Economic Stimulus Plan

Introduction

Below are a list of increased taxes and spending reductions proposed to raise the required €1 billion for investing in construction related projects. The cuts are intended with an increased focus on health, environment and employment. Practically speaking, these changes are all relatively straight forward and their implementation should be smooth. Politically, the vast majority would see the benefits of such proposals and it would have long term benefits for the economy and the Irish people. Once the €1 billion has been raised, the report will outline a number of measures to be taken to assist the construction industry. These measures have been proposed to help address the current demands of the market, primarily in terms of labour and affordable housing.

Expenditure Cuts/Tax Increases

Tobacco Products tax:        +€128m

The excise duty on a packet of 20 cigarettes is being increased by €1 (including VAT) with a pro-rata increase on the other and an additional €0.50 on roll your own tobacco (http://www.budget.gov.ie/Budgets/2018/Documents/Budget_2018_Tax_Policy_Changes.pdf). As cigarettes are a luxury item which cause a substantial strain on our already stretched health resources, introducing tax on them will hopefully help to reduce numbers of people smoking and in turn, the numbers of people in our hospitals while at the same time, raising €128m annually for the exchequer.

Sugar Tax:         +€80m

A tax on sugar sweetened beverages is to be introduced. The tax will apply to sugar sweetened drinks with a sugar content between 5 grams and 8 grams per 100ml at a rate of 20c per litre. A second rate will apply for drinks with a sugar content of 8 grams or above at 30c per litre (http://www.budget.gov.ie/Budgets/2018/Documents/Budget_2018_Tax_Policy_Changes.pdf). Again this tax was introduced with health factors in mind. Ireland has one of the largest obesity rates in Europe, with one in four adults being categorised as obese, and one in four children classified as overweight (HSE, 2016). An increase in sugar tax may help to reduce these figures, particularly in children.

Betting Duty:         +€70m

Estimated exchequer gain from increasing betting duty from 1% to 2.8%. Again, gambling is a recreational spend that until relatively recently had no betting duty (Parliamentary Budget Office, 2018) An increase of 1.8% results in a large return and will hopefully help to reduce numbers of people gambling.

Social Welfare:         +€19m

The cost of a €4 decrease in all weekly jobseekers allowance payments. Jobseekers allowance to now be paid at a weekly rate of €194. With the country nearing full employment (5.6% unemployment in August 2018) (CSO, 2018) and the current demand for employees in many areas, the reduction in jobseekers allowance was decided with the aim of decreasing the incentive for those on jobseekers allowance to remain on welfare. The €19m figure comes from 147,892 people on jobseekers allowance (CSO, 2018) multiplied by €4 per week multiplied by 52 weeks.

Scrap Christmas bonus:        +€34m

Remove Christmas bonus in lieu of allowing jobseekers allowance and jobseekers benefit recipients to work one day without affecting their welfare payments for November and December. (147,892 people on jobseekers allowance x €190 social welfare per week (new reduced payment) x 85% payment = €23,884m. 57,838 people on jobseekers benefit x €198 social welfare per week x 85% payment = €9,734m.

Corporation Tax:        +€160m

Increasing corporation tax by 0.27% would yield an extra €178m euro. With this change, Ireland would still remain as the country with the lowest corporation tax rate in Western Europe. The rate would be 8.5% below the EU average of 21.3% (Trading Economics, 2018). This, coupled with our English speaking workforce, should still be an enticing rate, particularly for US companies looking for a foothold in the EU market and any British companies looking to relocate following Brexit.

Medical Cards:         +€165m

There are 1.6m medical card holders, 22% are in the +70 age bracket at an average cost of €2,125 per year, 73% are in the 5-69 age bracket at an average of €920 per year and 5% are in the 0-4 bracket at a cost of €375 per year (CSO, 2018). The 73% in the mid-range age amounts to 1,168,000 people at a cost of €920 per person per year, totalling just under €1.1 billion. I propose to reduce the medical card to cover 85% of medical bills for this age group rather than 100%, resulting in an extra €165 million. This will also help to reduce hospital visits and reduce queues.

Carbon Tax:         +€107m

A €5 increase in carbon tax will yield a €107m increase to the exchequer (Parliamentary Budget Office, 2018). The Climate Change Advisory Council has recently highlighted how Ireland are well behind on their 2020 Greenhouse Gas commitments and changes are badly needed to stem the increase in emissions as the economy continues to grow. An increase such as this should steer more people towards more environmentally friendly options such as electric cars, solar panels and wind turbines.

Total: €998m

Construction Stimulus Plan

Increase funding in training/retraining for any current trade shortages : -€100m

A recent study from the Society of Chartered Surveyors Ireland (2018) has reported that eight in ten surveyors notice a skills shortage in construction in Ireland. Shortages in carpenters, plasterers, block layers, steel fixers and electricians are all slowing down projects and increasing costs.  Also, with 181,000 students in third level courses in 2016/2017 (Department of Education and Skills, 2017), there are fewer school leavers opting towards trades. Increased advertising, promoting and awareness of these options could help to alleviate this issue. Also, increased focus on re-training from one trade to another could help address the problem quicker and provide a more experienced workforce.

Increase building of social/affordable housing:     -€300m

This point ties into the above point – the skills shortage has led to an increase in demand for overseas workers to come here, although the current lack of housing often proving to be a deterrent. Investment in building of affordable housing in designated areas could help to keep the influx of skilled foreign workers coming here and helping to address certain skills shortages. In a relatively simple model, the government could build apartment blocks in different areas where workers are needed now or in the future. These apartments could either be rented or sold depending on demand and it would provide a long term return for the government.

Set up a fund for first time buyers to acquire homes in Dublin:   -€80m

Similar to a current help to buy scheme in London, set up a fund for first time buyers. In this system, the government loans up to 40% of the value of the home (up to a total value of €240,000), interest free for five years. The government retains a percentage value of the home until this is repaid. This allows those that struggle to save up for a deposit to get on the property ladder. A similar system in Ireland would be beneficial, with many people at the moment struggling to save for a deposit due to high rent. In this scenario, buyers must save a 5% deposit and obtain a mortgage for the rest. The proposed amount of €80m is relevantly small although if the scheme is a success then it could be developed further in future.

Address the current lack of profits in residential building:   -€270m

Many builders are reluctant at the moment to get into residential building due to the financial outlay prior to works, the risk involved and the amount of profit to be made. This, coupled with the shortage of available labour and weariness from the economic downturn, has made many hesitant to get back into the housing trade. Introduction of incentives to build affordable home, or build in designated areas could help this – in particular, a reduction in the VAT rate from 13.5% to 9% should help to ease this (Parliamentary Budget Office, 2018).

Increase infrastructure spending to encourage decentralisation:  -€250m

One of the biggest issues currently facing construction in Ireland is the concentration on business in Dublin. With the Dublin – Cork/Limerick, Dublin – Waterford, Dublin – Belfast routes all up and running (albeit with the current roadworks on the M7), more emphasis needs to be place on infrastructure outside of the pale. The Cork – Limerick motorway is still at the design stage, with a projected total finished cost of €1 billion. I propose to add €200m to the plan to speed up the process as this route is vital to decentralisation. Better transport links in the region should contribute to an increase in Foreign Direct Investment in the area, increasing employment during the building phase and when the motorway is completed. An extra €50m has been earmarked for other transport infrastructure investments around the country.

Total: €1b

Conclusion

To allocate €1 billion adequately, it takes a lot of consideration of the current and future demands of the economy. The housing shortage we see at the moment could swing back towards an oversupply if too much housing is built and the economy slows down again, leading to decreased demand, vacant houses and unpaid mortgages. Spending on infrastructure and education, are (one would assume) relatively safe investments while affordable housing should yield a positive net return long term and help to position workers where needed. To conclude, any investment should be done cautiously and with a long term view in mind, even in with politics as up and down as it is!

References

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