Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I am pleased to have the opportunity to appear before the joint committee today and look forward to a constructive discussion covering the 2013 technical allocations for my Department's group of Votes. I welcome this earlier interaction on the 2013 expenditure allocations and on the budgetary challenges facing the Finance group of Votes. If I may, I will begin by making some general comments on the economy, our progress under the terms of the EU-IMF programme of support and other strategic objectives set out in our strategy statement earlier this year.

The economy is expanding once again and that is to be welcomed. In April last, my Department projected GDP growth of 0.7% for this year; six months later, the indications are that a growth rate somewhere in this region will be achieved. However, the external outlook, that is, the outlook for growth in many of our trading partners, has deteriorated over the summer. As a small and open economy, this is not good news for us. My Department is currently working on its latest forecast, which will be published in the coming weeks, taking account of this and other recent data.

Turning briefly to the public finances, it is clear that we are moving in the right direction after a number of difficult years. The most recent estimate of the 2011 underlying general Government deficit, that is, the deficit excluding the direct impact of State support to the banking system, is 9% of GDP. This compares to an equivalent 2010 deficit of 10.8% of GDP. Importantly, the 2011 deficit was well within the limit set as part of the EU-IMF programme. All of the quantitative fiscal targets set so far as part of that programme have been achieved, most recently for the end-September Exchequer primary balance.

The end-September Exchequer returns were generally positive showing robust tax revenue growth. Indeed, tax revenues in the first nine months of the year were 1.5% ahead of our expectations with three of our "big four" sources of tax revenue - income tax, corporation tax and VAT - performing better than expected. While there are spending pressures in the health and social protection, I remain confident that we can meet this year's 8.6% of GDP deficit target. What is clear also, however, is that we continue to spend far more than we collect in revenue. Closing this gap further in the years ahead presents a real challenge to policy-makers but we must remain steadfast in our commitment to reduce the deficit to below 3% of GDP by 2015.

As the committee will be aware, the eighth review mission on the EU-IMF programme began yesterday. We are again in the position of having met our commitments under the programme for quarter 3, that is, to the end September 2012, both in terms of policy reforms and quantitative targets. A substantial number of actions - by our count, over 160 - have now been completed since the commencement of the programme.

The purpose of the quarterly review mission is to evaluate performance against the targets set for the fourth quarter of the programme of financial support for Ireland including fiscal developments, the macroeconomic outlook, progress on commitments in the restructuring of the financial sector and structural reform.

Ireland has successfully completed seven reviews of our programme to date and I am sure that the troika will once again find us to be meeting all of our targets, making real progress in restoring order to the economy and public finance, re-structuring the banking system, getting back into the markets and getting people back to work. Ireland's strong programme implementation has been recognised by our European partners, by the IMF and by the markets

Turning to our objectives within the banking and financial services sector, work is continuing across many areas. Significant progress has been made in the Irish banking sector since the start of the EU-IMF programme, at the beginning of 2011, to our current position at October 2012.

Recapitalisation of the PCAR banks - AIB, Bank of Ireland, and PTSB - and IBRC has been completed with a total cost to the State of €64.1 billion. Approximately €15.5 billion was also generated through burden sharing with bond holders. In addition, a significant sale of the State's stake in Bank of Ireland to private investors was successfully concluded. Recapitalisation for PCAR banks was completed on time and below expected costs. In December 2011, the European Banking Authority published a survey on European banks' levels of Core Tier 1 capital using certain stress assumptions. In the results of the survey, the Irish banks ranked amongst the best capitalised banks in Europe.

Restructuring of the Irish banking system underwent considerable transformation. Restructuring realised the new blueprint for the banking system, with two pillar banks, AIB and Bank of Ireland, and mergers between AIB and EBS, and INBS and Anglo Irish Bank. Directors on boards of the banks have been renewed so that only one board member is in situ who was there in 2008. All 2011 de-leveraging targets for the banks have been met. Since the start of the programme, total covered bank de-leveraging of €56.7 billion has been achieved to end of June 2012, which was a fairly significant demand. It comprised €44.6 billion at AIB, Bank of Ireland and PTSB together, and €12.1 billion in IBRC. Significant disposals are targeted for the second half of 2012 as part of the pillar banks' planned run down of non-core balances.

The banks' funding positions have improved significantly. Deposits in AIB, Bank of Ireland and PTSB have stabilised with net inflows achieved since last year while reliance on ECB funding is down on previous levels. The banks have also achieved €6.9 billion of wholesale repo funding which, together with the levels at which their senior bank bonds are trading in the market, suggests that significant progress has been made to restoring investor confidence and with it, market access.

Bank guarantee support in the form of the ELG has reduced from €375 billion in September 2008 to €90 billion at end of June 2012. Given that other EU member states have encountered difficulties with their banking systems Europe is now seeking new ways of breaking the link between sovereigns and their banks.

A key objective for 2013 is to find the best option for a long-term financing solution for the Irish banking system and to replace promissory notes with an instrument that is more favourable to the State's finances. In addition, it is in the interests of the State that the Irish banks continue to build on their viability to ensure the return of a vital and healthy banking system in Ireland.

Much work has been undertaken in the area of mortgage arrears. The Personal Insolvency Bill has passed Committee Stage in the Dáil and will move to Report Stage in November. The director designate of the insolvency service has been appointed and will oversee the creation of the vital infrastructure to underpin the legislation. The enactment of this Bill is a key legislative priority for the Government. The banks have been piloting resolution options through the course of Quarter 3 of this year with Central Bank oversight in advance of broader roll-out and a comprehensive advisory service has been established of the banks' own strategies to deal with those in arrears.

In terms of SME credit, access to credit for viable businesses and individuals remains a key Government priority in supporting economic recovery. The pillar banks have been set ambitious targets for sanctioning of lending into the economy. The target for 2012 is €3.5 billion and the banks are being closely monitored to ensure that they meet these targets. The Department is also working closely with the Department of Jobs, Enterprise and Innovation to facilitate the implementation of a temporary loan guarantee scheme and a micro-finance fund. The Credit Review Office is an important instrument in providing a valuable appeal mechanism for businesses that have had their credit applications rejected by the pillar banks.

The office has overturned some 55% of the cases referred to it, thereby securing over €9.6 million in credit for small businesses in Ireland and safeguarding some 850 jobs. We continue to assess SME demand on a six monthly basis through our regular surveys to inform and guide policy in this important area.

The Government has made significant progress with regard to credit unions. The Commission on Credit Unions finalised an agreed final report on schedule in March. This report sets out recommendations across a broad range of areas and will provide the basis for a viable sector into the future. The Credit Union Bill 2012 was published at the end of September in accordance with the EU-IMF structural benchmark and implements more than 60 of the commission's recommendations. Two further programme targets have also been delivered in the commencement of fitness and probity regulations for credit unions and the commencement of contributions under the deposit guarantee scheme. The credit union restructuring board has been established. Its chair is Mr. Bobby McVeigh, who has many years experience in the credit union movement internationally. The board has already begun to meet and it is focused on progressing the restructuring programme in accordance with the timetable set out in the commission's report.

Considerable work has also been done on the legislative area, the negotiation of EU directives, a public sector migration plan for SEPA compliance and rolling out the standard bank account project. We will continue to manage an ambitious agenda of policies to support effective regulatory supervision of the financial sector, continuing development of Ireland as a centre for international financial services and representation of Irish national interests at EU level in regard to financial services dossiers while respecting the goal of effective supervision consistent with EU financial services initiatives.

My Department has provided the committee with technical calculations for the Department, the Office of the Revenue Commissioners, the Office of the Appeals Commissioner and the Office of the Comptroller and Auditor General, which set out our funding requirements on a no policy change basis and the associated savings that would be required in order to comply with the expenditure ceilings under the multi-annual financial framework. As I indicated in my covering letter, this no policy change approach does not reflect the reality on the ground. My Department and Revenue will face significant additional challenges in the coming 12 months and we face associated expenditure pressures which I will discuss in due course. Furthermore, my Department is undergoing extensive restructuring in order to better align resources against the objectives of our statement of strategy. When we come to reviewing my Vote I ask, therefore, that we focus on the total Vote rather than on individual programmes, which will not reflect the structure of the Vote in 2013.

Vote 7 provides for the administrative and non-administrative costs of the Department of Finance. Much discussion has taken place at this committee and elsewhere regarding the capacity of the Department, skills gaps, etc. My Department sought and was granted an increase in funding in 2012 to enable it to address these issues. Recruitment is progressing and we are restructuring to align our resources in line with our revised and more forward looking strategic plan. As part of this restructuring we will continue to pursue economies of scale and improved productivity through the expansion of the shared service function to other Departments, agencies and bodies and through the sharing of consultancy expertise with the National Treasury Management Agency. Consultancy costs will be monitored closely and will be recouped from the relevant financial institutions where possible. However, I am sure the committee will appreciate that we must utilise expertise where necessary in order to secure a robust banking system and promote an environment of stable sustainable economic growth.

A further key deliverable for my Department in 2013 will be the successful hosting of the EU Presidency. Ireland will take over the Presidency of the European Union next January for six months. As the committee will be aware, the Government allocated additional resources for the preparation and operation of the Irish Presidency. The effective and efficient operation of the Presidency will involve increased expenditure for my Department in 2013 as it would not be possible to operate the Presidency without appropriate resources. Significant work has already gone into the preparation of the Presidency at all levels of Government. When considering the financial cost of the Presidency we should be aware that it presents us with many opportunities. Having the Presidency allows us to manage and steer the Union agenda, which is of significance to this country and the future of the European Union. Having an effective and efficient Presidency is important in terms of improving the international perception and profile of Ireland. It will demonstrate our commitment to the EU and ensure that we remain at the heart of the European decision making process. There will also be tangible benefits in terms of the number of visits by officials and the media during the first six months of 2013. It is up to all of us to exploit the potential presented by the Presidency.

Our Presidency will coincide with a significant agenda on financial regulation in 2013, with a large range of EU proposals. The dossiers to be prioritised during our Presidency will be determined in the first instance by the achievements of the Cypriot Presidency and discussions at political and institutional levels. However, we are watching closely the progress being made on banking union and the continuing reform of financial service markets. These two important areas will require our energy and commitment. Other dossiers which are part of an integrated package of financial services regulatory reforms are also likely to be part of the Presidency work programme. However our decision on what particular dossiers to prioritise will be driven in part by the need to seek solutions to the current financial crises, specifically, on an integrated financial framework at EU level and the possible components of that framework. Progress made by Ireland in this area will also be relevant to the stability of the financial sector and hence to the role of that sector in restoring the overall health of the Irish economy.

The goal of the Office of the Revenue Commissioners is to create a more tax and customs compliant society and an administration that assists economic growth and development. Its roadmap to achieve this goal in a challenging and difficult environment is set out in its statement of strategy 2011-14. Revenue has prioritised four strategies, as follows: make it easier and less costly for taxpayers to comply with their tax obligations by delivering quality services to them; increase timely compliance and reduce outstanding tax debt; target and confront those who do not comply; contribute to Ireland's economic recovery by providing high quality policy advice and legislation and extending a tax treaty network that is favourable to inward investment and trade; and, for 2013, contribute to a successful Presidency.

As regards resources, Revenue accepts that it must play its part in meeting Government policy on public service staffing numbers. I am satisfied that to date it has, at the minimum, carried its share of the burden of staffing and other reductions. An effective tax collection system is an essential element of our fiscal consolidation requirements and is critical to the successful achievement of the Government's objectives in the context of the EU-IMF programme of financial support for Ireland. However, while there is undoubtedly a connection between resources and the ability to collect, determining the appropriate level of resources for an organisation like Revenue is a complex task. Revenue will continue to engage with the Department of Public Expenditure and Reform in order to establish the best allocation of resources in the interest of an optimal result for the taxpayer.

The budget of the Office of the Comptroller and Auditor General is applied towards a single programme with the following outputs: auditing the financial statements of public bodies and issuing audit opinions through the certification audit programme; and examining financial management arrangements in public bodies and the value for money of public services through the reporting programme.

The Comptroller and Auditor General assists the Committee of Public Accounts in it scrutiny of the public finances. The number of whole-time equivalents is currently 136, which is 14 below the approved employment control framework number of 150. Measures have been taken to address the resource deficit, including the temporary engagement of qualified accountants.