period 2016 to 2020.
A key element of the medium-term expenditure strategy will be setting out revised capital expenditure ceilings for the period to 2030 following completion of the review of the national development plan, NDP. Engagement with Departments on the review of the NDP is ongoing and the capital expenditure amounts in the summer economic statement provide the overall parameters for the NDP for the years to 2025. Core current spending as a percentage of national income will also grow, from 28.1% of GNI* in 2019 to 29.9% in 2025. The average annual growth rate of just under 4.75% over the period 2022 to 2025 provides the resources to meet existing levels of service costs and for new measures to enhance public services and social supports.
The level of resources being set aside for core spending is significant, almost €93 billion in 2025 compared with just over €70 billion in 2020. This level of resourcing requires an ongoing and enhanced focus on value for money and that we ensure that there is the capacity to deliver this significant investment. We must build on the budgetary reforms already in place to drive spending efficiency and effectiveness.
As we look to ensure that the recovery from Covid-19 is fair and balanced, it will be important to utilise these reforms to provide the evidence to inform decision-making. The development of the well-being framework for Ireland can support this approach, in terms of developing a shared understanding of what makes for better lives and influencing public debate on strategic priorities. The careful phased withdrawal of Covid-19 supports is essential to support society and the economy to recover from the impact of Covid and to return our public finances to a sustainable position.
Across 2020 and 2021, we will have made available over €31 billion for direct expenditure measures with approximately €15 billion this year. The stability programme update included €4 billion in Covid-19 related expenditure in 2022. Including the expenditure funded under the NRRP, the summer economic statement now sets out almost €7 billion for temporary Covid spending next year including an amount to be held in reserve to allow the Government respond as the situation with the virus evolves. This is a prudent approach given the uncertainty that still exists regarding Covid and the requirement to ensure that supports are carefully withdrawn in a manner that supports the recovery of our economy.
The summer economic statement includes an amount of expenditure of €1.1 billion for measures funded by the Brexit adjustment reserve, BAR. Funding under the BAR will be used to support employment, businesses and local communities negatively affected by Brexit, including those in the fishing industry, and will be allocated across budgets 2022 and 2023
The fiscal strategy underpinning the summer economic statement marries the commitment of the Government to deliver improvements in infrastructure and public services with the commitment to sustainable public finances.
The strong position of the public finances before the Covid crisis put us in a position to deliver a significant fiscal response to support our people, businesses and key public services through the crisis. As the impact of the crisis recedes, we must start returning the public finances to a more sustainable position.
I welcome my colleagues, the Minister for Public Expenditure and Reform and the Minister for Finance, and thank them for their presentations. I have questions for both. I will start with the Minister for Public Expenditure and Reform and then move on to the Minister for Finance.
The questions facing any household in terms of money include how much it is earning or bringing in, how much it is spending, how much it needs, how much it saves, how much it owes and how reliable its income is going forward. Will the Minister for Public Expenditure and Reform give a general overview of the outlook under those headings?
The positive position in relation to the recovery of the Irish economy underpins the summer economic statement, SES, strategy. We are seeing a significant rebound in the economy and we expect that to transition towards a sustainable recovery over time. Our key focus is to help people who want to get back to work. We still have more than 200,000 people on the pandemic unemployment payment. These people lost their jobs simply because of Covid. That will remain a key focus of Government.
On the expenditure side, the need to gradually and carefully unwind the emergency Covid-related spending over time will be critical to bringing the public finances to a more sustainable position. The Covid spend this year is of the order of €15 billion, as an estimate at the mid-point of the year. The provision we are making for next year is of the order of €7 billion. The assumptions underpinning that are that we will make continued progress in the battle against this virus, that the vaccination programme, which is already proving highly successful, will continue to be so and that the situation will progressively improve. The unwinding of the expenditure is directly linked to the Department of Social Protection and conditions in the labour market. It relates to the number of businesses that have to depend on the employment wage subsidy scheme and the number of individuals and families depending on the pandemic unemployment payment, for example.
Covid aside, our key focus on the expenditure side is, first, to protect existing levels of service and make sure they are properly funded into the future. I believe we have made adequate provision for that on issues such as demographics, public service pay and the full-year costs of commitments made this year and in prior years. That is an important starting point. Then the focus is on having adequate headroom to support the recovery through the continuation of supports where we deem it appropriate. Then, critically, it is about prioritising the public capital investment programme. The figures set out in the SES show that this is where Government is focusing the most significant increases in public expenditure, with our capital envelope for next year rising to more than €11.1 billion. Four years ago in 2017, that figure was €4.6. It has been increasing very significantly since and will increase significantly next year and in the years beyond. That is to drive recovery, assist with job creation and tackle what we can all accept are the big challenges facing society. Undoubtedly, those include the need to tackle the housing crisis and get back to building in a more significant way. Public housing, affordable housing, cost rental and purchase will be the cornerstones of the Housing for All strategy, and the review of the national development plan.
I will ask a brief follow-up on the public capital investment programme in relation to housing. It caught the media's attention during the week. What is the final outcome in relation to that in terms of expenditure?
We have set the overall framework in the SES, on both the current and capital expenditure sides. From 2022 to 2025, the expenditure will be of the order of €50 billion in our public capital investment programme. Housing will be the big winner because we recognise it is a top priority across society and a key priority for Government. Compare that €50 billion across all Departments in capital spending over the next four years to the equivalent figure for the previous four years, including this year, of €31 billion. For the four years from 2017 to 2020, the figure was €26 billion. By any measure, we are seeing a rapid expansion of the public capital programme and the precise figures allocated to housing will be confirmed once Government approves Housing for All and the national development plan ceilings.
It will be critical to ensure value for money. This is not just about providing resources, but about delivery. There are capacity constraints and bottlenecks in the system. The Government will focus on those and provide significant resources for the delivery of public and affordable housing. We will do all we can across Government to unlock some of those challenges and bring about the delivery we all want to see.
I wish the Minister for Public Expenditure and Reform the best of luck over the summer and thank him for his work in his role.
It is always good to see the Minister for Finance and he is always generous with his time to the Committee on Budgetary Oversight. He mentioned corporation tax, a topic going back over a number of years. It was not the exclusive attraction for foreign direct investment. Some people over-egged the pudding of the corporation tax rate. What, if the Minister was answering a foreign direct investor, would he say the country has going for it, other than the corporation tax rate? What advantages does he see us being able to offer foreign direct investors?
There are two advantages that I think are very important. First, the massively changed levels of skill, productivity and education in our economy and society in recent decades have had a gigantic influence on our ability to attract and retain foreign direct investment and to grow good businesses at home. Second, Ireland's place in the European Union post Brexit, our position as full members of the Single Market and the advantages that continues to offer us as a bridgeway for global companies and investors to sell their goods and services into the European Union. I agree that our competitive tax policy and tax rate continue to be important but are now one pillar of many in the proposition we offer to encourage investment and employment in the Irish economy.
The Minister spoke about priorities of the digital economy and climate action. Something that strikes me, which we discussed here before and which is a micro-measure, is that many measures, whether in terms of retrofitting or the purchase of e-bikes or e-cars, require people to be relatively cash-rich. They do not tend to benefit people who do not have savings. If I want to buy an e-bike to get the tax relief, I have to have €3,000. To buy an electric car to get the tax relief, close to €40,000 is needed. To get that new boiler, I have to have money saved. Have we any plans to make that more accessible to the ordinary person who wants to do his or her bit on climate action from a budgetary point of view?
That is a fair point.
I would offer two points in response. Regarding energy and homes, as the Deputy will be aware, there is an extensive array of grants available through the Sustainable Energy Authority of Ireland to help with the affordability of the things needed to retrofit homes. The Deputy makes a fair point that in order to gain tax relief, people have to be in a position to pay the tax in the first place. Looking at how our economy is structured at the moment and the changes in our economy, with a level of excess savings between €12 billion and €13 billion, there are some forms of purchases about which the Deputy's point would have been very appropriate 18 to 24 months ago and that are more likely across the coming period. As people make choices about how they are going to use their savings, being able to use changes we have made in our tax code to encourage the purchase of less environmentally damaging vehicles, for example, the value of that could become more apparent. We have to look at how we can continue to guide decisions, particularly those relating to larger purchases, in a direction that can be more beneficial for our society and economy in the long run, whether through expenditure or taxation.
I welcome the Ministers. On page 29 of the summer economic statement, there is a footnote to the effect that changes to international corporation tax are not due to take effect until 2023 and that a Revised Estimate will be required in respect of the impact of those changes on revenue for 2022. The State and the Department had factored in a €2 billion reduction over a period. Can the Minister give any indication as to level of that reduction now? More importantly, can he provide some certainty in this regard? We discussed this issue at the finance committee yesterday. The Minister has stated his position in respect of the 12.5% rate. However, there is a lack of support for Ireland in these negotiations. Five countries are standing out because they believe this has gone too far. Is the Minister for Finance giving a commitment to the companies to which this relates that he will not increase corporation tax beyond 12.5%? Is that a commitment he can give to this committee and, more importantly, to those companies when these negotiations are concluded? It is a very simple question. Is he, as Minister for Finance, clearly stating that he will not increase corporation tax beyond 12.5% for the relevant companies?
As regards the Deputy's first question about the revenue forecasts, the forecast we had began with a €500 million loss in 2022, building up by €500 million per year out to 2025. What has changed in these forecasts is that we are moving that to 2023, with €500 million lost at that point and not before. We are not in a position to revise our revenue forecasts as to what the loss could be because we do not yet have the full detail on what a final agreement could look like. The forecasts we are making for 2023 and 2024 are reasonable, based on the knowledge we have, and, at this point, I have no desire to change them.
On the Deputy's second question, I am involved in a negotiation at the moment. I have proven my commitment to standing by our rate by virtue of the fact that Ireland is not in an agreement at the moment and is among a minority of countries not in such an agreement. I am not going to speculate on what my final position could be on an agreement that is not yet finalised but my commitment to our rate is proven by where we are at present. The Deputy cannot, on the one hand, suggest that I am not committed to the rate and then, on the other, criticise me for Ireland being one of a small group of countries outside the current consensus. What I am doing attests to my commitment to protecting and standing by our rate. I am not going to speculate, in the context of the negotiation, on where things could be later in the year. I can commit to putting in place a very robust and strong defence for what I am doing, and I am proving that by my actions.
As the Minister knows, there is only one way to change our corporation tax rate and that is through legislation passed by the Houses of the Oireachtas. No international group, body or external force can do that. Ministers for Finance who have come before this committee down through the decades would have had no problem answering the question and saying that the rate would not change. The Minister has made those commitments at different points, as have others. He has staked his reputation and that of the country on this by aligning us with a small group of countries that have opted out of this agreement, which includes 132 countries. I have made it clear that I believe the Minister should defend Ireland's national interests. I must say that I believe he is failing at this point, given the level of opposition to his position. I want to know how far he is going to take this because there is reputational damage involved. Will he give a commitment that he will not change the rate? Ultimately, it will come down to him, as Minister for Finance, to decide whether to increase that rate or to stay outside this process. It appears to anybody looking in from the outside that this rate is, unfortunately, increasing.
I thank the Deputy for his question. I am well aware of the responsibility that is on my shoulders as I deal with this critical issue on behalf of our country. The Deputy cannot have it both ways. He cannot question my commitment to where I will be on the rate in the future and then infer that the commitment is not there when I am willing to step outside of the current consensus. My commitment to our rate is attested by the decision I am taking to not be part of a consensus at the moment. That is proof of my commitment to standing over our rate and proof of my commitment to doing what I believe is necessary to protect it in the future. Of course I am aware that making any such change would require legislative change through a Finance Bill. As I have said, beyond words the actions of where I stand at the moment and my willingness to be outside the current consensus make clear my commitment to doing all that is necessary to stand by where we are.
Others will look at what the Minister has said and, more importantly, what he has not said. Successive Ministers for Finance were willing to say that they would not increase the 12.5% tax rate. Based on the fact that the Minister is not willing to say that three months out from the conclusion of these negotiations, some might argue that he is in a process of conditioning the Irish people to see him as the first Minister for Finance in more than a decade to increase our corporation tax rate as a result of negotiations that are not going Ireland's way.
I will move to further details relating to the summer economic statement, specifically table 4. Either Minister can answer this question. The total budgetary package for 2022 is €4.7 billion and that is broken down into three categories of €3.1 billion for current, €1.1 billion for capital and €500 million for tax measures. A large amount of that has already been pre-committed and only €1.5 billion has yet to be allocated. Some €500 million of that is taxation measures. How much of that increased capital allowance has already been assigned and how much of it requires a new decision?
Before we hand over to the Minister for Public Expenditure and Reform to answer the question on the allocation of expenditure, I again remind the Deputy that I am engaged in a negotiation. My commitment to securing our rate and protecting it under our tax code is attested to by my unwillingness to sign up to the consensus that is there at the moment.
That is proof of my commitment to where we are. The Minister, Deputy McGrath, might comment on where we are with regard to expenditure.
I thank the Deputy for the question As he says, Table 4 sets out the total package for next year, which is of the order of €4.7 billion. The amount that is essentially pre-committed, whether it be by demographic costs, public service pay, existing levels of services etc., is of the order of €2 billion. Then there is the increase in capital expenditure of €1.1 billion that we are providing for. That is what leaves the €1.5 billion for new measures on the taxation and expenditure front.
In answer to the Deputy's specific question about the allocation of the increase in the capital expenditure, the details of that will be confirmed in the national development plan and the housing element in Housing for All, but we have agreement between the Department of Housing, Local Government and Heritage, my Department and the Department of Finance on the funding that is required to deliver Housing for All. I look forward to finalising the revised national development plan, NDP, ceilings. We will set them out at departmental level out to 2025. That will go to Cabinet before the end of July so that we can finalise the drafting element of the remainder of the NDP with a view to publishing it in September.
Is the Minister saying that there is a full €1.1 billion of new decisions that can be made in relation to capital? It does not read like that. It reads that some of the capital portion is already factored in. We can see that because some of it was factored in in terms of the stability programme update, SPU. Will the Minister give us the breakdown of that?
The breakdown of that will be made available when we publish the NDP. If the Deputy looks at total capital for 2021, to take him through it, it was almost €9.8 billion in core terms. There is approximately €300 million of Covid-related capital in the current year as well, but we are essentially increasing the underlying core capital provision from €9.8 billion to €10.9 billion. Then you have the additional national recovery and resilience plan, NRRP, capital element of approximately €200 million. That is what gives you the €11.1 billion. The precise breakdown of that will be published in the context of the NDP and is subject to Government decision. We have been working intensively with the Minister for Housing, Local Government and Heritage, Deputy O'Brien, on the funding necessary for Housing for All. There is now agreement in place and I would expect that will enable the Minister, Deputy O'Brien to bring the final proposals on the new housing strategy to Government shortly.
Madam Chair, my apologies for having to be in the House at the same time. I welcome the Ministers and thank them for coming before the committee.
I have two questions. First, notwithstanding that many commentators in the Houses of the Oireachtas over recent years have questioned the wisdom of the 12.5% corporation tax rate and suggested that it should be changed, that it was unfair and that other countries were deserving of a fairer share of the goodies etc., I ask the Minister for Finance whether our EU colleagues and colleagues across the OECD are fully aware of our geographic location in terms of gaining access to the markets across and around Europe? Given we are now an island across an island and somewhat remote from the centre of Europe, is this readily recognised?
My question to the Minister for Public Expenditure and Reform is in on the expenditure proposals. I welcome what is laid out. Might it be possible and has the Minister the flexibility to intervene in that there appear to be some deficiencies in the plan that may be affected by economic circumstances, foreseen or unforeseen, for example, to a greater or lesser extent than foreseen? Will the Minister intervene positively to support them to keep the plan on target?
There are two questions. I will have two more, if I have time.
That is the process we are now involved in. The review of the national development is at an advanced stage. We have held an extensive public consultation exercise at this point with well in excess of 500 submissions from the public. We have published phase 1 of the review of the NDP. That has involved an extensive amount of documentation and it provides the evidential basis for making the decisions as a Government on the allocation of those resources out to 2025 in the revised NDP. It is at an advanced stage. Once we have agreement from Cabinet on the capital ceilings by Department out to 2025 and the overall envelope out to 2030, that will allow Departments to set their individual priorities.
Of course, it is the case in the implementation of any national public capital investment programme that there will be projects that do not move as quickly as you might wish. There will be projects that encounter difficulties along the way. Of course, it is open to Government at any point to select other projects that can step into the place of the projects that have run into difficulty.
The key measure set out in the summer economic statement is the framework. It is €50 billion of taxpayers' money going towards the public capital investment programme over the next four years, 2022 to 2025. We must ensure we get value for money. That is why the implementation of the public spending code and the strengthening of the external assurance framework is so important. In recent days, my Department has gone out to tender, for example, to put together a panel of experts who will provide their experience and expertise to line Departments in managing major projects. We are conscious of the escalation in costs across the system. I need to ensure we have enough safeguards in place to protect this massive public investment and to make sure it delivers. What I am most concerned about is output and that we get the return from the investment of this money by way of new houses, new public transport projects, new roads, climate action measures etc. We look forward to publishing the full details of that shortly.
There is always flexibility within that capital envelope. As the Deputy will be aware, when there is an underspend in any year, Departments are permitted to carry forward into the following year 10% of their total capital budget. We saw that happen into 2021 where approximately €700 million was carried forward. Given the shutdown of construction for a large part of the first half of this year, I expect there will be some underspends in 2021. We will undoubtedly seek to avail of the carry-forward provisions into next year which will increase further the amount of resources that will be available.
I thank Deputy Durkan for his question. There is an appreciation within the European Union regarding the competitive challenges Ireland faces given our location and size. That feeds into the recognition and protection we have been able to deliver for our rate within the European Union. Therefore, that is there, but it is also the case there are other countries that have higher rates that are of a view there should be a change in policy, which is why I am devoting such energy and commitment to making the case for our rate.
My next question to both Ministers is on housing. Housing, I believe, is a fundamental issue in regard to our economic performance by virtue of house costs or the proportion of the family income devoted to mortgage repayments or rent payments. I note the five-year plan, and it is positive. Unfortunately, I have been hearing that for the past ten or 15 years. There has always been a plan that would take four or five years. Every time there has been a change of Minister, and Ministers want to progress the issue for the benefit of the country at large, other people have had reasons to say it will take five years to do that.
If it takes so long, then I am concerned we may find ourselves running out of runway. The five years could be up and we still might not have made an impact on this issue. We require hugely accelerated expenditure and delivery in the first of these five years. Can we tell the construction industry we need 70,000 or 80,000 houses in the first year and a similar number in the second year? I ask that because we need to achieve that to break the back of what is a serious national impediment. Can it be done? Can we instruct the construction sector to recruit abroad, or wherever, so that it will be able to put in place a programme capable of delivery on this scale? The longer we go the way we are now, the more expensive it gets. I am not suggesting the Ministers are in any way lethargic. I think the plan is good. However, the first year of the plan is the important bit. How successful are we going to be in delivering on that?
I thank the Deputy for the question and I am happy to take it. He rightly pointed to the scale of the issue, and the Government is acutely conscious of it. That is why we have set housing as a key priority. Consider the level of resources allocated in this regard in budget 2021, when we increased the capital envelope in the Department of Housing, Local Government and Heritage alone by €500 million and provided sufficient funding to build more than 9,000 homes directly. The Deputy will be aware output has been significantly impacted by the public health restrictions we were forced to impose. However, it does underline this Government's commitment to tackling the housing crisis and it will be continued right through our term in government.
Let us recall the amount of public money and the increase in that public money which was allocated to this priority area in recent years. The capital envelope for the Department of Housing, Local Government and Heritage, for example, was just over €800 million some years ago, but in 2021 it is now more than €2.7 billion. It has increased more than threefold in four years and there will be further significant increases in funding for the Department. We want to get back to a position where we are directly building many more public homes through our local authorities or approved housing bodies. We must also recognise we have huge challenges with affordability, and that is why the schemes we have legislated for and which will be put into operation shortly for affordable purchase and cost rental are so important.
We cannot instruct the construction industry on the number of units which must be built, but we can help by ensuring the bottlenecks in the system are addressed. Challenges exist in respect of the planning system, legal actions, costs escalation, the availability of labour and the provision of services and infrastructure. The Government has a role to play in dealing with all those aspects of the situation and that is what we are seeking to do. Consider, for example, that the Central Bank of Ireland forecast for housing output next year is 23,000 units, while the consensus is we need at least 33,000 homes coming on stream each year. We are not going to get there overnight. It takes time to build houses, but this Government is determined to make significant progress on this issue. That is why the Housing for All strategy will be so important. It is a whole-of-government approach and cannot be left to one Department because the issues cut across many Departments. We are all working together as a team to address this issue. There is another meeting of the Cabinet housing subcommittee this afternoon and we are in the final stages of completing the Housing for All strategy. It will be ambitious and it will be funded. The focus then must be on delivery and that is where the Government will focus all its attention.
I thank both Ministers for their contributions. It seems People Before Profit is alone in challenging the consensus on what we consider to be the immorally low corporation tax rate which is applied here. I refer not just to the nominal rate but to the effective rate. It is derisory and that rate is imposed on some of the wealthiest corporations in the world. We have been pretty much alone in arguing we must do something about this situation. For a long time, more than a decade now, we have argued we should have a minimum effective tax rate for corporations that is at least 12.5% rather than 4.5% and that we should also go higher in that regard. It is immoral that average workers pay a higher proportion of their incomes in taxes than some of the wealthiest corporations in the world do on their revenues.
We have long argued as well that defending this indefensible position shows that Ireland is a tax haven. Some 130 countries around the world have finally had the courage to begin to address this obscene scenario of wealthy corporations paying negligible amounts of tax. Those countries have reached an agreement to impose a minimum effective corporation tax rate of 15%. It is still a low rate. The Minister, however, is still holding out against that rate. The major parties here, including, if I understand this correctly, the major party in Opposition, are defending this indefensible position. Does such a stance not serve to confirm we are a tax haven? Out of 139 countries, 130 signed up to implement a minimum effective corporation tax rate. However, we joined with Barbados, St. Vincent and the Grenadines and a few other extremely low-tax regimes in saying "No" and that we must not impose any additional tax burden on these super-wealthy corporations that are paying next to no tax. How can that position be defended? Does it not just confirm that Ireland, as we have said all along, is a corporate tax haven?
I thank the Deputy for his question. Ireland has a low nominal rate of corporation tax. Critically, however, that rate is applied across a very wide base of economic activity in our country and there is very little difference between our nominal rate and the rate at which companies actually pay. As the Deputy knows, the information released by the Revenue Commissioners shows we have an effective tax rate of at least between 10% and 11%. The difference between that effective rate and the nominal rate is negligible. Therefore, I take a very different view of this matter. This is a critical issue for us. It concerns the predictability of our corporation tax rate, and protecting that rate is very important to the future of our economy. I am taking the action that I am for that reason.
The suggestion that the effective rate in this country is anywhere even close to 12.5% is absolutely preposterous. The Minister knows there is a serious ongoing debate concerning what "effective rate" means. However, pre-tax gross profits - perhaps the Minister might give us the figures just to confirm this point - in the corporate sector are approximately €180 billion annually, according to the latest available figures. By the way, that figure has doubled in the past five or six years. Only about half of that amount, some €90 billion, though, is actually taxed because of the application of reliefs, deductions, allowances, etc., and it is only possible to sustain the Minister's argument if we work from that lower figure. In reality, though, based on the figures for gross pre-tax profits, our real rate of corporation tax is about 4.5% or 5%. Is that not the truth of the matter?
I must challenge the Minister on the argument regarding the need for certainty and stability in the tax rate as well.
I want to turn an argument the Minister has used against us against him. Is it not the truth that he cannot promise certainty now? The rest of the world is rightly moving in the correct direction of imposing a higher minimum effective corporate tax rate on these enormously wealthy corporations which pay virtually no tax. There is a pretty much racing certainty it will head in that direction and he is holding out, along with a few other tax havens, against that. Is that not creating uncertainty now? Is he not really the one who is creating uncertainty by holding out against the inevitable? What he is doing is not just morally reprehensible, but he is creating uncertainty and would be far better joining what is a progressive move internationally to make these corporations pay something like a fair share of contribution in tax.
With regard to the Deputy's point about gross profits, companies pay tax on what they earn after expenses are deducted. To use the issue of gross taxes, the Deputy knows well is wrong. You pay tax on your total level of profitability minus your expenses and you then pay tax on that, as the Deputy well knows. The information I am referring to-----
-----is information that is available through the Revenue Commissioners. We have discussed this in different finance Bills. I do not have it to hand at present but it is publicly available and it shows that the effective rate of tax varies between 10% and 11%.
With regard to the Deputy's point regarding certainty or uncertainty, the agreement currently on the table does not offer certainty either because it refers to "at least", with regard to the rate. The agreement on the table with regard to where we are with the issue of the taxable base again refers to "at least". For the Deputy to suggest that the agreement is a source of certainty is at odds with the agreement as currently drafted. I am making clear my determination and commitment to protect our rate and, by doing that, to try to bring as much certainty as I can to where Ireland stands. To suggest what is there at the moment is a source of stability for Ireland in the future would be plain wrong.
How standing with a number of tax havens against an overwhelming consensus from Europe, the United States and elsewhere, is providing certainty for this country defies belief. We clearly have differing views on this.
We know that we need to dramatically increase expenditure on housing. The Minister is not giving away the figure. We believe he should double housing expenditure. In addition, we have long-needed, and after Covid-19 it is desperately urgent, to increase capacity in our health service in a whole range of areas such as ICU, staff, beds, primary care and in public health teams, not least. Similarly, for education and training, we have to dramatically increase the capacity of our third level higher education system, apprenticeships and so on.
When we used to argue for a €20 billion adjustment to fund these things, the Minister's predecessor used to always accuse us of fantasy economics. We have now discovered in the past year, in response to an emergency such as Covid-19, you can do a €20 billion adjustment and the world does not end. After Covid-19, the emergency spending needs to be sustained to give us the permanent increases in capacity in housing, health, infrastructure, education and so on but we have to be able to pay for that. Yet, the Minister is simultaneously saying he will have €500 million per year available for tax breaks.
That suggests that the level of spending we need for housing, health and education will not be sustained, and we will begin to pare back when need that spending, that ordinary people will have to pay for it in some shape or form or we will continue to base that expenditure on debt financing which is not sustainable. I want the Minister to spell out his position on that. Our view is we need to maintain the levels of spending in these areas but pay for it, not through debt financing primarily, but by beginning to tax some of the wealth, which exists in this country and has grown exponentially during Covid-19, whether it is through wealth taxes, increased corporation taxes, financial transaction taxes or taxes on the vulture funds and those who make money from property and so on. I will not list all the areas in which we think we could raise additional tax revenue. Where does the Minister stand on that?
In the plans we have, the significant majority of resources are going into the increasing of expenditure. As the Minister, Deputy McGrath, outlined in his presentation, both current and capital expenditure, but especially capital expenditure, are due to increase significantly across the coming period.
With regard to taxation, the Deputy is the biggest tax cutter in the house. He wants to abolish the universal social charge, carbon tax and the local property tax. There is not a tax we debate that he does not want to abolish. What we are doing here is saying that over a period of time, we want to do what we can to try to protect workers in protecting their living standards and take home pay as it rises due to inflation and gradual wage increases, which we expect to see happen in the economy. That is what we are looking to do. It is a clear and targeted objective. It is an amount of money that is a minority of the resources allocated.
With regard to the €20 billion adjustment the Deputy referred to, where we significantly increased spending and where we are in intervention in our economy, we can do that because our public finances were in good condition and support from the European Central Bank but we cannot continue it indefinitely. That is why the plan we have here, over a number of years rather than abruptly or in a single goal, looks to gradually reduce that emergency expenditure. The Deputy is right in one way. We were able to make a huge intervention in our economy when it was needed but where he is wrong and where we differ is that I do not believe that can continue indefinitely.
I welcome both Ministers to the committee and apologise for the fact I came in late. I was speaking in the convention centre earlier. I have had a chance to look through the summer economic statement and I have a number of points I want to make and questions to ask. One of the concerns I have with regard to our economy is the inflation factor. I know it is something that has been addressed in the statement in terms of it being noted, the nature of it, that it is a timing thing and that it is hard to predict how inflation will go. I would like to get the Minister's thoughts on where we might be going on that.
The other issue I looked at was the economic balance or imbalance. I was looking at it more from a geographical imbalance and how, in the next five-years, we will make up the difference between the underspend in the regions, such as in the north-west region which has been downgraded in status to a region in transition. It gives us an opportunity to look for more structural funding from Europe on the basis we should possibly be discriminating because of that situation. It is something that is badly needed in that region. While we have many challenges and demands, that is something we need to look at.
The other issue that concerns me is the cost of funding. What I am talking about there is the attractive interest rates at present and how we can potentially harness as much of that in order that we have infrastructure and development money in place at a rate that is attractive and that we take advantage of the situation we have.
I can only imagine that this situation will not remain the same forever.
I am aware that the European fiscal rules have been relaxed. I am sure that at some stage those responsible will look to anchor them in the future. How do we transition back into the fiscal rules? One of the big questions I have on this relates to the climate action legislation and the cost of climate action. Will this be tied into fiscal rules also or will it be outside of the fiscal rules given it is such an important world issue? Do we need to unleash investment in that area?
On housing, one of the biggest impediments towards the acceleration of the building of houses is planning. This is not so much the planning system as the judicial review system. How can this be addressed effectively? While it is not quite stifling development it is delaying the process. This has created an urgency to deliver some silver bullets now. I listened to Deputy Durkan speaking about getting the construction industry to deliver so many thousand houses next year. I would love to see this happening, but the planning situation is causing delays.
The Minister for Public Expenditure and Reform referred to the public spending code. That code has become very paper oriented. I had a meeting with a chief executive of one of the local authorities and the Construction Industry Federation some weeks ago. The discussions included the length of time from a project being announced to when money can actually be drawn down to start spending. This is one of my fears. Consider the gateways within the public spending code whereby one must get approvals as the project goes along. Transport Infrastructure Ireland has six gateways of approval, the National Transport Authority has seven, housing has four and the Department of Tourism, Culture, Arts, Gaeltacht, Sport and Media has nine. There is something wrong when we have all these gateways. Doing this work is eating up the scarce resource of technical staff and consultants. These people are not getting other work done. There is a very simple project in Galway city of a bridge to be put across the Corrib for a greenway. It will take three to six months to get it to construction from today. We have overcooked all of this analysis and all of these approval processes. We have created an industry within it. We must come back to more basic ways of getting things done quicker in order that we can spend the money we have and get ahead of the inflation curve.
I compliment everyone involved over the past 18 months of Covid on what has been done for industry, what has been done for people and what has been done for everybody right across the board. It has been exceptional. Our public services have proven to be absolutely top class in the context of that delivery. Hopefully, we are now exiting that period and getting everybody back to work. We have an issue regarding employment. Unemployment stands at 16%. We must look at how we get people back to work in the next year. I heard the Minister speaking on the radio this morning about getting 250,000 people back to work next year. We must simplify this for employers and employees. We must encourage employers to take on apprentices. Not everyone can or needs to go to college. We need to get apprentices out there also. I am aware that work is ongoing in that area with a suite of measures but we need to get it done quickly to see the benefits of it.
With regard to Covid, we are coming to a stage now where we will have a cost in repairing our health and not just the system. I refer in particular to mental health and to the issues around disabilities. We must also deal with hospital infrastructure where it has proven to be deficient through Covid. An investment, not tokenism, will be required in people's well-being. I received a paper from Deputy MacSharry this morning. The Deputy is looking for mental health services to have 15% of the overall health budget. He is right. We need to invest in mental health services now and not wait until the problem gets worse. While mental health or disability services are matters we talk about, and in respect of which we give solace, we do not always take effective measures quickly enough to actually repair them.
I have said a lot already. The final thing I will say is that when it comes to how we budget, we must consider the new ways of working. People will be working remotely and people will have blended working arrangements. There will be a cost involved in that in the context of societal adjustment. There will be a lot of benefits also and we must look at how we can factor this into the budget and into Government policy.
I will not be able to cover all that or anything like it in a minute, but I will make a couple of brief points. I have heard what the Deputy said about the public spending code. It is there to protect the interests of taxpayers. It kept under review. Significant changes were made in 2019. It is important that we have safeguards in place because in general, the better the homework is done prior to a project turning a sod the likelihood is improved of fewer problems later on. This is important, and a point worth making. I am introducing reforms through the setting up of a major project advisory group, which will advise my Department and others about the efficient delivery of infrastructure projects. I am also setting up a panel of experts to try to guide sponsoring bodies, Departments and other public bodies through the system in as seamless a way as possible.
The safeguards are there to protect both the interests of taxpayers and public money. We all know that it can go badly wrong if stages are skipped. I will take on board and examine the points made by Deputy Canney. The Deputy made a number of points on the planning system. The Minister for Housing, Local Government and Heritage, Deputy Darragh O'Brien, brought before the Cabinet in recent days a number of proposals to improve the planning system through the replacement of the strategic housing development process with a new process that involves certain stages that are time bound. The imposition of time limits is important.
We made a very significant health investment in budget 2021. We are committed to the implementation of Sláintecare. This involves significant public investment over the next years, including reforms such as the delivery of a new public-only consultant Sláintecare contract. It will be very important.
We are very conscious of the impact of inflation on construction. We are monitoring this very closely. The tools the Government has at its disposal are limited because many of the factors are external in nature, such as those relating to supply chains, shortages of products, the impact of Brexit and so on. The Office of Government Procurement is doing a lot of work in monitoring the impact of this and putting measures in place to mitigate the impact. I will be bringing a memorandum to Government on this issue very shortly.
I reassure the Deputy that the objective of achieving balanced regional development will be core to the national development plan, which is a subset of Project Ireland 2040. There will be very significant opportunities for the regions in the NDP. The Deputy has touched on the remote working and blended working that we are likely to see in the future. I have agreed a policy statement from Government with regard to moving towards blended working across the Civil Service. I expect this will also happen across the wider public service. This will give rise to many opportunities.
There will also be funding through the European Regional Development Fund, ERDF. We will have approximately €1 billion in respect of the PEACE PLUS programme, which will not just be for Northern Ireland but the Border counties as well. I expect, therefore, there will be much opportunity and investment available for the regions over the next number of years.
I thank the Minister for Finance and Minister for Public Expenditure and Reform for their time and attention this morning after such a particularly late meeting last night. One area that has not been touched on in our discussions this morning, which is surprising, is deficit reduction, which is a very key and central feature of the statement published last night. We must be very careful about how we go about reducing the deficit. Interestingly, the position as enunciated in the summer economic statement differs greatly from that set out in the stability programme update, SPU, which was published only a few short weeks ago. The SPU pledged a balanced budget by 2025. The SES now sees a budget deficit of 1.5% of GDP in 2025. What has changed since April?
I thank the Deputy very much. When I published the stability programme update, I made very clear it was published on a no policy change basis. Nothing has changed from a process point of view. On a number of occasions, in Oireachtas appearances and in the media, I made it clear I expected our borrowing requirement to increase. In conjunction with the Minister, Deputy McGrath, we have formed a view regarding the level of resources needed to meet current capital needs and have completed the process the stability programme update began.
I hope the Minister will agree there is no harm in operating a modest but manageable deficit, especially if it is focused on addressing some of our infrastructural deficits, especially around housing. I look forward to the Minister for Finance and the Minister for Public Expenditure and Reform setting out the quantum of money and resources that will be made available to housing in the context of the forthcoming Housing for All document.
I wish to ask one other question on the EU fiscal rules, which were touched on to a degree by Deputy Canney. Would the Minister for Finance agree with the European Fiscal Board when it said that a profound reform of the Stability and Growth Pact is a must? My view and that of the Labour Party's political grouping in the European Parliament is that the EU fiscal rules are to a degree anachronistic. They belong to another time and need to be reformed. In fact, these rules could end up holding European economic development back if we are to stick with them and not reform them. The Minister might apprise the members of any developments, in a European context, around any possible reform of those rules over the next couple of years.
I thank Deputy Nash. After the summer, the Commission will be launching a public consultation with regard to the future of the fiscal rules. As the Deputy will be aware, the fiscal rules are suspended until 2023 through the activation of the general escape clause. I differ somewhat from Professor Thygesen and the assessment of the fiscal advisory board. I believe some changes and reforms will happen but the rules have already demonstrated that flexibility is possible when the economic circumstances merit it. That has been proven by what we have been able to do over the past two years. The process, however, is that a public consultation will kick off in August or September in which all politicians across Europe, including those in the European Parliament, will play a role in putting their views forward.
I know from a response to a parliamentary question I submitted last week that the Minister also plans to undertake a public consultation on the OECD proposition around Pillar 2 reforms in the context of corporation tax. It is my view, which I have spoken about quite widely, that there is an inevitability of changes to Pillar 2. While I may not necessarily agree with them, I understand the reasons the Minister is holding to the defence he has made of Ireland's position. I firmly believe we have nothing to fear, however, if it is a case we move to a 15% corporation tax rate. It will give some certainty and it is debatable about whether it will be permitted to fall. In that context and especially around the review process he has committed to undertake over the next period, will the Minister apprise me a little on the terms of reference for that review and provide information on the potential impact of the 15% rate on Ireland, our Exchequer and business in this country? It would be very useful if it was framed and included in those terms of reference.
I wish to ask the Minister a question related to that. Today and previously, he has gone on record as stating very clearly that corporation tax reforms will impact the Exchequer to the tune of approximately €2 billion per year going forward over the next short period. Is it his assessment that this €2 billion impact will be exclusively around the reforms we have already signed up to in the context of Pillar 1 or does that include any anticipated change we may sign up to around Pillar 2? Has the Minister done any assessment in the Department that he is prepared to discuss around any additional revenues that may, in fact, become available to Ireland if we ultimately sign up to a 15% rate?
I thank the Deputy for his questions. We have not done any further analysis. The reason for this is that the outcome of the OECD process is not clear at the moment. That is why I cannot sign up to it. What I mean by that is, if the Deputy looks at the figures he has used at the moment, very respectfully, it is not saying an agreement of 15% is on offer It is not saying, for example, that what is on offer is a precise agreement regarding what base of taxing activity will happen here in Ireland. It is saying with regard to these things that it is at least. It is saying, therefore, it could be these figures or it could be higher. That lack of certainty means I am convinced Ireland cannot be part of this agreement. I am equally clear, however, that we want to remain within the process and see if we can influence it. We must do that in good faith, however. We have to do that cognisant, for example, that we are engaging with the United States of America, which is a very good friend, ally and partner of Ireland. Because of that lack of certainty, however, we cannot update our revenue forecasts because we do not have enough information available with which to forecast the revenue impact. It is for that reason there is not an update.
The Deputy asked a question about the terms of reference. I am actually signing them off in the next day or so. They will not come as a surprise to the Deputy. It is about asking the business, political and NGO communities here in Ireland to give us an assessment of these different strands of what we know at the moment. We look at the two strands individually and then we look at them collectively. There will not be too much in the terms of reference that will come as a surprise to the Deputy. We are seeking to garner a response on what clarity is available to us at the moment, however.
I thank both Ministers for their contributions and for the questions and answers. I had the opportunity to quickly read part of the documentation. It is looking like a positive backdrop with strong growth figures expected.
There has been substantial spending on Covid-19 supports. I acknowledge that is for both individuals and businesses. The Minister is looking at tapering that and expecting growth afterwards. I imagine the Minister is basing this on there being no further waves or any need to continue with that. Is there a contingency or plan in that regard? I am being optimistic that vaccines will see us out of the pandemic, but is there a plan to address any further threat from the pandemic?
Beyond that, there are significant challenges in housing and health. It is important that it is not all happening in the east and in the cities and that there are opportunities in the regions, including key transport areas, whether Cork, Limerick or elsewhere, such as the capital plan taking in the N22 and so on. It is important that there is regional balance. It is intended that the capital spending can be front-loaded for housing and transport over the next couple of years, especially if we are to catch up from where we are?
The Minister clarified the fiscal rules for Deputy Nash. I understand that they are suspended until 2023. The Minister outlined the broad shape of things ahead. Is there flexibility for the timing of those or will it definitely be 2023? If there was more flexibility, it might influence the plans.
I thank the Deputy for those questions. Looking ahead to Covid-related expenditure in 2022, we made provision in the stability programme update which we published in April for expenditure of €4 billion. Some €2.5 billion is for different Departments since there will be continued costs in health, for example, for the vaccination programme, continued costs in education for the remainder of the academic year, and continued supports in areas such as public transport. We also provided €1.5 billion for what we call automatic stabilisers. In effect, it is for the provision of income supports for people who may continue to need to rely on the State for income if they are not in a position to return to work. We are going further than that in the summer economic statement and providing a further €2.8 billion as a contingency, which we can use for income supports, to meet costs that arise in Departments and to address any risks that will emerge in the labour market with the number people returning work. We have made steady progress in tackling this virus, notwithstanding the risk of the Delta variant. The vaccination programme is proving to be highly effective. In the next weeks, the level of coverage will be very high indeed across the eligible adult population. We believe that will enable us to fulfil the commitments that we have made and that, all going well, the assumptions will prove to be correct. There are always risks with a global pandemic and none of us can be certain. What we have set out in the summer economic statement represents our best judgment.
Regarding balanced regional development, I reiterate the points that I made to Deputy Canney earlier. There are significant opportunities in the revised national development plan, which we will bring forward shortly. It is a key priority for Government. There will be opportunities for further investment in health, education, transport and housing outside our cities. Under Project Ireland 2040, we expect the bulk of the growth to be outside Dublin over the period to 2040.
On the capital envelope, the figures that we set out in the summer economic statement represent the overall capital figures for each year. Total capital next year will be €11.1 billion, rising to €11.9 billion, then €12.8 billion in 2024, eventually hitting €13.6 billion. Decisions will have to be made within that about how much we allocate to each Department. Each Department will have to set its own priorities in the national development plan review in a manner consistent with the programme for Government. The Minister, Deputy Donohoe, might wish to address the fiscal rules.
I will do that briefly. The Minister, Deputy McGrath, has thoroughly covered everything else. I believe the fiscal rules will be reapplied in 2023. To have the general escape clause activated all the way up to the end of next year is helpful for our planning. It is also important that we plan for the reactivation the year after that. Deputy Moynihan will be familiar with the different figures, especially the 3% deficit figure, which is enshrined in the treaties of the European Union. We believe we will be significantly below it in 2023 from the perspective of GDP. That is what I expect will happen.
I welcome the Ministers, Deputies Donohoe and McGrath. I have two brief questions. The first is for the Minister, Deputy Donohoe. Page 29 of the summer economic statement states that because of developments with the OECD, there could possibly be lower corporation tax receipts. It states, "The Department of Finance’s central estimate is that revenues from this source could be around €2 billion lower over the short to medium-term; however, there remains considerable uncertainty with the possibility that the overall impact could be even larger." The OECD is in pillar 1 and pillar 2. Is the €2 billion an estimate for pillar 1, pillar 2, or both? The Ministers indicated that they are going for public consultation about what is happening in the OECD. Is that currently under way or is it about to get under way? That is a good initiative. Within the OECD's proposals, if the rate is 15%, does it apply for a period of time? How long is that period? Is there a mechanism whereby a principle is signed up to that can be revisited in a number of years, is it a rolling matter, or is it looked at fresh every time? I am interested in clarity about the process more than anything else. The public consultation is a welcome, positive step.
I have a question for the Minister, Deputy McGrath. Throughout the document are references to the public debt being high. Page 31 states that the level of debt between 2020 and 2025 will go up by nearly €64 billion, from €218.2 billion to €281.7 billion. We will be at nearly €250 billion by 2022. It is below the old measure of 60% of the debt to GDP ratio. Is that sustainable? It is a high debt level. Where does the Minister see challenges with it? What is his overall perspective on it? It is commentary repeated throughout the economic statement.
The revenue forecasting that we have done so far has mainly focused on the reallocation of taxing rights. Regarding the analysis of how it could change again, I re-emphasise the point that I made to Deputy Nash, if I may. We are not looking at an agreement that is clear about the issues of base, taxing rights or even rates.
All of the figures in the document are conditioned on the basis of "at least". Many of the key figures in the text are about setting a low figure, in the eyes of some, and because of how it is phrased it could go beyond that. That is a key issue which influences my view that we cannot sign up to the agreement. Equally, it influences what we can do from a revenue forecasting point of view.
To deal with the Deputy's point on the public process, it has not kicked off yet but I anticipate that we will do that in a couple of days. I have just received some draft terms of reference, which I am having a look at. There will be little in it that will surprise the Deputy. It will just lay out what the different principles are.
In layman's terms, does the €2 billion in the economic statement include any potential revision on the rate or is it just mainly about Pillar 1? The minimum rate being proposed is 15%. Does the proposal from the OECD speak about that minimum rate applying over a period of time? Does it speak about it being reviewed in a number of years? Has it gone into that level of detail? That is hugely important for us as a country, particularly for applying certainty to the multinational sector, as well as more generally. I am more interested in the process.
I thank the Deputy for reminding me of that. The agreement contains review clauses and there are review clauses for some aspects of the agreements. However, if a country is in that agreement then it is reasonable to expect that it will be at whatever rate is agreed until well into the medium term and for many years. As the agreement is drafted, there is no exit clause that allows a country to opt into the agreement and then exit it. The expectation is that if a country is in the agreement it is in. While there are some review elements in it, it is important to be open and clear with the committee. The expectation of countries is that if they are in the agreement they are going to stay in it.
It is difficult to put any years on it because that has not been finalised or nailed down but we would be talking about many years. I do not want to create the expectation that a country can sign up to this agreement and then leave. The Deputy is not suggesting this but we should both be clear that a country cannot go into the agreement, see how it goes and decide to leave after a couple of years without consequences. It would not be consequence free.
I am saying the reverse. I am putting the case that if an agreement is made and that agreement is subject to a review every two or three years, that provides a huge degree of uncertainty. There is a public consultation process under way and we value our low corporation tax rate. It is one of the pillars of our economic model. Whatever agreement arises out of this, the Minister anticipates that it will be a medium to long-term agreement. Is that correct?
I thank the Deputy for his question. He has rightly highlighted what will be one of the main legacies of the Covid crisis, that is, a significantly elevated level of public debt from a pre-Covid level of around €200 billion, rising to around €280 billion by 2025. I would make the point that despite that significant increase in public debt, the cost of servicing that debt has fallen. The annual interest bill stands at around €3.5 billion per annum, which is significantly below where it was projected to be because of the historic low interest rates. The average interest rate across the portfolio is of the order of 1.6%. The National Treasury Management Agency, NTMA, has done an enormous amount of work to reprofile the Irish debt to take maximum advantage of the benign borrowing conditions that are there and which will not remain in place indefinitely.
As the Deputy will see on page 28 of the document in figure 16a, the interest to revenue ratio has fallen considerably over recent years. If the Deputy looks at page 27, table 3, the ratio of debt as a percentage of GNI* remains quite steady and falls modestly over the period. All of this underlines the importance of this framework and of Government agreeing to and sticking to it over the next number of years because it is undoubtedly the case that the scale of the increase in the nominal debt increases risk. It is not risk free so we have to ensure that we remain within this framework, meet the milestones within it, make steady progress in unwinding the Covid related expenditure, support the economic recovery and reduce the deficit in a gradual way in line with the forecast we have set out.
I thank the Ministers. I am glad to see that the statement looks beyond Covid but I am concerned that sufficient account is not taken for the full reopening of our health service, particularly screening services. Are there specific plans for the recovery of our health service? I am aware that Deputy Canney asked a similar question and that the Minister, Deputy Michael McGrath, mentioned Sláintecare but I am concerned with the lack of screening taking place. If I could get something on that I would appreciate it.
I thank the Deputy for raising what is such an important issue. I know the Minister for Health, Deputy Stephen Donnelly, and the HSE are determined to reinstate all of the non-Covid healthcare in as full a form as possible as quickly as they possibly can. A significant amount of progress has been made in that regard.
On the overall budget position for the Department of Health and the HSE, as the Deputy knows, we provided an extra €4 billion in budget 2021 for health. Broadly speaking, that was split into two halves with about half of it for new measures and the protection of existing levels of service. The other half of around €2 billion, which was directly related to the cost of Covid, included the testing and tracing system, the vaccination programme, personal protective equipment, PPE, etc.
I had a meeting earlier this week with the Minister for Health, Deputy Stephen Donnelly, and his team. It was a mid-year review on how things are going across health and on implementing all of the key objectives we set in the budget last year. While Covid has had an enormous impact - and that has been compounded by the cyberattack - a lot of progress is being made on the reform side. For example, the Department of Health and the HSE are significantly increasing the permanent bed capacity in our public health system, which was a significant element of the funding we provided in budget 2021 for new measures. We provided about €1.25 billion for a significant implementation of Sláintecare and they are making a lot of progress in that regard, notwithstanding the enormous challenges they have faced. They are determined to reinstate non-Covid healthcare as quickly as possible. We also discussed their progress in the ambitious recruitment programme we have in place across health. For example, we gave sanction for an increase in the workforce across health from pre-Covid levels to the end of 2021 of in the region of 16,000 extra people, which is a massive investment by the State to improve our health system into the future.
We have to learn the lessons from Covid and we need to implement Sláintecare, which is the future. The Government is committed to it and the Minister, Deputy Stephen Donnelly, and his team have been given the resources to make progress. I look forward to further discussions during the Estimates process.
I am sorry to cut across the Minister, but I see that Deputy Farrell wants to speak. I am concerned about the lack of people getting screened. Many people are coming to my constituency office and are concerned about that, so I appreciate the Minister's answer. I hope to see a significant change in the future.
Page 2 of the statement states that, "For workers in firms and sectors that are no longer viable, the policy focus will shift to reskilling so that these workers can transition to viable sectors”. I am interested to hear what sectors the Minister envisages will not be viable post-Covid-19. Also, what reskilling will be provided? I know there are time constraints so if the Minister cannot give me a quick answer, it is fine if wants to come back to me in writing.
I will be very brief. We acknowledge the huge strain which so many businesses have been under in the last 16 months, notwithstanding the massive support that the State has extended, and continues to extend, to them. It is because of that support that we have greatly mitigated the economic fallout and greatly reduced the number of businesses that might not survive. The decisions the Minister, Deputy Donohoe, in particular, has made around the extension of the employment wage subsidy scheme, EWSS, the decisions we have made about local authority rates relief, and so on will help those businesses. We are of the view that the overwhelming majority of businesses will survive, but inevitably there will be some casualties.
The Pathways to Work programme that the Minister for Social Protection, Deputy Heather Humphreys, and the Taoiseach launched earlier this week involves a number of Departments. It is an extensive investment in retraining and reskilling, apprenticeships, work experience programmes, and so on. This week at Cabinet, we sanctioned a further increase of 4,000 places at third level education next year. The Government is putting huge resources and investment into this area. Reducing the level of unemployment that has arisen as a result of Covid-19 will be a core priority for us.
Go raibh maith agat a Chathaoirligh. Go raibh maith agaibh na hAirí chun teacht chuig an gcoiste seo. We are short on time so I will focus on two questions. Would the Chair prefer if I asked the two questions together?
I refer to page 31, table 6, on the budgetary projections for 2020 to 2025. Specifically, I am looking at the capital spending as per the stability programme update, SPU, and the summer economic statement, SES. I notice that next year the difference in capital is only €800 million over what the SPU had projected. We are all aware that it took additional time for this summer economic statement to come out. There appears to have been a squabble in relation to this. The reality is that people of my generation are locked out of housing given the huge rents. It is the view of so many people that they will never be able to afford to buy their own home. That €800 million does not go far enough. I assume some of that money is going to housing and that some of it is going to climate.
It is not just myself and my colleagues who are talking about the housing crisis and the amount of money that needs to be spent on housing. The Economic and Social Research Institute, ESRI, said that it needs to be doubled. At the same time, there is a tax measure of €0.5 billion. If one compares that to the €800 million for extra capital, I do not see how that can be justified and how the housing crisis is being taken seriously, given that people are in such utter despair.
I thank the Deputy for her question. To be fair, she should reserve judgment until she sees the housing strategy, Housing for All. There is an increase in the SES in the underlying core capital from 2021 to 2022 of €1.1 billion. In addition, the Minister for Housing, Local Government and Heritage, Deputy Darragh O’Brien, is looking at all other possible sources of funding and investment. This includes, for example, non-Exchequer investment and the role that the Land Development Agency, LDA, can play. As the Deputy knows, the LDA has the capacity to borrow and leverage the investment it will get from the Ireland Strategic Investment Fund. The Deputy should reserve overall judgment until she sees the Housing for All plan which will be ambitious. The real issue and focus has to be on delivery. Covid-19 has had a dramatic impact on output, both last year and this year. We get the scale of the housing crisis, and the fact that so many people are unable to even aspire to home ownership. The Government is committed to addressing that. The full details will be available once Housing for All is published.
I have one more question, but I will comment on that response. I hope Housing for All is ambitious and that I will be shocked when I see it and that it will be positive. The reality is that people are desperate. We had a situation Galway city where, for six-year period, not a single house was built by Government. I am aware that the Minister for Public Expenditure and Reform, Deputy Michael McGrath’s party was not in government at that time but the Minister for Finance, Deputy Donohoe’s party was. People are in despair, so we need to tackle this. The difference of €800 million has not given me great hope. I will obviously take a look at it when it is published. I sincerely hope it will address it this issue.
The other thing I noted was in the foreword to the summer economic statement. It noted that the corporation tax policy may be a less powerful tool in winning new investment and as such there will need to be a refocusing on cost competitiveness. That particular phrase “cost competitiveness” sprung out at me. What does the Minister mean by this? Obviously, because we are in the eurozone, we cannot change interest rates to boost competitiveness and we cannot devalue our currency. I do not suggest that we should; I am just stating the reality. Can the Minister clarify what he means by “cost competitiveness”? I hope it is not a suggestion in regard to labour costs because that would mean that the focus would be on internal devaluation as in the wake of the last crisis. That could mean lowering wages to increase our attractiveness as an export platform. We have just discussed housing crisis. It is not as if people's outgoings are decreasing. I would like to know what that “cost competitiveness” means.
An assumption within the summer economic statement is that we expect wages will grow. “Cost competitiveness” refers to two elements. The first is how we can change overall levels of productivity within our economy. Some parts for our economy are really productive. We want to increase the productivity of others. That is why the educational programmes to which the Minister, Deputy McGrath, made reference to a moment ago are so important.
The second element focuses on a particular issue that dovetails with the many discussions we have had in housing - for example, the cost of building a home and the cost and affordability of how houses and apartments are built affects our competitiveness. This will be referenced and focused on in the Housing for All plan, which the Government will launch.
Thank you, Deputy. There are no hands raised for a second round of quick-fire questions. It remains for me to thank the Ministers, Deputies Donohoe and McGrath. I am particularly grateful for their attendance considering the late night last night. I know it was a draining session. I thank also Mr. John McCarthy and Mr. John Kinnane for their presence today. The committee will meet in private session next week to consider its interim pre-budget report.