I would like to thank the Committee for your invitation to join you today and welcome this opportunity to engage with you on the European Semester process and preparation of Ireland’s National Reform Programme – or NRP – a draft of which I understand has been circulated to the Committee.
Engagement with national parliaments is rightly regarded as an important part of the process. I believe it is an essential part of underpinning its democratic legitimacy.
In addition to this session, issues related to the Semester are being considered in other sectoral Committees, which is very welcome.
In this regard, I understand that the Minister for Finance will separately arrange a briefing for members for the Joint Oireachtas Committee on Finance, Public Expenditure and Reform on our Stability Programme Update, which will be submitted to the Commission alongside the NRP, in the coming weeks.
European Semester and Ireland’s National Reform Programme
Before addressing the contents of the NRP, I’d first like to set out the context in which it is being prepared.
This year is the first time that Ireland will be a full participant in the European Semester process. As a result, we will receive fully-fledged Country Specific Recommendations (CSRs). Previously we were required only to continue implementing the terms of our EU/IMF Programme.
It is, therefore, an important statement of how we see the reform undertaken as part of our EU/IMF Programme being carried forward into the future, under our own steam and direction.
It builds on the Medium Term Economic Strategy (MTES) which the Government published in December, and which provides the over-arching high-level and whole-of-government framework for our future economic development.
The MTES is based on three pillars, and they are reflected in the NRP. They are:
- Ensuring Debt Sustainability
- Financing Growth and
- Supporting Employment and Living Standards
The three, are, of course, interlinked. We will not be able to deliver growth and job creation unless we get our spending under control and ensure that our debt is at safe levels. Action on all fronts is mutually reinforcing.
The submission of National Reform Programmes in mid-April is an important milestone in the European Semester process. As the Committee will be aware, the process begins in the autumn with publication of the Commission’s Annual Growth Survey. This identified five priorities for Member States to pursue:
- Pursuing Growth Friendly fiscal consolidation
- Restore normal lending to the economy
- Promoting Growth and Competitiveness for today and tomorrow
- Tackling unemployment and social consequences of the crisis
- Modernising public administration
Following examination of NRPs, and the Stability Programme Updates that are submitted by Member States at the same time, the Commission presents Country-Specific Recommendations to Member States at the start of June.
These are tailored, concrete recommendations for reforms that are considered in the relevant Council formations – on what is called a ‘comply or explain’ basis – and finally endorsed by the European Council meeting at the end of June.
In the past the CSRs given to other Member States have covered a wide range including: public finances, pension systems, measures to fight unemployment, education and innovation etc.
Europe 2020
The Semester Process embraces Europe 2020, the EU’s ten-year plan, adopted in 2010, based around five headline EU targets in the areas of employment, innovation, climate/energy, education and social inclusion.
Under Europe 2020, each MemberState adopts national targets in these five areas, and progress is monitored within the framework of the European Semester, and reported on annually by member states in their NRPs.
The Commission recently published a communication outlining a process to review the Europe 2020 strategy, and I would encourage this Committee as well as the sectoral Committees to engage with this process.
National Reform Programme
Since exiting the EU/IMF Programme of Financial Support, the Government has made a strong commitment to maintain the reform momentum necessary to achieve its goals to support job creation and the enhancement of living standards. As I have mentioned, the framework for this is the MTES.
In the NRP we will be expected to report progress made under our EU/IMF Programme – the only CSR we had last year was to continue with its implementation – as well as on progress towards our Europe 2020 targets. We will also be mapping out the continuing process of reform that lies ahead. This will sit within the overarching framework provided by the MTES.
While the NRP is expected to be reasonably comprehensive, it is also expected to be concise. As such, it is not possible to include every detail in any policy area, and nor can the NRP elaborate the full extent of Government action across each issue.
Introduction and Macroeconomic Scenario
The introduction of the draft NRP you have received provides an overview of our macroeconomic position and the policies being implemented to promote competitiveness, growth and jobs. These are in line with the priorities set in the Annual Growth Survey.
The Department of Finance’s current macroeconomic forecasts were published in October 2013, at the time of Budget 2014, and will be updated closer to the submission date as the Stability Programme Update is finalised.
Supporting economic recovery is the Government’s key priority. A very strong driver of our whole-of-Government approach has been the Action Plan for Jobs which contains actions and targets for all Government Departments and State Agencies. Its focus is to ensure that all efforts are made to improve the overall enterprise environment, boost job creation and retention and bring about economic growth.
Follow up and implementation of our EU/IMF Programme of Financial Support
The next part of the NRP reports on implementation of our EU/IMF Programme, including those which have been the subject of follow up action in recent months including health, legal services and debt overhang in the economy.
As we here are well aware, there are many challenges facing our health and social care system.
In 2012 the Government published Future Health outlining how it would reform the health system across the 4 strands of health and wellbeing, structural reform, services reform, and financial reform. The aim is to achieve a sustainable health and social care system which ensures access to high quality services based on need, not income.
Arising from Future Health the Department of Health is actively taking an ambitious reform programme forward.
The Commission has also expressed an interest in reform in the area of Legal Services.
As the Committee will be aware, the Legal Services Regulation Bill is advancing with the aim of establishing the new Legal Services Regulatory Authority by the end of 2014.
Enactment of this important piece of legislation will better balance the interests of legal professionals and those of consumers of legal services in a way that is appropriate to a modern, open and recovering economy.
As regards debt overhang in the economy, a number of actions were completed pursuant to the EU/IMF Programme to address non-performing SME loans and mortgage arrears. This work is continuing as a matter of priority for Government.
We recognise that SMEs are the lifeblood of the economy, playing a vital role in our recovery and in job creation. We have therefore launched a suite of lending initiatives for SMEs. As set out in the Action Plan for Jobs, our focus for 2014 is to:
- Increase new lending to SMEs, drawing on both bank and non-bank sources of funding;
- Increase participation in Government sponsored access to finance schemes for SMEs such as the Microenterprise Loan Fund, the Credit Guarantee Scheme, the Seed and Venture Capital Scheme, Seed Capital Scheme (SCS), Employment and Investment Incentive Scheme (EIIS), the NPRF SME Funds and the Credit Review Office;
- Develop new sources of finance for SMEs;
- Raise the level of awareness amongst SMEs and entrepreneurs of the full suite of developmental business supports available through a comprehensive communications strategy involving the widest possible range of stakeholders; harness the full potential of the soon to be established Local Enterprise Offices as the key conduit for providing advice, information and guidance to SMEs on access to finance issues including available state sponsored supports;
- Enhance the financial capability of SMEs; and
- Enhance research and policy evaluation on access to finance for SMEs and the potential for innovative sources of finance.
We are also stepping up our efforts to ensure that the business community is aware of the supports available to it. The newly established Local Enterprise Offices (LEO) will be central to this enhanced communications effort.
We have also developed an online tool, which we will be rolling out in the near future, which will help an SME easily to identify those programmes or supports of most immediate relevance to it. We are currently testing it, including at a number of Taking Care of Business events across the country.
Europe 2020 Strategy
I would like to turn now to our national targets under the Europe 2020 strategy. These targets are horizontal and cross-cutting – for example across employment and poverty reduction strategies. Ensuring effective implementation requires a cross-Departmental approach, mutually reinforced and supported by common policies.
Employment
The target in this area is:
- to raise to 69-71% the employment rate for women and men aged 20-64, including through the greater participation of young people, older workers and low-skilled workers and the better integration of legal migrants, and to review the target level of ambition in 2014, in the context of a proposed mid-term review of the Europe 2020 Strategy.
For 2013, the employment rate for women and men aged 20-64 was 65.5%, this is an increase of almost two percentage points from 2012. This increase demonstrates the beginnings of an improvement in the labour market after a fall from a high of 74% in the employment rate in 2007 to 71% in 2008 and less than 64% in 2012.
For us to reach the 2020 target, the employment rate will have to increase by 0.6 percentage points each year. We see this as feasible, provided the recent recovery is maintained into the medium-term.
We are continuing to tackle unemployment and to support employment through the twin strategies of the Action Plan for Jobs and Pathways to Work.
Key themes of Action Plan for Jobs 2014 include:
- Competitiveness
- Entrepreneurship
- Supporting the Domestic Economy and
- Communicating the available supports more effectively.
The Pathways to Work strategy, launched in February 2012, introduced a new integrated employment and support service involving the transformation of local social welfare offices into a ‘one-stop-shops’ – called Intreo offices – allowing jobseekers to access their entitlements and get help with planning their return to work. In 2013 a renewed focus was given to targeting activation places to the long-term unemployed.
The government is also moving to implement the EU Youth Guarantee, on a phased basis, within the overall Pathways framework. Ireland’s Youth guarantee Implementation Plan was published in January and will involve:
- Developing the Intreo activation process to ensure earlier and more intensive engagement with young people.
- Delivering opportunities for young people through education and training programmes.
- Earmarking a quota of places/opportunities on employment schemes for young people.
- Varying the eligibility conditions for access to these schemes by young people. (e.g., so that young people can access places/opportunities after 4 to 6 months of unemployment rather than the general requirement of 12 months’ unemployment).
- Expanding the number of opportunities currently availed of by young people in the form of internships, subsidised private-sector recruitment, and supports for self-employment.
- Introducing new options for young unemployed people in particular in the area of youth entrepreneurship and international work experience and training.
Expenditure on programmes providing employment, training and further education opportunities for young people will be in excess of €500m in each of the years 2014 and 2015.
Significant reform is also underway in relation to further education and training provision, with the establishment of SOLAS and Education and Training Boards.
Research and Development
The Europe 2020 target in the area of Research and Development is:
- to raise combined public and private investment levels in this sector to 2.5% of GNP (approximately equivalent to 2.0% of GDP).
In Ireland, we have significantly increased our investment in R&D over the past decade and more, while also introducing a range of measures to improve commercialisation of research and build strong linkages between the higher education sector and enterprise.
As a result, Ireland has built a strong science base and has joined countries such as Finland, Germany and the USA in the world’s top twenty countries for scientific output. This investment in the science base has had a positive impact on our industrial development.
Approximately two thirds of Ireland’s R&D is in the private sector, creating new product and service innovations that will drive exports, growth and jobs.
This has been supported through a range of actions including improvements in fiscal measures to support research and development, supports for higher education-industry linkages and supports for in-company R&D and start-up companies.
As a consequence of this increased investment, the research intensity rate for Ireland in 2012 has been confirmed at 2.13% of GNP (1.72% of GDP) and at this point Ireland is on track to achieve its Research and Development target of 2.5% of GNP (2.0% of GDP) by 2020.
Climate Change & Energy
The target for climate change and energy is:
- to reduce emissions in the non-traded sector by 20% compared to 2005 levels; to increase the share of renewables in final energy consumption to 16%; and to move towards a 20% increase in energy efficiency.
On climate change, under the 2009 EU Effort Sharing Decision, which applies to greenhouse gas emissions (GHG) outside the scope of the EU Emissions Trading Scheme, Ireland must limit growth of emissions to 20 per cent below 2005 levels over the period 2013 to 2020.
This emission reduction target under EU law is ambitious and challenging from an Irish perspective, particularly given the size of our agriculture sector and the scale of emissions associated with it.
Our target for the period to 2020 consists of a series of declining annual targets, and compliance must be demonstrated with each annual target in turn. The Environmental Protection Agency publishes annual inventories of, and projections for, national greenhouse gas emissions.
We are on course to comply with the mitigation trajectory in the first half of the eight-year compliance period. Compliance in the years 2017 to 2020 is more challenging and this is being addressed by the development of policy and legislation.
In accordance with the commitment contained in the Programme for Government to introduce primary legislation on climate change, the Minister for the Environment, Community and Local Government published outline Heads of a Climate Action and Low Carbon Development Bill in February 2013.
Subject to the approval of Government, it is expected that the final Heads of the Bill will be published in April 2014.
In anticipation of the planned primary legislation, a National Low-Carbon Roadmap to 2050 is being developed. The road-mapping process will focus in detail on closing the distance to Ireland’s greenhouse gas emissions reduction target.
It is intended that the first draft 2050 National Low-Carbon Roadmap will be released, together with a draft Strategic Environment Assessment, for a substantial period of open consultation later in 2014.
Renewable Energy
On energy, the overarching objective of the Government’s policy is to ensure secure and sustainable supplies of competitively priced energy to all consumers.
The 2009 EU Renewable Energy Directive set Ireland a legally binding target of meeting 16% of our energy requirements from renewable sources by 2020. In order to meet this target, Ireland is committed to meeting 40% of electricity demand from renewable sources, with 10% for transport and 12% for heat.
In 2012, 7.1% of Ireland’s overall energy requirement was met by renewable energy. As a percentage of the targets for each of the three sectors, this equates to 19.6% of electricity demand, and 2.4% and 5.2% respectively of transport and heat power needs, being met by renewable energy in 2012.
To date wind energy has been the largest driver of growth in renewable electricity, contributing most towards the achievement of the 2020 target.
Energy Efficiency
The National Energy Efficiency Action Plan (NEEAP) is the overarching policy framework for energy efficiency in Ireland and contains Ireland’s commitment to a 20% energy savings target across the economy by 2020 in pursuit of our EU obligations.
Recognising that Government must lead by example, we are committed to achieving a 33% reduction in public sector energy use by 2020. At the end of 2012 Ireland had achieved – or banked – 11,419 GWh which represents 36% of our national target. Nevertheless, the bulk of our target remains to be delivered over the 7 years to 2020.
Oversight of our Action Plan commitments is provided by the NEEAP Implementation Group, chaired by the Department of Communications, Energy and Natural Resources.
Under the 2012 Energy Efficiency Directive, all Member States are required to submit a revised Energy Efficiency Action Plan by 30 April 2014 and every three years thereafter. The drafting of our next Action Plan is being finalised and will be published later in the year.
Moreover, in summer 2014 the Commission will assess progress achieved to date by all Member States and whether the Union is likely to achieve its 2020 energy consumption targets.
Meeting the 20% (national) and 33% (public sector) efficiency targets will require sustained action across the public, industrial and commercial sectors, the deepening of retrofit activity and a significant shift in transport behaviours. The Government will seek to bring forward, over the next 18 months, new initiatives to further stimulate energy savings across the economy.
Education
Targets in the area of education aim to address early school leaving and boosting the number of those with third level qualifications. Specifically, they are:
- to reduce the percentage of 18-24 year olds with at most lower secondary education and not in further education and training to 8%; and to increase the share of 30-34 years olds having completed tertiary or equivalent education to at least 60%.
The percentage of early school leavers in Ireland fell from 11.4% in 2010 to 9.7% in 2012. This represents very positive progress towards achievement of our 8% target and the NRP provides detail on a number of measures that have been put in place to support its achievement.
The latest EU data shows that Ireland’s tertiary attainment rate for 30-34 year olds was 51.1% in 2012. Since 2009, Ireland has the highest rate for this indicator of all EU27 countries.
In the tertiary attainment rate for 25-34 year olds indicator presented by the OECD, Ireland ranks 1st in the EU27 and 4th in OECD.
Poverty
On poverty, the target is:
- to reduce the number experiencing consistent poverty to 4% by 2016 (interim target) and to 2% or less by 2020, from the 2010 baseline rate of 6.2%, which will lift at least 200,000 people out of the risk of poverty and exclusion between 2012 and 2020.
Following review in 2012, the Government agreed a revised and enhanced national social target for poverty reduction, which is to reduce consistent poverty to 4% by 2016 and to 2% or less by 2020, from the 2010 baseline of 6.3%.
This is supported by a wide range of actions across diverse policy areas in the National Action Plan for Social Inclusion 2007-2016.
Unfortunately, the upward trend in the Europe 2020 target population highlights the social impact of the crisis in Ireland. We are awaiting publication of 2012 data from the CSO Survey of Income and Living Conditions (SILC). This is expected to be published shortly, and will give us a more up-to-date picture of where Ireland stands.
Recent research carried out by the ESRI for the Department of Social Protection, shows that social transfers are very effective in reducing income poverty – lifting almost 40 per cent of the population out of at-risk-of-poverty – and that this performance has actually improved during the crisis as the welfare system provided a crucial safety net for higher numbers unemployed.
The ESRI research reveals that the share of total household income from social transfers increased very rapidly after the start of the recession – from 20% in 2004 to 30% by 2011. This was largely due to the rise in unemployment, leading to more people receiving unemployment-related payments, as well as to the fall in market incomes.
In 2011, 87% of households received some social transfer income up slightly from 85% in 2004.
The ESRI research also finds a strong link between social transfers and poverty alleviation – reducing the gap between household market income and the poverty threshold by 88%, up from 84% in 2004.
Ireland’s performance in this area is at the top of the range of EU-15 countries, with an overall effectiveness of 90% in reducing the poverty gap through social transfers.
In recognition of the higher risks and life-long consequences of child poverty, a new child-specific social target will be set in the forthcoming National Policy Framework for Children and Young People 2014-2020 (Better Outcomes: Brighter Futures).
Use of Structural Funds
The draft NRP also briefly outlines how the use of our structural funds supports our efforts to achieve Europe 2020 targets.
Ireland has been allocated approximately €2.19bn for European Agricultural Fund for Rural Development and just over €1.2bn in relation to the other funds over the period 2014 – 2020.
Conclusion
As the Committee will appreciate, the NRP covers considerable ground and I have tried to capture some of the key elements in my contribution. Given the breadth and diverse nature of what the NRP covers, however, it has not been possible for me to cover every detail.
I am sure, therefore, that there are many questions the Committee would like to ask and I am very happy to hear any comments or questions Committee members may have.
Thank you.