Mr. Derek Moran:

With me today are Ms Nolan, second Secretary General and head of the banking directorate; Mr. John McCarthy, chief economist; Mr. Declan Reid, shareholder management unit, and Ms Cep Carty, finance unit.

As the committee is aware, I was appointed Secretary General in July last year. In addition to speaking to the issues and items on the agenda, I propose to touch briefly on some of the things we have done within the Department during that time.

The first item on the agenda is the 2013 appropriation accounts for the Department. The Estimate for 2013 was set at €33.187 million. The spend was €24.6 million, leaving a surplus to be surrendered of approximately €8.6 million. The savings arose in three main areas: banking related consultancies, in respect of which there was a saving of €3 million because of cost-sharing with the industry and the later than anticipated timing of national payments plan projects; non-administrative pay budget costs, in respect of which some €2 million in savings were recorded because economies had been achieved in our EU Presidency work, while certain IT infrastructure projects such as ePQ and eSubmissions systems were undertaken in-house rather than being contracted out; and budgets provided to enhance external and international engagement which had been completed using internal and cross-departmental resources or funded by the receiving organisation.

Since 2013, the Department has operated within reduced budgets of €31.2 million and €30.6 million in 2014 and 2015, respectively. This reflects a number of key changes, including the transfer of some staff to the shared payroll services in the Department of Public Expenditure and Reform. It also reflects the ongoing focus on cost control, having regard to appropriate resource allocation in the context of wider deliverables in the Department.

With regard to the other three items on the agenda which are Exchequer focused, I draw the committee’s attention to the following key statistics. Tax revenues increased from €37.8 billion in 2013 to €41.2 billion in 2014. That trend is continuing in 2015, with tax revenues for the first four months at €12.8 billion, or 4.2%, above the expected profile. The Exchequer deficit fell to €8.2 billion in 2014 and we are forecasting that it will drop to about €3.5 billion by the end of the year. We expect to move toward a balanced budget by 2018. On general Government debt, the debt as a percentage of GDP is projected to drop to 105% in 2015 from a peak of 123.7% in 2013. We project that this downward trend will continue and that by 2020 we will be well below 90%. All of these trends are very positive and encouraging.

After a number of very difficult years, the economy is showing signs of recovery and the medium-term prospects are bright. Budgetary policies continue to focus on the need to reduce public debt and, within this, to generate sufficient funding for public services and boost the growth capacity of the economy. A modest recovery in the economy has been under way since 2011, but it has gained momentum in the past 12 or 18 months. We are seeing improvements in domestic consumption, people have more confidence and are willing to spend and, for the first time since the crisis, made a positive contribution to economic growth in 2014. We expect this to continue. Much of the competitiveness lost during the boom has been recovered. Unemployment, while still high, has fallen by 5 percentage points and is set to fall below 10% in the coming months. The number in employment has grown by 95,000, or 5%, from its lowest point. The Department forecasts that employment lost during the downturn will be recovered by 2018.

The improvement in the public finances goes hand-in-hand with the improvements in the economy. The general Government deficit has fallen from a peak of 11.5% in 2009 to an estimated 2.3% by the end of this year. Gross Government debt has peaked and fallen. We expect to get to a rate of around 100% of GDP by the end of 2016. Appropriate fiscal policies will continue to be necessary to ensure deficit and debt levels maintain their downward trajectory. The recently published spring economic statement clearly signals that this can be achieved within the fiscal rules, allowing for a modest increase in expenditure, balanced by a focus on taxation measures, while still complying with the rules of the Stability and Growth Pact. The spring economic statement is an important development and reform in how we budget.

Tax policy is one of the core functions of the Department. For several years we have been reforming and modernising the way we develop tax policy advice. Central to this is much greater emphasis on open public consultation processes which lead to better evidence based policy making. The contributions of all stakeholders, interest groups and individual members of the public are welcome as part of this process and carefully assessed. We are using public consultations more and more across the entire Department as a way of improving policy outputs. Last year there were seven separate public consultations on tax policy, ranging from the OECD BEPS project all the way through to agricultural taxation expenditures. This year there will be three additional consultations on the knowledge development box, the local property tax and the taxation of zoned but undeveloped land. To ensure policy proposals are robust, we introduced in 2015 new tax expenditure guidelines to assist with ex ante and ex postevaluations of expenditures. A workshop was held for all Departments and State agencies to set out the requirements of the new guidelines, which will have to be followed when tax expenditures are proposed. The Department has also initiated an annual tax policy conference, now in its third year, at which more than 150 stakeholders, academics and policy makers discuss tax policy issues. Papers on topical issues which are examined by the tax strategy group in advance of the budget have always been published and provide a very good source of data and a narrative from the Department across all tax heads.

Work continues on a wide range of challenging issues within the banking and financial sector. The investment by the taxpayer in the banks has been unprecedented, totalling over €64 billion. This investment comprised €34.7 billion in Anglo Irish Bank-INBS and €29.4 billion in the three viable banks of AIB, Bank of Ireland and PTSB. Our objective in the Department is to help recover as much and preferably all of the money the taxpayer invested in these living banks. Over the course of the past two years major steps have been taken to reduce the overall cost of recapitalisation. The liquidation of IBRC and the replacement of the promissory note by floating rate bonds in February 2013 reduced the gross borrowing requirement of the State in the next decade by some €20 billion. The sale of debt investments in Bank of Ireland, the sale of Irish Life and the repurchase of the contingent capital notes by PTSB have led to the return of around €5.5 billion to the State in the form of capital receipts. In addition, some €5.9 billion has been received in interest and fees across all of the banks. The preliminary independent valuation of the State’s equity and preference shareholding in AIB, recently completed by the NTMA, stands at €11.7 billion. The State also holds €1.6 billion in convertible capital notes in the bank. Our equity investment in Bank of Ireland, based on current market prices, is approximately €1.6 billion. That brings the total current value of the State’s investments to over €16.1 billion, including its equity investment in PTSB. We are confident that over time the aggregate funds the State has invested in the three banks will be recovered. PTSB has recently announced that it has raised €525 million, a significant milestone in its recovery. As part of the raising of capital, the State will recoup €509 million in capital receipts from the sale of shares and the repurchase by the bank of the contingent capital notes invested in by the State as part of the 2011 recapitalisation of the bank.

The success of the liquidation of IBRC to date has far exceeded expectations at the time of the promissory note transaction in 2013. In October 2014 the debt acquired by NAMA as part of the promissory note transaction was fully repaid. The success of the loan sales process removes any residual risk of further calls on the Exchequer. To February 2015, the second anniversary of the liquidation, €16.5 billion in cash inflows had been generated. This has allowed for the payment of €14.7 billion to IBRC creditors and resulted in a cash balance of €1.85 billion, which ultimately will be available for distribution to creditors, including the State.

The international financial services strategy commits us to protecting and enhancing the competitiveness of the funds industry. The Irish Collective Asset-management Vehicles Act 2015 is an important step towards that goal. There is a strong linkage between a number of work streams within the Department and the IFS2020 strategy launched in March. We are fusing these together to ensure we can fully support this important Government initiative and deliver on our commitments in the strategy actions.

There has been a suite of interventions designed to address the issue of mortgage arrears, including specific Central Bank targets, the code of conduct on mortgage arrears, the recasting of personal insolvency legislation, the provision of advice through Department of Social Protection-led initiatives and the mortgage-to-rent scheme.

It is a positive development to be able to report that the number of mortgages in arrears is declining year on year, although the issue of longer-term arrears remains a big challenge. For example, according to Central Bank data, the number of principal dwelling house accounts classified as restructured at the end of 2014 stood at 114,674, an improvement of 29% on the number of restructured accounts for the same period in 2013. As members will be aware, further enhancements were announced by the Government yesterday in terms of bank vetoes in the insolvency process, further resources for Department of Social Protection-led initiatives and changes to the mortgage-to-rent scheme.

At the end of 2014 NAMA had redeemed a total of €16.6 billion of senior bonds, which represents approximately 55% of senior bonds issued. NAMA is confident, assuming current market performance is sustained, that it will be in a position to fully repay its borrowings and hopes to achieve a surplus over its lifetime, thus eliminating the State’s contingent liability.

Turning back to the Department, we have placed a high emphasis on resources in the past few years, including the upskilling of staff through a continuous training programme and an improvement in information systems that are integral to our day-to-day business. This is and will be a continuing process. In the past year the executive board and I have concentrated on three areas - learning and development, the structure of the organisation and governance. The Department of Finance is a knowledge-based organisation and our people are our most important asset. As an organisation, we must always seek to ensure staff have the requisite skills for the job, complemented by our investment and focus on performance management, the enhancement of our IT systems, employee engagement, workforce planning and learning development. These developments are managed and led by our senior management team and actively contributed to and supported by our staff.

The learning and development strategy 2014 to 2016 was published in October 2014. It is aligned with our business needs and plays a crucial role in supporting the organisation. It is a living document that will change as the needs of the Department change. Strategies for learning include building skills capability through effective training and the development of a learning culture within the organisation; developing talented staff through bespoke training; continuously acquiring new knowledge and skills; and learning and improving from experience. For example, consistent with our overall emphasis on learning and development in the Department, a comprehensive technical tax training initiative has been put in place for departmental staff through a strategic training partnership with the Irish Tax Institute, as has a training initiative on project management, leading to the award of both a diploma and international accreditation. The Department is very proud to have been shortlisted, in the top three, for the best learning and development organisation in the Irish Institute of Training & Development awards 2015. It intends to build further on this initiative, particularly in the context of benchmarking our learning against industry standards.

Our organisational structure derives from our core job of providing policy advice for the Minister and the implementation of Government decisions. For the purposes of day-to-day management, we have significantly simplified the structure of the Department by creating two directorates - an economics and fiscal directorate and a finance and banking directorate. Within each there are a number of divisions. The economic and fiscal directorate reports directly to me and is focused on economic, budget, tax and international engagement. As Accounting Officer, corporate affairs, HR and departmental finances also fall within my remit in this directorate. The second directorate focuses on finance and banking, including credit, lending, EU and domestic financial legislation, shareholding management, risk, legal and compliance matters and engagement with international financial institutions. This directorate reports to Ms Nolan in her role as second Secretary General. She also acts as deputy to me in the overall management of the Department. This change meets one of the key recommendations made in the Wright report.

My other objective has been to enhance and promote good corporate governance and compliance within the Department. Work has just been completed on a governance framework for the Department, the purpose of which is to provide a clear and comprehensive summary for all staff of how we work within the Department. It ensures a framework of structures, policies and processes are in place to deliver on our obligations. It is envisaged that the governance framework will be further developed over time and have regard to implementation of the Civil Service renewal plan which will inform any update in the future. The codification of the governance framework for the Department, its roll-out to all staff and the embedding of its principles in how we do our work are important developments.

I acknowledge the work and contribution of all the staff of the Department. The progress we have made would not have been possible without them.