Reacting after Finance Minister Paschal Donohoe delivered Budget 2020 in the Dail today, he said that his party had given Fine Gael time and space to deal with Brexit but that the decision to facilitate this Budget “should not be misread as an endorsement”.
He added that members of his party “are deeply frustrated at the Government’s obsession with spin and PR, and the failure to deliver where it matters”.
Making reference to next year’s upcoming general election, he said the public will have their say “but for now the priority has to be to steer the country through this Brexit storm”.
Michael McGrath’s Dail speech in full can be read below
Ceann Comhairle, this is no time for politics as usual.
Fianna Fail has afforded the government the time and space to focus on delivering the best possible Brexit outcome for Ireland. That was and remains the right approach from the largest party in opposition given the enormity of what is at stake.
Our decision to allow a fourth budget to pass should not be misread as an endorsement of this government. Like many of our citizens, we are deeply frustrated at the government’s obsession with spin and PR, and the failure to deliver where it matters.
The people will have their opportunity to give their verdict on the government, but for now the priority has to be to steer the country through this Brexit storm.
At a time when there is so much on the line for our country, I believe the people who elected us to this House expect the government of the day, and those who want to be in government, to show leadership and act responsibly.
That is why – despite the failure of this government in health, housing and in many other areas – Fianna Fáil agreed to facilitate a fourth and final budget under Confidence & Supply.
Given the ongoing chaos in Westminster, the value of political stability here should not be underestimated. The judgment of our Leader Micheál Martin last December that there should be no election in 2019 has been absolutely vindicated by the events since.
The real effects of a crash out Brexit are unknown, but it would undoubtedly be devastating for some sectors of our economy and the people who work in them.
A key priority we have today and for whatever time is left in this Dáil is to do everything we possibly can to protect jobs from the effects of Brexit – the jobs that support families, the jobs that pay mortgages, rent and other household bills, the jobs that sustain rural Ireland and parts of urban Ireland too.
Ceann Comhairle, the risk of the UK crashing out of the EU without a deal at the end of this month or indeed at some point next year – with all its negative consequences for Ireland – is the inescapable backdrop to this Budget. There is no getting away from it.
We all know that many people are weary of Brexit and the endless media coverage. It’s hard to blame them. But the outcome of Brexit will set the direction of our country for many years to come.
In 2018, Ireland exported over €16bn worth of goods to the UK and imported €20bn worth of goods from the UK. This represents 11% of total goods exports and 22% of total imports.
But in some sectors, such as agri food, tourism and indigenous manufacturing, the level of dependence on trade with the UK and therefore the level of exposure to a hard Brexit is far greater.
The closer you get to the border, cross border trade and the freedom to move over and back across the border unhindered, is intrinsic to daily life.
Even more important than the economics is the imperative of protecting the hard won peace on our island. In tribute to those who needlessly lost their lives over several decades, this is a peace that can and should never be taken for granted. Protecting it and upholding the Good Friday Agreement is non-negotiable.
Ceann Comhairle, no economic model will predict with any degree of accuracy the true consequences for the people of Ireland. The impact of a ‘no deal’ Brexit on business sentiment and consumer confidence is the great unknown.
What we can say with certainty is that the Irish economy will take a sudden and sharp turn for the worse in a ‘no deal’ Brexit scenario.
A ‘no deal’ Brexit would see a step change in the trading relationship between Ireland and the UK.
We would see tariffs on goods going to the UK – such as beef and cheese – making many of them dramatically more costly and less competitive;
We too would see tariffs on UK goods coming into Ireland making them more expensive for our businesses and customers;
We would see regulatory divergence and customs checks, not just east and west but most certainly north and south as well.
All this would lead to an increase in the cost of trading and doing business. Irish products would lose out in the UK and Irish businesses relying on UK goods would have to reorganise their supply chain.
Add to this the sheer administrative burden and red tape that will be added to what is now a free-flowing seamless border between Ireland and the UK. There are over 5,000 product lines under WTO rules that will face some sort of tariff both coming into Ireland and going out of Ireland to the UK.
A crash out Brexit will most certainly see a further depreciation in Sterling, it could very well reach parity with the Euro or perhaps even worse.
This will all put Irish producers at a major competitive disadvantage.
The tourism sector supports some 270,000 jobs and it is already feeling the effects of the Brexit saga. Fáilte Ireland predicts that a startling 10,000 jobs will be lost if a ‘no deal’ Brexit comes to pass.
The pain from a hard Brexit will not be evenly spread – it will be most acute in the regions where agriculture and tourism are pillars of the local economy.
The Central Bank, the Department of Finance and the ESRI all predict a slowdown of the Irish economy, with some predictions that Ireland could possibly enter recession.
It is estimated that the Irish economy will generate between 50,000 and 55,000 fewer jobs in a ‘no deal’ scenario.
The State’s finances, according to the summer economic statement will deteriorate by some €30 billion over the next 5 years. Next year, Ireland will have to borrow some €5 billion if a no deal Brexit becomes a reality. This is on top of the nearly €20 billion that the NTMA needs to be refinance.
According to the Summer Economic Statement we will move from a proposed budget surplus of 0.4% of GDP next year to a deficit of between 0.5% and 1.5%.
By any measure these figures are chilling.
The Purchasing Managers Indices, which are used to measure business sentiment, are all showing signs of deterioration.
The latest manufacturing PMI from AIB indicates that business conditions have worsened and production has fallen. The decline in new orders has been the quickest since January 2012. Business confidence has sunk to its lowest in over seven years.
Lending to SMEs remains subdued, meaning that companies are putting off key investment decisions until certainty returns.
All this points to the fact that Brexit is already having a dampening effect on business sentiment and confidence. Brexit is here and now for some sectors and businesses.
It is for all of these reasons that the government needs to hasten its preparations for this nightmare scenario.
Fianna Fáil has given the government the support it needs on Brexit, but we have serious and deep concerns about the preparations for a ‘no deal’ Brexit.
The government, first, needs to come clean on what a ‘no deal’ Brexit will look like for people and businesses.
Up until relatively recently, the government assured those same businesses that there would be no physical infrastructure on the border, even in the event of a no deal.
Yet slowly and surely it has become clear that this will not be the case. The government language has noticeably changed. There will be checks if there is a no deal, but we have no clarity on what this will look like.
No clarity on where the checks will take place, no clarity on what checks will take place and no clarity on how long these checks will take.
We still have no idea how the major ports of Dublin, Rosslare, Ringaskiddy and Shannon Foynes will deal with the increased number of checks, the backlogs and delays. Where will we put the trucks and containers? Will there be ships queuing up at our ports?
There has been precious little for SMEs to work off. If businesses do not know what sort of delays they will experience on their supply chain, how are they going to make the necessary changes.
Businesses need certainty and they need to be confident that they are on solid ground and to date the government has not done nearly enough to earn that confidence.
With just over three weeks to a potential crash out, it is deeply worrying that many of these basic questions remain unanswered.
For businesses looking for clarity from today’s Budget they will be disappointed.
In today’s budget, some €650 million has been set aside for a ‘no deal’ Brexit. We welcome this funding and its intention in assisting businesses to adapt to the new economic reality.
This money cannot be tied up in red tape. It needs to be deployed very quickly in a ‘no deal’ scenario and it needs to be targeted at the right businesses.
To date – a large number of SMEs have not started actively planning for Brexit and tens of thousands of businesses have yet to obtain an EORI number, which they will need to trade with the UK after Brexit.
The €300m Brexit Loan Scheme was set up to provide affordable working capital to SMEs but, to date, only €43m has been sanctioned for 194 businesses.
A separate €300m loan scheme called the Future Growth Loan Scheme was also set up and just €44m of that has been sanctioned for 270 applicants.
Companies are reluctant at this point to go down road of increasing their debt levels when uncertainty is still in the air.
Of the grants and the various funds that have been set up, again the take up has been slow. It only serves to highlight how ill prepared we were last March when the first deadline was approaching.
216 companies have been approved for the “Be Prepared Grants”, 194 have been approved for the “Market Discovery Fund”, 60 have been approved for the “Agile Innovation Fund” and 168 have been approved for the “Clear Customs Grant”. 1,088 companies have obtained the “Strategic Consultancy Grant”.
Businesses need certainty and they need support. While there may be an emerging view that Brexit will be deferred again to next year, there is no certainty of that. This could still go terribly wrong. The government needs to urgently provide the level of clarity and certainty needed and to help businesses whose very survival is at stake if Brexit process ends without a deal.
I think it is important we acknowledge the solidarity our country continues to receive through this Brexit process from our EU partners.
Taoiseach, Fianna Fáil wishes you and the government well in your efforts to get the best outcome for Ireland in the days and weeks ahead.
Key spending items
With the limited space available in today’s Budget – as a party, we focussed our discussions with government on securing progress on certain key priorities. We are pleased today’s Budget includes:
• An extra 700 Gardai working in communities across the country
• A €100m fund for the NTPF to tackle waiting lists
• An extra 1 million home help / support hours
• The recruitment of extra therapists to allow more assessments for children with special needs and for therapy interventions
• More staff and school places in the area of special education
• Increased funding for respite care / residential places
• Some changes to enterprise tax schemes to support indigenous firms
• The extension of the Help-to-buy scheme
My colleague Deputy Cowen will go into more detail on the spending side.
It’s not just Brexit that poses a threat to our economy Ceann Comhairle.
Aside from Brexit, the growth in the Irish economy is predicted to slow. We are seeing the effects of rising global trade tensions with tariffs now imposed on some EU exports – including Irish exports – to the US. Central Banks throughout the world are struggling to stimulate their economies. The engine of the eurozone – the German economy – is on the brink of recession.
As a small, open economy – Ireland is particularly vulnerable to the changes in the international economic environment.
The economic winds have been at our back for the past few years – low interest rates, the ECB stimulus programme, strong global demand, buoyant corporation tax receipts – but all predictions now say the risks are on the downside.
Ceann Comhairle, Ireland has benefited from a bonanza of corporation tax receipts in the past few years.
If you take as the baseline the forecasts made in 2015 for corporation tax receipts, we have collected some €15bn more than was expected in the years since.
The stark truth is not one euro of it has been put away.
The bottom line is our public finances should be in a better place than they are heading into a potential Brexit crisis.
We have been seriously exposed by the management of the public finances in recent years.
Corporation tax receipts are surging ahead again this year, with over €10bn expected to be collected.
In 2011, we collected €3.5bn in corporation tax – 10% of all tax received.
Last year, we collected €10.4bn – almost 19% of all tax collected.
So not only has the quantum of corporation tax receipts multiplied, our dependence on it has increased significantly.
There are major risks associated with our reliance on corporation tax.
According to the Revenue Commissioners 45% of the €10.4 billion received last year came from just 10 multinational companies which is up 10% in less than 10 years. That is about €4.7 billion by just 10 companies, which is more than the entire money received from the Universal Social Charge and represents nearly €1,000 per person in this country.
When we look at foreign owned multinationals in their entirety the figures are even more startling.
77% of the €10.4 billion was paid by foreign owned multinational companies which comes to over €8 billion – the equivalent of around €1,700 for every person in this country.
Again, according to the Revenue Commissioners 28% of the over 2 million people employed by private sector firms are employed by multinational companies. Together that brings in around €7.9 billion in income tax, USC and PRSI.
Our reliance on the multinational sector is unhealthy and it is growing. Yet it is clear that change is in the air.
Fianna Fáil strongly supports the 12.5% corporate tax rate and opposes attempts in Europe to undermine our tax sovereignty which is enshrined in the Lisbon Treaty.
We have consistently stated that if corporation tax changes are to be made, they must be made at a global level through the OECD.
And change coming from the OECD is coming. We cannot rely on maintaining the current level of corporation tax receipts into the future.
How long it will take the OECD to come forward with a new round of BEPS is unknown, but it will come and the indications so far are that the changes could very well be significant – and not positive for Ireland.
These changes will impact the allocation of taxes between countries which would see Ireland lose out.
Some suggest that a global minimum effective tax rate will be proposed in BEPS2 which most certainly will take the shine away from our competitive 12.5% corporate tax rate.
Let us be in no doubt that the corporation tax receipts we receive today are not certain, they are volatile and cannot be relied upon.
Yet this government, year after year, has used these corporation tax receipts to pay for current expenditure overspends, particularly in the Department of Health.
Since 2012 the government has spent around €6.3 billion in supplementary estimates over and above what was budgeted for on Budget day.
This expenditure was not once off capital expenditure, it was not spent on new hospitals or new schools. The €15bn in unexpected corporation tax receipts was spent on current expenditure which repeats annually.
If the tide turns on Ireland’s corporate tax windfall, we are in the deepest of trouble. The corporation tax boom could end, but the annual expenditure commitments will remain – leaving potentially a huge black hole in the public finances.
We have called on the government to carry out a fresh review into the sustainability of Ireland’s corporation tax receipts. We need to make an informed judgment as to how much of these receipts we can likely rely on into the future.
Of course this isn’t an exact science, but any independent assessment of the Irish economy and our public finances will highlight the dependence on volatile corporation tax receipts as a clear and present danger.
All of this underlines the need for a well-funded Rainy Day Fund or contingency reserve.
Fianna Fáil first proposed the establishment of a Rainy Day Fund for unexpected tax revenue like corporation tax. We proposed such a fund to guard against the day in which this tax evaporates into thin air. Today, the Rainy Day Fund has a zero balance.
We are now in a position where the money earmarked for the Rainy Day Fund next year may have to be used for a ‘no deal’ Brexit. This is the right decision under the circumstances, but it does not take away from the fact that the fund should be in place by now and funded.
In addition to relying on corporation tax revenue, it has to be pointed out the main revenue raising measure in today’s Budget – apart from the Carbon Tax which is to be ringfenced for climate action measures – is the increase in stamp duty on commercial property.
This is of course a tax based on property transactions and the revenue from it may not prove to be as reliable as the government thinks.
Ireland has been hugely successful in attracting foreign direct investment. We cannot take that for granted. We must continue to update our offering and remain competitive.
We also need to rebalance our economy and place a greater emphasis on indigenous firms.
We must support the SME sector now more than ever. The supports that have been put in place are not working for SMEs – this is the consistent message from business owners and their representative bodies.
Ireland has lost ground in the battle to be an attractive location for innovation driven start-ups.
Ireland is not at the races when it comes to having an attractive enterprise tax environment for entrepreneurs.
When it comes to the key schemes – EIIS, KEEP, the Knowledge Development Box, CGT entrepreneurial relief, R&D tax credits for SMEs – they are typically laden with red tape and restrictive conditions – making them impossible for SMEs to navigate.
We must make these schemes more accessible and attractive if our SME sector is going to grow, prosper and create employment.
Now is the time to try seriously to rebalance our economy towards the SME sector who have been left out in the cold over the last number of years.
With BEPS 2 and other global changes fast coming down the tracks we must begin to support our SME sector.
I welcome the further increase in the earned income tax credit today. It will come as a disappointment to the self-employed that their tax credit has still not been equalised with PAYE workers.
I too welcome the relatively minor changes announced today in the enterprise tax schemes and I will engage with the Minister during the course of the Finance Bill to see if they can be improved further.
However, we need to think far more radically in order to support our SME sector.
The various schemes that have been announced over the last number of years have not been anywhere near as effective for SMEs as they should have been.
We need a radical overall in how these schemes are drafted into law and how the sector is consulted.
Earlier this year the Department of Finance published a detailed paper on the transfer pricing primarily for the multinational sector.
This analysis included detailed draft provisions on what the final legislation may look like.
No such consultation was done for the SME sector when the KEEP scheme was being designed, no such consultation took place when the EIIS scheme was been revamped and no such consultation took place when the Knowledge Development Box was brought forward.
As a result these schemes have been tied up in administration and red tape. SMEs so fearful of making an incorrect tax return have walked away.
And we must remember that every bit of red tape added puts a cost on the SMEs. More time is needed to process applications and more hours are needed from accountants and tax consultants. SMEs also fearful of making an incorrect tax return and the consequences that follow, have simply walked away.
The figures speak for themselves;
The Key Employee Engagement Programme designed to assist SMEs in competing with larger companies for talent has been a total flop. To date, companies granted qualifying share options to a mere 87 employees under the Programme. It was widely predicted that the scheme would not work given the unworkable conditions that apply.
The Employment and Investment Incentive Scheme is intended to encourage investors to back small innovative start ups to enable them to grow. The number of investors availing of the scheme in 2017 – the latest year for which we have data – is at its lowest level since 2011. The number dropped by a third in 2017 and the tax relief provided fell by 40%. I am consistently hearing from businesses that the scheme does not function, and that Revenue does not have the resources to administer it efficiently.
Changes were made last year to make it more user friendly but applications from before these changes are still being processed by the Revenue Commissioners.
Investors more than anyone want certainty and when the tax system does not provide it, they walk away.
The Knowledge Development Box which was touted as a viable alternative for SMEs to the R&D tax credit has only had 22 companies sign up for it. 22; 12 in 2016 and 10 in 2017. By any measure that is not working, and this data proves it is not achieving its objectives.
The CGT Entrepreneurial Relief to encourage entrepreneurs to grow their business and to reward them for the risks they have taken has proved successful but again its reach has been altogether restricted.
In 2017 – some 875 taxpayers availed of the relief. Yet when comparing the scheme to the equivalent in the UK it is blatantly clear that Ireland’s offering does not match up. We need the lifetime limit to be increased from the €1 million. The Revenue says the scheme cost €82m in 2017 but what this figure does not tell you is what transactions did not take place or what entrepreneurial activity moved abroad as a result of our restrictive regime.
The R&D tax credit is principally designed for the larger multinationals with some €290 million of the €448 million cost in 2017 going to companies with over 250 employees. While smaller companies availing of the credit are more numerous, the value the claim overall is paltry by comparison.
We desperately need to recalibrate the R&D tax credit and make it far more user friendly and attractive for SMEs.
Ceann Comhairle, the SME sector is the backbone of this economy and it has to be supported. We need to drastically change our tax structure so that the incentives we provide actually work.
But we also need to support them in other areas too.
Insurance is a massive issue facing not only small businesses but voluntary organisations and clubs the length and breadth of the country.
As we sit here today, businesses throughout the country are being put at risk because of escalating insurance costs. In some cases – particularly in the leisure sector – they may not be able to access insurance at all. Businesses are shutting their doors because of the insurance crisis and jobs are being lost.
For many businesses, insurance costs have more than doubled over the last number of years.
Each of us know of perfectly viable businesses that have gone to the wall simply because they cannot get the insurance. Many more businesses are choosing to self insure which is obviously a highly risky road to go down.
The insurance industry needs a radical overhaul. True, it is multifaceted problem, but it must be tackled.
The Central Bank needs to get far tougher from a consumer protection point of view and start challenging more aggressively the pricing strategies of insurance companies.
This is after all industry that is under investigation by both the European Commission and our own Competition and Consumer Protection Commission.
The government needs to get serious about insurance fraud and begin to tackle the high level of personal injury awards that relatively minor injuries are receiving.
There seems to be no consequence for chancers bringing a bogus insurance claim that honest policyholders will end up carrying the can for.
Award levels are too high for minor tissue injuries – this is borne out by the Personal Injuries Commission – and yet we do not know when these award levels will be recalibrated.
Until there is greater certainty and consistency in award levels, insurance companies will continue to settle claims out of court.
We need far more transparency in the industry. I have long called for Insurance Link, currently held by Insurance Ireland and under investigation by the European Commission, to be run and administered by the State. It is well past time that the Insurance industry should be allowed to control a database with vital industry data.
The National Claims Information Database designed to inform us all of the level of claims in the industry was supposed to be up and running in the second quarter of 2018. Yet here we are about to go into 2020 and there is no sign of it. We have no idea when it will be rolled out for employer and public liability.
By the far the biggest thing lacking in insurance reform is political will from the government. We have all worked here with Minister of State D’Arcy and he is putting a lot of effort into it, but the truth is we very rarely hear senior Ministers talking about the insurance crisis.
Ceann Comhairle, it became very evident during our pre budget discussions with government that the €500m earmarked for demographic related costs in 2020 was in no way adequate.
We went into the discussions on the basis that €2.1bn was committed and €700m was available for Budget day decisions only to be told that money was essentially gone – that to stand still and take account of known demographics – departments needed essentially all of budget headroom.
Serious questions need to be answered about this approach to managing the public finances.
When it comes to what should be known demographics – number of people on pension, cost of home care – these numbers should be known but it seems they were completely understated
The other factor is that the government has become very adept at announcing initiatives to start at the back end of the year – this has the result of pushing the bulk of the cost into the following year
We see the same trick today – not only are you announcing Budget 2020, you are pre-announcing large elements of Budget 2021 – much of the cost of the change to the medical card eligibility for the over 70s has been pushed out to 2021 as has the GP visit card for the U8s
The key criticism of the Fiscal Advisory Council has to be put on the record. That you don’t stick to your plans. You allow spending drift – these within year increases in expenditure, in the form of supplementary estimates and also known commitments such as the Christmas Bonus.
While this can be described as a Brexit budget, it is also the case that spending is increasing by €2.9bn in 2020 before any Brexit measures are included. The Brexit package is extra in the event that it is needed.
• needs to be clear and transparent
• people need to be able to see how it is being spent
• the transition will be difficult for a great many people
• Warmer homes scheme
• EV targets – not going to be met
• As the carbon tax goes up, we need to see investment in the alternatives
• As a party, we have committed to progress on this
Ceann Comhairle, this is the final Budget before the Irish people are given an opportunity to elect a new government.
Where the government has fallen down is in its management – the budgets have been allocated but the resources have not been well spent. Apart from the gross mismanagement of key capital projects such as the National Children’s Hospital and the National Broadband Plan, we are left questioning what return voters have got from a major increase in spending in areas such as health.
Over the four budgets, as a party, we have gone about our business professionally and without drama. We have done our best to get value – from opposition – for the mandate we were given back in 2016. We have kept our word and have put the country ahead of party.
We have brought about a step change in budgetary policy with the overall emphasis on investing in public services. The government has failed to build on this by ensuring value for money and the necessary reforms.
Over those four budgets, we have achieved reductions in the USC, extension of mortgage interest relief, €15 increase in weekly social welfare payments, reduced class sizes, reintroduction of guidance counselling in many of our second level schools, investment in NTPF, increased funding for mental health, increase in the number of Gardai, fairer treatment for the self employed, the recruitment of more therapists for children with special needs and much more.
If given the opportunity to serve in government, we will achieve so much more.
Time is running out for this government. We look forward to the day when the Irish people have their say.