Dáil debates

Wednesday, 30 January 2008

Other Questions.

Anti-Poverty Strategy.

3:00 pm

Photo of David StantonDavid Stanton (Cork East, Fine Gael)
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Question 82: To ask the Tánaiste and Minister for Finance if he has assessed the differential impact of recent inflation on certain families. [2086/08]

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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Inflation, as measured by the CPI, averaged 4.9% in 2007. On budget day, 5 December 2007, my Department forecast that consumer price index inflation would average 3% this year. This forecast was based on the normal technical assumption of unchanged interest rates and is predicated on the rate of inflation moderating as this year progresses, and it remains my Department's forecast for 2008.

Including the impact of mortgage rate increases in the CPI not only masks the underlying inflation rate but also highlights the short-term impact of interest rate increases which are designed to bring down inflation. As such, a better measure of inflation than the consumer price index is the harmonised index of consumer prices, HICP, which excludes, among other things, mortgage interest and is a more realistic measure of inflation. The average increase in the HICP in 2007 was 2.8% and the forecast increase for 2008 is 2.4%.

In terms of those families whose income earners would be classified as low paid or who are dependent on social welfare payments, I remind the Deputy that the Government's priority has been firmly focused on protecting the most vulnerable.

I have continued in successive budgets to increase the rates of social welfare payments significantly. In budget 2007, social welfare increases ranged from over 8% to over 12% in weekly rates. Thus, even when compared with the inflation outturn for 2007, these increases ensured that those in receipt of, and reliant upon, social welfare payments will have seen real net gains in 2007. Budget 2008 provides for social welfare increases of between 6% and 7% in weekly rates, again ensuring that those in most need should be more than insulated against the effects of inflation.

The changes to the tax system introduced in this year's budget continue to ensure that all those on the minimum wage are exempt from tax in 2008. In total, some 878,100 earners, that is almost two out of every five earners, are outside the tax net, as compared to 380,000, or one in four, in 1997. In addition, the income of the average worker in 2008, estimated at approximately €34,000 per annum, is placed well outside liability to the higher rate of tax.

In addition to ensuring continued increases in the living standards of those relying on social welfare payments and the lower paid, I have also acted to provide extra support to mortgage holders. Following the improvements in budget 2008, those with mortgages can avail of mortgage interest relief, which currently applies at 20%, and to a ceiling of €10,000 for a single person, or €20,000 for married or widowed persons who are first-time buyers for the initial seven years of their mortgage, and €3,000 and €6,000 for all others. The current level of mortgage interest relief for married first-time buyers is sufficient to cover the interest arising on a mortgage of up to approximately €400,000 over 35 years at an interest rate of 5%, which is well above the average mortgage.

In summary, in order to build on the policies of the previous Government, I have continued to bring forward policies designed to protect those on lower incomes from the impact of inflation.

Photo of David StantonDavid Stanton (Cork East, Fine Gael)
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With regard to assessing the differential impact of inflation on certain families, has the Minister any figures for the number of children and families experiencing consistent poverty and relative income poverty? What are the trends in that area and what measures does the Minister intend to take to alleviate the difficulties and hardships experienced by families as a result of inflation and, in particular, higher fuel costs?

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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I do not have that information. If the Deputy puts down a specific question in that regard, I can get accurate figures for him. In examining the causes of Irish consumer price index inflation over the past year, it is important to distinguish between external factors, which are beyond domestic policy control, and internal factors. Externally, the single most important cause is higher mortgage interest payments due to ECB interest rate increases. The main driver of domestic inflation has been the services sector. It averaged 8.4% in 2007 and peaked at 9.3% year on year in March last year. It fell back to 6.5% year on year in December and the welcome easing of inflation in this sector reflects an improved level of competition in the economy. It is expected that the downward trend will continue in 2008.

Photo of Richard BrutonRichard Bruton (Dublin North Central, Fine Gael)
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Would the Minister not agree that families cannot simply focus on the HICP and pretend they do not have mortgages to pay? It is not a fair comparison. According to the CSO, the cost of mortgages has increased by 80%, food costs have increased by 30% and the cost of child care and health has increased by 20% in the past two years. Young families are obliged to shoulder a huge, disproportionate burden. Is the Minister aware that the Central Bank reported that 50% of families cannot afford to buy a house? Perhaps the Minister would discuss the affordable housing scheme with his colleague, the Minister of State, Deputy Noel Ahern. The thresholds under that scheme are archaic and have ceased to be effective. Is it not necessary to consider targeted interventions at young families to deal with this? I acknowledge the Minister did something in that regard in the budget but he is not doing enough in some areas. He is not targeting people on low incomes who are struggling to get on the housing ladder.

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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With regard to the question of how inflation is measured, the harmonised index is the best in terms of international comparators and knowing where we stand vis-À-vis other countries. I accept the point that when mortgage interest rate repayments are included, the CPI is higher and that these are real payments being made by real families. A significant investment is being made in social and affordable housing. I can bring to the attention of the Minister of State concerned, Deputy Batt O'Keeffe, any specific reforms that are required with regard to thresholds.

The changes we have made in child benefit have been very helpful to young families with children, particularly larger families. When one calculates the direct payments by the State in supporting young families, with child benefit and the early child care supplement, one finds in many cases that people on low but taxable income are more than compensated for the taxes being paid. Due to the way the social welfare system interacts with the tax system, many families are in a far better position in terms of the burden placed on them than was the case ten or 15 years ago. Examples of that can be seen in various Budget Statements over the years.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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When the Governor of the Central Bank attended a recent meeting of the Joint Committee on Finance and the Public Service, he said that rents in the private housing sector have increased by 11% over the past year. The Tánaiste is aware that many people are being forced into renting because they cannot afford to buy a house. They might be able to afford to spend €1,600 or €1,700 a month on a mortgage, but they cannot afford to buy a house as a result of the increases in mortgage rates. Is the Tánaiste concerned about the current high rent levels? Does he welcome the benefits which are accruing to landlords and investors as a result of rent increases? Those increases are affecting young people who have just started their first job. What is the Tánaiste's approach to this issue? Does he have any measures in mind that would help to make rent more affordable? Local authorities now have to pay higher rents through the community welfare officers' rent subsidy scheme, for example. Does the Tánaiste welcome the higher rents which are being paid to his friends in the construction industry? Would he like rents to be lower and more affordable so ordinary families can be housed?

Photo of Arthur MorganArthur Morgan (Louth, Sinn Fein)
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Does the Tánaiste agree that his ability to take steps to combat increases in inflation is constrained by the cession of more fiscal sovereignty to the European Union? Does he accept that the ability of the State to reduce the burden of inflation on those on low and medium-sized incomes, for example by reducing the regressive VAT burden, is constrained by EU directives?

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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I contend strongly, in response to Deputy Morgan, that Ireland's adoption of the euro, which is a source of stability by comparison with other international currencies, has helped to protect us from much of the recent turbulence on the financial, equity and currency markets. We get more protection by sharing our sovereignty with others, on the basis of a co-ordinated economic policy and a common currency, than we would get if we were on our own. Deputy Morgan might not recall that various predatory attacks were made on the Irish pound in the early 1990s and our reserves position was seriously disrupted as a result. Interest rates had to be increased by up to 50% overnight to protect our currency. In this day and age, there is a more enlightened view of sovereignty. We live in a global village, with transnational problems, in which sovereignty can be shared. It is far better to work with our EU partners to develop a co-ordinated economic policy, which leads in turn to a strong currency in Europe. Ireland's full and committed participation in the European Union, on foot of the establishment of the Single Market, is the best guarantee of a modern and sovereign Ireland into the future. We can share sovereignty.

Photo of Arthur MorganArthur Morgan (Louth, Sinn Fein)
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We cannot shift the tax burden.

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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I reject the rather dated notion that an independent and free Ireland should be isolated in the Atlantic, away from everybody.

Photo of Arthur MorganArthur Morgan (Louth, Sinn Fein)
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No one is advocating that.

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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That is exactly what the Deputy is advocating.

Photo of Arthur MorganArthur Morgan (Louth, Sinn Fein)
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The Tánaiste knows no one is advocating that.

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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It is precisely what the Deputy is advocating.

Photo of Arthur MorganArthur Morgan (Louth, Sinn Fein)
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This country's Minister for Finance cannot shift the VAT burden.

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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I hope a referendum on EU matters will be put to the Irish people this year so we can have a debate about the real issues, including the alternatives outside the EU for Ireland, past, present and future.

Photo of Arthur MorganArthur Morgan (Louth, Sinn Fein)
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Nobody is saying we should not be in the EU.

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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If Ireland had not joined the Union, it would be a totally different country from the modern country in which we live today. I remind Deputy Burton that I have increased mortgage interest relief by a factor of two and a half.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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I was talking about rents.

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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The Deputy asked how we can encourage people in the rental sector to buy homes for themselves. Over the past 12 months, I have increased the ceiling on mortgage interest relief from €4,000 to €10,000 for a single person and from €8,000 to €20,000 for a married couple or widowed person. I have provided a means of paying all interest on a mortgage of €400,000 over 35 years at 5%, which I hope will serve as a significant inducement or attraction to many families to regard the purchase of a house, or the taking of equity in their own homes, as a better prospect than staying in the rental market. Nobody wants rents to increase if such increases are likely to cause hard-pressed families to endure additional hardship. I was elected by people in hard-pressed families and elsewhere in the community. I suppose I will have to continue to contend with the repeated jibes of the Deputy about the building industry.