Pearse Doherty TD addresses Institute of International and European Affairs on Ireland in the Global Economy: A Sinn Féin Perspective
On Monday afternoon, Sinn Féin spokesperson on Finance Pearse Doherty TD was invited to address the Institute of International and European Affairs on the subject of Ireland in the Global Economy: A Sinn Féin Perspective.
Deputy Doherty set out Sinn Féin’s agenda to ensure a broad-based rise in living standards in the years ahead.
You can find his remarks below:
Good afternoon and I wish to begin by thanking the IIEA for the invitation to be with you today to discuss Ireland in the Global Economy, and to outline some of the priorities of Sinn Féin as we navigate a way forward.
The pandemic resulted in the most dramatic shutdown of economic activity in living memory.
Global output contracted with the volume of world trade falling by 8 percent.
Domestic demand fell by 5 percent with the rate of unemployment reaching 19 percent.
Governments in advanced economies acted swiftly to support businesses and save jobs through the rollout of wage subsidy schemes, retaining the link between employee and employer.
In this respect, the wage subsidies schemes in Ireland, North and South, were a success – mitigating the worst impacts of the pandemic on jobs and incomes.
Sinn Féin supported these measures, recognising the scale of the challenge we faced and working with Government to improve these measures to meet their objectives.
As we emerge from the pandemic, a global recovery is underway but uneven –
A lack of access to vaccines and early policy support for developing countries and emerging economies have deepened inequalities that existed before the pandemic.
The global economy will not recover unless all countries, advanced and developing, are empowered to ensure the security and prosperity of their citizens.
Globalisation has for too long been a rigged system – and it is time to rewrite the rules so that all can prosper.
Turning attention closer to home, we have witnessed a post-pandemic bounce but we cannot be complacent.
We in Sinn Féin have a different analysis of our economy than others – how it works and who it works for.
At the outset, perspective is important.
We recognise that the domestic economy has been transformed in the past century – as has every advanced economy.
But for too many of our people, the headline figures they hear on the airwaves, watch on TV or read in the newspapers fail to reflect their lived reality.
So many metrics can obscure more than they reveal.
Such as GDP, which provides a picture of Irish living standards that is so misleading as to be almost meaningless.
The former Governor of the Central Bank, Patrick Honohan, reflected on this in an Economic Letter published by the Central Bank last year entitled “Is Ireland really the most prosperous country in Europe?”
The answer is clear – No.
Noting the serious shortcomings of Irish GDP as a measure of economic welfare, the former Governor used a more accurate measure of household welfare known as Actual Individual Consumption –
Which adds together household consumption with Government spending on services such as health, education and housing.
The picture it paints is very different, but one which rings true to so many Irish households.
Based on this measure, Irish household welfare is below the EU average and 13th in Europe.
Our living standards are more like Spain and Italy than Norway and Germany.
We know some of the reasons for this.
A housing crisis that is draining disposable income and widening wealth inequality.
The scourge of low pay.
Unaffordable childcare that denies women the freedom to participate fully in the labour market.
Sinn Féin’s aim is to address these challenges and ensure a broad-based rise in living standards:
Building a more active and responsive State.
Equipping Ireland to seize the opportunities of the Exponential Age.
Strengthening the hands of workers in pursuit of better pay and conditions.
In pursuit of that agenda, we recognise that the environment in which we operate is changing, both at a European level and global level.
It is to these that I will now turn.
From Rules to Standards
The coronavirus pandemic and public health restrictions implemented to contain its spread led to an extraordinary and unprecedented slowdown in economic activity.
It required emergency economic measures to save lives and livelihoods.
In Europe, this required the activation of the General Escape Clause of the Stability and Growth Pact and adoption of the State Aid Temporary Framework.
Without this action, the economic damage wrought by the pandemic would have been devastating.
This period underlined the fundamental weakness of the fiscal rules laid down in the Stability and Growth Pact.
The need for fiscal rules was justified on the grounds that unsustainable sovereign debt in one Member State would negatively impact others, through the spread of fiscal crises or the dominance of monetary policy and the risk of inflation.
As a consequence, simple rules were deemed necessary – including restricting public debt to 60 percent of GDP and deficits to 3 percent of GDP.
It became clear that these rules were unfit for purpose, leading to their repeated violation.
Their design required Member States to consolidate during periods of recession, harming recovery and deepening unemployment.
Changes to the rules followed, increasing their complexity without tackling the underlying problems.
They restricted the public investment necessary for economies and societies to recover from the financial crisis.
The pandemic has again made clear the need for change.
The fiscal support necessary to respond to the pandemic led to higher deficits and levels of debt, such that the current targets are simply no longer credible.
At the end of 2020, the average EU Government debt-to-GDP ratio stood at 90 percent.
In the Euro area it stood at 97 percent.
Debt ratios stood above 60 percent of GDP in thirteen Member States, with the highest recorded in Greece at 206 percent, in Italy at 156 percent and in Portugal at 135 percent.
Under the current rules, these Member States would be required to close the gap between their current debt-to-GDP and a ratio of 60 percent at a pace of 1/20th per year.
The level of consolidation required to reach these targets would be damaging – quite frankly, it wouldn’t happen.
Rules that aren’t credible cannot be enforced.
Rules that are economically damaging should not be enforced.
Where does that leave us?
Sinn Féin has long argued that the fiscal rules are not fit for purpose - overly complex, undermining principles of sovereignty and economically damaging.
Faced with recurring problems in healthcare provision, social inequality, housing need, infrastructure deficits, and the threat of climate breakdown, the current framework must be abandoned and replaced with a system that respects the democratic mandate of national governments and supports progressive policies.
Many have argued for a move away from fiscal rules and replacing them instead with fiscal standards.
Precedent exists for such an approach - vast areas of European Union law, such as competition, are based on standards rather than rules.
Others have argued that a better measure of debt sustainability is the cost of borrowing or servicing public debt, rather than a blunt assessment of the stock of public debt.
Such a move away from rules and towards standards could encourage rather than penalise investment.
But any golden rule that encourages investment cannot be restricted to environmental policies but must also include investment that furthers social development and reduces inequalities – such as housing and childcare.
As well as changes in fiscal policy we have seen change in the international tax landscape – following the agreement reached in October under the OECD Inclusive Framework.
The old framework for international tax was based on the principle that a company’s profits should only be taxed where that company had a physical presence.
Although intuitive, this principle had its place in the industrial age.
In the post-industrial age of accelerating globalisation and digitalisation, multinationals carrying out significant business activity in market jurisdictions in which they have no physical presence or footprint.
Similarly, although some may argue that globalisation has produced winners, it has undoubtedly produced losers also.
Global inequalities, deepened by corporate tax avoidance and an unsustainable race to the bottom, underlined the need for a new consensus on how multinationals are taxed to ensure that they pay their fair share.
The two-pillar package of measures included in the Inclusive Framework seeks to address these challenges and would bring the most significant changes to the international tax system for more than a century.
Sinn Féin supports its policy objectives, recognising the need to fundamentally reform the international tax landscape to reflect the new realities of the global economy.
Under Pillar One, the outdated principle of taxing a company based solely on the location of its head office will be replaced by taxing a company based also on the location of its users and customers.
It is estimated that allocating the residual profits of multinationals operating in the State under Pillar One will reduce corporation tax revenue by €2 billion in 2025.
Notwithstanding this, it should be noted that corporation tax revenue is still projected to increase out to 2025.
Under Pillar Two, a floor on tax competition would be established through a global minimum corporate tax rate of 15 percent for multinationals with revenue exceeding €750 million.
Pillar Two aims to end the race to the bottom in tax competition - recognising that the race creates more losers than winners, distorting competition and undermining the tax base of countries and their ability to meet the needs of their citizens.
As I said during and after the negotiations, remaining outside the agreement would have damaged Ireland’s reputation and our economy.
In our engagements with the Department of Finance we sought clarity that it would be possible to operate dual rates of corporation tax for Irish companies that fell on different sides of the Pillar Two threshold, ensuring incentives for innovation, such as the Research and Development Tax Credit, could remain.
There has been much focus on Pillar Two and the 12.5 percent rate.
It is now clear that there are greater risks to our competitiveness and future prospects than a 2.5 percentage point change in a headline rate for larger multinationals.
While FDI has been a key pillar of the State’s industrial strategy for decades, we have witnessed the continued failure of governments to adequately address or invest in other factors that are just as crucial.
Such as the provision of childcare and affordable housing, higher education and research.
It is to these fundamentals that I will now turn.
Getting the Fundamentals Right
There are a number of risks that must be addressed to improve the competitiveness and productivity of the Irish economy.
Government inaction over the past decade has magnified these risks.
Every business faces fixed costs in order to operate.
Some of these fixed costs, such as insurance and the availability and cost of credit, limit the ability of Irish firms to compete.
The latest Linked Finance SME Confidence Index found that nearly two thirds of Irish SMEs are finding it difficult to access credit.
With the withdrawal of two banks from the market, these difficulties could intensify.
Addressing this must be a central item for the Retail Banking Review.
Problems also persist in the insurance market, with prices remaining high and availability scarce in many sectors.
Reduced underwriting costs as a result of the Personal Injuries Guidelines have not been passed on fully to business customers, while long promised reforms to the duty of care are yet to be delivered.
These problems must and can be tackled.
The provision of affordable housing is essential infrastructure for any economy and society.
It is a key plank of competitiveness, with a direct impact on the ability of firms to attract and retain staff.
The chronic shortage of affordable homes to rent and buy is eroding incomes, reducing living standards and poses a direct threat to our economic security and future.
It is a direct result of Government policy – a refusal to invest in affordable supply over the past decade and a reliance on policies that have utterly failed.
The numbers attest to this fact.
House prices have increased by over 14 percent in the past year as they approach their Celtic Tiger peak – with the average house price in Dublin now standing at over half a million euros.
Rents have increased by more than 10 percent in the past year with the average rent now standing at more than €1,500 per month across the State, and at €2,000 in Dublin.
Sinn Féin would pursue a radical departure from the housing policy of successive Governments - doubling capital investment in housing, as argued for by the ESRI.
And implementing specific interventions in the market and reforms in planning to deliver genuinely affordable homes to rent and buy.
Likewise, the cost of childcare is a crucial factor in workers deciding where they live and work.
What matters is not just the wages a firm offers, but the quality of life families can enjoy.
Childcare in Ireland is among the most expensive in the OECD, undermining the competitiveness of our economy.
This is understood as a key factor in reducing female participation in the labour market, with our female employment rate lower than the European average.
Everyone should have the freedom to join or remain in the labour market.
For Sinn Féin, transforming our childcare sector is a priority, significantly increasing State involvement in the sector to reduce the cost of childcare by two thirds over a term of Government.
Exponential Technologies and Closing the Gap
Innovation is the engine of economic development.
Improving living standards depends on the ability to drive up the level of value-added output per capita - in turn providing the basis for higher wages and levels of employment.
Firms and governments need to identify what have been described as windows of opportunity, the sources of competitive advantage, and then having policies and technological capabilities to take seize them.
We in Sinn Féin want to see the State and industry collaborate on an agenda that places innovation, high productivity and high wages at its heart – with increased living standards broad based across our society.
Research and innovation are crucial to drive up levels of value-added output per capita, driving productivity and wage growth.
For some time Government expenditure on research and development has fallen below the European average.
Expenditure across both State and private funds has followed a similar trend.
Moving forward, we must change this dynamic, with Government and private expenditure on research, development and innovation steadily increasing.
We must also ensure that gains in productivity are broad based.
Recent figures show the scale of disparity in Gross Value Added per person across regions, a gap that has continued to widen.
This gap is then reflected in wages, disposable income and living standards between regions, sectors and firm types - indigenous and foreign.
A new industrial strategy must be regional as well as national, harnessing and strengthening the capacity of our higher and further education colleges throughout the country, North and South.
We have entered a new era of accelerating technologies.
In four key domains, computing, energy, biology and manufacturing, Ireland is in a position to advance, provided we seize the opportunity.
As a new wave of general-purpose technologies emerge, we must also grapple with the question of work.
For too long, workers have been getting a bad deal, getting too small a share in the economy they have built.
Ireland has among the highest levels of low pay in Europe, with one in five workers on low pay.
Ireland displays one of the highest levels of market income inequality in Europe.
Many note that our tax and welfare system is among the most progressive, but that is because it has to be in order to close the gap.
The new technologies I discussed before risk widening that gap even further.
This can be seen in the gig economy, with platform technologies redefining the relationship between workers and companies – our laws need to catch up.
Sinn Féin are a party of the Left.
We want to increase workers’ power and build an economy that works for them.
We can think of this in terms of four principles: dignity, flexibility, security and equity.
To make a dignified workplace possible and ensuring workers have more autonomy over their work and more insight into the data a firm holds about them and how it is used.
As new industries emerge and grow, workers need to be given the chance to reskill – through lifelong learning and access to affordable education.
As we have seen in the past two years, a strong safety net is crucial at times of rapid change.
Sinn Féin are determined to strengthen the social insurance system.
Wage bargaining and collective action are more important than ever.
Sinn Féin are fully committed to legislating for the right to trade union recognition and the right of unions to bargain for and represent their members.
This would be a radical change in our economy, increasing worker power to ensure that rising living standards and wage growth are broad based and shift the balance of power from capital to labour.
There is so much that can be said with regards to Ireland’s place in the global economy and Sinn Féin’s perspective on it.
There are so many areas that could be mentioned but which time has not allowed.
The move towards a green economy and the opportunities which the transition offers.
Putting the rights of citizens with disabilities at the centre of our economy – when for far too long they have been marginalised to the fringes with unacceptable consequences.
And the project of national reunification – in which we all have a stake to ensure a smooth and successful transition to a new, equal, prosperous and united Ireland.
As an Irish republican, I am hopeful for the future.
There are many challenges we face but many opportunities too.
Provided the right decisions are made, some of which will be difficult, I am confident that our best days are yet to come as a nation.