Stephen Donnelly (Wicklow, Social Democrats) | Oireachtas source

I am very happy to have the opportunity to speak to the two Ministers about the summer economic statement. I read through it in some detail. There is undoubtedly some useful information in it. The more I read through it, the more I looked for balance, and I concluded that it is largely propaganda. The forecast figures are what they are but the framing of those figures and the framing of the decisions being put forward struck me as largely propaganda. There is good economic news and we should not be afraid to talk about it. Unemployment is falling, thank goodness, and the economy is growing on aggregate. These is no problem pointing these things out; they should be pointed out.

The statement largely attributes the good economic news to the Government, which I guess is understandable, although it is not true. The Government obviously deserves some credit for some of the things that have happened. However, the economic growth and employment figures are largely the result of external factors. This is not just my opinion. Economists have written about and analysed this. A weak euro, particularly relative to sterling and the US dollar, has been very useful. I would not say mass emigration has been very useful but it has obviously driven down unemployment. We have seen an increase in global trade coupled with a very large multinational sector. These are the things that have driven the economic growth, but they are not pointed out in the statement.

What is more important is the fact that the statement does not give us a balanced picture of what is going on economically. Unemployment in Waterford is actually on the rise. As we all know, long-term unemployment remains stubbornly high. The national broadband plan, which is something to which I have paid a lot of attention over the years, is being pushed out further and further, with announcements coming quite regularly. There is no question that many rural towns are still in decline. Youth unemployment is falling but it is still very high. None of these things are referenced and they are important economic facts for framing a debate about how we should invest future public moneys.

Socioeconomic analysis is also missing. One in nine children in Ireland lives in consistent daily poverty, which is relevant to how we invest future moneys. Deprivation rates have doubled for certain vulnerable groups such as lone parents. This is relevant to how we decide to invest our money. Waiting lists for operations now take years. I spoke in the House last week about how someone will wait two and a half years from GP to operating theatre for an orthopaedic operation. Something on which we probably all agree is that waiting lists for special needs assessments and interventions such as speech and language therapy for children now take years. These things are relevant to how we invest public money in future years. The statement should contain a proper, balanced socioeconomic analysis that shows the good, because there is no harm in showing the good, but that also shows the bad. Things like the housing and homelessness crisis are relevant to how we invest future moneys.

I put it to the Minister that it is this rose-tinted and unbalanced view that frames that Government's intention to reduce taxes and erode the tax base. If we were not aware of the social challenges, perhaps we could appropriately have a debate about eroding the tax base. If we did not know that children were waiting years for special needs assessments and about the level of youth unemployment, about the cuts to student funding for our third-level institutions year after year, which has seen them tumble down the global rankings, and the 60% cut to basic scientific research in our third-level institutions, a conversation about eroding the tax base would probably be sensible. If we did not know about the level of help that many SMEs need, we could have this conversation. Yes, things are growing in Dublin, and long may they continue to do so, but there are SMEs all over the country, be they in my constituency of Wicklow or elsewhere, that are hanging on by their fingertips.

They need investment and support but eroding the tax base diminishes our ability to provide that support. The Minister is a student of economics. The rationale given for eroding the tax base centres around marginal income tax rates. The statement says:

Income tax reform will be a key element in supporting employment growth. There is a strong economic rationale for a broad income tax base with low marginal rates that incentivise and reward work.

The Minister and I know that is not true. For that to be true, we would have to believe that the current marginal rates are stopping people working. The marginal rates affect those who earn over €36,000, €40,000 or €45,000. For this statement to be true, we would have to believe that there are thousands of people in our society who could get a job earning €40,000, €50,000 or €60,000 but are choosing not to because they do not like the marginal rate and if they see that marginal rate drop by one, two, three or four percentage points, they will then go to work. We all know that is simply not true. The marginal tax rate argument as an incentive to work is not true in our society. Perhaps if marginal tax rates were 80% or 90% it would be true. The idea that there is an army of people in Ireland who are employable but are choosing to live on social welfare rather than pay the marginal tax rate is not true. It does not stack up. The other argument I have heard put forward by the previous Government and by members of the Minister's party is that when they go abroad and talk to ex pats or people in professional services that we want in the country they tell them that Ireland's marginal tax rates are very high. They may say those things but for policy to be driven by that, we would have to believe that there are a load of people outside Ireland - ex pats or foreign nationals with high skills that we want to come here - who would love to come to Ireland because they love the culture, think Ireland has a great football team, excellent pubs, great schools, is a safe place and beautiful country, who really want to be there but because of the marginal tax rate they will not do it. I have not seen the evidence. Both the Minister and I have lived abroad. I have had many conversations with work colleagues and friends about where they will live and never once in years did the marginal tax rate come up. People might say that they will go and do development work in Zimbabwe, work in Norway, Ireland, the City in London or Australia. Never once did I hear anyone say that they wanted to go to Helsinki but because the marginal tax rate was too low they would go to Qatar instead. It just does not come up. I have no doubt that ex pats are telling Ministers they would love to pay less tax but for policy to be driven by that we have to believe something that is patently untrue. It comes at a big cost because reducing the marginal rates will not drive employment; it will diminish our ability to invest socially and economically. If we reduce tax rates, the greatest beneficiaries will be higher income people. The economic statement talks about targeting middle incomes but the reality is if the Government gets rid of USC the greatest cash benefactors will be higher income people. If higher income people get more money into their pockets they do one of two things with it. They either buy exports, like nicer cars or a nice television, or they save, neither of which boosts economic growth. In allowing that to happen we diminish our ability to do things that definitely boost economic growth. Investment in SMEs, broadband, high quality transport, education, children, public open spaces and the arts are things that we know absolutely boost economic growth. The Minister should think back to his days studying Solow growth models and endogenous growth models. Savings rates do not boost economic growth. The purchase of exports damages the balance of payments; it certainly does not boost economic growth. What boosts economic growth is investment in people, innovation, infrastructure and the means of production but that is not what we are doing. There is a false premise being used that if we reduce the marginal tax rate loads more people will work and there is simply no evidence to back that up other than anecdotal stories of Ministers being told that people would like to pay less tax.

It is also relevant that we are a low tax economy. The OECD, and the hybrid measure that IFAC uses, consistently show that the total revenue collected in Ireland as a percentage of GDP is significantly lower than the OECD, eurozone and EU averages. A few months ago, the OECD published its latest report on the tax wedge. We are now talking about the tax on labour - the tax paid by employees and employers in the 34 OECD countries. It found that we are close to the lowest amount on all of the case studies they used. On one of the case studies of a married couple with one earner and two children we are the lowest in the OECD. Of the four examples the OECD gave, we were in the lowest seven of the 34 OECD countries. That is the tax on labour so in aggregate we are a low tax economy. If one zooms in just on taxes on labour, we are a low tax economy. We are already very low, which suggests that the Government should use the several billion euro identified for tax cuts for productive social investment in communities, education and productive economic investment.

I agree that we need to put money back into people's pockets. The way to increase quality of living is not through eroding the tax base, it is through reducing the cost of living and systematically going after it. It is bubbling up in the Dáil. Fianna Fáil has quite rightly been pushing very hard on motor insurance costs and others are looking at other costs. The Minister for Children and Youth Affairs, Deputy Katherine Zappone, is looking at child care costs. The fact is that we are a really expensive country to live in. There are pinch points in one's life such as when one is paying for child care when costs are particularly high. It is not the experience in other countries. I will be tabling a motion on my proposal. I am not sure whether it is within the Minister's remit or the Taoiseach's. I suggest that we set up an expert group or an Oireachtas committee to address systematically the costs of living, including the cost of motor insurance, health insurance, energy costs, transport costs and child care costs. It is just too expensive to live here. If the Government pursues the cost of living rather than tax cuts, it will do two things. It will maintain our competitiveness, which tax cuts do not do because they push up prices, and it will increase standards of living. It will make it possible for people to live here because it is just too expensive to live here.

If we are going to invest we need to be very careful about where we invest. The summer economic statement provides an example of some very poor planning. The health care Estimate is coming in at an additional €500 million this year. I was quite taken by the sentence on page (i) of the summer economic statement which says "The demand for health care has also increased more rapidly than the capacity of the system to provide additional services." That is beautiful bureaucratic speak because health care demand is entirely predictable. The Government should hire a bunch of health care econometricians and they will tell it what the health care demand is. We should know - the problem is we do not - what the health care demand will be and we should be funding accordingly. That is not what has happened. What has happened is that this year the Government has said it wants an extra €500 million for health care. Let us think about that. The total budget space we will all be shouting at each other about in a few months is €1 billion. An awful lot of time will be given over in here, in the media and in households to discussing that. Half of that amount will just float through. It is not just €500 million for this year, which I did not realise when I was talking about it last week. It will add €500 million to the base. We are not just voting through an emergency €500 million to deal with stuff for this year, we are voting through an increase in the health care base of €500 million. We did the same thing last year and that got put into the base as well.

In the past few months, we have voted to increase the health care budget by 12%. We already had one of the highest spends on health care in the developed world. We must be much more careful about this. While I am advocating targeted investment in areas such as health care, including Cappagh Hospital, we must become much more rigorous about simply adding hundreds of millions of euro to such budgets.

Lastly, the summer economic statement is missing some critical information. It talks about the €11.3 billion fiscal space. What it does not say is how much of that is needed merely to maintain services as they are. This became quite a heated debating point during the election campaign, when the previous Government talked about €12.4 billion, but the funding for new measures was a small fraction of that. If it would be possible to get a view on the amount of funding available for new measures, it would be greatly appreciated.

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