Monday, 20 June 2022
Good afternoon everyone.
It’s great to meet in person again here in Dublin Castle.
This place is so symbolic for our nation.
It’s 100 years since the last ever Viceroy of Ireland handed Dublin Castle over to Michael Collins and the Government of the newly-independent Irish state.
It is, of course, also the Headquarters of the Revenue Commissioners.
Today, Irish society and our economy bears no resemblance to that of 1922. It’s been utterly transformed, thanks to some good decisions that were made along the way but more importantly, thanks to the strength and talent of the Irish people.
In three months’ time, the Government has a difficult set of choices and decisions to make but they are nothing like the difficult decisions facing the Government in 1922 when the viability of the fledgling state was uncertain. We have our problems, but we also have the means to overcome them. We have shown that before and we will do so again.
For us as Ministers, the National Economic Dialogue is about hearing from you and exchanging views as we prepare for Budget 2023. This year, more than ever, we need to hear your voice so that the Budget can improve people’s lives and help us overcome the challenges ahead.
It is wonderful to have such broad representation here today
businesses, trade unions, NGOs, farmers, exporters and government bodies.
We also need to be mindful of those who are not fully or specifically represented here today.
When Covid hit, many commentators predicted a “tsunami” of business failures and redundancies. They predicted it time and again as each wave of Covid but thankfully the tsnumani never came.
In fact, we have reached our target of hitting 2.5m people in employment early, a record number of people in employment, female labour market participation at a record high and youth unemployment rate at a record low.
There has been jobs growth across all regions, with the highest increases in the South West and South East.
The unemployment rate has also fallen to 4.8%, to levels last seen before the pandemic.
Last summer, I said the economy would take off like a rocket. The bounce back – or snap back in demand – took many by surprise including me and has caused some real problems:
- Passport Office or taxi ranks
- Delays getting work permits
- Driving tests
- Queues in Dublin airport
- Labour shortages in hospitality and across the economy.
The power of Ireland’s bounce back was made possible by the exceptional levels of financial support from Government but also the performance of our tech, pharma, medtech and export sectors which all grew fast during the pandemic.
But, we’re certainly not out of the woods.
- The pandemic is not over.
- Inflation is at elevated levels.
- Putin’s war on Ukraine continues.
- Brexit continues to unfold.
We can take nothing for granted.
I was a first time TD from 2007 to 2010 when I witnessed the economy fall apart and lose over 300,000 jobs within three years.
Each of you know this, but I say it to underline the point that we must not take the economy for granted. And in making our decisions we must be cognisant of the medium and long-term effects of our decisions.
We must not repeat the mistake.
- Chasing inflation, as the Taoiseach has said, makes it worse
- Price controls do not work they just reduce supply
- Or indeed the very harsh medicine of 2010-2014 imposed by the Troika, with very sharp cuts to capital spending among other areas.
Budget 2023
I think we all agree the focus of Budget 2023 must be the cost of living crisis without losing sight of long-term challenges like health, housing and climate.
For the first time in many years, real living standards will fall this year if prices rise faster than disposable incomes. It’s certainly true for very many households already.
Those hardest hit by inflation are people on social welfare and pensioners. People in rural areas are more affected that those in urban ones.
CSO statistics published this month, show inflation was running at 7.6% in March for the lowest income households.
The CSO stats also show that the inflation rate being experienced by the highest income category is 6.1% and for the average household 6.7%. There can be no doubt that the lowest income households have been hit the hardest and therefore need the most help but the gap between them and the average households is not as wide as many think. Everyone is feeling the pinch. So, I believe the Government’s approach of universal measures that help everyone as well as targeted interventions that help the most in need is the right approach and it should continue
To date, the Government has implemented €2.4bn in measures to respond.
We know we need to do more, this year and next.
I believe the spike in inflation is not temporary. It could go on for years. It will moderate, slow but I don’t see a return to very low inflation any time soon. It requires a long-term response as well as temporary measures. As every doctor knows, it’s important to treat the symptoms and you must also treat the underlying disease.
Anti-inflation strategy
So, I believe we need a comprehensive anti-inflation strategy. Central Banks will do what they have to do, unwelcome as it is. Governments can do more by helping to reduce some of the underlying high costs that Irish people endure.
1. We can continue to reduce the income tax burden on workers and middle income families by indexing tax credits and tax bands. I think the case for this is stronger than ever.
Workers should not have to rely on their employer being profitable enough to get a pay increase. Some simply won’t be able to pay. We shouldn’t say to those workers that they will get no help to improve their disposable income.
And middle-income people getting pay increases should not lose 52% in Income Tax, USC and PRSI. They should be able to keep most of it. This, in turn, can help moderate demands on employers for bigger increases. So it makes economic sense.
2. We can reduce the cost of services that are influenced by Government. Next year, increased subsidies for childcare should be used to reduce costs for parents. This will increase disposable family incomes and make it more attractive for parents to return to the labour market thus helping to fill vacant positions and moderate wage inflation. Investing in childcare makes sense now and for the long-term.
3. There will, of course, have to be a substantial welfare and pension package greater than that of 2022. Only the scale and detail has yet to be determined.
4. In my own Department, we are making the biggest changes to Competition and Consumer Laws in decades through new legislation to be enacted shortly. I’m also leading the Inter-ministerial committee working to reduce the cost of insurance
5. We can accelerate the transition away from buildings and industries heated by fossil fuels to well-insulated warmer homes and businesses powered by electricity and hydrogen.
6. On housing, I think the best action Government can take is to scale up social housing construction, thus freeing up private rental properties, and scaling up our cost rental programme which offers rental properties at below market rents to low and middle income individuals and couples. I know this is easier said than done.
Of course, there is a limit to what the Government can do, especially to offset rising energy costs. We can share the burden, but we cannot absorb it in its entirety.
It’s important we remain disciplined on the public finances so that we are ready for the next unpleasant surprise when it comes. And we must make sure that we do not simply encourage an inflationary spiral.
I strongly support a new Public Sector Pay Deal.
Pay increases planned for 2022 (circa 2-3% plus increments) were agreed long before inflation hit 8%.
I am not involved in the talks but I believe we must be able to find a landing zone.
I’d humbly suggest three elements;
- A larger percentage increase on income earned before a certain threshold than income above it.
- Tax reform to protect middle-income earners from losing half their pay increase to tax, USC and PRSI.
- Commitments on the ‘Social Wage,’ as trade unions describe it, to ensure that the money we do earn goes further.
Tripartism/social dialogue
It makes sense for Government, employers and unions to engage on this issue on a tripartite basis.
During the pandemic, we saw how effective we can be as a country – everyone acting together in pursuit of common goals.
A tripartite approach was key to us turning the tide on our economic history in the late 1980s with the Programme for National Recovery.
This need not be exceptional. We must try to hold on to the positive elements of that exceptional national effort as we face another turbulent year ahead.
As partners, we need to build our economies and society and prepare for a new world that is greener, more digital, more resilient and fit for the future.
Thinking ahead – challenges for enterprise policy
So, while this budget must prioritise the cost of living, we need to make sure our responses don’t undermine our ability to make progress on other challenges, such as the climate and digital transitions.
I already mentioned that we are developing a new White Paper on Enterprise Policy to make sure we are asking the right questions and future-proofing our enterprise strategy.
Climate
While weaning ourselves off coal, oil and gas is a global challenge, it also presents incredible opportunities for Ireland, specifically in the area of electricity generated by offshore wind, backed up by mega-batteries and interconnection, and of course, green hydrogen.
I believe, in a few decades, we can go from being an energy importer to being an energy exporter with all the benefits that come with it – greater energy security and price stability, employment and regional development.
We are going to work with businesses to move take climate action through a new €55 million fund announced last week.
We must be the generation that turns the tide on climate change and biodiversity loss.
We need to take better care of our planet. This generation should aim to pass it on to the next in a better condition than we inherited it.
Digital
The digital economy in Ireland is running at two different speeds. While a small proportion of the enterprise base has fully embraced digitalisation, there is a need to accelerate and enhance digital adoption right across Irish businesses and indeed, the public sector.
Why can’t Ireland be a global leader in terms of the digital intensity of our small and medium-sized businesses?
I don’t think it’s good enough for us to rank mid-table. We need to aim higher. It will require a lot of investment, but I know we have the potential to do it.
As a step, today we are announcing a multi-annual €85m fund to help businesses, no matter what stage they’re at or what sector they’re in, to go digital.
We need to work together across government, industry, education and the private sector to make Ireland a truly digital economy.
Investing in people
It’s cliché to say there is a global fight for talent, but recent events mean that fight is only going to intensify.
I am sure that improving pay, terms and conditions for workers is part of the answer. It’s the only way we will attract and retain the staff we need.
I know small businesses have been through a lot in the past two years and new policies like sick pay, remote working, more family leave, a living wage and auto-enrolment just feels like the Government loading on more costs.
We will help small businesses and employers to manage these changes by phasing them in over time.
Competitiveness
We must be creative about how to preserve Ireland’s reputation as a world-class place to do business. As always, it will be about talent and track record as well as tax, but it must be about other things too like security and infrastructure and liveability.
Competitiveness also means providing the basic infrastructure expected in advanced economies. I acknowledge the real shortcomings in these areas. We are determined to change that. Unlike the State’s response to previous crises, we will not pull back on vital capital investment when we need it most:
- Energy
- Housing
- Water services
- Broadband
- Healthcare
- Education
- Transport
Conclusion
As I said at the start, we have our problems, but they are nothing compared to the problems facing the fledgling Irish State when it was handed over power in Dublin Castle 100 years ago. Yes, there is uncertainty ahead but I am confident we can come through it. We have much to be hopeful about for the 100 years ahead.
I look forward to hearing your feedback from the breakout sessions.