Oireachtas Joint and Select Committees
Wednesday, 24 September 2025
Joint Oireachtas Committee on Enterprise, Tourism and Employment
Competitiveness and the Cost of Doing Business in Ireland: Discussion (Resumed)
2:00 am
James O'Connor (Cork East, Fianna Fail)
Link to this: Individually | In context
Good afternoon, I welcome everyone to our eighth public meeting and to our first meeting after the summer recess. Before we proceed, I have a few housekeeping matters to go through. I wish to explain some limitations to parliamentary privilege and the practices of the House as regards references witnesses make to other persons in their evidence. Witnesses are protected by absolute privilege in respect of the presentation they make to the committee. This means that they have absolute defence against any defamation action for anything they say at the meeting. However, they are expected not to abuse this privilege and it is my duty as Chair to ensure that it is not abused. Therefore, if witnesses' statements are potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative that they comply with any such direction. One of today's witnesses is giving evidence remotely from a place outside of the parliamentary precincts. As such, that person may not benefit from the same level of immunity from legal proceedings as a witness who is physically present does. The witness in question may consider it appropriate to take legal advice on this matter should an issue occur.
I remind members of the constitutional requirement that they must be physically present within the confines of the Leinster House complex in order to participate in public meetings. I will not permit members to participate if they are not adhering to this constitutional requirement. Therefore, a member who attempts to participate from outside the precincts will be asked to leave the meeting. In this regard, I ask any member partaking via Microsoft Teams, that prior to making their contribution to the meeting, they confirm that they are on the grounds of the Leinster House complex.
Members and witnesses are reminded of the long-standing parliamentary practice to the effect 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 a statement is potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative that any such direction is complied with. I propose that we publish the opening statements and submissions provided by the witnesses on the committee's website. Is that agreed? Agreed.
We will now invite our witnesses to speak for approximately five to ten minutes. Members will then be allowed to ask questions for up to seven minutes. Members may be called as they appear on the speaking rota. Members may be in a position to speak more than once if they wish to do so. Is that agreed? Agreed.
The item for discussion today is competitiveness and the cost of doing business in Ireland and related matters. The committee has decided that this will be policy priority. This is our second meeting on this topic and we look forward to hearing from many stakeholders from various sectors of our economy. I am delighted to welcome Mr. Ger Gibbons, social policy and legislative officer; and Dr. Tom Mc Donnell, codirector, Irish Congress of Trade Unions, ICTU; and Mr. Ciarán Nugent, economist from the Nevin Economic Research Institute. I invite them to make their opening statements.
Mr. Ger Gibbons:
On behalf of the Irish Congress of Trade Unions, ICTU, I thank the joint committee for the invitation to discuss competitiveness, the cost of doing business and related matters. This follows on from the invitation we received from the committee and the submission we made to it in August.
ICTU is the representative body for 46 affiliated unions and seven associated bodies on the island of Ireland. These unions and bodies have a total membership of 550,000 in the Republic and 200,000 in Northern Ireland, making ICTU the largest civil society organisation on the island.
We seek to represent and advance the interests of all workers through collective bargaining and social dialogue. We particularly welcomed the invitation to focus on factual information from which the committee might be able to draw conclusions or which could be put to others for comment.
In these opening remarks, I will focus on a number of key points from the submission. First, as NERI says in its submission, competitiveness is a relative concept and is a function of an economy's underlying productivity and its cost base and, crucially, how economy and firm productivity and cost bases compare with competitor countries and firms. Any discussion of these issues must therefore start by comparing Ireland's competitive performance, in particular with other high-income western European countries - the Benelux and Nordic countries, France, Germany, Austria and the UK.
While we do not necessarily endorse its criteria, methodologies or recommendations, we note that the International Institute for Management Development's World Competitiveness Report 2025 ranks Ireland as the world's seventh most competitive economy. This is down from fourth place in 2024 and second in 2023, but is above Ireland's 16th place ten years ago. Furthermore, Ireland was again ranked as the most competitive economy in the euro area.
I mention in passing that the National Competitiveness and Productivity Council attributes Ireland's fall in the past year largely to a deterioration under business efficiency, where we fell from fourth to 11th place, and in management practices, where we fell from third to seventh place.
The European Commission's 2025 country report for Ireland also considers Ireland to have a competition-friendly regulatory environment. It says that Ireland presents "a strong competitiveness profile overall" and that we meet the "fundamental conditions for competitiveness". Equally, the OECD's economic survey of Ireland also highlights Ireland's "competitive starting position" and says that Ireland's regulatory framework is "among the OECD's most competition-friendly".
Despite all the talk of business failures, Ireland's insolvency rate has been stable over recent years, at 27 per 10,000 firms in 2023, and 29 per 10,000 in 2024, and so far in 2025. This is below the rate of 36 per 10,000 in 2019 and well below Ireland's 20-year average of 50 per 10,000.
Second, any discussion of these issues must also acknowledge the facts, not myths, about wages. The European Commission pointed out in June that wage growth in Ireland in the decade to 2024 was "below what could have been expected...given macroeconomic [developments]". It stated Ireland's labour costs are generally in line with peer countries and eighth highest in the EU in 2024 and in 2023. It also stated that Ireland has the highest level, one in five, of low-wage earners among peer countries. Eurofound estimates the national minimum wage at 48% of gross median wages, which is the same as in 2023, in 2020 and even in the year 2000, 25 years ago. It is well below the 60% reference value used internationally to assess adequacy and now enshrined into Irish law since last November by the only legislation the Government has adopted so far to comply with its obligations under the adequate minimum wages directive. The national minimum wage is still €1.25 below the real living wage.
I highlight these facts about Ireland's comparative performance and wages in Ireland not to suggest that there are no issues around competitiveness and the cost of doing business - we acknowledge that there are - but to make the broader point that the current dominant, business-led narrative, with its sole focus on driving down wages, not only distorts reality but diverts attention from Ireland's real competitiveness challenge, how to improve productivity in domestic-owned firms.
It is of course the case that international assessments of Ireland's competitiveness performance have to be treated with caution, as our rankings are skewed upwards by highly productive multinationals, especially US multinationals. The European Commission also pointed out in June that productivity in domestic-owned enterprises lags behind foreign-owned firms and their euro-area counterparts and warns that this will hinder the prosperity and resilience of the economy and overall living standards.
In preparing for today's meeting, we looked back at the joint committee's first exchange with some of the business groups last July. Unfortunately, we did not even find an acknowledgement from them of the challenge of low productivity in domestic-owned firms, never mind any suggestions on how to improve it. While Ireland's seventh place ranking in the world competitiveness report 2025 is thus inflated by a small number of multinationals, it is worth pointing out that all the other European countries in the top 15 - Denmark in fourth place, Sweden in eighth, the Netherlands in tenth, Norway in 12th place, Finland in 14th and Iceland in 15th place - are all countries with much higher levels of collective bargaining coverage and trade union membership. Thus, there is a high-road inclusive strategy for improving productivity and competitiveness through collective bargaining and social dialogue.
Indeed, the potential of collective bargaining and social dialogue to improve productivity and competitiveness is increasingly acknowledged and advocated at European level: in the June 2023 EU Council recommendation on strengthening social dialogue, which the Government supported; in the 2024 Draghi report on the future of European competitiveness; in the European Commission's January 2025 Competitiveness Compass; and even in the March 2025 European Pact for Social Dialogue, agreed by the European Commission with the European-level social partners, including us but also with IBEC and ISME.
ICTU's new economic model policy paper, developed with NERI and discussed at our biennial conference in Belfast in July, assesses Ireland's current economic situation and challenges, North and South, and sets out a framework for achieving a more productive economy, more and better jobs, greater economic security and greater economic resilience, with collective bargaining and social dialogue being central to the entire framework.
ICTU considers that the most effective way of addressing the real issues around competitiveness and the cost of doing business is by promoting collective bargaining, in line with Ireland's obligations, which we still have to implement, under the adequate minimum wages directive. I am happy to take any questions about our submission and these opening remarks. I look forward to the discussion.
James O'Connor (Cork East, Fianna Fail)
Link to this: Individually | In context
I thank Mr. Gibbons very much. We now proceed to Dr. Tom McDonnell, co-director, who is accompanied by Mr. Ciarán Nugent. I invite Dr. McDonnell to make his opening statement.
Dr. Tom McDonnell:
I thank the Cathaoirleach and members and staff of the committee for the invitation to Ciarán and me to appear before it. We are very grateful for the opportunity to present our views on competitiveness, the cost of doing business in Ireland and related matters. The most important of these "related matters" is of course productivity, because it is productivity that ultimately determines average living standards over the long run.
Competitiveness itself is a relative concept. It has no meaning by itself. It is a function of the economy's underlying productivity and its cost base and, crucially, how economy and firm productivity and cost bases compare with those of competitor countries and competitor firms. We can therefore improve our competitiveness either via productivity increases or via improvements in the cost base relative to competitors. As it happens, Ireland generally ranks as one of the most competitive economies on the entire planet, albeit one with clear and notable weaknesses.
Our most notable competitiveness failure is the weakness of Irish infrastructure across a slew of areas including energy, water, transport and housing. This reflects years of underinvestment in the public capital stock and suggests that the budgetary focus over the years ahead should prioritise capital spending over alternatives such as tax cuts. To complement this focus, we will also need a medium-term strategy to incentivise workers, both foreign and domestic, into the Irish construction sector. We will not be able to deal with our infrastructure problems if we cannot induce workers into the sector.
Irish labour costs are generally in line with those of other high-income western European countries, which are the relevant comparators. However, there are clear cost issues in a range of other areas. The most notable of these are the cost of energy and the cost of legal and insurance fees. Ultimately, the issue of energy costs will only be resolved by a massive programme of investment, including State investment, in renewable energy supply, including battery storage and grid upgrades. NERI is preparing papers on that topic, which we will release in the coming months. Our view, one that we explain in the new economic model document referenced in our submission, is that Ireland's competitiveness strategy should be based on a high-road strategy of steady improvements in the productive and innovative capacity of the Irish economy. Workers and business owners will both benefit from this in the long run. On the other hand, the alternative low-road strategy of driving down labour costs to improve competitiveness should be avoided. It will simply exacerbate our already high level of in-work poverty and slow down our economic development.
It is not clear that curtailing minimum wages or collective bargaining adds to or improves our competitiveness in the long run at all. To achieve a high-road outcome, we need to meaningfully increase public spending on research and development, which is about €1.2 billion below where it ought to be, as well as on education and training, including supports targeted at adults in order that we can respond quickly to technological and other disruptions, which we know are coming and in many cases are already here; better design incentives, both carrots and sticks, for businesses to invest in their own research, productivity and innovation, including horizontal innovation through worker democracy and collective bargaining; develop a set of policy initiatives to attract and retain human capital and diffuse technology more broadly through the economy; expeditiously reverse our glaring infrastructure deficits; and pursue inclusive policies that ensure we are properly utilising everyone's potential - for example, through policies to end child poverty.
As regards enterprise policy and return on fiscal investment, not all enterprise policy is good policy. For example, we do not support calls to reduce the VAT rate for the low-value-added hospitality sector. Such a policy has very significant fiscal and opportunity costs, will do nothing to improve the long-run well-being of the economy or its citizens and will provide negligible employment growth in what will inevitably be low-paid jobs. This is particularly true when the economy is already close to full employment. The fiscal resources are much better used elsewhere, whether the goal is employment in good jobs, productivity, poverty reduction or even just better fiscal resilience. We can give examples in each area. Not only do policies such as the VAT cut carry fiscal and other opportunity costs, but they are also likely to be counterproductive in the long run by pushing the economy in a lower value-added direction, thereby producing slower growth in the long run. To be clear, we are not against Government support for business; we simply believe it should be done in the context of achieving long-term strategic targets. There are many targeted areas where appropriate Government intervention could potentially enhance the long-run productive capacity of the economy via supports for enterprise. Three crucial ones are policies that increase the economy-wide rate of generation of high-potential start-ups or raise equity finance for such start-ups; policies that incentivise private research, development and innovation; and policies that attract and retain human capital and diffuse technology more broadly. This is articulated to a much greater extent in the longer submission that was given to the committee.
We should make a quick comment on the Department's Action Plan on Competitiveness and Productivity. It is broadly a step in the right direction. We note that the very first priority action is to increase expenditure on research activity in the higher education sector. This sets a good framing and tone for the overall approach. We need to strengthen our innovative and productive capacities and, as such, the thematic focuses on innovation and infrastructure are particularly welcome. We do, however, have concerns about certain priorities, such as the "SME test" and the "red tape challenge". We are happy to elaborate on these concerns in the discussion. We also note with interest action 24, on the potential of social partners to drive productivity, and action 59, on the development of an action plan on collective bargaining. Collective bargaining has an important role in nurturing horizontal innovation in the economy.
Our competitiveness strategy is ultimately to be a productivity strategy. That is the high-road strategy and it is the one that Ireland should pursue through the 21st century, facing into the mega trends that we do. A high-level checklist of appropriate policy reforms to enhance our innovation system might include: first, allocating higher levels of per capitaspending on public research and development and providing generous subsidies and tax breaks for private research; second, creating a safety net for entrepreneurship and risk-taking, including via social insurance reforms and lenient bankruptcy laws; third, establishing attractive career paths for STEM workers and for other researchers, particularly at PhD level and beyond; fourth, providing fiscal supports for ICT adoption and financial and other supports that encourage the lifelong reskilling or upskilling of workers and managers more generally; fifth, improving infrastructure especially in technologies that facilitate communication and learning, such as broadband and artificial intelligence; sixth, enacting patent reform at EU and UK levels to prevent the monopolisation or mothballing of technologies; seventh, building out an entrepreneurial State in which the State takes a leading and activist innovation and entrepreneurship role as proposed, for example, by Mazzucato; eighth, encouraging inward migration in order to bring a flow of new skills, new ideas and new perspectives into the economy, including dealing with existing labour shortages such as in construction; ninth, promoting horizontal innovations from within organisations by encouraging a greater degree of employee voice and autonomy, more active learning by doing and better communication of internal expertise; and, tenth, ensuring greater economic and social inclusivity, including the elimination of child poverty and the other barriers that prevent individuals from fully participating and flourishing in the economy. Greater inclusivity allows everyone to potentially contribute to or exploit the sum of knowledge that we all have cumulatively in the economy. That, in our view, is what a high-road enterprise strategy looks like. We are happy to take any questions.
James O'Connor (Cork East, Fianna Fail)
Link to this: Individually | In context
I appreciate that. That concludes our opening statements. We now proceed to the members. Number one on the speaking rota today is Fianna Fáil and Deputy Tony McCormack, followed by Sinn Féin and Senator Conor Murphy. Deputy McCormack, it is over to you.
Tony McCormack (Offaly, Fianna Fail)
Link to this: Individually | In context
I thank the witnesses for their contributions. In a country like Ireland, where we have 5.4 million people and our competitiveness is so important to us, our natural resources are mainly our agriculture and our people. After that we will have a sharp focus on wind energy in the coming years, but at the moment it is not there. Looking specifically at my area in Offaly, we have lost a number of jobs through Cardinal Health in the last couple of years. The reason those jobs were lost was that the company was able to bring them to low-wage countries like Costa Rica and Mexico. As a result of that, I worry about our competitiveness through the years to come. As to what else we have here that keeps our country going, it is our FDI companies and the multiplier then of jobs that are created from that. If we take into consideration that the backbone of our community or our country are small and medium-sized enterprises, which are dependent hugely on the FDI, we cannot have one without the other.
How does ICTU believe Ireland can balance the need for fair wage growth and improved living standards for workers while maintaining international competitiveness, especially in sectors exposed to global cost pressures? Given ICTU's focus on the cost of living, what specific measures would the witnesses recommend the Government and employers take to reduce living costs for workers in ways that do not disproportionately increase the cost of doing business? What role do the witnesses see for enhanced investment in training, apprenticeships and upskilling in improving both productivity and Ireland's competitive position while also securing decent work for employees? Lastly, we will get into what the witnesses were talking about, which was dialogue and collective bargaining. How can greater collective bargaining and structured social dialogue contribute to addressing challenges such as rising costs, worker retention and long-term competitiveness? I realise we have only about five and a half minutes left so I ask the witnesses to answer as many of those for me as they can.
Mr. Ger Gibbons:
My immediate response is, to go back to the contributions we made in our opening statements, that the other European countries that are judged internationally to be competitive, as Dr. McDonnell has said, all have higher levels of trade union membership and of coverage of collective bargaining than Ireland. In most European countries, the average collective bargaining coverage, that is, the proportion of workers who are protected by collective agreements, is about 60%. Under the adequate minimum wages directive, there is reference to a target of about 80% that is to be achieved over time. The latest figure for Ireland is about 34%. Our figure is the lowest of the countries that we directly compete against. The reason I talk about these other countries is that they demonstrate that it is possible to be competitive and highly productive by engaging in collective bargaining and social dialogue. The problem we have in Ireland is that there is unfortunately a refusal on the part of a large number of employers to engage with us. The kind of dialogue we are having here would not happen in a lot of companies, unfortunately. I am not saying that it is in all companies-----
Tony McCormack (Offaly, Fianna Fail)
Link to this: Individually | In context
Mr. Gibbons talks about the countries we are competitive with right across Europe, but there are also other countries coming into that competitiveness process with us that have a lower cost base.
Tony McCormack (Offaly, Fianna Fail)
Link to this: Individually | In context
No, but what I am asking Mr. Gibbons is how we can have wage increases that do not affect our competitiveness. In what way can we go about it? I know the witnesses have spoken about productivity and building on productivity but I do not think that is the only answer.
Mr. Ger Gibbons:
No. Trade unions want companies to succeed. We want business to work. It is in our interest and in the interest of the people we represent to make sure that businesses work.
The way to resolve those issues is by trade unions and employers sitting down to discuss those issues. That does not happen to the extent that it should at present in Ireland. We think that should be done to a greater extent and there is an opportunity to do that through the adequate minimum wages directive that Ireland and the Government signed up to at European level three years ago to address these issues. We think the way to do that is by fully implementing the adequate minimum wages directive, to enable that dialogue to take place to address the issues. We are not going to get everything that we want to get.
Tony McCormack (Offaly, Fianna Fail)
Link to this: Individually | In context
Those other competitive countries have natural resources that we do not have, such as an oil and gas, so we have to be very careful with the way we go about this and that we do not price ourselves out of the market. As I said, our natural resources are our people, our agriculture, and hopefully in the future, wind energy. I suppose fishing was in the past, but it is not as big as it was.
Dr. Tom McDonnell:
These are very important questions. Regarding how we can reduce the cost of living in ways that do not impinge upon business, we actually did that during the original cost-of-living crisis. The inflation index for hundreds of different items exploded for many areas, such as food, electricity and so forth, but for a lot of areas, we were able to reduce prices. We were able to bring down the cost of living in various ways associated with universal basic services, whether it be public transport, education, school books and things like that. These all matter. They are small things perhaps at an economy-wide level, but they do help.
Tony McCormack (Offaly, Fianna Fail)
Link to this: Individually | In context
Many people in business would say to me about reducing the cost of living, that the wage increases have contributed hugely to the cost of living and the price of goods and to what is in the shopping basket that most people will look at every day, week in, week out, because that is what they need to live on. They will look at that and a lot of those increases are coming from wage increases.
Dr. Tom McDonnell:
It depends on whether they are traded goods externally, as part of exports, or whether it is the domestic market, it has a different effect. Ultimately, where we want to get to is a situation where we are minimising poverty, where everyone has adequacy, and where we have a competitive business environment. What we can say is that, while it is true that certain sectors will complain about coming under pressures from time to time, there is always a process of creative destruction and churn within the business community. That process of churn is not something that we should always be afraid of, because we get innovation and economic progress from this churn. Business creation partially comes from business destruction. We should not be terrified of business failures, and we should not be terrified of certain sectors shrinking sectorally over time, if other more higher-value-added sectors are growing. We need to put in place a policy set that allows us to be resilient and adaptable as an economy as a whole and be thinking, what does it look like in ten years' time, 20 years' time, 30 years' time, not tactically on a budgetary basis that we need to immediately save this sector over here or respond to something that has happened in the United States. It is about putting in place the often very-----
Tony McCormack (Offaly, Fianna Fail)
Link to this: Individually | In context
I know, and unfortunately we do have to respond to all those outside influences.
James O'Connor (Cork East, Fianna Fail)
Link to this: Individually | In context
Sorry to cut across you, Dr. McDonnell, but Mr. Nugent wants to come in very briefly and we have gone a minute over time.
Tony McCormack (Offaly, Fianna Fail)
Link to this: Individually | In context
I apologise for hogging the time.
Mr. Ciarán Nugent:
I want to point to statistics. Obviously, real wages are a function of the cost of living and the biggest issue is housing at the moment. We can actually bring down real wages while maintaining a nominal wage and decreasing the cost of housing for everyone, which is a big one. Regarding cost pressures and wage pressures over the past five years, we have seen now that pretty much the bottom 60% of wage workers have not seen a real increase in the last five or six years. That is being driven by top earners and an increasing inequality in the wage distribution in Ireland, which is among the highest in Europe as well, in terms of cost of living and standards of living for workers.
James O'Connor (Cork East, Fianna Fail)
Link to this: Individually | In context
Thank you. Unfortunately we have to proceed. We now go to Senator Conor Murphy from Sinn Féin.
Conor Murphy (Sinn Fein)
Link to this: Individually | In context
I apologise because I will have to leave to go to the Seanad for business which I see is already under way. I thank the witnesses for the presentation. I welcome the new economic model paper that ICTU has launched, particularly its all-island focus, which I think increasingly we need to get to in terms of this overall discussion in relation to economic growth across the island and the opportunities that are there. There also needs to be an acknowledgement of the historic underinvestment that there has been in the North, particularly in relation to public services, which in turn affects our ability there to grow the economy through skills and education and that approach. The EU directive on adequate minimum wages and collective bargaining and the failure to fully implement that were highlighted. What is the delay in doing that and what sort of timeframe do the witnesses expect there to be for it? The witnesses from NERI correctly identified competitiveness as an element, but the key aspect is productivity. That involves much more than simply looking at business regulation and other matters. I think that maybe answers to some of the previous discussions being had in relation to a focus just on competitiveness on its own and which skews us in a direction which does not look at the overall economic picture and what is required to grow the economy in its entirety rather than one particular aspect of it. The witnesses identified a clear weakness, which was the investment in infrastructure. Clearly, if we do not have housing, transport to get people to work, renewable energy investment to reduce the cost, then that leaves us in a difficult position in terms of growing the economy. That is evident not just in terms of getting the people to where they need to be to work, and getting the cost down in terms of energy but how we attract the required skills and talent from across the world as was suggested is a requirement.
Another weakness is the narrowness of the economic model when we see the tax take in regard to some of the larger companies and having all of the eggs in that particular basket. That has been identified as a weakness and I think the approach of the American administration has highlighted even more starkly the weakness and vulnerability of this approach. I would have liked to have seen some reference, in terms of geographic spread and sector, the economic model across the island to offset some of that vulnerability.
The witnesses talked, correctly, about ensuring full participation in the economy. That clearly points to a sector of people who do not get sufficient skills or do not get sufficient education or sufficient opportunities to be full participants in the economy. We will not get to the productivity levels and the competitiveness that come from that if we do not get people actively involved in the economy. What needs to improve in terms of the vision, skills, training and education in order to achieve that?
Mr. Ciarán Nugent:
My own stream of research at the moment is looking at mismatch in the economy with skills with the working age population and what is available and what is demanded in the economy. I have found that Ireland has had a particularly high expansion of third level education over the last generation but on the labour market side our performance is one of the worst in Europe in terms of overqualified graduates. There is a conversation to be had about whether this is an effective strategy and whether we are missing out on potential gains, for example, lowering the cost of housing and construction. Fewer people are going into apprenticeships and middle-skilled occupations, which used to have higher wages and better living standards associated with them. There is a rebalancing conversation to be had there on sending excessive numbers of school leavers to university.
Dr. Tom McDonnell:
To follow on, from that, we completely agree the narrowness of the tax base and of the economy is terrifying, frankly. The budgetary figures look good, but we know that they are contingent upon the decisions of half a dozen companies and boards making decisions in Washington or California or whatever it might be, and that is frankly a very unhealthy position to be in. There is very little we can do about those decisions, ultimately. Certainly it is not going to be about labour costs or anything like that. The levels are much beyond that.
As we talk about in our summation, we must resolve the productivity problem in our domestic enterprise base, North and South. It is about asking what can do in the longer term. We are not going to change the productivity of an existing firm to any great degree, although we can provide supports. It will be about figuring out how to generate companies in different sectors that are more productive and putting our eggs in those baskets rather than what we have been doing so far.
To partially answer Deputy McCormack's question, and he has already alluded to the issue, energy cost is a clear area of policy failure in Ireland. We know energy costs in Ireland went from being one of the lowest in western Europe to one of the highest over a 30-year period. Prices started to go up in the 2000s. It was a policy failure. Something that would help workers with the cost of living and would help enterprises in every sector is the lowering of energy costs. That would improve our competitiveness without having to do anything on the productivity side. There needs to be a co-ordinated and massive programme of State investment in renewable energy infrastructure so we are not reliant on gas to set the price. That would allow us to bring costs and prices down throughout the economy. That would be a clear win and it is an area we need to focus on as a priority.
Mr. Ciarán Nugent:
Related to that is the energy efficiency of the built environment. The massive retrofit programme has not taken off with a small amount of grants. Approximately 800,000 houses could be brought up five or six levels on the BER scale. If we are not managing to achieve that through market mechanisms, the State could intervene and provide a large programme of insulation, solar panels, etc.
Conor Murphy (Sinn Fein)
Link to this: Individually | In context
I have one more question about the EU directive. I know we are short on time. What is holding it up? When do the witnesses expect it to happen?
Mr. Ger Gibbons:
A number of steps had to be taken in respect of the directive. The first was that it was to be transposed into Irish legislation by 15 November 2024. The Government adopted one piece of legislation relating to the Low Pay Commission. It is our view that an awful lot more still needs to be done.
The second part is that under the directive, the Government is supposed to prepare an action plan to promote collective bargaining by the end of 2025. We understand that is being done at the moment. It is expected by the end of 2025.
There is a complication in that there is a case before the European courts at the moment about the directive. We have heard that there will be a ruling some time in the next few months. What will happen then is that, depending on how that goes and we are hopeful that the directive will be upheld, the European Commission will look at the legislation by which each member state has transposed the directive. As I said, it is our view that there are many aspects of the directive that Ireland has not transposed. We will be engaging closely with the European Commission and the Government on that in the coming months.
I will pick up the points that Dr. McDonnell and Mr. Nugent made on the question about skills. The directive is about minimum wages and promotes collective bargaining in order to ensure that minimum wages are adequate. There was also a recognition when it was being adopted that collective bargaining does an awful lot more than just set adequate minimum wages. The OECD did an interesting piece of work a number of years ago on collective bargaining in OECD countries. One of the things it found was that workers who were covered by a collective agreement were one third more likely to engage in upskilling and retraining at work than those who are not. Countries with much higher levels of in-work training, upskilling and apprenticeships are all the countries with strong systems of social dialogue and collective bargaining. The reason we are continually pushing this piece of legislation is that we think it can do what it is supposed to do but can also do an awful lot more to address the issues that are set out in our documents.
Linda Nelson Murray (Fine Gael)
Link to this: Individually | In context
I am sorry I am late, but I am also attending a meeting of the education committee meeting at the same time. I represent small businesses. I was born and raised in a small business background. I have a small business. I do not think I have ever met an employer who does not want to look after his or her staff. We are all very considerate of them. When you have good staff, you will do anything to hang onto them. It is hard to get the really good ones. You see some mammies coming in with CVs and you want to tell them to go out and get their sons or daughters to come in with the CV. The living wage is €14.75. That was what was recommended. The minimum wage is currently €13.50. As I said, no employer wants to stop his or her staff getting higher wages. What could be given to businesses to help support that, particularly in the hospitality and leisure industries? I am involved in the leisure industry. We were the last to open again after the Covid-19 pandemic. There has been a considerable increase in the cost of doing business. I help to represent the play activity and leisure sector. I have received 15 messages today in the relevant group chat. None of those people could get the increased cost of doing business grant even though they would serve more food in their centres than any cafe on a high street or street because of the amount of food we serve for parties and kids and all those types of things. It has been tough. The people in that sector were unable to get the support. Is there anything the witnesses can see that would help businesses to balance the increased cost of wages, especially with auto-enrolment as well? I do not think anyone disagrees with people getting more.
Dr. Tom McDonnell:
Our preferred way to approach it would be to bring down the cost of living throughout the economy as a whole, which would mean dealing with the fundamental and dysfunctional market failures, which impinge on all businesses. The three areas we pointed out were energy, specifically-----
Linda Nelson Murray (Fine Gael)
Link to this: Individually | In context
I am sorry; I missed the start of the meeting.
Dr. Tom McDonnell:
It is an area in which Ireland does very badly. We have very high costs for energy. We used to have very low costs of energy. There is no reason we cannot get back there. However, a part of that is going to be a massive programme of State investment in renewable energy, battery storage and all of these things we are going to have to do. That will improve Irish competitiveness across the board. It means we will not have to import energy from abroad, which would help. We see that as a large issue.
Other market failures that can be addressed are insurance and legal fees. It is very difficult. The Legislature has a role to play in that regard, as have the courts. Those broad-based failures are what we see as the best way to approach reducing costs for businesses.
Linda Nelson Murray (Fine Gael)
Link to this: Individually | In context
I would add rental increase to the list. I do not know if ICTU is hearing from its members about that as an issue. Perhaps land is not being zoned for commercial buildings or retail use. In big towns, you are forced to stay in the arrangement you are in and there is no competition in the market. You end up paying very high levels of rent. I do not know if ICTU hears about that often but it is something I see.
Dr. Tom McDonnell:
One of the things we talked about in the context of the Commission on Tax and Welfare was a move away from the current method of funding local government and replacing the existing structures with something along the lines of a site valuation tax. That would put the onus on the owner instead. Much of that would eventually fall on the business anyway, but not necessarily. It could be a more efficient structure. Would that reduce the costs for businesses? Not necessarily. It might be a bit more of a rational way to do it but there would certainly be winners and losers in that regard. We need to take great care in how we design that method.
Mr. Ciarán Nugent:
Addressing the housing crisis would bring down the upward pressure on wages, especially in the bottom half of the wage distribution. Last year, average rents went up by 7% and we have a 4% or 5% average wage increase. That gap has been widening almost every year for the past ten to 15 years. That would bring down those pressures.
Dr. Tom McDonnell:
It should also be noted that commercial rates and local property tax are contending with each other in terms of funding.
Obviously, there is push back against the local property tax but one of the things people forget is that it is essentially put on businesses instead. If we had a more mature debate about local property tax, perhaps that it is something-----
Linda Nelson Murray (Fine Gael)
Link to this: Individually | In context
Rates are a big one for me as well.
Linda Nelson Murray (Fine Gael)
Link to this: Individually | In context
Absolutely. It would help the rates situation for people as well. I am always saying this at local government level; if business people understood what their rates paid for, it would be half the battle. If you could actually see it is that footpath that is outside your businesses or those bins that have been put there or the new street lighting. However, you pay it into a hole and you just do not know what is coming out of it. It would be something that would help. It would not bring down the cost but it would help you understand where your money is going. My county is one of the lowest-paying counties in rates and it will be looked it, unfortunately. I feel we are paying a massive amount. There is a lot of pressure.
There is so much pressure on businesses and I am coming from a business point of view but also that I have the most amazing staff in my business. Representing the leisure sector, we all really appreciate our staff. We want to give it to them and it is how we can be supported to do so as well.
Ollie Crowe (Fianna Fail)
Link to this: Individually | In context
I thank the witnesses for their presentations. We appreciate them. As regards comments made about the hospitality sector, it is important to note this is a sector which is the lifeblood of small towns and villages across the country. It is not just in terms of employment. Clearly, the hospitality sector is extremely important for such areas where jobs are lost and they may not be replaced locally. On the value these small businesses bring to local communities, they act as hubs. They are not simply small hotels, bars or restaurants; they are a facility for communities to come together. Not addressing this in any way greatly underestimates the social value these businesses provide to communities.
There has been research carried out which reflects this, particularly with regard to rural pubs, which are often essentially meeting points for local clubs or local voluntary groups in addition to also financially supporting such work in many cases. Has Dr. McDonnell or anyone in the Nevin Economic Research Institute reviewed any of this research or carried out their own about the social value hospitality businesses provide to hundreds of thousands of people in towns and villages across the country?
Dr. Tom McDonnell:
We have relied upon the analysis of the Department of Finance and the Commission on Taxation and Welfare. Obviously, international bodies have looked at reduced consumption taxes for particular sectors. The broad consensus is that rather than having reduced rates, you could reduce the overall VAT rate but not provide the reduced rates. The context for this as well is that there are already subsidies provided through the reduced rate through the tune of billions of euro per year. That rarely seems to be acknowledged. The reality is that yes, the hospitality sector is a very important part of the economy - nobody disagrees with that. For context, it is the lowest-paid sector in the economy. Broadly speaking, the jobs the sector provides are, on average, not what one would normally consider good jobs, relative to jobs in other sectors.
I also note the facts are that employment in the accommodation and food service sector has grown by something in the region of 10% to 12% over the past six years. The normal level of employment growth for an advanced economy on an economy-wide basis is approximately 1.2% over the past quarter century or even half a century. The accommodation and food service sector in Ireland has not been performing badly, at least thus far. If it performs badly in the future, it might not even be about cost bases. It could simply be that the economy and workers are transitioning to higher value added jobs, where they can get higher wages. When you have a very low unemployment rate, as we do at the moment, that gives workers options to transfer into different occupations which are better paid. Even if we were to continue with employment growth into the future, I anticipate it does not necessarily mean there will be growth in accommodation and food services. However, it is not because of a cost base or anything like that. It is simply that there is a productivity issue, which is perhaps not resolvable because of the nature of that sector.
I agree with the Senator; they are very important hubs. A lot of the €600 million or €800 million or whatever it might be will go to fast food joints. There is a lot of deadweight loss. A lot of it is going to businesses that are already very successful. Almost by definition, the more successful you are, the more you will benefit. That is something we need to watch. If the reduced VAT rate is to be introduced, it could be done on a temporary, experimental basis, rather than a permanent basis, to see what happens. We could look at it as an experiment. Did it save jobs? Did it reduce costs in the sector? Alternatively, the value of the VAT could be capped, which would reduce the benefits that go to the big franchises so there is less wastage for the State and money that could be spent elsewhere but it would still benefit the local coffee shops, for example. There is perhaps a way of squaring the circle on that.
Mr. Ger Gibbons:
We do not underestimate the importance of this sector. If you look at the measures that have been taken over the past number of years, the reduced VAT rate that was introduced in 2011 and lasted until 2018 cost about €3.2 billion. When it was reintroduced as we were beginning to come out of Covid, that cost €1.2 billion. It has cost €4.5 billion so far. While it was in place in previous years, the Department of Finance did an analysis and its polite conclusion was the subsidy was not used to increase productivity. The profits increased but there was no increase in productivity in this sector. It is a very expensive subsidy that does not really work. That is not to say there are not challenges in this sector.
Any time I go into a restaurant or takeaway, I see people coming in and out to deliver food and the rise of the platform economy. That is a challenge the sector is facing. They cannot all make money from the same production of food. There is another piece of European legislation Ireland has agreed to and is supposed to implement by next summer, namely, the platform work directive. That is aimed at trying to secure better terms and conditions for workers such as delivery drivers - the guys who go out on bikes and can be seen all around the city and towns like Navan.
We have not had any engagement with the Government on this. We would like to sit down with the Government, the Department of enterprise and with employers to discuss the issues. We will not agree on everything but we think there is a way of addressing the real concerns there rather than giving another subsidy that does not really work. If it does come in, it will cost about €800 million. If it lasts four years, that is another €3.2 billion. That is a huge amount of money and we do not think it is the best use of that money. There is so much more that could be done with that money over the coming years than what is currently being suggested for it.
Mr. Ciarán Nugent:
It is also important to point out that somewhere in the region of 80% of workers in that sector receive below the adequate living wage. The State already has to intervene on the incomes of these workers. They are twice as represented among working HAP recipients, for example. Approximately 8% of the workforce is employed in hospitality but approximately 16% or 17% of working HAP recipients are hospitality workers. There are other issues about adequacy in terms of a career and a standard of living over that career. Even in the west and particular areas in Galway and Mayo, the share of employment is rarely above 10% or 11%. The gap between the average wage in accommodation and food and the next lowest out of 16 sectors is 40%. They are massively underpaid compared with any other sector in Ireland. Other developed countries do not subsidise this sector.
Ollie Crowe (Fianna Fail)
Link to this: Individually | In context
Legal and insurance fees are a significant cost as well. I have talked to many businesses owners and some have remained open but others have had to close due to the costs. Does Dr. McDonnell have any views on how we might be able to address those levels of costs?
Dr. Tom McDonnell:
It is a very good question. We cannot force them to reduce their prices. The legal costs in particular are something that even the troika tried to deal with when they were here and they were not able to adequately deal with it. It has been a consistent historical problem. In terms of insurance, ideally we would have a European insurance market that was adequately working and Irish firms would be able to access in that way. Anything we can do to facilitate that, perhaps as part of a broader capital markets union, but something equivalent for insurance, would be very helpful. We just do not have enough competition in the insurance market, arguably. Again, it goes back to the courts as well. We have to make sure that the compensation being paid is not so high that it makes it unviable for various businesses, which no longer exist in many cases in Ireland. There are very significant problems that are difficult to deal with, without direct State intervention to subsidise it or to take on part of the costs. It is a very challenging issue to resolve, unfortunately.
Eoin Hayes (Dublin Bay South, Social Democrats)
Link to this: Individually | In context
I thank the witnesses for coming in. There is a lot of preparation needed to get all the stuff together. Unfortunately I only got a chance to read it all as people were speaking; forgive me if I have not caught everything. Today's witnesses are the first representatives of workers we have had in front of us since the committee was set up in this Dáil. Perhaps that has been too long coming. I will make a few statements and ask for reactions to them. Hopefully I will get some more time to ask some more specific questions. A lot of the time, competitiveness becomes a question of costs of business. Dr. McDonnell is right in pointing out the other side of it, which is the question of worker productivity and how businesses harness that better. It is important to acknowledge that when Irish workers are given the chance to be highly productive, they actually are the most productive in the world, when we look at the multinational sector in particular. I am conscious as well that the management practices that have been rightly pointed out in the Irish indigenous sector and domestic economy are not actually keeping up. Anybody who has worked in a multinational and then gone to a non-multinational in Ireland would tell us that.
I agree with so much of what the witnesses are saying. The indigenous, domestic economy is our biggest issue when we think about the future economic model we should go towards. I am particularly concerned with taking a targeted approach versus dealing with some dead-weight issues. The high-potential start-up environment that was mentioned has been stagnant for the last two or three years in terms of the number of companies that are engaging in it. The research and development programme, the office of science and technology policy, its capital investment from this Department has gone down, as I pointed out a few weeks. There does not seem to be any vision for a State entrepreneurship model. On the regulatory environment, which we have to be supporting, while increased resources have been put into it there is no charter in the Department of enterprise to support large wage growth. That is a core concern for the cost of living for so many people. We have the most unequal market income in the developed world. This is especially difficult for people on lower incomes. Sometimes I think back to a video from years ago that Senator Elizabeth Warren made about what it means to be a business owner and to have an obligation to society. It means you are going to pay your taxes and have a good standard of living, but there is also an obligation to pay for those footpaths, to make sure the rest of society is properly educated. I think sometimes we forget about that side of the argument and forget to say that to business people.
On the other hand, there are real issues in some parts of the economy and with certain businesses. This targeted experimental approach is actually the way of doing it. I do not think anybody wants to see the café in Enniscrone or Claregalway shut down. They are the only social outlet for many people in those communities. However, for the restaurateur who took on too much high-risk debt in Dublin 2 and made too many bets, maybe actually creative destruction was playing the correct role in that instance. That would be in my constituency, not others. I think the export focus has to be a core part of how we think about this future economic model, and the management practices I talked about, particularly the technical skills that are required in AI. By way of anecdote, when I was eight or nine I was living in the US. We had to type up all our homework. I do not think anybody has to do that today, 20 or 30 years later, in Ireland. There is a real question there on technical skills and making them available to people. It is worth noting the question of lawyers and insurance companies that took on the IMF and won in this country. It is probably the only cohort in the entire country that won against the troika. Housing prices are driving wages. If the Government had done its job in the last ten years, we would not have this problem with major wage inflation. I really welcome the idea of a better environment for migrant workers. We do not talk enough about allowing people to work and the visa system I have been exposed to has just been unconscionable.
Going to some questions, for NERI, on this question of distribution of wages and wage growth, there is a reference in the paper to nominal wage growth versus real wage growth. I would like to get an understanding of how that plays out, what that distribution looks like and where the targeted worst parts of it are. Second, on the divergence of labour versus capital, I am acutely aware that our current taxation model is disproportionately focused on consumption and income and not sufficiently on capital, corporations, those who own property, assets and wealth. I would like to get an understanding of NERI's analysis of that. Last, on the lower employer social contributions----
Eoin Hayes (Dublin Bay South, Social Democrats)
Link to this: Individually | In context
I will stop there in terms of how employers pay all different types of taxes, not just corporate tax. It is the insurance contributions, rates and all that kind of stuff. Does Dr. McDonnell have a sense of how those compare internationally?
Dr. Tom McDonnell:
Mr. Nugent might talk about real wages versus nominal wages. I will talk about labour share versus capital share and employer social contributions. Regarding the Deputy's comments, it is difficult to disagree with much of anything. He made the point about management practice and technical skills. The point was made earlier about our education system. We do underfund education on a per-pupil basis but where we really fall down is adult education. We really fall down in allowing people to have those opportunities once they are out of college or past their mid-20s to reskill, upskill or whatever. The research and development spend that we talked about it is not just about being in a lab and coming up with inventions. It is partially about the innovation system and having those linkages with business to enable them to better improve their management practices. There is the potential issue of the golden cage effect in Ireland, where a lot of talent gets sucked into the multinationals, which arguably creates a problem. It is difficult to quantitatively identify that, of course.
On the Deputy's specific questions, we do have a very low labour share. We know why that is. It is because of the very large multinational sector which is highly capital-intensive and has all those profits. It does distort Ireland's figures fairly dramatically. Notwithstanding that, we would still have a low labour share relative to other European countries. In terms of labour costs, northern and western Europe are the only reasonable comparators. It is not reasonable to compare us to lower-wage eastern Europe and places like that with very different business models. We want to have high wages so we can have high standards of living. We are in no way an outlier there. One thing that does bring us back towards the pack is employer PRSI and PRSI contributions. This does have implications for the longer-term revenue base of the State. There is a plan to gradually increase employer PRSI, very modestly, to help pay for the pension over the longer period. We would like to see some of those future employer PRSI increases going to adult education and training and things like that, which can benefit business as well. I know there is the National Training Fund too. Employer PRSI is the elephant in the room and has been historically. It leads to Ireland having a lower revenue to output ration than other western European countries. That is the elephant in the room, that is the difference. I know it has arguably been part of Ireland's model to a certain extent. Other areas where we are low include capital taxes, as the Deputy mentioned, such as property tax.
Capital owners and the income they get are treated preferentially to labour, by and large, which is a distortion in favour of the passive income versus earned income. We would see that as problematic. Additionally, capital taxes generally are associated with enormous generous tax expenditures and subsidies, which means that effective rates are often very low, and that also creates a distortion. We would prefer to see a rebalancing that benefitsvis-à-viscapital. That would also help the business community in terms of wage demands. Mr. Nugent will speak briefly on this point as well.
Mr. Ciarán Nugent:
Just on the real wage issue, there are two complexities we must remember when we are talking about an increase in average real wages. One is obviously sectoral. For example, over the last six years, most of what has happened has been part of a compositional change to employment, with a high rate of growth in IT. It has the highest-paying jobs, so the highest earners have been driving that average, whereas the bottom 50% to 60% of the wage distribution has been fairly flat over those six years. It has been unchanged for many, other than for those on the minimum wage, which this year is now ahead of the rate of inflation. The other complexity is that the consumer price index, CPI, captures the costs facing different households. There is an intergenerational issue there, obviously, with housing and rent. As the cost of rent goes up at 7% a year and wages go up at 5% a year, we are seeing younger workers priced out of the housing market by more every year. That has been a trend for the last ten years. The average real wage growth is really obscuring what is being delivered to different groups in Irish society.
James O'Connor (Cork East, Fianna Fail)
Link to this: Individually | In context
I thank Deputy Hayes and Mr. Nugent. I call Deputy John Clendennen.
John Clendennen (Offaly, Fine Gael)
Link to this: Individually | In context
I thank the witnesses for joining us. To pick up on the earlier VAT discussion, I question the estimates given in relation to the cost based on the Revenue statistics unit and what it has outlined as the cost of food and catering at €674 million annually. This is not about trying to give more profit to businesses. It is fundamentally about protecting jobs. What I am seeing, particularly in rural areas, is that difficult decisions are being made by businesses, in that it is being felt it is more viable to close midweek to stay open at the weekends. This is because the cost base, essentially, got too high over seven days a week. If the cost base gets too high over seven days, and businesses decide to reduce to five-day operations, that is essentially an impact on employment. We are not seeing full head counts lost, but we are definitely seeing an impact in relation to wages and salary payments. That has a knock-on impact in a small village or small town, or even a bigger town, regardless of whether it is a big or small employer.
When the witnesses talk about bringing this in as a temporary experiment, I think, considering the number of challenges there now in relation to energy, insurance, labour, tax and so on, this cannot be a roll of the dice. We need to give businesses certainty and predictability. The idea of just rolling this proposal out for 24 months or whatever period of time and then having a look at it again does anything but what we need to do in respect of an objective of providing certainty. Anything to the contrary would have a further detrimental effect, especially for small businesses right across the country. Would the witnesses agree this VAT measure would protect jobs?
Dr. Tom McDonnell:
There is a short answer and a long answer to that question. I will give the Deputy the long answer. All these measures, whether they account for €400 million, €600 million or €800 million, have opportunity costs. By doing this, something else is being given up. That is just a fact. It means less money for education, no second-tier child benefit, not making public transport free or no income tax reduction for workers, and making workers pay for it, whatever it might be. There is, therefore, a cost. Whether there is an employment effect, which might be possible from this change, and it creates X number of jobs, not doing something else will mean losing Y number of jobs. It is not simply a case of looking at it in terms of what the VAT rate would do for that one sector at that time. We have to look at the entire economy and all the impacts that happen.
The second thing is that over the medium- to long-term, we have a looming fiscal crisis. We know it is very difficult to raise taxes, so the better thing to do is not to reduce them in the first place unless you absolutely have to. The correct time to reduce tax is during a recession and not during a boom. We have a record level of employment. We are up by 500,000 jobs in the last six years. The economy has never been stronger. There has been growth in all sectors over the last six years, including in accommodation and food services. Business failure rates are not particularly high by historical levels, so it is not evident as of yet that there is a crisis within the sector. The evidence suggests, thus far, that is not the case. Would reducing the rate of VAT from 13.5% to 9% increase employment in that specific sector? It might do so on the margins. It is also worth noting that sector is very large relative to peer countries in the rest of western Europe. It is already a large sector compared to its analogues in other western European countries, which would suggest that maybe the sector is already too big. I am not saying it is, but it would suggest that the potential areas of growth in the economy are elsewhere.
Equally, we would be pushing money into a sector that is incapable of generating good jobs. What I mean are jobs producing at least the median wage, into the €40,000, and things like that. That sector will not do that. I am not saying there is not a case and I do think there is an argument for finding a way to protect the coffee shops. We think the better way to do it is a medium-term strategy of reducing the things like energy costs and the other professional services costs and things like that which benefit the economy as a whole. We think that is a better way to do it and that it would benefit those businesses. Capping it, at least, would provide a way of minimising the cost and protecting the coffee shops, while not having this massive deadweight loss going to fast food joints or whatever it might be. We are saying there might be a better way to do this.
John Clendennen (Offaly, Fine Gael)
Link to this: Individually | In context
Where would you cap it and how would you differentiate between someone who has a job in a fast food outlet and someone working in a coffee shop? Why would you discriminate against one over the other when both their payslips arrive at the end of the month?
John Clendennen (Offaly, Fine Gael)
Link to this: Individually | In context
What would it be capped at?
Dr. Tom McDonnell:
I do not think there is a right answer to that question necessarily. I think that would be a decision for the legislators because it is a question of how much you are willing to put towards this measure. My view, which I should make clear, is that this is not the correct way to go at all and that there is very little evidence the bang for the buck from this policy that will cost hundreds of millions of euro would be successful compared with the types of policies we are talking about. I mentioned earlier we have a €1.2 billion deficit in public research and development. That is the type of long-term, 21st-century solution we need to respond to the massive megatrends coming our way. Additionally, by doing these types of things, it means there are fewer resources for all those approaches.
James O'Connor (Cork East, Fianna Fail)
Link to this: Individually | In context
I am sorry, Mr. Gibbons would like to come too.
Mr. Ger Gibbons:
Coming back on this topic again, if I remember correctly, when the subsidy was in place up to 2018 the Revenue Commissioners did an analysis, in the summer of 2018 I think. The conclusion was the measure introduced in 2011 at most saved about 8,000 jobs. That was the analysis of the Revenue Commissioners. Those jobs were primarily saved in the first couple of years, in 2011 and 2012, and perhaps in 2013. I just did a quick estimate, and the €3.2 billion that it cost equated to a cost of about €400,000 per each of the 8,000 jobs saved in the first couple of years. The average wage in this sector now is €475 a week. As Dr. McDonnell was saying, we do not think it is the best use of this money. There are issues around cafes and coffee shops and all of that, but work we did years ago showed most of the fast food sold in Ireland is sold at petrol stations. I think that was a surprise to us at the time. Those are the companies that will benefit most from this measure and not the independent coffee shops we would like to see saved. Again, as Dr. McDonnell was saying, it is the opportunity cost of this measure that is the issue. It is a hugely expensive subsidy. In a way, the fact that it so dominates the conversation about this sector sort of distorts the real issues that need to be addressed in it.
If everybody is only talking about a 9% VAT rate, they not addressing the real issues. It benefited a relatively small number of very large companies in the past. I can understand - politicians all come under huge pressure because of this. We see it in our work as well but it deflects from the real issues to be addressed in the sector.
Mr. Ciarán Nugent:
It is important to remember wages going to workers in the hospitality sector are used in the community as well. If cafes shut down on Wednesday and Thursday, more wages for those at the bottom could help with demand. There is also circularity. It is not just a cost for the business itself.
John Clendennen (Offaly, Fine Gael)
Link to this: Individually | In context
There are economic and social aspects, particularly in rural areas. If a hotel, food establishment, fuel station or whatever generates 20 jobs and this saves 10%, that can be a game-changer in a rural area but if a large-scale multinational let go of 10%, it would probably make a headline in a local paper. There is a concern that we are overlooking the need for protection of jobs. No one deprives anyone of an increase in wages but we went from a minimum wage of €10 in 2020 to €14 in 2025. That is a 40% increase in a short number of years with no alternative supports or additional areas to provide headroom to businesses. There is an impact in that regard that has not been considered or addressed. That is probably where the call from business for the 9% VAT rate comes from, to give them headroom on profitability margins rather than on turnover.
Mr. Ciarán Nugent:
I will mention a study by Michael Taft which SIPTU published recently. It shows profitability in the sectors remains high and even increased over the past five or six years. There was about a 10% increase in accommodation and food and employment between 2019 and 2023 - it levelled off in the past few years, but at the same time, three years ago, when we were coming out of lockdown, it was the same narrative about costs and everything like that but the sector continued to grow. We are now reacting again to this messaging. All the data says the opposite - the sector is doing quite well and-----
James O'Connor (Cork East, Fianna Fail)
Link to this: Individually | In context
I am sorry. We will have to move on because we are three and a half minutes over time. We now go to the very patient Deputy Conway-Walsh.
Rose Conway-Walsh (Mayo, Sinn Fein)
Link to this: Individually | In context
It is an interesting discussion. It is clear there are short-term incentives and interventions that need to be taken to ensure the sustainability of businesses to keep them open and then there are long-term things that need to be done. I was pleased to see my favourite economist Mariana Mazzucato quoted in the opening statement. I very much share her vision. The vision set out in Mission Economy and The Big Con exposes a lot of the things that have left us in the situation we are in. When I think about an all-island economy and an economy after a united Ireland, it is very much in terms of what she projects and advocates. Other economists have too but she has a particular vision and identifies where we need to be in the long term and the mistakes made in the past. I wonder are we really going to address the issues we have now without pulling back in the long term and having a proper vision. How can that be addressed?
I was glad to see ICTU pushing collective bargaining. I encourage employers to look at the value of collective bargaining. We have the right to be part of a union in the Constitution. What came across in the discussion today in the audiovisual room is what is the point in having the right to join a union if there is no obligation on employers to do that? On the relationship between employers and employees, some of the larger companies welcome it and others do not. There is no common sense in that space. There is an opportunity in imposing the directive to get this right. It will benefit workers and employers. I am concerned about item 43 as a priority in the action plan on competitiveness and productivity: "Introduce a red tape challenge across government to significantly reduce regulation for SMEs." I agree absolutely with getting rid of red tape but it also states, "This would include a review by each Government Department to identify regulations to be removed or reduced". That concerns me in terms of workers' rights and environmental rights. Where are we going? Are we on a race to the bottom? We have this space where we can really reset things. There is an opportunity but there are also huge risks. It goes back to being led by industries rather than having the expertise in government to have a longer-term vision. Does Mr. Gibbons share that concern about that space being used to erode workers' rights, environmental rights and the progress we have made?
Mr. Ger Gibbons:
I want to put on record that ICTU is an all-Ireland body. We are engaging with colleagues in Northern Ireland. We acknowledge the work by the Minister, Dr. Archibald, in Northern Ireland in relation to collective bargaining and the good employment Bill being discussed there. It is quite ironic that what is being discussed in Northern Ireland in relation to the adequate minimum wages directive is more advanced than in the South. Unfortunately, Northern Ireland is no longer in the European Union but it is apparently taking this legislation more seriously than the South.
Rose Conway-Walsh (Mayo, Sinn Fein)
Link to this: Individually | In context
That is because there is a Sinn Féin Minister, of course.
Mr. Ger Gibbons:
She is taking a very progressive stance which we welcome and would like to see enacted. We have concerns that the debate about red tape and administrative burdens would undermine workers' rights. We hear talk about reducing administrative burdens by 25% but we do not know where this will come from and it seems to be quite arbitrary. Does that mean you abolish legislation that provides opportunities for Irish businesses in the European Single Market? It is a crude mechanism for reducing administrative burdens. We have concerns about how that could be done in the future. I think Dr. McDonnell mentioned in his submission other provisions about the SME test. We are not opposed to looking at genuine disproportionate administrative burdens but a lot of these things are there for a good reason. We have genuine concerns about taking a crude approach to reduce them by 25%.
Rose Conway-Walsh (Mayo, Sinn Fein)
Link to this: Individually | In context
On State innovation and the importance of research and development, how do we get more innovation in the public service, Civil Service and government?
Dr. Tom McDonnell:
The first thing is to pay for it, which we do not do relative to other northern and western European countries. The deficit of public research and development is €1.2 billion. It is in the education sector and is very specific. It is also about developing an innovation system including the private sector and the higher level sector. There is scope for innovation and productivity gains in the public sector as well. Technological change and digitalisation in the health service is an obvious one. There are things that can be done. In relation to Mazzucato, it is about thinking of the State as not just a passive referee but an active player in the game with the confidence to do that. It is the notion of an entrepreneurial state. It is not just a passive state. It is inculcating high-potential startups that come out of university sector.
It is helping to fund them through equity stakes. Because it is the state, it can take on risk in a way the private sector often will not or will not without the state being involved as well. Often, the private sector is happy to wade in if there is a state actor there too because it gives it surety to a certain extent. What a state has is scale. It can take a lot of gambles knowing that many of those gambles are going to fail. We underproduce both knowledge and innovation because you can never know for sure in advance, almost by definition, whether something is going to work because you are trying to find new knowledge. You do not know if something is going to work, whatever it might be, whether it is in biotech or some other area. A state can take a lot of risks and can reduce the risks for the private sector. It is that more entrepreneurial state role which we would see as being very important.
Rose Conway-Walsh (Mayo, Sinn Fein)
Link to this: Individually | In context
Reference was made earlier to lifelong learning and the importance of the investment of the National Training Fund into that in terms of how we increase our productivity and so on. Will Mr. Nugent comment on that?
In the shorter term, would it be better to have a PRSI rebate for employers rather than a reduction to a 9% VAT rate. We have to find an immediate way of reducing the cost of doing business and enabling-----
Dr. Tom McDonnell:
If you are making adjustments to labour taxes, whether it is through rebates or whatever, you want to do it in a way that does not create cliff edges or incentives to keep hours at a particular rate, or where someone will reach a certain income level and then suddenly the employer is hit by a much higher PRSI rate. Those issues relate to a fundamental flaw in our taxation and welfare system, which is that we have lots of ceilings and cliff edges that apply in respect of medical cards, HAP or whatever. If one was to go down that route, one would have to be very careful how it was designed in order not to create those disincentives that effectively lock people out of working extra hours. That can be very technical and difficult to do. I would be cautious in that regard. If there are to be supports for business, we would like them to be general supports for business rather than sector-specific ones because it is the economy as a whole that matters. We have these artificial notions of sector A, sector B and sector C, but it is the economy, employment, profits and opportunities as a whole that matter. As a result, that is where we see the focus as being. We think you are better off engineering a system that reduces those market failures, for instance, in terms of the cost of energy, which would bring down costs for all businesses, as being the type of direction in which you want to go. Hence, our focus on infrastructure and things like that as being more important.
Rose Conway-Walsh (Mayo, Sinn Fein)
Link to this: Individually | In context
I did not get to Mr. Nugent.
James O'Connor (Cork East, Fianna Fail)
Link to this: Individually | In context
Mr. Nugent has 30 seconds.
Mr. Ciarán Nugent:
I will just go through it quickly. Where we fall down in public research and development specifically is in higher education research and development. We are spending all this money on sending people to university but in comparison with the research and development departments that drive success in the Nordic countries, we are spending half as much. They create high-end jobs. If we are talking about the entrepreneurial state, we have to pick strategic areas for development. One that is uncontroversial is the transition to a low-carbon economy. Denmark produced its own wind turbines because it did this work in the 1970s, and it is a world leader. Why are we not doing the same? Are there areas like tidal energy, where we could develop a speciality on the west coast, and those that are reliant on low-wage sectors in accommodation, food, etc.? Why not put the money into those kinds of areas?
James O'Connor (Cork East, Fianna Fail)
Link to this: Individually | In context
I will ask a couple of questions. I have found the contributions and some of the questions that have been posed extremely interesting. I am a Government TD as well as being Cathaoirleach of the committee. I would probably be bracketed in the disgruntled group. I have a couple of questions. I am interested in getting the witnesses' views, and I will share it around.
Something I often hear from Ministers and senior civil servants who want to tackle issues is the overall inertia in Ireland around administration and actually taking a document such as the new competitiveness strategy and implementing that. The unions have a major role to play in what we want the our economy and society to look like in ten years' time. Something that is very clear, and Dr. McDonnell discussed the giga changes that are happening internationally, is that we will move into a multi-polar world order over the next 50-plus years or certainly in the foreseeable future. We have done so well out of the United States. With FDI, 80% of our corporate tax take is from US multinationals alone. While that and how we have managed to bring in that business has been a huge success over the past three or four decades, even through the depths of the recession, it is quite clear that the United States is politically on very unstable ground. That represents a huge economic risk to us.
There is also the need for rapid policy and other changes around energy. I have advocated for the need for nuclear power in Ireland. I am one of the few Deputies to have brought that up. Sometimes, we need to take divisive decisions in respect of matters on which there is a need for collective action. The reason I reference this is because Ireland is now averaging out as the third most expensive of the EU 27 for household electricity costs. At one point in the past 18 months, we became the most expensive economy in the entire European Union for non-residential electricity. That affects businesses. There is a full-blown crisis, and I am saying that as Cathaoirleach of this committee. There is a general view, which all members of the committee understand, that electricity prices are on the verge going out of control. We are also aware of the impact this has on businesses.
My questions is about inertia. Do the witnesses think we need significant political reform in the context of Ministers being given the power to bring State agencies together and tell them that siloed decision-making where there is not collective responsibility is unacceptable. In the areas of planning, we have An Bord Pleanála, the Office of the Planning Regulator, local authorities and the Department’s policy. Then there is the environmental layer whereby there might be involvement on the part of An Taisce and the EPA. There are webs and layers around decision-making. When it comes to getting something of national strategic importance to the country done, it is just extraordinarily difficult. I am very interested in hearing from the witnesses, from an economic standpoint but also from a union standpoint - from Mr. Gibbons - as to what this means to them. We might start with Dr. McDonnell.
Dr. Tom McDonnell:
That is a great question. There is a problem with inertia. We know that. We have seen copious policy failures in terms of delayed projects, infrastructure failures and so on. We all hear about the silo problem over and over again. I would argue that any programme for Government should identify a small number of missions to achieve over a five-year period in respect of which the Department of the Taoiseach would knock together the heads of all those from the other Departments, semi-States and in the context of asking how those missions are going to be achieved. In other words, it would ask the following questions. How will we build out a green grid or a renewable energy infrastructure? How will we do this over five or ten years? Why are we failing? Why are we not achieving our housing targets?
It involves having everyone in the room together and having a chain of command that makes it happen. I completely agree with the Cathaoirleach on that. It is the Mazzucato approach to a certain degree. The notion is that the US was able to put a person on the moon in less than ten years because the authorities in the US made it a mission. They really focused on it. They put the investment in place. Here, we built Ardnacrusha. Can you imagine Ardnacrusha being built today? It would take half a century and multiple billions of euro. These things are not wicked problems, they are not intractable and they can be solved. The problem is that things are siloed. It is not that there is any individual who is at fault. It is just that the system does not talk to itself and we do not have a mission focus. Just like the moon landing, we need a mission focus about how we green the grid, for example. How do we do that and in a way that reduces costs for business? Let that be our competitiveness strategy – we will just make energy so cheap that it basically takes away one cost.
It is there with housing too, as Mr. Nugent has said a few times. That is a competitiveness issue. It is also not a wicked problem. That can be solved. We built houses in the past, but we need a solution for where we get the construction workers from. That requires a mature debate about where they are going to come from and an understanding and acceptance of the fact that they will not come from the domestic space. They cannot.
Apprenticeships take four years so it takes time for people to come through.
James O'Connor (Cork East, Fianna Fail)
Link to this: Individually | In context
An interesting point came up in discussions with the Department previously. I am interested in hearing the union standpoint on it. In terms of large-scale capital infrastructure projects in particular, we see international contractors in a number of countries around the world bringing in contract employment, although not so much within the European Union. Does Mr. Gibbons have a particular view on that? Does it have a role to play in Ireland in terms of dealing with problems in an emergency context or in the very short-term context of urgent need? Would there be merit in bringing in international workers to work on specific building contracts, with block grant permits for employment contracts, as is happening in other regions? In asking that question, I accept that there are human rights concerns and wage issues. Does Mr. Gibbons have a specific view on this?
Mr. Ger Gibbons:
That has happened in the past and we see it continuing in the future. We would point out that there have been some terrible cases, as the Chairman alluded to, in the past 20 years, including that of the Gama workers who were brought in and exploited. There has to be real protection for workers who are brought in to do that work and that means engaging with trade unions. We also see a need for work permits in the construction sector. It is a critical sector, so we very much support the need for work permits. It is an area where there is a shortage of workers, but we do need to ask whether we need the same level of work permits for sectors with poor-quality jobs. That is an issue we need to address.
In response to some of the overall comments and specifically the question on inertia, there is a reference in the action plan, at No. 59, to the completion of an action plan on collective bargaining. We see that as a step in the right direction but we are a little concerned at the apparent suggestion that there is a tension between productivity, competitiveness and collective bargaining. The point we would make is that if we want to improve productivity and competitiveness, we should promote collective bargaining. Unfortunately, that is not down as one of the priority actions in the action plan.. It is something that we would like to see progressed, however.
Dr. McDonnell talked about FDI and the industrial policy that we have had for the past 40 to 50 years. He also spoke about Ardnacrusha and what was done in respect of housing in the past. The trade union movement has been around for a very long time. If we look at the role that the Irish trade union movement has played in development here over the years, it is often forgotten that the first opening up of the Irish economy was undertaken in the 1940s. The Ministers involved at that time were former trade union officials. Mr. Dan Morrissey was an ITGWU official in the 1920s and Mr. William Norton was involved in what is now the Communication Workers' Union. The initial steps were taken in the 1940s and early 1950s and were then developed in the mid-1950s by Lemass and Whitaker. That is often forgotten.
We have been discussing these issues for some time. This is not the first time we have raised them. We would be very keen for the Government to follow through on the commitments it made in relation to the minimum wage directive. We keep talking about this-----
James O'Connor (Cork East, Fianna Fail)
Link to this: Individually | In context
I have a question on that. I am very interested in this and am of the view that there is a lot to be learned from history. Mr. Gibbons has just given us a very interesting insight. At the time that it was built, Ardnacrusha took up one third of the State's entire resources. What this shows is that sometimes it is worth spending multiples of billions on infrastructure projects where there is a long-term return for the State. In terms of the willingness of the public, they no longer have confidence in the Government or in the capacity of our State to go about undertaking these types of projects. That needs to be looked at in the highest echelons of the Civil Service. Since coming in here as an intern in 2016 and throughout my time as a TD, I have seen the corrosion of ministerial power. It seems to be getting harder and harder for Ministers to get things done. No matter what party is in government, there is an obligation on the political system to highlight that fact. I am very interested in the role that unions might play in that discussion. I am only a humble backbench TD, although I am very fortunate to be chairing this committee. I just wanted to make that point. We might come back to that if we have time. Next is Deputy Gogarty.
Paul Gogarty (Dublin Mid West, Independent)
Link to this: Individually | In context
I thank everyone for their contributions. On infrastructure, I have been banging on about investment in research and development for a decade or more, particularly investment in critical renewable energy infrastructure but nothing has happened. We talk about the €13 billion of Apple money in the escrow account that we can use now, alongside our potential ability to borrow for strategic projects. There are issues with the grid as well as the actual infrastructure for offshore wind and so on. I am a big supporter of wave technology and research and development in respect of it, but we are way behind in that regard. Will Mr. Gibbons comment on the inertia that exists? If legislators are raising it and if, as the Chair of this committee is saying, Ministers have less power now, how do we get the kick up the backside that we need to actually get the public on board to drive it? At the moment, people are using the green argument, pointing to climate change objectives and so on but we are fighting a rearguard action against troll farms to even prove that climate change exists. What does exist are the bread and butter issues and people's pockets. For example, if we are importing €6 billion worth of oil, coal and gas, but we could be a net energy exporter, reduce our energy costs and create an income for the country, that is a no-brainer. We do not have to sell that to anyone. How do we get that message across to the collective, to politicians and to the people, to drive it? We need some sort of electric shock therapy in that regard.
I also have a question in relation to the adequate minimum wages directive. How do we get the argument across about the fact that Ireland has a very low median wage? We hear many arguments that our mean wages are high and that we are doing very well comparatively. In terms of the median wage, however, we are doing quite badly. I ask our guests to elaborate on how that argument could be pushed further. Obviously, wages are being pushed up because costs are being pushed up. I have a friend who lived in the North of Ireland for ten years and who noticed that all of the people working on forecourts looked like they were born and bred in Northern Ireland. They all had Northern Irish accents and their skin was white, whereas down here in the South, 20 years ago we began to see eastern Europeans and people from Asia starting to work on forecourts. A large majority of native Irish people do not work in those jobs because the wages on offer will not pay the bills. It is as simple as that. Northern Ireland had lower costs and lower social welfare rates and, therefore, the money people earn in those sorts of jobs actually means something. If you try to feed a family on the wages from those sorts of jobs in the South, it is a no-brainer to realise that it is not possible to do so.
I have a related question on immigration policy, because we do need workers coming in. We would not have activity in a lot of sectors without those workers. I will give an example that I have mentioned previously at this committee. I know of one housing estate in my constituency where three- and four-bedroom houses cost around €650,000. Between 85% and 90% of the people who have bought those houses were born overseas. Obviously, they are working in high-paying sectors. Although IDA Ireland policy is to spread foreign direct investment around the country, many companies want to locate in Dublin. Therefore, for someone who works as a nurse, a garda or a teacher, the price of an affordable house has gone up. What is our guests' view on things like software localisation, where our policy is to attract companies in to create jobs for people but where they are bringing in people from the EU and beyond to work in high-paid jobs? They are actually dragging people in to work in jobs for the profits of the company, not because we need the jobs for our own workforce. Do we need to rethink matters and focus more on homegrown research and development?
In terms of bringing in workers for construction, are we talking about high-paid, skilled workers or other types of workers? If we created a living wage, more people might be likely to work in those historically lower paying jobs. Is there a balance to be struck? I am interested in hearing our guests' views on those issues.
Dr. Tom McDonnell:
There are a lot of questions there. On the issue of the grid and inertia generally, it is not acceptable how fast things are happening. It is not just about the green transition; it is about housing as well. We need to get the resources aligned and then we need to do it. We have the fiscal resources - that is one thing we do have. We have problems in the private sector with lack of scale for house building, issues to do with planning and so forth, although that is true of other countries as well. We do not have construction workers. That leads on to the Deputy's point about migration; the type of work permits we should prioritise and for what sectors; identifying the weaknesses in our labour supply; and using that as a tool to deal with the housing crisis.
In terms of infrastructure, it is a case of just doing it. We have to allocate the resources and, again, find the construction workers who are not there. We can only ramp it up at a certain level year on year. It is not possible to go any faster. It could be argued there is a case for using tax disincentives to push construction workers out of building hotels, commercial real estate and things like that and into infrastructure. That is another debate. There is perhaps some scope there.
On this idea of inertia, it is about the Civil Service but it also has to be about the private sector and workers. We need sectoral task forces, perhaps through the Labour Employer Economic Forum - making that a substantive body rather than just a talking shop. We need to have working groups which are actively trying to work through these problems and a national consensus on doing that. What are the needs of the economy? Where are the weaknesses? What type of infrastructure do we need? Then we must deploy the fiscal resources to do it, including by using work permits to bring in construction workers from abroad, if needs be. It is about identifying where the resource constraints are and then deploying resources.
There is a general consensus and acceptance throughout the country that our infrastructure is not where it needs to be, dramatically so. Resolving infrastructure problems will resolve the green transition problems as well because much of it is about energy and will be about building a renewable energy grid involving different types of renewable.
Almost everyone seems to agree on this but it does not happen. The question is why it does not happen. That is ultimately a political question, rather than one an economist can answer. That is what the problem is. It requires the political will to identity that this is a national mission. We can only have so many priorities. We cannot have 50 priorities. We have to identity three to five things every five years and say, "We're just going to do that."
There is not much more I can say on that. It is about deploying the resources. We have the fiscal resources but not the labour resources. We need to bring them in, to deal with issues such as planning, to have a more aggressive approach to getting infrastructure built and to just do it. We have done it in the past and other countries have done it too. Ireland is not unique in having these problems. The United States has enormous problems in these areas as well, as do many European countries.
In terms of costs, however, children's hospital fiascos do not happen in every country. Can we bring in the experts to identity how the contracts were set for that and how the project management was done? We can get productivity and efficiency gains by bringing in people from other countries. In research and development, we should target Harvard, MIT and Caltech and use the anti-science movement in the United States to bring those people to Ireland. Similarly, we should bring in people who have successfully produced infrastructure projects on time and in budget from around Europe and the rest of the world to find out how they did it and ask them to do it for us. Maybe that is how we get around it: we bring in the expertise from people who have successfully done it in other countries.
James O'Connor (Cork East, Fianna Fail)
Link to this: Individually | In context
I have an observation to add to Deputy Gogarty's point. He asked some good questions. The amount of expert documents that come before any Member of the Oireachtas is enormous. We see strategies being published and new proposals being brought forward but it is about enacting them. Is it the capacity of the Civil Service? Is there a need for a summit on establishing goals and outcomes between Government and Civil Service, involving the political and other institutions of the State? It is only a minor-----
Paul Gogarty (Dublin Mid West, Independent)
Link to this: Individually | In context
Maybe we need a T.K. Whitaker.
James O'Connor (Cork East, Fianna Fail)
Link to this: Individually | In context
Absolutely. It is only a minor observation but walking up the steps into the Dáil, you look up and the roof is collapsing. There are literally pieces of the ceiling collapsing onto the Gallery as the Taoiseach is going in. It is indicative of the whole infrastructure of the State.
I want to feed this back to Mr. Gibbons. I would be really insincere to him if I did not say it. I think there is a lack of appetite among senior civil servants because they fear the repercussions from unions over how reforms are brought in. We will get a chance for a second round of questions and I would love to tease that out with Mr. Gibbons. He has time to ponder it. I hate to interrupt but we are obliged to take a small break to allow people use the bathroom. We have been sitting for two hours. We will come back to Deputy Lawlor and then Senator McCarthy. The meeting is suspended for five minutes.
James O'Connor (Cork East, Fianna Fail)
Link to this: Individually | In context
We will now proceed to the Labour Party's Deputy Lawlor who will be followed by Senator McCarthy.
George Lawlor (Wexford, Labour)
Link to this: Individually | In context
I thank the people from the Nevin Economic Research Institute and the ICTU for their contributions this morning, which have been most enlightening. The disadvantage of coming this far back in the line is that most of the stuff one would have wanted to cover has been covered. I have a couple of observations in relation to competitiveness. It is great to have representatives of the workers here. As one of my colleagues alluded to, I think it is the first time we have had representatives at this committee representing workers. In terms of competitiveness and the cost of living, the long and short of it is that the key component of the cost of living for workers and their families at the minute is the cost of housing. When we talk about wage constraints and things like that and people's plea for higher wages, it comes about as a result of the fact they need them if they want to exist. Deputy Gogarty referred to houses at €650,000 in an area where he lives. Trying to finance the likes of that would require substantial wage packets to be coming in every month. Certainly, from my point of view, I can give an example of the difficulties that workers face. In my constituency of Wexford, workers who are a couple earning the minimum wage each, maybe with a couple of children, will be a few thousand euro above the threshold to receive any social housing assistance. We can imagine a situation where they are earning €38,000 in total and have that coming into the house and because they do not get any assistance whatsoever, they may be asked to pay somewhere between €15,000 and €20,000 of that into the private rental sector. We can imagine the pressure on that family. Housing is the nub in many respects of how we tackle our competitiveness in the area of workers' wages because if they cannot afford to live, they are not going to hang around. They are going to go to other countries or other areas where they can attain better wages.
In the area of collective bargaining, have the witnesses found in their experience that where companies engage in collective bargaining, there is a greater relationship or effectiveness and viability of those companies? In Wexford, one of the most long-standing companies has been there for more than 50 years. One of the prerequisites of joining that company at the time, which was a German company, was that people had to join the union because the company's view was that it did not want to be talking to Johnny in this corner and Mary in that corner; it wanted a collective approach. Even 50 years ago, it wanted a collective approach because, effectively, it was the company's union that was doing the negotiating for both it and the workers, if you like, in terms of deals. Have the witnesses found in their experience that where collective bargaining is in place, there are more effective and more viable companies in terms of the relationships they have with their workers and their dealings with their workers? That is one area.
Tomorrow in the audiovisual room I will host a presentation on employee ownership trusts. This is something that is quite successful in the UK. We do not have the proper taxation structure in place in Ireland to make it attractive to have employee ownership trusts. Indeed, every working day of this year, an Irish company has been sold into foreign ownership such is the level of interest. We are obviously doing something right because foreign companies are coming in and have purchased one Irish company every day this year. Has any work or study been done or has any experience been attained in relation to employee ownership trusts? It is something that if we put the right mechanisms in place could be very attractive to a lot of companies in Ireland and, indeed, the employees in terms of productivity and competitiveness and the drive with that company.
Finally, I will mention access to affordable finance, particularly in the areas of SMEs. After the crash, banks became so careful - ultra careful - in relation to the way they operated pre-crash. Have the witnesses any documentation on where companies and SMEs are struggling to find access to affordable finance? The availability of affordable finance without major hurdles to jump over is problematic for them.
Mr. Ger Gibbons:
I will take some of those questions and maybe Dr. McDonnell and Mr. Nugent might take the others.
On the question the Deputy asked about collective bargaining, yes, that is our experience. It is not just the unions that are saying it. I made reference earlier to a piece of work the OECD did back in 2019 on collective bargaining. We found that a very useful piece of work. It looked at collective bargaining in all OECD countries. Essentially, what it found is that where there are sectoral co-ordinated agreements, the outcome for the labour market is generally much better than just having companies negotiating individually with trade unions or not negotiating at all with trade unions, and that the experience of those countries like the Nordic countries, but also Austria and the Netherlands, is that they have higher employment rates, particularly for women, young workers and low-skilled workers than the countries that do not do that. The likes of the United States, Britain, Ireland were in the lower categories. In that piece of research, in relation to the issues the Deputy raised directly, what the OECD found is that where employers sit down with trade unions, issues are raised and there is conflict, but the conflict is resolved, and the issues are resolved. As a result, in general - I am just summarising very quickly here - retention rates are higher in the company, recruitment costs are lower for employers and, generally, the company operates more competitively and more productively. That is a very crude summary of what that piece of research found.
If I could just go back to one of the earlier comments that was made, if we look back on our recent history, at the start of the pandemic, one of the most successful things that was done was that the Government activated or utilised the mechanisms that were already in place, such as the Labour Employer Economic Forum, LEEF.
The measures agreed very quickly in March 2020 were taken through that forum. I refer also to the likes of the wage subsidy scheme, which was actually an initiative the trade union movement put forward in relation to Brexit. We thought that was a mechanism that could be used to support vulnerable but viable companies that were most at risk from a hard Brexit. It was not used at the time but it was the foundation for the mechanisms put in place six months later. I believe the Government would have ended up in that place anyway because that is what was done in other European countries. However, in our recent past there have been instances where issues could be resolved very quickly and effectively. When they had to be revised six months or a year later, they were. I will leave it at that.
Mr. Ciarán Nugent:
I want to come in on housing. It is often pointed out that our minimum wage, in a nominal way, is high for a European country and it is asked why an increase would be needed. The ETUC produced an analysis last year that showed that where the price of an average two-bedroom apartment is concerned, Ireland is jointly at the top of the table of the least affordable. Also, we have a high number of low-wage workers. It is getting worse every year.
We have also seen an increase in the number of adult children living at home. These individuals are often not in the low-paid bracket. They may be highly educated and are often in high-status, high-skill and high-paid occupations. There is obviously an issue of distribution for policymakers. It is such a generational issue. For the under-40s, we want the price of housing to fall. There are many households in the country that this would affect. How we deal with this is complex. I will not go into all the factors; suffice it to say that housing is becoming increasingly out of reach, especially for low-wage workers. One has to be in the top 10% of earners to afford a house of €650,000. There have been promises and there is a social contract. People go to college and come out and face what I describe. The Growing Up in Ireland survey states 30% of females have had mental health issues and anxiety by the age of 25. Sixty-eight percent of 25-year-olds are still living at home, and 70% of those are doing so because of financial issues. It is getting worse every year. We will probably still be having this conversation in ten years, but circumstances will be worse.
On the co-ops, there is so little. There is a legislative environment in other countries that we could examine. The number of individuals needed to set up a co-op has a preventive effect. In some other countries, four individuals are needed, whereas it is seven here, I believe. Some work was being done on that before Covid but I do not believe it ever made it-----
George Lawlor (Wexford, Labour)
Link to this: Individually | In context
It is the taxation issue that is the problem here.
Mr. Ciarán Nugent:
It might be a taxation issue. I am aware there are a few interesting projects. Bohemians Football Club is trying to expand a co-operative and I hope it will have some success. I was tasked with this area in 2017 but I just could not find any co-ops to do projects on. It was amazing; they were non-existent.
Aubrey McCarthy (Independent)
Link to this: Individually | In context
I thank our guests for being here today. I could not agree more with them on what they have been saying, even about housing, the minimum wage and the cost of living. I am involved in a an LDA project in Bluebell, in a cost-rental housing scenario. We got people in and discovered cost rental is set up such that the people it is meant for cannot afford the rent, based on the wages they are on. There is, therefore, a huge gap.
I noticed that the report identifies chronic underinvestment in infrastructure for energy, housing and water, and it states this is Ireland’s main competitiveness weakness. What immediate Government actions, funding models, regulatory changes or timelines would quickly work to lower energy and infrastructure costs for businesses and households?
The statement recommended a high road rather than a low road regarding expenditure on research and development, lifelong learning and technology diffusion, especially for SMEs. Is there a single policy lever that could work, such as tax credits or direct grants? What has the best short-term impact in raising SME productivity?
Reference was made to how VAT or tax cuts can be counterproductive. I run an enterprise, a restaurant, and just know that as you put up the minimum wage, there is a knock-on effect on customers. Then the customer has to pay a higher price and will be giving out. It is a case of squeezing and squeezing. What criteria should the State use to decide when subsidies or tax decisions of the kind in question are justified for small businesses?
Reference was made to low-wage earners, the relevant figure being around 20%. Over a quarter of workers are in poor-quality jobs. What are the best measures to make a difference beyond wage increases to improve job quality, reducing in-work poverty while keeping Ireland competitive?
I run a homeless cafe called The Light House, which is on Pearse Street. We encounter guys who have jobs but who cannot afford to feed themselves. They are paying rent, which is over €2,000 a month in Dublin, and they come into us for dinner. They are decent and not messing; they come in because they cannot afford anything else. Those are my questions.
Dr. Tom McDonnell:
I thank the Senator. There were about five questions. On whether there is a single policy lever on the high road to resolve the issue of SME productivity, there is not. I guess I am saying there is no silver bullet. It is a matter of a whole variety of policies put together that incrementally grind forward. Productivity is not something that just magically shoots up 20%; it is about deciding how to make incremental improvements year on year. Much of what productivity comes down to is the sector itself, so the biggest change to productivity you could make would involve shifting the composition of employment in the economy. That is not something you can do overnight, obviously. Making some of the changes we need in terms of making construction a larger part of the economy would actually reduce productivity, because construction is, by and large, a low-productivity sector. However, it is an investment in the future that makes the economy more productive in the longer term. I suppose that is where we want to keep the focus. How do we move away from thinking three or six months ahead, think about 2030, 2040 or 2050 and make sure we have the best Ireland we can have in terms of job quality, the number of jobs, and standards of living and well-being?
On SME productivity, it is really about an acknowledgement that certain sectors are inherently low in productivity. The food and accommodation sectors are inherently low-productivity sectors, but that does not mean you cannot make them more productive than in other countries whose sectors are in some ways more productive and have more of an online presence. That is relevant in some cases but, by and large, the gains are likely to be very small. Therefore, it is about identifying how can we move our research and development and education systems and all of these things so the next generation of companies will be high-productivity companies. Once you have established a business culture, it is very difficult to change it. Once a business is operating, there is very little time for a manager to go off and learn how to do such a thing or say certain technology will be diffused to them. It is a matter of the early stages. What is actually needed to improve productivity is acceptance of churn and of creating an environment in which it is okay to fail and the consequences of failing are minimised. After failing, one can try again, which means access to finance is very important. It is important to have no black marks and nothing held over you because you failed in the past. Where the private sector will not invest in SMEs, there is a role to be taken on by the State in some ways and, perhaps, in some sectors. This relates to the notion of the State taking risks as well.
If the State can take equity stakes in the new companies that are coming through, that will encourage venture capital and all that to come in and take risks as well, which builds up an ecosystem of these companies. About 90% of them will probably fail, but there will be some successes. It is more about the environment that is created rather than a single policy lever that can be pulled in 2025 to change everything.
On the point about tax cuts being counterproductive, we mean two things by that. The first is that the tax cuts have cuts have an opportunity cost in that if €500 million or €750 million is spent on them, that is money not spent on something else. It could be spent on education, child poverty, a different type of enterprise support or even on energy subsidies, which also could reduces costs for business. We are saying the employment gains from a VAT cut might be lower than the thing that has been forgone by not doing that and therefore on a net basis it is counterproductive. The second thing is that what the Nordics actually did to generate a high value-added economy over three generations was to create an environment that did not coddle low productivity, low value-added businesses. They said they would have a really competitive environment and if things fail they would put in place all the supports for people to recover, such as a social insurance system, retraining, upskilling, expeditious bankruptcy law and all these things so people can just keep going. It is a model of creative destruction. You do not protect the business but you protect the individual, whether it is the employer or the worker.
Aubrey McCarthy (Independent)
Link to this: Individually | In context
On the VAT rate and what Dr. McDonnell has said about it being counterproductive, has research been done on that to show it is?
Dr. Tom McDonnell:
As Mr. Gibbons cited earlier, estimates of employment creation from the Department of Finance were that it was 8,000, but that was at the cost of billions. I think the figures that were cited put us into hundreds of thousands of euro per job created. That is very bad bang for your buck and we should remember the jobs themselves are very low-paid jobs. It is not that there would be zero employment created but just that is was not worth it for the amount we paid and we might have gone down a better direction with enterprise supports. We are not saying do not support enterprise; we are saying support enterprise in different ways. That is what we meant by that.
On the criteria for tax expenditures, that is a really good question and there is enormous literature about that. Generally, the idea is that tax expenditure is by and large the same as public spending, with a few exceptions. First, it is non-transparent. We often do not know how much it costs because it is tax revenue we did not get as opposed to public spending we spent. It tends to be regressive because it tends to benefit the people who would pay the taxes in the first place. It tends to be distortive because we are interfering in the market, in a way. We are distorting the market in favour of a particular sector, individual or whatever it might be. The Commission on Taxation and Welfare I was on, the ones before it and the ones internationally have always said to minimise the use of tax expenditures and that if we want to give tax advantage to reduce taxes overall by just reducing the rate. In other words, do not have tax breaks, just have lower rates. If we get rid of all our tax breaks, we can have lower rates or we can use the money for public spending. By and large, we should only use tax expenditures where there is a market failure and where that failure cannot be resolved through public spending or some kind of regulatory reform. The classic area where tax expenditure is justified is where the market will structurally underproduce something because it is inherent to that good itself. A classic example used by economists is knowledge and that is why economists are generally in favour of tax breaks to do with research and development, provided they are designed properly, but not to do with housing, a VAT cut for a particular sector or whatever it might be. That would be the way to think about these things. They are never costless. We know much of the 2008 crisis was caused by the unwise use of tax breaks that caused the boom. The Senator also asked, I think, about-----
Aubrey McCarthy (Independent)
Link to this: Individually | In context
Dr. McDonnell is going to get me sacked.
Albert Dolan (Galway East, Fianna Fail)
Link to this: Individually | In context
I thank the witnesses for the in-depth contribution. I really appreciate it. I will hand over to Senator Fitzpatrick.
Mary Fitzpatrick (Fianna Fail)
Link to this: Individually | In context
Gabhaim buíochas leis an gCathaoirleach Gníomhach. I thank the witnesses for coming to our committee. Unfortunately, I had other commitments. I caught part of the meeting on the monitor. I apologise for not having been here sooner. I have read the opening statements and I thank the witnesses for providing them to us and for the work they are doing generally. Competitiveness is a top priority from a Government perspective but it is a huge challenge from a European perspective. The statistics read flatteringly for us by comparison with Europe, but we should not be sitting on our laurels and thinking that just because we compare favourably with other European countries when it comes to competitiveness that the job is done. Europe has very significant challenges. To try to compete globally is more challenging every day. The Draghi report is very helpful, but Europe needs to act as one. We need to see more ambition and energy as well as a streamlining and simplifying of how business is done in Europe and how this Single Market we talk about is made a reality. If it is not then what we are doing from a European perspective is being the home of innovation, design and creation and exporting all that creativity when those start-ups, innovators and inventors need funding. They leave and go to the US. It is a huge issue. With every issue there is a solution and Ireland can play a huge part in that solution and there is a big opportunity for us in the European space.
On immediate challenges, the witnesses called it out that it is a cultural issue here with the idea of failure. Was it Beckett who said fail, fail again, fail better? We need to invest in failure. We need to inculcate that culture of failure as being success and that is a big mindset change. It is not something that can come from the top down. It has to come from the bottom up. It has to be taught in our schools. It has to be organically driven as much as institutionally driven. I would like the witnesses to talk about how the State can better support that culture. It is really important.
Dr. Tom McDonnell:
I would say supporting a culture that enables failure in order to try again. A lot of innovation is about trying ideas, most of which will fail. What the State can do there is ensure no matter how many times you fail or how badly you fail, you are going to be okay. That removes the terror of failing. There is a social terror, perhaps, of failure and opprobrium, but I am referring to the financial aspect. We want to create an environment that is okay with the notion of creative destruction. Economies only grow in the long run through creative destruction, business churn and new firms being created that are more innovative or doing new things. We want to try and try and try again, which is what they do in the United States, and they are okay with it. That means bankruptcy legislation needs to be as favourable as possible to not penalise. You are not going to be punished for the rest of your life. You can try again and it is okay. The State itself needs to be willing to support serial entrepreneurs who have failed but done so in interesting ways and where it was not their fault, necessarily.
There is also the worker perspective. A just transition implies there will be job losses. That means you need to protect those workers and if you do not protect those workers of course, they will necessarily, inevitably and understandably push back against that because they are terrified their incomes will collapse. It is about having a strong social insurance system that allows workers and former employers, including entrepreneurs, to retrain and learn new skills. That means giving them a replacement income for a long enough period to go back into education, or whatever it might be, to retrain and move around. That means a significant period. Those are a few things that can be done in terms of State supports.
The Senator talked about the difference between the US and Europe. The implication is that we are not doing what the US does and that we are not competitive because the US is doing certain things better than we are. Their productivity advantages over us are mainly associated with a small number of sectors. For example, they do not do construction very well in the United States but they do tech very well. They also have a venture capital ecosystem that we do not have in Europe. A lot of our funding for business comes from banks. We do not have those funds in Ireland, the UK or wherever. We need to think about, for example, how we can leverage pension fundsen masseto provide those equity stakes. If the private sector cannot do that just yet, it implies that there is a role for the State to do it. That is the point of the Mazzucato-type model of taking equity stakes in businesses, which gives the businesses the comfort of knowing the somebody else is going in with them. It gives start-ups the seed capital to try and try again. Part of the creative destruction model is about funding the higher-level sector, including higher-level research and development, where we have enormous gaps compared to other countries. Money has to be spent while knowing a lot of these ideas - 90% to maybe 99% - are going to be complete busts. The US spends enormous amounts. It is given to the universities to just open ideas and do what they want to do. They try, try and try again at a vast scale and often for non-commercial projects initially.
Ireland's problem is that we are really small. We cannot take tens of thousands of gambles. However, what we can do is align with other small countries in different sectors at different times and in different ways to pool resources. That will enable us to take more bets and punch above our weight.
Mary Fitzpatrick (Fianna Fail)
Link to this: Individually | In context
Is that not really the argument for a European-wide venture capital fund for start-ups, innovators and inventors? Dr. McDonnell is right that we are small, but we are not when considering we are part of a European Union and part of a European market. In that context, numerically we are small, but talent does not have borders. Talent is struggling and has to get on a plane to the United States for funding.
Dr. Tom McDonnell:
We have a once in a generation opportunity to pluck the best researchers from the United States who are perhaps worried that funding for science is going to continue to fall, that they will not be able to research particularly interesting areas and that cold weather is coming for science in the US. We should be rolling out the red carpet to bring people over to lead teams of PhD and post-doctoral students on these cutting-edge innovative ideas in our universities around the country, not just in Dublin, and take this as an opportunity.
The United States benefited massively from researchers coming there in the middle of the 20th century. Europe now has an opportunity to take the best and the brightest from the US and build out ideas, companies and all of these things in Europe.
The Senator's point about venture capital is right, but we do not need just one European fund; we need a multiplicity of them so there is a competitive market of venture capital funds as well. We have already seen problems in terms of the development of the capital markets union. We even see when one country tries to buy out a bank in another country, governments immediately step in and say they want their national champions. It is a really big problem in Europe when there is that national focus. It a big problem for Ireland because we are so small. It brings up the cost of borrowing for businesses in the country when we do not have a genuinely competitive market. We lose out from that. Ireland cannot provide industrial subsidies at the level of the United States, France, Germany, the UK and particularly China are able to do. That means we will not be winning those wars in the future. The European focus is really the only way that we can punch above our weight.
James O'Connor (Cork East, Fianna Fail)
Link to this: Individually | In context
I am sorry to cut across Dr. McDonnell but we have exceeded our time of 3 p.m. I regret that we will not have time for a second round of questions but it is indicative of the fact that we had such an interesting and broad-ranging discussion. It was useful for us to engage with the three witnesses. On behalf of the members and myself, I thank them most sincerely for that. I also thank them for the information they provided.