Michael Noonan has played down warnings about a new property bubble and the economy overheating because of housing construction, attributing current dynamics to "a lack of supply".
“We need to build a lot more houses for all the young people who are founding families, and for the economic activity which is generating so many jobs,” said Mr Noonan. “We have a lack of supply.”
The outgoing Minister for Finance was speaking in Paris at the Organisation for Economic Co-operation and Development (OECD) after signing a landmark convention on tax avoidance. His comments came as the OECD warned that a sharp rise in house prices and property-related lending had raised the prospect of a new Irish housing bubble.
Earlier on Wednesday, State economic watchdog the Irish Fiscal Advisory Council had highlighted the risk of a boom in housing construction overheating the economy.
In its latest economic outlook, the OECD also cautioned that Irish policies “need to stand ready to react to shocks.”
‘Rainy day fund’
Responding to this, Mr Noonan pointed to the Government’s plans to save €1 billion each year for a “rainy day fund” from 2019, and the State’s commitment to reducing its debt to GDP ratio to 45 per cent, well below the EU’s 60 per cent requirement.
The OECD’s commentary also predicted that Ireland’s “growth will fall towards sustainable rates”.
“We’ve had the highest growth in the EU for three years in a row,” said Mr Noonan. “The future is we will come back to Ireland’s sustainable growth level, which is estimated at between 3 and 3.5 per cent, until about 2021.”
Signing the OECD tax convention in Paris will be among Mr Noonan’s last duties as Minister for Finance, with a new cabinet to be formed under Leo Varadkar next week.
The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (Beps) aims to address the way multinational companies shift profits to low- or no-tax locations. The OECD says up to €240 billion in tax revenues are lost annually this way.
“If you make the widgets in Dublin, the tax liability on the profits from the widgets is an Irish tax liability . . . It will be illegal to transfer tax liability to other jurisdictions to avoid taxes,” explained Mr Noonan.
Sixty countries signed the new convention, which facilitates exchanges of information between tax authorities to combat Beps.
“It means there is full transparency of transactions so the ability to transfer profits is removed from the system,” said Mr Noonan.
Ireland will not have to renegotiate the 72 bilateral tax treaties it has concluded with other countries; under the Beps convention, they will be updated automatically.
The issues highlighted by the convention are particularly relevant for the Government in light of the European Commission's imposition of a €13 billion tax bill on Apple for state aid.
“The decision made by the competition commission in Brussels was that we should also have taxed them on their profits elsewhere in the world. We don’t think we have any liability or responsibility to do that,” said Mr Noonan.
“What Apple was doing in Ireland was entirely appropriate because they have nearly 5,000 people working down in Cork and the Irish authorities taxed them on all their activities in Ireland.”
Reflecting on his time as Minister for Finance, Mr Noonan said his proudest moment in six years in the job was “exiting the bailout in three years without any precautionary programme, and having the confidence of the markets to be able to fund us ever since at very low interest rates”.
Teaching years
Asked what he will do after leaving office, Mr Noonan said softly: “Well I don’t want to do an awful lot, actually. I will stay on as a member of the Dáil for Limerick City . . . I have 10 grandchildren, four in Paris, four in Dublin and two in California. I want to talk to all of them individually.”
After the next election, he will retire from politics.
"I've worked for 54 years. I did 18 years as a teacher, and 36 years in politics. A fortnight ago in Brussels, a German official told me I was 'just beyond average', that in the future, everyone in Europe will work for 50 years. So there is the future as seen through Teutonic eyes."
