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

From opposition, we have sought to influence budgetary policy and to move it in a more progressive direction. We have provided the political stability necessary for Ireland's economy to grow. We have brought about a noticeable shift in the make-up of budgets with an overall emphasis on investment in public services and increased capital investment. This was the platform on which we campaigned in 2016.

This is the third budget under the agreement. I am not here to say that we got everything we wanted. We are not in government, there are no Ministers on this side of the House and we are not in charge of any Departments but we have had some influence on some measures at least in this budget and on the overall mix between expenditure and taxation. Rather than be a spectator, Fianna Fáil sought to use its influence to positive effect. In today's budget, we have made progress on a number of crucial policy areas on behalf of the people. The increased investment in services and vital infrastructure is about four times greater than the money allocated to tax cuts. Capital investment in our economy will increase by a quarter next year. We welcome that the overall general government deficit will broadly be balanced next year. I note that there will still be a structural deficit of approximately 0.7% and I understand the technical reasons for it in terms of the output gap and the calculations but, nonetheless, it is disappointing that we will again miss the medium-term objective of a structural deficit of not greater than 0.5%.

The income tax package announced is modest. To make no change to our income tax system, as suggested by some, would result in people paying more tax next year. Fianna Fáil would not have supported a €3.5 billion budget package that made people worse off. We gave a commitment that we would secure reductions in the universal social charge, with an emphasis on low and middle incomes. Inclusive of the cut in today’s budget, we have secured reductions over the past three budgets in the three USC rates, with the 1% rate cut to 0.5%, the 3% rate cut to 2% and the 5.5% rate cut to 4.5%. Some USC bands have also been widened. We believe these gradual reductions have reduced the burden of the USC in fair and sustainable way.

On income tax, we support the increase in the entry point to the 40% marginal rate of tax by €750. Fianna Fáil believes that people in Ireland enter the higher rate at too low a level of income and this is an important step forward. Had no change been made to the tax system, next year more than 64,000 taxpayers would have moved up to the higher rate of tax and many more would pay more of their income at the higher rate. As incomes rise, a static tax system means people pay more tax. This is a reality and so some changes were necessary in this budget. Fianna Fáil defends and supports this decision. The combined effect of these income tax changes is that an individual or a couple with an income of €45,000 per annum gain the most as a percentage of net income at 0.7%.

In the budget negotiations, Fianna Fáil pushed for an increase in the home carer tax credit. This is a credit given to married couples or civil partners who are jointly assessed for tax where one spouse or civil partner works in the home caring for a dependent person, including children and persons with a disability. For many of them, the €300 increase in the tax credit is €300 into their pockets. This will be of benefit to couples where one spouse or partner stays at home to mind children or someone with a disability. It is my experience that many people entitled to this credit are not claiming it. I urge couples who largely rely on one income to check whether they benefit from this relief.

Last Friday, the Minister announced that Ireland is set to receive an extra €1.1 billion in corporation tax this year.  No doubt this is a positive development but the increasing reliance on corporation tax and on a small number of companies is a key risk facing the economy and our public finances. While on this occasion the announcement was a billion euro extra had it been an announcement of an unexpected €1 billion shortfall in receipts, we would be in a very different environment in terms of this budget. If we cannot predict corporation tax receipts with any degree of certainty, there is a real exposure. In 2011, corporation tax receipts stood at €3.5 billion. In 2018, we are set to receive €9.6 billion under this tax heading. Corporation tax receipts account for more than 17% of the total expected tax take for 2018, 40% of which is paid by ten companies. Another even more startling way of putting this is that approximately 7% of all tax we collect in the country comes from ten multinational companies. It will be great while it lasts, but we have to face up to the fact that this is a risk for Ireland. Corporation tax is a volatile revenue stream.  The UK and the US are lowering their headline rates.

The European Union is stepping up its efforts to bring in a common consolidated corporate tax base and some form of digital taxation. The OECD’s base erosion and profit shifting programme is ongoing. This all means that the global corporate tax environment is changing rapidly and if just a handful of companies change their tax structures, Ireland could stand to lose billions of euro.

All this underlines the importance, from our point of view as a party, of making a start to putting some money away as a contingency, or a rainy day, fund, which we proposed in 2015 and negotiated in the confidence and supply agreement. This fund is set to be established next year and is supported by a whole range of international and domestic bodies as an important fiscal buffer. The European authorities have been very positive on this initiative. The easy part is saying we have learned the lessons from the past. The hard part is making policy changes that give effect to that in a tangible way. Some future Minister for Finance in a future Government will be glad that this initiative was taken because in the future it may well allow our country to avoid the type of tax increases and spending cuts that had to be implemented when the last crisis struck. We need to protect ourselves in the event of a fiscal shock. Against the backdrop of a balanced general Government budget, the establishment of this fund is an important reform and one we fully support.

The dependence on corporation tax receipts from multinationals is also a warning to Government of the need to place a greater focus on the thousands of small medium enterprises, SMEs, operating in the domestic economy. SMEs in Ireland employ in the region of 900,000 people and are the real backbone of our economy. Despite the strong economic rebound, life is tough for many of them. Insurance is an enormous problem for a growing number of firms, something our party has highlighted in this House on countless occasions. Other costs and emerging labour shortages make trading conditions difficult for many of them. In the budget discussions we highlighted the need to improve the taxation environment for SMEs and entrepreneurs. We are disappointed that no specific changes have been announced today on the employment and investment incentive scheme but I note the Minister's words about the finance Bill and we will engage with him on that. This scheme can provide vital early stage funding for businesses. The Minister has an Indecon report making recommendations as to how it can be improved. A good place to start would be to streamline the application and approval process and give the Revenue the resources it needs to improve turnaround times. We also shared with the Minister the feedback we have received on the share based remuneration scheme - the key employee engagement programme, KEEP. The uptake on KEEP has been weaker than expected and we welcome the changes the Minister is providing for in this budget. We also welcome the extension of the three year start-up relief for a further three years and the extension of film relief. The time limited regional uplift in the film relief is an important initiative.

Our capital gains tax, CGT, regime for businesses and enterprises needs major reform, as it is currently uncompetitive when set against the jurisdictions with which we compete. CGT is simply too high for people wanting to invest or start their own company. We had asked that consideration be given to increase the €1 million lifetime limit in the CGT entrepreneur relief but this was not possible or the Government did not decide to do so on this occasion. We, as a party, commit ourselves to improving the CGT environment for SMEs and entrepreneurs into the future. We look forward to discussing a number of these enterprise tax schemes with the Minister and others during the debate on the finance Bill.

One area on which I believe a greater focus is needed within the domestic economy is the retail sector. Irish retailers employ around 220,000 employees across 45,000 businesses. While many of them are competing effectively in the online space, many more are struggling to keep pace with the surge in online shopping. The Government needs to improve the supports available to them under the digital trading voucher scheme. Just as Enterprise Ireland assists firms developing export markets for their goods, internationally focused retailers now need help and increased supports to take on the global consumer market. If we do not step up our efforts in this area, more and more Irish businesses will fall victim and fail to keep pace with the surge in online shopping and they will be unable to compete in that space.

We acknowledge the decision to raise the 9% VAT rate in the tourism and hospitality sector to 13.5% was a difficult call for the Government to make. While the 9% rate was successful, it was always designed as a temporary crutch until the sector repaired itself. There is little doubt that many businesses, particularly in the food sector, will not be able to absorb the increase and will have no option but to pass it on to consumers. The tourism and hospitality sector has had the benefit of the reduced rate for seven years. In line with the obligations on us under the confidence and supply agreement, Fianna Fáil will be abstaining on the vote on this in the House tonight. As the 9% rate comes to an end, it is worth remembering today how it was funded in those early years following 2011. A staggering €2.5 billion was taken from the private pension savings of hundreds of thousands of workers and pensioners across the country by the last Government. This raid has had a lasting effect and has resulted in the pensions of many thousands of current pensioners and future pensioners being reduced forever and that issue needs to be borne in mind when the VAT decision is being debated.

The confidence and supply agreement provides for a supportive tax regime for the self-employed and the introduction of a PRSI scheme for them. The further increase in the earned income tax credit is to be welcomed and Fianna Fáil recommits itself to the policy of bringing this credit up to €1,650 to match the PAYE credit at the earliest opportunity. The extension of jobseekers benefit to the self-employed is also an important reform and will provide an important safety net for self-employed people whose business gets into difficulty.

Brexit is the dark cloud that is hanging over this budget. This budget and a whole lot more could unravel very quickly if Brexit goes badly wrong. On 29 March next year, just over five months from now, the UK is set to leave the European Union. Negotiations are continuing and we have little clarity on what the future relationship will be between the UK and the EU, including Ireland. Brexit remains the most serious political and economic challenge facing this island in many decades and the potential impact on people’s lives both North and South should not be underestimated. The Good Friday Agreement was signed 20 years ago. The agreement and the peace it underpins should never be taken for granted or put at risk. The majority of people in Northern Ireland, from all sides, voted to remain in the European Union. We cannot accept the return of a hard border on our island in any shape or form. The consequences would be far more profound than the obvious economic effects. We have had various predictions of the effect of a no deal Brexit and I do not need to restate them in this House today but they are clearly severe and profound. Fianna Fáil continues to believe that Northern Ireland should be given the status of a special economic zone and that there should, under no circumstances, be a hard border.

While we support the Government in negotiations, Fianna Fáil has deep concerns about the lack of readiness here in Ireland for all eventualities. In that regard, I note from today’s budget booklet that provision is being made for some 270 extra Revenue staff, presumably customs officials. We were told in July that the Government had approved the hiring of up to 1,000 customs officials and veterinary inspectors. The provision in today’s budget appears to be for 270 customs staff and I do not see a separate provision under the Department of Agriculture, Food and the Marine Vote so perhaps that can be clarified. More importantly, in a parliamentary question reply to Fianna Fáil just last week, the Minister confirmed that Revenue will require an additional 600 staff because of Brexit "based on a scenario of a transition period after March 2019 and a future trade agreement between the EU and UK." The Minister also confirmed that Revenue aims to have 200 customs officers in place by the end of March 2019. In other words, if everything goes well and there is an agreement with a transition and a future trade deal, Revenue will need 600 customs officials but by March 2019, it will have 200 and there is no certainty on the how the negotiations will stand as of March 2019. There is a clear gap and real exposure for our country in that regard. If we have a cliff edge Brexit, which none of us wants or perhaps expects to see, Ireland will not be ready despite the Government having had two years notice of the March 2019 date. In the context of well over €1 billion of trade over and back across the Irish Sea every week, this is a worrying prospect.

It is crucial that every possible support is given to businesses to prepare for Brexit. As we all know, the farming and agrifood sector is particularly exposed and needs special supports. On budget day last year, a €25 million Brexit loan scheme for the agrifood sector was announced. It never happened in practice. There is now a suggestion that it will open up in early 2019 perhaps, having been announced in October 2017. Given the industry’s vulnerability this is simply not good enough and speaks volumes at the lack of delivery on this area.

SMEs also need extra support.

Last year, the SME Brexit loan scheme was announced. It was a €300 million fund, which was finally launched in March 2018, some six months after the budget. According to the latest statistics to the end of June, ten SMEs have progressed to the finance provider approval stage with less than 1% of the €300 million pot actually lent to businesses at that stage. Only 127 companies out of almost 2,700 have received the Be Prepared for Brexit grants from Enterprise Ireland. These are very identifiable, tangible measures where we are not delivering the type of supports and the safety nets that are needed.

I will make one final point on Brexit. Given what is at stake, it is understandable the focus has been on defending what we have, which is no border on the island of Ireland, and the need for free trade, North, South, east and west to continue unimpeded. Brexit also opens up huge opportunities for Ireland. The message that must go out consistently from all of us and from Government to the international audience is that Ireland is very much open for business and extra investment when the UK leaves the European Union in March 2019. The Government needs to focus on this aspect, as well as dealing with the immediate priority of defending the here and now and what we have. One issue I picked up on in the budget booklet is the assumption the exchange rate will remain at €1 for 89p sterling right the way through 2019. One might say that is based on the central scenario of a deal and a transition period but that could go very much the other way. There could be a very significant fall in the value of sterling through 2019, which would have a real, immediate and severe effect on the capacity of export businesses in this country.

As we enter into a critical period of Brexit negotiations, everyone in Fianna Fáil and, I am sure, everyone in the House wishes the Government, the Irish officials and the EU negotiating team every success in the coming weeks as they seek to get the best deal possible for the European Union and our country. It is important to put on the record, apart from Brexit and the dependence on corporation tax, some of the other risks that are emerging in a very evidential way in our economy. There is a significant risk of overheating and a loss of competitiveness. We experienced it before. Real capacity constraints are emerging. We are seeing labour shortages, particularly in construction. Our competitiveness ranking is something of which we must be very conscious and on which we must keep a clear and focused eye. The housing crisis, the lack of progress on the provision of broadband, transport blockages and the cost of doing business are all concerns for Ireland's competitiveness and the risk of overheating. Making good-quality broadband available nationwide would be transformative for parts of Ireland. Faith in the ability of the Government to deliver the national broadband plan is ebbing away at an accelerating rate. Delivering this plan is vital to our national interests and essential if we are to bring about any degree of balanced regional development. People want to know if it will happen and when it will happen.

The cost of living is rising. While the headline figures may show prices broadly stable, when one delves deep into the CSO statistics, one finds that all the costs that families and individuals cannot avoid such as transport costs, energy costs, interest rates and rent costs are rising at rates well above the headline consumer price index, CPI, inflation rate. The cost of motor insurance premiums, petrol and diesel and so on are rising. It is a key risk and it is also a major issue affecting families on a day-to-day basis.

As we all know, we are facing the threat of ever-escalating tensions surrounding trade. As a small open economy we are acutely vulnerable to global trade disputes and growing protectionist policies. With the Trump Presidency, the risk of an all-out trade war cannot be completely discounted. While we have not been significantly affected to date, higher tariffs on more goods will have an impact on us sooner or later if there is not a change in direction. Fianna Fáil, as a party, believes in free trade. We believe that breaking down trade barriers can benefit more people and the evidence resoundingly supports this. There are difficulties with free trade but the benefits very much outweigh the costs.

Among the remaining legacies of the financial crash is Ireland’s large national debt, which stands at over €200 billion, which is around €43,000 per person. On a per capitabasis, it is the third highest in the developed world. Fortunately for now we are living in an era of very low interest rates but it will not last forever. In 2014 the interest on Irish Government debt was predicted to stand at €8.5 billion in 2018. In fact, as a result of the direction of interest rates and ECB interventions and so on, it will be about €5.5 billion. That means the interest on debt will be €3 billion less this year than what was forecast for this year a number of years ago. Inevitably this will come to an end at some point. The ECB is eager to return to normal monetary policies, to unwind its quantitative easing programme and to start to increase interest rates, perhaps as early as the latter half of 2019. This will mean we will pay more on our debt, which will have a significant impact on future budgetary decisions.

I highlight all of these issues to lay down a marker. When one looks at all these risks, it is hard to escape the conclusion that one or more or a combination of these risks will materialise over the period ahead. Economic conditions have been very favourable for Ireland over the past number of years. As a result the economic rebound has been stronger and faster than most predicted. It has been stronger and faster than the Government predicted and stronger and faster than independent economists and analysts predicted. When one examines the profile of the risks we are facing as a country, we would be very naive to believe this will last forever. This makes it all the more important we engage in better long-term planning and forecasting.

Fianna Fáil supports the reforms in the budgetary process; it was a feature of the confidence and supply agreement. We now have a resourced Parliamentary Budget Office and it is a fantastic resource for all Members of the House and particularly for the Committee on Budgetary Oversight. We, as a party, called for the Government to provide five-year forecasts as part of today’s economic and fiscal outlook and they are now set out within the booklet with forecasts right up to 2023. It is an important measure.

With regard to climate change, the latest report from the UN’s climate change advisory group makes for very grim reading. It paints an appalling vista. While the focus today will be on the Government’s decision not to increase carbon tax or excise on diesel, we need to see a greater focus on the positive measures needed on the climate change agenda. There is an urgent need for more investment in sustainable transport initiatives. We need to see better grants for retrofitting buildings. We need to support renewable energy in a meaningful way and we need to put consistent policies in place. I will give one example on that front. Local authorities right around the country are grappling with planning applications for solar farms and, despite asking for the past number of years, they have not yet been provided with a national policy or national guidelines to guide how they are to assess and deal with those applications. It is symptomatic of a lack of a co-ordinated national policy on climate change. In May 2018, the Environmental Protection Agency, EPA, stated that Ireland will achieve a 1% reduction on 2005 emission levels by 2020, instead of the target of 20%. This is an appalling performance and one that will cost us dearly, both financially and from an environmental perspective.

The Fianna Fáil Party entered into discussions on this budget with a focus on the issues that really matter to people in their everyday lives. They are housing, health, education, cost of living, improving the tax environment and other issues. We campaigned in 2016 on the promise of an Ireland for all. We did not win the election but we gained some influence through the agreement we entered into. Even from Opposition, we have to date done our best to give effect to our policies. We can point to a range of specific measures we have delivered, while at the same time providing the political stability most people in this country desire. I look forward to working with the Minister, other Opposition spokespersons and all Deputies on the detailed scrutiny of the finance Bill in the weeks ahead.

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