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

I thank the Acting Chairman and committee members for inviting me to address them in advance of the next ECOFIN Council of Ministers meeting, which will take place on Friday, 19 June, in Luxembourg. This will be the final ECOFIN Council under the Latvian Presidency. While there are already indications that the agenda before the committee will change, it is a useful opportunity to discuss the issues that are currently before finance Ministers at the ECOFIN Council.

In the committee's invitation, it asked whether I would also provide a brief overview of the proceedings of the May Council. I will address that item first. The meeting took place in Brussels on 12 May, with an agenda dominated by discussions relating to the investment plan for Europe, the draft conclusions on the macroeconomic imbalances procedure, in-depth reviews and the 2015 Ageing Report. Ministers discussed progress in the negotiations with the European Parliament on the Commission proposals for the European fund for strategic investments, EFSI. As members know, the EFSI is central to the Commission's €315 billion investment plan for Europe. The aim was to finalise negotiations by the end of May.

The Council adopted the draft conclusions on the in-depth reviews of macroeconomic imbalances in 16 member states, agreeing that this was a useful exercise to better examine and discuss the economic policies of member states because it allowed for improved transparency and feedback on the Commission's analysis. All 16 of the examined member states are experiencing macroeconomic imbalances of varying degrees and the analysis shows that many of the imbalances experienced in Ireland are legacy impacts of the crisis and are in the process of unwinding. The Commission was invited to produce focused recommendations for the members states to help address these macroeconomic imbalances and the need for policy action and a strong commitment to structural reforms in all member states was underlined. Ireland remains committed to progress and has appropriate policies in place to address these recommendations, which are set out in the medium-term economic strategy.

The Council welcomed the overall progress made in addressing the 2014-15 country-specific and euro area recommendations, but recognised that reform implementation needed to be stepped up to address the individual policy challenges facing member states and to ensure swift and sustainable economic recovery. The 2015-16 country-specific recommendations were published in mid-May and form part of the June ECOFIN agenda. The Commission was advised to focus on areas of macroeconomic significance where there was an urgent need for action in order to give these issues more visibility in the member states' national political debates.

Ministers endorsed the 2015 Ageing Report, which deals with age-related expenditure projections for member states over the 2013-2060 period. As a result of recent reforms and more benign demographic developments projected for the EU as a whole, the projected increase in the total age-related expenditure over that period is now lower than the 2012 projection. The Council adopted conclusions concerning how the economic and financial crisis had put a significant burden on public finances and led to rising deficits and debt levels. The Council also stressed the need for appropriate growth-friendly fiscal consolidation and further implementation of structural reforms in order to enhance the sustainability of public finances.

The Council invited the Economic Policy Committee to update its analysis of the economic and budgetary implications of population ageing by autumn 2018 on the basis of new population projections to be provided by EUROSTAT and the national statistical institutions. EUROSTAT has also been asked to provide annual updates of its population projections systematically, in particular as regards migration flows, to be used in the short to medium-term forecast horizon. This ongoing work will ensure that adequate information is available to policy makers in a timely fashion and will allow appropriate policies to be developed and put in place.

The June ECOFIN meeting will be the final Council under the Latvian Presidency. I acknowledge the success of the Latvian Presidency and the progress it has made. Luxembourg will take over the Presidency role on 1 July and I wish it every success.

I remind members that the agenda provided is a draft and changes in content and the order of the discussion may still be made before the meeting. Ambassadors are meeting tomorrow to consider the draft agenda, which is busy in content as matters stand. I am aware that some items will change and I will draw members' attention to these as I work through them.

The Council will begin by considering legislative deliberations. This takes place in public session and based on the draft of the agenda, eight items are scheduled for discussion. These are: the approval of the list of "A" items, which are matters to be taken without discussion; the common system of value added tax as regards the treatment of vouchers, which has been withdrawn from the agenda; the common system of value added tax for the standard VAT return, which has also been withdrawn owing to the absence of agreement; administrative co-operation concerning a proposal for a directive on mandatory and automatic exchange of information on cross-border tax rulings; the interest and royalties directive regarding a common system of taxation applicable to interest and royalty payments made between associated companies of different member states; the investment plan for Europe known as the European Fund for Strategic Infrastructure, EFSI; banking structural reform, namely, a proposal for a regulation of the European Parliament and Council on structural measures improving the resilience of European Union credit institutions; and any other business.

In terms of the common system of value added tax as regards the treatment of vouchers, this proposal is designed to modernise VAT rules on vouchers. The proposal is driven by the increasing sophistication and functionality of vouchers, especially electronic vouchers, and the need for a consistent approach in light of different VAT treatments that have developed across member states. Such treatments may be contributing to double taxation or non-taxation in the cross-border context, that is, where vouchers are issued in one member state but used by consumers in another member state. While technically complex, the measure will further improve the functioning of the Single Market and lead to increased revenues to exchequers across Europe. I understand that the Presidency will not put forward the proposal for discussion at ECOFIN as further work is required at official level.

With regard to the common system of value added tax for the standard VAT return, the Commission has withdrawn this proposal and the item will be removed from the agenda as a common approach is not possible at this time.

Regarding administrative co-operation concerning the proposal for a directive on mandatory and automatic exchange of information on cross-border tax rulings, this proposal will provide for the mandatory automatic exchange of information regarding advance cross-border rulings and advance pricing arrangements. The latter are a particular type of advance cross-border ruling used in the area of transfer pricing. The proposal on this month's ECOFIN agenda is the second amendment to the directive on administrative co-operation and was published by the Commission on 18 March as part of a tax transparency package. At this ECOFIN meeting, we will receive a state-of-play report from the Presidency on the progress at technical level on this file. My officials will continue to engage with the other member states in the Council working parties to progress the technical work necessary to ensure agreement on this important issue. In general, Ireland is favourably disposed towards the proposal.

The interest and royalties directive was agreed in 2003. The purpose of the directive was to reduce a barrier to trade between member states by removing withholding tax on interest and royalty payments between member states, thereby avoiding double taxation where the recipient member state taxes the same income. In 2011, in response to concerns that the directive was being abused, the Commission proposed to amend it to provide that it would only apply where the recipient member state applies a certain level, namely, a minimum amount, of taxation to the interest and royalty payments. The Latvian Presidency has continued the work on this directive and has proposed to separate the two live issues on this dossier relating to the introduction of a general anti-avoidance rule and the issue of minimum levels of taxation. The purpose of this split is to progress the much less contentious issue of the general anti-avoidance rule and prioritise agreement on this anti-abuse element. Ireland supports the approach to split the proposal.

Regarding the investment plan for Europe, the European Fund for Strategic Infrastructure, EFSI, was also discussed at the May ECOFIN meeting. This item has been placed on the agenda to endorse the political agreement reached recently with the European Parliament on the regulation for the EFSI. The Latvian Presidency deserves praise for its work in managing the negotiation over a short space of time. Like all member states, Ireland is keen to see EFSI activities that benefit our economy and the EU economy as a whole.

On banking structural reform, this proposal is critical to addressing the banks that are considered to be too big to fail as it will make such banks more resolvable by separating proprietary trading, that is, banks trading on their own account and, in particular, other high-risk trading activity from normal retail activity. The separation would only be mandatory for those banks with significant trading activities and would only apply to the largest and most complex European Union banks with significant trading activities, namely, those European banks deemed to be of global systemic importance or those exceeding certain thresholds, for example, €30 billion in assets and trading activities exceeding €70 billion in value or 10% of the bank's total assets. Council negotiations have been ongoing for the best part of a year and the Latvian Presidency aims to secure Council agreement on this issue. The measure would not apply to Irish banks, although we have a strong interest in seeing how it applies to European banks now that we are on the verge of banking union.

On non-legislative activities, based on the draft agenda before us, there are ten items scheduled for discussion. These are: the approval of the list of "A" items, which are items to be taken without discussion; implementation of the banking union; the adoption of the Council conclusion on capital markets union; endorsement of the ECOFIN report to the European Council on tax issues and the report by finance Ministers on tax issues in the framework of the Euro Plus Pact; Council conclusions on, and endorsement of, a report on the code of conduct on business taxation; the contribution to the European Council meeting of 25 and 26 June, namely, the European semester, which will consider the 2015 national reform programmes and stability or convergence programmes for each member state and approve the recommendations in respect of these programmes; the approval of the implementation of the broad guidelines for the economic policies of member states whose currency is the euro; an opportunity will be provided to discuss the report prepared by the five Presidents if this becomes available in time; a report to the European Council on broad economic policy guidelines; the adoption of Council decisions on the implementation of the Stability and Growth Pact; and any other business.

Good progress has been made on the implementation of the banking union. The single supervisory mechanism, SSM, which came into effect on 4 November 2014, will ensure the European Union's policy relating to the prudential supervision of credit institutions is implemented in a coherent and effective manner. The key outstanding implementation issues for all banking union member states are the transposition of the bank recovery and resolution directive, BRRD, and the ratification of the intergovernmental agreement, IGA, to the single resolution mechanism. On the IGA, the Government has approved the draft heads for ratification and the pre-legislative scrutiny process has been completed. Work is on track to bring this legislation to the Oireachtas in the early autumn to meet the deadline of December.

Capital markets union aims to put in place alternative sources of funding through the development of a more balanced and diversified European financial system which complements bank based financing with deep and developed capital markets.

At the June ECOFIN, Ministers will have an exchange of views and adopt the draft Council conclusions on the capital markets union initiative. The draft conclusions are broad-ranging, covering issues such as the need to promote an equity culture, the need to break down barriers to the development of cross-border capital markets, and the greater role for the insurance and pensions sector in long-term infrastructure projects. This will prepare the ground for the Commission action plan due out in September.

The next three items - the ECOFIN report to the European Council on tax issues, the report by finance Ministers on tax issues in the framework of the Euro Plus pact and a report on the code of conduct on business taxation are all expected to be taken as "A" items and therefore endorsed without discussion. The code of conduct report, which deals with business taxation, particularly harmful tax competition, is a regular item at the end of each Presidency. This report has been prepared by the code of conduct group on business taxation.

The next item is the contribution to the European Council meeting and the European semester. The committee will be aware that the European semester process has been in operation since 2011 and is a regime for economic surveillance. As Ireland was in the EU-IMF programme until December 2013, Ireland did not fully participate in the first three semester cycles. However, since December 2013, Ireland has been fully participating in the semester process, which is part of the normalisation of our position as a post-programme country. As the committee will be aware, the annual semester process is part of the new economic governance regime of the European Union which has been established to underpin sound public finances, sustainable and inclusive growth and the correction of macroeconomic imbalances across the European Union.

The European semester has two phases, the first of which is horizontal and the second of which is more country-specific. Broad horizontal guidance was provided by the European Heads of State and Government at the European Council in March, and then the process became more country-specific in orientation. For Ireland's part, in April, my Department submitted Ireland's stability programme to the Commission. The Department of the Taoiseach then submitted the national reform programme on structural reforms and measures to boost growth and jobs, also in April.

The Commission then assessed all member states' documents and, following bilateral engagement with the member states, issued country-specific recommendations on 13 May to all member states except for Greece. The CSR proposals are intended to provide specific tailored guidance to each recipient member state on how to achieve sound public finances, what structural reforms should be implemented to achieve smart sustainable growth, and how to correct macroeconomic imbalances. As we are strongly committed to continuing progress in restoring financial stability, fiscal sustainability and economic growth, we welcome the country-specific recommendations, as they will facilitate us in achieving this and will support the polices set out in the recent spring economic statement. The Commission confirms that Ireland is on track to correct its excessive deficit in 2015. On the basis of information in the 2015 stability programme, recalculated according to the commonly agreed methodology, progress towards the medium-term objective in 2016 is in line with the requirements of the preventive arm of the Stability and Growth Pact. For 2015, Ireland has received a reduced number of country-specific recommendations, which are consistent with existing Government policies. We note that the areas covered this year follow on from those of last year, covering public finances, health care, social inclusion and mortgage arrears, with particular reference to non-performing loans.

In addition to approving the tailored recommendations to each member state, Ministers will also discuss key aspects and themes from member states' stability and convergence programmes and the Commission's horizontal guidance for the euro area, which is presented in the form of a set of country-specific recommendations for the euro area as a whole. We welcome the euro area's country-specific recommendations, which are largely consistent with the Irish position, and we share the focus on ensuring that member states work together to put in place and maintain the necessary conditions for stability, growth and jobs.

The objective of next Friday's ECOFIN meeting is to approve the recommendations for member states. It is intended that these recommendations will be endorsed by the June European Council and finally adopted by finance Ministers at the July ECOFIN Council.

In terms of the report on implementation of the broad guidelines for the economic policies of the member states whose currency is the euro, the debate on improving economic governance in the euro area represents the resumption of a process which began at the height of the crisis in June 2012. A report by the presidents of the Commission, Euro Summit, the Eurogroup and the ECB - the four presidents, which recently became known as the five presidents, as the European Parliament President has become more formally involved in the process - and the Commission's "A Blueprint for a Deep and Genuine Economic and Monetary Union" pointed the way to a proposed deepening of co-ordination in the areas of banking, economic policy and fiscal policy.

Ireland is among the member states which believes that we need to focus on full implementation of reforms agreed in recent years before embarking on an overly ambitious roadmap of significant change. Our main emphasis now has to be on economic growth - that is, growth based not only on sound public finances and ongoing structural reform, but also driven by productive investment. We need economic growth at a rate sufficient to get people back to work as well as to re-establish the commitment of our citizens to the European ideal.

Ministers will also discuss the report to the European Council on the broad economic policy guidelines. These guidelines enable the economic policies of the member states to be co-ordinated in order to achieve joint objectives of smart, sustainable and inclusive growth. They also form the basis for any country-specific recommendations that the Council may address to the member states.

Finally, on the implementation of the Stability and Growth Pact, Ministers will discuss member states' compliance with the rules of the Stability and Growth Pact, particularly with regard to the excessive deficit procedure, EDP. The discussion will focus on Council recommendations to extend the deadline for the United Kingdom to correct its excessive deficit by two years, and to abrogate the EDP for Poland and Malta. Abrogation of Ireland's EDP should occur next year, as abrogation of an EDP occurs in the year following compliance with the fiscal targets set out. We will then be subject to the rules of the preventive arm of the pact from 2016 onwards.

With regard to Finland, based on the European Commission spring forecasts, Finland was deemed not to have complied with the deficit and debt criteria of the Stability and Growth Pact. However, Finland's stability programme update was submitted on a no-policy-change basis due to parliamentary elections in April. The new government will submit a fiscal plan and stability programme for 2016–2019 by September 2015. Progress will be reassessed in September and a decision then made on whether or not to open up an EDP.

I trust the Chairman found the summary of last month's ECOFIN meeting and the outline of this month's ECOFIN agenda informative. I believe they give a good insight into the current issues before the Council. I thank the committee for its attention. At this point, I will be happy to respond to any questions or observations from the committee members.