FEBRUARY 2016
NATIONAL ECONOMIC STRATEGY
An Ireland for all. MICHAEL McGRATH
FIANNA FÁIL SPOKESPERSON ON FINANCE
SEÁN FLEMING
FIANNA FÁIL SPOKESPERSON ON PUBLIC EXPENDITURE & REFORM
Table of Contents
EXECUTIVE SUMMARY 1. State of the economy
5
2. Long term secure public finances
7
3. A taxation system that rewards enterprise and work
10
4. Enhancing competitiveness
13
5. Maximising the agri food sector
15
6. Investing in Research & Development
18
7. Meeting our infrastructure needs
20
8. Enhancing skills levels in the economy
22
9. Delivering a competitive banking sector
24
10.Defending Ireland’s autonomy on corporation tax
26
Fianna FĂĄil Economic Strategy Election 2016
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Executive Summary The Irish economy has great strengths including our attractiveness to multinational firms, our skills and education base, the energy, productivity and innovation of our people, and excellence in food and drink production. In addition we have a world class tourism product and many domestic firms which have grown in to international enterprises. We have great potential to provide good quality of life for our people. Fianna Fáil’s aim is to create conditions that will support an increase in employment throughout the economy. We will do this by delivering a tax regime that rewards individual effort and enterprise, tackling anti-competitive practices and enhancing skills levels supporting high quality sustainable jobs. The key elements of our economic strategy are: x x x x
Maintenance of a supportive macroeconomic environment and sound public finances. Recognition that any expenditure-increasing or revenue-reducing measures are dependent on projected economic growth. Improving the incentive to, and reward from, work through reductions in the tax burden at low and middle income levels including for the self-employed. A greater emphasis on maintaining and improving our cost base, through ensuring competitiveness is a central consideration in policymaking, reducing operating costs, and delivering improvements in infrastructure, skills and the banking sector.
Public Finances Fianna Fáil will not take risks with the public finances. We reaffirm our commitment to meeting in full the domestic and EU fiscal rules. Even if Ireland’s Medium Term Objective (MTO) is revised to -0.5%, we will continue to target a balanced budget in structural terms. We will ensure that the available resources are deployed in a fair manner between tax reductions and expenditure measures. Rainy Day Fund We will establish a Rainy Day Fund with any unexpected proceeds from corporation tax receipts. As banking assets are sold over the next five years we will consider putting some of these proceeds in to the Rainy Day Fund as well as using them to directly reduce the national debt. Strict rules will apply as to when the Rainy Day Fund could be drawn down. Taxation Fianna Fáil will: x
Abolish the Universal Social Charge for all income earners on the first €80,000 of income. We will do this by eliminating the 3 lower rates of USC (1%, 3% and 5.5%) and raising the entry point for the remaining rate to €80,000. Income earners over €80,000 will only pay USC on the portion of their income above €80,000. Fianna Fáil Economic Strategy Election 2016
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x x
Ensure equal tax treatment for self-employed in the income tax system. Deliver a best in class Capital Gains Tax regime for entrepreneurs.
Legacy Bank Debt: x
The pace at which the bonds being held by the Central Bank as a result of the promissory note deal are being sold is far greater than was originally agreed. This means than instead of the annual interest payment on these bonds coming back to the State via the Central Bank surplus they are being paid to a third party. We believe a case must be put to the ECB for considerably slowing the rate of sale with the aim of the bonds being held to maturity. This has the potential for improving the state finances in the years ahead.
Competitiveness x
Fianna Fáil is committed to a range of measures with the aim of driving down business and consumer costs. The government should act on recommendations of the Competition and Consumer Protection Commission in relation to sectors where anti-competitive practices are identified.
Infrastructure x
x x
The Capital Plan as published by the government is limited in nature and lacking in ambition. We envisage additional capital expenditure of €2.7 billion over five years addressing key issues such as social housing, universal fibre broadband to the home and a new five year programme for research in third level institutions. A National Infrastructure Commission will be set up to plan the country’s infrastructure for the next 25 years. We will improve the capacity of the health service by investing in more acute hospital beds and improving primary care facilities.
Defending Ireland’s corporation tax regime x
Fianna Fáil will vigorously defend Ireland’s right to maintain autonomy in relation to corporation tax.
Maximising the agri food sector x
Fianna Fáil will set up a dedicated market access unit in the Department of Agriculture with a mandate to secure new export markets. We will only support a Transatlantic Trade and Investment Partnership (TTIP) deal which fully upholds existing European food safety standards.
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Investing in Research & Development x
We will implement multi-annual funding for Research and Development. To help attract additional R&D investment into Ireland, we will introduce a pre-approval mechanism to enable firms to agree in advance the percentage of an R&D grantaided project that qualifies for the tax credit. We will also set up a dedicated unit within Revenue to deal with specific R&D tax matters.
Enhancing skills levels in the economy x
Apprenticeships should be offered in a wider range of skills/crafts and based on an assessment of industry needs. Major firms, particularly multinationals should be encouraged to take part in apprenticeship schemes.
x
We will ensure there are regular reviews of the skills levels of second and third level graduates to ensure industry requirements are being met. We will do this in conjunction with representative bodies.
Tackling legacy debt in SME sector x
Banks are only very slowly disengaging from short-term forbearance measures. We will require the Central Bank to publish updated targets for dealing with SME debt and ensure these are extended beyond the State supported banks.
Delivering a competitive banking sector x
As AIB is returned to the private sector over the next five years it is vital that there is a parallel strategy to ensure that a dynamic banking sector is in place.
x
We will establish a full State Enterprise Bank by licencing the Strategic Banking Corporation of Ireland. This has the potential to be a permanent solution to the ongoing lack of credit for SMEs.
x
We will ensure that credit unions remain viable and can continue to serve their communities and offer choice and competition in a fair and equitable way in a market that is currently dominated by banks.
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1.
State of the economy
While GDP levels have returned to those enjoyed in 2008 and employment is growing there is another side to the economy after five years of the current government: x x x x x x x
The domestic elements of the economy are still below peak levels. In particular, both public and private investment has a long way to recover. Average earning have still not returned to pre-crisis levels. A barrage of new taxes, increased taxes and new charges have been applied. Nearly 100,000 owner occupiers are in mortgage arrears with thousands more struggling to meet their repayments. There is a shortage of suitable housing particularly in urban areas. Many areas of the country have not felt the benefits of recovery. Long term and youth unemployment remain significant problems.
Economic projections Fianna Fáil accepts the macroeconomic forecasts from the Department of Finance for the period 2016-2021, as endorsed by the Irish Fiscal Advisory Council, as the basis for our economic plans over the lifetime of the next Dáil.
Source: Department of Finance Economic and Fiscal Outlook, October 2015
Risks to economic outlook Fianna Fáil recognises that Ireland remains vulnerable to a change in international factors. We have benefitted in particular from the weak euro, low interest rates, falling energy prices and the ECB’s quantitative easing programme. The reversal of any or all of these factors could hit Ireland particularly hard. The recent economic turmoil in China is a stark reminder of the unstable nature of the global economy. The potential for the UK to leave the EU is an additional source of risk. Due to the interdependencies of the two countries, it is in Ireland’s interests that the UK remains in the EU and Ireland must play a full role in achieving this in our own national interests. In a worst case scenario, a British exit could lead to the introduction of tariffs on trade activity with European states. Irish owned manufacturing firms would be particularly vulnerable as they sell approximately 43% of their exports to the UK compared to 11% for multinationals. Fianna Fáil Economic Strategy Election 2016
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An ESRI report has estimated that bilateral trade flows between the UK and Ireland could fall by as much as 20%, with some sectors more affected than others. The Irish agri-food sector, in particular, is much more dependent on the UK as a trading partner than Irish industry in general. 54% of Irish beef exports in 2015 went to the UK. As well as the potential for a British exit to spark a recession in that country, it would most likely also be associated with a significant weakening of Sterling against the Euro. This would damage the competitiveness of our exports to the UK and the relative attractiveness of our goods in markets in which we compete with UK firms. A significant domestic factor which could inhibit the growth of the economy is the ongoing failure to tackle the housing shortage. The level of house building remains close to its weakest level since the 1970s. Mortgage lending also remains below normal levels. According to the latest data from the Banking & Payments Federation Ireland, the number of mortgage approvals in the three months to the end of December 2015 totalled 7,124. This is 15% fewer than in the same period in 2014. Ireland’s competitiveness has been an important driver of economic recovery. In recent years, our competitiveness has improved at a time when it has dis-improved in the euro area overall, giving Ireland an important economic advantage over other countries. It is essential that this competitiveness is maintained. In this context a lack of housing and associated high prices and rental costs have a negative effect on Ireland's attractiveness for inward investment and international workers with key specialist skills, as well as damaging competitiveness generally. Fianna Fåil is committed to the construction of 45,000 social housing units over the next five years as part of the building of 150,000 new homes. This will significantly reduce cost pressures in the private rental sector.
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2.
Long term secure public finances
Ireland has now exited the corrective arm of the Stability and Growth pact as our deficit has fallen below 3%. The debt / GDP ratio has fallen below the critical 100% mark. This follows many years of sacrifice on the part of the Irish people following the implementation of tax increases and painful expenditure cuts. As the deficit has fallen below 3%, a new set of rules now apply under the Stability and Growth Pact: x
The structural deficit must be reduced by a minimum of 0.5% from the previous year outturn.
x
The debt / GDP ratio must be brought down by at least 1/20 th of the difference between the current level and 60%.
Fianna Fáil fully accepts these financial constraints as reflected in European and national law. We want to see an early return to a budget surplus, ideally by 2017 to strengthen Ireland’s long-term economic prospects. Medium Term Objective Under the Stability and Growth Pact, Ireland is obliged to be at or make rapid progress towards its Medium Term Objective (MTO) of a balanced budget in structural terms. This obligation stems from the Fiscal Compact, which Ireland adopted in a referendum in 2012, and has been enshrined in domestic legislation through the Fiscal Responsibility Act 2012. The Department of Finance projections in Budget 2016 indicated that a balanced budget would be achieved in 2018 with the budgetary outturn for 2015 indicating that it may happen sooner. A revised Medium Term Objective for Ireland of -0.5% has been described by the Department of Finance as “likely…subject to the outcome of technical discussions”. Even if Ireland’s Medium Term Objective is revised, Fianna Fáil is committed to a balanced budget in structural terms. Fiscal space A key issue during the course of the election for every political party will be the choices that they would make given the available resources. In simple terms, fiscal space measures the capacity of the government to take discretionary tax and expenditure measures after accounting of all known commitments, for example additional spending required by changing demographics or public sector pay agreements. Total net fiscal space as calculated by the Department of Finance is estimated at €8.6 billion up to 2021.
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A revised Medium Term Objective for Ireland of -0.5%, which as noted above, the Department of Finance has described as “likely…subject to the outcome of the technical discussions” would allow an additional €1.5 billion of fiscal space. We will take a cautious and prudent approach in this regard. Fianna Fáil will not be making commitments based on any additional fiscal space from a revised MTO as we are targeting a balanced budget in structural terms. Rainy Day Fund In 2001 the Fianna Fáil government established the National Pension Reserve Fund. Patrick Honohan called it “the most important initiative in economic policy for the past decade”. The fund retains very valuable investments which will help to support economic prosperity and payment of public sector and social welfare pensions into the future and is currently valued at over €22 billion. The State has already made a profit on its holding in Bank of Ireland and the recovery in profitability of AIB indicates the State will make a positive return on this investment as well. Ireland is currently enjoying a boom in corporation tax with receipts totalling €6.85 billion in 2015. This was €2.3 billion ahead of estimates and compares to an outturn of €3.5 billion in 2011. Given the volatility in relation to corporation tax, the future use of corporation tax receipts represents a significant policy challenge. That is why Fianna Fáil suggested that a new rainy day fund be put in place to provide a cash buffer should the economy experience an unexpected downturn. The Department of Finance forecast for 2016 is for €6,615 million in corporation tax revenue. Fianna Fáil are proposing that once a balanced budget is achieved in 2017 any increase in corporation tax revenue above this baseline of €6.6 billion, or subsequent revised baseline from Revenue, should be put aside to lessen the impact of any future slowdown in the economy. These cash reserves would be held by the NTMA in a designated fund which could then only be drawn on if the unemployment level rose by 1% (or was forecast by the Irish Fiscal Advisory Council to rise by that level). The money would be specifically used for infrastructure projects which would cushion the impact of a slowdown in the economy. This approach is consistent with the application of the expenditure benchmark which is designed to limit the growth rate of expenditure to a long-run potential growth rate of the economy. At present there is potential that a government could seek to spend some of the windfall receipts in a pro-cyclical manner as there is flexibility within the expenditure rule for increased capital investment. A four-year moving average of investment expenditure is used when assessing compliance with the expenditure rule. The Rainy Day Fund would ensure that funds are available in a counter-cyclical manner.
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Proposed split of available resources The commitments in our manifesto in relation to the available fiscal space are based on a split of 2:1 between expenditure and tax. Net Fiscal space
€8.6bn
Fianna Fáil proposals Tax measures
€2.92bn
Current expenditure
€4.76bn
Capital expenditure impact on fiscal space*
€0.68bn
Total
€8.36bn
[*One quarter of total additional capital spend of €2.72bn over five years.]
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3.
A taxation system that rewards work and enterprise
Fianna Fáil will reform the taxation system in a way that rewards work and encourages enterprise. While claiming not to raise tax rates, Fine Gael and Labour have made 45 separate increases in tax including 13 individual increases in taxes on income. Income tax and USC must be reformed and simplified The total income tax take in 2016 will be over one third higher than 2007, while other taxes have not yet recovered to peak levels. This demonstrates the extent to which correcting the public finances has fallen on workers. Income tax now represents 40% of all tax receipts, whereas it was 29% in 2007. The government added to the already complicated nature of taxes on income in 2015 by creating an additional rate of USC. There are now four rates of USC for PAYE workers and five for the self-employed. Clearly there is a need for a multi-year reform and simplification of USC. We will abolish USC for all income earners on first €80,000 of income Fianna Fáil is committed to eliminating the USC for all income earners on the first €80,000 of their income, over five years. In the first budget after the next election we would immediately abolish the 1% rate of USC that applies to income up to €12,012 at a first year cost of €173m and a full year cost of €237m. We would reform the USC over 5 years as follows: USC rate
Action
Cost full year €m
1% on income up to €12,012
Abolish in first budget
-237
3% on income up to €18,668
Abolish over two budgets
-444
5.5% on income up €70,044
Eliminate over 5 years
-1914
Entry point to top USC rate
Raise entry point to top rate from €70,044 to €80,044 in year 5
-48 -2,643
The total full year cost of this package is €2.64 billion and will benefit 1.8 million taxpayers. The abolition of USC means a single worker on €35,000 would be better off to the tune of €1,218 while someone on €75,000 would see their take home pay increase by €3,542.
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Cut Capital Gains Tax Entrepreneurship Relief rate to 10% There is a globally competitive market for start-up enterprises. The extension of Capital Gains Tax relief in Budget 2016 was restricted to the first €1 million of gains. It remains an extremely complicated system. In contrast the UK has a simpler, clearer and more attractive relief which applies a flat 10% rate to entrepreneurial gains of up to Stg £10 million. This limit has increased three fold since the relief was introduced. Fianna Fáil will cut the Capital Gains tax rate for entrepreneurs to 10% on the first €15 million of chargeable gains at a first year cost of €68 million and a full year cost of €74 million. Ensure equal tax treatment for self-employed is a core priority Ireland is acknowledged as a world leader in attracting foreign direct investment. No country can match what we have achieved over many decades. 187,000 people are employed by foreign multinationals in Ireland and the sector rightly commands significant attention in political debate. By contrast we give far less prominence to the role of Irish entrepreneurs and the self-employed in the economy, despite the enormous potential for risk takers with new ideas to lead Ireland’s recovery. There is no shortage of individuals with good ideas for products and services but often the obstacles in their way prove too great. Setting up your own business is a daunting undertaking, negotiating a minefield of regulatory and financial hurdles. There are many factors that may hold back an entrepreneur. Lack of access to finance is an obvious one which may prevent a business from getting off the ground. This is often associated with the perceived riskiness of new ventures. Fianna Fáil was the first party to identify the importance of equal treatment for the selfemployed in the tax system. Insofar as possible, the tax system should treat people in an equitable manner. From 2016 eligible self-employed persons will receive an earned income tax credit equating to one third of the full PAYE allowance. This has a particularly stark impact at lower levels of income. For example, in 2016 a qualifying self-employed single person on an income of €15,000 will pay over 7 and half times more tax and PRSI than an employee on the same income. Fianna Fáil has consistently advocated on behalf of domestic job creators. Equalising fully the treatment of the self-employed and PAYE workers within 2 years is a core policy. The cost of this is estimated at €123 million in a full year.
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Provide for equal treatment of self-employed in PRSI system PRSI is regarded as equivalent to an income tax by self-employed people due to the tenuous link between benefits derived and the amount paid. The self-employed currently pay Class S PRSI at a rate of 4%. This entitles them to a reduced range of benefits compared to PAYE workers. To be eligible for Jobseekers Assistance, a selfemployed person must undergo a means test. This can be time consuming with waiting periods of up to eight months. Inaccurate media reports have led some people to believe that they are entitled to nothing because they have no automatic entitlement to Jobseekers Benefit. This has caused unnecessary confusion among the self-employed. Furthermore, self-employed people have no entitlement to an invalidity pension and occupational injuries benefits, which employees can avail of from contributions made at the PRSI Class A rate. The cost of extending Jobseekers Benefit and Invalidity Benefit to the self-employed is estimated at €76 million and €93 million per annum respectively. We would review the potential for a scheme on these lines subject to it being offset by the yield from the contribution of those who voluntarily opt-in to Class A PRSI and pay the associated 4% additional contribution. Increase employment through progressive relief from Employers’ PRSI When an entrepreneur makes their first hire, they are taking a huge risk. This is a vital moment in a company’s development with the entrepreneur being forced to take on significant personal, financial and legal burdens. The state should seek to reduce the upfront financial cost of taking on first employees. We believe there exists the potential for a scheme that focuses on early stage companies and rewards growth by offering exemptions from and reductions in Employers’ PRSI for new firms. For example, the first additional employee taken on should be exempt from Employers’ PRSI for a period of 2 years and the next 5 employees subject to a reduction of 50% on the first €25,000 of salary. This should be achieved within the existing budget for job supports.
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4.
Enhancing competitiveness
Achieving competitiveness is an ongoing part of delivering sustainable improvements in living standards and quality of life. Ireland remains a high cost location for a number of key business inputs. The economy is now at a turning point, with overall relative cost competitiveness dis-improving on a number of fronts. Fine Gael have abandoned their pro-consumer agenda since being elected to government in 2011. In particular, they have prioritised the interests of banks over those of consumers. Key areas of concern: Finance for Business x
A lot of attention is focused on credit availability but not enough on the cost of credit. New business interest rates for non-financial corporations are higher in Ireland than in the euro area. Rates are 60% higher for loans up to €1 million and are 81% higher for loans above €1 million. In November 2014, interest rates in Ireland for revolving loans and overdrafts were 42% above the euro area average. In 2014, loans of over €1 million are 81% more expensive in Ireland.
Energy Prices x
Ireland remains a relatively expensive location for energy compared to most of our EU peers. Electricity costs in Ireland are relatively high. Electricity costs are a particular issue for energy intensive industries and many SMEs particularly in the food sector. Gas prices are substantially higher than in the US.
Waste management x
Waste management costs across the main treatment options in Ireland, including landfill, thermal and biological, are among the most expensive of the 10 benchmarked countries/regions according to the Costs of Doing Business in Ireland 2015 report in April 2015.
Office and rent costs x
Dublin city centre office rents are near the all-time high of €70 per sq ft set in 2008. Rents elsewhere in the country are also continuing to increase.
Broadband x
Ireland ranks poorly in terms of fibre connections and significantly lags behind leading countries in terms of upgrading the local broadband access network to fibre. From an enterprise perspective, the widespread availability of advanced broadband services is more of a concern than cost issues. This was highlighted in a recent report by the National Competitiveness Council.
Costs of enforcing a business contract Fianna Fáil Economic Strategy Election 2016
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x
Ireland is an expensive location to enforce a business contract (ranked 9th most expensive in the OECD- 32). The World Bank estimates that the total cost of contract enforcement in Ireland amounts to 26.9% of a claim, compared with 21.2% average in the OECD. It also takes significant time to enforce a contract in Ireland – the 6th longest in the OECD. Following a long period of steady decline, the cost of accountancy services has begun to increase in recent quarters although prices remain below 2010 levels.
We will: x x x
x x x x x x x x
Reform the banking sector to ensure banks are not allowed to rebuild profits on above average loan costs to business. Encourage new entrants to the banking sector and lift restrictions preventing the credit unions competing on a fair basis. Re-institute the successful Motor Insurance Advisory Board which led to a considerable fall in insurance costs up to 2013 to tackle rising motor insurance premiums for business and commercial customers. Introduce targeted subsidies for childcare costs to help working parents. Force medical insurance companies to tackle waste and high costs. Invest in infrastructure to reduce housing costs and improve journey times for consumers. Act on recommendations of the Competition and Consumer Protection Commission in relation to specific sectors. Improve price transparency by obliging energy companies to advise customers when a discount period has ended. Reduce bureaucracy and red-tape affecting businesses. Make it easier for businesses to operate efficiently by improving broadband quality. Oblige members of regulated professions to meet strict price transparency requirements.
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5.
Maximising the potential of the agri-food sector
Fianna Fáil is committed to protecting and developing agriculture for the 140,000 farming families in Ireland as the main driver of the rural economy, which employs over 175,000 people, with food and drink exports reaching €10.8 billion in 2015. Food Harvest 2020 blueprint is on track to reach all agri-food targets A Fianna Fáil led government in 2010 launched the Food Harvest 2020 programme. This ambitious strategy was welcomed by all sectors of the industry for its vision and is succeeding in enabling the major development of the agri-food sector, while protecting and creating jobs. Food Wise 2025 builds on the vision of Food Harvest 2020. However, the litmus test will be ensuring farmers’ incomes and profitability levels improve in this period through adding value and diversification of product and complying with our environmental responsibilities. Agriculture exports and new market access One of the key difficulties for our exporters in 2008 and 2009 was the weakness of sterling against the euro which impacted very severely on the volume and value of our exports during that time. Today the situation is reversed and this has contributed to better export returns. However, this factor cannot be depended on in the long term. Fianna Fáil is proposing that a dedicated market access unit be established in the Department of Agriculture with a mandate to secure new market access for exports, working in unison with industry and producer organisations. This unit would also work to leverage our entry in third county markets by producing top quality premium products based on our low carbon, green production model. Greater flexibility in market intervention tools It is imperative that the current European tools for price intervention are reviewed as provided for under the 2013 CAP Regulation to deal with the current market volatility, especially in dairy prices. Fianna Fáil will push at EU level for such a review. Current price intervention levels were set in 2003 and do not account for the large increase in farming costs since then. EU market intervention levels should also reflect average production costs and this would send a strong message to the markets. Tools to help farmers mitigate volatility To help Irish farmers counter increased price volatility in all sectors, Fianna Fáil in government will be committed to investing in education schemes to promote knowledge transfer around future markets, insurance, fixed price term contracts and risk management actions to protect the primary producer and cooperatives.
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Roll out an “Island of Ireland” suckler beef label A geographical beef indicator would help build a distinctive brand for beef produced on the island of Ireland. Working in co-operation with the Norther Ireland executive, this cross border initiative would benefit beef farmers across the island. Rather than a national brand which is unavailable under EU rules, the geographic indicator can encompass the entire island and provide for a unique regional label branding such as used by Welsh lamb and Scottish beef currently. In addition, the distinct brand will help Irish beef compete following the completion of any future trade negotiations. Transatlantic Trade and Investment Partnership The Transatlantic Trade and Investment Partnership (TTIP) is a free-trade agreement currently being negotiated between the EU and the US. Fianna Fáil supports the concept of TTIP on the basis that as an exporting country Ireland stands to benefit disproportionately from the potential for expanded market access. A Copenhagen Economics study indicated TTIP would add 1.1 per cent to gross domestic product in Ireland and create up to 10,000 extra jobs. While the study indicated that the agri-food sector (notably dairy and processed food) would benefit, it did highlight a direct threat to the beef industry due to increased competition from lower cost US beef. We fully recognise the importance of maintaining the high standard of food safety in Europe and we will only support a TTIP deal which fully upholds our food safety standards and the way the EU sets them. There must be equivalence to our premier standards. This is a red line issue which we will uphold in government. We also recognise concerns that exist regarding environmental standards and around the “Investor State Dispute Settlement” clause. Farm Taxation measures Fianna Fáil will introduce a number of reforms to how farm incomes are taxed subject to confirmation from Revenue that the costs are not excessive and the measures proposed can be implemented in an efficient manner: (1)
Simplification of tax returns
We support amending the tax code so that farmers whose gross income from farm payments and sales is less than €30,000 would have the option of making a detailed tax return, or choosing a system based on average gross margin on declared income for different types of farming as assessed by Teagasc each year. This has the potential to considerably reduce the burden of paper work and red-tape that is imposed on small farmers without any consequent loss of revenue to the State.
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(2)
Stamp duty relief for young farmers
Stamp duty relief applies to farm transfers of land and buildings to young trained farmers. This relief is a vital mechanism to incentivise the transfer of farms from an early age, without placing a hefty tax burden on young farmers. Without this relief, farms would only be transferred through inheritance in most cases. CAP regulations define a young farmer as no more than 40 years of age. We believe that the current stamp duty exemption threshold for young farmers should be extended to 40 years of age to bring it in line with the current payments age structure. We welcome the fact that our proposal to extend stamp duty relief for young trained farmers is being implemented due to the salient role it plays in land transfers and succession. (3)
Allowing investment in co-op shares to be exempt from income tax
Co-operatives are an extension of a farmers’ business. When a farmer invests in their cooperative, they are essentially making an investment in their own future livelihood. We believe that when a co-op makes a compulsory call on its members to purchase shares, this income should not be taxed up front. Instead, the tax should fall due on sale of the shares or the conversion of the co-op into any other type of business structure. This is similar to the way a contribution to a pension fund is exempt at the time it is made and taxed when it is drawn down as income subsequently.
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6.
Investing in Research and Development
Ireland maintains a historically strong base in research and development. Two thirds of Ireland’s R&D is in the private sector, creating new product and service innovations. State support for science and innovation is essential to ensuring that Ireland is a high-value economy supporting good jobs in to the future. For the past five years the emphasis has been on publicity for ministers over a credible policy covering a diverse area. Maximising the potential of Horizon 2020 for Ireland Horizon 2020 will see upwards of €80 billion in grants awarded for R&D projects across Europe. This is 30% more than the previous round of funding. In 2011 just 2% of Europe’s GDP was invested in Research and Development. This needs to be increased by 50% if Europe is not to risk falling behind the US and developing countries. No region is guaranteed any particular amount of funding but Ireland should aim to achieve at least €1.5 billion in funding under the scheme which has 3 main pillars, Excellent Science; Industrial Leadership; and Societal Challenges. This will require close co-operation between Enterprise Ireland, academic research institutions and potential beneficiaries to maximise our drawdown. There is also a need to pay particular attention to attracting investment to the regions outside Dublin. It is important that SMEs are assisted as much as possible in reaching the 20% target for funding under the latter two pillars. In this regard simplifying the application process and reducing the grant time is crucial. Too often we associate European institutions with unnecessarily cumbersome processes which can lose sight of the purpose for which they were established in the first place Implement Multi-Annual Funding for Science & Research The government’s recently published science strategy is highly unambitious and fails to match its rhetoric with serious funding commitments. In contrast, the last strategy for Science, Technology and Innovation published by Fianna Fáil set out very specific commitments and targets. Research requires a multi-annual commitment in order to secure staff and allow the time necessary to undertake breakthrough research. We will revise the Science Strategy and as part of this will provide a five year funding envelope for the sector. We are committing to a five year capital research and development programme of €296m. Ring-fence funding for programmes in a broader range of areas Research prioritisation was introduced by Fianna Fáil in order to ensure Ireland developed a critical mass of excellent research in strategically important areas. This approach has been successful. However, the more radical approach of this government has been to squeeze funding for all areas outside of these fields. This is causing immense damage to our research base and involves a fundamental misunderstanding of how research and innovation works. A Fianna Fáil Economic Strategy Election 2016
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research-intensive economy cannot exist without a broad research base in primary research. We will maintain a separate budget for research in the humanities and social sciences as part of a dedicated body within the Higher Education Authority. We support the idea of a wide ranging research capacity based on innovations driven by third-level institutions working in cooperation with each other. As such, we will oppose any proposals for new state-controlled research centres. We will continue the support begun under our Centres for Science Engineering and Technology for critical mass in key priority areas based on innovation and cooperation with industry. We will publish an annual report on the balance of research funding by all principal research funding agencies. We will ensure that capital programmes such as the Programme for Research in Third-Level Institutions are linked to overall strategic development goals in higher education and that there is cooperation between all agencies. Link researchers and innovators There remain important blockages preventing our research base from maximising its impact within industry. This is particularly the case for SMEs, who have a very low rate of engagement with research. In this regard we will review Intellectual Property requirements concerning state-funded research to encourage innovation. Research and Development tax credits A pre-approval mechanism for R&D tax credits would help to streamline the process. This would be assisted by a dedicated unit within Revenue to deal with R&D related queries.
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7.
Meeting our Infrastructure needs
The launch of the Capital Plan was a last minute attempt by the Government to play catch up after presiding over years of under investment in domestic infrastructure. Capital plans are normally five years in duration, but the addition of a sixth year, taking it out to well after the second next election was purely to create the appearance of a substantially increased allocation. According to the IMD’s World Competitiveness yearbook 2015, Ireland dropped 4 places to 24th in 2015. Competitively priced world class infrastructure such as telecoms, energy, transport, broadband and water is vital to support national competitiveness and employment. Transport bottlenecks and congestion are increasingly becoming a drag on growth and productivity in our cities as well as hindering wider regional development in large parts of the country. IBEC estimate 90% to 95% of capital expenditure is now simply on maintenance. The Government have proceeded with the sale of Bord Gais and Aer Lingus, massively undervaluing them while projects such as the new Children’s Hospital which were to be funded from the sale of assets have stalled. The Comptroller & Auditor General has highlighted significant waste in public projects. Irish Water, the centre piece of the Government’s investment strategy for water and waste facilities, has been disastrously managed. Revising the Capital Plan €9 billion a year was invested in capital projects in 2008. The capital plan only returns capital expenditure to half that level by 2019. The average annual increase in public investment will be less than €250 million. Just €1.5 billion is allocated for new road projects over six years, while not a single ticket will be sold for Metro North for at least 11 years.
In government Fianna Fáil would seek to accelerate the most jobs friendly aspects of the capital plan and seek to achieve better regional balance. We would also set a target for 98% of all capital expenditure to be spent on goods and services provided by domestic Irish contractors. We would establish a system to communicate the status of all projects under the capital plan and the costs incurred to date. Clear deadlines would be published and the public would be able to see for themselves exactly how their money is being spent and when they can expect projects to be completed. Social Housing As resources allow, in keeping with overall budget constraints we would seek to expand capital investment to meet on going social infrastructure requirements. Fianna Fáil Economic Strategy Election 2016
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In particular we will deliver an additional 10,000 social housing units over the next five years over and above those already provided for. This will tackle social housing waiting lists and take pressure off the private rented sector. It will also represent a significant employment stimulus. Health We will increase funding for the health capital budget. In particular we will provide for delivery of 400 additional acute hospital beds. The estimated capital cost per bed is €1m. This will be implemented over a five year period. Broadband Broadband can help open up a global market for rural tourism and small local producers. Lack of high speed broadband leaves people socially disadvantaged due to inaccessibility to the basic infrastructure of day to day communication. Ad hoc approaches must be replaced with a bold, ambitious long term plan that will place Ireland at the forefront of the IT revolution. Rolling out Fibre to the Home broadband (FTTH) will be a future proofed policy that will equip Ireland with an infrastructure capable of competing in the global economy. We will support the roll out of fibre optic broadband directly to all premises in the state through commercial operators and direct state intervention, backed by an additional €75 million in funding to accelerate roll out. M20 motorway In 2011 Leo Varadkar indicated to the NRA that it should withdraw its application to An Bord Pleanála for the M20 Cork to Limerick route. Four years later the project which is vital to the completion of the Atlantic Corridor is still stalled. The motorway, if proceeded with, could cut 30 minutes from the travelling time between Ireland's second and third largest cities. It would also significantly improve public safety on one of the most dangerous stretches of single-carriageway primary road in the country. The NRA sought permission from Transport Minister Paschal Donohoe in November 2014 to reactivate the scheme stating “The (current Cork Limerick) road will become increasingly congested with time and it is already the scene of many accidents every year, with fatalities and serious injuries,”. The NRA added that “It takes a decade or more to bring a major road scheme through planning to the point where it is opened to traffic. The earliest by which an upgrade of the N20 could now be delivered is probably 2024.” Unless a decision is taken early in the lifetime of the next Dáil to progress the scheme, it could be 2030 before it is finally completed. We are committed to advancing this project at the earliest opportunity and will examine alternative funding mechanisms including a public private partnership model. Fianna Fáil Economic Strategy Election 2016
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8.
Enhancing skills levels in the economy
Long term importance of Education Research on the labour market demonstrates that the probability of an unemployed worker regaining employment is critically affected by factors such as the person’s level of education and their length of stay in unemployment. The unemployment rates for those with the lowest levels of education are around four times higher than the rates for those with third level qualifications. Ireland’s education system has been a key contributor to economic growth and improvements in living standards in recent years and the quality of education outcomes remains central to national competitiveness. The long term data on Ireland’s education performance is positive with high attainment levels, particularly amongst younger cohorts and above average proportions attaining third level education. On the downside, while both primary and secondary school students clock up relatively long days in the classroom, less time is dedicated to key subjects such as mathematics and science than is the norm across the OECD. Likewise, Irish secondary school students spend less time studying modern foreign languages than the OECD average. Total current expenditure on higher education by the State has fallen from approximately €1,887 million in 2008 to an estimated €1,449 million in 2014. Participation in lifelong learning remains low and this poses a particular problem given the need to tackle embedded structural unemployment. Enhancing skills levels in workforce Apprenticeships offer a structured educational and training pathway to a qualification in various employment professions. Improved co-operation between businesses and education providers will ensure that students are taught the skills to meet industry employment demand. Addressing skill shortages is fundamental to economic growth. Skills are a competitiveness issue for SMEs and matching skills and qualifications with market demand is key to creating jobs. Nowhere is this clearer than in the area of STEM (Science, Technology, Engineering and Math) skills, where there is a low term take up in these subjects by students. The European Commission forecasts a staggering shortage of ICT professionals in Europe of 1 million by 2020. Alarmingly, the digital skills shortage is more pronounced in Ireland with 42% of the workforce having few or no digital skills with half of companies finding it difficult to recruit IT workers. This is the highest in the EU. It is vital that there is a joint plan set out by industry, education providers and government to ensure a sufficient stream of qualified graduates in STEM skill subjects. This is necessary to create the future entrepreneurs in advanced manufacturing and ‘big data’ start-ups.
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Fianna Fáil has consistently set out proposals to expand the apprenticeship system. x
Apprenticeships should be offered in a wider range of skills/crafts and based on regular reviews of industry needs. For example an apprenticeship scheme in the bar and catering trade could be of great assistance to both prospective employees and the hospitality sector, preventing the casualisation of trades.
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Apprenticeship quality should not lag behind academic qualifications in how they are observed by both employers and prospective apprentices.
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Apprentices should be able to learn a broader range of skills during the off-the-job element of their course. This should cover skills in numeracy, technology and language which are highly valued by employers.
x
Firms should be incentivised to take part in the apprenticeship scheme. Germany has a long tradition of major industrial firms offering apprenticeships and seeing it as an integral part of their industrial policy e.g. grants.
x
An online apprentice vacancy matching service should be developed as part of INTREO’s services, similar to that available in the UK.
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Government agencies should have apprenticeship schemes in place for example, property restorations, stone masonry, fisheries and agriculture.
Activation and Training Schemes The number of case officers is currently too small to handle activation of the large number of long-term unemployed. Plans to increase resources through redeployment or by engaging private sector firms should be pursued without delay. Given the signs of skill mismatches, ongoing reforms of the further education system should be implemented in a manner that ensures that training is in line with market needs. Encourage entrepreneurship from a young age A 2015 report by the EU’s working conditions agency indicated that Ireland has one of the lowest levels of young entrepreneurs in the EU, with only 4% of 15-29 year olds describing themselves as self-employed. Educational programmes need to give students entrepreneurship skills and the confidence to pursue their own business ventures in the future. The primary aim is to bridge the deficit in entrepreneurial knowledge, skills and attitudes. Such experience engenders young people with skills and competences such as opportunity identification, business planning and running pilot businesses, including soft skills like teamwork, initiative, and creativity. Such competences and skills will significantly spur risk taking and business start-ups. There will also be the added bonus of promoting selfemployment as a career pathway and promote youth entrepreneurship as something students can aim towards in their professional development. Fianna Fáil Economic Strategy Election 2016
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9.
Delivering a competitive banking sector
According to the most recent “Costs of Doing Business in Ireland” report from the National Competitiveness Council, compared to the European average “New business interest rates are 60% higher for loans up to €1 million and are 81% higher for loans above €1 million. In 2014, loans of over €1 million are 81% more expensive in Ireland.” There is also clear evidence that this is replicated in the personal market with high standard variable mortgage rates and excessive fees and charges. Personal and business customers are paying the price of the very weak level of competition in the Irish banking sector. As AIB is returned to the private sector over the next five years it is vital that there is a parallel strategy to ensure that a dynamic banking sector is in place. Eight years on from the onset of the financial crisis there has been relatively little attention paid to the shape of the banking sector which Ireland needs as it emerges from the crisis. We are proposing that a white paper on the future of banking be prepared as well as a range of measures across the SME and personal sector to tackle the lack of competition: New entrants: Just as IDA Ireland actively markets Ireland as a destination for multinationals to locate, we need to ensure the State encourages overseas banks to establish a domestic presence in Ireland. A number of financial institutions already undertaking administrative functions in the IFSC should be encouraged to offer services to Irish based customers. State Enterprise Bank: A full State Enterprise Bank has the potential to be a permanent solution to the lending gap which exists in Irish banking. It would lend to any company, regardless of sector or size, provided it can demonstrate its creditworthiness. It would remain in State ownership even after the State has sold its stake in Bank of Ireland / AIB. This was promised by the current government but only partially delivered in the form of the Strategic Banking Corporation of Ireland which has had limited impact to date. Legacy debt issues: One of the reasons for the lack of new lending in the SME sector is the overhang of legacy debt. In most cases, SMEs are generating an operating profit but many are making an overall loss due to the cost of servicing their historic debts. Banks are only very slowly disengaging from short-term forbearance measures. We will require the Central Bank to publish updated targets for dealing with SME debt and ensure these are extended beyond the State supported banks. Skills levels in banking sector: The report by Bain/IIF into European SME financing in 2013 found that one impediment to SME lending in Ireland was that banks lacked the skills to gauge the creditworthiness of businesses. We will mandate the Central Bank to closely monitor skills levels within banks to ensure that they are adequately resourced to assess credit applications. Statutory Code of conduct on mortgage switching: The Central Bank has a successful code in place for the switching of current accounts from one financial institution to another. The Fianna Fáil Economic Strategy Election 2016
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same now needs to be done for mortgage holders who wish to switch their mortgage. A statutory code on mortgage switching would set out in detail the obligations on financial institutions involved in a mortgage switching transaction. A strong code would provide certainty to mortgage holders about the process involved and ensure the mortgage holder’s rights are protected. Standard variable rate mortgages: The legislation we are proposing is balanced between the obvious need for banks to be profitable and the rights of consumers to be treated fairly. The Central Bank would be given responsibility for monitoring the level of competition in the mortgage market and the fairness of rates charged. This would act as a strong deterrent to banks from charging excessive rates and would only necessitate Central Bank action where the evidence points to a clear market failure. It would empower the Central Bank with a range of tools, including interest rate caps, to influence the standard variable rates charged EBS: As AIB is returned to the market we will examine the feasibility of EBS being sold separately as a mortgage bank. This would acknowledge the fact that the loss of the Building Societies has had a long term negative impact on the mortgage market. Credit Unions: We will ensure that credit unions remain viable and that they can continue to serve their communities and offer choice and competition in a fair and equitable way in a market that is currently dominated by banks. Specifically, we will remove the current ₏100,000 savings cap and lift the current long term lending restriction to allow credit unions to offer mortgages.
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10.
Defending Ireland’s autonomy on corporation tax
Contrary to an often repeated myth that companies, especially multinationals, pay very little tax, exchequer figures for 2015 show that Corporation tax brought in €6.85 billion over the course of the year. That is €2.25 billion more than 2014 and nearly double the amount collected in 2011. It is noteworthy that the proportion of all taxes raised from corporation tax is substantially higher in Ireland than Germany. The activities of multinational firms also generate a range of other taxes including income tax, PRSI, USC and employer’s PRSI. There are no special corporate tax rates in Ireland. Our tax rules are set out clearly in legislation and the rules are applied fairly to all companies regardless of size. Other EU countries do not have the same level of transparency but are not subject to the same close scrutiny as Ireland. It will come as no surprise that there are some in the European Commission who would like to undermine Ireland's corporation tax offering. Ireland is attractive to multinationals for a range of reasons. The headline corporation tax rate is only one consideration in assessing a country’s corporation tax regime. Market access, a supply of skilled labour and a stable regulatory environment are cited by multinationals are key reasons for locating here in addition to our tax regime. Importance to Ireland of a stable corporation tax regime Ireland has historically used its tax policy in a manner designed to support multinational investment. At the end of 2015 there were 187,000 people employed in IDA Ireland supported companies. One in five private sector workers in Ireland are now employed directly or indirectly by foreign multinationals. While not all of these jobs can be directly attributed to the impact of Ireland’s corporation tax it remains a vital part of our offering to prospective investors. The stability of our corporation tax regime over the years has been a key strength. The next government should seek to preserve this. The international trend is to cut corporation tax not to increase it. Countries such as UK and Germany which criticise Ireland are themselves actively cutting corporation tax and seeking to make their tax regimes more attractive. The myth that corporation tax can be increased without damaging the economy The Anti Austerity Alliance and other parties talk about doubling the effective rate of corporation tax in Ireland to fund public services. In reality this would drive many international companies out of Ireland and many Irish companies into liquidation. Worse still, the real economic effect would be devastating, as the State would incur the cost of increased unemployment and the loss of indirect economic benefits. OECD proposals on Base Erosion and Profit Shifting (“BEPS”) The OECD is in the process of developing proposals as to how international companies are taxed on their profits. We favour making international tax treaties fairer and the taxation of Fianna Fáil Economic Strategy Election 2016
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international corporations more transparent, but there are some elements of the OECD proposals that are weighted heavily in favour of larger companies and these could potentially be very damaging for the Irish economy. Fianna Fáil supports a constructive engagement with the BEPS process. However we should not do so uncritically. The proposals on the table at the moment appear to leave much to the discretion of individual tax authorities. We must be alive to the possibility that tax authorities in other countries may not act with the same consistency and transparency as the Irish Revenue Commissioners when there is international competition for large employers. Current draft proposals on taxation treaties go far beyond the stated goal of denying treaty benefits in “inappropriate circumstances”. In a whole host of scenarios they would deny or cast doubt over the tax treatment of genuine and substantial businesses operating in small countries without creating any equivalent difficulty for similar firms operating in large countries. We firmly believe that where there is a dispute as to the interpretation or application of tax treaties, a mechanism would be in place to allow the right of appeal to an independent international tribunal. This tribunal should be overseen by qualified and experienced jurists from countries whic have demonstrated their independence. It would be an irony if the BEPS project which is billed as advancing the cause of fairness became a vehicle for large countries to discriminate unfairly against small countries such as Ireland. To date far too little attention has been paid to this significant issue in the drafting of the BEPS treaty proposals. It is critical, in the interests of the Irish economy, but also the principles of justice, fairness and balanced global development that this is resolved in future drafts.
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