Good evening ladies and gentlemen.
It’s a great pleasure to be here with you this evening, and I would like begin by first thanking Ibec for the invitation to speak, and to mark your 25th anniversary.
I would also like to take the opportunity to acknowledge the contribution your outgoing President, Ms Edel Creely of Trilogy Technologies has given, and to wish Edel the best for the future.
As the new incoming President of Ibec, I would also like to congratulate and wish Mr Paraic Curtis, of TE Medical, the best in his new role, and I am sure the he will make a valuable contribution to the organisation in the years ahead.
As I look around the room and see representatives from across our business sectors, this event provides me with an opportunity to reflect on the domestic enterprise sector, the key role it played in our economy recovery, and the role it continues to play in driving robust growth.
Indeed, Government engagement with business leaders and other social partners is a well-established part of the development of public policy, not just in Ireland but throughout Europe.
The Government recognises the contribution that social dialogue can make to maximising a common understanding across all sectors of society as we respond to the many challenges facing the country.
To this end, the establishment by my department of the Labour Employer Economic Forum (LEEF) has created a direct means through which employer groups and unions can articulate their policy priorities to Government, and long may this continue.
Turning now to budgetary matters, many of you will be aware that I will deliver my second Budget as both Minister for Finance and Public Expenditure & Reform on 9 October.
As we approach this, I am happy to tell you that our economy is in good shape and is expected to grow significantly this year and next.
I am particularly pleased that our recent growth figures are not just a story of the multinational sector, as domestic demand is also making a significant positive contributions, even on an underlying basis.
Indeed there is no story more positive than the one emanating from our labour market, where we saw full time employment growth of over four per cent in the second quarter this year, with more people working in our economy than ever before.
As we look ahead to 2019, real and growing risks exist.
- First and foremost is the potential fallout from a more adverse-than-expected outcome of the Brexit discussions currently under way;
- Secondly, given the importance of the traded sector in the Irish economy, any disruption to world trade, in particular from increasing protectionism, could significantly impact Irish growth prospects;
- In addition, a faster-than-expected normalisation of monetary policy in the Euro area or changes in other jurisdictions that affect the competitiveness of Ireland’s corporate tax regime all have the potential to constrain our growth trajectory.
As Minister for Finance, the best means available to me to mitigate these risks is through budgetary policy, careful management of the public finances and also competitiveness-oriented policies.
In Budget 2019, this is what the Government will continue to do.
So let me use this opportunity to briefly highlight four key areas that touch specifically on my overall approach to the management of the economy; areas that we must continue to make progress in, in order to maintain sustainable growth and renew the social contract that underpins support for our democratic system.
Domestic enterprise, productivity and Future Jobs
As business leaders you know that domestic enterprises are the bed rock of our economy. SMEs in particular are vital to our continued progress. They make up 99.8 percent of all enterprises, and account for 69.9 percent of the workforce.
Of course, we also have a number of world renowned Irish owned multinationals, many of whom I see represented in front of me this evening.
The Government sees the domestic enterprise sector, and SMEs in particular, as a key engine of sustained economic growth.
But there are challenges that the domestic enterprise sector faces, particularly in the areas of productivity and innovation, areas that have become increasingly important as we approach full employment, with the scope to utilise untapped pools of resources becoming increasingly constrained.
In order to rise to these challenges, and to the rapid changes in technology and globalisation, my colleague Minister Heather Humphreys, the Minister for Business, Enterprise, and Innovation, has recently received Cabinet approval to launch a Future Jobs programme in the New Year.
This programme, which will replace the highly successful Action Plan for Jobs, will place an increased emphasis on productivity growth, particularly amongst SMEs, while also aiming to broaden labour force participation rates.
It will also aim to develop future skills and talent to exploit opportunities arising from both the digital and green economies.
Housing & land use
Turning now to the second area that I would like to highlight, and where progress is imperative, is in housing.
In order to address the under supply of affordable housing for our citizens, the Government last week established in law a new Land Development Agency (LDA).
This new Agency will help deliver urban redevelopment and housing in strategic locations and help meet broader policy objectives as set down in Project Ireland 2040.
The LDA will have two overarching objectives.
Firstly, by identifying and coordinating the development of State land, either owned by local authorities, commercial State bodies or State agencies, the LDA will drive sustainable urban redevelopment.
Secondly, the new agency will boost the supply of all types of housing, including social, affordable and private housing by providing expertise in the planning, design and development processes and maximising the use of State owned land.
The creation of the LDA marks a new and significant departure for the State.
The State will now play an active and influential role in the design and development of our urban areas.
In applying international best practice in active land management, the LDA will ensure a more proactive management of the State’s extensive land bank, counterbalancing the boom-bust cycles of development that have in recent decades undermined the country’s economic growth.
The LDA will also be able to provide the expert capacity needed for a more strategic and long-term approach to the use of State land, helping to bolster some level of continued commercial and residential construction even in economic downturns.
Overall, the funding earmarked for ‘Rebuilding Ireland’ has been increased to over €6 billion out to 2021.
In total, there has been a 145 percent increase in Exchequer capital funding for new builds and acquisitions since 2016, from €433 million to €1.06 billion.
The private sector is now also responding, with recent home completions figures from the CSO showing a 34 per cent increase, with planning permissions also up substantially.
Although there is still a long way to go, the considerable investment Government is making in housing should be seen as part of our overall plan to continue to maintain and improve competitiveness in our economy, as well as address key a social issue.
Income tax reform
Now to the fiscal side, in terms of budgetary strategy for 2019, I am committed to pursuing an overall Budgetary policy that ensures fiscal sustainability, and a continuation of broadening and reforming our tax base.
Indeed, the third area that I would like to highlight, and where I am committed to making continued improvements, is in the area of income tax reform.
As you are surely aware, Ireland has one of the most progressive personal income tax systems in the developed world.
Our redistributive tax system has consistently been acknowledged in positive terms by the IMF, the OECD and the ESRI.
Nonetheless, I note from a report from the Irish Tax Institute this week that taxpayers here are paying more tax in 2018 than they did 10 years ago.
In response to this, I have two observations.
First, I do not believe that the tax system – or indeed the approach to regulation, fiscal policy or overall economic management – that prevailed in 2008 is a useful benchmark or indeed one that we would look to return to.
As numerous reports and inquiries have shown, the tax base in 2008 was too narrow, there was an over-reliance on transaction taxes and excessive levels of tax expenditures that encouraged economic activity that was not in the public interest.
It is also worth reflecting on the considerable reform to the overall structure of the Irish tax system that has taken place since 2008.
Over the last decade, reforms to the income tax system and the broadening of the income tax base were introduced in the interest of ensuring a stable revenue stream for the Exchequer in order to fund essential public services.
However, it is my conviction that workers in our economy start to pay the marginal rate of tax at too low an income level.
We cannot hope to remain competitive if someone on a relatively low income, and who decides to work a few hours overtime, has nearly half that extra money taken in tax.
Progress has already been made to address this issue in the last number of Budgets by focusing on reducing the tax burden on low to middle income earners, while maintaining a broad tax base.
This has been done by making targeted changes to the USC, but also by increasing the entry point to the higher rate of income tax.
In Budget 2019, the Government will fulfil our commitment to making steady and sustainable progress in reducing the income tax burden for low and middle income earners by concentrating on increasing the level at which workers fall into the higher tax bracket.
Looking beyond Budget 2019, if economic circumstances allow, we will continue to reduce the tax burden on middle-income earners by increasing the standard rate cut-off point over a number of Budgets to a level that is competitive with our neighbouring jurisdictions.
In particular, we must be increasingly aware of the difference in the cut-off point for the standard rate of income tax between Ireland and a post-Brexit UK. Increases in take-home pay have positive knock-on consequences for businesses and jobs in the domestic economy.
The Government is committed to measures that positively benefit workers while also keeping the tax base broad and ensuring that our personal taxation system is both competitive and resilient in the future.
Brexit
Lastly and perhaps most critically, I would like to conclude with Brexit.
We are entering the most critical phase in the negotiation of the UK’s withdrawal from the European Union.
Ireland will be central to these discussions and the Government is confident that we will achieve an outcome that is in the best interests of our country.
However, irrespective of the future relationship between the UK and the EU, we will face a very different world once the UK does depart.
When we reach agreement on a Withdrawal Treaty, the UK will become a ‘third country’.
The status quo will change.
It will require a renewed approach from the Government as we develop and build our alliances within the EU.
And it will also mean changes for your many sectors too, as your members look to develop new markets and opportunities while managing and mitigating the risks that will arise.
Government and business will embark on a shared journey into this new world.
We will inevitably face many obstacles along the way.
But I am equally confident that working together as we have done in the recent past, we can and will rise to, and overcome, this great national challenge.
Conclusion
And with that I will thank you for your time, thank Ibec for the invitation to address you, and I hope you enjoy the rest of the evening’s events.
Ends