Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I am pleased to have the opportunity to contribute to this debate this morning. I welcome the fact that we now have a summer economic statement, which is only a recent development. The introduction of the summer economic statement is one of the reforms to the budgetary process that has occurred. From the point of view of Parliament's engagement with the budget process, the delay in setting up the Parliamentary Budget Office has been a major disappointment. Only yesterday, a director of this new Parliamentary Budget Office was announced and I wish Ms Annette Connolly every success in her new role. The office is still not up and running and this is the second budget of the Government where the promised office has not been in place.

The outlook for the economy is positive. On the various metrics, from GDP growth and the public finances to employment trends, the prospects appear positive. However, significant risks remain for the economy and we ignore these at our peril. The great unknown that remains Brexit and the uncertainty about US corporation tax and investment policy represent massive, unquantifiable challenges for an open economy like ours.

On the potential impact of Brexit, the summer economic statement is stark, as was the Department of Finance's own sectoral assessment on the issue. The agrifood sector is of particular importance in this regard. We are now moving into a prolonged period of a depreciated pound against the euro. This will inevitably affect business in Ireland, most notably with the agrifood sector, but also tourism and many other sectors. From a budgetary perspective, we need to be constantly aware of the fluidity of the Brexit situation and the assumptions we make now may not hold in a few months' time, not to mind in 2019 when the UK finally exits the European Union.

Other key challenges remain aside from Brexit. We have massive demographic shifts approaching us in the coming decades and those are already apparent. The expected larger and ageing population will bring inevitable financial pressures on areas such as health and social protection. We have the ongoing pension coverage issue with the majority of private sector employees still without a private pension. This will have to be addressed.

Along with my colleague, Deputy Dara Calleary, I look forward to engaging with the Minister, Deputy Donohoe, in the lead up to the budget in October. I had a good working relationship with the previous Minister for Finance, Deputy Noonan, and I hope we can continue in the same spirit with the current Minister.

Under the confidence and supply agreement, it was agreed to commit to meeting in full the domestic and EU fiscal rules. According to the summer economic statement published yesterday, we are on course to reach a balanced budget on structural terms next year. My party welcomes this, but it should not go unsaid that the Government breached the fiscal rules in 2016 and plans to do so again this year. In 2017, the Government's fiscal plan involves breaking both the expenditure benchmark and the structural deficit rules. In the case of the expenditure benchmark, the projected breach is €450 million, which is marginally below what the European Commission would regard as a significant deviation from the rules. It is confirmed from the summer economic statement that the target of 45% debt to GDP by 2025 announced in the previous budget has effectively been abandoned, at least for the foreseeable future.

It is because of the risks facing our economy that we support the establishment of a rainy day fund, however unfashionable it may have become in this House to support such a fund, and I am pleased that the confidence and supply commitment in this regard is being honoured. My party will work with all stakeholders now on the modalities of how such a fund will be established and how it will work in practice, which is a critical issue. The essential purpose of such a fund, from our perspective, is to avoid a situation where a future Government has to immediately increase taxes and cut spending when faced with a downturn in the economy which will come at some point.

It is again a priority for Fianna Fáil that the forthcoming budget provides for a split of available resources at a ratio of at least 2:1 in favour of expenditure and investment in public services over tax reductions. The confidence-and-supply agreement ensured that budget 2017 was the first progressive budget in many years and it is a priority for Fianna Fáil that this trend will continue. While the fiscal space is extremely limited by the carry-over effects of the previous budget and the possible extension of the Lansdowne Road agreement, we must continue to invest in the public services on which people rely on a day-to-day basis.

Housing must form a key part of the budget. The housing crisis is a human tragedy for thousands upon thousands of our citizens. It is also now a major economic problem.

It is now clear that the Government no longer plans to entirely phase out the universal social charge, USC. This was never achievable or desirable. The confidence-and-supply agreement clearly states that reductions in the USC should place an emphasis on low and middle-income levels. These income levels relate to people who have yet to feel the full benefit of the economic recovery outlined in the figures contained in the summer economic statement. This really puts substance on the term "a progressive budget". It is not just an economic phrase, it means helping those who have not benefited from the economic recovery in a meaningful and tangible way. The proposal to amalgamate the USC with PRSI raises many questions, not least in terms of what it means for a wide range of social welfare benefits. To date, we have seen no paper from Government on the proposal.

The commitment we secured to retain mortgage interest relief for existing recipients is a priority for our party and must be honoured in this budget. Mortgage interest relief is currently due to end completely for up to 400,000 existing recipients at the end of this year.

In order to grow the economy, there must be an environment that rewards initiative and enterprise. We urge the Government to improve the taxation environment for entrepreneurs and small and medium enterprises while remaining steadfast in respect of our commitment to the 12.5% corporation tax rate. Fianna Fáil recognises that this may not all be achievable in one budget but with Brexit on the way, we need to safeguard the country's competitiveness. We need to fulfil the commitment to introduce a new share-based remuneration scheme. The Government should reject and, if necessary veto any plans from the European Commission to introduce a form of common consolidated corporate tax base. It would be enormously negative for the State if that were to be introduced. The Minister has received a report from the independent expert, Mr. Seamus Coffey, on our corporation tax system. It should be published without delay in order that it can be given careful consideration over the summer break.

The risks facing the economy are clearly outlined in the summer economic statement. Chief among these is Brexit. In order to come to terms with these risks, sufficient investment in capital expenditure is needed. Listening to media reports in recent weeks, one might be convinced that capital investment is a Fine Gael idea. However, when one looks at the evidence, nothing could be further from the truth. In the summer economic statement, the Government has outlined how it wishes to reduce the amount invested in the rainy day fund from 2019 and invest the difference in capital expenditure. It is welcome that the Government has finally realised that we have a capital deficit crisis that restricts economic growth. The broadband plan seems to be going nowhere and has been delayed time and time again, and there is still an extensive problem with regional development. The Government announcements in the summer economic statement are not radical. It has again not fully explored the alternative methods of funding projects in Ireland. The NTMA has clearly indicated in its recent annual report that in the context of the low-interest environment, public private partnerships, PPPs, are a useful method for dealing with the infrastructural issues of the State. The Government has a self-imposed rule whereby no more than 10% of capital expenditure in one year can be spent on PPPs. In the context of the opinions expressed by the NTMA and the European Investment Bank, this rule is overly conservative and needs to be reviewed. Fianna Fáil welcomes the assessment that is now under way. By mobilising funding on the ground from both public and private sources, further investment can be attracted from the European Investment Fund. This is being inhibited by the restriction on PPPs. The Ireland Strategic Investment Fund, ISIF, has approximately €6.3 billion invested in its global portfolio in debt and equity instruments all over the world but not in Ireland. The ISIF is in the process of redirecting this funding on a commercial basis to the real economy in Ireland. This needs to be accelerated and could make a far greater impact than redirecting €500 million from the rainy day fund from 2019 onwards. The ISIF can invest in areas such as broadband provision, renewable energy and education. The model used in Dublin Institute of Technology needs to be replicated throughout the economy. By utilising these avenues, the Government would not have to raid the rainy day fund before it is even established. I reiterate that investment in capital expenditure is not a radical Government initiative. Fianna Fáil and others have long been calling for such investment.

In summary, the Irish economy is in a strong position but, as the summer economic statement makes clear, we are in very uncertain waters. For this reason, the right balance has to be struck in managing the public finances in a prudent manner and meeting the investment needs of the economy. In the months ahead, Fianna Fáil looks forward to making its contribution to how budget 2018 can contribute to achieving this objective.

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