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This afternoon's engagement is on the report, Future Forty: A Fiscal and Economic Outlook to 2065. From the Department of Finance, I welcome: Mr. John McCarthy, chief economist, assistant secretary, economic division; Mr. Kevin Daly, principal officer; Mr. Neil Gannon, assistant principal; and Mr. Rob Barnes, assistant principal. The committee welcomes the opportunity to engage with the witnesses and I thank them for being here today. I call Mr. McCarthy to make his opening statement.

I thank the Chair and members for inviting officials from the Department to appear before the committee today. As mentioned, I am the chief economist in the Department. I am joined by colleagues from the strategic economic development unit within the economics division: Kevin Daly, Neil Gannon and Rob Barnes.

In Ireland, as elsewhere, much of the economic and fiscal focus is on the near-term dynamics, with less resources devoted to medium and longer term dynamics. To address this imbalance, last November, the Department published Future Forty: A Fiscal and Economic Outlook to 2065. The document examines how various structural changes, including demographic shifts, might affect Ireland’s economic and fiscal position over the next four decades. A small number of other advanced economies have undertaken this type of longer term analytical work, the UK, Australia, New Zealand, Finland and Canada perhaps being the most noteworthy.

The analysis was undertaken by a small team in the strategic unit of the division over a period of about two years. The work involved significant engagement with other Government Departments, State agencies and various research agencies, including the ESRI. The motivation for this project was a recommendation from the Commission on Taxation and Welfare, which highlighted the need to build long-term fiscal analysis capabilities to better prepare for multiple possible futures.

Our analysis focused on global and domestic trends that will have powerful economic and fiscal impacts in the decades ahead. These are sometimes referred to as the four Ds: demographics, digitalisation, decarbonisation and deglobalisation. In addition, the analysis documents the economic and budgetary impacts related to EU expansion, as well as future outcomes for the housing and healthcare systems. Thus, we have conducted seven deep dives, each with three possible outcomes: high, central and low. This gives rise to over 2,000 outcomes, which is three to the power of seven. I stress that our analysis is based on the standard no policy change assumption. The reason for this is to provide a baseline against which new policies can be calibrated. In reality, of course, policy will adapt to challenges as they arise.

Let me describe the central scenario. In the not-too-distant future, natural labour force expansion is set to come to a halt and, in about a decade from now, is set to reverse. Alongside slowing productivity growth, overall economic growth is set to move onto a lower trajectory. Living standards, measured by GNI* per capita, continue to grow in this scenario, albeit at a slower rate than has been evident over recent decades. With a growing and ageing population, Ireland’s healthcare and long-term care costs in this scenario double by the mid-2040s and continue to rise thereafter. Meanwhile, the cost of providing pensions doubles by the mid-2040s and triples by 2060. In total, age-related expenditure accounts for 46% of all voted spending by 2065 in this scenario. This combination of slowing growth and increasing pressure on public services results in an increasing fiscal deficit in the central scenario, which reaches approximately 8% of national income by 2065, with national debt converging towards 150% of national income. It is important to stress that these are purely mechanical projections and are an output of the economic and policy structures examined in each scenario. In reality, a small, open economy like Ireland could not sustain fiscal aggregates of this magnitude.

Let me turn to the key messages. Future Forty points to five key trends that will shape our future. First, an ageing population will constrain labour force growth and increase demand for age-related public services. The analysis shows that higher migration and-or higher birth rates can help, but only at the margins. Second, how we manage costs during the transition to net zero and how we prepare the economy for climate damages, sometimes called climate adaptation, will be critical.

Third is the issue of healthcare provision. Driving productivity and cost efficiencies, as well as smarter delivery models throughout the healthcare system, will be critical to maintaining fiscal sustainability as the population both expands and ages. Fourth, sustained productivity growth is the most powerful driver of living standards in any country. Unlocking efficiencies, boosting skills and investing in digitisation and innovation will be critical to driving output per hour worked. Finally, slowing globalisation is expected in all scenarios. Accordingly, Future Forty assumes a fall-off in transitory tax receipts by the end of the 2030s, which fundamentally alters public finances.

It is important to stress that Future Forty is not a prediction and is not part of the budgetary process. It is something different and new in an Irish context. It helps us understand the long-term trajectory of current trends so we can better prepare for them and shape them into more positive outcomes. It is not designed to directly inform annual budgets or day-to-day State spending. Instead, it is a long-term lens through which we can map economic and fiscal trends. Perhaps the most important finding of the analysis is the identification of a narrowing window of opportunity – a decade at most – in which to limit the fiscal costs associated with these dynamics.

The analysis published by the Department aims to incorporate medium- and long-term dynamics into the economic and fiscal debate. In terms of next steps, we will continue to work on these issues in the division while looking at other policy areas. It is intended that our future analysis will be made public.

I thank Mr. McCarthy and all the team for the report. It is very interesting reading, I have no doubt. Mr. McCarthy mentioned five categories. As chair of the Joint Committee on Social Protection, Rural and Community Development, the first thing that hits me is his reference to the ageing population. Will he go into more detail on that and the statistics around it? He mentioned costs would double by the mid-2040s and triple by 2060. Will the two future funds we have in place address those matters? Where should we go to match those costs? Digitalisation is key to many of our thoughts in this space. Dáil Éireann and many committees are focused on fast-tracking and including digitalisation in all our workload. If Mr. McCarthy could delve more into those two items, I would very much appreciate it.

On demographics, the population of the country is 5.5 million. We do high, central and low scenarios. Our central scenario involves immigration of about 55,000 per annum over the next four decades. The biggest driver of population change, however, is the fall in fertility we have seen consistently for the past 30 or 40 years. In the 1970s, the typical female had four children over her lifetime; she is now having 1.5 children over her lifetime. That means that, in the absence of immigration, the population from one generation to the next falls by one quarter. On the basis of those parameters, the population is set to increase to 6.8 million by 2065. We have different scenarios. With high migration and high fertility, it reaches 8 million, while the low scenario is 5.9 million.

The biggest change is, at the moment, we have four people of working age supporting each retiree. In 2065, we will have two people of working age supporting each retiree. In four decades' time, each worker will have to support more people. There will be a heavy burden to shoulder, so to speak. That will involve significant fiscal costs. On the basis of our analysis, age-related spending will increase by about six percentage points of national income. I will put some numbers on that abstract figure. If spending went up by six percentage points of national income today, it would be something like €20 billion more in spending each year. I think that puts it into perspective.

Spending will go up and revenue will go down as well. If we go to carbon neutrality, we will get no more carbon tax. If from 2035 we phase out cars based on the internal combustion engine, there is no more excise and receipts will fall. A big gap will open up and the deficit will be 8%, 9% or 10% of national income. Debt will bottom out at about 40% of national income in about a decade from now and then rise to about 150%.

That brings us to the next point: what can be done? The Deputy mentioned one of the policy levers is the Future Ireland Fund. It is a really important fund. We in the Department classify it as a fund that helps to smooth the intergenerational costs associated with these dynamics. I think we can all agree it is unfair the younger generation should foot the bill in 40 or 50 years' time when so many people are retiring. The Future Ireland fund is designed to partly address that. At the end of last year we had €16 billion in that. At the end of next year we will have €24 billion in it. The fund is a useful tool but will not fully compensate for those additional fiscal costs.

I think I have answered the question but will say, to wrap up, that it is a demographic sweet spot right now. We have the second youngest population in Europe. If you look at Japan, Italy or South Korea, you see that where they are now is a good template for where we will be in three or four decades. Some of the fiscal issues they are dealing with are enormous. Take Japan, for instance. At the press conference I quoted the following figures. Every minute of every day - 24/7, 365 days a year - three people die in Japan and 1.3 children are born. Without emigration, the population of Japan is declining by 1.7 people every minute of every day. We will not be in that space but it will be negative nonetheless. Sorry for the long-winded answer.

No, a very thoughtful discussion. Does Mr. McCarthy have any comments on the My Future Fund or on how the auto-enrolment system will improve the system for people retiring in future?

It is a really important policy initiative. It is not modelled in our analysis, but in terms of scope, adequacy, bringing in more people and encouraging saving for retirement, it is a positive idea.

Why was it not modelled?

The analysis was done about six months ago and there was no policy change at that point.

I thank the witnesses for coming in. The 11 billionaires in Ireland own a combined total of more than €43 billion, which is the same as 85% of the adult population. Many of the people on the Irish list are passport holders who reside overseas. These people seem to be taking advantage of the taxation laws in Ireland while ordinary workers are constantly being hit. How does the Future Forty report look at taxing wealthy billionaires, or will we see the gap between rich and poor widening, as it seems to be across the world?

Within the analysis, we do not model any changes to taxation or spending.

We simply say this is what the impact will be if taxes move in line with nominal income, as they always do, except for the issues I mentioned, which are that excises will fall and carbon taxes will fall. Ditto on the spending side. We do not include issues like wealth tax or anything like that in our analysis because it is undertaken on a no policy change basis. It is important to point out, however, that Ireland has something like the second most progressive income tax system in the OECD. Even though the economy will be growing, albeit at a slow pace, that in and of itself will help address distributional issues over the next 40 years on a no policy change basis.

Going away from that, with climate targets set by the EU expected to be missed, Ireland will be expected to pay huge fines which will damage the economy. Did the report look at the implications of these fines will have on the public purse? We could be hit with a possible €28 billion climate fine as Ireland falls way short on greenhouse targets. These are targets the Government is signing up to. What is the likelihood these fines will have to be paid?

There is quite a wide range of estimates as to what fines or carbon credits we might have to purchase would be. Not everybody signs up to the €28 billion I think the fiscal council put out. It is important to point out that a lot of European countries are also off track in meeting their climate obligations. It is difficult to see how the fines would be operationalised. There is a lot of uncertainty about what the actual fines might be. What we have done on the climate side is that we have said that one of the areas on foot of which the costs over the next four decades potentially will be largest is climate change. That is not necessarily from fines. That is because we will lose carbon taxes, there will be more climate-related spending addressing fuel poverty, etc., there will be more climate financing, and there will be issues related to climate adaptation, in other words, addressing flooding issues, coastal erosion and issues like that. They in and of themselves will add something like 1 to 1.5 percentage points to the deficit each year between now and 2065. That moves the dial on the debt trajectory. Our central scenario is 148% of national income. In a bad climate scenario, that could move to 260% of national income. That is the main channel rather than the fines, to summarise.

How will missed targets on housing and not building enough housing affect the Department's plan going forward?

That is modelled within the document. At the moment, we spend about 2.3% of national income on housing-related supports and building, etc. We assume in the analysis that we will reach the 60,000 units by 2030 - 60,000 units per annum. That in and of itself would lead to broadly matching the flow of demand and supply each year. What it does not do is make any inroads into the pent-up demand, in other words, people who have lost out thus far. There are a wide range of estimates of that. Our estimates are somewhere in the region of 120,000 units need to be built to address that. Others have a higher range somewhere of the order of 200,000. What we have assumed is that we will stay at 60,000 units per annum between 2030 and 2040 and, by 2040, equilibrium will be restored in the housing market. It is a plausible scenario. In terms of the fiscal costs, at the moment about 2.3%, I think, of national income, which is about €8 billion per annum, will continue until 2040, but after that it will begin to ease off. That is how we modelled the fiscal and economic impact of housing within this document.

I will start with the witnesses' modelling on the housing numbers. They have assumed we will meet 60,000 housing units by 2030. Will Mr. McCarthy explain why the Department arrived at that assumption? Is anyone else, independent of Government, modelling that we will reach 60,000 units by 2030?

I am not sure anybody goes that far out but some of the analysis I have seen is in the region of 50,000 to 60,000 units per annum. At the moment we are in and around 35,000 units per annum, but that does not take into account several of the measures introduced as part of budget 2026 - 9% VAT, etc. - all of which are designed to address viability. We have to base our analysis on existing Government policies. Government policies are that we will achieve 300,000 units over the period but, from a flow perspective, that we will achieve 60,000 units by 2030.

The assumption is based on Government policy and targets rather than any evidence base. Does the Department have a trajectory showing that, based on percentage growth in housing output over the past five or ten years, you can see how, in the next three years, it will shoot from 35,000 to 60,000? Is there a chart that shows how it goes up like that? Is it just based on Government policy and targets? Is there a bit of analysis behind that which the Department can share with us?

It is based on a combination of both. Government policy is to get to 60,000 units by 2030. If you take into account the various policies the Government is implementing to achieve that, certainly the 9% VAT for builders, I think, will move the dial. There are also so many other policies that are going to come to fruition sooner rather than later. I would be reasonably confident that 60,000 is a reasonable estimate and projection for five years from now.

Does the Department have modelling it can share with the committee on that?

Not at the moment.

It seems quite a strong assumption to make without having done any modelling, from an economic modelling point of view.

When you put all the policies together, the quantum of money the Government is investing in the market and the various tax changes introduced in the budget, it is still a plausible assumption we will get there by 2030.

Is the rest of this report based on similar assumptions without concrete modelling behind them but based on Government targets and a view on whether the policy levers may achieve them? Is there concrete modelling behind a lot of the other assumptions?

Demographics are highly analytically based. There is a granular level of evidence under demographics and some of the climate issues. Digitalisation, because it is so uncertain, is more scenario-based. Some of the deep dives are really well grounded in strong empirical evidence.

Which is contrast to housing.

Housing is a combination of evidence and Government targets.

In the opening statement about the slowing productivity growth expected, what modelling is that based on? What are the assumptions behind that? Is that tied in with demographics in the population or are there other factors?

If you look at productivity in Ireland, it is a dual economy. There are superstar firms and then everybody else, the indigenous firms. What we are doing is looking at productivity on a GNI* basis, which is a reasonable approach.

It excludes some of the superstar firms and IP. In the last ten years, productivity, which is the measure of productivity called total factor productivity, has averaged about 1.5% in Ireland. Looking at other countries closer to the frontier, which have been high productivity for 30 or 40 years, including northern European countries, Austria, Germany, and so on, we are still inside that frontier. We have assumed that we will converge to the frontier over ten-year horizons, so in ten years, for instance, we might converge to where Belgium and France are now, ten years later we may converge to where Austria is now, and thereafter we assume that productivity growth in Ireland will be where the OECD is projecting for advanced economies, which is half a percentage point of growth per annum between 2045 and 2060. It is based on what is happening in other similar countries with income levels which were higher than Ireland some years ago but where we are converging now.

So it is effectively catching up.

Correct. Closing in on the frontier, which is another way of saying catching up.

The Department is projecting a fall-off in transitory tax receipts. Will Mr. McCarthy outline what he considers to be transitory tax receipts, because different taxes can fall?

When we did the budget last October, we projected corporate tax receipts of €32 billion. Our working assumption was that just over half was transitory, which was about €17 billion at the time. Corporate taxes came in at just under €33 billion, so it would not be too different. About €16 billion or €17 billion is our estimate of transitory receipts.

The windfall element of corporation tax.

Correct. What we have done is make an assumption, and I want to stress that it is a scenario, that from 2030 onwards, the transitory element of corporate tax receipts declines in a linear fashion out to 2040. That is how we have done it.

I thank the witnesses for the presentation and this nice beefy document. I am really pleased that the Department has gone through this exercise, looking into the future. It is something that is severely lacking in this country. Obviously I have advocated for it since I came here a year ago. I know it is only projections, but it is really worthwhile. Some figures will jump out and inform us, but that is why I was slightly surprised to see it is not designed to inform annual budgets. Should it not be telling us what to do in this year's budget, for example, like putting more money into the Future Ireland Fund or the rainy day fund? I suggest that it is very relevant to current budgets. Would Mr. McCarthy agree? I have about five or six questions.

The value added by this will be from a budgetary basis, year to year, if short-term budgetary decisions are taken while taking into account their longer-term implications. In other words, if Government takes budgetary decisions through the prism of what this means for 20 years' time or 30 years' time, that is where the two can be linked together. That is where the value added would arise.

That is fair enough. We hear regularly about the number of people of working age versus the number of pensioners. I presume that is based on people retiring at the same age that they are retiring at today, which is 65. We have spoken to Ministers about the retirement age, and not necessarily changing it to a higher number but having a hybrid model where there is not a cliff edge at 65, where people go part-time and where there are not negative implications for their pension rights or tax-free lump sums. Has the Department looked at that situation or is it basing it solidly on existing retirement ages? Clearly what I have just outlined is something that can, must and will happen.

On the first part of the question, all the analysis is undertaken assuming no policy change. By definition, we are assuming that people continue to retire at 65. Every multilateral organisation, including the IMF, OECD, and so on, is looking at every other country in the world and saying that part of the solution to this has to be prolonging working lives. That does not mean people working 40 hours once they hit 65 or 66. Part-time absolutely has to be a part of it in their recommendations for other countries. I do not want to go into the policy space here, but I would have thought-----

Or temporary, either.

Indeed. That is part of the solution. The way I would characterise this from a policy perspective is that there is no silver bullet. There is no one policy that is going to solve this problem. It has to be a combination of many areas. The typical economic advice here is about prolonging working lives in some format, and part-time is part of the solution.

Mr. McCarthy says health costs in this country are high. We have seen the challenge of high health costs. I believe education gets good outcomes for the investment put in, which is not mentioned much here, but health costs are high in this country. Are there any reasons for that?

It is a bit of a puzzle. Some of the outcomes are really good in the health sector. Life expectancy, for instance, is really high, so there are certainly positives. It is a puzzle in that healthcare costs in Ireland are high even though we have one of the youngest populations in the OECD. When we come to the policy recommendations in that document, we talk about the need for efficiency and productivity gains in the healthcare as part of the solution, given the cost of the sector, which will be so large in a few years.

When the Department builds up population projections, are they primarily a function of economic growth, because obviously there is a significant correlation between the two? A corollary to that is that housing numbers and targets are clearly a function of that too. Has the Department linked those three?

They are partly related to economic growth. When the population is ageing, even if there was no economic growth or growth was through the roof, there would still be an inversion of the population pyramid, because in ten years, the Deputy and I will, by definition, be ten years older. Where the economy creeps in is the migration channel. If the economy is strong, it will tend to suck in people from abroad. If the economy is poor, I still think we will suck in people from abroad, because we are still a high-income country, but maybe not as many. The economy feeds in there. The Deputy is right that it feeds into housing demand.

That is the great unknown.

Yes.

The two-page summary sheet is all I have read. This figure seems wrong. It states that, in 2025, there are 116 people in the Irish labour force for every 100 people not working and that, by 2065, there will be 98 people in the labour force for every 100 not working. I would say the change is more dramatic than that. It is just to point out the summary.

We can come to that and do that in the next round, because Deputy Farrell has to be somewhere else.

Apologies. I have to be somewhere for 4.30 p.m. Gabhaim buíochas leis na finnéithe as ucht teacht anseo. I welcome this discussion and the decision to engage in the long-term economic thinking. It is helpful to have long-term economic thinking and planning, especially given the impact of demographic change, climate change, and potential constitutional change.

One thing that really struck me was that of the 2,000 scenarios that were speculated on, the issue of constitutional change was not studied. That is something that could happen. We have seen this in other areas. We have seen constitutional change happen quite quickly in Germany and in other areas. Could Mr. McCarthy give us an insight into his thoughts about that and the discussion on how our economy would work in the case of a united Ireland?

I want to clarify that we did seven scenarios - seven deep dives, each of which has a high, medium and low. That is what gives 2,000 outcomes so it is not as if we did 2,000 scenarios looking at so many things. We did seven deep dives. The reason we did not look at constitutional change comes back to no policy change that guided our overall approach to this. Constitutional change obviously would involve considerable policy change so we decided not to do it.

I would stress, however, that Government and the Department do an awful lot of work on the issue of the all-island economy. The shared island unit within the Department of the Taoiseach does a lot of work in the area. We in the Department of Finance have contributed to quite a bit of the research in this area. We published an analytical piece about 18 months ago called Shared Island, Shared Economy. It is not as if we ignore those issues. We are looking at them the whole time. We are making our analysis public. The issues were just not in this report because it is a no policy change document.

That is fair enough but I do think it makes the report a lot weaker. The report is important. The analysis is important and I welcome all of that, but as somebody who believes in a united Ireland and believes this is where we are headed, the lack of any analysis of the potential of a united Ireland does make the outcomes and the report weaker, especially if we are looking at all the different changes that would happen in the event of a united Ireland. I want to put that on the record.

The report uses GNI per capita as a metric for living standards. This is something this committee discussed last week as well. The report suggests that this will increase modestly over the coming decades relative to the past 30 years. GNI per capita has always been correlated with increasing living standards. When we look at the demographic changes such as an older population, which is something I spoke about last week when the National Economic and Social Council appeared before the committee, the question arises as to whether we will have to start looking more at things that significantly improve people's living standards when we are looking at our living standards and using metrics to look at living standards. I am talking about using things like healthcare as metrics, particularly if we are looking at an ageing population where having better health indicators will make a bigger difference.

I agree with the Deputy on that. In the Department, we have fully recognised that living standards, GNI* per capita or GDP per capita, do not fully capture many facets of Irish society. They measure what they are supposed to measure, which is the amount of income we generate for each person in the country, but they do not include healthcare outcomes, carbon emissions, the sustainability of the environment and well-being. Every year around or on the day of the budget, my division produces what is called Beyond GDP, where we look at the distributional impact and climate impact of the budget, well-being measures, gender issues and inequality issues, so we do bring it all together. We fully recognise that GNI* per capita is a limited measure of living standards and we try to bring more metrics into play.

I noticed in an earlier exchange talk about the decline in fertility rates. Without access to affordable childcare, and this is a conversation we had earlier, there will be a serious impact. We have so many children living in poverty. We need to look in an inclusive way at all these things, such as women being able to access affordable childcare, and tackle the bread-and-butter issues that impact on people. According to an essential scenario, there will be a significant rise in the cost of public services driven by an ageing population and a fall-off in corporation tax receipts. Mr. McCarthy outlined that the next decade is an opportune time to strengthen resilience, stress systemic vulnerabilities and anticipate the challenges ahead. I like that, I think that is true, but I do not think the last budget reflected that at all. It seems to me that what the Department and the Minister are saying may be two different things.

Obviously as a civil servant, I cannot comment on that.

I just wanted to make the point because that is something that came out of it.

I know the affordability of childcare is part of the programme for Government.

It is, but it is just that, if we are talking about the decline in fertility, we need to look at what the barriers are.

I am a father of four adult children - almost, one of the lads will be 18 shortly - and a grandfather. We are looking at fertility rates. I have been self-employed since the early nineties so I have a vast amount of experience from a business and family perspective. Over the past three or four years, we have had three or four minimum wage increases across the sectors. We have seen inflation soar. People who have got the minimum wage increases are no better off. If anything, they are worse off because there is no value for money because the cost of living has gone up. The cost of food, fuel and electricity has gone up. When we look at what the minimum wage was three years ago and the level it is at now at €14 or €15 per hour, we can see that people on the minimum wage are no better off now. They are just paying more tax because there has been a move of roughly €4 in the past couple of years.

We are looking at fertility rates in this country. People are not having children and we are looking at the reasons for this. We are talking about projections out to 2065. Can we not do something about the trajectory? The reason people are not having children is because they are not getting married or cohabiting until later in life - in their 30s or even late 30s. One of the reasons for this is the affordability of housing. They cannot afford a house. I know this from experience as I have children who are trying to get on the housing ladder. I am a building contractor. They are telling me that they are saving hard, but every time they get to the end of the 12 months where they would like to be, where they would have saved so much that they would not have such a big mortgage, they are no better off because everything is moving forward at the same rate. People having security so they can settle down at a younger age, get on housing ladder and have security around having a job and a house so they can raise a family is happening too late now because of changes in our economy.

What is the one thing that could help relieve this? How do we stop inflation? Raising wages will not stop inflation because it is raising costs. Raising costs may create more costs across the country in all different sectors because when one thing is raised, it is not just the minimum wage that is affected.

There is a domino effect for every other industry. If these people get a €2 increase, everyone up along the chain wants it. I looked at one industry, the hotel industry. For one business, the change to the minimum wage led to a cost of €400,000 in one year. If you are going to stay at that hotel or go there for a meal, it will be reflected in the price of the food you eat or the cost of the overnight stay. How do we counteract that? How do we give people in the middle assurance that we can get there?

While the Chair asked for one, I will mention three if he will allow me. One is supply. One of the reasons prices are going up and there are problems is that there is a lack of supply in many areas, whether electricity supply or access to the grid, water or housing. Tackling the issue of supply is absolutely crucial. That is why the national development plan is so important. Another issue that is adding to costs, bureaucracy and inefficiency is the level of regulation in the country. Some of it is EU driven but the Government has acknowledged that, in Ireland, we have tended to gold-plate EU regulations. We have not taken the minimum. We have gone beyond. The Government now recognises that we may have gone too far in some areas. The third element is competitiveness. This comes back to prices, wages and so on. The way to reduce these while not affecting people's standard of living is to boost productivity. If you are more productive, you generate more wages without being uncompetitive.

I agree with everything Mr. McCarthy has just said. The very first thing he mentioned was demand. For decades, we have known that demand was going up but we just centralised in Dublin. Where there is high demand, there is high cost. We should decentralise people and spend money on infrastructure in other counties. We should be putting in a transport network so that people do not have to live in Dublin to work there. You could have a train system to provide fast transit. You should be able to live anywhere in Ireland but the main focus of infrastructure seems to be in Dublin. That is why the population is rising so much around Dublin. It is why Dublin is cramped and the cost of everything in Dublin is absolutely crazy. The cost to deliver in construction or even to get in and out of work here is crazy. The biggest thing we need to do is to decentralise around the country for infrastructure.

Giving responsibility for infrastructure to the likes of Irish Water is not going to fix the problem. It needs to be a question of design and deliver across the board. We saw what happened with the children's hospital. We went €1 billion over budget. If a hospital is going to be built, there should be a design for a hospital, including designs for the rooms, the wards and whatever else we need. They should all be put together in a book or manual that can be opened up to see the design so that we do not spend millions on design. We should have models for hospitals and other infrastructure. It is about the care within hospitals. A design and deliver model gives you accountability. Meaning no disrespect to the Departments, they are getting involved in projects that are then running long and not meeting targets. Regulations change, meaning the design moves on further and further but there is no accountability. Under design and deliver, accountability lies with the design and delivery team. If it is not brought in on budget and on time, the team loses money but you do not. That is where it comes in.

I will allow Deputy Boyd Barrett to come in. We will then go around again because we have one or two more questions.

I apologise that I was not here for the witnesses' initial contributions. I was speaking in the Dáil. If I repeat questions or raise issues that have already been dealt with, I apologise in advance.

We have discussed Future Forty. One of the things the Department is concerned about is the demographic changes and, if I understand correctly, a reduction in the working population as against the dependent population, particularly in light of an ageing population. I asked some of our previous contributors on this subject about inward migration and how it could help ameliorate that problem. By and large, inward migration anywhere tends to involve younger and more productive people. That was true of the Irish going abroad and it is true of the people coming in here. I have asked whether the Department is quantifying the additional economic contribution, including the tax contribution and so on, of those coming into the country. I think our committee should look at that. Of course, we know it is a very controversial subject. Certain people are gaining political mileage out of targeting migrants. Frankly, I think that is disgraceful given our own history of migration. They are drawing a distinction between Irish migration elsewhere and migration to this country as if there is a great difference. In fact, there is no difference. Most Irish people went abroad, worked and contributed massively to the countries they went to. The vast majority of migrants coming into this country work and make a massive contribution. There are always a few bad apples. There are a few Irish bad apples and there are a few bad apples coming to this country but, by and large, migration adds rather than subtracts. Is the Department quantifying this? Is it looking at the figures? If not, should it be so that we would have an evidence base for the discussion about the impact of migration? That is my first question. I have some more but we might start with that.

The answer is "Yes". We are working on it. The document is not finished yet. We are doing analysis of, as the Deputy has mentioned, the fiscal tax and expenditure impacts of different categories of migrants. It is building on the work done by others. I believe the Danes and the Dutch have done it. One or two other countries may also have done it. The Australians have also done it. We are following a similar empirical approach. We are not there yet but it is a work in progress. Once we have done it, we will make it public.

I have a question. Mr. McCarthy will probably laugh at this but I will ask it anyway. Boosting productivity gains will be critical for addressing the problems. In all seriousness, as an economist, has Mr. McCarthy ever looked at Marx's theory of the tendency of the rate of profit to fall because of changes in the organic composition of capital? I say this in all seriousness. As will potentially become apparent with AI, the thing about productivity is that you raise productivity by getting ahead of your competitors with the latest technology, but when everybody does the same thing, while that is cancelled out, you have now raised your costs and reduced labour as a proportion of the equation. As is now becoming very apparent globally, we are scrambling for labour. In a previous discussion, we said how important labour is for addressing our problems but there is simultaneously a push for productivity and to increase the proportion of investment that goes into technology rather than labour. Marx's assertion was that this creates a long-term tendency for profit rates to fall. There is significant evidence to back that up. That is really coming through in a fairly dramatic way in AI. Labour is being replaced with machines that cost a lot of money. If everybody has to do it, a lot of money has to be put into this stuff. When everybody does it, the first few win and get ahead in the market, but when everybody has to make huge investments in this area, it just becomes a massive additional cost. This impacts on those who are working and the amount of labour in the economy generally. It is a serious point. Whatever Mr. McCarthy might think about Marx, he was a serious economist. What does Mr. McCarthy say to that?

My overall view is that AI is potentially transformative. It will complement labour, in many people's view. In other words, it will boost productivity, but there is a view that it might substitute for labour. There are concerns there that I do not fully subscribe to. Looking at previous industrial revolutions, there is a view that AI is industrial revolution number four. The first three were all about boosting productivity. Everybody gained, although everybody did not gain straight away. The destination was good but getting there was bumpy, as people lost jobs, etc. There is a role for policy in smoothing the digital transition.

Where AI is maybe different from previous industrial waves is its ability to do cognitive tasks and in regard to who might be exposed. The spinning wheel and the computer were all about automating unskilled or semi-skilled jobs. AI is more about automating skilled jobs. There is no doubt it is going to be transformative for the labour market, but there is a key role for policy in ensuring there is reskilling, upskilling and addressing whatever inequality disparities might arise from that. To summarise, it is probably a good technology but there are certainly some downsides and we need to be conscious of them.

The Deputy made a good point about some firms. There are some costs, including heavy and high costs. There might be smaller SMEs underadopting and hence there might be winner-takes-all dynamics, but guardrails can be put in place to prevent that. It comes back to competition policy, etc. That is why I think AI can be a force for good, but it needs to be done within guardrails and having-----

Thank you. Deputy Timmins has five minutes.

I do not need five minutes; I made my points earlier. I mentioned the ratio of the number of workers per person of pension age. It is currently 116:100 and by 2065 it will be 98:100.

We can come back to that, but I think it is in our central scenario. It shifts at a different rate in some of the other scenarios.

It is still a summary. That is all I wanted to clarify. I covered everything in my earlier contribution.

Does Deputy Boyd Barrett want to come in for another five minutes?

What are the witnesses' views on housing? I do not know what their figures are, but 60,000 a year is a reasonable figure to meet housing demand. We have a particular view, which is that we need a State construction company because we cannot rely solely - let us put it that way - on the private sector. Private operators will be in the market or sector; I prefer "sector" to "market". We need to deliver the level of housing we need and the infrastructure to support it. If we do not deliver on this front, the stakes are very high, not just because we have a housing crisis but also because the potential for economic investment and so on could be seriously challenged.

Is any consideration being given to the fact that if we rely to the extent we do on the private sector to do this, we could have big problems? Apart from anything, the private sector is cyclical in this area. We have seen it in the past. There was a boom and then a slump. Private operators only invest when they are guaranteed to make money. Even when they deliver housing, huge amounts of it are totally unaffordable. In my area, almost everything that is delivered by the market is unaffordable for the people who actually need it. Average house prices there are now €600,000 to €700,000. Unless the State intervenes to address that, about 60% to 70% of the population in my area will be excluded from ever being able to buy in the private market. Do the witnesses have anything to say about that?

On State construction, I do not want to get into policy too much. Policy is not for a civil servant - it is for the Minister and the Government - but it is clear that a combination of public and private investment is required. It cannot all be undertaken by the public sector. At the moment, something like 2.25% of national income is being devoted to the housing side. It is important to mobilise private investment as well. There are people who know more about this than I do who may be sitting at this table, but it is important to recognise that margins within the private sector are still very low. That is one of the reasons the VAT measure in the recent budget was so important.

On addressing the housing shortage, as the Deputy said, our numbers are based on 60,000 units per annum by 2030 and staying there right out to 2040. I will make one observation on a State construction company without getting into the policy space. There is a fixed number of construction workers right now; I think it is 160,000. Workers are needed to build the houses. Does it really matter if they are in the private sector or the public sector? That constraint needs to be borne in mind as well. It is one of the reasons productivity and modern methods of construction are so crucial in the delivery of houses.

That is true. If we do not have the workers, that is absolutely true, but it is worth observing that we had 300,000 people working in the construction sector in 2008.

Correct.

What did Mr. McCarthy say it is down to now?

I think it is 160,000.

There was a collapse that we have never recovered from. If you talk to half the taxi drivers in this country, and I talk to quite a lot to taxi drivers about the issues affecting them, you will find a lot of them are ex-construction workers. There are a lot of ex-construction workers out there, generally speaking, who fled the housing sector because of the precarity of it. It was that cyclical thing. That is an argument for having construction as secure employment for people and for the State to take a lead in developing enough apprentices. If we are to encourage young people to go into it, however, then they have to know there is a secure, sustainable career path. If they think it is going to go boom-slump, boom-slump, it is not exactly an attractive option. It seems to me the State has to be aware of that.

Again, I do not want to go beyond my remit, but looking at construction now, it can be reasonably said that the Government will produce, at some stage, 60,000 units and it will stay at that level for a very long time. It is much less precarious now, given the pent-up demand and the actual demand for housing over the next ten, 15 or 20 years. It is much less precarious than it was at the peak of the previous cycle.

I will ask a series of questions on the witnesses' thoughts about Future Forty. I am conscious of time and I know I have come in at the end, so I ask that the answers be brief. Where do they see the benefit of the Future Forty document in two, three or four years? I do not want it to be a think-piece for six months, where it is out a few months, we have a few of these talks, it then just disappears and everyone says, "Remember that?". How do we keep it as a live document?

It is a very relevant question. We and the Tánaiste are very conscious, as was his predecessor, that this will not be a document that is put on a shelf. We have got a Government decision with which three central Departments, namely, the Departments of finance, public expenditure and the Taoiseach, will come forward to Government very shortly with a way to embed this within the policymaking process.

What we will try to do is to make sure that all short-term policy decisions are seen through the lens of longer term policy objectives, that is, the objectives set out in Future Forty, which really are about smoothing the intergenerational equity issues.

That is great to hear, because often when people think about politicians, they think all we are worried about is the next general election. We are obviously trying to get away from that thinking. That probably did happen with some of the development in our State at various points, especially the late 1970s. We suffered withdrawal through the 1980s because of a short-term general election decision in the late 1970s that undid a lot of the good work of the 1960s.

With that in mind, is there almost a funnel of information? We have a much better knowledge of what is going to happen in three years than we do in 30 years. Mr. McCarthy knows, we are statistically only guessing beyond the ten-year item, but at the same time, we could say we have a fair judgment. Does the Department put at the forefront the information relating to three, four, five, six, seven and eight years and, after that, it knows it is only modelling out various scenarios? Ultimately, there are hundreds of scenarios within that. What way does the Department compensate in the short-term for the long-term? Is there a thought process around that? Does Mr. McCarthy feel the Department could be quite fixed about the next three to five years and after that it is only guessing? I mean that with the best will in the world.

I would turn it around slightly and say we actually have a better understanding of what might happen beyond the medium term because we can be reasonably certain what is going to happen with productivity and demographics. It is much easier to project how the population will evolve-----

There are overriding ups and downs.

Exactly. In the short term, we have unknown unknowns. Over the longer term, we are trying to model the known unknowns.

It is a smoother graph line.

Exactly. The challenge for us is to keep this on the agenda. We see this as a living document. We will update it in years to come. Obviously, it is not a document that one updates year to year, because 40 years' time does not change when we have another six months of data. We will update this in a couple of years' time. The Tánaiste expressed it very well when he said this was "the antidote to short termism". If we have buy-in from senior politicians, that is really important in keeping it on the agenda. I have done several presentations, which are online. Trying to socialise it is really-----

That has been very effective. Considering the nature of the document, I have heard quite a lot of discourse about it.

On the specifics, and before Deputy Boyd Barrett looks at me scarily, this State has never overly had to invest in our military, for good reasons. Within reason, we have not had to invest as a proportion relative to a lot of other countries. How is that captured in this from a modelling perspective? We can talk about the EU and I am not suggesting by any means that we are going to join an EU army or anything like that, but at the same time, there are probably ways of investing as regards undersea cables, online strengthening, prevention of cyberattacks, prevention of drone attacks and whatever all of that might look like. These are things that we probably have to do and that might not outwardly be military but are from a safety perspective. How did the Department capture that in the modelling from a level of scale upwards, because that is something we have never had to deal with in our national budgets since the foundation of the State?

The Deputy is right, in that defence goes way beyond army spending. It is about defending our economic infrastructure.

We are thinking about it now when we never have before.

Totally. The honest answer is, it is not embedded within the analysis. It is something we now need to look at along with the costs associated with it. Since it is a no-policy change document and Government does not have explicit policy changes in this area, it is not explicitly modelled. The Deputy is right, though. Defence is very much at the forefront. Geopolitics are overlapping with economics and it is becoming much more important. The next iteration-----

We are not talking about spending money on guns and weapons. We are talking about spending money on literal defence, including cyber. It is not military spending in the way we used to think of it before, but it obviously is defence.

It is much wider than military.

I thank Mr. McCarthy for going through that.

I have a question. I know we are tight for time, because our witnesses indicated that they needed to be out of here for 5 p.m.

Deputy Boyd Barrett brought up a while ago how we had gone from 300,000 people down to 160,000 in the skilled workforce in construction and so on. Something that is alarming to me, and it probably feeds in a small way into what he was saying, is that we now have a lot of systems where modular units are being made. Regardless of whether he or she is an electrical, plastering or block-laying apprentice, an apprentice gets experience and skills when out on site. One reflects on the other. Somebody who is block laying might know a bit about plumbing and design and would say that windows need to go here and the work needs to be allowed for the kitchen and plumbing. They have a small inkling. I came across a couple of cases recently where people were finishing their apprenticeships and had come from the sector they were working on what I would call a conveyor belt modular home system. The experience they get by the end of their apprenticeships is only based on what they have seen on a conveyor belt system, where it is conveyor belt wiring and plumbing. It is all based on one particular sector, so they are not getting a large array of experience. My concern is about the situation going forward. If we take people out of learning about the maintenance of stock, then we will have two different skill sets. We are going to have one skill set that is only based on what people learned in the conveyor belt system while those with the other skill set will be a dying breed.

I am in construction; I am a blocklayer. That is my trade. I am seeing the sectors trying to encourage people to come into them, but the people now coming to me do not have the broad experience of other apprentices I have taken on. Is that a concern or factor for our witnesses going forward, namely, that we will have all modular buildings? Down the road, maintenance and revamping existing houses to bring them up to date will play a big part, but we will not have the experience to do that because apprentices with that experience are dying off.

To be honest, it is not something I had talked or thought about. I am not sure the team had either. It seems, from what the Cathaoirleach said, to be a valid concern. I had not thought about people coming out of three or four years of an apprenticeship with a very narrow set of skills rather than a broader one, but what the Cathaoirleach is saying makes sense to me. I do not know if there is a policy to address that.

Apprentices need all of the different types of experience they can acquire while on a site, be they working on apartments or houses. There are different types, such as mechanical, electrical, residential and commercial. These apprentices are only being shown the one sector and it is the same thing all day, every day. Units are coming out and are lovely and all the rest of it, but the people who are building them only know that system. When you change the system, the same wiring, plumbing and everything is retrofitted. When it comes to maintenance, we have decades of different buildings but the skill sets are not there. We need to look at that in a format of putting something in place that actually brings in the skill sets on a wider basis. They are grand for fixing a problem with a modular building now, but what about a decade down the road? The Department is trying to project to 2065.

At the moment, it is hard to get in to see a doctor. It is equally hard to get a blocklayer. If we look at the pay rates, there are similarities. This shows that those skilled labourers are not there and are not being reproduced. We are going to have a bigger problem come 2065 when we look at maintaining the existing buildings that are there.

I will mention it to colleagues in the relevant Department. I see the Cathaoirleach’s point, but I am not qualified to comment.

We are down to a limited time.

How much time have we left?

Does the Deputy have a point?

Yes.

We only have one and a half minutes left. I will let the Deputy in.

By the way, I agree with the Cathaoirleach because we do not know how they built the pyramids. They had the skills to build the pyramids once but we do not know how they did it now. These skills are lost unless someone makes sure they stay.

In the Department’s document, it has different scenarios for the proportion of social housing that will be delivered via the actual provision of council housing and the stuff that will be through the housing assistance payment, HAP, and the rental accommodation scheme, RAS. It talks about 25%, 30% or lower percentages. Will the witnesses clarify this? The Department is saying that HAP and RAS, which involve money going to private landlords rather than us directly providing the homes, are going to stay with us on the basis that there will be less need in the long term. Therefore, I am assuming the argument the Department is making is that we do not need as much permanent social housing stock. Against that, however, surely there is a huge cost. Nearly €1 billion per year goes out and the State is not getting anything out of it. Arguably, it is contributing negatively to the wider property problems in the property sector. While I know we cannot get rid of HAP and RAS tomorrow, should we not be looking to phase them out because our own stock is better value from the point of view of the State?

With regard to the three scenarios we look at in housing, they are very much about changing the dial between where we are now and what would it mean if we ramped up or down those supports from a fiscal perspective. It does not get into the long-term policy implications of doing those things. It is simply a changing of the dial to determine the fiscal costs over the period of time and how they would change as demand fluctuates. It does not get into the realm of policy change. The whole pretext of the report is that it is on a no-policy change basis.

That concludes this session. I thank the witnesses from the Department of Finance for their attendance at this meeting. It has been very informative and I look forward to having them before the committee again so that we can have more discussions. This meeting is now adjourned until Tuesday, 27 January 2026.