Mr. Sebastian Barnes:

I thank the Senator. There is a theme that will run through my answers to these questions. IFAC's concern is with the overall balance of the public finances and their sustainability and how much money the Government is putting into the economy compared to how much it takes out. It is about making sure it is not destabilising to the economy and that we are not contributing to economic booms or busts.

On the Senator's first point, Mr. Timoney is the author of a paper that is extremely important in the context of understanding the Irish economy. We have really had a trend divergence between higher income earners, in particular these are people working in certain sectors such as technology and pharmaceuticals, and others. Many high-paid jobs are being created in these sectors. The people who have these jobs have seen very big wage increases. Other people in other sectors have not seen very much. Although these trends are probably especially strong in Ireland, partly because the economy is growing quite fast, we see them in many other economies also. The returns for a digital worker having certain digital skills and certain high skills have increased over time while the returns for other jobs that require lower skills or lower levels of education have fallen behind or stagnated. It is very important to think about these trends. This could also be added to the medium-term challenges. The council does not take a view on what the right response is.

That is a matter for politicians and the Government.

This raises an important question, namely, if this is what society is like, what does that mean for the Government in the future? We have already seen that thanks to Ireland's progressive tax system, this dynamic means that more income is going into the higher tax brackets. It is too early to be very confident about it, but it looks like this is leading to a permanent shift in the economy towards paying more tax as a share of national income because more people are now earning at higher rates. That money is available for other things, including for redistribution to other people in the economy. Again, we are not saying that is what should happen. However, it is illustrative of some of the big questions that need to be considered.

That leads to the question of investment. There was a period following the crisis where public investment in Ireland was too low. That was a concern raised by the council at the time. Usually, we would not go so far as to comment on particular items, but we became worried that the level of public investment was so low that public capital stock was getting to a level that would be problematic for growth. We raised those concerns at the time. In many countries, there is a strong incentive for short-termist politicians to cut investment because the cost of that does not becomes immediately apparent and current spending can be kept at the same level, rather than making the choices they should be making which may be more difficult in terms of cutting or pulling back on other areas of spending or raising taxes.

As it happens, in Ireland's public investment has, fortunately, more than recovered. We are at the highest share of national income we have ever seen on a sustained basis. It is very high by international standards. That is being done in the context not of massive public borrowing, leaving the pandemic aside, but because of the way policy has been run in the past couple of years. That is quite a significant achievement. As we discussed earlier, the real constraint on public investment now is the capacity of the economy to deliver on public investment and avoid inflation in those sectors and more generally.

The question of treatment in the fiscal rules is a different question. In terms of the situation Ireland is in, we are managing to combine a very high level of public investment with sustainable management of the public finances and economy.