Speech to the Joint Committee on EU Affairs on the National Reform programme

1st April, 2014

First, I thank the committee for its invitation to join members here today and welcome the opportunity to engage with them on the European semester process and the preparation for Ireland’s national reform programme, 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 aspect 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 Oireachtas Joint Committee on Finance, Public Expenditure and Reform on our stability programme update, SPU, which will be submitted to the Commission alongside the national reform plan in the coming weeks.
I wish to emphasise something the Chairman said earlier. This draft, which has been circulated to the committee, was agreed and noted by the Cabinet this morning. Therefore, we are holding this session with the committee as soon as we possibly could and are making a draft of the document available to them in order to facilitate as much discussion and engagement with the document as is possible.
Before addressing the contents of the national reform plan I would like to set the context against which the plan is being prepared. This year, as has already been said by the Chairman, is the first time 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 only required 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 the EU-IMF programme being carried forward into the future under our own steam and direction.
It builds on the medium-term economic strategy that the Government published in December, which provides the overall framework for our future economic development. The mid-term economic strategy is based on three pillars, which are reflected in the national reform plan. They are as follows: ensuring debt sustainability, financing growth, and supporting employment and living standards. The three pillars are closely interlinked and inter-related. 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 the 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; restoring normal lending to the economy; promoting growth and competitiveness for today and tomorrow; tackling unemployment and the social consequences of the crisis; and modernising public administration. I would make the same point regarding these objectives as I made in relation to the objectives of the national reform plan and the medium-term economic strategy, which is to say that they all reinforce each other.
Following the examination of national reform plans, 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 at the end of June.
In the past the country specific recommendations given to other member states have covered such topics as public finances, pension systems, measures to fight unemployment, education and innovation.
The semester process embraces Europe 2020, the European Union’s ten year plan, adopted in 2010, based around five headline EU targets in the areas of employment, innovation, climate and energy, education and social inclusion. Under Europe 2020 each member state 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 national reform plans. The Commission recently published a communication outlining a process to review the Europe 2020 strategy and I encourage the committee, as well as the sectoral committees, to engage with this process. I believe this was a subject of engagement between the committee and the Secretary General of the European Commission, Catherine Day, when she appeared before the committee recently.
Since exiting the EU-IMF programme of financial support the Government has made a strong commitment to maintain the reform momentum necessary to achieve our goals to support job creation and the enhancement of living standards. As I mentioned, the framework for this is the mid-term economic strategy. In the national reform programme which we are discussing we will be expected to report on progress made under our programme 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 in the mid-term economic strategy. While the national reform plan is expected to be reasonably comprehensive, it is also expected to be concise. As such, it is not possible to include every detail in every policy area, nor can the plan elaborate on the full extent of Government action across each issue.
The introduction of the plan that the committee has received provides an overview of our macroeconomic position and the policies being implemented to promote competitiveness, growth and job creation. 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 approach has been An Action Plan for Jobs which contains actions and targets for all Departments and State agencies. Its focus is to ensure all efforts are made to improve the overall enterprise environment, boost job creation and retention and bring about economic growth. The next part of the plan involves reports on implementation of our 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 are well aware, there are many challenges facing the health and social care system. In 2012 the Government published Future Health outlining how it would reform the health system across the four strands of health and well-being, 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 this plan, the Department of Health is actively taking forward an ambitious reform programme.
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 legislation will better balance the interests of legal professionals and 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 the Government. We recognise that SMEs are the lifeblood of the economy, playing a vital role in our recovery and job creation. We have, therefore, launched a suite of lending initiatives for SMEs. As set out in An Action Plan for Jobs, our focus for 2014 is on increasing new lending to SMEs; increasing 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, the seed capital scheme, the employment and investment incentive scheme, the National Pensions Reserve Fund, SME funds and the Credit Review Office; raising the level of awareness among SMEs and entrepreneurs of the full suite of developmental business supports available to them; enhancing the financial capability of SMEs; and enhancing research and policy evaluation of access to finance for SMEs. We are also stepping up our efforts to ensure the business community is aware of the supports available to it. This will principally be achieved through the newly established local enterprise offices. We have also developed an online tool which we will be rolling out in the near future to help SMEs to easily identify those programmes or supports of most immediate relevance to them.
I want to address our national targets under the Europe 2020 strategy. These targets are across all of government, for example, employment and poverty reduction strategies. They ensure effective implementation of our cross-departmental plan and, when delivered, will be mutually reinforced and supported by common policies. The first key area is employment, in which the target is to raise to 69% to 71% the employment rate for women and men aged 20 to 64 years, 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 to 64 years was 65.5%, an increase of almost two percentage points from 2012. This increase demonstrates the beginning 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 support employment through the twin strategies of An Action Plan for Jobs and Pathways to Work. Key area of focus include competitiveness, entrepreneurship, support for 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, including the transformation of local social welfare offices into one-stop-shops called Intreo offices. In 2013 a renewed focus was given to targeting activation places at the long-term unemployed.
The Government is also moving to implement the EU youth guarantee, on a phased basis, within the Pathways to Work framework. Key plans will include 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 and opportunities on employment schemes for young people; varying the eligibility conditions for access to these schemes by young people; expanding the number of opportunities availed of by young people in the form of internships, subsidised private sector recruitment and supports for the self-employed; and introducing new options for young unemployed people, in particular in the areas 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 €500 million in both 2014 and 2015.
In Ireland, we have significantly increased our investment in this area over the past decade. As a result, Ireland has built a strong science base and has joined countries such as Finland, Germany and the US among the world’s top 20 countries for scientific output. Approximately two thirds of Ireland’s research and development 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 links between higher education and industry, and supports for in-company research and development 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 or 1.72% of GDP, affirming that Ireland is on track to achieve its research and development target by 2020.
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 outside the scope of the EU emissions trading scheme – in other words, the non-traded sector – Ireland must limit its emissions growth to 20% below 2005 levels during the period 2013 to 2020. This 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 this year.
With regard to 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. 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 the State’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.
The national energy efficiency action plan, NEEAP, is the State’s overarching policy framework for energy efficiency and contains a commitment to a 20% energy savings target across the economy by 2020 in pursuit of our EU objectives. 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 we had achieved 36% of our national target. Nevertheless, the bulk of our target remains to be delivered over the seven 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 target and 33% public sector efficiency target 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 bring forward over the next 18 months new initiatives to further stimulate energy savings across the economy.
With regard to social policy, 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 to 24 year olds with at most lower secondary education who are not in further education and training to 8% and to increase the share of 30 to 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 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 show that Ireland’s tertiary attainment rate for 30 to 34 year olds was 51.1% in 2012. Since 2009, Ireland has had the highest rate for this indicator of all EU member states. In the tertiary attainment rate for 25 to 34 year olds indicator presented by the OECD, Ireland ranks first in the EU and fourth in the OECD.
[Deputy Paschal Donohoe:  ]  With regard to poverty, the target is to reduce the number experiencing consistent poverty to 4% by 2016 and to 2% or less by 2020, from the 2010 baseline rate of 6.2%. This 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.
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, which will be published shortly and will give us a more up-to-date position on the social status of Ireland.
Recent research carried out by the Economic and Social Research Institute for the Department of Social Protection shows that social transfers are very effective in reducing income poverty – lifting almost 40% of the population out of the at-risk-of-poverty category. 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 countries, with an overall effectiveness of 90% in reducing the poverty gap through social transfers. In recognition of the higher risks and lifelong 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.
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 €2.19 billion in respect of the European Agricultural Fund for Rural Development and just over €1.2 billion in regard to the other funds over the period 2014 to 2020.
I have just gone through a gigantic amount of material and will conclude by emphasising a few points. While it might not have seemed like it, I hope it was a relatively succinct summary of a huge amount of material in the National Reform Plan. The National Reform Plan, and its role in the semester process, really demonstrates just how broad the semester process is and how many different social outcomes and social objectives are looked at in addition to the economic objectives, which, of late, we have unfortunately had to spend too much time discussing. It also demonstrates that in order for us to rise effectively to these social challenges and opportunities, it requires a breadth of response that stretches across many Departments as opposed to just one.
I suppose that leads on to a health warning for me in terms of my participation in this session, which is that a wealth of policy areas are covered and while I will obviously do my best to respond to any points members want to make in regard to the areas I have flagged, I should make it clear that this is part of a consultation session. One of the main objectives I hope to fulfil at this session is that by hearing what members have to say, I will ensure it is at least passed on to the relevant Departments and Ministers and included in our national process. I thank the committee for the opportunity to address it.