Richard O'Donoghue Voices Concern Over VAT, Wage Hikes and Costs

We spoke there briefly on the hospitality sector getting the VAT decrease. I was actually one of the people that was actually looking for that decrease. On the record myself, I'm in business myself. I'm self-employed. And when I looked at the basis of would it create an inflation cost, I reckon it wouldn't. Because if you looked at the hospitality sector and the other sectors that were also impacted with the same VAT decrease, they had seen three, and now coming the 1st of January, we'll see four wage increase on the minimum wage. And that would have then had a knock-on effect on everything that the hospitality sector would do, from the price of a cup of coffee to a plate of food to everything. It would have impacted on that. So that would have created an inflation cost, because it would have driven the price of everything up. And they're trying to hold it within the sector. But if you look at based on the 9% VAT and the VAT decrease, it still doesn't compare with what now what you have now is you've auto-enrollment as well. So you've had, you'll have four wage increases, auto-enrollment, which is actually for the employer and the employee. But where it hasn't been taken into account is, some of the employees won't want to pay this, and they haven't added in for the first six months, and then they can pull out of it after that. But a lot of them will just say, listen to me, I'll go somewhere else where I'm going to get better money, and they'll jump. And then you've left yourself in different sectors. So what will happen here is, a lot of the cases it will come back to the employer and say, listen to me, if I don't want to lose this person, I'm going to have to pay the 1.5% and the 1.5% on the other side. But that's going to increase to 6% by 2030. So now we've got another problem. So you have four wage increases, auto-enrollment, we know there's an age of population and people are living longer, right? And then you look at sectors and say, what's going to happen? So, and I have no issue with a wage increase, none whatsoever. But when I see that it doesn't go any further, you actually get less for your money with a wage increase, that's my concern. So we can give all the wage increases that people want. But if you're not getting value for money, what's the purpose of giving a wage increase? A wage increase is supposed to have more money in your pocket. That's not happening. They actually have less. And if you just look at the basic wage increase at the moment, and you're going from 13.50 to 14 euros or 15 cents, that gives a person 26 euros a week of an increase, based on a 40-year-old week. You didn't take in because the USC charge dropped, but the tax base stayed the same. So that means you're actually paying more tax. Because when the tax base didn't change, you're then paying more tax. So the USC, for the USC to change, they should have changed the tax banks to allow people to have more money in their pocket. But they didn't do that. So your tax base changes. You then had another fund that is brought in under your POE and PRSI, was the National Training Fund, which could never be touched for training up to recently. But now they want that going now into part of infrastructure. So it's actually not going what it was first determined for, was the training and upskilling of people. So my concern, and my concern to you here is, and we're watching, you're watching the big picture of where we're going, the people are living longer, we're looking at auto-enrolment, we're looking at everything. This has to come to a level where the people that are on big salaries, and they're paying big taxes. They still can't afford to live well. The people that are on a minimum wage, or even above the minimum wage at the moment, cannot live well. And if you look at the amount of people who say that their employment is in this country, based on the infrastructure that we have, a lack of infrastructure that we have, and the cost of housing, and I'm a building contractor. All my children are living at home with me, with their partners, trying to get on the housing ladder. And when they save so much to say, I'm getting on the ladder now next, and I build houses. It's moved. So what they're saving, when they get to the end of 12 months, they're behind. So they're not even catching up. So my concern is, it's going to come to a situation where we are now overpopulated in Ireland for the base and the infrastructure that we have. We do not have the infrastructure here for the amount of people that are in this country at the moment, and for the amount of people that want to come into this country. Is that a concern for you? See, when you're trying to, and we're looking at budgets and saying forecasting. I'm in business. I can't forecast. I'm giving it a pricing out, and I'm saying that's three months. That's maximum three months. And I'm forecasting into a market that I don't know where it's going to fluctuate. I'm forecasting into a market where the likes of last month, we've got 38% increase in concrete products in three years. We're going up 8%. The government move to say, listen, we're giving an extra 10% for a house with pyrites. Next thing the concrete companies come back is that we're moving our percentage up by 8%. So there's no catch-up. So wherever the government move, the other sector's moving with us. Where's it going to stop? And where do you see, if it does come to stop, where do you see that where we could end up having a bang? And that's where, where do you say that we need to put a cushion in place now to try and prevent that bang? Yeah, I guess with the economy, you're always going to have lots of moving parts. Maybe in some of the matters that you have raised there, maybe unlike the characterisation of members early, we didn't come out necessarily against the VAT change that the government introduced for the hospitality sector. Our approach was actually analysing what impact it will have. Put me on key indicators like inflation. And I think, as you suggested yourself, when the VAT rate comes down, it doesn't have that impact on inflation. There are other factors moving in the opposite direction, as you say, that the pay increases, etc. And on sort of the broader volatility, we find ourselves, in the case of Ireland, for lots of things, we are driven by global prices. And you have more experience with things like concrete than it is. But there are other areas of the economy that are benefiting from global prices. If you look at the meat and the beef sector, they've moved into a stage now where they're actually making a profit from activities and not being dependent on the subsidies... That'll depend on Mercosur now. ...to provide an income. Talk to us soon. So in terms of where things stop, things are like, there's always going to be change and fluctuation within an economy. And it's all a matter of balancing those different needs. Like you refer to a bang, like there's no suggestion from our side or from anyone's forecasting side that the Irish economy has risks built up that would lead to that. Yes, there are risks in the public finances, like the huge amount of corporation tax being paid by a very small number of companies. That in itself presents a risk. But if you look at where we were maybe in 2008 and we had the reliance on both property market activity, building houses and then buying and selling houses, both for the economy as a whole, 300,000 people employed, the public finances, almost a third of tax revenue being dependent on construction. They were clear risks that were linked. And the bang, when it came, impacted the employment. It impacted the government and of course it impacted the banks. But if you look at the economy now that there's no forecast out there that there can be something of that magnitude building up. But yes, it's undoubtedly true that across various sectors, whether it's the hospitality sector, the construction sector and all other sectors, that there are concerns and there are pressures. And one of it is on the cost. Some of that driven externally, domestically, if we try to do too much and you're talking about trying to hold on to staff, if there's demand in lots of sectors, the demand for staff and employment remains high that will push up costs and push up prices ourselves, the issue we face is that we need to make priorities. Like, what is the priority? Is it building new houses? Is it retrofitting existing houses? Is it providing a lower VAT rate for hospitality in a sector where if you look at the employment numbers in the hospitality sector, they've been maintaining pretty strong levels in recent reports in the CSO. the sector itself talks about various pressures, but the overall level of employment in the sector has been honing up pretty strongly. But in terms of the answer, there is no clear key answer. Like, these are things that the political system, the government and ourselves have to constantly deal with. And they change. Like, sometimes you get the argument that, oh, you're saying the same thing over and over again. Well, it's in different circumstances. Like, we face different problems now to what we faced 10 years ago in 2015, 2016, when we still had very high government debt. The government is running deficits. We're now in a position where, remarkably, we've very low unemployment. The government is running surpluses, and those debt races are declining. So we're in a good position, but that doesn't mean it's universal across the economy. Can I ask you a question from here now? And I actually reckon myself Dublin's overpopulated. You can't get into Dublin, you can't get out of Dublin. OK? So me as a business person, if you want a country to survive as a whole, you start to push out into the country, and you put in infrastructure from power perspective, from storage and water perspective, and you allow international companies develop in other parts of the country, you then put in a transport network that supports it. But if you put all your eggs into one basket, it's an old saying, you put all your eggs into one basket, you've only got the one basket. But if you spread the baskets around the country, number one, it takes all the pressures in Dublin, where you have Dublin, where people see extensions of airports and everything, and people can't even get there. Right? You're looking at a massive increase in Dublin. When people then can move out and move out to the likes of Kildare, you create a commuter, you then go down to Limerick, you go to Cork, you then look at other countries, they've actually looked at developing the whole country rather than one particular place. But what other countries have done, they've put in a fast transport network to get you from A to B. So you could be living in Limerick and you could be in Dublin within an hour with a proper network. You could live in any part of the country and get to where you need to go. Rather than you sitting in a car, if I leave here at half as three of any day and I try and get to home, it'll take me an hour and a half to get to the red cow roundabout. It might take me two hours by car and less than two hours to get home from there. So what I'm trying to say is for the whole country to prosper, we need to move out and put in infrastructure into areas which allow the development of the country and then that gives you a business case for transport network, for transporting people for different places and it takes the congestion, it takes the build-up of having everything in the one basket. So the whole country as a whole then gets to support country the network of the country and also will also help the people in the housing market where they're all trying to get into the one place for the houses because we need to get to a certain area because we need to be there. If you spread it out, it drops automatically the price of housing because housing built outside Dublin is cheaper in other areas. That's what I'm trying to do from the point of view of the next generation and the generations that are here today. They all know it's later in the years they're settling down. They're all leaving the country and trying to come back with money, right? But for that, my experience of in my business hat on is if you put them all in one basket we're going nowhere. But if you spread it out and create a prosperous country that can have developments in different areas, the big company in different areas and you put in a transport network, you can live anywhere in the country and you can actually get to work if need be. Yeah, so I suppose we have outlined that there is a big deficit in infrastructure and transport is definitely one of those areas. So if you can take something like the percentage of rail transport that is electric rather than true fossil fuels and there's a lot of European league tables there. One thing that does make public transport more attractive and more viable to do at a large scale is if you have density. So even if you say we're going to have people living outside of the city centre if they are living in a relatively dense way around that transport hub that makes it a lot more viable to have that train station or that third station wherever it is there. So that's another key consideration. But we're all very acutely aware of the lack of infrastructure that Ireland has but Ireland has always had a relatively low level of infrastructure. So when we did a study on this last year we found that in the mid-90s Ireland would have been about 50% below the infrastructure you would see in other high-income European countries. We actually have closed some of that gap it's about 25% now so we have made some progress over the last 30 years. Even with the increase of a million people over the last two years. Exactly. Even with a vastly increased population the infrastructure has managed to close that gap. Now it's partly due to the fact that Ireland is a more wealthy country now where we can actually afford to actually invest in the infrastructure that we wouldn't have been able to do in the 70s and 80s whereas other European countries would have been much more high income in those periods and would have had the capacity to invest in some of those public services that people need. So it is going to take many years to address the lack of infrastructure that we have so that's why we need a long-term plan to do that. The National Development Plan is some of the way there. We also need to make sure the private sector can play its role both in housing and in other aspects because the public sector is not going to be able to do everything. Thank you. Thank you. Thank you.