Thursday, 25 October 2018
Ceisteanna Eile - Other Questions
10. To ask the Minister for Finance his plans to ensure Ireland protects its competitiveness and mitigates the risk of overheating pressures in the economy; and if he will make a statement on the matter. [43972/18]
17. To ask the Minister for Finance the degree to which he remains satisfied about the competitiveness of the economy; the potential challenges in this regard; if he has identified specific areas of threatened inflation which might impact on the stability of the economy; and if he will make a statement on the matter. [44176/18]
I want to know what the Minister proposes to do to protect Ireland's competitiveness and to reduce the risk of overheating pressures in the economy, which we have heard about already this morning, particularly in respect of housing and land prices.
I propose to take Questions Nos. 10, 17 and 108 together.
As I outlined in budget 2019, the economy at a macro level is in good shape at present, with a much faster than expected recovery from the crisis. The recovery in part reflects improvements in Ireland's competitiveness in recent years, as measured by the Central Bank's real harmonised competitiveness indicator. Our competitiveness has improved by over 20% from the low point in 2008.
Despite the rapid rate of recovery, the main indicators of overheating do not yet suggest evidence of any widespread overheating pressures. While price pressures have been seen in the housing market, these are more a function of structural imbalances between supply and demand that we are actively seeking to alleviate, rather than being themselves evidence of overheating.
The strong growth in employment in recent years has seen the unemployment rate fall from a peak of around 16% to 5.4% in September. While this is an improvement, the unemployment rate is still above, albeit slightly, the level I would consider to represent full employment in Ireland.
As of now, the recovery in the economy has not yet given rise to broad inflationary pressure. In the first nine months of the year, inflation as measured by the harmonised index of consumer prices averaged 0.7% on an annual basis. This follows five consecutive years in which inflation has been below 1%.
Regarding credit growth, it should be noted that lending to Irish households, as the Deputy will be well aware, only turned positive during the second half of last year. Of course, this is a particularly important factor in evaluating whether we are seeing inflationary pressures within the economy.
I wish to raise a number of points which I believe are pressure points and which are leading to overheating and other risks in the economy. The first is that we are now, in a way, back to an old Fianna Fáil model, which the Government has embraced, of allowing land prices to soar without restriction. This is great for people who own land and are sitting on it, but the fact is that in large parts of Dublin West, for instance, there has been a tenfold to 15-fold increase in land values and costs on the position a number of years ago. We might have expected a 100% to 300% increase, but the level of increases now is positively dangerous.
Many of the people buying or selling this land will effectively pay no tax on it.
The second point relates to the building industry's role in the housing shortages we referenced earlier. Not enough apprentices are being trained. Progress has been made and I was heavily involved with that in my time as Tánaiste. We must now import construction workers from other countries. The rising cost of houses as a result of these two issues is leading to major pressure on wages.
I am trying to ascertain the Minister's opinion having regard to a comment made by a Government advisory service in recent times that overheating in the house building sector could undermine competitiveness and cause the bubble to burst. The reverse is the case in reality. The lack of affordable and local authority houses is an impediment to the competitiveness of the economy. Part of the original taxation system in this country related to the availability of affordable and local authority houses, and this in turn reduced the need for increased wage demands. Is the Government advisory body in question aware of this? To what extent has it studied the matter? One must always watch from where one's advice comes, particularly in this business.
I always take the advice of Deputy Durkan seriously on matters like this. The point he makes highlights the balance that the Government must strike. On one hand there is a level of housing need that must be met. Deputy Boyd Barrett focused on it earlier, and Deputies Burton and Durkan did so in the last set of questions to me. We must build more homes to meet the existing housing need. On the other hand, the Irish Fiscal Advisory Council has warned that if too many homes are built at a particular point, and specifically if a level of workers is not available to build them, it would mean that our efforts to meet the level of housing need could in itself end up being an inflationary pressure.
We are not at that point because we are still seeing the housing sector beginning to grow. The number of new homes being built is increasing. To deal with Deputy Burton's points, of course I track what is happening with the price of land, and this is the reason we made a change with the derelict site levy in place, and which is increasing. The Deputy also made a point on apprenticeships and I want to see the construction sector deliver more of these. We have an apprenticeship programme in place for it and although we have made great progress in dealing with youth unemployment - the Deputy was heavily involved with the most difficult phase of that - we still have young people who want to and can work. The change we have made in increasing the employers' PRSI levy for next year will lead to an additional 10,000 apprenticeships in our economy. The construction sector needs to play a role now in ensuring the framework will allow more young people to enter that industry.
I speak a lot to employers, particularly in the Dublin region, many of which are employing significant numbers of people. These include employers coming to Ireland with major investments. I would say the same is true in Cork, Limerick and Galway. Employers are now deeply concerned that the people they hope to recruit will not be able to afford to rent and, if they are Irish, they will in practice be unable to buy for a very long period. This is because we are now again in the grip of rampant speculation in land values. I can understand that, ideologically, it is unacceptable to Fine Gael to seek to control and tax rampant speculation in land prices. I am glad the Minister has said that by next year we will have more apprentices in construction. Currently and notwithstanding all the efforts I made, there are only approximately 2,000 construction apprentices.
Does the Minister agree that a lack of affordable housing in the economy is most likely to lead to overheating by way of house price inflation, which could land us in the position we occupied some years ago and where the State might have to intervene? Would he agree that as long as property prices continue to inflate in the way they do without adequate availability of affordable housing, there is only one way we can go? That will lead us to an anti-competitive position. I put all these questions down, as I am sure the Minister did, ten years ago when the similar signs were there. The problem is now exacerbated because of a major lack of affordable housing. Many people cannot get into the housing market without paying an inflated price they cannot afford, and ultimately they will find this a burden.
I have a related question on the threat of inflation. One of the major sources of inflation for householders is the cost of insurance. There have been a number of years with continuing increases in insurance premiums and the Minister of State, Deputy D'Arcy, has taken a number of actions to tackle that cost, particularly in the motor insurance sector. Transparency is a big factor. The Central Bank (National Claims Information Database) Bill 2018 was introduced to tackle it but it has not come to fruition. What will the Minister do about that?
The Central Bank (National Claims Information Database) Bill 2018 is moving through the Houses and I am prepared to work with anybody who is prepared to give it time in this House. We are awaiting Committee and Report Stages, and this will an impact on the insurance debate through two sections of the Civil Liability and Courts Act 2004. The cost of motor insurance is decreasing and costs of premiums are down 21% from the peak. There is movement in the right direction and if any Member from the Opposition or elsewhere wants to make time available for the Central Bank (National Claims Information Database) Bill 2018, I would be very grateful to accept the offer.
I will first deal with Deputy Durkan's question. I accept that the lack of affordable housing in our economy and our society not only has a very material effect on the living standards and aspirations of our citizens but it also affects our economy, the wages therein and its competitiveness. I accept the Deputy's point but this is the reason we have such a level of resources going into housing for next year. It is one of the reasons we expect to see well in excess of 20,000 new homes being delivered next year. The balance we are trying to get right is to deliver those new homes without that delivery occurring in such a way that other challenges would be created for the economy.