Plenary Session of S ustaining Progress

At the Plenary Session of Sustaining Progress

Resilient Irish economy

Eighteen months ago, when this agreement began, and in the months it was being negotiated, there was a lot of uncertainty about how we would fare in a slowdown of global economic activity.

Would our employment levels hold up? Had we paid ourselves too much? Could we keep funding public services? Would our policy of lower taxes result in the erosion of the tax base in tougher times? In short, would the basis for our economic success prove resilient?

I think we can all be pleased that the basis of Ireland’s economic success is proving very resilient.

We have come through a real global slowdown in economic activity maintaining high levels of employment and high levels of public investment.

Our people and our labour market structures have proven flexible and adaptable. We have not found that increasing the minimum wage has cost jobs. We have seen continued immigration, not emigration.

We have not seen an erosion of the tax base. Revenues are climbing again because investment and employment are rising. An essential bargain of all partnership agreements is being met: take home pay is up, and taxes are down.

• The average tax rate for a single worker on any wage from €12,000 to €100,000 has fallen every year since 1997 – including the last two years.
• A married couple with two children and one partner earning the average industrial wage now receives more in child benefit than they pay in tax and PRSI.
• Take home pay for the average industrial earner is up about €10,200 since 1997, an 80 per cent increase.
• No-one now pays more than half of overtime in tax and PRSI.

We remain committed to make the minimum wage exempt from tax.

I also believe an average industrial wage earner should not have to pay tax at the highest rate. I am confident this will be addressed in future budgets. I would remind us all, however, that this goal was very far from being achieved in all of the 1990s and was not even universally accepted as a policy goal.

We have continued to manage the national finances prudently. We have increased public spending at rates above most European countries. We have sustained record levels on investment as well as increases in current spending.

Sustaining Progresscontains an agreed commitment to hold current spending growth to the level of growth in GNP. I haven't heard many people recently cite this policy as a partnership commitment. Perhaps some people would rather not speak in specific terms about any limit on the growth in current spending.

But Sustaining Progress recognises that this is an unavoidable policy choice. It is one that comes down finally to the government with its electoral mandate and acting in the best interests of the country.

Enterprise Strategy Group - low corporation tax

I am pleased also to acknowledge in this Forum the excellent work and report of the Enterprise Strategy Group. They have given a clear, comprehensive and insightful view on the way forward for enterprise in Ireland.

The report is, I believe, a seminal contribution to policy-making to build our prosperity and to provide the resources needed for social purposes. I would commend it to each person and group here today.

As just one of its recommendations, the Enterprise Strategy Group underlined the case for maintaining our low corporation tax rate.

It’s clear that this view is not accepted universally. Some people argue that we should raise the 12½ per cent rate to bring in more revenue. Others seem to believe it is wrong for moral or political reasons to have this low tax rate at all.

Our low corporation tax rate is now bringing in over €5 billion in tax revenue, two and a half times the amount when the rate was 36 per cent.

Let’s remember that we have only had the 12½ per cent rate for 18 months. When it was introduced in 2003, it was an actual increase for companies then paying at a 10 per cent rate.

We made this commitment to a 12½ per cent rate to international investors and they made medium and long term investments based on it.

It would be damaging way beyond any benefits of theoretical new revenue to weaken or abandon our commitment, after only 18 months of the 12½ per cent rate.

It would fatally undemine all other goverment commitments in terms of the investment climate in Ireland.

For the vast majority of Irish companies, the rate had been a welcome fall from 36 per cent. Since we want Irish companies to grow, to thrive and to provide quality employment, it is both fair and effective to encourage business formation and development with a low corporation tax rate.

Insurance reform

In relation to specific policies, it has been helpful that S ustaining Progress has focused on areas for priority action.

The reform of insurance and the reduction in insurance costs to consumers and businesses has been a top priority for me.

I am very pleased with progress so far in this area. We have made structural changes, not temporary fixes. The results are already coming through in lower costs.

• The Personal Injuries Assessment Board is now fully up and running.
• The reform of civil law to tackle compo culture is underway. The Civil Liability and Courts Bill, led by my colleague the Minister for Justice, passed through all stages of the Oireachtas on 9^th July and is expected to be enacted shortly.
• Penalty points have been introduced, and will be both policed and reinforced.
• IBEC and the Irish Insurance Federation have produced a Joint Code of Practice in relation to handling claims.
• We have introduced regulations which require insurers to give 15 days notice to renewal of motor policy customers. Information relating to ‘No Claims Bonus’ must also be provided with renewal notices.

The result is that insurance costs have fallen. A recent survey shows that motor insurance premiums have fallen by 22 per cent. Indications are that employer and public liability insurance have fallen by a similar amount.

There are two relflections I’d like to make on this body of work, to draw lessons for other areas.

First, administrative reform can achieve only so much. The power of competition, innovation and market forces can be, and must be, harnessed for our goals.

The full benefits of our programme of reform in insurance – as in many other areas – will not be achieved for our society until we have more free and open competition.

Today I am travelling to London to meet significant insurance companies. I hope to see new entrants in our market to provide a stronger force for competition for consumers and business.

The second reflection I’d make on the insurance agenda is that it wasn’t all agreed by everyone involved. There are still many people who, although they were consulted on the reforms, disagree strongly with the government’s actions. They disagree strongly with Sustaining Progress. It is their entitlement to disagree, but it is also the government’s responsibility to take action.

We would not have achieved anything in insurance reform if we had had to wait for consensus among all the interested parties. Consensus was not possible. That was evident fairly early on. And so there had to be a limit to the consultation process.

This brings me to the wider issue of how we can make this partnership process work all the better.

Role of consultation in decision-making

Disagreement is the order of the day in a democracy of people who care about their society. We cannot, and do not, aim to achieve unanimity on anything.

We make decisions notwithstanding all the contending views. And we have to keep making decisions, because if we stop, we will ossify.

I see social partnership process as a real aid to our decision making.

It was necessary to start in 1987, not because there was a failure of the the State’s decision-making institutions, but because there was a failure of vision and attitudes.

The pursuit of narrow political and sectional interests had held back solutions to very pressing problems.

The partnership process did not ask social partners to suspend the normal pursuit of their interests while a national emergency was dealt with - as if normal 'warfare' on sectional interests could easily be resumed when the economy was doing well again.

Rather, as I see it, partnership has invited people to see that their fundamental interests, viewed wholistically, could be best achieved by lifting heads above the trench and taking a big picture view. We each have critical dependencies on others to achieve our goals.

No-one in this process is asked to leave aside their beliefs, their interests or their mandates. The partnership process is not intended to submerge legitimately different interests.

Nor is partnership a substitute for constitutional decision-making by the Oireachtas, the government or the courts. I don't think anyone would make claims to the contrary in those bald terms.

However, we should be careful to act in ways that are consistent with a clear understanding of the role of partnership, including its limitations.

It remains the duty of the government under our Constitution to make executive decisions. This is a unique responsibility placed on government. It is not a responsibility we can legitimately delegate to another process or another institution, however well meaning or supportive it may be.

The government is required to govern - not when everything is agreed, but precisely when everything is not agreed, and when choices have to be made.

When the government make a commitment to consult with others, it does so in good faith.

My experience is that consultation is all the more effective when the participants are solution-seeking. Points of view are easier to understand and to take on board when the purpose is positive. Consultation can be highly effective in these circumstances. Issues about the prerogatives of government or individual mandates don’t seem to arise when there is constructive engagement.

Needless to say, consultation is ineffective if there are threats, or if people will not or can not work towards a shared policy objective.

It is wise for the government to consult, but, as we’ve seen in the insurance agenda, the duty to govern must make any government assess how long a consultation can go on, in relation to both policy and implementation.

As we well know, when things go wrong, people hold the government responsible, not the partnership process. And that is the clearest reminder of the unique responsibility of government to govern.

Conclusion

I would like to finish by commending again the range of actions and policy goals that are agreed in Sustaining Progress. If we achieve them, our society will doubtlessly be much better off. I am enthusiastic for many specific goals and I would wish to achieve them sooner rather than later: for example, a better system of long term care for older people, as well as measures for competitiveness and better regulation.

Whatever our starting point, we share very many goals for the people of our country. We often disagree about methods but we have a common commitment to prosperity and social progress in our country. I look forward therefore to making the next 18 months of this agreement all the more effective.

ENDS