Oireachtas Joint and Select Committees
Wednesday, 12 December 2012
Committee on Finance, Public Expenditure and Reform: Select Sub-Committee on Finance
Taxation Agreements: Motion
The purpose of today's meeting is to consider item No. 1, four double taxation agreements with the Republic of Uzbekistan, the State of Qatar, the Arab Republic of Egypt and the Swiss Confederation, and one exchange of information agreement with San Marino. Item No. 2 is a Mutual Assistance in Tax Matters Order 2012 and item No. 3 is a motion referred by the Dáil in regard to the National Pensions Reserve Fund Act 2000 (Suspension of Exchequer Contributions) Order 2012.
I welcome the Minister for State at the Department of Finance, Deputy Brian Hayes, and his officials to assist our consideration of the motions. Briefing notes were provided by the Department. If we adhere to a reasonably strict schedule, the Minister can address the committee, after which each of the Opposition spokespersons can respond and we can then have an open discussion. Is that agreed? Agreed. I invite the Minister of State to make his statement.
It is good to be before the committee. On the first issue, there are three draft Government orders giving force of law in Ireland to new double taxation agreements with Egypt, Qatar and Uzbekistan. These are a draft order to update the double taxation agreement with Switzerland, a draft Government order giving force of law to a tax information exchange agreement with San Marino, and a draft order to give effect to a Council of Europe OECD convention on mutual assistance and tax matters.
Double taxation agreements are widely regarded as crucial items of fiscal infrastructure for developing substantial bilateral trade and investment opportunities by reducing the tax impediments that might otherwise did deter such cross-border activity. For a small, open economy like ours, so dependent on trade and investment with other countries, continuing to expand our network of international tax agreements is not only necessary but vital. Double taxation agreements facilitate trade and investment by providing greater certainty to taxpayers regarding their potential liability to tax in foreign jurisdictions, by allocating taxing rights between two jurisdictions so that taxpayers are not subject to double taxation, by reducing the risk of excessive taxation that may arise because of high withholding taxes, and by ensuring taxpayers are not subject to discriminatory taxation in the foreign jurisdiction. Double taxation agreements provide benefits to taxpayers and governments by setting out clear rules that will govern tax matters in respect of cross-border trade and investment. Tax treaties ensure predictability and fairness in the tax treatment of taxpayers and spell out clearly defined provisions that facilitate companies investing in doing business overseas.
This is achieved by allocating exclusive taxing rights to one country, or where both countries retain taxing rights, by requiring the country where the taxpayer is resident to grant credit against its tax for the tax paid in the other country.
Double taxation agreements cover direct taxes, which in the case of Ireland are income tax, corporation tax and capital gains tax. They are comprehensive in scope, covering both the taxation of companies and individuals, and are in the main based on the OECD model of tax convention. Apart from relieving double taxation, double taxation agreements also include provisions dealing with non-discrimination in relation to taxation matters. They also have mutual agreement procedures, which allow the tax authorities of both countries to consult with each other in taxation matters affecting the agreement, and provisions that allow for the exchange of information for the purpose of preventing tax evasion.
Ireland's tax treaty network compares very favourably with the networks of other larger OECD countries and now includes most of the world's major economies, accounting in aggregate for more than 80% of world GDP. The Irish treaty network has grown by almost 50% in the past three years. Through the remarkable work by our officials in the Departments of Foreign Affairs and Trade and Finance and the Revenue Commissioners there has been very impressive growth in treaties in the past three years. We are a small country with finite resources and to conclude that number of treaties in three years is astonishing. We have now signed comprehensive double taxation agreements with 68 countries, of which 61 are in effect. Negotiations for new agreements with Egypt, Thailand, Ukraine and Uzbekistan have concluded and should be signed shortly. Negotiations for new agreements with Azerbaijan, Jordan, Qatar and Tunisia are at various stages. Negotiations for a revised treaty with the Netherlands will begin next week.
The Minister for Finance and I will ensure that we continue to prioritise the further expansion of our tax treaty network over the coming months as a central element of our integrated strategy for an export-led sustainable economic recovery for Ireland. I assure Members that the Department of Finance and the Revenue Commissioners will continue to liaise with business representative bodies in identifying other countries where tax agreements would assist Irish business. Of course, despite our best efforts there are some key jurisdictions that we have yet to secure and we will continue all diplomatic efforts to get these countries to the negotiating table.
I will now turn to the tax information exchange agreements. These agreements, while serving a different purpose, are also important international agreements which strengthen the ability of revenue authorities in both countries to enforce their tax laws and thereby encourage the development of closer economic relations between both countries in the future. We have now concluded tax information exchange agreements with 19 jurisdictions. All of these are based on the OECD model TIEA. The model TIEA grew out of the work undertaken by the OECD to address harmful tax practices globally.
The OECD model TIEA now represents the international standard for effective exchange of information in tax matters. There has been a significant acceleration of the process of signing TIEAs between OECD countries and offshore jurisdictions in the past couple of years mainly stemming from a threat by the G20 to blacklist jurisdictions that do not conclude at least 12 information exchange agreements. The TIEAs will allow the Revenue Commissioners to directly request from foreign tax authorities information that is relevant to an Irish tax investigation, such as bank account information or company or trust ownership information. It is, therefore, crucial that these agreements are in place to make sure the two way flow of information is in place, particularly when it comes to an individual on the Irish side's tax liability. The agreements will greatly assist the Irish Revenue Commissioners in tax investigations involving entities and bank accounts located in these jurisdictions.
The final draft order today relates to the Council of Europe/OECD Convention on Mutual Administrative Assistance in Tax Matters. The other agreements we are discussing today are bilateral agreements between this country and other jurisdictions, whereas this convention is a multilateral agreement between all parties to the convention. Ratification of this convention will assist in the prevention and detection of evasion relating to Irish taxes. It will enable the Office of the Revenue Commissioners to request information on persons located in the territories of other parties to the convention and this will assist them in determining whether those persons have a liability to Irish tax. It will enable Revenue request other parties to the convention to collect Irish tax. It will enable Revenue request other parties to the convention to serve documents on their behalf. The convention offers more flexibility than a bilateral agreement such as a double taxation agreement as it is a multilateral instrument.
Today's consideration of these international agreements by the committee is an important step in their ratification process. Draft Government orders confirming and giving effect in Ireland to the agreements were laid before Dáil Éireann on 10 December 2012 in accordance with the provisions of section 826 of the Taxes Consolidation Act 1997. A resolution by Dáil Éireann approving the draft orders is required before the Government can make the orders. The proposal that Dáil Éireann approve the draft orders has been referred to this committee for consideration. After consideration by the committee, the draft orders are then referred back to the Dáil for approval. After that the Government may make the orders and the agreements will then be included in a Schedule to the Taxes Acts by means of a section in the forthcoming Finance Bill. Thereupon, the Irish ratification procedures are completed. In the case of the bilateral agreements, as soon as both countries have completed their procedures, the agreements will take effect in accordance with their entry into force provisions.
I commend these draft orders to the committee and if required I will be happy to deal with any questions from Members.
The British Parliament recently examined taxation. Amazon, one of the coffee franchises and Google were all looked at and when the committee examined tax liabilities and asked those companies about their profits in other European countries, it was very difficult to get that information; one of the companies completely failed to disclose it. Would the convention we are discussing this afternoon, apart from looking at the tax liabilities of an international company or companies based in Ireland or elsewhere in Europe, give accountability for profit or turn-over in those jurisdictions? We must measure one against the other to meet full tax liability.
I have no difficulty with supporting these orders. I welcome the fact that the network of double taxation agreements has grown so significantly in recent years. The Minister said we have 68 agreed double taxation agreements with countries at present. With what countries, for which we do not currently have a DTA, do we do the most trade? Do the Revenue Commissioners or the Department of Finance do the negotiating?
I am less familiar with tax information exchange agreements. There are 19 of them agreed at present. Are those with countries with whom we do not have a double taxation agreement or are they in addition to DTAs?
I thank the Deputy for acknowledging the significant improvement in recent years. As Deputy McGrath would be aware, these measures are not just an intellectual property or academic exercise. When one goes to third countries and speaks to Irish businesses, it makes a difference that these taxation agreements are in place because it gives them some certainty in trading with those countries.
To respond to the question on the key markets we have yet to crack in terms of the agreements, Brazil and Argentina are the two countries that stand out. To be blunt, it is not for the want of trying on our part. In making an agreement, it requires two people to come to an agreement. To respond to his second question, there is a three way dialogue, a 'tri-alogue' between officials from the Revenue Commissioners, the Department of Finance and the Departments of Foreign Affairs and Trade who collectively work on this. In key markets such as Brazil, and the Deputy would know from participating last year in the discussion on the Finance Bill, the Minister for Finance, Deputy Noonan brought forward measures to improve exporting to such countries. We are very keen to come to an agreement with Brazil. I think they are keen to come to an agreement with us but sometimes there are barriers to finalising an agreement. Frequently one reaches an agreement in principle but it takes some time for the agreement to transverse parliament as each different parliament has its own way of dealing with these issues. We accept that two key areas that have yet to come to the table and reach an agreement are Argentina and Brazil. We are all trying to break into these countries and build new markets outside the European Union.
The optimum agreement is the double taxation agreement, which has everything but a Tax Information Exchange Agreement, TIEA, is the first step towards a full double taxation agreement and is a stand alone measure. Crucially from the perspective of the Revenue Commissioners, it allows us to have an information exchange on tax liability on both sides. When we move to a full double taxation agreement, the TIEA is in place.
I thank the Minister for his presentation. We welcome and support the taxation agreements with other countries. It makes common sense and ensures that people are not able to play off one country against another. Some of us have been taken aback by the fact that multinationals are not paying corporation tax at 12.5%
We have a 12.5% corporation tax rate, which I support, but it has become public that multinational companies are using creative accountancy and applying complex mechanisms and systems to evade paying tax in Ireland. It is reported that some companies are paying only 2% to 3% tax. This is very troubling for the public and many Members. The country is in dire straits. Will the Minister of State indicate what efforts are being made in the Department to deal with this issue and to get on top of that situation?
I understand the point the Deputy is making. It is complicated by the fact that "global capital is as global is", it can go anywhere. In spite of the best efforts of national governments to capture the full tax liability of large global entities like this, it is the view of Government that the best possible agreements are brought about at OECD level. I have spoken at OECD conferences. The new mandate of the OECD is trying to get better governance, tax compliance and trying to close down loopholes and get an even playing pitch across the world. It is a difficult task to achieve. Deputy Stanley makes the point that the full 12.5% rate does not apply. Without referring to individual businesses, some of the businesses can legitimately write off tax by conducting research and development, which is a crucial component of the development of their business in this country. We recognise that in the taxation code. I know the Minister for Finance announced in the 2013 budget that Ireland has become one of the first countries in the world to agree a new intergovernmental agreement with the United States on the US Foreign Account Tax Compliance Act, that is commonly know as FATCA. We have reached an early agreement with the US and this will be of benefit to Irish businesses. We are not discussing this today but we hope to raise it for consideration by this committee in the near future. That will be a key element of compliance, the issue the Deputy has raised. It is complicated by the ability of businesses and capital to transfer quickly from one country to another. We do not want to put ourselves at a disadvantage in any shape or form. One of the great advantages of our corporate tax rate - which has the support of all parties - is that it is clear, transparent, understood internationally and has political support. That creates a firm message for international businesses that come here, that they will be treated in an up-front way. Other countries hide the total tax liability of the corporate sector. We do not do that. The system is clear and open and is, I think, a key driver in terms of the decision of international companies to locate and create jobs in Ireland. Some 250,000 are employed in jobs that have been created directly or indirectly because of foreign direct investment out of a working population of 1.8 million people. We must keep that at the forefront of our mind in the circumstances that nearly 300,000 people have lost their jobs.
I am grateful to be afforded the opportunity to deal with the draft ministerial order on the National Pensions Reserve Fund Act 2000. The draft ministerial order being discussed by the committee today will, if approved, formally suspend the payment of the annual contribution of 1% of GNP from the Exchequer to the National Pensions Reserve Fund in 2012 and in 2013.
Both the budget for 2012 and the budget that has been just announced for 2013 are based on the assumption that the contribution will not be made in those two years. Suspending the contribution will also fulfil a commitment made as part of the EU-IMF programme that we would not make contributions to the fund while the programme is in place. We are on track to meet our deficit target for 2012, as we did in 2011. The current estimate of the 2012 general Government deficit is 8.2% of GDP, which is well within the 8.6% limit set.
Budget 2013 is designed to achieve a deficit of 7.5% of GDP while being as equitable and as fair as possible and fostering economic growth.
Budget 2013 marks the eighth announcement of consolidation measures since mid-2008. All told, and including budget 2013, close to €29 billion in budgetary adjustments or more than 17% of estimated GDP in 2013 will have been implemented. Against this background, and taking account of the fact that we still have some way to go to achieve the target of a general Government deficit of 3% of GDP in 2015, making a contribution to the National Pensions Reserve Fund in these times is not realistic. The State simply does not have the capacity to borrow this much money in addition to what it has borrowed already and continues to borrow. If we were to make the contributions to the NPRF this year and next, it would have to be at the expense of other public expenditure. I am confident Deputies will recognise the validity of this fundamental point and support the making of this order.
The background to this issue will be familiar to Deputies. The National Pensions Reserve Fund was established in 2001 by the then Minister for Finance, Mr. Charlie McCreevy. Mr. McCreevy's decision was one of the most enlightened and sensible measures taken during the period in question given that no one could have foretold subsequent developments. The position in 2008 and 2009 would have been inordinately worse had it not been for the National Pensions Reserve Fund. While the former Minister is criticised for many reasons, he cannot be criticised for establishing the pensions reserve fund as this rainy day money has been useful to the State in responding to the crash of 2008 and 2009.
The National Pensions Reserve Fund Act 2000 requires that an annual contribution equivalent to 1% of GNP is paid from the Exchequer to the NPRF each year. The legislation was amended in 2009 to allow the Minister for Finance to direct the National Pensions Reserve Fund Commission, which is responsible for the investment and management of the fund, to invest in the banking system to improve the capital position of the banking system. Following the enactment of the amending legislation, the Minister for Finance directed the commission to invest €3.5 billion in each of Allied Irish Banks and Bank of Ireland through the purchase of preference shares. The Minister directed the fund to invest a further €3.7 billion in AIB in December 2010 and €8.8 billion in 2011 and an additional €1.2 billion in Bank of Ireland in 2011, bringing the total investment in the two banks to €20.7 billion.
The National Pensions Reserve Fund legislation was further amended in 2010 by the Credit Institutions (Stabilisation) Act 2010. The changes included a provision allowing the Minister for Finance to suspend, by order, the Exchequer contribution to the NPRF in 2012 and 2013. This made sense in terms of the need to ensure overall Government debt, which is expected to peak at around 121% of GDP in 2013, is kept as low as is reasonably possible. As I indicated, this decision also fulfils a commitment made as part of the EU-IMF programme that we would not make contributions to the fund while the programme is in place.
On the implications of the draft order we are discussing, the State paid a total of €3 billion to the fund in 2009 to help cover the cost of the directed investments in the banks. This figure consisted of €1.6 billion in respect of 2009 and a further €1.4 billion as an advance on the liability for future years. In addition, under the Financial Measures (Miscellaneous Provisions) Act 2009, the assets of the pension funds of 16 university and non-commercial State bodies were transferred to the NPRF in 2009 on the basis that the pension liabilities of the bodies in question will be met in future on a pay-as-one-goes basis. The value of the assets transferred was credited against the annual Exchequer contribution to the fund.
Taking these additional contributions together, there was no requirement for an Exchequer contribution to the National Pensions Reserve Fund in 2010 and 2011 and the liability for 2012 would be €369 million. The liability for 2013 would be €1.339 billion on the basis of the GNP figure published with the budget. The suspension of the contribution to the fund in 2012 and 2013 means the Exchequer does not have to fund a total of €1.708 billion and this reduces the pressure on the public finances accordingly.
Looking to the future, the remaining non-bank, assets in the fund, which are referred to as the discretionary portfolio, were worth €5.975 billion at the end of September 2012. The programme for Government includes a commitment to use the assets of the National Pensions Reserve Fund for productive investment in the economy. The Government announced the establishment of the strategic investment fund, SIF, in September 2011. This fund will channel commercial investment from the National Pensions Reserve Fund towards productive investment in the economy, following appropriate legislative changes to the investment policy of the NPRF. As well as money from the National Pensions Reserve Fund, the strategic investment fund will seek matching commercial investment from private investors and target investment in areas of strategic significance to the future of the economy.
A key principle of the strategic investment fund is that the NPRF investment, which is to be solely on a commercial basis, will seek matching investment from third party investors. In this way, the fund's assets can be used as a catalyst to attract additional capital for investment in the economy. In addition, the fund has been working closely with NewERA in respect of investment opportunities relating to the commercial semi-State sector.
The National Pensions Reserve Fund Commission also announced, in November 2011, a commitment of €250 million to a new infrastructure investment fund which is seeking up to €1 billion from institutional investors in Ireland and overseas and will invest in infrastructure assets in Ireland, including assets designated for disposal by the Government and commercial State enterprises, and new infrastructure projects.
The National Pensions Reserve Fund has committed, subject to certain preconditions, €450 million to finance the national roll-out of domestic water meters. As the Minister for Finance noted in his Budget Statement last week, the fund is also developing a range of support funds to provide equity, finance and restructuring and recovery investment to the small and medium enterprise sector. The funds are expected to range in size from €100 million to €400 million.
To return to the draft order to suspend the 2012 and 2013 contributions to the National Pensions Reserve Fund, I trust Deputies will approve the order as part of the Government's budgetary plan to restore order to the public finances and help rebuild the economy.
I thank the Minister of State for his briefing on the motion and concur with the broad thrust of his argument. Given that the country is in a programme and borrowing substantial sums to fund day-to-day services, it would not be logical to add to the deficit by transferring money from the National Pensions Reserve Fund at this time. I have a slightly technical question. If we were to make contributions to the fund, would they be accounted for in the annual general Government balance? For example, during the good years, did every €2 billion we invested in the fund reduce the general Government surplus by the equivalent amount?
We must not make decisions that would in any way exacerbate current budgetary difficulties. We have seen the difficulty involved in reducing expenditure in the budget by €3.5 billion. A further reduction of €1.7 billion would be at stake if the investment were made in the National Pensions Reserve Fund.
The Minister of State noted that the discretionary portfolio of the NPRF had a current value of slightly under €6 billion at the end of September. A substantial portion of these moneys should be put to work in the economy. The Government has stated its objectives on the strategic investment fund, roll-out of domestic water meters and measures announced by the Minister in the budget. Together, these measures add up to only €1 billion of the €6 billion available. While no one is arguing that the money should be thrown away, we should identify and fund essential labour intensive projects that will position the economy for recovery. As far as I am aware, none of this money has been spent. While a notional allocation of €250 million has been made to the strategic investment fund, the legislation underpinning this investment has not yet been published.
I do not know when the roll-out of water meters will take place. I hope the Minister for Finance will announce SME funding soon. So far none of that almost €6 billion has made its way into the economy at a time when the country is crying out for investment. If the right projects are identified then we should be doing that.
To respond to the first question, it is not part of the general Government deficit because it was a payment for investment purposes. In those years when the contribution was going in, the general Government deficit-----
It was treated in that way. The Deputy is correct. There is €5.9 billion left in the non-discretionary side and he is also right in pointing out the Government's and the Commission's objective of spending close to €700 million for investment purposes. We are always looking at ideas for investment but there are two crucial issues here. I am sure he agrees with me on this. This fund, if it is to be used, must be used as a catalyst for private sector investment. There is no point in picking winners and having the State fund this without getting matching funds from the private sector, otherwise it does not stack up. Crucial in that regard are some good announcements made in recent weeks concerning the capacity for our public utility companies, ESB, Bord Gáis and others, to start getting money back into their entities again after a long spell when money could not be raised. One can point to public private partnerships all over the country as we get back to a more normal circumstance of trying to draw down funds internationally; having that matching funds into this fund makes sense. The other part is that we should only make decisions if it improves our competitiveness. There is no point in spending money willy-nilly on projects that do not derive an economic benefit for the State in terms of improving competitiveness and productivity. That is important.
The Deputy asked about the legislation and made a fair point because, despite the Government announcements, we have yet to see the legislation. It is a key priority of the Department of Finance to bring the legislation forward. We are committed to doing it in 2013. We recognise the money cannot be expended until the legislation is introduced to change the terms of reference for the Commission. It is a priority for the Department and we want to get to it by next year. I cannot give a precise date but I give a commitment to try to get that date from the Minister for Finance as soon as possible. Until the legislation is changed we cannot use the funds for this purpose. We have far too many projects all over the country which, in good times, did not yield any particular result. We need to ensure this time that when those projects are up and running they have the effect of improving economic activity and getting the country to a more productive state and, more important, ensuring they are matched at the very least on a 50:50 basis from the private sector.
The question I want to ask is the potential impact of any deal on the legacy debt on the National Pensions Reserve Fund. For example, if there was a deal on the legacy debt involving the ESM to retrospectively recapitalise the pillar banks or the purchase of preference shares in them, will the €20.7 billion from the National Pensions Reserve Fund be returned to the fund or used to pay down debt? Some €17 billion was paid in last year. Surely, the right thing to do would be return it, if the money comes in from the ESM. It could be used for private investment and job creation in the future.
On the issue of job creation, PPPs and the 50:50 matching funds, I want to issue a word of warning. A PPP project, the wretched toll bridge on the M50, although a legacy issue, is a huge cost on the taxpayer. The N7 and N8 motorway runs through the county in which I live. I worked out the cost of that motorway to the taxpayer over 25 years and discovered it comes in at a very high cost, and then the taxpayer buys it back after the 25 years. The cost has increased because the company states that the volume of traffic is not as high as expected and the taxpayer is being called upon again. Although this is a subject for another day, I give it as an example. We need to be careful with PPPs and how we use taxpayers' money. My specific question concerns the potential impact of any deal on the legacy debt through the ESM on the National Pensions Reserve Fund?
Sorry I thought the Deputy said €27 billion. Some €20.7 billion has been invested in the years in question in the pillar banks. That investment is worth slightly more than €8 billion today, if we could sell it all off tomorrow. Obviously, there is an enormous deficit on the €20 billion we put in. In a circumstance where a deal were to emerge it would then be a matter for Government to see how exactly that issue would be resolved between the NPRF and other aspects of the financing of the State. Clearly the Government is ambitious in terms of the discussions taking place. The Deputy is aware more than most that those discussions are parallel. At one level we are negotiating with the ECB on the promissory note side, which is roughly half of the €64 billion that went into the banks on the Anglo side, but on the other, given the Heads of Government agreement last June when the EU leaders gave a clear undertaking to break the link between the sovereign and the banking debt and given the constructive remarks made by Chancellor Merkel and President Hollande in respect of Ireland's unique circumstance, we will continue to work on the recapitalisation money to ascertain how much we can obtain or in what form. Let us work out the argument.
There is a general expectation that the guarantee will come to an end at some point in the near future. As a result of that the banks suddenly become more profitable and over a period of years, their business improves, they get more investment and international funds come back into deposits. That investment is for us into the future. The whole objective of the strategy, as John FitzGerald of the ESRI said recently, is to get our money back from the banks, the money we have had to stuff into them over a period of years as a means of shoring up the system. How we get that money back is the issue as pointed out by the Deputy and what we do with it, if and when we get it back, is critical. A key priority for the Government next year is to bring all these matters to a conclusion, not only on the promissory note side but on the bank recapitalisation side. When that issue has been resolved it will be a matter for the Government to decide how to use those resources. The Deputy is correct, an investment of €20.7 billion has gone into the banks, the net worth of which is slightly more than €8 billion, and there is an enormous gap of €12 billion. How that is worked out is a matter for the Government to decide in due course.
I do not disagree with the Deputy's remarks about PPPs. He is right to point out deficiencies in the system. The critical issue is the construction of the contract on those PPPs and the management of same. We need to continually work on the contracts but into the future we should not put to one side the notion of a PPP. An example near my constituency, which he will be aware of as he travels on it every day, is the traffic lights at Newlands Cross, in respect of which I am glad to say the Minister for Transport, Tourism and Sport and the National Roads Authority want to advance a PPP.
We have the money on our side but we need private sector money to come forward. We are confident we can do that. Many of the reasons people are hedging their bets and not coming forward with the money relate to the risk to the sovereign. As we diminish the risk to the sovereign, as has been demonstrated in our bond yields and the like in recent months, private sector risks in Ireland will diminish and people will begin to invest in these things again. Once we can get those contracts up and running, and fair to both sides, there is no reason they cannot be a successful component of Irish infrastructural development in the future.
Is it the Government's view that some or all of the money should go back into the National Pensions Reserve Fund? The Minister did not indicate his view on that so I ask the Minister of State what his view is.
The Minister of State referred to problems with public private partnership contracts. The problem lies with the terms of the contracts.
There are absolutely appalling terms. I would not enter into a hire purchase agreement to buy a car with similar terms. A unit has been established in the Department of the Environment, Community and Local Government to deal with this. Some of the contract terms are appalling. Children in secondary school would not have agreed to them. They are very bad for the taxpayer.
Should some or all of the money go back into the National Pensions Reserve Fund in a situation where the European Stability Mechanism would agree to recapitalise? I agree about the €20.7 billion and the €8 billion. It is heart wrenching to think of the country's taxpayers taking a hit of €12.7 billion, but we can do nothing about that at present.
I could be very cheeky and say that question is above my paygrade at present.
The issue is to get the money back first, or get the scheme through which we can get the money. Then we can worry about where to put it.
It was a very good idea of Charlie McCreevy's to put money aside in good times. It was a rainy day fund and, boy, have we seen rain in the last number of years. The situation would be inordinately worse if the National Pensions Reserve Fund were not in place to help the country out of the greatest crisis since Independence.
The key task for Government next year is to continue our negotiations and bring them to a successful conclusion. As to the composure of a deal on the bank recapitalisation side, we will have to wait and see. I prefer to get the deal done first and worry about where we put the money later.
There is an outstanding pension liability for the future. Last year, the Minister for Public Expenditure and Reform put in place a new model single-tier pension scheme that replaces the termination average with a career average. As a result, the State's pension liability for people coming into the Irish public sector will be reduced by approximately 35% in the future. That is a significant reform which the Minister, Deputy Howlin, has led. On the other side, we still face a liability. Any sensible Government, if it got the money back, would put some of the money aside to meet the future pension liability.
I do not support this measure. This discussion, however, gets to the heart of matters. I welcome the fact that we are, at least, having this discussion. How we manage, or mismanage, these funds will dictate much of the country's future, our ability to stimulate the economy and create employment, which we all say we want to happen.
I agree with the Minister of State when he says this was a good idea, probably the only good idea Charlie McCreevy ever had.
What we do with the funds is critical. It is shameful that the fund is now depleting and we are not able to replenish it, because we are paying interest on the debt that has been unloaded onto the back of the State. Next year, we will pay €9.1 billion in interest on a debt that is, for the most part, not ours.
I do not accept the trade-off the Minister of State presents between making funds available for the budget and putting funds into the National Pensions Reserve Fund. The real trade-off is between our capacity to invest in our own economy and create jobs and our obligation to pour €9.1 billion in interest into the ECB or bondholders next year. That is the real trade-off and it is unacceptable.
The Minister of State suggests that in order to invest this money we have to have matching funds from the private sector. This is alarming, but it gets to the heart of the real debate. He is really saying the National Pensions Reserve Fund, which should be used to stimulate employment and the economy, is being used as a vehicle to privatise State assets. That is appalling. We should be using the fund for investment in projects that will create jobs and revenue for the State, and not for private interests.
There are times when we have to co-operate with other interests. I propose that the Government revoke, and stop granting, all licences to private multinational oil companies for the development of our gas and oil reserves and meet the Norwegian Government and Statoil to discuss an arrangement for both states to co-operate, possibly with matching funds, in exploring oil and gas reserves in a way that would benefit this State and create employment. Earlier today, the Taoiseach mentioned Norway. Such an arrangement would be a far superior way to develop our natural resources and would be a good project for investing some of the money in the fund.
Why does the Government not invest some of the fund in social housing, which we know would generate rental revenue and reduce rent allowance payments to private landlords? We do not need private partnership for that. The State could and should to it. It would be a sure-fire winner, providing for our citizens, bringing revenue back to the State, replenishing our funds and providing money for the Exchequer.
Instead of selling off Coillte to private interests, why does the Government not invest in the development of our forestry? Last week, I attended a meeting where someone who knows about the woodlands explained in much detail how we could create 100,000 jobs over ten years if we developed our forestry to the same level as Switzerland. We have a 10% tree coverage in Ireland. Switzerland, a much smaller country, has 30% and most of that is state forestry. Huge industry spin-offs and employment are generated by the development of Switzerland's forestry. This would be a sure-fire winner if it were done properly. Why do we not invest in it?
Why is there not a State programme, using these funds, to develop the insulation of houses and properties across the State? That would put people back to work and reduce the energy costs of the State?
If all of those things were done seriously by the State they would save funds and generate funds for the State. We do not need private partners. The Minister said that even on something as small as traffic-----
Deputy, if I may interject, you have been speaking for the last seven minutes. I must call other Deputies because another meeting is due to commence in this room at 3 p.m. and I must conclude this meeting by then. I ask you to ask a specific question-----
This is the last question. The Minister of State said we have put €20 billion into the banks. That investment is now worth €8 billion. Is that not because he sold our share in the Bank of Ireland for a song? Why is it his Government's strategy to use our money to nurse the banks back to health and then sell them for nothing to private interests rather than holding on to them when they return to profitability so those profits could come back to the State?
If the Deputy had said when we came into government that only 15% of Bank of Ireland would be owned by the State by the end of 2011 people would have laughed at him. It has been an extraordinary success that we have managed to get away such a large percentage of Bank of Ireland and that that investment has come through for this State. It has been an extraordinary success that the amounts involved were considerably less in terms of the overall recapitalisation done in March 2011 than people thought.
The Deputy asked a question about forestry. I am glad to inform him that the National Pensions Reserve Fund, NPRF, made an investment in forestry during 2009 with a €20 million investment in an Irish forestry fund. It is the first forestry fund. The fund purchased about 5 million semi-mature trees from Coillte, which will remain in charge of the day-to-day management of it. That is an example of the fund investing in a natural resource. The Deputy would argue that we need to do more of that, and he may well be right, but it is an example of what the investment has done.
For this fund to work and to create the jobs the Deputy and all of us want to see put in place, the NPRF's investment in infrastructure counts against the deficit unless it is commercial and less than 50% of the investment. The criteria involved in using the NPRF funds require, first, that it is matching in terms of private sector investment but, second, it would be a breach of the European Union rules if we were to use this outside that area.
These are the rules to which we have all signed up. The Deputy wants it at all levels. I recall debating with my old friend, Deputy Boyd Barrett, on the fiscal compact treaty and he made a claim then, and I continually ask him about it but I have yet to get the substance of what he was talking about, that there would be no difficulty this year, 2012, putting in place an additional €10 billion of new taxes in terms of the measures that need to be put in place. I await to see the paper from him.
We submitted it to the Department of Finance. It referred to increasing the effective rate of corporation tax to 15% which would bring in €5 billion, €2.5 billion could be raised on income tax, a financial transaction tax-----
No. The Minister must be kidding. The table, which I will provide for him if he wants it, shows people earning €4 million and €5 million at the top rate will pay an effective rate of 62% and people on €100,000 will pay an effective rate of 33%. If we have a sliding scale going from one to the other we can raise €2.5 billion. I will show the Minister the table.
I thank the Minister of State for attending. The thrust of this measure must be welcomed. The dual ambition of suspending the contributions, given our budgetary position, and using the NPRF for investment is particularly welcome, obviously using public private partnerships where possible. Some people can be schizophrenic in their arguments in condemning public private partnerships in one sentence and then suggesting we engage in one with respect to Statoil and Norway-----
----- two sentences later. There is a degree of inconsistency in that regard but the same person is being consistent.
The Minister of State mentioned that €100 million to €400 million equity finance and restructuring money will go to the small and medium enterprise sector. He also mentioned the €450 million towards domestic water meters. Is that also to be by way of equity or investment or will it be a loan? If it is not determined, given the track record of Bord Gáis companies and their profitability, where possible it should be some form of equity or investment to continue the good practice of getting a return from any pension fund.
Given the changes we had recently in the potential for people to take money back-----
It must be borne in mind that money will not be put in for a few years and now there is the potential of people taking money out of AVCs. Is the Minister of State concerned about the total national pot of money within pension funds?
I will be brief. I welcome the thrust of this measure. It is logical and necessary in the financial position in which this country finds itself.
The Minister of State rightly referred to the establishment of the National Pensions Reserve Fund as an enlightened move, which it clearly is, but all the money that has been pumped into the banks will seem like a small drop in the ocean compared with the ticking time bomb that is this country's future pensions bill. I presume the Minister of State would agree that we must get back to a situation where we are putting money aside for our pension provision. He might update me on our position with regard to planning for our future pension provision and what he referred to in his speech as the increasing cost of social welfare and public service pensions.
To take the last question first, I am bringing forward this draft order to make the point that we are in a programme and we cannot afford to make the contributions. When we get out of the programme the question will be whether we can afford to make the contributions again. It is in everyone's interests that we get into the habit of saving and were we to work up a greater surplus at some point in the future there needs to be a debate on whether we are saving enough and should put more aside than the original 1% of GNP target. That is a crucial issue. It is fair to say also that the fund was always in place. It was what I would describe as a rainy day fund for future pension provision but also for shocks such as this one. It is useful to have it in place.
On the question Deputy Murphy raised, the structure of the funding to be put in place for the investment purposes to which he referred has not been worked out yet. That will be a trialogue between the Departments of Communications, Energy and Natural Resources and Finance, and the NPRF. It is worth pointing out that the NPRF is an independent commission which controls the funds in place. It is worth pointing out also that even with the withdrawal of its funds from the banks, the residual money that is left is still making money on the investments made. Between 3.3% and 3.6% is the annualised rate of return on the investment still within the funds but in terms of investing directly, it has not been worked out how this will be structured. That would be a matter for a number of Departments to agree on but next year we will see movement in this area, not least because the Department of Finance will be bringing forward legislation which we must do in terms of making sure those investments are put in place.
I thank the Minister of State and his officials for attending this afternoon's meeting. As the select sub-committee has now completed its consideration of the motion, in accordance with Standing Order 87, the clerk to the committee will convey a message to that effect to the Clerk of the Dáil. Under Standing Order 86(2), the message is deemed to be the report of the committee. Is that agreed? Agreed.