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Social Justice Ireland response to the European Commission's Country Report for Ireland 2019
In the first quarter of each year the European Commission release its Country Report for Ireland, detailing its review of the current economic situation, Ireland’s progress with country-specific recommendations previously made by the European Commission, and setting out reform priorities for Ireland in the coming year. In our initial response to this year’s report, Social Justice Ireland welcomed the focus on a number of key areas and set out our proposals on how Ireland might respond to the Country Specific Recommendations.
In particular, Social Justice Ireland welcomed the focus of the report on the following:
- The need for increased investment which is socially and environmentally sustainable.
- The need to ensure that growth is broad-based and social and environmentally sustainable. Social Justice Ireland consistently highlights the need for development that is sustainable economically, socially and environmentally. We have also consistently argued for investment in social and physical infrastructure and social services.
- The acknowledgement of the volatility of corporate tax revenues.
- The issue of tax planning and limited application of withholding taxes on royalties and dividends highlighted.
- The limited progress on broadening the tax base, and the need for more progress in terms of environmental taxation.
- The need to move to primary and community based care as a cornerstone of Sláintecare implementation plan and also the concerns regarding the budget available to begin the implementation of Sláintecare.
- The focus on the need to move towards a formal system of homecare as part of a long term care strategy and to meet the needs of a population that is ageing.
- The need for investment in social housing infrastructure and social services.
- The need to increase the level of public research and development. We won’t meet current and future policy challenges without increasing public sector research and development.
- The very high levels of direct income inequality in Ireland and the reliance on social transfers to alleviate this problem.
- The large regional disparities in terms of employment, productivity of firms, access to services and infrastructure such as digital infrastructure and broadband.
Areas of concern for Country Specific Recommendations 2019
Social housing supply is slowly increasing however it is not rapidly recovering from very low levels. The role of local authorities in building long-term social housing was diminishing even before the crash in 2008, as Government looked to Approved Housing Bodies to increase social housing supply. In 2005 local authority ‘builds’ accounted for 60 per cent of all social housing output, ten years later in 2015 it was 1% and while there has been some increase in investment, in the first nine months of 2018 local authority builds accounted for just 4% of all social housing output. While capital spending increased in the years to 2008, neither this, nor the subsequent increase since 2015, is reflected in the proportion of Social Housing Output attributed to local authority ‘builds’ (which includes turnkey developments bought by local authorities), which currently stands at just over 4 per cent.
In response to the social housing crisis (the latest official figures, there are 71,858 households on the social housing waiting lists across the 31 Local Authorities) the Government has reduced capital spending on housing, preferring instead to rely on the private rented market to provide ‘social housing solutions’. Since 2014, the importance of HAP as a means of providing ‘social housing supports’ increased dramatically. Commencing in September 2014, HAP accounted for 11 per cent of all ‘Social Housing Output’ that year. In the first three quarters of 2018, this increased to over 73 per cent. HAP is a payment made by the local authority directly to the landlord in respect of a household assessed as needing long-term social housing. It does not provide any social housing builds for the state.
Social Justice Ireland proposes a series of measures to tackle this pervasive crisis:
- Build more social housing and allow local authorities and Approved Housing Bodies pool resources to finance this increased supply in a sustainable way.
- Develop a system of affordable rent through the cost rental model, financed ‘off-balance-sheet’ to allow for supply to scale up without adding to the general government debt.
- Increase the provision of Housing First accommodation for families in emergency accommodation and limit the length of time families can spend in Family Hubs.
- Develop a spectrum of housing supports for people with disabilities.
- Introduce sanctions for local authorities who do not utilise funding available to provide safe, sustainable Traveller accommodation.
Social Justice Ireland also welcomed the Commission’s focus on the need to invest in social housing, broadband, digital infrastructure and environmental infrastructure. It is vital that this investment is socially and environmentally sustainable. Social and environmental sustainability should form a core element of the implementation and monitoring framework for the National Development Plan. The National Development Plan should align with the path set out in the National Planning Framework.
The lack of digital infrastructure is a significant challenge to the Ireland 2040 commitment to a regional focus for future economic development. The very slow roll-out of quality rural broadband will continue to pose a challenge for the regional action plans and to the generation of sustainable regional and rural employment.
The employment commitments in Government’s action plan for rural development – Realising our Rural Potential – are heavily reliant on the provision of reliable, quality, high-speed broadband. The Public Service Reform strategy includes a commitment to accelerate the digital delivery of services. Retaining the best qualified young people within rural Ireland is also dependent on the availability of high-speed broadband for both quality local employment and social activity.
The National Broadband Plan was launched in 2012, yet we seem to be as far away as ever from seeing its implementation completed. A review of the tendering process, ordered by Government amid concerns that the process may have been compromised, was completed in November 2018. It found that there was no evidence of the tender process being influenced in an inappropriate manner. Government has given approval for the evaluation of the tendering process and this evaluation is continuing. In the intervening period rural dwellers and rural businesses will continue to be disadvantaged. Government must proactively address the issue of universal quality broadband provision in a sustainable way which is not dependent on the commercial priorities of multinational companies.
Social Justice Ireland believes that, over the next few years, policy should focus on increasing Ireland’s tax-take. We outline our taxation proposals in comprehensive details here on pages 76-107. Two areas worth focusing on in this context are Corporation Taxes and Property Taxes.
Despite a low headline rate (12.5%), to date there has been limited data on the effective rate of corporate taxation in Ireland. A report from the Department of Finance in 2014 explored the issue and the 2017 Comptroller and Auditor General (C&AG) Report provides a more detailed assessment. Using the approach used by the Revenue Commissioners to calculate the effective tax rate, tax due as a proportion of taxable income, they found an overall effective corporation tax rate of 9.8 per cent in 2016. Overall the C&AG report points towards a concentration of corporation tax among a small group of multi-national firms and highlights that it is a small number of these firms who are aggressively minimising their tax liabilities.
Social Justice Ireland believes that an EU-wide agreement on a minimum effective rate of corporation tax should be negotiated and this could evolve from the ongoing discussions around a Common Consolidated Corporate Tax Base (CCCTB). We believe that the minimum rate should be set well below the 2018 EU-28 average headline rate of 21.9 per cent but above the existing low Irish level. A headline rate of 17.5 per cent and a minimum effective rate of 10 per cent seem appropriate. This reform would simultaneously maintain Ireland’s low corporate tax position and provide additional revenues to the exchequer. Based on the C&AG report the impact of such a reform would be confined to a small number of firms yet it is likely to raise overall corporate tax revenues. Rather than introducing this change overnight, agreement may need to be reached at EU level to phase it in over three to five years. Reflecting this, we proposed prior to Budget 2019 that the effective rate be adjusted to a minimum of 6 per cent – an opportunity regrettably missed.
Social Justice Ireland believes that the issue of corporate tax contributions is principally one of fairness. Profitable firms with substantial income should make a contribution to society rather than pursue various schemes and methods to avoid such contributions.
Site Value Tax
Taxes on wealth are minimal in Ireland. Revenue is negligible from capital acquisitions tax (CAT) because it has a very high threshold in respect of bequests and gifts within families and the rates of tax on transfers of family farms and firms are very generous (see tax revenue tables at the start of this chapter). Budget 2019 further extended the Group A (parent to child) CAT threshold and the likely future revenue from this area remains limited given the tax’s current structure. The requirement, as part of the EU/IMF/ECB bailout agreement, to introduce a recurring property tax led Government in Budget 2012 to introduce an unfairly structured flat €100 per annum household charge and a value-based Local Property Tax in Budget 2013. While we welcome the overdue need to extend the tax base to include a recurring revenue source from property, we believe that a Site Value Tax, also known as a Land Rent Tax, would be a more appropriate and fairer approach.
Social Justice Ireland believes that the introduction of a site value tax would be a better alternative than the current value based local property tax. A site value tax would lead to more efficient land use within the structure of social, environmental and economic goals embodied in planning and other legislation.
Second Homes, Empty Houses and Underdeveloped Land
A feature of the housing boom of the last decade was the rapid increase in ownership of holiday homes and second homes. For the most part these homes remain empty for at least nine months of the year. It is a paradox that many were built at the same time as the rapid increases in housing waiting lists.
What is often overlooked when the second home issue is being discussed is that the infrastructure to support these houses is substantially subsidised by the taxpayer. Roads, water, sewage and electricity infrastructure are just part of this subsidy which goes, by definition, to those who are already better off as they can afford these second homes in the first place. We believe that people purchasing second houses should have to pay these full infrastructural costs, much of which is currently borne by society through the Exchequer and local authorities. There is something perverse in the fact that the taxpayer subsidies the owners of these unoccupied houses while many people do not have basic adequate accommodation.
The introduction of the Non-Principal Private Residence (NPPR) charge in 2009 was a welcome step forward. However, notwithstanding subsequent increases, the charge was very low relative to the previous and on-going benefits that are derived from these properties. It stood at €200 in 2013 and was abolished under the 2014 Local Government Reform Act. While second homes are liable for the local property tax, as are all homes, Social Justice Ireland believes that second homes should be required to make a further annual contribution in respect of the additional benefits these investment properties receive. We believe that Government should re-introduce this charge and that it should be further increased and retained as a separate substantial second homes payment. An annual charge of €500 would seem reasonable and would provide additional revenue to local government of approximately €170m per annum.
In the context of a shortage of housing stock , building new units is not the entire solution. There remains a large number of empty units across the country, something reflected in the aforementioned 2016 Census data. Social Justice Ireland believes that policy should be designed to reduce the number of these units and penalise those who own units and leave them vacant for more than a six-month period. We propose that Government should introduce a levy on empty houses of €200 per month with the revenue from this charge collected and retained by local authorities.
Local authorities should also be charged with collecting a new site value tax on underdeveloped land, such as abandoned urban centre sites and land-banks of zoned land on the edges of urban areas. This tax, hinted at but not introduced in Budget 2018, should be levied at a rate of €2,000 per hectare (or part thereof) per annum. Income from both measures should reduce the central fund allocation to local authorities.
Taxing Windfall Gains
The vast profits made by property speculators on the rezoning of land by local authorities was a particularly undesirable feature of the recent economic boom. For some time, Social Justice Ireland has called for a substantial tax to be imposed on the profits earned from such decisions. Re-zonings are made by elected representatives supposedly in the interest of society generally. It therefore seems appropriate that a sizeable proportion of the windfall gains they generate should be made available to local authorities and used to address the ongoing housing problems they face. In this regard, Social Justice Ireland welcomed the decision to put such a tax in place in 2010 and strongly condemned its removal as part of Budget 2015. Its removal has been one of the most retrograde policy initiatives in recent years.
A windfall tax level of 80 per cent is appropriate and still leaves speculators and land owners with substantial profits from these rezoning decisions. The profit from this process should be used to fund local authorities. In announcing his Budget 2016 decision, the Minister for Finance noted that the tax was not currently raising any revenue and so justified its abolition on this basis. However, as the property market recovers and as the population continues to grow in years to come, there will be many beneficiaries of vast unearned speculative windfalls. Social Justice Ireland believes that this tax should be re-introduced. Taxes are not just about revenue, they are also about fairness.
Education and Skills
In terms of addressing educational disadvantage and skills development (key to addressing inequality and poverty throughout the life cycle) Social Justice Ireland has made the following proposals to Government.
- Develop and commit to a long-term sustainable education strategy, appropriately funded, that takes a whole-person, life-cycle approach to learning;
- Commit to increasing investment in Early Childhood Care and Education by 0.1 per cent of GDP annually to meet the OECD average by 2025;
- Make the improvement of educational outcomes for pupils from disadvantaged backgrounds and disadvantaged communities a policy priority;
- Commit to reach the lifelong learning target set out in the National Skills Strategy and ensure sufficient resources are made available;
- Develop an integrated skills development, vocation training, apprenticeship and reskilling strategy as part of the lifelong learning strategy and the Human Capital Initiative;
- Develop a framework to deliver sustainable funding revenues for higher education over the next five years with a roadmap to 2028.
Sustainability and Climate
Ireland’s greenhouse gas emissions are nearly 3 million tonnes over the pathway required to meet its 2020 targets and we are on track to overshoot these targets significantly. In fact, we are completely off course in terms of achieving our 2030 emissions reduction targets as well . This has very serious implications for our environment, our society and our economy.
The latest report from the Environmental Protection Agency on our greenhouse gas emissions shows that they decreased very slightly in 2017 due to ‘circumstantial’ issues, but emissions from agriculture increased by almost 3 per cent. This increase is primarily due to the expansion of the dairy herd and increase in milk production. Emissions from agriculture have increased annually since 2012 as a result of the Foodwise 2025 agriculture policy and the removal of milk quotas in 2015. This increase is entirely at odds with environmental policy since 2012, the Climate Change Framework, the Climate Action and Low Carbon Development Act, and our national and international commitments. Such policy incoherence at national level is unacceptable, particularly when agriculture accounts for one third of Ireland’s total greenhouse gas emissions.
Ireland has signed up to achieve the Sustainable Development Goals by 2030, is committed to legally binding climate commitments in 2020 and 2030 and a national commitment to be carbon neutral by 2050. Ensuring development is sustainable socially, economically and environmentally will be key to achieving our environmental and sustainability targets.
To achieve this sustainable development in the years ahead, Social Justice Ireland believes that policy should:
- Set ambitious emissions reduction targets for 2030 and ensure sufficient resources to support implementation of these targets;
- Adopt targets and a reporting system for each of the Sustainable Development Goals;
- Introduce a strategy for Ireland that includes the principles of the circular economy and cradle to cradle development;
- Introduce shadow national accounts, and assign natural capital and ecosystems value in our national accounting systems;
- Develop a comprehensive mitigation and transition programme to support communities and people in the transition to a low carbon society;
- Develop a progressive and equitable environmental taxation system.
Annex D Inequality and Social Europe
High rates of poverty and income inequality have been the norm in Irish society for some time. They are problems that require greater attention than they currently receive, but tackling these problems effectively is a multifaceted task. It requires action on many fronts, ranging from healthcare and education to accommodation and employment. However, the most important requirement in tackling poverty is the provision of sufficient income to enable people to live life with dignity.
The purpose of economic development should be to improve the living standards of all of the population. A further loss of social cohesion will mean that large numbers of people continue to experience deprivation and the gap between that cohort and the better-off will widen. This has implications for all of society, not just those who are poor, a reality that has begun to receive welcome attention recently.
The most recent Survey on Income and Living Conditions from the CSO shows that in 2017 the largest group of the population who are poor, accounting for 23.9 per cent of the total, were children. The second largest group are students and children above 16 years who are still in school (CSO, 2019). In 2017 almost one-fifth of Ireland’s adults with an income below the poverty line were employed. Overall, 36.5 per cent of adults at risk of poverty in Ireland were associated with the labour market. This is an important perspective as children depend on adults for their upbringing and support. Irrespective of how policy interventions are structured, it is through adults that any attempts to reduce the number of children in poverty must be directed.
The incidence of being at risk of poverty amongst those in employment is particularly alarming. Many people in this group do not benefit from Budget changes in welfare or income tax. They would be the main beneficiaries of any move to make tax credits refundable and this should be a key policy instrument to target this group.
If poverty rates are to fall in the years ahead, Social Justice Ireland believes that the following are required:
- in social welfare payments.
- of social welfare rates.
- payments for children.
- refundable tax credits.
- decent rates of pay for low paid workers.
- a universal state pension.
- a cost of disability payment.
In policy terms this requires:
- Adopt targets aimed at reducing poverty among particular vulnerable groups such as children, lone parents, jobless households and those in social rented housing.
- Carry out in-depth social impact assessments prior to implementing proposed policy initiatives that impact on the income and public services that many low income households depend on. This should include the poverty-proofing of all public policy initiatives.
- Recognise the problem of the ‘working poor’. Make tax credits refundable to address the situation of households in poverty which are headed by a person with a job.
- Support the widespread adoption of the Living Wage so that low paid workers receive an adequate income and can afford a minimum, but decent, standard of living.
- Introduce a cost of disability allowance to address the poverty and social exclusion of people with a disability.
European Pillar of Social Rights
The European Pillar of Social Rights is the European Commission's latest major initiative in the field of employment and social affairs. Social Justice Ireland welcomed the Pillar and the 20 key principles, structured around three categories: equal opportunities and access to the labour market; fair working conditions, and social protection and inclusion.
Of concern to Social Justice Ireland is that there is no specific focus in the Pillar of Social Rights on addressing inequality, it does not confer legally-binding rights and there is no concrete implementation plan. The Pillar has the potential to renew Europe’s social model, however it will not do so unless there is a commitment to fully implement it not just at a European level, but by governments at national and regional level, and all social partners (including civil society). The principles of the Pillar should be reflected in the EU annual budget.
Social Justice Ireland recommends that in order to implement the European Pillar of Social Rights a process should be established involving social partners and civil society partners to implement the Pillar in ways that are legally binding, aiming for equal opportunities and access to the labour market, fair working conditions, and social protection and inclusion.
We also recommend that there is coherence between European Policy and the European Semester by integrating the social objectives of the Europe 2020 strategy and the European Pillar of Social Rights in the economic processes of the European Semester. For example, the priorities of Annual Growth Surveys should focus on long-term social objectives, and on building adequate, effective social systems that include both investment and protection dimensions and are better aligned to the EU Social Investment Package. This could be facilitated by:
- Making the European Pillar of Social Rights enforceable through legislative initiatives and turning it into a strategic tool to influence EU macroeconomic governance.
- Supporting efforts to promote growth and jobs while meeting deficit reduction targets in the medium rather than the short term.
- Taking account of the social impact when making Country Specific Recommendations, especially those requiring fiscal consolidation measures.
- Making country-specific recommendations that seek to achieve reductions in poverty and unemployment where rates are high or rising.
 For full analysis see chapter 3 in Social Justice Matters 2019 https://www.socialjustice.ie/sites/default/files/attach/publication/5656...