I am grateful for the brief opportunity to comment on the summer economic statement. Last weekend there were reports that Fine Gael was trying out various general election slogans, such as Let Leo Lead On, based on the Seán Lemass slogan of the 1960s, but listening to the bluster and barefaced attempts this morning by the Taoiseach to rewrite history in response to Deputy Pearse Doherty’s question on this document, a more appropriate slogan might be You Just Can’t Believe Leo, or something more alliterative in that regard. The Taoiseach, of course, ignored his own vote for the blanket bank guarantee which wrecked our State finances and provided continuous support for savage cuts and austerity measures alongside Fianna Fáil since 2008. Shamefully, this included his own disastrous stint in the Department of Health.
Elements of this brazen deception are evident in this document. Chapter 4, public expenditure strategy, constantly references rises in State expenditure between 1998 and 2018 as if the failures of the Department of Finance and the Fianna Fáil and Fine Gael parties from 2008 to 2018 had never happened. The outrageous cuts in health, social protection, education, housing, public service pay and other expenditures are glossed over down to 2017 and total emphasis is placed on sustainable expenditure for 2019 and beyond. The innovations mentioned in chapter 4 in regard to public service administration and reforms are, of course, valuable. The Our Public Service 2020 framework and new expenditure invigilation, including performance budgeting, the Irish Government Economic and Evaluation Service and the spending review process are useful improvements to ensure that budgetary policy is transparent and efficient.
The summer economic statement is also important when it focuses on Ireland’s productivity potential in chapter 2. It has always been rightly believed in economics, indeed, it was an axiom of economics when we studied it at college, that productivity is everything. The summer economic statement references the work of the Economic and Social Research Institute, ESRI, that Irish-owned firms have reaped only limited spill-over benefits from the activities of foreign multinationals in terms of productivity. The Department of Finance’s own study, in collaboration with the OECD, disturbingly found that the productivity gap between high productivity and mainly foreign-owned firms and the rest of the economy has widened over the past decade. There was a similar widening in the services sector. The recent OECD Economic Survey of Ireland provided a menu of policy recommendations to improve productivity growth in domestic firms, including tapering of research and development supports and improving managerial skills. Yesterday, at the Committee on Budgetary Oversight, ISME proposed tax expenditures costing €54 million to improve entrepreneur relief with additional cuts in capital gains tax and increases in the research and development tax credit but the Irish Fiscal Advisory Council, IFAC, in an earlier presentation to the committee, warned that the €1 billion tax expenditure in research and development tax credits is far too large and these credits need to be much more targeted to improve productivity in domestic firms. The Minister, if he is serious about productivity and controlling tax expenditure, must carefully evaluate all these credits and reliefs by early October. That, of course, also creates more fiscal space.
The statement seems far too sanguine on risks to the economy and Exchequer. We have witnessed several rate rises by the Federal Reserve and quantitative easing is tapering towards closure. Obviously, the uncertainty for the Irish economy posed by Brexit continues to be destabilising and it is regrettable that we seem to be no further advanced in the key Brexit negotiations this June than we were six months ago at the first negotiation of a backstop. With only nine months to go to the British withdrawal, the Taoiseach and the Minister, Deputy Donohoe, cannot give us any credible fiscal roadmap for the next three to five years. With our corporation tax take so heavily dependent on US multinationals, the developing trade wars arising from Trump’s America First policy are also potentially disastrous for a small open economy like Ireland’s. The President of the EU Commission, Mr. Juncker, will be in this Chamber tomorrow. As its Prime Minister, he famously ran Luxembourg as a haven for tax avoidance and tax evasion. Of course, Ireland has just been referenced in a US study as the world’s biggest tax haven with funds passing through our financial system equal to the size of the UK or German economies. The well-known Greek commentator and former Finance Minister, Professor Yanis Varoufakis, repeatedly said that we have behaved like leeches in international taxation policy. These claims were addressed recently by one of the economists of IFAC at the Committee on Budgetary Oversight, but the damage of these claims to our international reputation is serious. The Minister has been noticeably silent in this regard. I have raised the significant debt refinancing issues for 2018 and 2019 with the Taoiseach in this House and with the Minister for Finance. We continue to be the most indebted country per capita in the EU, with our debt at 100% of GNI*. On a positive note, the summer economic statement, SES, report states it will decline relatively to approximately 60% of GDP in 2021.
All these risks combine to create a serious backdrop to the summer economic statement but it is the failures of Government policy, in providing essential resources for health, housing, education, disability and other key services, plus the barren eight years in failing to provide key investment in all these national services which provide the biggest risks to our economy and society.
The Taoiseach and the Minster for Finance are attempting to adopt the guise of fiscal prudence and responsibility in the run-in to budget 2019. Of course, they and their Fianna Fáil partners took the opposite road when they destroyed our national finances from September 2008 and decimated our key public services. The expenditure benchmark table, on page 18 of the report, shows net fiscal space of only €1.4 billion following the adjustments to the gross fiscal space of €3.9 billion. This, of course, includes provision for a rainy day fund of €0.5 billion. We are also informed that €2.6 billion of the planned budget expenditure of €3.4 billion is already committed to earlier expenditure leaving only €800 million for new measures, given the huge needs of our society. It is incredible that the Minister is considering spending up to €266 million in tax cuts which the ESRI has strongly advised against. Indeed, ESRI, which reported to the Committee on Budgetary Oversight last week, has rightly stated that investment in the new national development plan would be much preferable. However, a striking feature of the summer economic statement report and the Minister’s own reflections is that there seems to be no plans to broaden the tax base. The Minister talks about it but there is no action. Such a broadening needs to happen anyway because of the volatility of corporation tax, especially from 2020. Mr. Seamus Coffey of IFAC recently told the Committee on Budgetary Oversight a broadening of the tax base is the only avenue to address our resource and infrastructural deficits and to comply with the EU fiscal rules, if we want to do so. I note officials of the Department are working on whether there will future changes in the commonly agreed methodology, CAM, or other aspects of the expenditure benchmark.
Yesterday also, for example, we heard from Ms Patricia King of the Irish Congress of Trade Unions, who again urged that the 9% VAT hospitality tax rate be scrapped raising an additional €500 million for the Exchequer. The Think-Tank for Action on Social Change, TASC, while urging increased expenditure of €1.1 billion on social housing, called for boosting tax revenue by €1 billion by reducing pension tax relief to the lower rate. TASC also advocated raising nearly €300 million extra by adding a third rate of income tax for incomes above €120,000. Year after year, many of us on these benches – the reports are in the bottom drawer where the former Minister, Deputy Noonan, left them for the Minister – advocated a higher rate on higher incomes, including the incomes of Deputies. At the Committee on Budgetary Oversight, we have also discussed the potential equalisation of diesel and petrol taxes and the significant additional revenue which might be raised by a gradual equalisation of excise on these key fuels but nowhere in the summer economic statement or the Minister’s statement are there any references to truly sustainable budgeting by increasing taxation on those who can afford to pay more. I believe the Minister, Deputy Donohoe, will try to sneak back into Government by blathering about prudence and fiscal responsibility along with the Taoiseach when, in fact, his party and Fianna Fáil devastated our sovereign wealth fund and exploded our national debt over the last decade. Of course, Ireland reached its medium-term budgetary objective, MTO, under the fiscal rules in 2017, which is one of the astonishing items in those figures, and is on schedule to meet the MTO again in 2019, and finally, into the future, based on the figures in this report.
Given our strategic investment fund, our bank assets, our share of the Apple tax moneys and the dire needs of our population – many of us would like to see the Minister withdrawing from legal action on the Apple tax matter – I believe it is insulting to the hundreds of thousands of our citizens in grave need of housing or medical treatment to propose a rainy day fund in 2019. At the Committee on Budgetary Oversight, I told the Minister so. In fact, a number of members did. It is raining. In fact, in metaphorical terms, it is pouring for so many of our fellow citizens. It is the wrong time to talk in such terms about a sovereign wealth fund. Indeed, we had a strong sovereign wealth fund but the Minister’s party and Fianna Fáil blew it away on us. Of course, some of the decisions the Minister’s predecessor, Deputy Noonan, made, even into 2013, ensured that our sovereign wealth fund would still be nobbled well into the future. Additional resources might be used to pay down some national debt but there is no case for borrowing in 2019 to produce a rainy day fund. This proposal seems part of the Taoiseach’s hollow efforts to impress EU leaders, who, in reality, often care little about Ireland.
In conclusion, I thank the officials in the Department of Finance who prepared the summer economic statement which, in conjunction with the earlier stability update programme report, gives Deputies and the people we represent good insights into producing a future solid fiscal policy for our nation.
I hope that in the next three months, in the run up to October, the Minister, Deputy Donohoe, and the Taoiseach come forward with a budget that will, as Deputy Pearse Doherty said this morning, address the needs of our nation in housing, health, disability and all the other areas and stop trying to flimflam the nation.