Oireachtas Joint and Select Committees

Wednesday, 3 November 2021

Committee on Budgetary Oversight

Remit, Terms of Reference and Priorities: Commission on Taxation and Welfare

Professor Niamh Moloney:

I thank the Chair and members. I am delighted to have this opportunity to come before the committee. I thank the committee for the invitation to appear on behalf of the Commission on Taxation and Welfare. As per the invitation, my opening remarks will focus on the remit of the commission, its terms of reference and our priorities for the coming year.

The commission was established by Government and commenced its work in June 2021, with the objective, as set out in our terms of reference, to "independently consider how best the taxation and welfare systems can support economic activity and promote increased employment and prosperity, while ensuring that there are sufficient resources available to meet the costs of public services and supports in the medium and longer term". The Government has asked us to report by July of next year. As I will outline in a moment, the terms of reference for the commission are extensive. While the commission got off to a good start and has held nine meetings so far with our tenth on Friday, we are still in the early stages of our deliberations. I hope committee members will appreciate that we are a long way from reaching conclusions at this point in time.

The commission’s remit covers both taxation and welfare but its outlook is firmly of a medium to long-term nature. Our role is to stand back from the day-to-day debates on taxation and welfare and look at how well the tax and welfare systems are likely to fit the country’s needs over the next ten to 20 years. In doing so, we have been asked to consider factors such as the impact of the Covid-19 emergency, ageing demographics, digital disruption and automation, and the long-term strategic commitments of Government regarding health, housing and climate. Members of the commission are drawn from a broad cross-section of relevant backgrounds, including taxation, welfare, economics, law and broader civil society, each bringing a mix of applicable skillsets and backgrounds to the table. We are undertaking this work as an independent body, unencumbered by political pressures, stepping back and with a long-term perspective.

As well as this overall remit, as committee members will see from our terms of reference, the commission has been asked to look at a number of specific issues. These include: ensuring there are sufficient resources available to meet the costs of public services into the future; supporting economic activity and income redistribution while promoting increased employment and prosperity; and examining what changes, if any, should be made to the social insurance system. Also included is examining how welfare policy can work in tandem with the taxation system to support economic activity while continuing to support those most vulnerable in our society in a fair and equitable way. The terms of reference also include examining how the taxation system can be used to help Ireland move to a low carbon economy, the appropriate role for the taxation and welfare system in achieving housing policy objectives including an examination of the merits of a site value tax. The commission's terms of reference also include: examining Ireland’s attractiveness to foreign direct investment; the taxation environment for SMEs and entrepreneurs; the role of taxation and welfare in promoting good public health; the process for reviewing taxation measures and expenditures; and tax administration. As members know, and as provided for in the terms of reference, we are also being asked to look at some of the revenue-raising proposals as set out in the recent report of the Commission on Pensions.

As committee members can see, this is a challenging agenda but it is an important one. Our terms of reference reflect the central role that taxation and welfare play in our society. The taxation and welfare systems make up some of the most significant and regular interactions between individuals and the State and define, in large part, the nature of the relationship between the State and the individual. The tax and welfare systems are, accordingly, at the crux of the relationship between the State and the individual. They are part but not the totality of the wider social contract, which is the set of rights and mutual obligations that come with living in Ireland.

Put simply, the taxation system provides the investment we make as individuals and as businesses for the public services we use, from our roads and bridges to our hospitals and schools. For those of us at working age, our social welfare system serves to temporarily replace income lost to periods of unemployment, injury, disability, sickness or maternity. Where earnings from employment are insufficient to avoid poverty or social exclusion, our system intervenes to provide a floor below which income will not fall and, of course, the social welfare system provides a core income for those in retirement. Together, these are the most important instruments that we have to provide a safety net, to provide income redistribution and to pay for the needs of our society. We have all seen over the course of the pandemic how crucial the tax and welfare systems have been in supporting families and businesses that have been so badly affected by the public health measures that had to be taken.

Our role, as I said, is to take a medium to long-term view. This is, in essence, a strategic exercise in that we are being asked to stand back and look at systems as they are, the challenges ahead and to consider what changes are needed for the future.

Not least among these challenges is that of fiscal sustainability. The primary function of the tax system is to fund Government expenditure at a level determined by the democratic system. While the fiscal position will improve as the Covid-19 pandemic subsides, the public finances will face significant structural challenges in the medium to long term. Of these, costs associated with demographic change are the most certain, with an ageing population putting pressure on pension and health costs. While there are currently four working age people to support every person above 65, in 2050 the equivalent ratio will be 2:1. This will place significant pressure on the public finances, even if just to provide the existing level of services. Costs associated with the climate and digital transitions will also need to be funded. It is vital therefore, that we think strategically now about the changes that might be needed to the tax and welfare systems in the future so that we can rise to these challenges and begin to prepare.

Each of the elements of the terms of reference represents an important issue which must be borne in mind when thinking about how the tax and welfare systems should be structured into the future. What is crucially important, however, is that we think about these systems as systems. How well do these systems as a whole hang together and meet the needs of our country? The commission will examine each of these items in turn but that holistic viewpoint is also central to our work.

I mention our public consultation. This engagement, which I value greatly, is particularly timely as the commission launched its public consultation entitled Your Vision, Our Future on 20 October. This public consultation differs in a number of important ways from previous such exercises. It is hosted on cotw.citizenspace.com, which is an online platform used by hundreds of government bodies worldwide. This is a truly accessible, sophisticated and in-depth public consultation which complies with the web content accessibility guidelines. In order to ensure we cast our net widely we have advertised on print, social and outdoor advertising platforms, ensuring that as many people as possible have an opportunity to make a submission. Since the launch of the consultation we have already received 24 submissions. This level of interest, even at this early stage of our work, is most heartening, as is the invitation to attend the committee to discuss this important undertaking. Following the public consultation, the commission plans to undertake further stakeholder engagement events early next year to further explore themes and matters arising. All of us have a stake in the taxation and welfare systems. The committee members, as public representatives have unique insights into the views of the people they represent. I greatly value the opportunity to meet members and I look forward to a fruitful and positive exchange over the course of the session.