Ciarán Lynch (Cork South Central, Labour)
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I advise the witnesses that by virtue of section 17(2)(l) of the Defamation Act 2009, you are protected by absolute privilege in respect of your evidence to the committee. If you are directed by the committee to cease giving evidence in respect of a particular matter and you continue to so do, you are entitled thereafter only to a qualified privilege in respect of your evidence. You are directed that only evidence connected with the subject matter of these proceedings is to be given and you are asked to respect the parliamentary practice to the effect that, where possible, you should not criticise nor make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing ruling of the Chair to the effect that they should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable.

I thank Mr. John Moran, Secretary General, and his colleagues for appearing before the committee today and I call on him to make his opening statement.

Mr. John A. Moran:

I thank the Chairman. First, I will introduce some of my colleagues who are present today: Mr. Gary Comiskey, acting chief operations officer of the Department; Dr. Nicholas O'Brien, head of our international and economic relations group; Mr. John Hogan, newly appointed head of banking policy; and Ms Valerie Robinson, who works in the corporate office. I have asked them to come in case we need to answer questions on particular areas. On behalf of the Department and on my own behalf I offer my congratulations and best wishes to the Chairman on his recent appointment. More generally, I thank the committee for the opportunity to speak today. This is the first opportunity I have had since my appointment in March to update the committee on the implementation of our statement of strategy. When the Department last published a statement of strategy, it covered the period from 2007 to 2010.

During that time there had been a significant change, both in the context in which the Department operates as well as in the Department. My first job as Secretary General was to assess, with the management team, the effect of the changes on the Department and on its work over the following couple of years. We agreed that the previous strategy statements were no longer appropriate for the Department. We took the unusual step of adopting a revised statement of strategy in the middle of the three year period. We committed ourselves to a heightened level of external and public communication. We invited stakeholders and media to a presentation in the Department to explain the document that has become our revised statement of strategy and also to hear their views and to answer their questions. Today's meeting provides me with an excellent opportunity to discuss with the committee the Department's new role and how we have progressed with the implementation of the strategy during the past six months.

To help with today's discussion I have put together some slides which highlight the Department's priorities and our achievements in recent months. These slides will be published on our website later this afternoon.

By way of context and as I mentioned in the statement last March, it is important to note that in recent years the Department, of necessity, has focused on crisis management. It has done so with very limited resources for the tasks at hand. The job of rebuilding the economy is ongoing but significant progress has been made to restore stability. We did not want to be merely reacting to the latest crisis event. This is a natural reaction when a crisis hits. The statement of strategy sets out that the management team is focused on a parallel effort to develop and implement longer-term measures which will contribute to enhanced confidence and deliver sustainable growth in our economy. I was very anxious to build on the positive aspects of the past. Tremendous work had been done by the team to deal with the storm which hit the country in recent years. At the same time, however, we all recognised that improvements could be made and were required.

I wish to make the important point that since my appointment, I am very grateful to all the staff in the Department for their help and support with our transformation agenda. I am often asked by people from outside the Department how things are progressing since my appointment. I can honestly say that the willingness to be flexible and adaptable on the part of the Department's staff has equalled anything I have seen before, including in the private sector.

I refer to slide No. 3. We agreed that our mission should reflect this forward-looking focus. The Department's mission is to manage Government finances and to play a central role in the achievement of the Government's economic and social goals having regard to the programme for Government. In this way we will play a leadership role in the improvement of the standards of living of our citizens. An important point to underline is that the Department's business is more than just to administer the troika programme. The Department must play a central role in developing and planning the future direction of our economy to the betterment of standards of living for all citizens.

To make this real and more specific, the management team and I dropped down a level and we agreed clear goals which we can use to measure our progress and to demonstrate the success of our efforts. At the time everyone seemed to like the number five so we boiled down our priorities to five principal goals for our Department. These are outlined on slide No. 4 of the presentation.

The first goal is to have sustainable and balanced growth in the domestic economy. The second goal is a sustainable macroeconomic environment and sound public finances. The third goal is an improvement in the living standards of our citizens. The fourth goal is a return to the international debt markets to achieve an exit from the troika programme. The fifth goal is to complete the restructuring of the banking sector.

The order of these goals is no coincidence. As I have stated, support for economic growth is a key priority for the Government. Growth is the essential element for a successful exit from the current crisis. Slide No. 5 sets out the key guiding principles which underpin our approach to achieving these goals. These are very important principles and I will return to them later in the discussion.

It is appropriate to deal now with slide No. 6. It shows the changes made in the structure of the Department, taking into account our own observations and those of the Wright report. The former Department of Finance has been split into two Departments, the new Department of Finance and the Department of Public Expenditure and Reform. Both Departments have important and complementary roles in implementing the programme for Government and other Government policies. In light of these new responsibilities we examined our internal structures and reviewed how treasury departments in other countries operate. We refined our organisational structures into four policy divisions and two divisions that cut across the entire operation of the Department. The four policy divisions are as follows: the international division, which has been enhanced and to which I will return later; the financial services division, which is focused on the restructuring of the banking system and regulation of the financial sector to prevent a recurrence of a crisis; the fiscal division, which now integrates more closely the budget and tax policy functions; and the economic unit, which is a new expanded section, to which I will come back.

We have also introduced two support offices, a corporate office and a finance office. The purpose of the finance office is to introduce dedicated specialist resources to ensure the proficient delivery on the Department's financial, legal, risk and compliance objectives. In the aftermath of the well-publicised control failures in the Department, I decided it was essential to prioritise the build-out of greater control and risk functions to drive the recommendations of the various reviews of our systems and controls. The corporate office, in parallel, plays a central role in the roll-out and implementation of our statement of strategy. It is primarily responsible for helping the Department to provide new management information and knowledge sharing, to improve communications both internally and externally, to build on good project management principles, and to implement these across the Department.

On the question of governance, good governance requires consistent effort and improvement. As part of our review of the Department we recognised the need to build on the good work done in the past and to enhance our governance structures further to allow the Department to progress. We started at the top with the management advisory council. We have improved and changed the MAC agenda. Rather than holding four similar meetings per month, we now have one in-depth meeting per month, which I liken to a company's board meeting, with three shorter meetings which focus on the week's events. We held a monthly meeting last Monday. At the meeting the MAC reviewed a newly collated comprehensive set of management information for the Department. This monthly management pack provides information on the finances of the State, the finances of the Department, the performance of the economy, detailed human resources information and other information from across the Department. This type of information is not new. Organising the presentation and review of the information in a systematic and consistent way, however, is new and is a significant development for our operations. Other non-MAC member colleagues, as necessary, present the sub-topics and hear management's views at first hand.

We have identified the need for greater challenge as one of our guiding principles across the work of the Department. In this regard we have introduced a number of other initiatives. There are four new MAC sub-committees dealing respectively with risk, policy, transformation, and people and culture. These sub-committees allow greater in-depth analysis than could be carried out during MAC meetings. They are supplemented by ad hoc groupings of staff both within and outside the MAC. These groupings make recommendations for improvement in areas such as internal communications or use of information technology.

The shorter weekly MAC meetings permit us to follow that discussion with a one to two hour peer review and challenge session whereby the management team as a whole considers on a periodic basis the direction and focus of one of our key policy initiatives. At present, we focus on EU strategy, the performance of the economy, measures for growth, and the risk and funding of the State. In addition, divisions are now holding their own challenge sessions in order to validate and assess their policy initiatives. For example, after each monthly management meeting with bank management, the shareholder management unit runs peer challenge sessions, which are not confined to staff in the unit, on the information presented by the banks and the steps they need to take during the upcoming month.

We have also embarked on a new business planning process using forward-looking business plans and a weekly reporting which features the top five priorities in each area. The business plans set out the priorities for the quarter and for the longer period. The weekly reporting gives progress on same in the last week, such as matters dealt with in the previous week, matters to be dealt with in the following week and any obstacles to progress which arise.

This enables us to ensure that we remain on course. It will play an important role in the future in assisting us in engaging in resource management over the various quarters of the year as priorities shift.

We have also worked to ensure that we have a stronger audit committee. We appointed two senior officials to this area, namely, an assistant secretary general and a principal officer with previous internal audit experience. I was anxious that we should include somebody who sits on the MAC in order to connect the work of the audit committee directly with that of the MAC. Senior personnel are now presenting to the audit committee on their own work areas. This is another new departure. Some of the other examples of the changes we have made to our governance structures are set out on the slide 8.

A second key focus area for the Department is the development of a much more outward-focused business model. On slide 9, we have set out some examples of what this means. I will briefly elaborate on a couple of these. With Dr. O'Brien's assistance, we have established a new international economic relations unit, the staff of which includes two diplomats on secondment from the Department of Foreign Affairs and Trade. This has reinforced our bilateral contacts with other finance ministries across the EU and elsewhere and is an important element in the context of cross-departmental co-operation. It also facilitates greater co-operation with our embassies abroad. The Department is playing a more active role in the context of foreign trade missions. For example, Dr. O'Brien and I accompanied the Taoiseach on a trade mission to China earlier in the year. During that trip, simultaneous and overlapping programmes of a cross-departmental and cross-agency nature were run on various fronts each day. Catch-up sessions were held every evening in order that we might share notes and plan for the following day.

I am certainly not acting along in respect of the outreach effort. In that context, I wish to provide the committee with some indication of the size of the challenge we have set for ourselves. Since my appointment as Secretary General last March, I have had more than 400 individual meetings with representatives from external bodies, foreign treasuries and other relevant organisations. Those meetings have taken place in Ireland, across Europe and elsewhere as we have sought to engage on as wide a basis as possible. While over 60 of these meetings involved foreign treasury and similar officials, the other 340 were with a range of representative groups, companies - large and small - professional bodies, financial companies and investors and representatives from State bodies, including from domestic and foreign academic institutions. Media briefings have also been held and there has been an extensive programme structured public speaking engagements throughout the country and internationally.

On slide 10, we have set out some of the key developments in respect of the improved level of economic analysis within the Department. As a key part of our reform programme, a new and expanded economics division has been established. This division is resourced by expert economists in both the macro and microeconomic fields, with experience drawn from the private sector, international financial institutions and the public sector. The Department has also recruited a number of significant graduate level economists who are trained to masters level. Since June last, we have increased the number of staff who possess economics qualifications within the Department from 74 to 99. I know I will embarrass the individuals involved by saying this but it is important that there should be an appreciation of the people we are employing and that we should celebrate success. At a recent all-staff quarterly meeting I had the pleasure to congratulate three of our economics staff who received firsts in their studies. These studies were in the MSc in investment treasury and banking DCU, the MA in economics at UCD and in the MA in economics and policy at NUI Galway.

The expansion of the economics division also responds to one of the recommendations contained in the Wright report, which reviewed the Department in 2010 and recommended that it needed to increase significantly the number of economists on its staff. We are still in the early stages of establishing this new and expanded division but some of the work already being undertaken by it is set out in my submission to the committee. I expect various studies, such as a review the section 481 film tax relief scheme and a profiling of the SME sector within Ireland, to be completed and published shortly. Like the remainder of the Department, the team in the economics division is also committed to greater interaction and communication with stakeholders. To this end, it publishes on our website a monthly economic bulletin, participates in a growing number of meetings and, beginning in the next couple of months, will publish more commentary and analysis on key economic challenges.

None of what I have outlined will work unless all of those in the public sector work together on the same objectives. The final area on which I wish to focus is how the Department is working to facilitate this. On slide 11, we have set out some examples of the roles we have played in cross-departmental initiatives. For example, the Department of Finance chairs the steering group - which comprises senior representation from other relevant Departments and the Central Bank - to drive and oversee the implementation of the Government's strategy to assist those in mortgage arrears. Another cross-departmental initiative is the SME funding consultation committee, which I chair, which meets on a monthly basis, and which includes among its membership representatives from various Departments as well as those from industrial organisations and the banking sector. The role of this committee is to work on solutions for the key issue of funding for SMEs. This is a major priority for the Department. We have also participated in the initiative orchestrated by the Minister of State with responsibility for small business, Deputy Perry. In that context, we have attended seven regional meetings throughout the country in order to discuss access to bank credit with key local stakeholders. Our deepening engagement with the European Investment Bank, EIB, is another example of the result of successful co-ordination. On this occasion, between our Department, the Departments of Public Expenditure and Reform and Jobs, Enterprise and Innovation, the NDFA and Enterprise Ireland.

While there have been many positive developments in recent months significant challenges remain for the Department as we endeavour to implement our revised statement of strategy. The challenges to which I refer include those of an external nature over which we have more limited control, such as difficulties in the world economy. These could impact on the Department's ability to stay on track. I hope, however, that the successful and continued implementation of our plans will position us to be better able to identify, assess and respond successfully to these challenges should and as they develop.

In summary, what I have outlined provides a snapshot of much of the work we have done in the past couple of months. In the side deck which has been circulated, members will be able to see some of the other initiatives in respect of which we are working actively. I would be happy to discuss these areas in more detail with them during the course of the meeting. I thank members for their attention and I am happy to respond to any questions they may wish to pose or observations they may wish to make.

Ciarán Lynch (Cork South Central, Labour)
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I thank Mr. Moran for his opening statement and for his kind words to me. I understand this is the first occasion on which he has come before the committee. On behalf of the members I wish him and his team success into the future. Mr. Moran is due to meet the Economic Management Council later this afternoon, so we are somewhat pressed for time. I intend, therefore, to be strict in the context of the time allowed for members' contributions. Those asking the first round of questions will have 12 minutes each. I call Deputy Michael McGrath.

Michael McGrath (Cork South Central, Fianna Fail)
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I welcome Mr. Moran and his colleagues from the Department. I wish to focus on some of the goals that are set out in the Department's statement of strategy. In the context of the macroeconomic picture and the fiscal forecasts, when will the Department publish its medium-term fiscal statement?

Mr. John A. Moran:

It will be published in the course of the next week.

Michael McGrath (Cork South Central, Fianna Fail)
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Okay. As Mr. Moran will be aware, earlier today the European Commission again downgraded Ireland's growth forecast for the current year to 0.4%. The Department is still forecasting a rate of 0.7%. The Commission has predicted a rate of 1.1% for next year, while the Department is still predicting a rate of 2.2%. Is Mr. Moran in a position to advise as to the Department's revised forecasts for this year and next?

Mr. John A. Moran:

I do not believe I can supply exact numbers. However, we have already indicated in public statements that we would expect to have to revise them downwards. This matter is due to be dealt with by the Economic Management Council later today so I would prefer not to comment on specific numbers until such time as we are ready to present them.

Michael McGrath (Cork South Central, Fianna Fail)
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In light of Mr. Moran's acknowledgement that the forecasts for this year and next year will have to be revised downward - I presume this will also be the case for 2014 - there is no doubt but that both the public finances and the adjustment path that has been set out in respect of 2015 will be impacted upon. Will the revisions in question have an impact on the forthcoming budget? Is it still the Department's position that €3.5 billion is the appropriate adjustment in order to get us to the required deficit figure for next year?

Mr. John A. Moran:

Yes, that is right. As already stated, however, growth is obviously a key variant in the context of how one makes the calculations in respect of what one needs to achieve. Downward pressure on growth makes the job somewhat more challenging.

Michael McGrath (Cork South Central, Fianna Fail)
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What does that mean in the context of the challenge for next year?

Mr. John A. Moran:

I do not wish to comment to any great degree on policy matters. There are many meetings-----

Michael McGrath (Cork South Central, Fianna Fail)
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To be fair, this is not a policy matter. It is a factual issue.

Mr. John A. Moran:

Our position is that we believe we should adhere to the targets that have been set. We have had long discussions about that matter. To the extent that there is downward growth, there is subsequent downward pressure on revenues and it is necessary to adjust accordingly.

Michael McGrath (Cork South Central, Fianna Fail)
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Is Mr. Moran suggesting that this could have an impact on the forthcoming budget?

Mr. John A. Moran:

This is clearly subject to Cabinet approval and I do not think I should be second-guessing what the Cabinet will want to say. I think everybody is clear that the Department's view is that we should stay with the targets that were set. Part of the important results Ireland has seen has been based on the determination to stay with the targets we set and to do whatever is necessary to achieve that.

Michael McGrath (Cork South Central, Fianna Fail)
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To put it in specific terms, based on the numbers Mr. Moran is looking at currently, is an adjustment of €3.5 billion sufficient to achieve a deficit next year of 7.5%? He is focused on achieving the targets, and we all agree on that, but what are the numbers telling him in terms of what is required to get to the target next year given that downward revision of growth?

Mr. John A. Moran:

I think that is right but we would prefer to finalise those. The numbers are being finalised at the moment and we will see where we will go in that respect but there are a lot of moving parts, not least of which is the cost of interest on the finances of the State , which is moving based on the significant progress in the past few months. There is a lot of variance in terms of how we finalise the exact number of what is required.

Michael McGrath (Cork South Central, Fianna Fail)
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Is it still the Department's position that our national debt is sustainable?

Mr. John A. Moran:

The position of the Department is and remains that the debt is sustainable. We have been working with our colleagues in Europe about how we may engage in exercises that would improve its sustainability, but there is not a question of the debt, as it stands currently, not being sustainable.

Michael McGrath (Cork South Central, Fianna Fail)
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When Ministers such as the Minister of State, Deputy Brian Hayes, and the Minister, Deputy Ruairí Quinn, say that Ireland's debt is not sustainable, that is at variance with the official Government position and the official Department of Finance position at this point in time.

Mr. John A. Moran:

The Department and the Minister have made it clear that in terms of the debt Ireland has, there is no question of a default on it and therefore it is sustainable and will be repaid.

Michael McGrath (Cork South Central, Fianna Fail)
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It is sustainable according to the Department. The document The Irish Economy in Perspective, which the Department published last May, clearly states that the debt is sustainable. That is the official position of the Department and therefore of the Government. We have had mixed messages.

Mr. John A. Moran:

I have used this analogy a number of times and I think it was first used by the Minister. At the moment we are driving as if we had the handbrake on in the car. We can still move forward but we are not moving forward at full potential. That is why it is so important to try to deal with the size of the debt we have in the economy and find ways to reduce the negative drag it has on our ability to move forward.

Michael McGrath (Cork South Central, Fianna Fail)
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Is it still the Department's position that the overall debt to GDP ratio will peak next year at 120.3% and then begin to decline? As Mr. Moran will be aware, the Fiscal Advisory Council holds the view that there is a 40% chance that the debt will not stabilise by 2015 and could continue to grow as a percentage of GDP. Is he still predicting that it will peak next year and then begin to decline?

Mr. John A. Moran:

We have not changed our view on the way that the debt will peak and then start to decline.

Michael McGrath (Cork South Central, Fianna Fail)
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I will move on to the issue of mortgages. Mr. Moran made some comments at the recent Irish Banking Federation conference at which Fiona Muldoon from the Central Bank also spoke. There was a common theme of some frustration at the speed with which the banks are dealing with the mortgage crisis. Mr. Moran made the point that there will be a need for some level of debt write-down or debt forgiveness in cases where there is unsustainable debt. Will he summarise his criticisms in this respect? What would he like to see happen that is not already happening? Is it the pace of change or that the advance forbearance options are not been rolled out quickly enough? What would he like to see happen that is not happening to deal with mortgage debt and personal debt?

Mr. John A. Moran:

First, to make things very clear, I said to the banks at the time of that conference that at present there are loans that borrowers clearly do not have the ability to repay and continuing with that debt is neither good for the borrower nor for the broader economy and, therefore, the banks because their return to viability is dependent on an economy that grows. What has been disappointing in terms of the banks' reaction to the mortgage arrears crisis is that in terms of their ability to cope, from an operational perspective, with the challenge of dealing with borrowers one on one and understand the borrower's financial situation and what is appropriate, the banks seem to have been slow about gearing up to be able to deal with that. It is not a case, unfortunately, of them being in a position now where they can roll out broadly based solutions to everybody, because they have been taking some time to build the operational capacity to do that. Significant progress has been made on that front in recent months, and the pilot projects undertaken by the Central Bank and others in terms of the MARS project has helped to get a better appreciation of what needs to be done in the process. That said, it would have been preferable for everybody concerned to have seen action on that part more quickly and to have the banks in a position today, which I do not believe they are in, to be able to move more quickly on the recommendations that have come through mortgage steering group.

Michael McGrath (Cork South Central, Fianna Fail)
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Does Mr. Moran think that is an issue of operational capacity or an issue of a willingness to tackle the issue? Each bank has deployed hundreds of staff to deal with mortgage arrears but they are not getting down to the level of agreeing sustainable restructuring of debt with people. They are moving them to interest-only mortgages and extending the term of mortgages. The advance forbearance options are being rolled out extremely slowly, as we discovered last week. Surely it is more than an issue of operational capacity. There does not seem to be a willingness to get down to the level of each loan and, where necessary, writing off debt if it is clearly unsustainable.

Mr. John A. Moran:

We have been clear that to the extent that debt is unsustainable, we would like to see progress from the banks on those issues. We have been putting pressure on them, particularly in private discussions, to move forward on that. We have seen, particularly with changes of management in some of the banks, that it has been discovered that the banks were not capable of conducting what was required, even starting with the collection of mortgages where people who could pay should be paying. Starting from that principle, they have begun to beef up teams and have made significant progress to start with the collection of mortgages where people can pay through to collecting the financial information to be able to work out the right solution for each customer. They are working with us on the options.

Michael McGrath (Cork South Central, Fianna Fail)
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On the issue of unemployment, it remains stubbornly high at 14.8%. I appreciate it is officially a matter for the Department of Jobs, Enterprise and Innovation, but it is dealt with in the Department of Finance's statement of strategy. It remains stubbornly high and it is difficult to see how it will come down, particularly in the absence of any recovery on the domestic side of the economy with more difficult budgets to come. It is very hard to see where any growth will come from on the domestic side. Where does Mr. Moran see the level of unemployment going? It is currently 14.8%. Does he see it coming down, stabilising at its current level for a period or continuing to increase? What is the Department's view on the jobs crisis?

Mr. John A. Moran:

Unemployment will remain a difficult issue for us for some time unless a very different approach is possible or there are very different changes in the global economy. We have explained, as have others, that in the case of the Irish economy, which is based on export-driven recovery, there will always be a lag between the appearance of growth, particularly in the export numbers, and the jobs that follow. One of the initiatives we have taken, which I did not go into in great detail, is that we have been intensifying the analysis of the economy sector by sector to see what can be done in each to maximise that sector's competitiveness such that it can outperform, in effect, its international peers. That job needs to continue sector by sector to ensure, for example, the agricultural sector and the tourism sector, which we have done, effectively outperform their international peers. In that way we can try to reduce the numbers.

Michael McGrath (Cork South Central, Fianna Fail)
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Does Mr. Moran think that the level will not be coming down at the moment?

Ciarán Lynch (Cork South Central, Labour)
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The Deputy's time has expired and I call Deputy O'Donnell.

Kieran O'Donnell (Limerick City, Fine Gael)
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I welcome Mr. Moran and his colleagues. I want to work down through the five goals Mr. Moran set out and to ask a few questions on them to set out the practical position. The first one is a resilient Irish economy and balanced growth, and Mr. Moran spoke about growth and the significant increase in employment numbers. I am sure he is aware that the representatives of the banks appeared before the committee last week. One issue that came to light regarding the target of €3.5 billion in terms of lending is that the Bank of Ireland stated that the €3.5 billion was all new lending. AIB said that of the €3.5 billion, €600 million was new lending and the balance was restructured lending. Will Mr. Moran comment on that? My view is that not enough credit is being provided to the small and medium-sized enterprise sector.

There appears to be a divergence between the lending patterns of the two banks to the SME sector. In the limited time available, I wish to work through the questions rather than give a volley of questions. I invite Mr. Moran to address the point.

Mr. John A. Moran:

The best observation on the numbers the Deputy has provided on the banks is that they show that we can miss an important point in some of the analysis on lending to SMEs, which is that it is not just a case of providing bank lending to SMEs, it is a question of repairing the balance sheets of SMEs. An important element that must be introduced on a more system-wide basis is the provision of equity to repair balance sheets that are broken. Having the equity available will allow the banks to make lending decisions. We should not allow banks to lend to bad balance sheets.

Kieran O'Donnell (Limerick City, Fine Gael)
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Mr. Moran missed my point, which is a straightforward one. Our understanding was that the banks were more than adequately recapitalised in terms of various rounds of recapitalisation. There appears to be a divergence between the two main banks. Bank of Ireland maintains that its €3.5 billion is all new lending while AIB says approximately 17% of the €3.5 billion - €600 million - is new lending. I appreciate what Mr. Moran said about preparing balance sheets but what is happening on the ground in a practical sense is that a typical SME has an overdraft facility of €10,000. SMEs are down to the wire and under constant pressure. In many cases they are probably over-trading. When the overdrafts come up for review they are effectively reclassified as a term loan and the overdraft facility is withdrawn. There appears to be a difference between the two main banks. Bank of Ireland states it is lending the full €3.5 billion as new lending. There must be some element of risk. The credit guarantee scheme now being introduced should remedy that but perhaps the issue should be taken up with AIB in particular because in order to reduce unemployment we must get the SME sector to flourish again. One cannot do that without credit. AIB came before the committee first and then Bank of Ireland came before us. The Department has an SME funding consultation body which could take up the matter with AIB.

Mr. John A. Moran:

Yes, we have no problem with that. There is also a positive aspect to the message from AIB, which is that finally we have a bank that is dealing with the restructuring of lending in the SME sector. We will take up the issue of new lending.

Kieran O'Donnell (Limerick City, Fine Gael)
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My second question relates to the mortgage situation, as raised by my colleague. Last week Bank of Ireland was at best reticent in expressing its view on the restructuring of mortgages. When does Mr. Moran expect the banks to exit the bank guarantee scheme? What are the Department’s plans in that regard in terms of individual banks? What is its perception of the current state of the banks?

Mr. John A. Moran:

I will try and deal with the question quickly. Two issues are intertwined. We see a considerable amount of stability in the deposit market in this country in recent months, including during the period of extreme stress in Europe in the context of Spain, Greece and elsewhere. We have been conducting an intense analysis in recent weeks on the probable removal of the bank guarantee in the early part of next year.

Kieran O'Donnell (Limerick City, Fine Gael)
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To which institutions does Mr. Moran refer?

Mr. John A. Moran:

To be brutally honest, I do not see any difference between the institutions in terms of the way their deposits are performing. Therefore, what we would like to see as the next big step forward in terms of stability of the banking sector, is the removal of the guarantee in the early part of next year if that is possible.

Kieran O'Donnell (Limerick City, Fine Gael)
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Does Mr. Moran mean the first quarter.

Mr. John A. Moran:

I do not think it would be a good idea to start removing the bank guarantee on 31 December. Each bank will have to make its own decision on whether it wants to continue with the guarantee. We see nothing across the system or at the level of individual banks that would suggest they should not work towards that if it makes sense. In the absence of any external shocks to the system between now and then, we would think that is a perfectly feasible target level.

We see the banks as being under significant pressure to restore themselves to profitability and viability, which is itself another precondition to the State being able to divest itself of its shareholdings. It is incredibly important that the banks move forward to establish business models that make profits.

Kieran O'Donnell (Limerick City, Fine Gael)
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In his response to Deputy McGrath, Mr. Moran referred to reducing the cost of servicing the national debt. Could he provide an update on discussions on the restructuring of the promissory note, the funding element of it and the legacy debt of banks in the European context? Where does Mr. Moran envisage the situation going in the future and where does he see the savings? I ask him to elaborate on the issue in the context to which he referred of reducing the cost of servicing the national debt.

Mr. John A. Moran:

The discussions on the restructuring of the various forms of debt are ongoing are currently intense currently. Deputy O’Donnell will understand why I would prefer not to go into the specific details in a public forum. Suffice it to say that we have, in effect, two discussions ongoing; one relates to the debt in the system as a result of capitalising IBRC. Therefore, those discussions are in some greater respects almost on a bilateral basis in terms of the solutions available from the European Central Bank. On what is referred to as the viable banks and the capitalisation by the State of those banks, we have a parallel process which is about seeking recapitalisation of those banks or, in effect, an exchange of the existing shares we have in them for an investment by the ESM in those banks directly. A precondition of that is clearly the establishment on a European-wide basis of a single supervisory mechanism which Mario Draghi himself has said it is not something he expects to see happen until the back end of next year. If that is considered to be a precondition of it then we are talking of a date beyond that before direct recapitalisation of the banks would occur.

Kieran O'Donnell (Limerick City, Fine Gael)
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Does Mr. Moran have any idea of when one could expect a conclusion of the discussions on the promissory note? Could it happen before the banking supervisory body is set up?

Mr. John A. Moran:

We have made very clear to all the partners in Europe the need to have that addressed before the March payment is due. That is the next big instalment on the promissory note and therefore it should be something that gets resolved in advance so that we do not have the difficulties we had last March.

Kieran O'Donnell (Limerick City, Fine Gael)
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Does Mr. Moran anticipate that the restructuring of the promissory note will happen prior to 31 March next year?

Mr. John A. Moran:

What I anticipate will happen and what I wish to happen are probably two different things but the next real big deadline on the IBRC debt on which we must work is the March repayment. We would like to see something happen sometime in the continuum between now and then.

Kieran O'Donnell (Limerick City, Fine Gael)
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Could Mr. Moran explain the change that has taken place in the structure? He has set up a banking division within the Department of Finance and there have been changes in the interaction between the Department and the Government with the banks. Could Mr. Moran indicate the number of staff that have been recruited and the interaction with public interest directors and also give a general overall view on the changes that have been put in place in terms of staff numbers?

Mr. John A. Moran:

I will try to do it quickly. In the past when I was not in the Department a number of staff who dealt with recapitalised banks were in the National Treasury Management Agency. What we did last year was to ask them to work out of the Department so that they could integrate more closely with departmental staff.

That brought a series of corporate finance expertise into the Department directly in terms of being able to do it and reduced the duplication of effort. That is what we refer to as the shareholder management unit. It deals with the bank shareholding directly. It meets at least once a month for a full review by the management of how it is doing on the bank performance. That is the peer review I mentioned where we peer review that with our risk people and others. We then have a separate division which I might refer to as peace time banking policy, which is what Mr. Hogan-----

Kieran O'Donnell (Limerick City, Fine Gael)
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I suppose my time-----

Ciarán Lynch (Cork South Central, Labour)
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The Deputy is out of time.

Kieran O'Donnell (Limerick City, Fine Gael)
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Is Mr. Moran dissatisfied with the mortgage-----

Ciarán Lynch (Cork South Central, Labour)
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Excuse me, Deputy O'Donnell. Please desist from that carry-on.

Pearse Doherty (Donegal South West, Sinn Fein)
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I thank Mr. Moran for the presentation. I have a number of questions but limited time. On the ongoing promissory note discussions, who represents the Department in those discussions? Can Mr. Moran give the committee an indication of the frequency and the format of those discussions? Is it meeting the troika and, if so, how often do they meet? When my party met the troika recently it informed us that there were a number of individual papers but that a joint paper does not exist at this time, and that the Department and the European Central Bank have their own paper. What format is used in those meetings and what is their frequency?

Mr. John A. Moran:

It happens on a number of different tracks. To the extent that the European Central Bank is involved, the primary interlocutor with the European Central Bank is our Central Bank. To the extent that requires very technical input, the team from our shareholder management unit, to which I referred, can be involved. It conducts analysis of the various options in terms of how they would work. It works with our sovereign debt people to see the impact of that on the debt sustainability issues, the repayment of debt and the deficit.

We then have Dr. Nicholas O'Brien and his team, which is our international relations team, which works with the individual treasuries. We ensure our European colleagues are aware, on a treasury by treasury basis, of where we are trying to go with the various solutions, but that is more by way of information than anything else. Ultimately, decisions such as those about the ESM investment in the banks will go to a committee in Europe which is effectively a precursor to the Minister's ECOFIN committee and a euro working group meeting.

The Deputy referred to papers. There are papers throughout the system but if we are talking about a direct investment by the ESM in the banking sector, for example, there will be a paper which will hit the euro working group at which the Minister will be represented.

Pearse Doherty (Donegal South West, Sinn Fein)
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I appreciate that. I specifically did not mention the ESM and what are known as the pillar banks. I am just talking about the promissory note. In September it was a year since the Minister for Finance got approval from Jean-Claude Trichet, without preconditions, to examine a common paper. We are 14 months on from that and there is no common paper. I know it involves technical discussions and so on. Many people believe the ECB, the Department in terms of political pressure and our Central Bank must hammer this issue out together. I can understand how the 14 month gap can be filled with paper passing to and fro, but it appears the need to resolve this issue has not been realised. We have missed one tranche in terms of the 31 March deadline and there is an impact on the budget in terms of not being able to secure this deal prior to the budget because not only is there the €3.1 billion payment on 31 March but also the one year bond which, if not rolled over, would have to be redeemed in June. That this has not been resolved makes Mr. Moran's job much more difficult in terms of budgetary advice for the Department.

Mr. John A. Moran:

I agree that the closer we get to that date, the harder my job becomes. The sooner we have a solution to this, the easier it is to plan for the future. I could not disagree with that.

Pearse Doherty (Donegal South West, Sinn Fein)
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Regarding the ESM, Mr. Moran said the second strategy was the use of the ESM to recapitalise the banks. We all know the banks do not need to be recapitalised. They are probably the best capitalised banks in Europe, but we want back the money we put in to recapitalise the banks. The public believe we should get as much of the money back as possible. The banks have a value. The National Pensions Reserve Fund has valued them at €9 billion. That is without one of the banks, Irish Life, being valued. We also have contingent liability which the banks informed us we would get back, namely, our contingent capitalisation of €3 billion. When all of that is added together, we are probably talking about a ball park figure, in terms of the current value of these institutions, of in excess of €13 billion. It is difficult to determine the real value of the banks but that is the best guesstimate available. Would it be the Department's advice to sell the banks at any cost or is it only on the basis that we get back not just the real cost of these institutions from the ESM but as close as possible to the money the State used to support these banks in the first place?

Mr. John A. Moran:

If the price being paid for the banks by the European Stability Mechanism was equivalent to the price we could secure, for example, by selling the banks to an external banking group or something like that, our advice would be that they should be sold to an external banking group which could then leverage off the banks in a better way to allow them service the economy in terms of technology and everything else. In terms of comparing options, we would start by asking how much more we would get if we were to sell them to the European Stability Mechanism as a sale of the equity we hold.

Pearse Doherty (Donegal South West, Sinn Fein)
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Mr. Moran talked about the possibility of weaning the banks off the bank guarantee at the start of next year. The guarantee runs out at the end of this year. I presume, therefore, the advice to the Minister will be to bring forward legislation to extend the guarantee. We know the banks pay the State as a result of the guarantee. Last year one of the banks paid in excess of €400 million. In regard to its budget preparations, what would be the amount of money the Department would have to factor in as a loss if there is no longer a guarantee? Has Mr. Moran any other proposals to levy the banks if the guarantee no longer exists? Could another levy be introduced to try to recoup some of the money in the meantime?

Mr. John A. Moran:

The numbers for the budgetary projections we published and which we are working off have not assumed any guarantee fees for next year. It is not a case that if the guarantee is removed, there is suddenly a hole in the public finances that needs to be filled. What we do about the guarantee must be a balance. It is often forgotten just how much money is taken out of the banking sector as a result of the guarantee because across the system it is about €1 billion a year, which is the reduction of the capital in the banks of about €1 billion. The reason I referred to our advice was that if stability were to be restored to the banking sector, it would be better to continue to allow the banks build up capital and become profitable.

Pearse Doherty (Donegal South West, Sinn Fein)
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I would like to tease that out in more detail but I am pressed for time. There has been major criticism within the Department - I acknowledge it was before Mr. Moran took over as Secretary General - of the herd mentality that existed in the Department. We know people in the Department tried to issue warning signals to the previous Government throughout the crisis. Robert Pye and Marie Mackle have been well reported in the media in terms of their concerns and their attempts within the Department to raise issues and answer politicians' parliamentary questions that they thought were a true and honest reflection of the dangers the economy was facing in terms of the Government strategy. With hindsight we know it was a correct reflection. People from outside the Department like Morgan Kelly were giving advice as well. How can Mr. Moran satisfy this committee or indeed himself that such a situation no longer exists? If there is a dissenting voice within the Department, how do we ensure there is not another Maria Mackle or Robert Pye situation? What structures have been put in place to deal with that? In answering that, Mr. Moran might tell us how many of the 50 recommendations in the Wright report, the independent report on strengthening the Department of Finance, have been implemented or are still outstanding?

Mr. John A. Moran:

The first and most important part of protecting against the situation the Deputy described is the introduction of whistleblower protection.

This has been done by the Department since I took over and our policy in this regard is published on our website. In effect, we went ahead of the broader regime that is being introduced across the entire system under the direction of the Department of Public Expenditure and Reform. We have our own system in place which can be modified, as required, to fit in with the general model.

The second issue the Deputy raises relates to what was largely the focus of my opening statement, namely, the creation of structures within the Department which encourage debate and peer review of everything we do. That is happening not just at management advisory committee level but right down through the entire system. It involves staff at senior and junior levels, including a large number of people who are new to the Department. That process is going a long way to addressing the concerns the Deputy has raised.

Pearse Doherty (Donegal South West, Sinn Fein)
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Will Mr. Moran indicate how many of the recommendations in the Wright report remain outstanding?

Mr. John A. Moran:

I am not sure whether anybody here has done an account of that. When we were putting the statement of strategy together, we did go through the Wright report. In addition, however, we also identified other issues which, in our view, needed to be changed. We have not, in other words, taken the Wright report as the be all and end all in terms of checking off every recommendation.

Pearse Doherty (Donegal South West, Sinn Fein)
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Will Mr. Moran furnish the committee with a document indicating the measures set out in the report which were not implemented as part of the rationalisation process in the Department?

Mr. John A. Moran:

I will.

Pearse Doherty (Donegal South West, Sinn Fein)
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In regard to the mortgage issue, it is clear that the banks are dragging their feet. I am aware that the personal insolvency legislation is under the remit of a different Department, but will Mr. Moran indicates whether the banks lobbied the Department of Finance on the issue of the veto that is contained in the Bill? The most contentious aspect of the proposals is the provision whereby the banks will have the power to veto a personal insolvency arrangement. Was any advice forthcoming from Mr. Moran's Department on this issue and did the banks lobby him with a view to having an input into the legislation in this regard?

Mr. John A. Moran:

I made reference to this issue in my statement. The process of developing that legislation involved the participation of people from my Department, other Departments and the Central Bank in a steering group which ultimately reported to a Cabinet sub-committee. The discussions involved a review of the various policy issues and the choices to be made in developing the legislation. There was a balance to be struck as to how the Bill would deal with creditors and classes of creditors. That was part of the process.

Pearse Doherty (Donegal South West, Sinn Fein)
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I apologise for intervening, but time is against me. Will Mr. Moran indicate whether the banks lobbied his Department in respect of the veto and whether the Department make a recommendation to the Minister in this regard?

Mr. John A. Moran:

We have had an engagement with the banks. I would not use the word "lobbying" because one of the things I was asked to do when I was made Secretary General was to engage with stakeholders. We have bilateral discussions all the time with stakeholders, including bank representatives, in order to ascertain their views on various issues. In this instance, we solicited a consultation with stakeholders on the various key recommendations, which would have involved garnering the views of the banks. After the steering group's review was completed, it went to a Cabinet sub-committee and ultimately on to the various committees and the Parliament. On the specific issue the Deputy raised, there was a balance to be struck, including on the question of the consent requirements for various classes of creditors.

Arthur Spring (Kerry North-West Limerick, Labour)
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I welcome Mr. Moran and his team. I too have come a rather unconventional route to where I am today, having previously been a banker and juice bar owner. However, that is neither here or there. I am dealing with the big stuff now.

Kieran O'Donnell (Limerick City, Fine Gael)
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We might see Deputy Spring as Secretary General in the future.

Arthur Spring (Kerry North-West Limerick, Labour)
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I would prefer to be Minister. For now, however, I will focus on the serious issue of mortgages. Goal No. 5 in the delegates' document refers to outcomes, short-term strategies and performance measures. One of the short-term strategies referred to relates to finding solutions to the problem of distressed mortgages and difficulties with personal debt. My concern is that there does not seem to be any indicative measures as to whether or not the Department is achieving anything in that area. This is something that concerns me, as it will concern the entire generation which is facing this problem. Why is there no performance measure in this regard and what level of attention is it being given by the Department?

Mr. John A. Moran:

I agree that the performance measure is not well identified. In effect, we look at this in terms of the level of credit available to households and businesses. Mr. Hogan's department analyses the number of mortgages being restructured, the number of arrears and so on. There is a dashboard of information that we keep under review. The Department has a clear view of how that information is assessed by way of the mortgage arrears implementation steering group. In fact, this was one of the first areas of activity that we put through our new performance management technique. We have actual targets and a plan for developing this process. The question of which individual key performance indicators the banks must meet was decided in tandem with the regulators. There are financial institutions other than those in State ownership involved in that process. As part of the work of the departmental steering group, the Central Bank makes presentations on how the banks are doing in this regard.

Arthur Spring (Kerry North-West Limerick, Labour)
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The difficulty for ordinary people is that they cannot see any specific activity or anything at all tangible being done to resolve the problems with mortgages. There is the mortgage relief aspect, but for people who are trying to move up the ladder or move out of a negative equity situation, it is not tangible enough and is too slow-moving. The Department must agree a clearly identified process with the banks so that people can be confident that a solution is being brought forward. Moreover, the process must be measurable in terms of how much money will be allocated to it in the long term. Mr. Moran referred to restructuring but, as we all learned last week, no money is being allocated by the banks for resolving this matter. The delegates, however, have identified some funding with which to begin. I urge them to enforce some level of write-down and other considerations to reduce the stress people are enduring.

Mr. Moran indicated that he is looking to sell the banks. I understand the crux of the matter for the banks at the moment is simply the cost of funds. A simple principle of all economic and financial endeavour is that one should buy low and sell higher. If it costs more to purchases money than to lend it, one will be in loss-operating situation, such as Allied Irish Banks is dealing with. If the banks are to be sold, their cash-flow projections will ultimately be the decider of their value. What level of margin does the Department intend to associate with mortgages? Will there be a profit to be made in that for whoever purchases the banks given that the duration of the loans in question is up to 35 and 40 years in some cases and there is negative equity of up to 60%?

Mr. John A. Moran:

I indicated that I am looking to sell the banks, but I do not think the banks are ready for sale. Indeed, I would prefer to sell a life company before selling the banks. It is often forgotten that the State also owns a large part of the insurance industry. The Deputy raised the notion that whoever buys the banks might actually make a profit because the assets continue in time. In fact, in my view, whoever buys the banks has to make a profit. If there is no profit in sight, there will be no sale.

Arthur Spring (Kerry North-West Limerick, Labour)
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I agree. My concern, however, is for the overburdened generation on whose back these profits will be made. The reality is that the most negligent lending will turn out to be the most profitable lending in the long run for those who purchase the banks.

Mr. John A. Moran:

The Deputy has identified the right issues. The banks needs to deal first with the cost of funds. They are already making significant progress in terms of deposit-grade interest. Once their largest cost - that is, their interest cost - starts going down, they can focus on reducing overhead costs in terms of staffing, branches and so on. They must then deal with the asset side, which includes, as I have mentioned, dealing with some of the loans that simply cannot be repaid.

Arthur Spring (Kerry North-West Limerick, Labour)
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In regard to the maximisation of the value of the State's investment in the banks, as per the fifth goal contained in the document, the Department intends to measure this by the return of investment in the banking sector. In my view, the Department needs to have a much greater regard for the social dimension and to look at people as individuals rather than numbers. There is an onus on the Department to take on board the social issues being faced by a generation, particularly in regard to mortgages.

Mr. Moran referred to efforts to secure funds at a lower cost. We can capitalise the banks ultimately through the European Stability Mechanism, if that is the route we go. However, consideration must be given to the multiple tiers within the banks, including deposits, commercial activities, wholesale markets and so on.

When one has multiple strands in respect of the cost of funds, one is more attractive to the private sector in terms of selling one's bank. However, when one has a solitary source in respect of the cost of funds, such as the European Central Bank, an ability to increase the level of funding would decrease the cost at which one could get money. Ultimately, however, that might lead to going into the European Stability Mechanism as being one's only route. What is the Secretary General's viewpoint in this regard? Is the Department trying to reduce the cost of funds to the banks through the ECB? Is there any other way in which the cost of funds to the banks can be brought down?

Mr. John A. Moran:

Part of the analysis we carry out on the banks every month actually entails looking at the funding structure of the banks. The primary source of domestic funding available to banks over recent years has been in the form of retail deposits, because the corporate deposits and wholesale funding disappeared from the Irish banks from the outset of the crisis. The banks have been working on how to restore an element of their funding, at achievable rates, that is based on wholesale funding. Some of the corporate deposits have started to flow back into the banks and the next part of the job is to use their assets as security for carrying out wholesale funding. I believe that more than €6 billion or so has been raised by a series of the banks using United Kingdom assets. The next step will be to find a way to use Irish mortgages as funding.

Arthur Spring (Kerry North-West Limerick, Labour)
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Are we addressing this issue with the European Central Bank? I refer to the article published in Die Welt last week on the funding of Spanish banks in comparison with Irish banks, which indicated an anomaly exists whereby Irish banks are being charged more than Spanish banks. There appears to be one rule for them and another for us. I advocate pressing the ECB to give Ireland a break by funding the banks more directly with more funds at the cost set by the European Central Bank. It would be one way to get the banks closer to profitability, as well as being a quicker way of telling people the margins on mortgages do not need to be as high as they are at present.

My final question pertains to taxation. In the forthcoming budget, one third of the adjustment will come through taxation and two thirds through public expenditure cuts. What is the Secretary General's view on taxation of the very wealthiest in society? In the view of most people, taxation imposed on the wealthiest is perceived as something which will not have a negative impact on the domestic economy but that, on the contrary, it will drive the domestic economy. However, were taxation to be spread across middle income earners in Ireland, the domestic economy would be depressed further.

Ciarán Lynch (Cork South Central, Labour)
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The Deputy must allow time for a response because I intend to move onto the next questioner.

Arthur Spring (Kerry North-West Limerick, Labour)
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It has been proven that the wealthiest invest more money out of the country and import more luxury goods into the country.

Mr. John A. Moran:

On the last point, in the run-up to the budget and given that I perceive that to be a pure tax policy matter, I would prefer not to comment on it. On the issue of the funding of the banks, it is often forgotten that the European Central Bank already provides almost €100 billion of funding to the Irish banks at a relatively low cost of funding. In fact, that figure used to be €150 billion and part of the exercise of getting the banks back to normality must be to try to reduce that number, particularly the figure in respect of emergency liquidity assistance. This is a broader issue that must be addressed.

Arthur Spring (Kerry North-West Limerick, Labour)
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Are we addressing it?

Mr. John A. Moran:

Yes, we are.

Arthur Spring (Kerry North-West Limerick, Labour)
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Is Ireland seeking more funds from the European Central Bank?

Ciarán Lynch (Cork South Central, Labour)
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The Deputy is out of time.

Arthur Spring (Kerry North-West Limerick, Labour)
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Is Ireland seeking more funds from the European Central Bank?

Mr. John A. Moran:

It is not a question of seeking more funds from the European Central Bank because one does not wish to have banks that are completely reliant on ECB funding. There was a long-term refinancing operation, LTRO, and the Irish banks took the benefit of it. There is a disconnect across the European system at present between the manner in which banks work in some of the core countries and the way they work in the periphery, which is being addressed. As for the specific issue of the ECB rules with respect to Ireland and Spain, it is important to remember there is a rating difference between sovereign bonds from Spain and Ireland as well, which has a part to play. The Central Bank is making sure here that there is no situation in which the Irish are being disadvantaged, based on the facts, which are that the ratings are different.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I have loads of questions and there definitely will not be time for the Secretary General to answer them all.

Mr. John A. Moran:

We must return.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Yes, exactly. He should come back soon. In the Secretary General's opening statement, he set out five goals. In fairness, they probably really could be narrowed down to two goals. Two of the goals pertain to meeting the troika debt and deficit targets and balancing the public finances, while the other ones are about jobs, growth, investment and improved living standards. Is it not the case that these two sets of goals are completely irreconcilable? Is the evidence not now mounting that they are completely irreconcilable and that what the Secretary General has set out in his statement up to 2014 is mission impossible? Is it not the case that it cannot be done and that the evidence is becoming impossible to ignore? Is it part of the Secretary General's role to give advice or to analyse this issue? In his statement, he indicated he is engaging with economic commentators, is listening to what the media are saying, is listening to the business community and to economists and so on. However, a great many people are stating that what he has set out in this statement is impossible, as is what he is trying to do. Does the Secretary General have a role in assessing this and in advising the Government on the possibility or otherwise of what it is trying to do?

Mr. John A. Moran:

The answer is simply "Yes". I note an awful lot of people also are saying it is working. Our job is to try to present a balanced view in this regard. The reason we are enhancing the economic team is to be able to conduct analysis. One thing that has not been done in the past perhaps is that this has not been shared widely enough with the broader public in order that they can comment on it. What is important is that everyone is working off the same set of basic facts, although people will have different interpretations of it. Our view clearly is to present to the Minister, to the Economic Management Council and, ultimately, to the Government, our views on where we think the mission lies. I do not think of this as mission impossible. I certainly think we have a difficult challenge ahead of us but I think we have made significant progress.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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The Secretary General has been very efficient in implementing the cuts to meet the deficit targets. Hats off to him on his success in this regard. Objectively, however, and this is not a matter of opinion, living standards have not risen, employment has not increased and growth has not occurred. In fact, the Department has been obliged to downgrade its growth forecast, even within the last year. If I recall correctly, in the autumn of 2011 the Department was projecting 3% growth for 2013. This projection now has been reduced to 2.2% and while the Secretary General will not provide members with the figure he will give to the Economic Management Council this evening, they can assume it is worse than that. Are these not objective indicators that the growth, jobs and improved living standards side of the Department's mission simply is not being delivered on?

Mr. John A. Moran:

First, I do not wish to take credit for what I have not been doing.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Mr. Moran's predecessor, then.

Mr. John A. Moran:

The efficiency with which the expenditure cuts are going across the system is to the credit of my colleagues in the Department of Public Expenditure and Reform. I will start by making that point. I have a difference of view as to whether there is growth in the system at present, because we recorded last year that there was growth in the system and that the Irish economy grew by 1.4%. Therefore, there is an analysis that would suggest we are managing to walk a very tight type of walk between managing to get proper fiscal corrections into the system and doing so in a way that avoids contracting the domestic and international sectors of the economy in such a fashion that there is no growth, while bearing in mind that we are in a very small minority of countries across the European platform that have recorded growth last year and will record growth again, we think, this year.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I will not labour the point except to state it surely is the case that under the improved living standards and employment criteria the Department has set for itself, it has not delivered as there is no sign whatsoever of progress on those two fronts.

Mr. John A. Moran:

First, the Department has set out a three-year statement of strategy. We have set out a programme of reform and we need time to achieve and complete it in terms of seeing the results. However, we started with this principle that, as the Deputy put it, there is no growth in the system but there is growth in the Irish economy. I would prefer to see much higher growth in the Irish economy because it would make life a lot easier for everyone, but we also have been faced with a lack of growth across the international spectrum, which has made a lot of the planning that was put in place much more difficult, and it needs to be changed. We have been modifying it as we go along and that is part of the process of review through which we go.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Is it not the case that the growth forecasts are radically wrong? We have gone from 3% down to whatever the figure will be, although it is likely to be under 2% and may be under 1%, in forecasting growth next year. In one year we have gone from the forecast of 3% to this. How did the Department get it so wrong?

Mr. John A. Moran:

This is not a question of necessarily getting growth figures wrong. There is periodic analysis of external factors and how they play into today's economy. Factors are changing across the rest of the international spectrum, and each of them has a bearing on Ireland. We cannot be sure or estimate what will happen, even today, after the results of the US election in the American economy. What will happen in the US economy will have a very significant bearing on Irish growth levels, and that must be assessed periodically. It may be more helpful for people if projections came out more frequently, as people would not think we are out of line with the current view.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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What is the witness's view of the IMF's recent statement that the negative multiplier effect on the economy is three times worse than it and the Department believed? We have €8.6 billion in cuts to make over the next three years and the IMF has indicated if growth is 1% less than projected - it may be worse than that - there will be another €1 billion per year in required cuts. If the multiplier is 1.5 and not 0.5, as expected, there will be a €15 billion hit to the economy over the period of the adjustment. What is Mr. Moran's opinion of the scenario suggested by the IMF? The Irish Fiscal Advisory Council has stated an extra €1 billion in cuts will be required per year over the next three years if we are 1% off on the growth projections, which the witness has admitted must be downgraded.

Mr. John A. Moran:

The fiscal advisory council has also recommended much more severe fiscal contraction on a shorter term basis, so we must take all these pieces of advice into account. Considering all the views expressed, the IMF's opinion has been significantly contradicted by the European Commission's view of what is happening in the Irish economy. A more interesting analysis of the Irish economy may come from considering these multiplier effects per sector. In dealing with a small economy like Ireland, which has a number of different sectors, it is perhaps the case that there are different sectors with different multiplier effects at play. These should be analysed. I have mentioned that we want to examine individual sectors in a relatively small and open economy.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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We shall see. If the multiplier proposed turns out to be the general figure, our debt position would be unsustainable. Mr. Moran believes that it is currently sustainable. An unsustainable level will require a much larger level of cuts.

Mr. John A. Moran:

We all have our own views. I have already stated that I consider the debt to be sustainable and I will not change my mind.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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We will find out which is the case. What role does the Department have in the Clearing House Group and what lobbying has come from commercial and private interests with regard to the financial transaction tax and the attitude towards corporation tax? Does Mr. Moran have any thoughts on the potential revenues forgone by not imposing a financial transaction tax and on the very low effective corporate tax rate, which may be as low as 6%? Should that be examined?

Mr. John A. Moran:

There are many questions. We have already had a discussion about what is considered to be lobbying and what is considered to be seeking views of stakeholders. As I mentioned, it should not be surprising that we have had such discussions; we have been asked to do so and it is a good idea for us to engage as widely as possible with stakeholders on their views about various measures. Our staff has spent much of the last couple of weeks in the approach to the budget analysing budget submissions made across all sectors of society and not just industry groups. These are taken into account and, where necessary, there are meetings in respect of those submissions.

With regard to the Clearing House Group, Ms Ann Nolan, head of our financial services group, usually attends those meetings, although I have attended some. The purpose of that group is to have a discussion about how to develop an industry sector involving people from different areas. I do not consider it to be that different than when I go to Cork and talk to people about the software sector and what may be done or to Limerick to talk about the agricultural sector. It just happens to be a more formalised structure that has been in existence in the State for a number of years, with representatives of the IDA, regulators, the industry and Departments. They consider what can be done to help make a sector that works well work even better.

The view of the financial transaction tax is very unclear at this stage. Many people forget that at least some views of a financial transaction tax across Europe equate to a small amount charged on sales of shares, and Ireland already has a 1% stamp duty on the transfer of shares. Some European countries have a broader view of what the tax should be and the question becomes whether and how we deal with the tax when the issue and how it might impact on our sector relative to others becomes clearer.

Ciarán Lynch (Cork South Central, Labour)
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What is the latest time that Mr. Moran can leave the committee? I will not be able to accommodate all members who are indicating a desire to ask a question, although I will do my best.

Mr. John A. Moran:

We will stay until 4 p.m.

Ciarán Lynch (Cork South Central, Labour)
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Okay.

Mr. John A. Moran:

I appreciate that.

Ciarán Lynch (Cork South Central, Labour)
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As that is longer than I expected, will Mr. Moran address Deputy Boyd Barrett's point on corporation tax?

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Is it Mr. Moran's advice to the Government that we should not touch it? Does he have any thoughts-----

Ciarán Lynch (Cork South Central, Labour)
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The question has been asked.

Mr. John A. Moran:

The PriceWaterhouseCoopers report on our corporate tax contains the only figures I have and I do not know where the 6% figure quoted by the Deputy has come from. The report suggested there is a higher rate of tax.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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It came from the answers given by the Department.

Ciarán Lynch (Cork South Central, Labour)
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The Deputy is out of time.

Liam Twomey (Wexford, Fine Gael)
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I will discuss some of the elements raised by Deputy Boyd Barrett. A reduction in unemployment usually lags behind economic recovery. If growth this year is as low as predicted, if it drops to approximately 1% next year and the pattern continues into the beginning of 2015, is it possible that unemployment could remain at the high current rate for the next two to three years?

Mr. John A. Moran:

There is subtlety in the lag. The lag is particularly evident in a recovery in export-driven industries where there is high technology utilisation. A recovery in the domestic economy would lag less with regard to unemployment. If we are facing a period of very low growth across the sector, it is difficult to see how unemployment can recover unless we act as I described in playing smarter. For example, in the tourism sector there is a renewed focus on new markets such as continental Europe. We are thus growing tourist numbers significantly higher in those areas. It is a question of redirecting certain sectors and how they approach issues. Although there may be an international zero-growth level, we may be able to find ourselves playing smarter in certain sectors as opposed to others. In that way we would effectively gain market share.

Liam Twomey (Wexford, Fine Gael)
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We spoke about improving the Department's governance, and the term "challenge" has been used. Does this arise because of a feeling that some of the issues that caused our current crisis were due to too much group-think and people who spoke contrary to the opinion of the majority not being listened to? Does this process protect the Department from political interference, which has also been indicated as a reason we were led over a cliff?

Does Mr. Moran believe that was an issue?

Mr. John A. Moran:

No. The reason I am referring to challenge - I am looking at what is happening at present - is that I do not believe it is a good idea to have policies developed by one person. It is incredibly important that we have the involvement of a number of different people, with different backgrounds and experience, in the development of policies. All of what I mentioned earlier is designed to achieve that. It is designed to allow me, John and the rest of the guys to draw on resources. In other words, when they are thinking about some of the tough issues we must face, they can draw on expertise from the guys in the risk area or the economics guys, or they can just draw on the expertise of people who have been there previously in some of the areas.

Liam Twomey (Wexford, Fine Gael)
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When Mr. Moran discusses this new governance in the Department and when one reads through it and listens to what is being said, there is nothing really controversial there. Do the witnesses challenge themselves on the controversial topics as well? Have there, for example, been in-depth discussions on issues that have been raised in the public domain, such as the future of the Croke Park agreement and how that is working in the long term?

Mr. John A. Moran:

Yes. Even in the discussion we have had about jobs and how we deal with the jobs strategy, whether we can get things to work and how we deal with the European crisis, we have quite robust discussions about the right way to do things and how to think about the options involved.

Liam Twomey (Wexford, Fine Gael)
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Is that fed up the line to the Minister and the Cabinet?

Mr. John A. Moran:

Yes, and rather than giving papers that say this is the way to do it, we often present papers that give options to the Minister or to the Economic Management Council.

Stephen Donnelly (Wicklow, Independent)
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I welcome Mr. Moran and his team. I thank him for giving me access to some of his officials recently in respect of budget preparations. I do not have the resources of the Opposition parties so his officials have been incredibly helpful.

All of this makes a great deal of sense. I wish to focus on corporate governance and changing the culture. Several Deputies and Senators talked about the dangers of group-think. I would like to hear Mr. Moran's thoughts on something that is absent from the strategy in terms of stakeholder engagement, which is Oireachtas engagement. He is probably uncomfortably familiar with the fact that the way we tend to engage with Departments is through parliamentary questions. I am new to politics and it is an extraordinarily inefficient way of trying to get things done. I expect Mr. Moran's officials find it quite frustrating. It can also be frustrating on this side. Has Mr. Moran given any thought to how the Department and the Oireachtas - both sides are involved here - can begin to work more constructively together?

Mr. John A. Moran:

I hesitate to say it, but I also do not consider parliamentary questions a very efficient way to do business. Indeed, something that has shocked me since coming to the Department is the amount of the officials' time that is consumed by the process, particularly because we are often touching on the same issues in dealing with them. Forums such as this can be helpful for discussing how we work and soliciting ideas. I mentioned previously that there is renewed focus in the Department on how we use the audit committee and how it should be able to help us with advice. Committees such as this can also help us to understand how we should look at things and how we should operate our business.

Stephen Donnelly (Wicklow, Independent)
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As an aside - I do not know if it is possible - in terms of the budget preparation, there is a piece of information which I understand is released at the weekend of the Budget Statement, the 2013 no-policy-change scenario. Any budget preparation or budget submission requires that. Perhaps it is a Government decision rather than a Department decision, but if it is possible perhaps Mr. Moran would consider releasing the no-policy-change document, which describes what would happen if we continued on without change for next year. Obviously, when one is trying to figure out the deltas and the ratios, the €3.5 billion and so forth, one needs a no-policy-change scenario. If it was possible to accelerate its release, it would be very useful.

I am spending a great deal of time on the Personal Insolvency Bill at present. If it is going to work, it will require a massive change in the position of the banks. Mr. Richie Boucher appeared before the committee last week and his performance was outrageous. I lived and worked in the UK for a number of years and, in my view, if the chief executive of a UK bank had treated a House of Commons select committee in the way he treated this committee, there would be widespread calls for his or her resignation. He refused to answer my question as to whether Bank of Ireland had engaged in any debt surrender on unsustainable mortgages, even though he answered the question before. He also refused to say whether Bank of Ireland would even consider the possibility of debt surrender as part of personal insolvency legislation. Mr. Masding, the chief executive of Permanent TSB, essentially said the same. We know AIB has done very little in that regard. We have seen a consistent and robust position from the banks which states that they will surrender nothing unless absolutely forced to do so. The personal insolvency legislation does not force them to do anything, which definitely makes the negotiation more interesting. Is Mr. Moran satisfied that the banks will significantly change their approach in terms of debt surrender?

Mr. John A. Moran:

In a somewhat under-publicised speech I made a few weeks ago on the banking sector, I made my views known about where the banks need to go in this regard. Part of the speech that was not fully reported pointed out just how important it is to move forward on this if the economy is to recover and, ergo, how important a recovery of the economy is for the banks' profitability. There is an issue with regard to examining what is happening with unsustainable personal debt and moving forward on that. Richie Boucher and others know our views on it very clearly.

Stephen Donnelly (Wicklow, Independent)
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I have a final question. The National Asset Management Agency, NAMA, was not mentioned in Mr. Moran's presentation and statement. Can he explain what level of oversight of NAMA the Department has and what resources it has for that oversight?

Mr. John A. Moran:

Property is not specifically in the statement of strategy. We took a look at the restructuring of the Department and how we were doing things. Previously, we had been treating NAMA differently from how we were treating the banks in which we have shareholdings. In effect, the live companies that we had been holding were falling between two stools. We have now moved the oversight of NAMA and our involvement in what is effectively the protection of the State's interest with respect to the assets that NAMA holds into the shareholder management unit, SMU. It is part of an exercise to consolidate, because I do not see a difference in terms of the economic interests that the State owns, whether it owns them through a shareholding in the banks or indeed through exposure to the ultimate recovery of NAMA assets. It now follows a process. I am not sure of the exact number of people in the SMU but it is probably approximately 20. They are now charged with - and, in effect, using similar principles for - looking after our interests, whether in NAMA, the banks or the insurance companies.

Kevin Humphreys (Dublin South East, Labour)
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There was reference earlier to the clearing house group. Mr. Moran said it was like no other grouping. He goes down to Limerick and so forth. I put it to him that the IFSC Clearing House Group is different, because there is constant ongoing engagement and access. We want to learn from our past mistakes with regard to the creation of golden circles and the like. I am not saying this is a golden circle, but we must guard against making the mistakes of the past. When the Taoiseach appeared before the committee last May he said he would consider arranging for the clearing house committees to be streamed live on the Internet where people could watch. A far easier way would be for this committee to receive the minutes and position papers from those meetings.

This is a democratically formed committee and the position papers and minutes should be made available to it. Does Mr. Moran see a problem with this?

Mr. John A. Moran:

I do not know if it is appreciated that the IFSC Clearing House Group is run from the Taoiseach's Department. Mr. Martin Fraser is the chairman of the clearing house group.

Kevin Humphreys (Dublin South East, Labour)
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Would he have a problem with it?

Mr. John A. Moran:

I do not think there is anything particularly secret about the minutes and do not see why the committee should not see them.

Ciarán Lynch (Cork South Central, Labour)
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Is that a formal proposal?

Kevin Humphreys (Dublin South East, Labour)
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It is.

Ciarán Lynch (Cork South Central, Labour)
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Deputy Kevin Humphreys can put it to the committee as a formal proposal and we will process it.

Kevin Humphreys (Dublin South East, Labour)
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Thank you, Chairman. Mr. Moran has covered many of the broader issues and mentioned good governance and how the Department interacts. He also mentioned parliamentary questions which we find frustrating when they are partially answered. Sometimes it means we must submit further questions to get answers. Sometimes the Department of Finance is as much to blame as any other Department for supplying partial answers.

How does the process of secondment work within the Department which has 12 staff from KPMG, PwC and other companies? Does the Department identify a skills shortage or do companies offer staff? What is the policy in that regard? I am concerned about how the Department builds barriers. One can always say there are professional barriers and that the staff have signed the Official Secrets Act. My question is how do we guard against the possibility that people with good intentions will become embedded in the Department, build networks and contacts and will find that they have easier access to convey information when they return to KPMG and PwC? What is the risk analysis of the Department in this matter? What other safeguards are there?

Mr. John A. Moran:

There is a small group at the level of assistant secretary in the team of Dr. Nicholas O'Brien. There are three individuals on the secondment sub-committee. If issues of concern are raised, they will address them. They consider the acceptability of the individuals who come in and are working to have a formal process and procedures in place to identify who can come in, their level of access to various information and whether there should be restrictions on access such as the level of committee on which they should sit. This is managed by the committee and HR personnel.

Kevin Humphreys (Dublin South East, Labour)
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Does Mr. Moran accept that there is a danger as I have outlined?

Mr. John A. Moran:

I do not subscribe to the view that it is as dangerous as the Deputy thinks. I have had 400 meetings in the past six months; therefore, access to officials is not as difficult as one might think.

Kevin Humphreys (Dublin South East, Labour)
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Just one final question-----

Ciarán Lynch (Cork South Central, Labour)
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I cannot allow it.

Kevin Humphreys (Dublin South East, Labour)
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The Chairman allocated five minutes and I have only used four.

Ciarán Lynch (Cork South Central, Labour)
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I have not yet contributed.

Kevin Humphreys (Dublin South East, Labour)
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It is a "Yes" or "No" question.

Ciarán Lynch (Cork South Central, Labour)
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"No" is the answer.

Peter Mathews (Dublin South, Fine Gael)
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I thank Mr. Moran and his team for attending. At the end of March 2011 I had a long conversation with him on the telephone. One of the two main elements challenging the economy is debt sustainability. It is not just Government or sovereign debt that is increasing as we merge private debt with social debt. I refer also to household and non-financial corporate debt. I am not happy that we are analysing the impact these levels of debt have on the capacity of households, businesses and the State to service debt levels. We are fooling ourselves vis-à-vis our creditors. The main creditors in the banking system are owed €100 billion, to the Eurosystem and the ECB and in emergency liquidity assistance to the Central Bank of Ireland. The capitalisation that took place in July 2011 moved in the wrong direction. To take the guts of €17 billion out of pension funds-----

Ciarán Lynch (Cork South Central, Labour)
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I will push the Deputy to ask a question. If he is here to comment, I will move to the next contributor.

Peter Mathews (Dublin South, Fine Gael)
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It is terribly important-----

Ciarán Lynch (Cork South Central, Labour)
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It is always terribly important. We can have that discussion at the parliamentary party meeting. We are here to put questions to the delegates.

Peter Mathews (Dublin South, Fine Gael)
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We want well informed advice, independent of the Government. The Department can harness people to do this. I am asking Mr. Moran to give us the head counts, the qualifications and the number in each Department carrying out different tasks. I ask him to explain two points about budget preparations to address the deficit. I have tabled parliamentary questions on these points. One refers to a levy on high incomes, over €120,000, which would produce €520 million. An increase in the headline rate of corporation tax from 12.5% to 15% would produce, on the basis of the last template of corporation profits, €670 million. I ask Mr. Moran to show how these proposals and amounts cannot be achieved. They are two major reinforced steel joists for the economy to correct the deficit.

With regard to banking and the promissory notes-----

Ciarán Lynch (Cork South Central, Labour)
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That is a second question. We will take the first question.

Peter Mathews (Dublin South, Fine Gael)
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Very quickly, we are now being told that Anglo Irish Bank is estimating final losses of €25 billion. On an appraisal, that is impossible.

Ciarán Lynch (Cork South Central, Labour)
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That is commentary. Time is tight and I would also like to contribute.

Peter Mathews (Dublin South, Fine Gael)
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Has the Department taken into account interest of €17 billion on the promissory note in arriving at the revised Estimate of €25 billion?

Ciarán Lynch (Cork South Central, Labour)
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Mr. Moran can respond. I will then contribute and if I can facilitate Deputy Mathews-----

Peter Mathews (Dublin South, Fine Gael)
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This is impossible.

Ciarán Lynch (Cork South Central, Labour)
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It is impossible and we have been accommodated through the provision of additional time.

Peter Mathews (Dublin South, Fine Gael)
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We will end up not being able to get out of this.

Ciarán Lynch (Cork South Central, Labour)
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It is lovely to talk to the Deputy, but we are here to ask questions.

Mr. John A. Moran:

I agree with Deputy Peter Mathews that there should be a full and open discussion on the issue of debt sustainability. The speech I made to the Irish Banking Federation was on that point and the impact of personal debt overhanging the economy. There was little public commentary-----

Peter Mathews (Dublin South, Fine Gael)
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One year ago I was told it was kindergarten economics.

Mr. John A. Moran:

On the head count in Departments, the easiest way to deal with the matter is to issue to the committee a table setting out the movements across the Department between June and November and qualifications, broken into accountancy, business and economics.

What will be done in the budget in terms of levies is a political decision. We can make recommendations to the Minister in that regard.

Peter Mathews (Dublin South, Fine Gael)
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Please do.

Mr. John A. Moran:

On the Anglo Irish Bank calculations, if the Deputy is referring to capital calculations and forward-looking projections, there is an interest amount that is income to Anglo Irish Bank.

Peter Mathews (Dublin South, Fine Gael)
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It amounts to €42 billion.

Mr. John A. Moran:

Therefore, it is an extra contribution.

Peter Mathews (Dublin South, Fine Gael)
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It amounts to losses of €42 billion.

Mr. John A. Moran:

On page 12 of the handout, which one may not be able to read, we have listed the qualifications held.

Ciarán Lynch (Cork South Central, Labour)
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A few weeks ago representatives of NAMA appeared before the committee and one of the issues raised with them, following the announcement by the Minister for Finance in last year's Budget Statement, was rent reviews in respect of NAMA properties. The upward only rent review clauses should be examined in that context and not applied in these cases. Has there been monitoring of how rent reviews in respect of NAMA properties are being carried out? Will Mr. Moran tell us the number of reviews that result in a reduction in rent, not an increase? Representatives of the IBRC, a landlord its own right, also appeared before us in recent weeks. Many think it is only a bank with many debts, but it is also a substantial landlord. Does the Department of Finance take into consideration the fact that the IBRC, with other State agencies, should take on board the directions given to NAMA in respect of leases?

Mr. John A. Moran:

I do not know if we have carried out a review. I can check and inform the committee. On the position of the IBRC, the best thing to do is to check what it is doing and report back to the committee.

Ciarán Lynch (Cork South Central, Labour)
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The committee can make a recommendation to the Minister for Finance that the action taken in respect of NAMA properties should also be considered in the case of IBRC and other State agency properties. Would Mr. Moran be agreeable to this?

Mr. John A. Moran:

Yes.

Mary Lou McDonald (Dublin Central, Sinn Fein)
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I will speak last, with the forbearance of the wannabee Ceann Comhairle. He is cutting his teeth here.

Ciarán Lynch (Cork South Central, Labour)
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Deputy, you are out of time. Thank you for that.

Mary Lou McDonald (Dublin Central, Sinn Fein)
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That is the Labour Party for you.

Much of what Mr. Moran had to say in the document is about equity, leadership and very positive things. Equality is a political decision but it is also a policy decision. The last budget hit lower and middle-income groups disproportionately, in a way that even the previous austerity budgets did not.

Where does fairness rank as a policy priority for Mr. Moran and his team? Does he do an equality budget, and is he open to that?

Mr. John A. Moran:

The document points out that equity is one of the principles on which we operate in assessing measures. One could probably do a different analysis by looking at an individual budget as against a series of budgets. It is more appropriate to look at a series of budgets as part of a measure. The choices for the forthcoming budget that we will be discussing with the Government during the next couple of weeks will also involve an assessment of the impact of the changes across different sectors of society, so that we can have a full consideration of their impact.

Mary Lou McDonald (Dublin Central, Sinn Fein)
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There will be a distribution assessment.

Mr. John A. Moran:

Yes.

Ciarán Lynch (Cork South Central, Labour)
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In bringing these proceedings to a close, I thank you, Mr. Moran, and the other officials for coming before the committee. I believe this is your first time to appear before the Joint Committee on Finance, Public Expenditure and Reform. One behalf of the committee, I wish you well and the greatest success in the strategy you have laid out.