Richard O'Donoghue (Limerick County, Independent Ireland Party)
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I ask everyone to turn off their mobile phones and devices or put them on silent. Before we begin, I wish to explain some limitations to parliamentary privilege and the practice of the House with regard to references that may be made to other persons in the witnesses' evidence. Witnesses are protected by absolute privilege in respect of the presentations they make to the committee. This means they have absolute defence against any defamatory actions for anything they say at the meeting. However, they are expected not to abuse the privilege and it is my duty as Chair to ensure it is not abused. Therefore, if their statements are potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative they comply with any such direction.

I remind members of the constitutional requirement that in order to participate in public meetings, they must be physically present within the confines of the Leinster House complex. Members attending remotely must do so from within the precincts of Leinster House. This is due to the constitutional requirement that in order to participate in a public meeting, members must be physically present within the confines of the place where the Parliament has chosen to sit.

In this regard, I ask any members participating via Teams that prior to making their contributions, they confirm that they are on the grounds of the Leinster House campus.

Members are also 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 their statements are potentially defamatory in relation to an identifiable person or entity, I will direct them to discontinue their remarks. It is imperative that they comply with any such direction.

This morning's engagement forms part of our pre-budget 2026 scrutiny and engagement. I welcome: Mr. Seamus Coffey, chair of the Irish Fiscal Advisory Council and lecturer in the department of economics at University College Cork; Professor Michael McMahon, Irish Fiscal Advisory Council member and professor of macroeconomics at the University of Oxford; Mr. Niall Conroy, acting chief economist and head of the secretariat of the Irish Fiscal Advisory Council; Dr. Alan Barrett, research professor at the Economic and Social Research Institute; Dr. Claire Keane, associate research professor at the Economic and Social Research Institute; and Dr. Conor O'Toole, associate research professor at the Economic and Social Research Institute. The committee welcomes the opportunity to engage with the witnesses. I thank them for being here today. I invite Mr. Coffey to make the opening statement.

Mr. Seamus Coffey:

I thank the Chair for his welcome. The council is grateful to the committee for inviting us to appear before it again. We value our engagements with the Oireachtas highly and consider these opportunities an integral part of our work. As an official independent body established under the Fiscal Responsibility Act 2012, the council's mandate currently revolves around four elements: endorsing and assessing the official macroeconomic forecasts; assessing official budgetary projections; monitoring compliance with fiscal rules; and assessing the Government's overall fiscal stance. Our mandate may be expanded in line with a 2024 EU directive, which assigns additional tasks to independent fiscal institutions such as the Irish Fiscal Advisory Council. This directive must be transposed into Irish law by the end of the year. The focus of the Irish Fiscal Advisory Council is the broader fiscal and macro perspective rather than any individual tax or spending measures. Ahead of each budget, we produce a report setting out our views on the Government's plans. We published a report last week, and this is what will speak to today.

Ireland's economy is continuing to perform well. More people are in work than ever before and employment continues to grow. Despite high uncertainty, consumer spending is increasing. While global uncertainty and trade tariffs pose risks, they have not yet had a major impact on the Irish economy. The economy is performing well on its own and does not require support from policy. Monetary policy is already providing support which the economy does not need. Interest rates have been halved over the past 14 months. Budgetary policy should attempt to reduce the ups and downs of the economic cycle. This means showing restraint when the economy is strong, like right now, and being more generous when it is struggling. Budgetary policy is already providing a stimulus to the Irish economy. When excess corporation tax receipts are excluded, Government spending will surpass revenue by around €8 billion this year. This deficit is likely to become larger next year as the Government plans to increase spending at a faster rate than underlying Government revenue. Running underlying deficits when the economy is strong limits the Government's ability to step in and respond in the event of an economic downturn. A good example of when the Government did this was during the Covid-19-induced downturn. A bad example was the large underlying deficits in the run-up to the 2008 financial crisis and the subsequent austerity policies. We do not want a repeat of these policies.

The Government is planning a €9.4 billion package in budget 2026. Net spending, spending increases net of tax measures, is projected to increase by 6.5% next year. This is faster than the sustainable growth rate of the economy. Given the strong position of the economy, the council would recommend a more modest budget package than that which is currently planned. This does not mean there are no issues that can be addressed. It means the Government needs to choose between various options. If investment is the Government's priority, that means less room for day-to-day spending increases or tax cuts. Government spending is regularly going beyond what is announced on budget day. Last October, the Government budgeted for a €3 billion increase in spending in 2025. In practice, spending is likely to rise by €7.6 billion. In order to break this cycle of repeated overruns, the Government needs to fully incorporate likely overruns in 2025 when setting spending forecasts for 2026.

The Government needs to commit to a clear guide or rule for budgetary policy. The Government is yet to set any limit on what is sustainable for the public finances. Without a rule or limit, budgetary policy will be made in a year-to-year fashion. If taken seriously, the new European requirements for a medium-term plan could help. The Government committed to submitting a revised medium-term plan alongside the summer economic statement. It is disappointing that the plan has not yet been published. The council has outlined a number of characteristics it would like to see in a budgetary rule. These include setting the rule in legislation; applying it on a general government basis; and ensuring it protects public investment by setting a minimum level as a percentage of national income. One welcome reform in recent years has been the introduction of two savings funds. These funds can help to offset future budgetary challenges, such as an ageing population and climate change.

To conclude, I will highlight five key recommendations the council makes. The budget package for 2026 should be smaller than the €9.4 billion currently planned. This would leave the Government more scope to use budgetary policy to combat the next economic downturn.

The Government needs to fully incorporate spending overruns from this year when setting spending forecasts for next year. If this does not happen, overruns are inevitable next year.

The Government should publish a revised medium-term fiscal plan alongside the budget. If taken seriously, the plan could move Ireland away from year-to-year budgeting.

The Government should set a domestic budgetary rule. This would set a limit on the sustainable growth rate of spending, net of tax measures. Recent increases have been in excess of what is sustainable. The Government should continue to save in the recently established savings funds. The Future Ireland Fund can be a useful tool to offset future budgetary pressures, which include the ageing population and climate change.

I thank the committee members for their attention. We remain committed to assisting the Oireachtas in achieving fiscal responsibility and economic stability. We look forward to the discussion and members' questions.

Dr. Alan Barrett:

I thank the committee for the invitation to appear before it today. I am a research professor at the ESRI and I am joined by my colleagues, Dr. Claire Keane and Dr. Conor O’Toole, who are both associate research professors. In the correspondence from the committee, we were asked to address four themes so we will take each in turn, answering the exam question narrowly.

First, I will provide views on the overall budgetary package as set out in the summer economic statement. In our last quarterly economic commentary, we wrote about our concerns regarding the fiscal stance that is being adopted by the Government. While the headline figures show general government surpluses, it is well understood that the underlying figures show deficits once account is taken of the windfall corporate taxes, both those from the Apple case and those that are unexplained by economic fundamentals. This situation leads to two concerns. Almost by definition, the windfall revenues could evaporate quickly in response to factors such as legislative changes. History, in particular the economic collapse, provides a stark reminder that a vulnerability in the tax base can become a major problem if something arises to test the vulnerability. Potential instability is magnified by the fact that so few companies are responsible for such a large proportion of tax revenue. As pointed out over many years by the ESRI and others, such as our colleagues in IFAC and the Central Bank, running underlying deficits is generally inadvisable when the economy is performing so well and possibly above potential output. A fundamental principle of fiscal management is that the fiscal stance should be counter-cyclical. Ireland’s fiscal policy looks pro-cyclical right now, which creates immediate risks such as overheating and longer term risks such as the need to continue with a pro-cyclical fiscal stance in any downturn, thereby magnifying the downturn. The challenge here is heightened by the need to fund a substantial level of capital expenditure. Based on these considerations, we see merit in moving to a situation where underlying surpluses are achieved.

My next point addresses some specific budgetary priorities. I will make an important point before I talk about them, however. It is for the Government to decide what groups should be prioritised in the budget and not for a research institute. This includes questions of whether tax should increase to fund priorities. However, we as a research institute can point to issues raised in our research that can inform the process of prioritisation. Inflation has been slowing but prices remain at an elevated level, with food inflation continuing to remain high. ESRI research has shown that, from 2020 to 2025, changes to the permanent tax and welfare system resulted in small average income losses compared with policy changes pegged to wage growth.

While the temporary measures were successful in helping households deal with higher prices, their phasing out will cause affordability issues, particularly for the older population and those with disabilities, if headline welfare payments fail to keep pace with income growth. Indeed, research carried out by the ESRI for the Irish Human Rights and Equality Commission, IHREC, found those with a disability faced a significantly higher cost of living in general and were much more likely to experience deprivation. Additional welfare supports, along with employment supports, could help those living with a disability who face these additional costs. Recent research by the ESRI and Trinity College Dublin found that a fifth of children were living below the poverty line once housing costs were taken into account, particularly children living in one-parent families. A second tier of targeted child benefit would result in significant reductions in child poverty rates.

I will say a few words about risks to the economy. We have already touched on two risks to the economy – the possible volatility in windfall corporate tax revenues and the possibility of overheating due to stimulatory fiscal policy. Overheating is often thought about in terms of inflationary pressures and price rises, but we are also concerned about capacity constraints that could hamper delivery of the national development plan and national housing targets. Housing and public infrastructure are crucial determinants of quality of life, but they are also important for augmenting the productive capacity of the economy. While the immediate threat from US tariffs has receded following the US-EU deal, we think it is important to recognise that other trade-related risks remain. For example, threats from the US Administration in relation to digital regulation and the taxation of tech companies could be very damaging for Ireland, given the importance of the sector to Ireland. More generally, given Ireland’s economic model is so reliant on an open international trading environment, ongoing threats to that environment are concerning.

The fourth and final point concerns additional budgetary matters. By its very focus, theannual- and I put "annual" in italics - budget cycle can lead to a focus on short-term challenges and goals but it is crucial that medium- and long-term perspectives are not lost. To take just one example, population ageing is a predictable challenge so there will be no excuse for not preparing for the additional spending required. The ESRI, in work commissioned by the Department of Health, has shown that long-stay bed capacity requirements are projected to increase from 29,000 beds in 2022 to over 47,000 beds or possibly even 53,000 beds by 2040, which is equivalent to an average annual growth of between 2.7% to 3.3%. In the same study, home support hour requirements are projected to increase from just over 28 million hours in 2022 to between 44.9 million and 54.9 million hours by 2040. Again, these are equivalent to annual growth rates of 2.5% to 3.7%, which are very significant.

These figures serve as a reminder of the need to be cognisant of longer term pressures and credit must be given for the establishment of the Future Ireland Fund and, indeed, the sister fund. However, as there will be many demands on the fund – it is to "help deal with future expenditure pressures including ageing, climate, digitalisation and other fiscal and economic challenges" – long-term fiscal planning is still needed, including public debate on how we see levels of taxation and public expenditure evolving over time.

I turn now to my concluding paragraph. The last few years have provided a set of circumstances in which loose fiscal policy has on been warranted on occasions, during Covid and the cost-of-living crisis, for example. The loose fiscal policy has also been facilitated by the strong corporate tax revenues. It could be argued that a degree of looseness inevitably continued in the run-up to the general election in 2024. In budget 2026, though, it is important that sound fiscal management moves to the fore again, including adherence to announced spending plans throughout 2026.

I am happy to leave it there and to take questions.

Richard O'Donoghue (Limerick County, Independent Ireland Party)
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I thank Dr. Barrett. I will now open the meeting for questions. I call Deputy Ged Nash.

Gerald Nash (Louth, Labour)
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I thank the Chair. The witnesses are all very welcome to this important engagement. Dr. Barrett mentioned that we had had a loose fiscal disposition in recent years. All the evidence and information seem to point to the fact that we will continue in this budget and into the future under this Government to pursue that same approach, despite the contrary evidence that it is not a good thing overall for our economy, the public finances ultimately and our society in the longer term.

This question is specifically for the witnesses from IFAC. We have a Government presiding over a situation where we still have no spending rule.

We had a summer economic statement that was, to put it diplomatically, opaque. A medium-term framework published last week contained no spending ceilings whatsoever for Departments. That document was, frankly, a mickey-take. How it was presented was completely unacceptable. It was an insult to the Oireachtas and the Irish people.

We have perennial spending overuns, which are a common feature of the system. We have a Department of Finance which, over 13 consecutive years, has managed to make a hames of corporation tax forecasting. This has not been independently reviewed. We continue to pursue procyclical policies. It seems we believe that introducing new taxation of any form is a bad idea, even though we cannot continue to spend the way we do, invest the way we do, cut taxes and expect a different outcome from the one we had in 2008. We have Ministers who remind us all the time of the concentration risks involved with corporation tax and the impact of our reliance on multinational corporation jobs for our income tax base. Looking at the profile of income tax, that should be a matter of concern. Is it incompetence?

Mr. Seamus Coffey:

I certainly highlighted a number of issues, but I do not know whether we would go so far as to describe it in such terms. There is no doubt that there are deficiencies in our approach at present. To focus on one that the council would like to highlight, it is the idea that our fiscal policy should be countercyclical. We have a fiscal policy that is, essentially, being implemented out without an anchor or some sort of guide or guard rail to facilitate it being countercyclical.

Deputy Nash mentioned some of the publications the Government has produced recently. There was one part of the summer economic statement that generated an amount of surprise on our part. This is where it set out that the package for 2026 would be the €9.4 billion, which has been referred to, but that if there were to be a slowdown, perhaps due to tariff-related uncertainty or other shocks hitting the economy, the package would be smaller. At a time when the economy might need more support, the Government has indicated that less would be provided, further highlighting the potential procyclical nature of our budgetary policy. This is perhaps an implicit, or otherwise, recognition that there are vulnerabilities in the public finances and that we should have the capacity to react to a downturn by offering more budgetary support. If the Government, in its summer economic statement, is indicating that if there were to be downturn, the size of the budgetary package would be smaller, it would go against all the standards as to what a countercyclical policy should be.

The document published last week certainly was not an expenditure framework. It contains some useful analysis but does not set out a framework or a sustainable rate of expenditure. It does not outline the roadmap for fiscal policy over the duration of the Government's lifespan. There is scope for the EU's new approach to help with the medium-term expenditure plan. Most EU countries published such plans in 2024. Ireland published one, but it was a very technical document that was a bit like what we got last week. These can be revised if there is a change in government or a general election. Clearly, we had both. However, almost 12 months after the general election, the revised medium-term expenditure plan has not been published. It is important that the medium-term expenditure plan gets domestic ownership because we are not likely to get significant oversight or significant enforcement at EU level.

Even though the framework is based on medium-term spending, in the background are still the reference values of 3% of GDP deficit and 60% of GDP debt. If Ireland were to trigger alarm bells at EU level, running an overall deficit of 3% of GDP would, given the current figures, be equivalent to a deficit of €16 billion. That is a €25 billion deterioration compared with where we are now. The EU could assess Ireland's budgetary plans on the basis of these figures, which are not appropriate for an Irish context. From the council's perspective, we hope that a revised medium-term expenditure plan is published. The programme for Government promised it with the summer economic statement, but we did not get it. We are now asking for it with the budget. We also hope that once published, it will be a credible document that will be adhered to. This needs domestic ownership, whether by the fiscal council assessing it or the Oireachtas holding the Government to account, and the Government following through on the plans it sets out.

Gerald Nash (Louth, Labour)
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I thank Mr. Coffey. In the minute I have available, I have some questions for our colleagues in the ESRI. They have done strong work over the years on tax expenditure and so on. We know that we are not good at reviewing tax expenditures and that they can often outlive their usefulness, if they are ever useful at all in some instances. Sometimes, tax expenditures are political responses to advocacy and campaigning such as the reduction of the VAT rate for the hospitality sector from 13.5% to 9%. What is the ESRI's view on that? Is it a good or bad idea in the context of where we are at in terms of our fiscal position?

Dr. Claire Keane:

As Dr. Barrett said, it is not for us to say what should or should not be done. Putting it in context, however, it really hit home last week when the ESRI and Trinity published work on child poverty. There was an estimate of close to €800 million to put in a second tier of means-tested child benefit support. That is pretty much roughly equal to the VAT reduction. It is a matter of priorities. As the Deputy said, it is very hard to bring in more taxes or increase taxes. As a result, perhaps putting in a tax cut when there is not strong support to show there is a positive employment impact of doing that might not be the most sensible thing to do if you really want to get serious about child poverty.

Richard O'Donoghue (Limerick County, Independent Ireland Party)
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I thank Dr. Keane and call Deputy Devlin.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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I thank the witnesses for their opening statements and their contributions. Dr. Coffey referred to the Future Ireland Fund in his opening remarks. That might have been lost in some of the commentary we heard this morning regarding the ability to put some money away - the witnesses referred to 2008 - and how essential that is. In terms of the envelope IFAC would consider consistent with the sustainability for 2026, will Mr. Coffey indicate what split between capital versus current would best manage overheating risks?

On Dr. Barrett’s opening remarks, if we look at the delivery bottlenecks that are happening currently - he referred to the capital spend and the proposed review of the national development plan and housing in particular - what budget-neutral returns would unlock supply fastest? We are all limited with time, and it is hard to engage with both witnesses at once.

Professor Michael McMahon:

I can take the first question. I will try to answer it briefly. It is not for us to say exactly how the Government prioritises between investment and current spending. On countercyclicality, the key will be the aggregate stimulus. Within that, you can assess according to priorities. Both of us were consistent on that matter.

The point we would make on investment is that in our previous work, we identified clear infrastructure gaps in Ireland. There is a very obvious one in housing, but there are also gaps in other sectors. It is really about providing for the growing population we have had and not keeping up. Not only do we have what we need going forward, we also have a deficit that we need to catch up on from the backlog. However, the economy is at full employment. The construction sector is at full employment as much as any other sector if not more so. At at time when we are facing high costs for materials for construction, then adding a stimulus in another sector is going to reduce the capacity of the Government to deliver on the national development plan because you will encourage more household and corporate spending that will use up the construction resources.

There is a decision to be made on where the priorities lie and how the funding is allocated. In our previous work, we identified very clear infrastructure gaps which would be well addressed, not just because doing so would benefit us today but because it would benefit us going into the future. However, one point that we have discussed with this committee previously is the need for whatever plan is there on the national development side to also adhere to the notion of countercyclicality. One big problem we had after the financial crisis was that we lost a huge amount of construction capacity because there was nobody, private or public, able to step in and create it. We lost lots of workers and businesses to other countries. Our capacity in construction has never risen back to the same levels we had then, and that is holding us back now.

As a small, open economy, we will be subject to global fluctuations outside our control. If we face choppy waters, it is vital that a good investment plan can step in and maintain investment. That is why one of our recommendations is for a medium-term plan including a guarantee to keep a certain amount of public investment there. It is clear that not doing it for ten or 15 years becomes very costly at some point.

Dr. Conor O'Toole:

I will follow up on a couple of points Professor McMahon made. Looking at where the economy is, the number of people employed in the construction sector and where there may be slack to bring more workers into that sector, it is clear that achieving all our aims across housing targets, deployment of infrastructure investments and investing in climate mitigation through retrofits, etc., involves a major challenge. Where are the bottlenecks in housing production?

From an employment perspective, there is little or no additional capacity in the Irish construction sector to increase employment at present because unemployment is so low in that sector. We will need additional migration into the sector as one channel to improve employment. We are in the early 30s in terms of thousands of housing units we are producing. There are 190,000 employees doing that. If we want to get up to 50,000 or 60,000, where are the additional employees going to come from? It will not all be through productivity increases. Even though we hope to get higher productivity, that will not fill the gap. That is a critical bottleneck.

The two issues I mentioned when I addressed this committee during the summer and the housing committee in June were infrastructure around wastewater and water connections, services and sites; and also the planning system and appeals system. There is ongoing reform of that. It is happening but we just have not seen it come through into action on the ground or into less friction in the system, which would enable more projects to get through quickly and reduce the cost that comes from the administrative structures around construction. That would be very welcome because those would be long-term structural changes to the system.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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Dr. O'Toole said when he was before the committee in the summer that the bottleneck or constraint around infrastructure is funding. We hope that has been dealt with now. Therefore, between employment in the sector and funding - I am talking about wastewater services - we will see that clear through the system in the next couple of months.

Dr. Conor O'Toole:

We need to think about it in a number of phases. Employment is a major constraint. If we are to, in effect, double our housing output and make all the other investments we want to make, we will need a substantial increase in construction sector employment. Maybe we can get efficiencies in the system. The Central Bank had a report out towards the end of last year highlighting that Ireland does not have enough large construction firms, so there are economies of scale if we could increase the size of firms and maybe bring some large foreign firms in to help.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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Methods of construction as well.

Richard O'Donoghue (Limerick County, Independent Ireland Party)
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Deputy Devlin, you are going over time. Dr. O'Toole can answer that one.

Dr. Conor O'Toole:

Modern methods of construction are the panacea we all hope will unlock more productivity. I have yet to see studies that suggest it will get all the way. We will need employment increases as well as productivity changes in the sector.

Máire Devine (Dublin South Central, Sinn Fein)
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The "degree of looseness" in the run-up to the election of 2024 was mentioned. I like it. It is a nice, polite phrase. Coming from an Opposition party, I would call it a sweetener for getting votes. It was also trying to pull the wool over people's eyes, which sometimes they do successfully.

The population is set to increase, they reckon, almost to 7 million, on a good day or a bad day or whatever you want to call it. The infrastructure is not there even for the population we have now.

The biggest one is housing. Some 60% of young people between the ages of 18 and 24 want to leg it out of here. They want to go somewhere else a bit a more secure because they have no chance of ever owning their own home, never mind the high rents they are paying for box rooms all over the country. This is a very depressing situation. They want to go.

We have migration in for healthcare, tech and construction. They stay around five years and that is concerning given that the healthcare sector requires a massive input. We saw Nursing Homes Ireland in the news this morning and Dr. Barrett referred to the need for an increase in the number of nursing home beds. There does not seem to be a plan for recruiting, training and retaining people. People are deciding to leave or to come and then to leave again. I do not know if Dr. Barrett has any answers to these issues or how we can hold on to these people.

There are also problems with homelessness and housing. In Dublin, some 75% of housing is bought by the so-called "vulture funds" or corporate investors leaving nothing for the ordinary folks. I do not know if he has any magic insights into these issues. That is one of my questions.

Dr. Barrett is very concentrated on the €9.4 billion, and rightly so. It is too much of a package and this was confirmed by the Central Bank yesterday. What proportion of that is going to go to those in the disability sector who are already in need? In Dublin South-Central, we have one of the highest percentages of people living with disabilities. We already know there are struggles with that, including struggles with poverty, as well as child poverty. Does Dr. Barrett have any specific budgetary recommendations to alleviate the continued financial crush on the disabled population, especially for constituencies where a high percentage of people are living with disabilities?

On the issue of childhood poverty, there has been talk of a second-tier child benefit payment. Has Dr. Barrett got his head around that one and, if so, could he explain it to me?

Dr. Alan Barrett:

I will take some of the initial questions about infrastructure and where we are at. The Deputy has diagnosed the difficulties perfectly in the sense that we have a population that is growing. It has been growing for quite a while and infrastructure has not kept up with it. In all truth, there is no simple solution to this. There is no speedy solution and there is no point in us pretending that there is. However, to link back to some of the points made by our colleagues in the ESRI and IFAC, when we talk about loose fiscal policy and worry about excessive expenditure and all these sorts of things, we are not doing for purely theoretical reasons. We are doing it because we want the country to avoid some of the mistakes that have been made over periods of time which had catastrophic outcomes. Our big problem at the moment - Professor McMahon or Mr. Coffey touched on this already - is that there was a critical lack of infrastructural investment for many years after the economic collapse. The reason there were very poor amounts of investment was that the public coffers had been bled dry. There was no money left. Even in that context, mention has been made of the funds which are very valuable. However, we did have a sovereign wealth fund before the crash. It was the National Pensions Reserve Fund, but all of that got put into the banking needs at the time.

Every time we talk about things like anti-cyclical or pro-cyclical fiscal policy and prudence, what we are really trying to do is ensure that the conditions are in place. What Ireland needs is a steady healthy level of public investment over the next ten, 15 or 20 years. The housing crisis is not going to be solved in the next ten years, pure and simple, especially with all of the other challenges that are there. I think it is really important to be completely realistic, but also to relate some of our policy prescriptions to that notion of what we need and the level of stability as we go ahead.

Can I just make one other point? Deputy Nash asked a question about incompetence. I sat here and thought about why is it that it looks like we might be repeating some of the mistakes of earlier days, in terms of our loose fiscal stance.

There was a huge amount of diagnosis around the time of the collapse. Two things were identified as problems. Rules and institutions were really beefed up around that time. I am not sure if people are aware of it, but this committee and the Irish Fiscal Advisory Council were set up in the wake of the collapse. In this room right now, we have two bodies that were specifically set up with the role and objective of interrogating budgetary policy in a robust way. There is the issue of institutions, in that they are here, and the other thing is the fiscal rules, which have been touched upon. There was a very strong move towards fiscal rules that, in a sense, anchored fiscal policy. They evaporated somewhat around the time of the Covid crisis and have never really been reinstalled. On the question, I always think-----

Máire Devine (Dublin South Central, Sinn Fein)
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I only have 11 seconds left.

Dr. Alan Barrett:

I am terribly sorry.

Máire Devine (Dublin South Central, Sinn Fein)
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I do not mean to be rude here, but would the ESRI say that it had failed to influence the Government to do this longer term output, if the ESRI was set up to do that, diagnose the output and perform a deep dive into it?

Professor Michael McMahon:

I am now the second-longest serving member of the council ever. Clearly, the answer is "Yes" in one respect. Rightly, our role is to advise, make clear and try to shift the narrative, and help the committee to shift the narrative and influence the Government. Equally, it is for a democratically elected Government to make these choices. On things that we have pushed for constantly, I am an optimist on this. The question is what would have happened if we were not here? Maybe the numbers would be even larger and we would be walking down the disastrous path we did before the financial crisis. However, that is not to say that we cannot do better. In particular, the things I would stress are getting the focus and the anchoring of our fiscal framework to be not just year to year, but to be multiyear and to get a bit of joined-up thinking. Some of the issues that have come up are really a lack of joined-up thinking. We are clearly doing things to reform the planning system and that is great. It could help and it does not have a huge fiscal cost. At the same time, though, if we reform that but we cannot make land available with water and electricity connections, then it is a fool's errand. If we look at the best countries in the world for public investment, we see that they have very much all of the things thought about at the same time. They are building a housing estate while putting a school in and making sure there are health services provided. Frankly, Ireland has had a good economic time but we have also had the population grow by about 40%, which is unheard of for most other European countries. That is a challenge and the question is whether we can get our system designed to think long term. As Dr. Barrett was just saying, this is not going to be solved in one, two or five years. We need plans now that live out the next 20 or 30 years, so that we are not sitting here saying the same thing in 2050.

Richard O'Donoghue (Limerick County, Independent Ireland Party)
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I will take this slot myself. I come from a construction background and have been in it all my life. Common sense is not that common. A definition of madness is doing the same thing over and over again and expecting a different result. I am delighted that this has been set up but the one thing that you have never got to is this question. With all the taxes that people pay and the funding that provides, employment is created and allows infrastructure to be developed. It is all a circle economy. The one thing we have never tackled in this country is overspending. As I said, I am in construction. If tomorrow I price a job for you for €500,000 and in six months time I say that I need another €500,000, what would you tell me to do? What would anyone in this room tell me to do, in that scenario? For decades, we have fallen down in the area of accountability for the taxpayers' money. That is why we have the overrun on the children's hospital. What do we do? We raise more taxes. We set up Uisce Éireann. It is not delivering and goes over budget on every single project.

There is no accountability. We give it more money. If we want things to work, there must be accountability.

During our last meeting, our witnesses said that if we had a steady funding stream, we would have better infrastructure and a future, which I agree with. We will not have that if we have overruns on every single project. We need to change the projects around. I am not here to give out; I am here to find solutions. We need to design and deliver.

Hospitals are being built to a set structure. The contractor gets a design and delivery contract. We may pay an extra 10% for design and delivery but that is a 10% cost we know. Anyone accounting for that budget will see it is costing €1 million when it should cost €900,000. However, that person know it is costing €1 million to deliver the project and it will not go to €2 million. If we put projects back on design and delivery contracts and there is an overrun, it is back on the contractor. That is how we deliver infrastructure and public projects in this country. For schools, it is the very same thing. The principle is design and deliver. The schools know what they want and will specify classroom sizes. What they need is design and delivery. That is how we tackle this.

I appreciate everything our witnesses are doing. However, there has to be accountability for the funding stream they stated we need as well as for design and delivery. Take Departments out of it. We had a county council structure set up before when contractors came in for the delivery of services. The councils oversaw the budgets and knew what they had to do with those design and delivery contracts. If I ran my business the way some of the Departments run their businesses and overruns, I would not be in business. Why is it any different for me as a taxpayer and an employer than it is for Government officials or Departments to have overruns where there is no accountability? That is where our problem lies. I am being very honest with this. If I am accountable as an employer, there should be accountability by anyone in design and delivery. How can our witnesses help me, this country and its taxpayers to get accountability in design and delivery for infrastructure? Who wants to take that question?

Professor Michael McMahon:

I will give a quick answer because Mr. Conroy and I just wrote something on this with other colleagues. At our annual conference this year, we discussed infrastructure and delivery and we had people from the Norwegian system come in. The Norwegian system is incredibly simple. It has a cross-party Government document that runs to 14 pages and outlines how it will manage infrastructure and major project delivery. The system is designed in a particular way. It is not wildly difficult to run. The country has costs under control such that about 80% of all projects come in under their budgeted amounts. A couple overrun, but there is accountability on this. It is a system that involves thinking ahead, joined-up thinking and planning, which we have consistently argued for.

I will pick up on the point that Mr. McCarthy added. He mentioned construction and infrastructural delivery. We have also repeatedly had overruns in health. Where we get frustrated is that we knew at the time of last year's budget that there were overruns from last year and they were not baked into the budget for last year and this year going forward. They will still be there. There is definitely a cost-management issue we have raised many times and would be supportive of.

Richard O'Donoghue (Limerick County, Independent Ireland Party)
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If we had a template from one to ten across the board where there had been overruns in, for example, health infrastructure, and we came back here next year for our pre-budget meeting, we could stand in this room and say we were here last year and this is where we were at. This year, we have adopted something. We cannot fix it all overnight. Anyone who thinks he or she can is a fool. However, we can start to make an improvement whether in health, infrastructure or housing. We can say next year that we have brought this down by 10%. For any place where there is a design and delivery contract and it comes in under budget, there should be a reward. You get a lot more with honey than vinegar. Let us say contractors are given 20 kilometres of road or motorway to deliver.

If they deliver that before time, there is a reward system put in there, so there is an incentive to get it done on budget, on time - or before time. Again, we get it delivered on budget, on time, and the reward system comes in for that. If we come back here next year and can go across the board and hear, "Listen, Richard, we are after reducing this by 5%; we are on the right trajectory; next year, we hope to get it down by 10%", we will then be on a trajectory where we can all work together to make sure that when we leave these committee rooms in however many years it takes and we have the health to do so, there will be someone of the next generation sitting behind the witnesses who will be sitting up here to carry on the legacy of what we have delivered. If we can deliver accountability, that is what we need to deliver to make sure there is a future for those people who are sitting behind the witnesses.

Johnny Guirke (Meath West, Sinn Fein)
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I thank the witnesses for coming in and for the presentation. I agree with them all on a couple of things. One is that they would not be here only that Fianna Fáil bankrupted the country, and the second is that the housing crisis will not be sorted if the party is kept in government.

Richard O'Donoghue (Limerick County, Independent Ireland Party)
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We will keep it non-political if we can.

Johnny Guirke (Meath West, Sinn Fein)
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That is all right. The budget is about choices, as we know. The Government has choices. A fifth of children are living below the poverty line. It is about choices and how to spend it. Instead of spending it on super junior Ministers, it could be spent on the people who need it the most.

Reference was made to the housing targets and other targets. I was listening to RTÉ Radio 1 coming up this morning and they talked about a major infrastructure project, water and sewerage for Dublin alone, that is at capacity. We talk about the houses that need to be built here in the coming years. There is not a hope if the infrastructure is not sorted. A year or two ago, that project was at €700 million; it is now at €1.4 billion to do that upgrade of water and sewerage for Dublin alone. Would we not be better in some cases borrowing the money? Even going back to simple things like the Navan rail line, that was €400 million in 2011; now it is €1 billion. For infrastructure projects, would we in some cases not be better borrowing the money and getting these projects done? They are projects that need to be done for the country. They will be done but the longer they are left the more they are costing an outright fortune.

I spoke the other day to a fella who shreds paper. He was telling me that the price of paper has gone down and that one of the first things you will see in a slowdown is the price of paper going down. Do the witnesses see any sign of a slowdown in the economy?

The number of companies that pay the most corporation tax is down to only a couple. Do we need to do more for startups and small and medium-sized enterprises and not depend so much in the longer term on these big companies? At some stage, we will be hit with them paying most of our corporation taxes. I would like to see an incentive for startup businesses and not to depend as much down the road on the bigger corporations.

Mr. Niall Conroy:

Infrastructure and water delivery, in particular, are clearly important for delivering housing. Housing has to be connected to clean water and wastewater treatment. Some of the issues around the projects in Dublin have been delayed not just through delays in delivery from the Government but just because there are such issues in the planning system. We see continuous objections to some of these projects and things coming through judicial review. That slows things down for a substantial amount of time. There are proposals to reform how the planning system operates and perhaps raise the threshold for people objecting to projects either in the local area or further away and raising the bar for judicial reviews. If that were to occur, it would make it easier for the private sector to deliver things but it would make it easier for the public sector to deliver things as well. It has a big impact on delivering public sector investment. That has implications for costs as well. As the Deputy says, naturally, the longer you delay things costs typically go up. There is also a kind of cost inherent in having to delay. You have already invested time and resources in developing a project. Sometimes it goes through the planning system and you end up having to revise it due to the time elapsed in the meantime.

On the second point around the slowdown in the economy, we do not really see any great evidence of that so far. Some of the indicators you would expect to see in real time are income tax receipts, VAT receipts and PRSI and we are not seeing any great slowdown with those for the moment. Obviously, it is something we will be keeping a close eye on. On the final point about corporation tax and the large multinationals we have here, we clearly have a reliance on these companies but we would still rather have them than not have them.

Johnny Guirke (Meath West, Sinn Fein)
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I know, yes.

Mr. Niall Conroy:

It is a good problem to have, in a sense. In terms of diversifying or encouraging other companies, you can do some work in that area but these are exceptional companies that we have. They are very high productivity and they are enormous companies that have been built up over many years. They are hard to replace organically very quickly.

Dr. Conor O'Toole:

I will pick up on a couple of points that Mr. Conroy made. The fact that big critical infrastructure projects like the Dublin water system are delayed for such a long time in planning simply has to change because it is an unlocking project. You want to achieve all these other objectives like your housing targets and so on and if you do not have those particular pieces of infrastructure put in place early to unlock the rest of the system, it just will not work. This is a really good example where structurally reforming the administrative system can help unlock those bottlenecks, without necessarily having to spend more money. They are administrative planning delays. That is certainly an area where reform needs to be pushed through to actual action.

In terms of an economic slowdown, Mr. Conroy is right on all of those elements. As well as in the tax receipts, we will also see that materialise in the labour market. That is where we will get a first lens into that. The labour market has performed extremely robustly in the previous number of years. Our most up-to-date quarterly is coming out next Thursday. One of the indicators we look at in there that might point to a moderation in the labour market is vacancies data and not only vacancies but also work permits data for market-orientated sectors. There has been a little bit of a moderation in those but not a slow down.

I have one final point on domestic firms. As Mr. Conroy said, the large firms that really drive our economy are the most productive firms in the world - not just in Europe, in the world. It is not feasible that we would replace those firms with domestic firms overnight. Certainly, building an ecosystem where small Irish firms can become more productive, grow and become internationally traded is extremely important. We actually have quite a good policy framework around that, through both Enterprise Ireland and the departmental supports. However, replacing and moving your economic structure from FDI-led to domestic-led, like the German economy, is not necessarily feasible for a small economy like ours in a short space of time.

Johnny Guirke (Meath West, Sinn Fein)
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I thank the witnesses.

Mr. Seamus Coffey:

I will briefly come in on a point made by the Chair and Deputy Guirke on projects, estimated costs and the outturns we see. From our perspective, one difficulty is that we do not assess these at an individual level. That is a job for the Comptroller and Auditor General. When looking at some of the projects, it can be difficult to know why the actual cost went over the estimated cost. Was it a lack of credibility in the figures to begin with or was it a poor estimate? Was it a change in specification where we actually got more, which is why it cost more or was it just that the supplier increased the price? It can be difficult to tell those apart.

We have high profile examples of where things have gone poorly but we also have isolated examples of where things have gone pretty well. The issue might be is can we adopt a system like my colleague, Professor McMahon, suggested that encourages that and makes us more likely to move in that direction. One positive project we have seen in recent years has been the development of the second runway at Dublin airport. We see the costs in other countries. Heathrow are trying to develop an additional runway but the cost is running to tens of billions of pounds. In the case of Ireland, we got a second runway at Dublin airport for something in the region of €200 million to €250 million, all-in for the entire project, which is a fraction of what is being spent elsewhere. How did we achieve that? Partly because of long-term thinking. It was not over a two, five or ten year period, it was thinking over a 60-year period. Land around the airport was sterilised back in the 1950s and 1960s and acquired by the airport authority for a runway they did not build for decades. As was asked, how do you incentivise that good behaviour and how can you encourage that?

There are isolated examples of where things are done particularly well. The issue is to embed that into the system and not have issues about figures. As I said, from our perspective, it is not something we assess. The Comptroller and Auditor General can do that. There are a number of reasons for that. Getting behind those would be better. That could get you to accountability so that if you are not delivering on the basis of what you set out, there are consequences? There are examples of where we can do it; we just need to see it more often.

Mairéad Farrell (Galway West, Sinn Fein)
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I am under a bit of time pressure because I have an interview at 12 noon. I thank the witnesses for coming to the committee. It is always interesting when the ESRI and IFAC are here. I would like to use my time to understand a few things. We have heard a lot in the media - it was mentioned in IFAC's opening statement and report - about the idea that the Government budgeted for a €3 billion increase in spending on budget day but this figure is likely to be €7.6 billion. IFAC outlined where some of that growth is. How much of that was due to new decisions made by the Cabinet? How much was overspend or miscalculation?

Mr. Niall Conroy:

I do not think a huge amount is due to new measures introduced during the year. A big element of the increased spending is capital. It is not clear to us exactly what projects that relates to. The summer economic statement acknowledged that spending would be about €3.3 billion higher than what was outlined in the budget. Just over €2 billion of that was in capital and the rest was in current.

Mairéad Farrell (Galway West, Sinn Fein)
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There is no transparency as to where this overspend is coming from.

Mr. Niall Conroy:

We can see which Government Departments and areas have higher levels of capital spending but I could not say what the exact projects are.

Mairéad Farrell (Galway West, Sinn Fein)
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This is not the first time this has happened. How many years has this happened in a row?

Professor Michael McMahon:

Six.

Mr. Niall Conroy:

Yes.

Mairéad Farrell (Galway West, Sinn Fein)
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For the job the IFAC is doing and the job we try to do in the committee, the numbers we get on budget day are not the reality. Either there are miscalculations or incompetence, as was said.

Richard O'Donoghue (Limerick County, Independent Ireland Party)
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No accountability.

Mairéad Farrell (Galway West, Sinn Fein)
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We are just not being honest as to what we are spending.

Professor Michael McMahon:

There is always a mix. There will be unforeseen things. In those years, there were the highest increases in inflation across the advanced economies for 30 or 40 years. Naturally, that will add to budgetary pressures. What you think is going to be the cost in 2022 suddenly goes up by 5%, 6% or 8%. We have gone on a lot about health, which we know is going to be a cost - we can predict it based on demographics. There is some variation depending on how cold the winter is. That has huge impacts on the health budget. There is an amount of that €1.3 billion current spending we could have predicted sitting here on budget day because we knew it was not in there. You will never get it perfect but that is the stuff you should be getting-----

Mairéad Farrell (Galway West, Sinn Fein)
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I understand it will not be perfect but we are talking about €4.6 billion. Obviously there will be pressures. Everybody understands that could happen but this is six years in a row. €4.6 billion is a significant amount. During previous budgets, it was often said specifically regarding the health budget that it was not calculated correctly or they were just not being honest, whichever way you want to give them the way out. Over the past six years, the budget has been miscalculated by the Government. Something I have noticed being said in the media and in the committee by IFAC is it notes the Government should include likely overruns from 2025 in forecasts for 2026. In the past six years where the budgets were miscalculated, was that done going forward or was it just ignored?

Mr. Seamus Coffey:

It was done once; I cannot recall the year. One year, the overruns were baked into the budget day figures and were taken into account in the overall budgetary packages. That is going back a number of years. I think it was pre Covid. There was one instance where it was taken into account. On the Deputy's general point, she is absolutely correct about the credibility of the figures. Like Dr. Barrett said, the fiscal council and this committee were set up to assess the Government's stance and budgetary policy. If the documents we are given have numbers that do not bear out what is actually happening, the assessment we do after the budget which will be taken into consideration by the committee is not what is actually happening in the economy.

One consequence of that is that policy can drift away from a sound path. We always give our focus to the future. We are always talking about budget 2026. One concern for us is what happens in 2025. We expect spending to grow by €7.6 billion this year while last year's budget was for it to increase by €3 billion. There is a possibility of further policy announcements for 2025, and while we might get an indication of moderation in spending growth in 2026, it might just be something that appears in the budget documents. As we go through 2026, the same could happen again. We already have a package of €9.4 billion, which gets us up to 6.5% for 2026. If this pattern of overruns continues, that could potentially be higher again. That would go well beyond what is sustainable, particularly with the current low levels of inflation. Our overall budgetary process has to become more credible.

Mairéad Farrell (Galway West, Sinn Fein)
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New measures that are trying to tackle something that is imminent and we need to do something about are different. I wish the Government would do it with the housing crisis, but it seems utterly incapable of doing so. What I am trying to get to the bottom of is that the figures announced on budget day are just wrong.

Mr. Seamus Coffey:

One thing the fiscal council will highlight is the standstill scenario. That is just the cost of what the Government is doing now. It will cost more in 2026 because there will be increases in costs, such as public sector pay increases and general price increases that increase the cost of public services. That can be factored in. The second reason is demographics. There are more people. Therefore, even just to maintain the level of services we are providing now will cost more. Repeatedly, we have seen over a number of years those standstill costs being underestimated. We can do our assessment of wages, prices and demographics and come up with an estimate of the standstill cost. Typically in recent years, that has exceeded the figure set out in the budget and that lack of a sound and credible starting point is part of why we see the overruns going through the following year. Some, as the Deputy said, are predictable.

Mairéad Farrell (Galway West, Sinn Fein)
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I have one final question but before I finish with this point, I have read with real interest about expanding the role of the fiscal council and the EU directive. Does it have any more information about that matter that it could send to the committee?

Mr. Seamus Coffey:

Absolutely, yes. The directive sets out various tasks a fiscal council should be able to do. One is an assessment of the domestic fiscal framework. We would like to see that framework. Another is the assessment of the medium-term expenditure plan. It also includes an expansion of access to information and of the comply or explain principle, where we would have more rigorous interaction with the Government on fiscal policy. We can say these things.

Mairéad Farrell (Galway West, Sinn Fein)
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I saw that and I was interested. I would be interested to see what is firm. I am conscious of-----

Mr. Seamus Coffey:

We can do a summary of that.

Mairéad Farrell (Galway West, Sinn Fein)
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If that is all right.

Mr. Seamus Coffey:

There is no legislation as yet, but we can do a summary of what we would like to see.

Mairéad Farrell (Galway West, Sinn Fein)
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That would be great. I am conscious of time and I have to do an interview.

I am trying to understand an issue. Will the witnesses explain it? When a report states that one in five children are living in poverty, the next line is always that it is the case if we include housing. Surely all children have to live somewhere so I do not understand that line. I am interested, because there could be a reason for it, but I nearly feel it lets the Government off the hook because one in five children is living in poverty.

Dr. Claire Keane:

That is after housing costs. The reason we include that line is that the standard poverty measures the CSO publishes do not include housing costs. It looks at people's disposable income and their income after they have been paid or received welfare and have paid their taxes. That is what it is based on. That measure has been going down in the past few decades. However, if housing costs are included, which are a major reason for spending for people, there has been no change over a very long period. That is why the housing costs are included. As the Deputy said, they are not optional costs. People have to pay them so we think they should be given consideration. The CSO is doing work on this. The official poverty measures do not include it, but the CSO is also publishing statistics after housing costs, so it is important to look at both of them.

Mairéad Farrell (Galway West, Sinn Fein)
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I thank Dr. Keane. I understand that now statistically. Sometimes to the public, when we say "if housing costs are included", it seems one way, but everyone needs to live somewhere.

Dr. Claire Keane:

The Government targets are based on the poverty measure without taking into account housing costs. That is critical. It can be doing well by that measure, but when people's housing costs are taken account of, we get the one in five figure.

Mairéad Farrell (Galway West, Sinn Fein)
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I thank Dr. Keane. That was very helpful. I have to run off, but I will be back.

Richard O'Donoghue (Limerick County, Independent Ireland Party)
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I thank the witnesses for coming. They mentioned Dublin Airport and the budget being on time.

Before implementing the new extension to runway operations at Dublin Airport, it would have been better to have filled the other airports in this country - such as those in Shannon and Cork - to capacity. Without turning a sod, Cork Airport could cater for a further 3.5 million passengers. Shannon could cater for a further 3 million. In the context of the environmental impact, an extra 10 million people are going to be brought through Dublin Airport. When it comes to people travelling to and from the airport by bus, in rented cars or whatever, we know it is not possible to get into or out of the place because it is so busy. Common sense tells us that we should use the existing infrastructure in the country to its full capacity in the first place. I am talking about what might have to be done to ensure that the other airports are viable and that it is a case of there being equal opportunity across the country.

If an environmental study were done regarding the bus and car trips undertaken by people leaving Dublin, it would show they are travelling down to counties Limerick, Kerry, Clare and Cork. The buses leaving this city go to these places and then come back again. This is happening while we are trying to reduce environmental impacts. On the one hand, we are talking to people about bringing in taxes in respect of environmental impacts and carbon emissions, while, on the other, we are increasing the numbers passing through an airport that is already a bottleneck. We have in place the infrastructure we could have used before any increases relating to the use of Dublin Airport were sought. Using that would have been common sense. It is not that common, but it is common sense.

That concludes our session. I thank our witnesses for attending. If there are any other questions arising, we will redirect them to the witnesses. They might come back to us on them.

Mairéad Farrell (Galway West, Sinn Fein)
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I ask that people to turn off their mobile phones or put them on silent. Before we begin, I wish to explain some limitations to parliamentary privilege and the practice of the House with regard to references that may be made to other persons in the witnesses' evidence. Witnesses are protected by absolute privilege in respect of the presentation they make to the committee. This means they have absolute defence against any defamatory actions for anything they say at the meeting. However, they are expected not to abuse the privilege and it is my duty as Chair to ensure the privilege is not abused. Therefore, if their statements are potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative they comply with any such direction.

This afternoon's engagement forms part of our pre-budget 2026 scrutiny and engagement. From Social Justice Ireland, I welcome its CEO, Mr. John McGeady, and Michelle Murphy, research and policy analyst. The committee welcomes the opportunity to engage with the witnesses. I thank them for being here and invite them to make their opening statement.

Mr. John McGeady:

Gabhaim buíochas leis a choiste as ucht an cuiridh. We are wealthier than at any time in our history and yet almost 630,000 people are living below the poverty line, 190,000 of whom are children. More than 16,000 people have had to resort to emergency homeless accommodation in the most recent count. This is a count that keeps on rising. These are the stark realities of life in Ireland in 2025 for many people. Budget 2026 must be guided by the principle of fairness.

Social Justice Ireland welcomes the programme for Government commitment to “continue the focus on addressing poverty and social exclusion”. We also welcome the Government’s commitment to run progressive budgets. In this first budget of the new Government's term, investment in social infrastructure, the development of a broad and stable tax base and the protection of vulnerable groups should be prioritised.

Despite a backdrop of global trade uncertainty, Ireland is in a strong economic position. However, we are concerned about the sustainability of the Government’s fiscal position. When expected corporate tax windfalls are excluded, the underlying position is that the budget is in deficit. At a time of continued economic growth, this gives rise to serious concerns about long-term resourcing as well as our exposure to a potential fiscal event.

It would be helpful if, in addition to the summer economic statement, the Government outlined in the budget documentation its plan to fund appropriate levels of current and capital expenditure growth and how the required resources can be generated in a sustainable manner. Ireland’s infrastructure and social services have been inadequate in areas such as housing, public transport and healthcare for years. It is projected that the population will increase by 200,000 by 2030 and will exceed 6 million by 2040. We must be realistic about what this means in the context of the demand on resources. Budget 2026 should outline a medium-term plan of one-off investments funded from one-off corporate windfall revenues to deliver social and affordable homes and upgrade our water and energy infrastructure. The best way to prepare for the future is to invest today.

In terms of our fiscal position, as well as the underlying deficit, it is concerning that the underlying Government revenue, excluding windfall gains, is at its lowest level relative to national income since 1980. Budget 2026 should outline a clear plan for the anticipated decline in windfall revenue over the long term. As a policy objective, Ireland can remain a low-tax economy but it should not be incapable of adequately supporting our economic, social, and infrastructural needs. We propose that Government set a per capitatax take target as a first step towards planning for a sustainable, broad tax base. Over the coming years, we suggest Ireland's overall tax take should reach a level equivalent to €26,866per capitain 2025 terms.

The Taoiseach has reiterated the commitment to reduce child poverty on numerous occasions. This requires a recognition that children experiencing poverty belong to families living in poverty. Addressing child welfare requires the Government to address poverty and deprivation wholesale. Data from the CSO's survey on income and living conditions, SILC, tells us that without social transfers, 31% of the population would have been below the poverty line in 2024. Notwithstanding the impact of social welfare, work done by the Vincentian MESL research centre shows that social welfare rates are inadequate to provide a minimum essential standard of living. Social welfare must provide an adequate safety net to lift people out of poverty and allow a household to provide for a basic but decent standard of living. As the Government rightly moves towards permanent, targeted measures, rather than once-off, temporary measures, we recommend it benchmark social welfare rates against average earnings and increase the core social welfare payment by €25 to assist those households most impacted by persistent high prices.

Finally, budget 2026 must be used to realise the Government's commitment to delivering progressive budgets. Looking at permanent tax and welfare changes from 2020 to 2025, budgetary policy led to a widening of income gaps between those on low and high incomes. Reversing the growing rich-poor gap must begin in budget 2026. This requires benchmarking of social welfare rates and progressive tax policies.

Our full range of recommendations is set out in our budget choices briefing, which has been shared with the committee. We welcome members' questions.

Mairéad Farrell (Galway West, Sinn Fein)
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Go raibh míle maith agat. Bhí sé sin thar a bheith suimiúil. I open it up to members to ask any questions. Glaoim ar an Teachta Nash.

Gerald Nash (Louth, Labour)
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I thank the Acting Chair. The witnesses are welcome. It is unfortunate this engagement runs up against Leaders' Questions. That is always a challenge but I am pleased to be here.

My first question relates to taxation more generally. Mr. McGeady says he would like a per capita tax take scenario to be set out and to move on from there. Would he do that on the basis of excluding corporation tax windfall receipts? I am attracted to the idea of separating how the budget is done into two stages for transparency purposes. It is something I touched on in recent years, given the unusual way in which budgets have been presented in recent years. Cost overruns are simply not accounted for on budget day and then we are required to sit down and revise that expenditure. We do Supplementary Estimates later in the year because inaccurate Estimates have been laid out. In the per capita tax take scenario, would Mr. McGeady remove windfall corporation tax receipts from the calculation?

Mr. John McGeady:

We would suggest the best approach to budgeting is to disentangle windfall gains from recurring stable revenue, so there is transparency and so we do not become dependent - which it looks like we have become - on corporate tax windfall gains.

These gains have already been highlighted by the Department of Finance, Revenue and the Central Bank. We know what they are. They may continue for a number of years, but it is inevitable that they are going to decline. We see with the reforms at international level, such as the OECD's BEPS reforms, that we are likely to see those windfall revenues that arise from quirks of our tax system eventually moving offshore and elsewhere.

Given that, we need to recognise that there is an underlying budget deficit and it is very concerning. Breaking them apart therefore creates that transparency and allows the Government to make some decisions around being able to use those windfall gains when they are here for one-off investment in our social infrastructure while then ensuring our current expenditure is funded through stable recurring revenue. Overall, we need to look to a future where we have an adequate stable recurring tax take and to do that we really need to broaden the tax base.

Gerald Nash (Louth, Labour)
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Absolutely and I agree with that. There are many ways in which we can do that but this Government and its predecessor have simply refused to do that. Notwithstanding the fact that Ministers on a recurring basis warn us of the concentrated risks, especially around corporation tax, it is deeply reckless and irresponsible.

On the question of benchmarking and social protection rates, I have been persuaded that it needs to happen for all kinds of reasons. We have effectively had the situation over recent years where personal taxation rates - PAYE, USC and so on - have been benchmarked and there has been indexation for wage growth. I take that into account, but the corollary of that has not happened. We have not benchmarking of social protection rates. That is a kind of dangerous territory because when you do that, you want to do both in tandem.

Does Mr McGeady agree that this is the best option, given there is a commitment to indexation more or less on the tax side but not on the social protection side? It is socially irresponsible, in my view. People who depend on the State for their income are waiting every summer to see leaks through the media about what the rate of their pension or disability payment will be. There should be clarity and it would be a better way of allocating resources. There should be a natural commitment to saying, "This is what we are going to do", and that it is bedded into the existing levels of service, ELS, side of the budget.

We also have the political debates about tax spending elsewhere. That is the meat and drink of politics; it should be. Does Mr. McGeady agree that if the Government is benchmarking income tax rates and so on, that it should do the same for social protection rates? We also want to make sure that there are not disincentives to working. He might just comment on that.

Mr. John McGeady:

This is something for which Social Justice Ireland has been advocating for years. It is a really basic principle of social justice that the best way to ensure that we lift people out of poverty is through indexing social welfare rates. We have seen that social welfare transfers make a huge difference in reducing the poverty rate. We know it works from that perspective. It is crucial in terms of providing people with stability and certainty. It also provides stability to our public finances.

We have argued very strongly that indexation or benchmarking should begin with a rate of 27.5% of average earnings. We would say that a key thing to linking it to average earnings is that it does not allow income gaps to grow between those who rely on social protection and social transfers and those who are in gainful employment. There are two aspects to this. First, it embeds adequacy into the system. Second, it also mitigates against growing income inequality in our system.

Ms Michelle Murphy:

I have a couple of points. Going back to the tax piece, we have separated out windfall gains. That allows you to plan for things such as the changes to the age dependency ratio. At the moment, the proportion of corporate tax, income tax, PRSI and VAT of the total tax take is pretty much all of it.

That is a difficult position to be in. Over time, as we age, the revenue that will be generated by at least three of those four pieces will fall. We need to plan for more sustainable revenue that will give the Government that choice. This then leads into benchmarking. In the previous Dáil there was a committee that looked at this. It is really important to index welfare rates against wages to eliminate poverty traps and work disincentives. This would ensure that we would not be in the situation we are in now, where the real value of the income of people on a fixed income has fallen substantially. That is why the gap is now €25. That also allows for planning for the revenue that needs to be generated and how it can be done. Projections can be made on what that is going to be when public pay discussions are being had and the Government will already know the plan in terms of indexation. We are aware that the Minister has a report on indexation of adult welfare rates on his desk, so it would be really welcome to see that published.

One of the key things we have been pressing for - we will continue to do so between now and budget day - is a commitment to the principle of benchmarking in this budget. If the Government is going to deliver on its commitment in the programme for Government to a sustainable and fair social protection system and progressive budgets, the bedrock of that is a commitment to the principle of benchmarking and indexation of welfare rates. Once that is done, the Government can make progress towards meeting the targets set out in the national action plan for social inclusion. The Taoiseach has mentioned child poverty many times. Addressing these kinds of key issues requires indexation to be embedded in the system.

Mairéad Farrell (Galway West, Sinn Fein)
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I want to pick up on the issue of child poverty. The ESRI was in with us earlier. One of the questions I asked, because I genuinely want to understand it, related to a recent report which says that one in five children is living in poverty, with the tag-on line that this is the case if housing is included. Obviously every child has to live somewhere, so that made zero sense to me. I feel that it lets the Government off the hook a bit with regard to the finding that one in five children is living in poverty. It was explained to me that it is part of the way the CSO does not include housing in its metrics for analysis of poverty. That seems like a major omission. Has this come up? What are the views of the witnesses on this? I hear Micheál Martin say that he wants to tackle the issue of child poverty yet one in five children are living in poverty under his Government. That is just nonsense then. They are just words, not actions. On using housing as a measure of calculating poverty, how does that have an impact on policies?

Ms Michelle Murphy:

In terms of the SILC it is based on a percentage of the median income. Every year, the CSO produces research which shows the impact of housing costs. This year, it was more highlighted because it was part of the ESRI research. It does this for various household types. This year, children were highlighted by that research. Even if one takes just the general poverty rate, it is still more than 190,000 children, which is completely unacceptable. In terms of measurement, it shows the enormous social and economic impact that housing policy has. We can also see that impact in the calculation of the living wage.

Regarding child poverty generally, we welcome that it is an issue in advance of the budget and that the Taoiseach and the Minister have spoken about the second tier of child benefit, but that takes time to design.

Mairéad Farrell (Galway West, Sinn Fein)
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Did they not say that this was not happening in this budget?

Ms Michelle Murphy:

No, they said that it will not happen in this budget. Our concern is that overall, a monthly payment will not resolve child poverty anyway. Those children live in households and we need to look at the weekly income of the house, whether it is a family in employment - because they can also be living below the poverty line - or a family that is reliant on a social welfare payment. For us, the key issue is the core welfare rates, the adult rate and, if the person is employed, the hours they are working and the level of pay they get.

The other point we would make is to ensure that whatever policies are implemented reach those families at the very bottom of the income decile. What has come out of the tax strategy group papers is that it reaches the second and third income decile.

For those at the very bottom who need it the most, it does not do the heavy lifting it should be doing. For us, any increase in child benefit or any extra payment is welcome as long as it is well designed but ultimately, it is the weekly increases that matter the most whether through pay, the minimum wage, the living wage or adult welfare rates. That is ultimately what is going to lift those children out of poverty.

Mr. John McGeady:

On that point, there are many additional actions the Government can take to support children. It is very important to remember that poverty is ultimately about an inability to have necessary material needs met and to have social inclusion, and this is because of a want of money. Many other positive actions can be taken by the Government but ultimately, they are mitigating the impact of inadequate incomes rather than addressing it. As Ms Murphy said, it is crucial that we get into addressing the incomes going into families and households.

Mairéad Farrell (Galway West, Sinn Fein)
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It seems to me that it is a bit performative of the Government to talk about tackling child poverty when under this Government child poverty is worsening. This Government is trying to fog the mirrors in order that people say it is serious about child poverty. If you do not know children in poverty or you are not dealing with that, it is something that can be forgotten. That sentence made a difference in how the report landed with people. It specified that the figure is one in five when housing is included. If you hear that and do not think about it a second time, you just think "well, it is only if you include housing, and sure everybody has to live somewhere". I have to say it really angers me.

Housing is obviously the biggest issue facing everyone at the moment. I do a lot of clinics which are invaluable because they allow us to see what is actually going on in people's lives rather than what we hear anecdotally. One of the things I have noticed more and more is that when a person gets a notice to quit, the chances of him or her finding somewhere to live are realistically almost impossible.

Another huge issue I have come across - I have never seen it as much - is the issue of domestic violence and the impact the housing crisis has on it and on the children potentially involved. Women should have a safe place to live regardless of whether they are living with children or without children. Both categories need to be included. Is this something that Social Justice Ireland has noticed in terms of poverty? I have come across a number of women who have left a refuge to go into homelessness. They have done so with their children or on their own. A woman who was in a refuge for almost a year, and who was trying to find accommodation the entire time but could not do so, ended up in homelessness. Has Social Justice Ireland looked at that area? Single mothers are the people most at risk of poverty, and we can add the issue of domestic violence to the discussion.

Ms Michelle Murphy:

Our specific budgetary proposals include proposals around the Government allocating enough money to deliver. We are not even delivering the number of refuge spaces we need under the UN convention. That is a real concern. There are counties that have no refuge space at all. It has an impact in terms of housing and in terms of leaving the family home. That is why we have proposed that Housing First, and the wraparound services it provides, should be extended to families. There should be a particular focus on those people fleeing domestic violence to ensure they receive the services they need, such as healthcare, mental health services etc. Secure housing is also key to enable somebody in that situation to move on with their lives, and to enable the children to be supported, to live happy, healthy lives and to achieve educationally. There is a need for secure housing and support in that process. What we are seeing at the moment is a need to extend the wraparound Housing First services to families. We have asked for this for a number of years and the cost is not substantial. We have not seen the progress we would like to see. The new housing plan is due to be published in a number of weeks. This is a small interim measure that could be implemented. It would make a real difference to that group.

The Chair mentioned that she hears about this issue in her clinics. These women are often a forgotten group. They are struggling to keep their head above water and their children safe. They are not the ones making headlines. They are not protesting outside the Dáil so often they are forgotten about. We should not let this crucial group slip between the cracks.

In budgetary terms, the assistance that is required is not enormous. This will be the third budget that has been billed as the budget to address child poverty. These children are incredibly vulnerable, so you would expect to see these families supported in the budget through that secure supported accommodation and that commitment and delivery on extending Housing First and the wraparound services to families in homelessness.

Mairéad Farrell (Galway West, Sinn Fein)
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That is very interesting about Housing First.

I am aware that I am over time, but we will probably be okay. One of the things I have noticed in terms of domestic violence is the number of institutional barriers that are put in your way that are not even financial but are simple things. For example, you might leave a domestic violence situation in one county and then try to go to another county where your family support base is and you cannot access emergency accommodation because you are not on the council list for that area, or you left a council house in a different county, or maybe even in your own county, so the abuser remains in the home but you literally had to leave - and it took a lot of courage to leave - and then the supports are not in place.

The other thing is that domestic violence is often not included as one of the hardship clauses for housing in a lot of councils. Dublin City Council, I think, might include it, but a lot of them do not. I think there are things that legislatively we could do to support women who are fleeing domestic violence rather than having this situation where there is block after block after block. I do not know if either of you or maybe Deputy Nash watched the programme "Maid" on Netflix. It was utterly depressing because it was so real to the challenges that women face leaving domestic violence and that everybody faces in homelessness.

Ms Michelle Murphy:

Yes, and there are substantial and, I think, simple changes. I know the agency Cuan has been established and is doing good work, but you would like to see potentially more changes whereby the supports do not stop at the county boundary.

Mairéad Farrell (Galway West, Sinn Fein)
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Yes.

Ms Michelle Murphy:

That should be key. Certainly, there is the case for a national register and that your supports can follow you if you move to the place where you have the family support. They should not stop at the county boundary.

Again, in terms of hardship funds, direction certainly can be given to the county councils and local offices in terms of including domestic violence. It seems to me astounding that it is not one of the elements of one of the clauses in terms of people being entitled to funding from a hardship fund.

Mairéad Farrell (Galway West, Sinn Fein)
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It is seen as financial. It is not technically described as financial, but because it is generally seen as financial hardship rather than hardship, that is where the challenge is. Some councils have amended it to involve other issues, but it is just seen as financial.

Ms Michelle Murphy:

There is another element to highlight in the context of what you have stated, and it has come up before. I think in Scotland there is a policy whereby generally they try to keep the family in the home and, if possible, it is the abuser who moves out of the home.

Mairéad Farrell (Galway West, Sinn Fein)
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That is the ideal situation but it is not realistic every time.

Ms Michelle Murphy:

No, it is not, but maybe we need to acknowledge that homelessness is one of the impacts of domestic violence for families.

Mairéad Farrell (Galway West, Sinn Fein)
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Absolutely.

Ms Michelle Murphy:

Potentially, it is not highlighted enough and, certainly, we should be doing more to highlight that and the supports that are needed for those women and their families.

Mairéad Farrell (Galway West, Sinn Fein)
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Absolutely. Thank you so much. I really appreciate it. The issue of domestic violence comes up so regularly in my clinics now, every single week. It is not that somebody comes to me about domestic violence; it comes as a result of housing. They mention it as the reason for their homelessness or whatever it might be. Of course, it is really important to mention that there are help and supports out there in the likes of Women's Aid and Cope Galway and that this impacts every strand of our society. I think sometimes people have a view of domestic violence that is not correct. I always feel like the level of domestic violence that comes into my clinics means that in all our spheres and all our friend groups, there has to be that element as well.

The Chair is back, so I might let him come in if he has any questions. He is okay.

Go raibh míle maith agaibh as sin. Bhí sé sin thar a bheith fiúntach. That concludes this session. I really thank our witnesses for coming here. I felt it was very fruitful.