I ask everyone to turn off their mobile phone devices or put them on silent. Before we begin, I wish to explain some limitations to parliamentary privilege and the practice of the House as regards references witnesses may make to other persons in their evidence. Witnesses are protected by absolute privilege in respect of the presentations they make to the committee. This means they have an absolute defence against any defamatory action for anything they say at the meeting. However, witnesses are expected not to abuse this privilege and it is my duty as Chair to ensure this privilege is not abused. Therefore, if their statements are potentially defamatory in relation to identifiable persons or entities, they will be directed to discontinue their remarks. It is imperative they comply with any such direction.

I advise members of the constitutional requirement that they must be physically present within the confines of the Leinster House complex to participate in public meetings. In this regard, I ask members participating via Microsoft Teams that, prior to making their contribution to the meeting, they confirm they are on the grounds of the Leinster House campus.

Members are reminded of the long-standing parliamentary practice that they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable, or otherwise engage in speech that might be regarded as damaging to the good name of the person or entity. Therefore, if their statements are potentially defamatory in relation to an identifiable person or entity, I will direct them to discontinue their remarks. It is imperative they comply with any such direction.

Today marks our engagement with officials from the Irish Fiscal Advisory Council on its fiscal assessment report of June 2026. I welcome Mr. Seamus Coffey, chairperson and lecturer in the Department of Economics in University College Cork; Mr. Niall Conroy, acting chief economist and head of secretariat; Professor Oana Peia, member of IFAC and associate professor at University College Dublin; and Professor Stephen Millard, member of IFAC and deputy director for macroeconomic modelling and forecasting at the National Institute of Economic and Social Research. The committee welcomes the opportunity to engage with the witnesses, and I thank them for being here today.

I invite Mr. Coffey to make his opening statement.

The Irish Fiscal Advisory Council is grateful to the Chair, Vice-Chair and members of the committee for inviting us to appear before them again. We value our engagements with the Oireachtas highly and consider these opportunities an integral part of our work.

As an official independent body established under the Fiscal Responsibility Act 2012, the council's mandate currently revolves around the following five elements: endorsing and assessing the official macroeconomic forecasts; assessing official budgetary projections; monitoring compliance with fiscal rules; assessing the Government's overall fiscal stance; and assessing if economic conditions have deteriorated. This assessment informs our recommendations to the Government as to whether contributions to the two savings funds should be reduced or paused.

Our mandate may be expanded in line with a 2024 EU directive which assigns additional tasks to independent fiscal institutions, such as the Irish Fiscal Advisory Council. This directive was due to be transposed into Irish law by the end of 2025, but that is yet to occur. The focus of the fiscal council is on the broader fiscal and macroeconomic perspective rather than any individual tax or spending measures.

The council published its fiscal assessment report last week. In this report, we assess the Government's official projections as set out in the 2026 annual progress report. This is what we will mainly speak to today.

The Irish economy is still in a strong position. It has a record number of people at work. On average, wages increased faster than prices again last year. The key uncertainty the economy faces right now is energy prices. Higher energy prices would typically cause growth to slow down. This is particularly true for Ireland which is still heavily reliant on fossil fuels imported from abroad. However, in recent years the Irish economy has proven to be highly resilient to changes in the external environment.

The Government plans to run continued surpluses. However, these surpluses are forecast to decline to relatively modest levels. They also rely heavily on risky corporation tax receipts continuing to grow. Excess corporation tax receipts are those receipts that cannot be explained by domestic economic activity. Were it not for these receipts, the public finances would look very different. The underlying deficit this year is forecast to be €11 billion, equivalent to 3% of national income. This deficit is forecast to widen to almost €21 billion by 2030. Out of every €6 the Government collects in corporation tax, it plans to spend €5 and save just €1. This means ongoing spending commitments are being funded by risky corporation tax receipts. By spending rather than saving these receipts, we are missing an opportunity to prepare for future challenges, such as an ageing population and climate change. The Government plans to run relatively modest surpluses in the years ahead. These would not be sufficient to finance planned contributions to the Government’s savings funds. As a result, the Government will need to borrow to finance some of these contributions. This departs from the initial purpose of these savings funds, which is to save rather than spend risky corporation tax receipts

Late last year, the Government published a revised medium-term plan. The plan sets out fast increases in spending, net of tax policy changes. Over the course of the plan, net spending is planned to increase by 7% per year on average. This is much faster than the sustainable growth rate of the Irish economy. It is also faster than the planned net spending growth of all other EU member states. Of the planned increases in spending, almost 80% are for current spending and 20% are for investment. With this in mind, the council does not believe the medium-term plan is an appropriate guide for budgetary policy in Ireland. Ireland needs its own domestic fiscal rules. These should be carefully designed and placed in legislation. The medium-term plan outlines how much the Government plans to spend in the coming years. However, in recent years, actual spending has repeatedly increased faster than originally planned. Since budget 2024, almost 30% of the additional spending is due to overruns. Overruns are already apparent this year, including in health and education.

The council has four recommendations as to how budgeting in Ireland can improve: ensure budgetary policy reduces the ups and downs of the economic cycle; run bigger surpluses, which would leave the Government better placed to address future challenges such as an ageing population and climate change; introduce a domestic fiscal rule to guide budgetary policy; and improve how budgetary forecasts are produced.

I thank the committee for its attention and we look forward to the engagement and members' questions.

Tá fáilte roimh na finnéithe. Thanks for coming in. On the budget overruns, we had the Department of education in here last week. The officials said that before the budget was finalised they had agreement with the Department of public expenditure and reform, at official and ministerial level, that there would be extra money post budget later on in the year to deal with the lack of funding the Department of education had. That commitment was made in the context of the Department of public expenditure and reform looking for reforms, efficiencies and savings. Should that be taking place as part of the budgetary process where, before budget day, there is an agreement that not only is a Department going to get this budget allocation but there will be more money later on? Is that the correct budgetary process?

If it was before budget day, that would not be an appropriate way to set budgetary policy. The budget should present the figures as they are known, not with side agreements that additional funding would be made available outside of the budget day Estimates. If it is known that further additional funding will be required, it should be included. That would give us a better starting point and a better basis for assessment and maybe would allow us to actually get closer to the budget day figures, rather than seeing the overruns we have seen in recent years. No, it would not be an appropriate way to go.

My impression is that the reason that happened was because the Department of public expenditure and reform was trying to stay within its envelope for budget day, and could not provide the amount of funding that was deemed necessary by the Department of education at that point. However, it seems to be baking into the process the idea of additional funding later on.

That just seems cosmetic. If the Department of public expenditure and reform is trying to stay within certain parameters but has agreed for additional resources to be provided to a certain Department, then it is not staying within the parameters.

Regarding the recent report from the council and the checklist for a better fiscal framework, there are eight things in the checklist and we are only doing two of them. How serious is two out of eight?

There are clearly things there that we think could be done a lot better. Some of that is clearly around the budgeting piece, as the Deputy said, around setting realistic ceilings for each Department but some of it is around transparency. A lot of documentation and a lot of analysis are done on what we call voted spending or Exchequer spending. However, an awful lot of the spending that goes on from year to year is outside of that - within general government but outside of the Exchequer. We think there is probably limited transparency there and there probably could be an improvement in forecasting in that area. A lot of the forecast errors we have seen in recent years have been in non-Exchequer general government spending. That is another area we would be looking at.

The underlying deficit is forecast to be almost €21 billion by 2030. What are the implications of that?

It highlights the extent to which the bumper corporation tax receipts that are coming in are being spent and that ongoing spending commitments are becoming ever more reliant on them. That calculation just takes the Department of Finance's estimate of what it deems to be the excess of corporation tax receipts, which are those that cannot be explained by the performance of the domestic economy. If we look at the declining surpluses that are planned over the coming years, the figure is down as low as €2 billion in 2029, a year in which €40 billion of corporation tax is now projected to be collected. If we are collecting €40 billion of corporation tax while only running a surplus of €2 billion for 2029 then we are spending most of it. If we then look at the Department's estimate of the excess, and we just strip that out, that is how we get to an underlying deficit of close to €20 billion. That is a concern.

Cliff Taylor, writing in The Irish Times at the weekend, said that he was not going to write about the topic of IFAC's warnings anymore because he feels they are largely being ignored by the political system. What is Mr. Coffey's view on that?

We will keep saying it.

Is Cliff Taylor correct? Does Mr. Coffey feel that what he is saying is being heeded, ignored or listened to?

One step would be for the Government not necessarily to listen to what the fiscal council is saying, but to listen to what it is saying itself in terms of the things that have been set out over the last number of years. This is whether it is the now disregarded 5% rule that was not necessarily in place but was sort of there for a number of years; the annual budget figures, which are exceeded on a yearly basis with overruns across various Departments; or the stated intention of these savings funds that were set up to set aside some of these bumper corporation tax receipts, contributions to which cannot be covered from savings from corporation tax because of the small surpluses that are planned. In fact, those savings must now be borrowed. A step would be not necessarily for the Government to listen to the fiscal council but just to stick to what it is saying itself. Maybe after that the Government can get its budgeting and its approach to fiscal policy on a more solid and sustainable footing and then look to see whether the advice of the fiscal council would be a further step beyond that. Let the Government take the first step and follow what it says itself.

On borrowing to save, this comes in the context of the Government recently launching a financial literacy plan about trying to educate people about how to manage their finances more responsibly. What are the issues around borrowing to save?

That would dip into the realm of financial advice, which really would not be appropriate for us.

The Government?

The Government would have the NTMA, where the expertise in those areas would lie. In general, it would not necessarily be recommended that households borrow money to invest in risky assets, given their volatile nature. I guess it depends on the interest rate, the investment horizon and other factors, but it would not necessarily be the most appropriate path to take. For a government, the investment horizon can perhaps be longer. If you look at the funds, you see they are due to deal with the long-term challenges.

From our perspective, borrowing to invest is not necessarily the key issue. It is more about the impact of the day-to-day Government finances and the fact that at the end of the year, the Government will not have a sufficient surplus for the coming years to meet some of the legislative commitments made to put money into the funds, and what the Government is set to borrow. At the end of 2025, there was a general Government debt of around €210 billion, whereas it is set to be €240 billion by the end of 2030. This immediately raised questions, with people asking why we are borrowing €30 billion between now and 2030 if the economy is performing well and debt interest costs are declining, and saying we should be running surpluses. Digging into the figures shows that the surpluses are not big enough to cover the contributions. There are pretty significant Exchequer deficits planned for the coming years and the borrowing is to cover those, where the money from the Exchequer is transferred to the investment funds. The balance sheet implication is, maybe, one more for the NTMA. You borrow the money and put it into the investment funds, so by and large it nets out. However, we would be concerned about a comparison between the interest rate and the rate of return. We definitely do not want this to cost money. If we have made a commitment to put corporation tax receipts into these funds and we do not have the corporation tax receipts to do so and must borrow the money, it raises concerns from a financial perspective. From a fiscal council perspective, at a time when the economy is performing very strongly and corporation tax receipts are forecast to hit €45 billion by 2030, we will not have sufficient surpluses to meet what in actual terms are relatively modest contributions to the savings funds. We will have to resort to borrowing to do so, as per the plan set out by the Government.

I thank Mr. Coffey.

It is quite extraordinary that if we continue on this course, we will potentially be borrowing money for the funds that the political system and I agree need to be resourced to meet the challenges of the future. No household or small business would operate on that basis, so why should the State, especially in the context of where we are at the moment in respect of the high-performing economy, the surpluses we are posting at every level, the economic growth we are experiencing and so on? It really beggars belief that we are on this trajectory. Based on what Mr. Coffey has stated in the report and the commentary on it, I do not know if the issue is necessarily about borrowing to save. Maybe some have not properly interpreted what Mr. Coffey is saying, but my interpretation is that the issue is not necessarily borrowing to save but the existence of alternatives. There is a different course we can take to allow us to do what we need to do. In my view, and that of Mr. Coffey, we need to deploy the corporation tax receipts, if I can continue to describe those receipts as windfall. What is the definition of windfall? They keep repeating.

Is it not the case that for 15 or 16 years in a row now, at least, the Department of Finance’s forecasting of where we would be at on corporation tax has been all over the place and wrong all the time? Mr. Coffey set out in his opening contribution that there is a function for IFAC under the legislation establishing funds to advise the Government on pausing or stopping contributions to them.

I accept that we are now in the realm of anticipating and hypothesising what might happen in the future, but if we are going to continue with this course of action and it gets to the point where we are borrowing because the surpluses are so small and we are borrowing to save in the funds, at what point would IFAC advise the Government that we needed to pause or stop the contributions to the funds? I always say "if we continue with this course of action" because there are alternative routes. Government can change course. Has IFAC given this any consideration?

At this remove, no, but that is a very interesting and perhaps a very likely hypothetical. Thus far, when we have done the assessment, it has been about transferring from a surplus into the funds and whether surpluses should be run, transferred across and used to continue to contribute to the Future Ireland Fund and the Infrastructure, Climate and Nature Fund.

If we look at the annual progress report, we see that the hypothetical and the projections are that the surpluses will not be large enough to meet the contributions. We are getting to the stage where the stated reason for setting up the funds and setting aside some corporation tax receipts cannot be achieved because the surpluses are not available. In that case, you must ask why you are making the contributions. If the contributions were to be part-funded by borrowing money, it would entail an assessment we would have to look at. We have not had to do that yet and we have not considered it yet, but it does seem likely and it is where we are projected to go, as set out in the plans.

As it stands, the assessment we are asked to provide for the funds is on the basis of economic conditions. Does the economy warrant running surpluses to set money aside? Our assessment is that the strong performance of the economy would warrant setting some of the money aside, but the plan is not to do so. It is hard to know where the assessment sits then. If the money is borrowed, an assessment of economic conditions is kind of moot. It does not really apply.

If the plan as set out is something that is implemented over the coming years, and at this remove we have no reason to doubt it, then the role of these funds and of our assessment will become quite interesting. The Deputy is right about things we will have to consider. If we look at the figures and say there will have to be borrowing in a given year, what will our assessment be?

In the time I have remaining, I will turn to more immediate, prosaic matters. No doubt we will come back to this issue time and again. The medium-term plan, published before Christmas, set out that voted spending would rise to about €7.7 billion this year. If we take account of what we anticipate will be required to keep the show on the road to maintain existing levels of service, and add to that, as Mr. Coffey outlined on page 22 of the report published last week, the proposed increase in capital spending of €1.2 billion, that takes us up to €5.5 billion. That is a big chunk of change out of the €7.7 billion from the medium-term plan. If we add to that the rinse-and-repeat hospitality VAT cut, estimated to be €680 million per year in tax forgone, the VAT cut for apartment developments, which is baked in until 2030, and all kinds of other commitments made, at least in the media, by the Minister for Finance and the Taoiseach on everything from the double indexation of personal income tax rates and credits to inheritance tax cuts and inheritance tax adjustments, there is nothing left for new services. Is there? If we are talking about double indexation this year, for want of a better description, the figure is about €1.5 billion at least, which is way ahead of the expenditure set out in the medium-term framework, which is €7.7 billion. Is that not a problem?

The amounts the Deputy set out there would sum to that figure. That does not mean we are constrained in what we could do. We could consider other areas of tax to increase revenue, but I am not necessarily sure we have heard many proposals in that regard. Alternatively, we could determine whether there are changes we could make within our spending envelope. Half the cost of the existing level of services and the VAT increase, which is only coming into effect in a couple of weeks' time, will have to be accounted for in 2027 because the arrangement is on a 12-month basis. Half was counted for this year and half will be included in the cost of the budget for 2027, even though the announcement was made last year. On a full-year basis, it only comes into full effect next year.

Other measures have been introduced, including a potential income tax package. Yes, that would get you close to the full envelope announced, and that is already at a high level compared with those of our EU peers. We are waiting to see whether progress will be made on a public sector pay deal, with the current one due to expire in the coming weeks.

There will be additional increases there in terms of numbers and the rates of pay, but that does not mean the Government is limited in doing new stuff. It just has to be able to fund it on a sustainable basis. If it wants to increase spending across the board, it can do so from sustainable revenue sources by increasing taxes.

I thank the witnesses for coming in today. I have a couple of questions. Would it be fair to say that overruns are becoming common because Departments are underestimating cost at budget time? Is that done on purpose?

Are overruns becoming common? Absolutely. We see them every year, and maybe even in more Departments. Historically, we would have focused on the Department of Health, but this year we see them in the Department of education. Towards the end of last year, we saw them across a range of Departments. Why are they occurring? It could be a combination of two factors. The first, as the Deputy suggested, could be an inaccurate starting point. Are they getting the estimate of the cost of what they are doing correctly? The second could be budgetary mismanagement; in other words, Departments are spending more than they are allocated as they progress through the year. It is hard to disentangle which those are.

We can look at the starting points. Early on in some years, we can see that the starting point figures are not appropriate for the level of services that certain Departments are going to provide. We can see the overruns building up as they progress through the year. Yes, there is scope for more accurate and better starting point figures, both on the Exchequer side, and, as my colleague has referred to, on the non-Exchequer side, by which I mean entities outside the Exchequer such as universities and other bodies which form part of the general government. The overruns are a concern. We hoped to move to multi-annual budgeting, where we could get things accurate for three or four years, but we have an annual approach to budgeting in Ireland. We cannot get things right on an annual basis. It would be better to see more accurate starting points. I refer even to things such as the dual payment of weekly social welfare payments for Christmas. We know Christmas happens every year. We know these dual payments will happen every year, but still, in the middle of June, they are not in the figures. That is a contributory factor to the overruns. The Deputy is absolutely right.

I have a couple of other questions. Would IFAC accept that a failure to address housing shortages now may create larger fiscal pressures in the future? Could insufficient infrastructure in housing, water and sewerage be a bigger threat to economic growth than anything?

It may be a threat to economic growth. It is clear that if infrastructure issues are not addressed sooner, it is more costly to address them later. This comes back to the funds and what we should be doing at a time when the Government is running big surpluses. We should be thinking that those surpluses need to be put aside for future investment or that money needs to be spent on investment now. As my colleagues said earlier, 80% of the increase in spending over the next five years is on current consumption and not on investment. It is definitely something the Government needs to be doing more of.

What lessons should the Government learn from the recent energy price shocks while preparing this budget? Does IFAC favour energy credits?

We do not really get into the details of specific measures. We are more concerned about the overall broader macroeconomic and fiscal outcomes. When something unexpected like this happens, particularly at the scale at which this has happened, clearly a Government response is warranted. While not necessarily getting into the detail of specific measures or supports for particular sectors or industries, one concern would be that in many cases one of the first responses is the introduction of universal supports like the relatively large reductions in excise duty that we saw in response to the latest energy shock of over 30 cent a litre for both petrol and diesel. The issue here is that certain households are hugely negatively impacted by the increase in the cost of energy. Those reductions in excise duty benefited those. They reduced the price for those households experiencing hardship because of these surges in energy prices, but these supports are universal. They also go to households that do not necessarily need them. Are they the best use of our fiscal resources?

On the one hand, our budgetary policy has the Minister for Finance going around trying to promote a savings scheme for households that have significant sums of money on deposit. On the other hand, we are offering those same households significant cuts on excise duty on the fuel they might be buying. There is no doubt that an unexpected shock such as this does warrant a Government response. We are not talking about Government fiscal policy being in some sort of straitjacket. If something like this happens, the Government should respond, but careful use of our resources would be warranted, including the use of universal supports. That would include energy credits, which, if provided to all households, might not necessarily be the best approach to take. Yes, it is easier, it is given to everyone and is easier to explain and the Government is giving something to everybody, but whether it is necessarily the best use of our resources may be a concern we would have.

On North-South initiatives, has IFAC assessed the long-term economic benefits of major all-Ireland projects such as the Dublin-Belfast rail upgrades, the north-west economic corridor and so on? What work has IFAC done on Irish unity, if any?

The answer to that is "No". We have not assessed the economic impacts of any of the projects or elements referred to by the Deputy. We have not considered the impact of unification on Irish budgetary policy.

I will go back. Going back to what others brought up earlier, IFAC noted that the Government plans to borrow in order to contribute to a savings fund. What message does it send to financial markets when a Government is borrowing money while simultaneously claiming to be saving?

It is a bit contradictory. From a balance sheet perspective, Ireland is in a pretty strong position. While borrowing is going to happen if we do not have sufficient surpluses to cover these contributions, the money borrowed is not being spent on current spending. It goes on the balance sheet. On the asset side, these funds are building up. In net terms, it does not have a hugely negative effect on the balance sheet. We are unlikely to see a significant negative response from financial markets. They might view the Irish Government as being one of the safer bets in terms of borrowing money. Our bond use spreads are pretty narrow. At the moment, the NTMA has access to financial markets. The issue is, if we were to hit a shock and were running these model surpluses and maybe there was a hit to corporation tax receipts and the economy, the underlying deficit we referred to earlier would become a reality. If we were to borrow significant sums and had to borrow significant sums of €10 billion, €15 billion or €20 billion a year to run the public services, there would be a negative reaction from financial markets. They would ask whether, if we keep borrowing this money and spending it and it is not going on our balance sheet, we are going to be in a position to repay that to cover the interest.

I do not think the concern is about the borrowing to save, which is not appropriate, but the issue is that the surpluses are not big enough if there was to be a deep shock that would cause an underlying deficit to emerge. If the bond markets were to look at Ireland and see that we are borrowing €20 million a year just to keep things going, they might take a more negative view of what we are doing. I do not think that borrowing to save, from a financial market perspective or balance sheet perspective, is that negative at the moment. The key thing is that if we are running such small surpluses, it means two things. One, it means we do not have enough money going into these funds, even though we have made legislative contributions to do so. Two, it means we are spending most of these corporation tax receipts and that ongoing Government spending commitments on both the current and capital side are dependent on these. If there was to be a shock to those, then we might see a negative reaction.

I thank the witnesses for coming in. One thing I was wondering about was public spending. Public spending has increased quite a lot in the last few years. Is that correct? I asked this question the other day and the Department of public expenditure was not sure. State expenditure has risen by about €38 billion or 40% in the last three years. Would the witnesses agree with that?

That is broadly correct.

The Department of public expenditure did not know, which concerned me. It had numbers from 2021 to 2024. At the same time, what would IFAC think of that? My question then was whether we are getting value for money. Would IFAC look at that in its own numbers, or what would its thoughts be on that point?

Yes, there have been rapid increases in Government spending over the last number of years. One concern would be that a large share of it, around 30%, has been unplanned. It has been outside of the budgetary process.

It has been through the overruns that have happened, which need to be covered in the following years when Departments exceed their budgets. There have been pretty rapid increases in public spending, but there are some explanatory factors in recent years. We have had bouts of inflation which, as we said, the Government should respond to. There has been reasonably strong population growth, which increases the size of the population you are looking to provide public services for. That would cover a lot of it - not all of it but a lot of it. However, there have been increases beyond that. These have been increases at a time when the economy is running very well and does not necessarily need the fiscal support and additional demand Government spending provides.

On the value for money basis, that is not our remit. We are more concerned about the overall fiscal outcomes and whether they are on a sustainable footing, but you can look at whether we are getting increases in outputs from that. One of the biggest increases in the years the Deputy referenced has been in the Department of Health. You could look to see whether we are getting increases in terms of hospital admissions, the number of operations, procedures, appointments, home care services and various other things our huge Department of Health provides. That is not an analysis we have undertaken, but it is certainly something somebody could look at.

Would you say the economy is almost too supercharged?

Maybe not necessarily in those terms.

Is it like 2006? Is it IFAC's fear that when the music stops-----

Growth is strong, unemployment is low and while maybe there are-----

Is it too strong?

-----in the public finances some echoes of 2006 in terms of reliance on a narrow tax base-----

I do not want someone telling me we all partied in three years time. I am not being glib.

Looking back to 2006, and we can all do this in retrospect, we can see the economy was hugely dependent on construction, with 14% of employment in the construction sector. In turn, construction was hugely dependent on credit.

I hesitate to say we are hugely reliant on one sector as well from a tax receipts perspective.

Absolutely. The issue with 2006 was that credit, or that tap, could be turned very quickly and it was. When the credit tap turned, 200,000 jobs were lost in construction with over 100,000 further jobs lost across the entire economy. In retrospect, looking back at 2006, there was over-reliance on one sector. In 2026, there are clear echoes of that with the reliance on tax revenue, where close to a third of tax revenue is coming from corporation tax. Within that, just over half is paid by the top ten corporations and close to half, 45% or 46%, is paid by the top three. That is an extraordinary concentration for sums of money that are growing and growing. We have gone from €5 billion or €6 billion per year ten years ago to over €30 billion now. The forecasting in the annual progress report is for corporation tax receipts to hit €45 billion by 2030. The scale of those is enormous.

If we look at the broader economy, I do not think we see the same concentration risks. You can argue about the multinationals, but it is not quite dependent on a tap like the construction sector was, which was very much dependent on credit. Once that turned, the construction sector fell. The multinationals have a very large presence here, and it could potentially decline, but it is not going to be over a cliff edge.

Mr. Coffey used a few accounting terms. Something that is close to my own heart is balance sheets. Since coming in here, one thing I have noticed is we do not have a national balance sheet per se. We have current expenditure and capital expenditure, which the State tends to mix together. It took me a while to get my head around that concept because you would never do that if you were doing proper accounting. Obviously, you would separate the two.

Capital spending is linked up with current spending. What is Mr. Coffey's view on that? We are putting €102 billion towards capital infrastructure for the next four or five years, yet that is part of our current spending, as we would say from a budget perspective. Does he think that is the right approach, that it is too much or not enough? Is the knock-on impact going to be inflationary to the rest of the economy? We know we need to do those sort of things too because ulitmately we have talked about the infrastructure deficit. If we are increasing spending on infrastructure, surely that is a good thing.

It is correct that current and capital spending are accounted for differently because they result in different outcomes. Current spending is on day-to-day provision of services once used where you have to go and provide them again, whereas with capital spending, you have an asset at the end of a capital spend to put on the balance sheet. They result in different outcomes. For a Government, while we do have that distinction between current and capital, they both happen on a continuous basis.

That is what I mean. We do not really have that distinction, or we do and we do not. It is silly but-----

For a household, if you do an extension or do up a kitchen, it is a one-off item and you can clearly treat it as such, if you have a windfall of revenue sources. If one revenue came in and you spent it-----

Or a business building a factory. It is very simple; you build a factory and you pay your wages. It is capital and current, but there is no separation in the State.

You can treat them there. However, for the State, capital spending happens all the time. There are always projects to do. There is upgrading and maintaining of existing facilities, and expansion and provision of new facilities. Capital spending happens all the time.

At the same time, it is a huge loss that it is not separated out. I feel that if the tap gets turned off from an economic perspective, like it did in 2011, you can forget about capital. It can stop and all get mixed up, and nobody really notices.

You are absolutely right. People do notice, and we are still probably feeling the consequences of it now.

No, they do not want it out in the ether.

Yes, I agree.

In general, the newspapers are not reporting, "We have not spent X on capital". It is not as visible. More to the point, and funnily enough I was coming at it from the other angle, we are ramping it up. Some of my colleagues have alluded to the fact we are borrowing while we have got a lot of money, but at the same time we are spending a lot from an infrastructure perspective. Is that where some of the gap is coming from? That is what I am getting at. Ultimately, if we want to build things, we need to borrow.

We agree that capital spending should be increased. My colleague has gone through the fact there are deficits that need to be addressed in various areas. The issue is if you want to do everything. Some 80% of our planned spending increases over the coming years to 2030 are in current spending. Even with the large increases in capital spending, the current spending increases are much larger. We should do the capital spending and it should be on a more solid and stable footing. We can talk about Ireland's fiscal policy being procyclical for the past 50 years, but the most procyclical element of Irish budgetary policy has been capital spending.

That is true.

When the money comes in, we ramp up capital spending and then, as the Deputy said, when the money dries up and there is a crisis to be addressed, the one that is hit the hardest is capital. Post 2008, capital spending was cut by almost 70%. The Deputy is absolutely right that the victims of it do not know who they are. If you try to cut public sector pay or social welfare payments, people know exactly who is going to suffer because of that and they are very difficult things to do. If there is a road project that is planned to start in six months and you do not start it, maybe the company that got the contract do not know who was going to get it, the workers do not know who would be employed in it and the drivers do not know the road was going to be there.

The mad thing is you would have got better value for money and created jobs.

If it were more stable. We wiped out our construction sector and 15 years later we are probably still living with the consequences of that. If there were one area of public spending that would benefit from a less procyclical approach, it would be capital spending. We are ramping it up now, and we hear various arguments that more of these corporation tax receipts should go to capital spending, but money is fungible. It all goes into one pot of tax revenue. As the Deputy said, we do not distinguish between current and capital, but you cannot. You cannot say, "We are spending this euro on current and that euro on capital". You cannot do that.

At the same time, 20 years later, you can tell we built the motorways, the Luas and terminal 2 in the airport.

I have one last question. The International Monetary Fund, IMF, was in a few weeks ago, which did a report and return. I met with it at this committee. Did the witnesses look at the report and what is their view on it? It seems broadly similar to what they are thinking.

We also met with the IMF while it was visiting. Much of the analysis and points it made chimed with the analysis we had around over-reliance on corporation tax and the fact we are spending the vast majority of these receipts now, rather than saving for the predictable future challenges we know we face with an ageing population and climate change. Much of what it emphasised around that and around building a stronger domestic fiscal framework, given the European fiscal rules, does not seem to suit Ireland very well. Those were the points we very much agree with.

I thank everyone for coming before the committee. It is always very interesting when IFAC comes in. I appreciate the witnesses taking the time.

One thing I have raised before with the witnesses relates to the poverty and inequality aspect of things. Obviously, when we hear talk about the economy at this moment in time, it is always about the strength of the economy and that it is performing well. We have record surpluses, GDP growth is high and unemployment is low. However, we then have the reality of people's lives, which does not equate to a growing number of people, specifically with the housing crisis and the very high cost of housing, as well as other cost-of-living pressures.

In some ways, there needs to be a shift in the conversation regarding what the economy is and how it is performing for people.

The report references the Government spending too much. That is quite often a conversation that is had but my concern is the impact that narrative will have if Government took that approach on those who are already in poverty and those who are already the poorer in society. Generally, that would disproportionately affect the poorest in society. How does the council consider poverty and inequality when he is making recommendations to Government and in reports?

Going back to an earlier discussion we had with one of the Deputy's colleagues, it would be something we could consider. If measures were being introduced, we would look at whether they are targeted at those who need them the most and, yes, there clearly are households that are struggling regardless of whether we have cost-of-living crises, etc., and increase in energy, and we should be looking at targeting supports in that direction. When it comes to measures of poverty and inequality, they would not directly impact on the analysis we are making but our discussions, analysis and conclusions would be looking at the use of fiscal resources and whether they are going to those areas or households where they would make the biggest impact.

We would also assess some of the underlying symptoms the Deputy referred to. While it is kind of a hard circle to square, in part, some of the problems we are seeing are as a result of the economy performing so strongly. There was no housing crisis in Ireland in the 1980s. When 100,000 people are leaving the country and emigrating to seek employment opportunities elsewhere, we are not going to have a housing crisis. We are currently in a positive position where this is a country that people want to come to. Our failure has been that we have not increased our housing infrastructure to match that population growth and that is a key cause of some of the problems we are seeing in regard to the rent prices, the price of houses themselves and the cost and availability of housing. We see people staying at home longer than every before.

To be fair, on that, the discussion Mr. Coffey just had with Deputy Neville kind of leads to what he is talking about there now. There was a six-year period in Galway city where the State did not build any social housing. We talked about people not seeing capital spending being cut but in that instance, this has had a huge knock-on effect for people in Galway. Now, equally, we also have the issue where people could have a good job in an economy that is apparently strong but it is not strong for a huge portion of them. There is a massive disconnect there. They could be doing all right if they were living in any other society. They would be doing well but they are not and they are struggling to make ends meet. In a sense, what Mr. Coffey was talking about in regard to the cuts had that knock-on effect when it comes to housing.

Absolutely. As my colleague was going through earlier, the issue is if these shortages, deficits and bottlenecks are not dealt withy, it is going to lead to further cost down the line. This very pro-cyclical approach to capital spending exacerbates that. While one issue has been on the public spending side, we must also look at what our construction sector is doing. We have looked at analyses of construction employment, which has recovered over the past decade, and housing output, which has not increased in the same fashion. There are clearly issues in getting what we call small- to medium-sized builders involved in housebuilding and doing a small project of ten, 15 or 20 units in various cities and towns across the country. It does appear that many more of our small and medium construction firms seem more engaged in retrofitting in terms of improvements and small projects rather than housebuilding. Then we become reliant at a private level on a small number of the large developers and, of course, many developers were wiped out in the crash. As the Deputy said, when it comes to public spending on housing post 2008, that went to close to zero and still, ten to 15 years later, we are finding difficulty in ramping that back up. Finance and money is not the problem. We can devote more resources. The Department of housing has got more-----

It is political will. There is no question of that because every year, housing is getting worse in Galway city. The only conclusion I can come to is that it is a political choice. I do not understand how it can worsen every year. It goes back to the concept of having a good job but not being able to pay for the rent people are supposed to be able to pay. They are just not able.

I want to follow up on a point Mr. Coffey discussed with Deputy Guirke regarding cost overruns and so on. This day last week, we had Department of Education and Youth officials before us to discuss so-called overspends but it became quite apparent within the discussion we had that they had forecasted €416 million extra than they had been given on budget day. They said that they had continuous conversations with the Department of public expenditure and reform on that. Is there an issue there? Now we are bearing the brunt of that decision. Obviously, €416 million was still less than what was needed in the end but we are still bearing the brunt of that. I found that the way this year's budget was presented confusing. The sums did not add up; it did not make any sense. Is there an issue? If we are not meeting what is forecast, are we not just landing ourselves into problems like this?

There certainly is an issue there. The figures included in the budget should reflect the full range of decisions made at government and departmental level about what the planned spending in the following year will be. We were not party to these discussions. We do not know the extent of what agreements or arrangements were made-----

Of course.

-----for additional spending by the Department of Education and Youth but if it had been agreed that this additional spending would happen in 2026, it should have been in the starting figures. That would have given us, as a fiscal council, a more appropriate budget document to assess what the Government was doing. Then, as we progressed through the year, it would have given us a better indication of where we are going with actual overruns rather than what now seem to be, in a sense, planned overruns, which is an odd sort of position to be in. No, this is not appropriate approach to take and, yes, it presents an issue.

It makes Mr. Coffey's life more difficult as well as ours. The issue is that the Department, by my understanding from the meeting last week, was told by the Department of public expenditure and reform to try and find ways to cut but €416 million is an awful lot of money to try and cut. It was to do with pay and all sorts of thing that are kind of outside the scope of the Department. I thank Mr. Coffey.

I thank the Deputy. I have a few questions. I refer to the graph on fast spending growth. I am concerned about that as well, as much as the witnesses are. Should it not be qualified in light of the fact that we have an infrastructure deficit that we are trying to play catch-up on? We have also had vast population growth of the order of 2% or more over the past five years. That would automatically feed into increased spending growth. The economy growing fast - although I know Mr. Coffey disagreed with me when I said it previously - would invariably feed into some spending growth. I agree it is a real concern but should he not have qualified it with those provisos, which would push spending growth?

In regard to the three the Leas-Chathaoirleach mentioned, on capital spending, we are in favour of additional capital spending because of the infrastructure deficits and shortfalls that have been discussed by my colleagues. The issue is doing the capital spending and trying to do everything else at the same time. If capital spending is the priority, then make it the priority. Have more of the resources devoted there while not trying to do everything else, as seems to be the case now.

When it comes to population growth, that is a factor that the public finances and the Government should respond to but, again, that would not give rise to the scale of the differences we are seeing in this chart of spending increases across the EU.

On the Deputy's final point, that would run counter to our analysis in that at a time an economy is performing well, it does not need the support of expansionary fiscal policy. It does not need the stimulation of additional demand that rapid increases in public spending can give because the economy is performing well without it. There is a potential to drive up demand and we have seen, perhaps, some domestic prices increasing in housing and other areas as a result of this additional demand.

For two of the Deputy's points, we would be in favour of additional capital spending but it is a priority. Let us be clear and explicit as to how it is a priority and not trying to do other things. On population growth, fiscal policy should respond to that but that does not necessarily impact the full gap we see here. Countercyclical policy actually argues for lower public spending, or at least a lower growth in spending, at a time the economy is performing well.

I will make this point yet again. We would expect Government spending, particularly on welfare and other payments, to fall at a time growth was very strong. We would expect tax revenues to increase at a time growth was strong.

Which they are.

Naturally, you would expect net spending to be lower when the economy is booming relative to when it was not, so the fact net spending growth is increasing at the minute, with the economy booming, suggests the policy is not really in the right place.

There is clearly a correlation between population increase and spending growth in an area like education, and in a lot of other Departments, including the Department of Health given the ageing population. I would have thought that increase in spending would be inevitable.

The increase in spending coming from the ageing population is indeed inevitable. This is why we have stressed the need to put money aside in the Future Ireland Fund. I agree with my colleague Mr. Coffey that Government spending does rise as a result of population growth.

On the graph on page 3 of the opening statement, I think the figure may have been cited earlier but is the windfall in corporation tax receipts of the order of 50%? Is that the best guesstimate? I know it is not an exact science. I am conscious of my time.

The estimates used were from the Department of Finance's annual progress report but they are about 50% of the total corporation tax.

I am interested in IFAC's proposal on having a domestic fiscal rule. Has the council explored what that would actually look like?

Yes. There are a number of different characteristics of how a good domestic fiscal rule would look. One would be to place it in legislation. We had a domestic net spending rule under the previous Government but it was never set down in legislation, formalised or complied with. One key aspect would be to have another one with a stronger basis in legislation. Another characteristic would be to have the rule on a general Government basis to cover all elements of Government spending and not just that which falls within the Exchequer. A third aspect we emphasise is that it would be a net spending rule. Additional spending can be financed sustainably through increased tax revenue, so if you introduce further tax measures, that would give further scope to grow spending at a faster rate than it otherwise would.

Mr. Conroy mentioned borrowing to invest in savings, which is shown in the graph on page 4 of the opening statement. Am I right that the figures of €12 billion, €13 billion, €15 billion, €17 billion and €18 billion up to 2030 are the amounts projected to go into savings? Is it risky for a State to borrow, on the one hand, and invest in funds, on the other hand? Has IFAC looked at the performance of those funds over the past five years versus the interest rate we are paying on our debt?

Yes, we have looked at the returns we are getting from these various funds. Taking the Social Insurance Fund and the Infrastructure, Climate and Nature Fund, they are invested quite conservatively at present so they are generating quite modest returns.

Do those returns exceed the average interest rate we are paying on the full government debt of €200 billion, or whatever it is?

It is probably better to think of what the marginal rate would be if we were to increase the amount of debt at present. To issue new government debt, we would generally pay from 3% to 3.5% interest per year on that.

How does that rate compare with the return on the funds?

It would be higher than the return on the Social Insurance Fund and the Infrastructure, Climate and Nature Fund. However, for the Future Ireland Fund, the anticipated strategy is that this fund would be invested in slightly more risky assets that would likely generate a return that might be in excess of what we pay on government debt.

There is no information telling IFAC it is a smart thing to do to borrow as a State, because the State has the power to borrow and invest. There is nothing to say that is a clever transaction that you would make a profit on, necessarily.

Again, I think the NTMA would probably be better placed to answer that but you would be borrowing with a certain cost to invest with an uncertain return, so you would be taking some risk in doing so.

I asked that the Department of education appear before the committee last week to discuss how it ended up with a €648 million overrun. In fairness to the Department, it was not a real overrun in the sense it was effectively given a shortfall of €416 million in the first place. In my view, and I do not know if IFAC agrees with me, that is the wrong way to run a budget because the budget is effectively discredited from day one if it allocates €12.5 billion to the Department, knowing it will cost €12.9 billion, or €13.1 billion or whatever it was with the extra €200 million. Are we all agreed on that?

We do not disagree.

It was my first year on the budget committee. Does that happen every year?

The approach we saw with the Department of education is our first time hearing something like this, where it appears agreements were made prior to the budget that were not included in the budget day figures. We hope it is not something that has happened every year or that will happen in future years. The Leas-Chathaoirleach is absolutely right that this means the budget day figures are not the right starting point to begin with. It means that, as a council and secretariat, we devote time - six weeks post budget - assessing budget documents, which do not include the full range of Government or Department decisions that have been made. As such, we produce an assessment report that is not on the basis of figures that will actually happen. We saw in the case of the Department of education this year that talk of these overruns began in February. That suggests there was-----

There was prior knowledge.

Yes, prior knowledge. The figures for the year were being quoted in February, which seemed unusual to us in that. How could the Department know what was going to happen over the following 12 months, but it seems it did know. That is not an appropriate way to run our public finances.

If I can add to that, the big risk is also that if this money is not budgeted for at the beginning of the year or when the budget is set, as a small, open economy that is subject to a lot of risk coming from abroad - we have seen two energy shocks in a very short period - we are less prepared to face all of these external shocks.

I have a final question. While it is probably not in IFAC's remit, it is something I try to bring up all the time. Does IFAC have any views on cost control or does it look at it? Listening to this whole scenario, I am thinking we should all be given a list and come up with ways of saving money.

This is an issue we are looking at, although not at this year's conference. The previous year's conference was almost fully devoted to looking at cost control on the capital side. Mr. Conroy will summarise some of the contributions that were made there. It is, therefore, something IFAC has looked at.

If you look at large public capital investment projects across the world, overruns are pretty common. A lot of the time, we will see that projects are delayed and tend not to come in within budget. Some of that is due to optimism when these plans are being put forward. People sponsoring or promoting a certain project may underestimate the costs and the time it will take to deliver those. You need to have a pretty robust framework when you are assessing whether a project is the right thing to do and if we need to do it now. We had some speakers from Norway which has a very strong public investment appraisal office. A lot of the key work it does is at the front end. Their view is that it is before a project starts that you have the opportunity to make sure it is being done properly, it is the right project and it is being tendered for correctly. Once a project starts, it is very difficult to make adjustments midway through.

On that theme, I ask Deputy Neville to indulge me for a moment.

That is fine. You are the boss.

That is capital expenditure but I am thinking more about day-to-day current spending. How do we give an incentive to the public service and the people in it, a carrot or stick or whatever way you want to put it, to save money? We hear these horror stories about councils getting phone calls in December to say they have not spent their budgets and asking if they have anything they want to spend money on? We talk about counter-cyclical and that runs counter to what we should be trying to achieve.

There is no doubt that there are certain elements of that, but in overall terms, the impact of that would be relatively modest. That certainly points to it not necessarily being the most efficient way of doing business. If you have money you have not used in a particular year, maybe it should be forwarded to the following year. If you have something that is worthwhile and a positive decision to make to do something, then you can spend it, rather than having to rush something in the last two weeks before Christmas to get the money out the door, and not necessarily in the best fashion.

When it comes to current spending, as we said, there are two problems. One is the inappropriate and inaccurate starting point. The second is budgetary mismanagement throughout the year. The overruns we see on the current side are a combination of the two factors. We can argue the public sector leads to these overruns in terms of budgetary mismanagement but the extent to which that is the key driver of what is happening is not clear. As we said, when it comes to current spending this year we know there will be a couple of hundred million euro for the double payment of social welfare payments in the run-up to Christmas. This should happen and will happen but, as of yet, it is not in the figures. It was not contained in the annual progress report the Government published a couple of weeks ago.

That is the delivery of a flawed budget.

The question is if there are inefficiencies or wastefulness in the public sector. To a certain extent the answer is yes, but it is hard to tell if it is a key driver of what is happening.

Has anyone looked at what incentives can be created to save money? I know we are talking about 400,000 people. It is complex and you have to get granular. Can anything be done?

It is hard to do. One thing about budgeting is if you can live within a certain budget one year then the argument is you can live within that budget the following year. Although you had a larger allocation for this year you did not use it all, so it seems to be a punishment for living within your budget to get a smaller budget the following year. That is a hard circle to square in terms of how you go about doing it. It happens on the capital side that unused capital allocations are carried forward. A lot of that is timing. The project is ongoing and maybe the bill has not come in and you did not have to pay it, but you will have to pay it the following year. On the current side there tends to be a reduction in the allocation. We have not looked into what would be an appropriate method. One way to help overcome this would be more multi-annual budgeting, so you would have your budget over a period of three or four years. What you do in one 12-month period is not key. It is what you do over the lifetime of a Government. The current approach at EU level with the medium-term plans is trying to move in that direction to set out what annual increases will be to 2030. We have that but we do not have the detail below it. Of those 7% increases for the coming three or four years the question is what Departments they are going to. What can Departments plan to spend over the coming years? We are still very much in a budgeting process that focuses on one year and we do not get that right. It is a big jump to say we can get it right over three or four years, but it would overcome that. If you did not spend money in one year, it would still be available to you the following year-----

There are no penalties.

-----as long as over the three or four years you stayed within the total envelope. That might remedy it, but as yet we are a long way from that.

I apologise to IFAC for not being here earlier. I had to go to another committee and speak in the Dáil while this was on. I will probably be covering ground that has already been covered, so that is a double apology. I understand IFAC's concern that our spending is excessive compared with the growth of the economy and that we will even have to borrow money. Will the witnesses go over that point? We are going to have to borrow money to put in what we are supposed to be putting into the two big investment funds. I get where they are coming from. IFAC is saying the reliability of the source of income we are using for that spending is vulnerable, and that source is corporate tax revenue. That is a point on which I strongly agree. We have to try to diversify away from our over-reliance on that particular source of revenue and industrial model. It is not just that source of revenue, but the industrial model it speaks to. However, the consequence of that is cutting back when there is a cost-of-living crisis. Huge numbers of people are facing energy bills arrears, childcare is at extortionate levels and we need social and affordable housing and investment in the health service. You name it. It screams austerity. What they are saying screams the potential for austerity and that does not seems like a viable alternative. Should IFAC not be talking more about expanding the envelope of revenue we get rather than concerns about too much spending? Do the witnesses know what I mean? That is obviously our perspective on it. We need to start talking about wealth taxes and when we say wealth taxes we mean the sorts of things that have started to be done, or are being considered, where they start to go for multi-millionaires and the super wealthy. Any fair assessment would say there is an extraordinary concentration of an enormous amount of wealth in the hands of billionaires, trillionaires and multimillionaires. We need to start going after that wealth in order that we do not have to impose austerity on people to have a prudential or fiscally responsible approach to managing the State's finances.

Language matter. Being a group of economists, we are maybe not best placed to be users of clear and simple language. Maybe at times we think what we are saying makes sense to everybody when perhaps it does not. When it comes to Government spending a colleague of the Deputy referred to how we said that Government spending was too much. Deputy Boyd Barrett has referred to it as being excessive. Our argument would not necessarily be that the overall size of Government spending is too much or excessive. It is more about whether or not Government spending is on a sustainable footing. Regardless of the size, is it something we can do every year given the revenue base we have and looking at certain vulnerabilities in that? A concern in recent years has been the growth in Government spending. Again, we are looking at both sides of the budget. When we talk about spending it is the use of fiscal resources. That can be increasing spending in certain areas or it can be reducing taxes in certain areas. Both are a use of fiscal resources. In recent years, the growth of Government spending has outstripped the sustainable growth rate of the economy. We are spending on the tax and spending side at a rate faster than the economy can sustainably produce. That is being covered because of these booming corporation tax receipts. The argument would be that a lot of things the Deputy has referenced, like key and vital services the Government provides, particularly to lower income and vulnerable households, should not be provided on the basis of these potentially vulnerable corporation tax receipts. These are key services we want to do all of the time, not just when these bumper corporation tax receipts are coming in. When it comes to the cost of living, the energy bill arrears referred to and the availability and supply of housing, childcare, etc., these are things we would not argue against. We again do not get into specific measures.

Let us look at the resources we are using and the responses to some of the issues the Deputy has addressed. We had a spike in energy prices earlier this year and a large package of €750 million was announced. Within that, the largest single measure was the reduction in excise duty, which goes to everybody and not necessarily to those households that are feeling the pinch the greatest when it comes to these pretty large and short, spiky energy price increases. We have the resources, and one issue is if we are deploying them in the appropriate fashion. If we want to make the quantum of Government spending larger we can absolutely do it. A fiscal council would not be opposed to that if it were done on a sustainable footing. The Deputy has referenced certain tax increases. If a government were to introduce such tax increases that generated sustainable revenue that would then feed into additional resources on the spending side, the scale or size of the spending would not be a concern for us as long as it were done on a sustainable footing. The concern at the moment is that we have been ramping up spending, tax cuts and spending increases beyond the sustainable growth rate of the economy and that has been covered by these corporation tax receipts. Are we going to find ourselves in a position where we only do these things when the corporation tax receipts come back? Are we then going to have austerity, which is not something we are having now? Were these corporation tax receipts to evaporate it would then be the case that we might see something like that introduced and that would be utterly inappropriate. I do not think we are too far apart.

No, we are not. However, there is a particular narrative that I am not saying is coming from IFAC, but Mr. Coffey alluded to it. It is one of targeted supports versus universal supports to deal with the cost of living. That sounds good, but the problem is that you then have to decide where the threshold is. As soon as you decide where the threshold is you suddenly realise that there are usually quite a lot of people who are just over that threshold who really need help. They do not need quite as much help as the people below the threshold, but they need help. If it is a cliff edge, it is divisive and problematic because it leads to a bitter division between those over and under thresholds even when the actual difference in their income is often negligible. You are just under the State's social housing income thresholds or whatever. You are at €41,500 and over the limit, and at €39,500 and under the limit.

Under the limit, you can access social housing, after a decade waiting, but over it, you are not getting anything.

You can get the housing assistance payment, HAP, in that situation, which is-----

No, you do not get HAP unless-----

Unless you are under. That is my point.

Yes, exactly. That is why I am for universal. There are also fewer administrative costs. There is a lot of administration in assessing people's income and eligibility. There has been a ballooning of costs around those things. I do not know.

There are pros and cons to both. There is no doubt that universal payments have certain attractions. You do not have these threshold effects. The criteria are easy and it is easier to administer when you give it to everybody. However, is it the most appropriate use of fiscal resources? As we discussed earlier, we seem to have a two-tier approach to fiscal policy. There are announcements from the Government. We have this universal reduction in excise duty applying to everybody who purchases petrol and diesel in response to the latest energy shock and then we have various discussions and announcements of what we are going to do for the households who have €190 billion sitting on deposit. Those households are going to be among those who benefit from these excise duty reductions. That would not appear to be the best use of fiscal resources. Is it politically expedient? Possibly. Is it easier to implement? Yes. Are there attractions to universal payments? Yes. However, if you want to do more, if you want to apply these supports to households that are experiencing higher energy costs and you want to provide childcare, particularly to those who might be shut out of the labour market because their potential earnings are being fully consumed by the enormous childcare costs, if you want to help those households and if you were introducing universal measures for energy, childcare and child benefit, the amount of resources you would be using would ramp up quickly. If that is done on the basis of these corporation tax receipts, that presents a vulnerability. You could do the measures the Deputy is suggesting if it were on a sustainable footing. On the revenue side, you could raise the additional revenue. Significant additional revenue would be required to cover some of the proposed universal measures, but if the additional revenue could be used, those measures might be introduced and could then be on a sustainable footing. It is about how you use your fiscal resources. Perhaps the response is to go and generate additional fiscal resources that will then allow you to do these universal measures. However, if you are not willing to increase taxes, introducing these universal fiscal measures might not be the way to go.

As Mr. Coffey knows at this stage, I would be in favour of imposing wealth taxes over certain income thresholds. I will ask another question. I am not asking Mr. Coffey to comment on that, although the notion is starting to be taken more seriously in more and more places across the world and I believe we should consider it here.

I will comment on raising the baseline corporate tax. We agree about over-reliance on revenues that could disappear. That is linked to a particular sector here, namely, the US foreign direct investment, FDI, sector and the tech and pharmaceutical areas. I do not see the pharmaceutical sector going anywhere anytime soon, frankly, so there are differences. There are those of us who have always argued that, whether it was 12.5% or 15%, the rate was too low. Why on earth should corporations be paying such low levels of tax compared with what the average worker pays, which is a considerably higher proportion of their income overall? The 12.5% rate went to 15% and the Irish Government was not the most enthusiastic supporter of that. The OECD eventually went there because of the base erosion and profit shifting, BEPS, process, and arguably because of political pressure and so on. However, it did not lead to any damage to this country. In fact, if anything - and perhaps Mr. Coffey would comment on this - we got a boost in revenue from increasing the baseline, headline rate. There is a debate about headline rate versus effective rate. We have had that discussion previously. Might there be a case for banging up the headline rate even further on corporate tax? We would certainly advocate for that. There is no particular reason to believe, judging from our previous experience, that there would be a big flood of capital out of the country if, for example, we raised the nominal rate from 15% to 20%. What would Mr. Coffey say about that?

There are obviously lots of facets to that. If we were to try to increase the rate and if it were successful, it would further exacerbate this reliance and concentration on corporation tax from a very small group of firms. The Deputy is right that we have increased the rate. That was part of a collective and international agreement to go from 12.5% to 15%. Our analysis suggests this will lead to a substantial increase in tax revenue for Ireland because the activities the companies have here will remain the same, as long as the companies remain profitable. If they are levied at 15% rather than 12.5%, it will add approximately 20% to corporation tax receipts, which is significant. That is the case when you do the analysis, at least informally, of the impact of the increase from 12.5% to 15%. The Deputy is right that the Irish Government was, initially at least, reluctant to sign on to the OECD agreement. The language initially was that there would be a minimum tax of at least 15%. Ireland objected to the inclusion of "at least", the feeling being at policy level in Ireland that it would lead to a further round of negotiations at EU level, where the minimum tax would be implemented via regulation and directive, and that if we had agreed at OECD level to "at least 15%", we would have to get the 27 member states of the EU around the table to ask what that means. Does it mean 20%? Ireland wanted certainty that it meant 15%. That was why there was a delay of six months or more before we signed up.

When it comes to the impact on investment, one of the key things is the gap. We can take European countries, the likes of France and Germany, to which some of this investment might go. Their rates are in the mid-20s, or up towards 30, in percentage terms. While a move from 12.5% to 15% narrows the gap, it does not narrow it that significantly. We do not see those changes. The Deputy is right about the likes of the pharmaceutical sector, which has invested billions in plants and factories in Ireland. They are unlikely to move or shift because of short-term or immediate changes in tax rates. There are other countries that have lower rates than Ireland and we do not see those companies upping sticks and moving there. However, if Ireland were to move to 20%, it would further narrow the gap between us and the likes of France and Germany, and perhaps with their deeper talent pools and broader labour markets, they might be more attractive for US executives to base themselves from rather than being in Ireland. Over a longer period of eight, ten or 12 years, we might see the pipeline of investment in Ireland slow down and see more of that investment go to other countries. That is a kind of informal analysis. We have not seen that with the increase from 12.5% to 15%. We are likely to see significant increases in tax revenue. Once Revenue gets the tax filings from the various companies, it will be able to tell us how much was due to the 12.5% rate and how much was due to the top-up to get them up to the 15%. The expectation is, with this minimum effective tax, that they will be paying 15%. This will, we hope, be clear from any data or evidence that the Revenue produces. The intention is that the effective tax rate is 15%. Revenue may be able to produce figures in that regard.

When it comes to an increase in the overall rate, as a small peripheral island nation, we do not have huge advantages. What do France and Germany have? They have centrality and huge markets. We must in a sense decide what it is we are going to be attractive for. You are not going to get car or steel companies move here. Heavy industry is not going to move to Ireland. We make small things. You either sell it online from here or it is absolutely tiny, such as the active ingredient in these pharmaceutical products. One way we have attracted those companies here is with low tax. Would it be a risk if we were to increase the rate and narrow that gap between us and the likes of France and Germany? It would be, potentially. However, that is only an informal assessment.

There is no doubt but that we have used low tax to attract these companies. If you survey and review why the companies made the decision to come here, they will tell you that part of the reason - not the full reason - was the relatively low tax rate. It is a balancing act. Moving from 12.5% to 15% does not seemed to have moved the dial. The investment is continuing and the pipeline seems strong. It is quieter, but that is primarily because companies do not want to attract the attention of the current occupant of the White House. They want to keep it on the down-low. If we were to go to 20% or higher, I am not sure the outcome would be as benign. That is only an informal analysis. We have had this discussion previously.

I am out of time.

I want to come back in on that point for a moment.

May I make one more point and then leave it to the Leas-Chathaoirleach? There are areas on which we could concentrate. We can debate the tax issue.

I am not saying it is not an attraction for them. One area that is clear at the moment about where investment should go has to do with the availability of skilled, qualified labour in many areas. The big R and D tax credits are mostly benefiting the big multinationals, which are already doing extraordinarily well and which then get all the surplus to decide where that surplus goes to be invested, and the investment in other forms of R and D is much less. By that I mean, for example, if you are doing postdoctoral research in this country in any area, you are on a pittance compared to your European counterparts. It is not very attractive to do research here, unless you happen to be working for a multinational that is making lots of profits, for example, making iPhones or in social media, but if you are doing anything else, it is not very attractive to be here. Is that not an area that would strategically be of value, namely, to create a much better environment for people doing research and innovation outside the FDI sector? That would actually bring in investment and it could also help us diversify the economy, which is badly needed.

One way in which Ireland has attracted a lot of multinationals is by having a very young highly skilled labour source and investment in that is all the more needed now when we are facing the threat that has not been discussed today, which is AI. We have had all the reports from the ESRI about the number of jobs that are threatened by AI, so I think there is scope for Government investment in reskilling of the workforce given that a lot of the tasks might be automated. That is definitely one area in terms of long-term investment that is going to bring huge benefits to the Irish economy overall.

I agree with Deputy Boyd Barrett about the use of fiscal resources. The R and D tax credit is a use of fiscal resources in subsidising a certain type of R and D activity and the cost is pretty significant. It is now north of €1 billion per annum and it has been enhanced in recent years with the increase in the rate and maybe a broadening of the type of activities that are covered. I am in agreement with my colleague; if we could see greater public spending on R and D that would bring productivity gains if we have a higher skilled, more educated workforce and we want to continue to move up and move more high-value activities to Ireland.

As it stands, in the pharmaceutical sector, we clearly are strong when it comes to manufacturing but we are manufacturing products that are researched and developed elsewhere. Could we be in a position where we would undertake some of that research ourselves both in universities and in other bodies across the existing spectrum? We must look at what is the best use of our resources and whether it is about continuing to devote more and more resources to the R and D tax credit or if we could have direct spending on the R and D ourselves.

Absolutely. I agree. I hope the committee hears that.

I want to come in on that and make two points. I heard about an organisation that was set up on "The Business", Richard Curran's show about two weeks ago. A gentleman whose surname is Boucher is setting up an initiative in Ireland which is going to recruit 1,000 high-class PhD researchers over the next couple of years to do that very thing, namely, to develop our own innovative research facilities that will hopefully eventually partly lead to our own indigenous operations. The Government has an initiative to do that.

Absolutely. We are not saying that there is no sort of public support for research; there certainly is. There are various bodies, funds and groups set up, and a lot of research does happen through the third level institutions. It is just about looking at whether what we are doing is the best use in terms of whether we keep expanding and increasing the R&D tax credit or maybe using the resources to expand the stipends that go to postdocs and PhD students. Perhaps we could cover more of the fees and, as the Deputy says, expand the number of people who are undertaking this type of research. Yes, it does happen but it is just a matter of whether we make a choice to actually do more of it.

The second point was about corporation tax. I worked in business myself for 30 years and I would have thought that certainty is a huge part of business investment. If you know that your corporation tax is going to stay at this rate and you know the Government's rules, view and pro-business attitude and culture, and if that remains the case and there are not risks of that changing, then I would have thought that is an attraction both to come and to remain.

Absolutely. It plays a very significant role. When companies are making investment decisions, they are not looking at just tomorrow, they are looking at ten, 15 or 20 years of an investment horizon. The environment in which the investment decisions are being made is quite significant. Ireland has benefited from that certainty. We can compare to our near neighbour in the UK, which maybe had the potential to be a competitor to Ireland for attracting investment, in particular US investment. It left the EU and it would no longer have been subject to the potential for state aid investigations but it kept chopping and changing about where it was going to take the UK corporation tax rate. They were talking of going from the low 20% area down to 15% and then they said they would go to 17%, and then it would go back up to 23%. I am not quite sure where the rate is but the announcements about where it was going to go kept chopping and changing and that level of uncertainty does not aid investment decisions.

In the case of Ireland, we have developed and built up a pretty large amount of certainty but in response to the previous contribution from Deputy Boyd Barrett, when we agreed initially to the minimum effective tax of 15% the media announcement was that Ireland's corporate tax rate would go to 15% and that the way we would implement the minimum tax was to have the 15% rate across the board and that it would apply to SMEs, Irish multinationals and foreign multinationals. This was then rowed back on for various reasons. First, we kept saying the rate was 12.5%, so why are we changing it? Why are we applying this higher rate to Irish SMEs when the minimum tax is all about the large global players? Now we have implemented the minimum tax with a top-up tax. We have maintained the rate at 12.5%, so Ireland's corporation tax rate is still 12.5%, as it has been since 2003 but the larger players - those who fall under the remit of the minimum tax - pay a top-up tax to get to 15%. That uncertainty has been generated externally. We cannot blame Ireland for this minimum tax because it came via an OECD agreement. The certainty and stability in both the economic environment, the investment environment and the political environment all help the Irish to pitch and sell in terms of getting investment.

Another factor is the length of time these companies are here. Pfizer is here since 1969, the likes of Pepsi is here since 1973, Eli Lilly since 1979, Microsoft since 1983 and Intel since 1989. These companies are here decades. They have generations of history here of benefiting from the stability. The Leas-Chathaoirleach is absolutely right: it does aid and has led to the continued investment in Ireland. Low tax may get us on the playing field but it is not enough. We need the high-skilled workforce we spoke about.

Mr. Coffey partly answered my last question. Political stability is important as well. Ireland has been relatively stable politically for decades now. When we look across the water we see the uncertain political developments there. When we look to France, there is uncertainty about next year's elections. As he has just outlined, that political stability is a contributory factor as well.

I can certainly vouch for what was said about that the situation just across the water. Investment has been really badly hit in the UK over the past ten years. A lot of that is due to political instability.

From an academic perspective, a wealth of research shows that one of the key factors that influences corporate investment is uncertainty, so economic policy and macroeconomics have huge impacts on investment. Stability and certainty definitely help.

I thank the witnesses. I am out of time now. That concludes the session. I thank the witnesses for attending the meeting today. The meeting now stands adjourned until 3.30 p.m. on Tuesday 23 June 2026.