Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source

We now commence a pre-ECOFIN briefing, including the country specific recommendations, with the Minister for Finance, Deputy Noonan. Before we commence business I remind members, witnesses and those in the Visitors Gallery that all mobile telephones must be switched off to avoid interference with the broadcasting of the meeting.
I welcome the Minister, Deputy Noonan, and his officials to the meeting. The witnesses are here to assist the committee in its examination of the June ECOFIN meeting agenda, including the recently published country specific recommendations. The discussion will begin with opening remarks by the Minister, Deputy Noonan, following which questions may be put by members to the Minister.
I wish to advise witnesses that by virtue of section 17(2)(l) of the Defamation Act 2009 they are protected by absolute privilege in respect of their evidence to this committee. However, if they are directed by the joint committee to cease giving evidence on a particular matter and they continue to do so, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or an entity by name or in such a way as to make him, her or it identifiable.
I thank the Minister, Deputy Noonan, and his officials for attending. I understand the Minister must leave by 6 o'clock so I ask him to make his opening statement.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I thank the Chairman and the committee members for inviting me again to speak to them today in advance of the ECOFIN Council of Ministers meeting on Friday, 20 June in Luxembourg. The ECOFIN Council usually meets on two occasions a year in Luxembourg – in June and October. As members know, we have agreed, subject to scheduling arrangements, that I will attend the committee on a quarterly basis to update it and discuss developments occurring at the ECOFIN Council. My officials also provide written briefing on a monthly basis to the committee. This is a very useful and positive arrangement, and I look forward to our continued engagement today.
As we approach the middle of the year, this will be the last Council under the Greek Presidency. I would like to acknowledge the success of the Greek Presidency and the progress it has made. Our Italian counterparts will take over the Presidency role on 1 July, and I wish them every success with that undertaking.
In their invitation the members asked me to brief them on the items on Friday’s ECOFIN agenda. I understand the committee has already received the draft agenda for the June meeting and background material. A number of key issues are listed for discussion, and hopefully significant progress will be made at the meeting. The members specifically mentioned the country specific recommendations, known as the CSRs, which were published by the European Commission earlier this month. As members will be aware from the ECOFIN agenda, this is an item for the ECOFIN meeting so, as per usual, I will brief them on the matters to be discussed at the meeting as they appear on the agenda.
After outlining the key issues that are likely to arise at Friday’s meeting, I will be happy to take questions and observations from members. As ever, I would like to remind them that this is a draft agenda but changes can still be made between now and the meeting in terms of content and the order of the discussion.

In addition, work is ongoing at the level of officials in order that there also can be more substantial changes in terms of how the discussions will evolve.

The formal ECOFIN meeting is scheduled to commence at 10 a.m. on Friday. Earlier that morning, as usual, we will have what is known as a breakfast meeting during which I expect the Commission will give a view on the economic situation in Europe. There also will be an opportunity for the Finance Ministers to contribute their views on general economic matters. The agenda is heavy in content as matters stand. It will begin by considering the legislative deliberations and this takes place in public session. Based on the draft of the agenda before the joint committee today, there are three items scheduled for discussion, namely, the draft general budget for 2015, the taxation of parent companies and subsidiaries and, under any other business, a discussion may take place on current legislative proposals and a state of play update on level 2 legislation concerning bank contributions under the directive on bank recovery and resolution and single resolution mechanism, BRRD-SRM.

On the issue of a draft general budget for 2015, this is an annual item. The Commission will present its proposal for the EU budget in 2015. Over the next few months, the Council and Parliament will take positions on this proposal and will come together in November to reach a compromise agreement. As per normal protocol arrangements, the incoming Italian Presidency will chair this item and this reflects the fact that the negotiations on this file with the European Parliament will be managed by Italy's Presidency. As for dealing with the taxation of parent companies and subsidiaries, this was originally introduced to avoid double taxation of companies in the Single Market. The focus of this amendment is to close certain loopholes in this directive. This proposal is fully consistent with the work of the OECD on base erosion and profit shifting, BEPS, and Ireland can support the Presidency compromise proposal. This file was also discussed at ECOFIN in May but agreement was not possible at that stage. Finally, under any other business, the Presidency will provide the usual summary on ongoing work on financial services dossiers and in respect of level 2 legislation concerning bank contributions under BRRD-SRM, a state of play will be provided. The Commission will brief the Council on the preparation of implementing legislation that will determine the contributions to be paid by banks to resolution funds established under the directive on bank recovery and resolution, BRRD, and the regulation on the single resolution mechanism, SRM.

Turning now to the non-legislative activities, based on the draft of the agenda before members today, there are four items scheduled for discussion. These are a report on the code of conduct with regard to business taxation; the contribution to the European Council meeting, namely, the European semester; the implementation of the Stability and Growth Pact and ECB-Commission convergence reports; and enlargement of the euro area. Beginning with the code of conduct, this item may be taken as an “A” point, which means it may be endorsed without discussion. The report, which deals with business taxation and in particular harmful tax competition, is a regular item at the end of each Presidency. This report has been prepared by the code of conduct group on business taxation.

I will now turn to the next item on the agenda, that is, the contribution to the European Council meeting on 26 and 27 June and the European semester, which members also highlighted in their invitation to me. As members may recall, when I spoke to the joint committee last February, we were dealing with two related important items under the annual semester process, namely, the annual growth survey and the alert mechanism report. The committee will be aware that the European semester process has been in operation since 2011 and is a regime for economic surveillance. As Ireland was in the EU-IMF programme until December 2013, it did not fully participate in the first three semester cycles. However, as we exited the EU-IMF programme in December, Ireland is now fully participating in the 2014 semester process, which is part of the normalisation of our position as a post-programme country. The annual semester process is part of the new economic governance regime of the EU that has been established to underpin sound public finances, sustainable and inclusive growth and the correction of macroeconomic imbalances across the European Union.

The European semester has two distinct phases, the first of which is horizontal and the second of which is more country-specific. Broad horizontal guidance was provided by the European Heads of State or Government at the European Council in March and then the process became more country-specific in orientation. For Ireland’s part, in April my Department submitted Ireland’s stability programme to the Commission and members will recall my appearance before this committee that same month to discuss it. The Department of the Taoiseach then submitted the national reform programme on structural reforms and measures to boost growth and jobs, also in April. The Commission then assessed all member states’ documents that were submitted and, following bilateral engagement with the member states, the Commission issued proposed country-specific recommendations, CSRs, on 2 June to 26 member states. Greece and Cyprus did not receive any CSRs due to the fact that they still are in EU-IMF programmes. The CSR proposals are intended to provide specific, tailored guidance to each recipient member state on how to achieve sound public finances, what structural reforms should be implemented to achieve smart sustainable growth and how to correct macroeconomic imbalances. The CSRs were directly examined and scrutinised by the relevant Departments with a written response to the Commission as per the CSR process. Member states' CSRs already have been discussed at a number of preparatory committees over the last two weeks with varying amounts of amendments being accepted by the Commission. The objective of Friday’s ECOFIN meeting is to approve the recommendations for member states. It is intended that these recommendations will be endorsed by the June European Council and finally adopted by Finance Ministers at the July ECOFIN Council.

In respect of Ireland’s country-specific recommendations, they are wide-ranging in nature and cover issues that cut across a number of different Departments. In view of this, the Department of the Taoiseach co-ordinates Ireland’s involvement in the semester process. However, the Department of Finance plays a central role for the following reasons. First, economic and financial issues remain of primary importance on the European agenda and second, the CSRs are adopted by Finance Ministers at the ECOFIN Council, following discussion and, in some cases, amendment by the ECOFIN preparatory committees. Ireland received seven country-specific recommendations covering the areas of the public finances and growth outlook, health care sector reform, labour market activation polices, labour market participation, SME initiatives, mortgage arrears and legal services reforms. A number of constructive bilateral meetings took place over the past number of months between Ireland and the Commission and the CSRs received were mainly as expected. The CSRs contain an assessment of our stability programme update, which as I mentioned was submitted in April, and the Commission has endorsed the Government’s fiscal strategy to reduce the deficit to below 3% in 2015. The Government remains committed to continue to make progress and we have the policies, set out in the Medium-Term Economic Strategy 2014-2020, to enable it to so do. The Government will set out budgetary policy for 2015 on budget day in October of this year.

As for the item on the agenda regarding implementation of the broad guidelines for the economic policies of member states, as I mentioned previously, the Commission issued CSRs for 26 member states on 2 June. These CSRs were subsequently examined at official level meetings and some changes were made to the texts. At this meeting, ECOFIN will be asked to approve a draft of the recommendations for the 26 member states and I note other relevant Councils also are discussing the CSRs. The European Council on 26 and 27 June will be asked to endorse the recommendations and ECOFIN then will be asked finally to adopt the recommendations at its July meeting. Turning to the implementation of the Stability and Growth Pact, following the deficit and debt notifications in April and the publication of the Spring forecast, the Commission will make recommendations for Council decisions closing excessive deficit procedures in six member states, namely, Austria, Belgium, the Czech Republic, Denmark, the Netherlands and Slovakia.

They will also assess measures taken by Croatia and Poland to correct their deficits.

The final item on the agenda, the ECB-Commission convergence reports and enlargement of the euro area, deals with Lithuania's fulfilment of the criteria to join the euro. The Council will be asked to adopt a recommendation on the adoption of the euro by Lithuania - only member states the currency of which is the euro are allowed to vote in this respect. The Council will also approve the text of a letter to be sent by its President to the European Council with a view to discussing the issue at its meeting on 26 and 27 June. After consultation with the ECB and the European Parliament, the Council could adopt the necessary legal Acts at a subsequent meeting.

As the agenda stands, there are no items under the heading of any other business.

I hope the committee has found useful this brief outline of ECOFIN's agenda, including the CSRs, and that it will serve as the basis for an engaging discussion. As we discuss all of these items, we are reminded of how important it is that we continue to engage with the EU institutions in a proactive and constructive way so as to ensure the European Union evolves and develops in a way that it beneficial to Ireland and the Union in general. I thank the committee for its attention. I will be happy to respond to questions or observations members may have.

Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source

In the first round of questions I propose that the main spokespersons for the parties have 12 minutes each. Before I call them, the Minister might address one simple question on the country specific recommendations, of which Ireland has received seven. Where do the seven recommendations go next? How will they be monitored? Will they be monitored by the Commission? The Minister stated they would be agreed to at ECOFIN also. Ultimately, will penalties be applied in the event that they are not being met and is there a timeframe in which there is an expectation that they will be met?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

They are processed by ECOFIN; they are then advanced, as I stated, to the Council of Heads of State and Government and come back for final acceptance, subject to amendment by ECOFIN, at the July Council meeting. Normally, there is an engagement between the Commission and member states on how they will meet the recommendations, but there is a separate excessive deficit procedure. If there are comments on deficits, there is another process. Excessive deficit procedures are dealt with on the insistence of the Commission and ECOFIN with action taken to eliminate the excessive deficits. That is the process used. In the excessive deficit procedure countries can be pushed hard and subject to penalties if they do not comply. We have seen this happen in the past when the procedure did not apply to us because we were included in a programme. For example, in the autumn Austria did not meet what was considered to be the budgetary requirements to bring its deficit below 3%. ECOFIN acts as a kind of peer review of a country's budgetary position. During the peer review Austria was instructed to come back at the next meeting having taken extra budgetary measures. Austria's Finance Minister came to the meeting with a further €1 billion worth of budgetary measures to bring the deficit below 3%. That is the way it works. It is done by dialogue and an exchange of views on the policy matters surrounding legal proceedings, legal reform, etc. However, on specific deficit management, there is a harder edge to the process.

Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source

Are the recommendations time specific?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

There is an excessive deficit procedure and a country specific recommendation every 12 months. There is a 12 month cycle and one would want to show progress. However, sometimes the specific excessive deficit procedure has to match the budgetary cycle of individual countries. If the budget is in accordance with the calendar year, there is not much point in taking corrective action the following October. Obviously, there are time constraints in making budget corrections.

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

I welcome the Minister and his officials and thank him for his opening statement. Continuing from where the Chairman left off on country specific recommendations, does Ireland have issues with the recommendations made by the European Commission in the report? Is it the Minister's intention to address all of the issues raised or does he take issue with any of the points the Commission has made?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

There is post-programme surveillance. Instead of one visit a year by the troika which would be common across all countries of the European Union, we have two. There is an additional visit - post-programme surveillance. The issues raised with us on the country specific recommendations flow, almost seamlessly, from the troika and the end of the bailout programme. They continue with issues that were active when we exited the bailout programme last December. To specifically answer the Deputy's question, we have no issues with the recommendations; we are not surprised by any of them and we continue to work towards fulfilling them.

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

Certainly, there are common themes running through the report and the report of European Commission staff. The IMF's report was released today. These issues are not on the agenda, but many of them run through all of these documents.

Let me take the Minister to the issue of the public finances and the excessive deficit procedure which is dealt with in the country specific recommendations. With the budget coming up in October, both the European Commission and today the IMF are taking a hard line on the fiscal adjustment, stating it should not be less than €2 billion. Is there any change in the Government's position? Is it still its position that it will achieve a deficit not greater than 3% and that it will reach the required level of adjustment to achieve this?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

That is it in a nutshell. We put forward our stability programme in April and the figure of €2 billion. At the time the best information at my disposal was that it would require an adjustment of €2 billion to get under the 3% deficit figure by 2015. There are a lot of moving parts as the year passes. I could not give an exact figure, but I am fairly confident in saying it will now take less than that figure to achieve a deficit of 3% because a lot of matters have been moving in the right direction. Some have been moving in the wrong direction also. However, on balance, there are more pluses than minuses in terms of the budgetary position in the first five months of the year. The Deputy will recall that while our target deficit for 2014 was 5.1%, we decided to go a little lower and built a budget on the expectation of a deficit of 4.8%. With the evidence for the first five months of the year, it seems we will come in somewhat lower than that figure, but I am not in a position to say by how much. The Deputy will be aware of the factors involved. Tax receipts are running significantly ahead of budget; expenditure is under control and there are other items in terms of the general fiscal position that are favourable.

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

Is it the Minister's position at this stage - I appreciate that we are still a number of months away from the budget and that there will be a lot of discussion and analysis - that if there is some headroom, if he can stay within the 3% deficit figure with an adjustment of less than €2 billion, that is his intention?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Frequently, commentators confuse the target with the ways and means of achieving it. The target is to have a deficit figure below 3% in 2015, which will be the last budgetary adjustment. The ways and means of getting there involve an adjustment of €2 billion. That was the estimate when it was being planned on a multi-annual basis. That remained the best estimate when we published and discussed the stability programme in April. On the current position, I refer to the position at the end of May, not mid-June, because the evidence comes in in monthly cycles.

The end-May position would suggest an adjustment of €2 billion would not be required to get below 3%.

The policy position is that whatever it takes to get below 3% will be done, but we are not trying to beat that target. We think there is enough growth in the economy now so that post-2015 the deficit will continue to go down simply because of that growth, and further fiscal adjustments will not be required. The Deputy will see how the medium-term economic strategy is built into achieving a balanced budget by 2018 without further adjustments.

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

For the record, I support the Minister's approach on the budget and the public finances because I fully appreciate that we have to stick to the deficit limit. There is no choice in that matter and we need to do what is required to achieve that. If that can be secured with considerably less than the €2 billion adjustment, we should do so.

We have heard trenchant views from the European Commission, the IMF and the Irish Fiscal Advisory Council, which are all adamant that we should stick with €2 billion and no less. What is the Minister's headline response to their views which are consistent across the board?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I respect their views because they are experts in their field. They are ad idemwith what we said in the stability pact in April. They are probably working off the same data that were available to us then. Since then, however, there are pieces of evidence - ranging from hard fact to anecdotal - which would suggest that our position is improving as the year goes by. I am grateful to the august bodies the Deputy mentioned for their well argued advice. From my perspective, as Minister for Finance, it helps me that they are spelling out to the public that an adjustment is required and that the opening position is €2 billion.

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

Sticking to the public finances, our medium-term objective is to have a balanced budget in structural terms by 2018. The Irish Fiscal Advisory Council made the point that that is an unnecessarily short period in which to achieve a balanced budget. Today, the IMF said that it could require a fiscal adjustment of about €7.5 billion between now and then in order to achieve that. Does the Minister have any intention of reviewing that timeline to achieve the medium-term objective of a balanced structural budget by 2018 and to lengthen it?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

In coming up with our estimate of what is required by 2018, we have worked on the best information we got from the Commission. The Irish Fiscal Advisory Council seems to be working from a different assumption. I would like my officials and those of the IFAC to see if they can reconcile the differences in approach. It comes back to my opening position that if the Irish Fiscal Advisory Council's view of what is required is correct, that makes the budgetary process easier for me or my successors as we go towards 2018.

As regards fiscal and economic management, my view is that the public and the economy have been under pressure for a long time now. Therefore, I will do whatever is required to meet targets but I will not go beyond that in terms of corrective action.

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

Is it the Department of Finance's analysis that, beyond October's budget, if the growth forecasts are achieved there will not be a need for any additional fiscal consolidation between now and 2018, and that the structural balance will be achieved through growth?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Yes. That is what we have spelled out in the medium-term economic strategy. The structural deficit is a difficult concept. The easiest thing is to ask what are the permanent features of the economy and what is cyclical. Whatever is cyclical rises and falls with the business cycle, so if one strips out what is cyclical the structural part is left. If there is a structural deficit the business cycle will not remove it. One must address the structural deficit as a specific piece of economic project work to remove it, whereas the cyclical deficits will be removed by the business cycle as it moves on. Calculating that is extremely difficult in an economy like Ireland's, which is so open and has such a high level of exports.
There is room for debate and we have had that debate with the Commission. We are not always happy with the Commission's view of the calculation of the structural deficit. Some things could be structural but may be due to cyclical influences or vice versa, so it is a bit tenuous. If the Deputy asked me to provide a hard and fast definition of what a structural deficit is, there are variations across textbooks and across countries. In general terms, however, if the lead-in point is to ask what a cyclical deficit is, it is the rise and fall of deficits as the economic cycle proceeds. When one gets high growth levels the deficit goes down on the cycle, and when one hits recession the deficit goes up. That corrects over the cycle, so that is not the real concern. We need to take out of the system the rocks in the stream that inhibit the flow of economic activity, which are there due to the malstructure in an economy. If one takes out those pieces one is then dealing with the structural deficit. That is the best I can do to describe it.

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

Does the Minister intend to raise at ECOFIN the deal for Ireland on bank debt retroactive recapitalisation under the banking union or any other business? We are now approaching the second anniversary of the agreement by Heads of State and Government to separate the sovereign debt from banking debt. To say the least, however, there has been considerable delay in implementing that in practice. In recent days, off-the-record briefings have been given to Tony Connelly of RTE by a senior eurozone official, which dampened down any expectation that Ireland will get a deal through the ESM on retroactive bank recapitalisation. Where does that matter stand now? The Minister keeps saying that he is working on it and is continuing to try to secure a deal. Does the Minister intend to raise it at the ECOFIN meeting? Are active negotiations ongoing concerning this or does the Minister accept it is becoming less likely that a deal will be secured? These briefings are coming from somewhere. Senior people are briefing against Ireland, saying this deal is not going to happen. We deserve to know where it all stands.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

There is always briefing in Europe; it is the nature of it. There are 28 countries and officials from all the countries, including permanent representatives in Brussels from everywhere. There is constant briefing and re-briefing by practically everybody out there, so we should not get too excited by one briefing.

As regards the recapitalisation of banks by an agency other than sovereign governments, the European Stability Mechanism or ESM is the relevant European institution. The ESM and its regulatory regime are not yet fully in place.

In discussing the regulations under which the recapitalisation would operate, we have made progress and have succeeded in maintaining a position whereby retroactive recapitalisation may take place by unanimous decision of the ESM governors who are the finance ministers of the 28 EU countries under a different title. That has now been agreed and it is going through the lengthy bureaucratic process that normally occurs in Europe. It will not be implemented until November, so there is no opportunity for us to file an application for retroactive recapitalisation until after November this year. We are reviewing the position as we go towards that date and we will see what the position is then. The difficulty in negotiating it will be that it requires a unanimous decision.

Our argument is that when the heads of State and Government in June 2012 promised that action would be taken, the argument was about the sustainability of the Irish debt. Things have changed dramatically since 2012, however. Our ten-year bond prices are approximately 2.4% yesterday and today, while Spain, Italy, Portugal, Greece and Slovenia are trading outside us - in other words, they have higher interest rates on their ten-year bonds. It is very hard to convince Ministers from those countries that Ireland needs additional assistance to make its debt sustainable when the markets have decided that we are in a more sustainable position than they are. That is where the argument becomes difficult. We will evaluate the situation.

The other thing that has changed is that what was envisaged at the time of the commitment was that there would be some exchange of Irish bank shares for money and that the ESM, through some mechanism or other, would acquire some or all of the Irish bank shares. In exchange, it would give us money which we would use to reduce our debt. That was the simple and obvious way. It is perhaps more complex, but that was the simple idea behind it. Since then, Bank of Ireland, for example, has paid back €1 billion more than the taxpayer committed to it. On top of that, we own 14% of its share capital. It does not make any great sense to give away some of the shares in Bank of Ireland.

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

The Minister is giving me many reasons it will not happen.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

No; I am giving the Deputy context.

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

It is all negative, so, in terms of getting the deal.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

There is positive as well. I am providing context. AIB has a value also. It has been valued by the National Pensions Reserve Fund at approximately €11 billion, which is against an input by the taxpayer of slightly in excess of €20 billion. Its independently assessed value is approximately halfway there. My point is that while circumstances have changed, we have succeeded in the negotiation of the rules and regulations of the ESM in keeping in place the power to retroactively recapitalise banks under the regulations.

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

Is the Minister acknowledging that it has become more difficult due to the change in circumstances? That is the tenor of what he is saying.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I will explain myself and the Deputy can comment afterwards. He should not put words in my mouth. My point is that the next step is to evaluate whether it would be timely to put in an application for retroactive capital for the banks and to consider the terms in which we would couch an application after November when the mechanism comes into effect.

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

The Minister is not committed to applying for it.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

No; I am saying that-----

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

The Minister used the word "whether". Surely there is no "whether" about it. We will be applying.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

There is a "whether" about the timing.

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

There is no "whether" about doing it.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

There is always a "whether" about timing. We will take advice on that. That is the position we are in. Things have improved enormously. The other thing that has changed dramatically is that we run the argument in Europe. When I started making the argument, I was a sole voice arguing that there should be bail-ins rather than bailouts. I said that in bailing in the assets of banks, senior bondholders should be bailed in, as with those who held equity and-----

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

I know, but we want to benefit from winning the argument.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

-----subordinate bondholders. When we started on that in Europe, it was as a sole voice, but now it is part of the legislative underpinning of banking union. The argument has been won and the bailing in of senior bondholders is now part of the system that is envisaged. We will continue to negotiate and I hope we will make progress.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

I want to pick up on the last point. This was described by the Minister, Taoiseach and Tánaiste with the words "seismic shift" and "game changer". This was about getting our money back. The IMF has come out very clearly today in its report to say it supports the retroactive recapitalisation of the Irish banks. It does not represent people on this island. As the Minister for Finance, can Deputy Noonan make the same statement to the committee that he will apply for the retroactive recapitalisation of Irish banks to the ESM?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Of course we will apply. What does the Deputy think we have been talking about for the last five minutes in reply to Deputy McGrath? Of course we will apply, but the timing is a question of the best approach.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

Can the Minister explain why we would not apply at the earliest opportunity, given the fact that we have waited a number of years to have banking union up and running?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Currently, there is nobody to apply to, as the mechanism is not in place. The mechanism will be in place, according to the commitments we have and the process now being engaged in, by November.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

The Minister has said we may not apply in November.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

That is right.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

Why would we not apply for money that we believe should be paid back to us through the ESM in November? Can the Minister give me any rationale as to why, if we have taken the decision to apply anyway, we would not apply so that we could reduce our debt?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

In negotiations such as this, it is sometimes better to line up the diplomatic support before one makes a hard application. Our intention is to apply, if not in November.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

I find this extraordinary, given that we have been told the diplomatic support has been lined up for the last three years since the Government took office. I believe genuinely that the Government intends to drag this out in the hope that there will be public fatigue, the shares in AIB can be sold to the market for €12 billion and there will then be no real reason to apply to the ESM, the rules of which are strict and difficult to apply retroactively. Even if we were to wind back the clock to 2008, there is no guarantee that we would get all that money from the ESM as we would have had to inject some of our own capital to bring the banks up to a 4.8% core tier 1 ratio. We would then have to have a bail-in and, at that point, we would get money back. Is it the case that the rules could be so restrictive in terms of retroactive recapitalisation that it would be less beneficial to apply to the fund than to sell the shares on the open market?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

The Deputy is falling into the same trap he has fallen into for the last three years on all issues. The way he presents his case and the bottom line of his policy is that he hopes the Government will fail. He is trying to build a movement on the grief and sacrifices of the people and it assists his political position if the Government fails. It is clear from what he is saying that he hopes we will not be successful. Why does he not encourage us like Deputy McGrath and say "Stick to your budgetary position and we hope you succeed in the interests of the Irish people"?

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

Let us be clear-----

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Why is the Deputy always on the begrudgery agenda?

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

I am not begrudging. I have asked the Minister parliamentary questions in the Dáil on how a retroactive application of this instrument would apply. The reply has been that the Minister has no responsibility to answer those questions in the Dáil. I am an Opposition spokesperson asking how a retroactive instrument which could benefit the State to the sum of €20 billion could apply. The Minister falls into the old system of claiming it is begrudgery or the building of a movement on the pain and suffering of the Irish people. This is a genuine question and the Minister is belittling my contribution to the committee, as he does every single time genuine, serious questions are asked about how we can retroactively apply the instrument and whether it would be more beneficial to sell bank shares on the open market, given the restrictions that apply to the direct recapitalisation instrument as it exists today.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I have given absolutely full and frank answers to all the questions that have been asked here. I have given the Deputy full and frank answers. To all the parliamentary questions he has put down, he has received full and frank answers when the questions are in order. He should not complain here that he is not getting the service to which he is entitled when he puts down parliamentary questions to the Minister for Finance, because he does. He receives lengthy answers. If information is not readily available on the timeline for parliamentary replies, he receives lengthy letters from me setting out the position.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

Not only will the Minister not answer in the Dáil, he will still not answer the question I have asked him for the third time. I put it again.

Given that the rules of the direct recapitalisation instrument, which include, in the first instance, bringing the banks up to a core tier 1 capital ratio of 4.5%, in the second instance, a bailout, and in the third instance, applying to the ESM, are so restrictive, would it be in the best interests of the State to sell the shares of those two banks on the open market? For the third time, I believe that is a reasonable question to ask. Does the Minister have an opinion on that?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I do not know whether that is the Deputy’s view or not.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

It is a question. When I am sitting over there, then the Minister will be able to ask questions of me.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

It is a question that is rhetorical in many of its aspects. Effectively, the Deputy is trying to get an answer and then will twist my views subsequently. I have laid out what the situation is. If the Deputy believes it would be of greater benefit to the taxpayer to sell the bank shares on the open market than anything we would get from the ESM, he will be right. However, that is not going to prevent me from filing an application to the ESM and exploring all possibilities in the best interest of the taxpayer.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

My view is that the Minister's negotiating strategy has been appalling. He should have stood up for Irish interests. He is about to amend legislation to allow for a banking union to exist with no real commitment to direct recapitalisation. We met with German Bundestag Members today who spoke about the lack of political opportunities and the fact that it is impossible to sell the Irish retrospective bank capitalisation idea in Germany, with a list of people from Klaus Regling to Jeroen Dijsselbloem to Wolfgang Schäuble stating that it is politically impractical. The Minister is trying to drag this out for as long as possible. I would support him 100% if he took a more robust stance with his European colleagues to fight this corner. My opinion, however, is that he is not doing that.

To move on to the countries-----

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

No, no, no. The Deputy has laid a number of charges against me, to which I would like to reply.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

If the Minister would answer my questions instead of replying to my views, it would be more appropriate.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

The Deputy is getting all the answers. The problem is that he just does not like them.

He claims the negotiating strategy adopted by me is leading to a situation in which we will not be successful, and that we should be more forceful. He took the exact same view when we were negotiating the promissory note, the maturity of the official loans from Europe, as well as the reduction of the interest rates on those loans. He took the exact same view when we went into government and were renegotiating the bailout programme. We were successful in all of those, however. We were successful beyond what most commentators expected us to be. We have the country in a good fiscal and economic position. Many people-----

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

I appreciate that the Minister is a long time at this game and is just winding down the clock. We can exchange views for all we like. With respect, will the Minister answer some questions?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I know the Deputy likes bad news rather than good news. He has to listen to the good news as well, however.

Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source

Could the Minister and the Deputy talk through the Chair?

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

Have there been amendments to the country-specific recommendations for Ireland?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

No; there was no surprise there. Several technical issues were discussed.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

The intention is to implement these recommendations. What has been the interaction between the Government and the Commission on the latter’s view that the tax base for property tax should be widened?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

We have raised some technical and drafting issues with the Commission on the introductory assessment of the country-specific recommendations, CSRs. These include the language on the binding nature of the expenditure ceilings, the timeline for introducing health identifiers, and the purpose of improved data collection in the Courts Service. We expect to see agreement on suitable amendments before the CSRs are finalised.

There were horizontal recommendations to the CSRs. The broadening of the tax base for the property tax was one of these. Twenty-five member states received a recommendation from the Commission on taxation. Similarly to ten other member states, including Germany, France and Italy, Ireland received a recommendation to consider raising revenues through broadening the tax base and to enhance the growth and environmental friendliness of the tax system. It is a general recommendation which the Commission considers applicable to many European countries, including the larger ones such as France and Germany. I have no plans to extend the scope or incidence of the property tax.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

The Minister earlier said that Ireland needs to show progress in these in the next 12 months. Does he intend to broaden the general tax base in the next 12 months?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

We will look at all the issues at budget time. As I announced in last year’s budget, we are looking at the appropriateness of all the tax measures in the agrifood industry and are in full consultation with all the interest groups involved. The OECD, Organisation for Economic Co-operation and Development, will probably bring forward recommendations in September on the BEPS, base erosion and profit shifting, project. I would be surprised if, again, we do not have a provision in the Finance Bill on corporation tax, running from either the recommendations of the OECD or the consultation with the Commission on the state aid issue which was brought to public attention last week. Broadening the tax base does not mean introducing new taxes. Nobody has ever thought that before.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

I appreciate that.

The Minister said earlier that there seems to be a difference of opinion between the Irish Fiscal Advisory Council and the Department on the structural deficit target. Is the Department and the Minister of the view that a structural deficit rate of 0% must be reached by 2018 to meet commitments under the fiscal compact treaty?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

There is a commitment to achieve a balanced budget over the medium term. Hopefully, we will achieve that point by 2018, but not necessarily so. We think there is enough growth now in the system to take us from a deficit of below 3% in 2015 to a balanced position.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

With a debt of about 60% of GDP, to have a balanced budget means we must have a structural deficit of 0.5%. The Government is targeting 0% by 2018 but the fiscal council believes the Government is overshooting the target and is applying more austerity than is required to meet it.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

There is merit in the Deputy’s opinion on this. My officials will consult with Professor John McHale’s organisation to reconcile the data and the manner in which it was treated. We are also consulting with the Commission to see exactly whether it will be 2018 or 2019. There is flexibility to allow for the structural deficit position whereby one can be at 0% or even a minus rate when at the top of the business cycle and then run a deficit during a recession.

This is where the half a percent differential or flow arises.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

I am surprised that the view of the Department is that the 0.5% deficit is not the appropriate figure. We have had a referendum on this issue. As far as I understand, it is written in the legislation or the treaty that 0.5% is the figure.

I will turn to other issues that have been identified and challenges we face in respect of the medium-term objectives. It has again been pointed out by the Fiscal Advisory Council that trying to maintain the level of spending over the next five years at the level anticipated by the Minister that is spelt out in the stability programme update will result in real pressures, particularly on health and education. Again, it has asked the Minister to look at that area. Indeed the IMF has asked that as well. Is that something the Minister is considering?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

It is part of the budgetary process to look at all expenditure heads. They are looked at by my colleague, the Minister for Public Expenditure and Reform. I think everybody knows that there have been difficulties in health but in a very big budget, the kind of deficits it has run from a percentage point of view are quite small relative to a budget of €13.2 billion. In respect of the Deputy's earlier accusation that we are ignoring what is the legal position, the aim is to have a balanced budget in the way we define it but part of the definition is to allow for the business cycle, which can be plus or minus a half percent around zero but not necessarily zero. That is what is meant by balance. The only disagreement between us is on definition.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

We will return to that point. In respect of the budget, the Minister has made it very clear, as he has every year, that it is the deficit targets and not the adjustment that is at issue. I have made the point that it is not even the adjustment figure that we should be debating but rather how that adjustment is applied - who pays the price. The CSO is reportedly looking at our data in terms of GDP. This will include illegal trade areas. The CSO will include in its June figures prostitution, drugs, pornography and other activities within the economy that will boost our GDP. Some have suggested that this would boost our GDP by close to 1%, which would have the effect of reducing the budgetary target . I think the British figure was 0.7%. Does the Minister have any view as to how much of our GDP will rise as a result of those calculations and what effect it would have on the budgetary adjustments?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

It is a matter for the CSO to come up with the figure. I understand it might do so before the end of this month. It is undertaking two distinct pieces of work. One involves having Ireland's GDP calculation in compliance with the new European rules. In the new European rules, as the Deputy outlined, illegality, the proceeds of crime and various other things can now be brought in for the purposes of GDP. We do not think this will be very significant in Ireland. The Deputy mentioned the UK. Military spending will now be calculated as an investment in rather than as a cost in countries with heavy military budgets so that will be of significant benefit to the GDP calculation of some European countries, particularly the NATO countries. Where Ireland benefits more is not from any of those but from the fact that in future, research and development under the new rules will be treated as an investment rather than a cost to industry. From what I read some weeks ago, I think it can be recalculated back to 1994 but do not hold me to that date. We think that will have a significant positive impact on Ireland's GDP. GDP is the denominator so when one gets a deficit calculation, obviously, the higher GDP is, the lower the deficit is without any further correction. I am not quite sure where it will fall.

The CSO is continually revising its statistics as better data comes in. There is an anomaly in the statistics at present at which it is looking. I do not know which way it will fall. The Deputy saw that the calculation for GDP last year was as if growth was in decline but at the same time, it is not consistent to argue that a declining economy would create 1,200 extra jobs every week. It looks as if the GNP figures are more reflective of what is happening in the real economy than the GDP figures. Again, in its normal routine work, the CSO is looking at that area. I do not know whether that gives us a plus or not and am not in a position to predict. The CSO is very secretive about its figures. I would be confident that the technical adjustment will give us a plus of GDP. It is up to the CSO to announce what the amount is but I think it will be in excess of 1%.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

So it will be in excess of 1% of GDP?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Yes.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

That saves a deficit reduction of about €800 million.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

GDP at the moment is about €166 billion. The Deputy can do the sums himself. I do not want to give him a false-----

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

I understand that. That recalculation could lead to-----

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

It could be significantly ahead of 1%.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

So that could deal with many budgetary adjustments without actually making any change just as a result of the recalculation of our GDP?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

One is only raising the level of denominator so it does not have the big effect the Deputy thinks of.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

The Minister previously mentioned to us in the Dáil that the rule of thumb is that for every-----

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

The Deputy must conclude.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

This is my last point. The Minister told us that the rule of thumb is that for every 1% increase in GDP, there is an adjustment of about €800 million that one does not need to make in terms of the deficit.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I think the Deputy is talking about the impact of the GDP through a growing economy increasing by 1% and the tax that will generate because it has that kind of effect on the budget. This is purely a technical adjustment. There is no growth reflected in this.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

There is no tax coming in.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Yes. It is smaller but it is still-----

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

It will have an effect but it will be much smaller.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Yes. It will be welcome and significant but we will wait for the CSO to come out with the figure. It will be of benefit. If the figure of 4.8% was to go down to 4.7% as a result of technical adjustment, the other rule of thumb I use is that every decimal point - every 0.1 - is about €170 million of an adjustment.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Can I take up that issue? When does the Minister anticipate that this technical adjustment will take place? What is the first year it will kick in for?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I understand that the CSO intends announcing by the end of June or early July. It will be the end of June. It will be an adjustment that will say that because of the technical adjustments, Ireland's GDP is no longer €166 billion or so, it is a little bit above that. It will apply from the day the CSO announces it.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

So it means that-----

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

So then one can start running the numbers for one's ratios after that.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Therefore, the Minister is saying that he anticipates that the target of about 5.1% that we are looking to meet at the end of this year will give an extra cushion or margin on that?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I do not want to make too much of it. In very simplistic terms, and the committee is very familiar with it, it is like running a race. One must run a mile-long race. If one gets odds of a quarter of a mile, one only has to run three-quarters. If one's year-end position is better than the budget position of 4.8%, as one goes down - 4.7%. 4.6%, 4.5% and 4.4% - one has less correction to do in the subsequent budget.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Does the Minister anticipate that he will have this figure available by the end of July?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

We will have it by the end of June.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

So really it provides six months of the year where one has an idea of the impact on the deficit for 2014?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

It is only technical.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

But I am saying-----

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

One will have the information immediately. All one does is a new sum so one will have a slightly lower deficit but the Vice Chairman should not make too much of it. This is not the main moving part that is going to make an adjustment of less than €2 billion.

It is one of the elements that is moving in the right direction.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

It is positive.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Yes.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I note the ECOFIN meeting will be briefed by the Commission on the contributions that the banks will be expected to make to the resolution funds. What specific timeframe does the Minister envisage for this? He has spoken on the matter in general terms but I ask him to break the process down into the separate steps that will bring us to the position where the stars collide and we can make the best possible application for retroactive recapitalisation of the banks.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

If Europe operates according to the timetable announced, the mechanism should be in place by the end of November. Any time after that it is a matter of judgment. There is no mechanism at present to which we can apply but anytime after that it is a question of political judgment and Government decision.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

When does the Minister anticipate that the ESM fund will come into play in terms of providing funds for the recapitalisation of banks, as distinct from retroactive recapitalisation?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I will review the technical note in case my memory fails me. In order for a resolution fund to be able to operate it has to be financed appropriately by the institutions which may potentially benefit from it. In this regard both the bank resolution and recovery directive, BRRD, and the single resolution mechanism, SRM, established target levels that must be reached within a prescribed period. In the case of the BRRD, member states are required to ensure that the available financial means of their funds should reach at least 1% of the amount of covered deposits in all the institutions authorised in their territories by 31 December 2024, with a start date of January 2015.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Generally, we are looking at the end of the year. I do not need the technical note, just the date.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I referred to 2024. It is building up over a long period. I do not think that was the answer the Acting Chairman was seeking. That is more for the resolution fund.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Apart from retroactive recapitalisation, when will the ESM be in a position to provide funds for recapitalisation of banks on a current basis?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I referred to the resolution fund under the banking union. That is separate from the ESM.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Yes.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

The ESM funds are already committed, and it is a question of putting them in place. This will partly be done through direct capital input by member states and much of it will be by guarantee.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

It is up and running. The application can be made at any stage.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

No, the application can be made after November if the Union meets its timeline.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

There is talk of low inflation in the eurozone. What is the Minister's view on that and what are the implications for Ireland? What are his views on possible risks for the Irish economy from a slowdown in the world economy in terms of export driven growth?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

There is low inflation in the European Union.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

What is the Minister's view on possible deflation?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Deflation occurs if prices drop below zero but prices are still rising. The best way to consider the matter is that the mission statement of the European Central Bank is to keep inflation near to but less than 2%. It is well shy of that figure at present. There are benefits from low inflation because it reduces the cost base but it also reduces economic activity. In our case, budgets are formed on nominal growth, that is, real growth plus inflation. It makes the budgetary position more difficult when there is very low inflation because we do not get the inward tax flow. They are well down the road in debating this, however, and action is being taken. The announcements by the European Central Bank during the week before last on what it will do to combat low inflation are the first phase in this. I hope the actions will be of particular benefit to SMEs in Ireland. Frankfurt will supply a flow of money to the sovereign central banks in the eurozone at 25 basis points and a handling charge will be added before the money is made available under certain conditions to the non-mortgage lending sector. That should benefit SMEs in Ireland. There is also a multiplier effect in that by lending more money to SMEs, the banks will trigger more money from Frankfurt to provide an additional flow of funds. It is a first gradual step by Mr. Draghi in moving the European Central Bank to a more active role in monetary policy. We wonder whether there will be a phase 2, involving widespread purchasing of sovereign paper by the European Central Bank to increase liquidity across the system. That is the acknowledged orthodox way of combating deflation or low inflation.

Aodhán Ó Ríordáin (Dublin North Central, Labour)
Link to this: Individually | In context | Oireachtas source

My first question on retrospective recapitalisation has already been discussed. The Minister indicated that the situation has changed since the statement of June 2012 but where stands that statement? Does it remain the basis for his negotiations?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Absolutely. Not only was a statement made in the communiqué from the June 2012 meeting of heads of state and government but Chancellor Merkel and President Hollande also reaffirmed the commitment in bilateral meetings with the Taoiseach, as confirmed in the statements issued subsequent to those meetings.

Aodhán Ó Ríordáin (Dublin North Central, Labour)
Link to this: Individually | In context | Oireachtas source

The Minister previously spoke about how our situation has changed and stated that our debt is perceived to be more sustainable, even though the interest repayment on the bank portion of our debt is €1.6 billion

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

The debt is just north of €203 billion. Approximately €40 billion of that figure is bank debt and, when one takes all the swings and roundabouts into account, the cost of that portion is a shade less than €1 billion. The gross cost is €1.6 billion but 80% of the coupon we pay on the Irish paper held by the Central Bank comes back the following year as excess profits from the bank. One of the big fallacies in the public debate on the Irish debt situation is that we are paying back other people's debts and that it was all the banks. We were driven to our debt position of more than €200 billion by accumulated deficits over the years. It was all our own work. The bank debt is significant but it is the minority portion of the debt and because of the various deals we have done, if the €8 billion paid out in interest annually was netted out, the banking call is approximately €1 billion.

Aodhán Ó Ríordáin (Dublin North Central, Labour)
Link to this: Individually | In context | Oireachtas source

Many people would take the view that it is not sustainable. To return to my main point, the Government is holding fast to the statement of June 2012.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

That is the foundation stone on which we rest our case.

Aodhán Ó Ríordáin (Dublin North Central, Labour)
Link to this: Individually | In context | Oireachtas source

The European Commission statement warned the Government about raising false expectations of tax cuts and spending increases. Does the Minister want to comment on that?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

No, we get advice from various international organisations periodically. I always take them seriously but I also know that a different skillset is required for a politician managing a Department than for a technical person in the IMF in Washington or in the Commission. It is not all a cut and dried case of something being possible once it is written out in a programme.

One has to bring the people along and continue to have their support before one can do anything effective. I frequently say this to the representatives of the Commission, and I reminded them on several occasions when they visited as part of the troika that there was a practical, political implication for what one does. It must always be measured against the best of advice.

Aodhán Ó Ríordáin (Dublin North Central, Labour)
Link to this: Individually | In context | Oireachtas source

My final point is the financial transaction tax, FTT, which I raise as often as I can. At the last ECOFIN meeting, British Chancellor of the Exchequer, George Osborne raised the possibility of taking a legal challenge against the imposition of the FTT, and Ireland is not going to support him in that. Approximately a year ago we had a conversation here with Patrick Honohan, who seemed to have softened his approach to the FTT. He felt circumstances had changed and that it would not have as detrimental an effect as previously perceived. The argument is that we would not support it if the UK did not support it, and that the UK would not support it if New York did not support it. Is that still our view, or has it changed?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

While we do not object in principle to the concept of an FTT, our opposition is for practical reasons, because we have a financial services industry in Dublin that employs many people in well-paid jobs. If we were to apply a tax which made Dublin less attractive than London, there could be a transfer of companies from Dublin to London. While I do not want to speak for Mr. Honohan, he may have appeared to have softened in his view because when the FTT concept was originally promoted, it appeared to be a very onerous tax on all financial transactions. However, it now looks like it would be akin to a stamp duty on shares and maybe other financial transactions. In our tax code we already have a 1% stamp duty on the sale of shares, while the UK charges a 0.5% tax on them.

The UK's worry is probably about the movement from the buying and selling of shares into other trading of financial instruments, particularly with the multiplicity of trades that can take place on computer systems in the space of a minute. If one is doing 1,000 transactions per minute and is being charged separately on every one of them, even if the rate is minimal, it will have an impact. It might be a good thing and stop much of the malpractice that comes from accelerated trading on the markets. The view emerging is that when it finally settles, it may not be as onerous a tax as when it was first conceived. My latest information is that it would be akin to our stamp duty on share transactions, but at a much lower level. This might be just a first step from which it might move on. We hold our position, namely, that we are not getting involved because of the possibility of the transfer of business and jobs from Dublin to London.

Kevin Humphreys (Dublin South East, Labour)
Link to this: Individually | In context | Oireachtas source

I thank the Minister for attending. The German finance committee met the Minister today and the Minister said a politician must manage a Department and make decisions in a different way from an economist. One of the pieces of advice the committee gave us was that we should hire a very good PR firm in Germany to convince the voters that they must deal with the legacy debt, because politicians there have to sell the same concept about legacy debt to the German taxpayer. I do not know if they gave the same advice to the Minister. The Minister said indications suggest growth will take us below 3% in 2015. He referred to hard facts, by which I presume he means the fact that tax income is ahead of profile and that the drop in spending is less than the profile and other elements we have seen in the early part. Have I missed any hard facts that suggest we will hit below that 3%?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

For the first five months of the year, the tax take is above profile by €446 million and the swings and roundabouts on the expenditure side at least cancel each other out. Anecdotal evidence suggests economic growth is accelerating. Job creation is moving faster than we calculated at budget time. Because interest rates on our debt are lower than we estimated at budget time, the NTMA will have unanticipated savings, so there is a margin there. The Central Bank may make excess profits that were not signalled at budget time, again because things are going right. Examining a series of factors that affect budget positions, many of them are positive, and if it continues for the rest of the year, our position will have improved significantly.

There are also negatives. Although it is an open secret that there is an overrun on health expenditure, it is more than compensated for by the underspend due to additional people returning to work. Another piece of the jigsaw people do not immediately see is that while the tax flow comes to the Exchequer, the flow of PRSI receipts from the extra people at work goes to the Department of Social Protection. Therefore, as well as having lower expenditure because fewer people are on the live register, the Department of Social Protection has an additional inflow of money from PRSI receipts. Another down side is that when the troubles in Ukraine developed, our agency that examines strategic energy reserves wisely got into commitments on the spot market. These liabilities affect the budgetary position. Although there are swings and roundabouts, if the swings are the positives, there are more of them than roundabouts, but we are only five months into the year.

Kevin Humphreys (Dublin South East, Labour)
Link to this: Individually | In context | Oireachtas source

Regarding the €446 million additional tax income, has the Department given the Minister any revised figures for the full year?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

No, we are working on profile and we will see how matters develop. The positive thing is that-----

Kevin Humphreys (Dublin South East, Labour)
Link to this: Individually | In context | Oireachtas source

With the profile continuing as it is, what would the Minister expect the full-year income to be?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I could not put a figure on it. We have previously had years in which we had a good first half and it fell away in the second half. I could give a figure, but I might give a false steer. We are travelling hopefully and the indicators are positive. The other positive aspect to the excess tax take in the first five months of the year is that the increase was across all the sectors, which is the sign of an economy on the move. Again, I do not want to exaggerate any position, as it could fall away.

Kevin Humphreys (Dublin South East, Labour)
Link to this: Individually | In context | Oireachtas source

I just want to try to understand the figure. I am tied for time and I have two questions-----

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

The other factor is that last year, the second half of the year was stronger than the first half. When one does year-on-year comparisons, the margin between 2014 and 2013 will be smaller because of the strength of the tax take in the second half of last year.

Kevin Humphreys (Dublin South East, Labour)
Link to this: Individually | In context | Oireachtas source

As the Minister said he will stay until 6.10 p.m. I will not use my full five minutes but I want to get my head around some of the figures. The figures that came from the IMF, the Commission and the Irish Fiscal Advisory Council were based on figures supplied in part by the Department. Were they pre-April figures? How recent were the figures on which they based the project of keeping to the €2 billion adjustment?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I presume their opening position was our stability programme published in April. Given that we always publish the monthly revenue flows and returns, that data would also have been available to them.

I am not quite sure what they took into account when they were doing their assessment and they would go into the process of doing a report. Some of what I am telling the committee is fact such as the Revenue figures for the first five months of the year but some is what is called "soft data" and they would not have been in possession of some of that, about which I am giving the committee an indication.

Kevin Humphreys (Dublin South East, Labour)
Link to this: Individually | In context | Oireachtas source

That is the key issue. We need to know those data the Commission has taken into consideration in its projections and the need to cut by €2 billion. I do not know what access the Minister has to that.

The Minister mentioned possible excess profits from the Central Bank and dividends being paid to the Exchequer. There is a profile for the sale of the IBRC promissory notes to the market and there is pressure to sell them into the market earlier. Currently, the notes are effectively recycled and the State receives the interest coupon. Is it the view of both the Minister and the Central Bank that they should be sold at the slowest pace possible to make sure that is of most benefit to the State?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

There is a schedule of sales of Irish paper held by the Central Bank and the agreement was that this would be subject to review against the background of market sustainability. According to the current schedule, a sale is due at the back end of this year. That is a commitment of the Central Bank. However, there are swings and roundabouts because a coupon is paid by the Exchequer on the paper that is being held by the bank.

Kevin Humphreys (Dublin South East, Labour)
Link to this: Individually | In context | Oireachtas source

But the coupon comes back to the State in a dividend.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

A total of 80% of it comes back the following year as excess profits from the Central Bank. When the paper is sold, it is sold to a private sector investor. One therefore pays the full coupon but there would not be a return on it. On the other hand, because of the falling interest rates, which have gone down so much since we made the arrangement last year, the nominal value of the Irish paper held by the Central Bank has gone up by approximately €4 billion and, therefore, any sale now will show a capital gain and that will come back to the Exchequer. One would need time to do all the calculations and the pluses and minuses.

Kevin Humphreys (Dublin South East, Labour)
Link to this: Individually | In context | Oireachtas source

The calculations have been done.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Not against the nominal values. The policy position is that we are happy with the schedule that has been agreed and we would like the schedule to be maintained.

Kevin Humphreys (Dublin South East, Labour)
Link to this: Individually | In context | Oireachtas source

That is why I am asking the question. If the schedule is speeded up, it is flagged as a danger. There needs to be caution in this regard to ensure the best value is achieved. How open are the Central Bank and the Government to pressure to sell the promissory notes into the market more quickly?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

The condition for accelerating the schedule of sale is the sustainability of the Irish position in the markets. If one were to dump a lot of Irish paper on the markets, the effect would be that interest rates would go up and, therefore, nobody would ask to do that. That is not the position. Currently, we are not under pressure to accelerate but it is in a provision and it would involve a dialogue between the officials in Frankfurt and Dame Street to decide what that would be. It would not be a political decision. I stress that it is not all downside. Because of the increase in nominal value of the paper, a capital gains element comes into the calculations, which offsets the loss on the coupon.

Kevin Humphreys (Dublin South East, Labour)
Link to this: Individually | In context | Oireachtas source

There would be net loss to the Exchequer if it happened today because the dividend from the Central Bank would be reduced. This is flagged up in the review as a danger. Could further information be provided to the committee regarding the upsides and downsides in order that we can fully understand and analyse it?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

The Deputy should ask the Governor about this the next time he appears before the committee because this will not be a political decision.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Perhaps there could be contact with the Governor or a briefing could be provided to the committee about the general overall parameters.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

The Central Bank is independent, as is the Governor. It is up to the committee to request him to brief members.

Sean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source

I have not seen the Minister since his operation and I wish him well. It is nice to see him back.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I thank the Senator.

Sean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source

The Minister mentioned the taxation of parent companies. What will the Commission and the Minister say to each other about that? I put the same question regarding the tailored guidance on health and legal services. I will leave it at that because I do not want him to be late for his next appointment.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

With regard to the subsidiaries and companies, there is a directive to avoid double taxation and technical amendments are being made now. Ireland supports the amending directive, which flows from our successful Council Presidency during which we prioritised work in the area of tackling aggressive international tax planning. It is not expected that the proposed changes to PSD in respect of hybrid loan structures will have significant impact in Ireland. The provision is primarily relevant to member states that use the exemption method to grant relief under the PSD. Ireland applies an alternative tax with credit method. We will support the proposed amendment. We supported it in May and I do not know whether it will be ratified on this occasion.

Sean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source

Is that connected to the amendment under this year's Finance Act which provides that companies must declare a nationality?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

No, this is has nothing to do with Finance Acts. If this is passed in Europe, it will become the law of the land here.

Sean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source

The other question was about the tailored guidance on health and legal services

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

These are residues from the troika programme. The legal services Bill is intended to introduce competition in legal services and use that to drive down costs. It was published and debated on Second Stage. As I understand it, Committee Stage is awaited because the previous Minister for Justice and Equality had indicated that he had significant amendments to propose. The new Minister is taking them up now.

On health services, the issue is identifiers for individuals in the health system in order that they can be tracked through it to follow the life cycle of a person in the health system.

Sean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source

We spend a higher percentage of GDP on health than other member states and we have a younger population. The Commission is always trying to reconcile those indicators. Was anything said about that?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Nothing specific but there was always the general position that we should control health expenditure. It is the second highest spending Department after the Department of Social Protection.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

With regard to the promissory notes, do the historically low interest rates put the Central Bank in a more vulnerable position in its discussions with Frankfurt in the context of releasing bonds and so on?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Currently, there is no active discussion with Frankfurt but it comes up periodically because it is in the agreement that the schedule could be accelerated under certain circumstances.

When interest rates come down and ten-year Irish bonds are trading at 2.4% or so, an argument could be made that this is an indication of stability in the market. The primary consideration for accelerating the sale was market stability. That is the connection, but that connection has not been put to us in any formal way. That is the theory underpinning it.

Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I thank the Minister and his officials for coming and for staying for extra time. I thank the representatives of the press in the Gallery for staying with us.