We need to tackle debt mountain and restore college fees
Griffith College head Diarmuid Hegarty says innovative thinking will boost the economy and steer us out of the doldrums
In a packed restaurant recently, my visitor from an international partner university asked where is the reported Irish recession? While the restaurant was indeed full, those of us running businesses over the past few years know the hard decisions that have been taken to survive, let alone thrive.
The reality is that Ireland has two economies, one engaged in IT, digital media, pharmaceuticals, food business or international financial services which is thriving and the second in property, construction, retail, personal services, which is stagnant and debt-ridden. The road to recovery must entice investment and spending into the stagnant economy. To do this, it must cut through a mountain of debt at national and at a personal level.
As an accountant who remembers previous recessions, some solutions are crystal clear to me. We need innovative thinking to improve credit flows to businesses and homeowners. We also need to re-think how we educate the next generation of students at Griffith College, TCD, UCD, DCU and other leading universities.
Growth in our stagnant economy requires a combination of improved competitiveness and innovative investment. Private investment needs tax incentives to entice money out of bank deposits and to entice back Irish investment from abroad. The construction industry needs targeted tax reliefs (for instance for student accommodation where buildings depreciation should be allowed for tax purposes as in other countries and in Ireland in the case of factories, laboratories, hotels etc). It also needs 100 per cent relief for interest payments.
All of this is politically very difficult given the damage excessive reliefs caused in the past. Small- to medium-sized businesses starved of capital need more generous tax relief for investors than the Employment Investment Incentive Scheme, which only allows immediate relief for 70 per cent of the investment – 100 per cent immediate relief is needed. The high income restriction (which denies the incentives to those who have the income to invest) needs to be relaxed.
This is easier said than done. Tax reliefs and reductions in government expenditure are politically difficult. Bear in mind that the number of incomes directly connected to the public purse (unemployed, public and state sector employees and pensioners) amount to 879,800 (not including the votes of family members). There is a danger that our stagnancy is politically entrenched. Brave and difficult political decisions are needed.
Ireland's mountain of personal debt is €172.3bn, including €18.6bn arrears in 97,874 residential mortgages. More than 30 per cent are two years or more in arrears.
Some see the solution in personal insolvency legislation. Their thinking divides the debt-ridden populace into those who can't pay their way and those who can.
Leaving aside strategic defaulters who can but won't pay, most hard-pressed homeowners sit somewhere in between and don't need to be pushed into unnecessary insolvency. They need fresh thinking from the banks offering special measures, including, among others: (1) income-related mortgage repayment, (2) two-generation mortgages, (3) mortgage plans allowing for lump-sum repayment from pension lump sums, and business or property disposals on death (Click to see accompanying charts).
From Government, they need: (4) partial debt-forgiveness without bankruptcy, and (5) generous tax relief for mortgage payers not on trackers who bear a disproportionate burden of the financial crisis. Government may need to legislate for the compulsory availability of these special measures.
At a national level we must also ensure that Nama does not make us internationally uncompetitive again by holding property from the marketplace, creating scarcities and artificially high rentals.
Given Frank Daly's successful years as a Revenue Commissioner, he might be tempted to minimise the loss to the Exchequer but our economy would not be well served. Current commercial property rentals of €30 per sq ft and anecdotal evidence that some large employers are finding it difficult to acquire office premises in Dublin suggest we might be going in this direction. Government now needs to direct Nama to release property to secure jobs.
And how can education help?
At primary level, we have the opportunity to address a really pressing need for language skills. Irish should not be compulsory. This only engenders negative attitudes to the native language.
At third level, a brave decision to reintroduce full third-level fees under a national loan scheme funded by foreign institutional lenders would inject billions annually into the Irish economy and pass the burden of debt to those of a future generation who could best afford it.
At second level, we need to change the focus from learning for exams, to learning for understanding. The re-introduction of third-level fees on a loan-funded basis could have a positive effect on the second-level system.
At present, the Leaving Certificate has to provide a transparent and accurate basis of determining hugely different scholastic awards through the free fees system, varying from a five-year medical degree course worth over €250,000 in the international marketplace to a two-year higher certificate course at an Institute of Technology worth, say, €10,000.
These hugely different allocations can only be justified under a points system that accounts mechanistically for each quarter of a percentage point. The result is a highly mechanistic assessment, amenable to rote learning, schooling in exam technique and learning for exam performance rather than for understanding.
A Leaving Certificate examination that does not have as its primary role the allocation of relatively free third-level places need not be mechanistic. It can and should be a test of understanding. As always, the examination system will drive what is taught.
The comment made in relation to the recent Leaving Certificate results that Project Maths is not working because we are not seeing higher numbers gaining honours, completely misses the point. The purpose of Project Maths is to contextualize mathematics by reference to its application and so to deepen understanding. Hopefully, students will be taught for this purpose and the assessment will not allow them to learn blindly techniques of answering examination questions.
The road to recovery has many turns and potholes. Let's not get depressed. As before, education, innovation and courage will carry us through. This time it will just take us a little longer.
Prof Diarmuid Hegarty is President of Griffith College