Oireachtas Joint and Select Committees
Tuesday, 16 June 2015
Joint Oireachtas Committee on Finance, Public Expenditure and Reform
Forthcoming ECOFIN Council: Minister for Finance
Before we commence, I remind members, witnesses and those in the public gallery that all mobile telephones must be switched off to avoid interfering with the broadcasting of this meeting.
I welcome the Minister for Finance, Deputy Noonan, and his officials to the meeting. He is here to brief the committee on the upcoming ECOFIN meeting on Friday, 19 June. From the packed agenda, it looks like it will be busy. Our discussion will begin with opening remarks by the Minister, following which members may put questions to him.
I thank the Acting Chairman and committee members for inviting me to address them in advance of the next ECOFIN Council of Ministers meeting, which will take place on Friday, 19 June, in Luxembourg. This will be the final ECOFIN Council under the Latvian Presidency. While there are already indications that the agenda before the committee will change, it is a useful opportunity to discuss the issues that are currently before finance Ministers at the ECOFIN Council.
In the committee's invitation, it asked whether I would also provide a brief overview of the proceedings of the May Council. I will address that item first. The meeting took place in Brussels on 12 May, with an agenda dominated by discussions relating to the investment plan for Europe, the draft conclusions on the macroeconomic imbalances procedure, in-depth reviews and the 2015 Ageing Report. Ministers discussed progress in the negotiations with the European Parliament on the Commission proposals for the European fund for strategic investments, EFSI. As members know, the EFSI is central to the Commission's €315 billion investment plan for Europe. The aim was to finalise negotiations by the end of May.
The Council adopted the draft conclusions on the in-depth reviews of macroeconomic imbalances in 16 member states, agreeing that this was a useful exercise to better examine and discuss the economic policies of member states because it allowed for improved transparency and feedback on the Commission's analysis. All 16 of the examined member states are experiencing macroeconomic imbalances of varying degrees and the analysis shows that many of the imbalances experienced in Ireland are legacy impacts of the crisis and are in the process of unwinding. The Commission was invited to produce focused recommendations for the members states to help address these macroeconomic imbalances and the need for policy action and a strong commitment to structural reforms in all member states was underlined. Ireland remains committed to progress and has appropriate policies in place to address these recommendations, which are set out in the medium-term economic strategy.
The Council welcomed the overall progress made in addressing the 2014-15 country-specific and euro area recommendations, but recognised that reform implementation needed to be stepped up to address the individual policy challenges facing member states and to ensure swift and sustainable economic recovery. The 2015-16 country-specific recommendations were published in mid-May and form part of the June ECOFIN agenda. The Commission was advised to focus on areas of macroeconomic significance where there was an urgent need for action in order to give these issues more visibility in the member states' national political debates.
Ministers endorsed the 2015 Ageing Report, which deals with age-related expenditure projections for member states over the 2013-2060 period. As a result of recent reforms and more benign demographic developments projected for the EU as a whole, the projected increase in the total age-related expenditure over that period is now lower than the 2012 projection. The Council adopted conclusions concerning how the economic and financial crisis had put a significant burden on public finances and led to rising deficits and debt levels. The Council also stressed the need for appropriate growth-friendly fiscal consolidation and further implementation of structural reforms in order to enhance the sustainability of public finances.
The Council invited the Economic Policy Committee to update its analysis of the economic and budgetary implications of population ageing by autumn 2018 on the basis of new population projections to be provided by EUROSTAT and the national statistical institutions. EUROSTAT has also been asked to provide annual updates of its population projections systematically, in particular as regards migration flows, to be used in the short to medium-term forecast horizon. This ongoing work will ensure that adequate information is available to policy makers in a timely fashion and will allow appropriate policies to be developed and put in place.
The June ECOFIN meeting will be the final Council under the Latvian Presidency. I acknowledge the success of the Latvian Presidency and the progress it has made. Luxembourg will take over the Presidency role on 1 July and I wish it every success.
I remind members that the agenda provided is a draft and changes in content and the order of the discussion may still be made before the meeting. Ambassadors are meeting tomorrow to consider the draft agenda, which is busy in content as matters stand. I am aware that some items will change and I will draw members' attention to these as I work through them.
The Council will begin by considering legislative deliberations. This takes place in public session and based on the draft of the agenda, eight items are scheduled for discussion. These are: the approval of the list of "A" items, which are matters to be taken without discussion; the common system of value added tax as regards the treatment of vouchers, which has been withdrawn from the agenda; the common system of value added tax for the standard VAT return, which has also been withdrawn owing to the absence of agreement; administrative co-operation concerning a proposal for a directive on mandatory and automatic exchange of information on cross-border tax rulings; the interest and royalties directive regarding a common system of taxation applicable to interest and royalty payments made between associated companies of different member states; the investment plan for Europe known as the European Fund for Strategic Infrastructure, EFSI; banking structural reform, namely, a proposal for a regulation of the European Parliament and Council on structural measures improving the resilience of European Union credit institutions; and any other business.
In terms of the common system of value added tax as regards the treatment of vouchers, this proposal is designed to modernise VAT rules on vouchers. The proposal is driven by the increasing sophistication and functionality of vouchers, especially electronic vouchers, and the need for a consistent approach in light of different VAT treatments that have developed across member states. Such treatments may be contributing to double taxation or non-taxation in the cross-border context, that is, where vouchers are issued in one member state but used by consumers in another member state. While technically complex, the measure will further improve the functioning of the Single Market and lead to increased revenues to exchequers across Europe. I understand that the Presidency will not put forward the proposal for discussion at ECOFIN as further work is required at official level.
With regard to the common system of value added tax for the standard VAT return, the Commission has withdrawn this proposal and the item will be removed from the agenda as a common approach is not possible at this time.
Regarding administrative co-operation concerning the proposal for a directive on mandatory and automatic exchange of information on cross-border tax rulings, this proposal will provide for the mandatory automatic exchange of information regarding advance cross-border rulings and advance pricing arrangements. The latter are a particular type of advance cross-border ruling used in the area of transfer pricing. The proposal on this month's ECOFIN agenda is the second amendment to the directive on administrative co-operation and was published by the Commission on 18 March as part of a tax transparency package. At this ECOFIN meeting, we will receive a state-of-play report from the Presidency on the progress at technical level on this file. My officials will continue to engage with the other member states in the Council working parties to progress the technical work necessary to ensure agreement on this important issue. In general, Ireland is favourably disposed towards the proposal.
The interest and royalties directive was agreed in 2003. The purpose of the directive was to reduce a barrier to trade between member states by removing withholding tax on interest and royalty payments between member states, thereby avoiding double taxation where the recipient member state taxes the same income. In 2011, in response to concerns that the directive was being abused, the Commission proposed to amend it to provide that it would only apply where the recipient member state applies a certain level, namely, a minimum amount, of taxation to the interest and royalty payments. The Latvian Presidency has continued the work on this directive and has proposed to separate the two live issues on this dossier relating to the introduction of a general anti-avoidance rule and the issue of minimum levels of taxation. The purpose of this split is to progress the much less contentious issue of the general anti-avoidance rule and prioritise agreement on this anti-abuse element. Ireland supports the approach to split the proposal.
Regarding the investment plan for Europe, the European Fund for Strategic Infrastructure, EFSI, was also discussed at the May ECOFIN meeting. This item has been placed on the agenda to endorse the political agreement reached recently with the European Parliament on the regulation for the EFSI. The Latvian Presidency deserves praise for its work in managing the negotiation over a short space of time. Like all member states, Ireland is keen to see EFSI activities that benefit our economy and the EU economy as a whole.
On banking structural reform, this proposal is critical to addressing the banks that are considered to be too big to fail as it will make such banks more resolvable by separating proprietary trading, that is, banks trading on their own account and, in particular, other high-risk trading activity from normal retail activity. The separation would only be mandatory for those banks with significant trading activities and would only apply to the largest and most complex European Union banks with significant trading activities, namely, those European banks deemed to be of global systemic importance or those exceeding certain thresholds, for example, €30 billion in assets and trading activities exceeding €70 billion in value or 10% of the bank's total assets. Council negotiations have been ongoing for the best part of a year and the Latvian Presidency aims to secure Council agreement on this issue. The measure would not apply to Irish banks, although we have a strong interest in seeing how it applies to European banks now that we are on the verge of banking union.
On non-legislative activities, based on the draft agenda before us, there are ten items scheduled for discussion. These are: the approval of the list of "A" items, which are items to be taken without discussion; implementation of the banking union; the adoption of the Council conclusion on capital markets union; endorsement of the ECOFIN report to the European Council on tax issues and the report by finance Ministers on tax issues in the framework of the Euro Plus Pact; Council conclusions on, and endorsement of, a report on the code of conduct on business taxation; the contribution to the European Council meeting of 25 and 26 June, namely, the European semester, which will consider the 2015 national reform programmes and stability or convergence programmes for each member state and approve the recommendations in respect of these programmes; the approval of the implementation of the broad guidelines for the economic policies of member states whose currency is the euro; an opportunity will be provided to discuss the report prepared by the five Presidents if this becomes available in time; a report to the European Council on broad economic policy guidelines; the adoption of Council decisions on the implementation of the Stability and Growth Pact; and any other business.
Good progress has been made on the implementation of the banking union. The single supervisory mechanism, SSM, which came into effect on 4 November 2014, will ensure the European Union's policy relating to the prudential supervision of credit institutions is implemented in a coherent and effective manner. The key outstanding implementation issues for all banking union member states are the transposition of the bank recovery and resolution directive, BRRD, and the ratification of the intergovernmental agreement, IGA, to the single resolution mechanism. On the IGA, the Government has approved the draft heads for ratification and the pre-legislative scrutiny process has been completed. Work is on track to bring this legislation to the Oireachtas in the early autumn to meet the deadline of December.
Capital markets union aims to put in place alternative sources of funding through the development of a more balanced and diversified European financial system which complements bank based financing with deep and developed capital markets.
At the June ECOFIN, Ministers will have an exchange of views and adopt the draft Council conclusions on the capital markets union initiative. The draft conclusions are broad-ranging, covering issues such as the need to promote an equity culture, the need to break down barriers to the development of cross-border capital markets, and the greater role for the insurance and pensions sector in long-term infrastructure projects. This will prepare the ground for the Commission action plan due out in September.
The next three items - the ECOFIN report to the European Council on tax issues, the report by finance Ministers on tax issues in the framework of the Euro Plus pact and a report on the code of conduct on business taxation are all expected to be taken as "A" items and therefore endorsed without discussion. The code of conduct report, which deals with business taxation, particularly harmful tax competition, is a regular item at the end of each Presidency. This report has been prepared by the code of conduct group on business taxation.
The next item is the contribution to the European Council meeting and the European semester. The committee will be aware that the European semester process has been in operation since 2011 and is a regime for economic surveillance. As Ireland was in the EU-IMF programme until December 2013, Ireland did not fully participate in the first three semester cycles. However, since December 2013, Ireland has been fully participating in the semester process, which is part of the normalisation of our position as a post-programme country. As the committee will be aware, the annual semester process is part of the new economic governance regime of the European Union which has been established to underpin sound public finances, sustainable and inclusive growth and the correction of macroeconomic imbalances across the European Union.
The European semester has two phases, the first of which is horizontal and the second of which is more country-specific. Broad horizontal guidance was provided by the European Heads of State and Government at the European Council in March, and then the process became more country-specific in orientation. For Ireland's part, in April, my Department submitted Ireland's stability programme to the Commission. The Department of the Taoiseach then submitted the national reform programme on structural reforms and measures to boost growth and jobs, also in April.
The Commission then assessed all member states' documents and, following bilateral engagement with the member states, issued country-specific recommendations on 13 May to all member states except for Greece. The CSR proposals are intended to provide specific tailored guidance to each recipient member state on how to achieve sound public finances, what structural reforms should be implemented to achieve smart sustainable growth, and how to correct macroeconomic imbalances. As we are strongly committed to continuing progress in restoring financial stability, fiscal sustainability and economic growth, we welcome the country-specific recommendations, as they will facilitate us in achieving this and will support the polices set out in the recent spring economic statement. The Commission confirms that Ireland is on track to correct its excessive deficit in 2015. On the basis of information in the 2015 stability programme, recalculated according to the commonly agreed methodology, progress towards the medium-term objective in 2016 is in line with the requirements of the preventive arm of the Stability and Growth Pact. For 2015, Ireland has received a reduced number of country-specific recommendations, which are consistent with existing Government policies. We note that the areas covered this year follow on from those of last year, covering public finances, health care, social inclusion and mortgage arrears, with particular reference to non-performing loans.
In addition to approving the tailored recommendations to each member state, Ministers will also discuss key aspects and themes from member states' stability and convergence programmes and the Commission's horizontal guidance for the euro area, which is presented in the form of a set of country-specific recommendations for the euro area as a whole. We welcome the euro area's country-specific recommendations, which are largely consistent with the Irish position, and we share the focus on ensuring that member states work together to put in place and maintain the necessary conditions for stability, growth and jobs.
The objective of next Friday's ECOFIN meeting is to approve the recommendations for member states. It is intended that these recommendations will be endorsed by the June European Council and finally adopted by finance Ministers at the July ECOFIN Council.
In terms of the report on implementation of the broad guidelines for the economic policies of the member states whose currency is the euro, the debate on improving economic governance in the euro area represents the resumption of a process which began at the height of the crisis in June 2012. A report by the presidents of the Commission, Euro Summit, the Eurogroup and the ECB - the four presidents, which recently became known as the five presidents, as the European Parliament President has become more formally involved in the process - and the Commission's "A Blueprint for a Deep and Genuine Economic and Monetary Union" pointed the way to a proposed deepening of co-ordination in the areas of banking, economic policy and fiscal policy.
Ireland is among the member states which believes that we need to focus on full implementation of reforms agreed in recent years before embarking on an overly ambitious roadmap of significant change. Our main emphasis now has to be on economic growth - that is, growth based not only on sound public finances and ongoing structural reform, but also driven by productive investment. We need economic growth at a rate sufficient to get people back to work as well as to re-establish the commitment of our citizens to the European ideal.
Ministers will also discuss the report to the European Council on the broad economic policy guidelines. These guidelines enable the economic policies of the member states to be co-ordinated in order to achieve joint objectives of smart, sustainable and inclusive growth. They also form the basis for any country-specific recommendations that the Council may address to the member states.
Finally, on the implementation of the Stability and Growth Pact, Ministers will discuss member states' compliance with the rules of the Stability and Growth Pact, particularly with regard to the excessive deficit procedure, EDP. The discussion will focus on Council recommendations to extend the deadline for the United Kingdom to correct its excessive deficit by two years, and to abrogate the EDP for Poland and Malta. Abrogation of Ireland's EDP should occur next year, as abrogation of an EDP occurs in the year following compliance with the fiscal targets set out. We will then be subject to the rules of the preventive arm of the pact from 2016 onwards.
With regard to Finland, based on the European Commission spring forecasts, Finland was deemed not to have complied with the deficit and debt criteria of the Stability and Growth Pact. However, Finland's stability programme update was submitted on a no-policy-change basis due to parliamentary elections in April. The new government will submit a fiscal plan and stability programme for 2016–2019 by September 2015. Progress will be reassessed in September and a decision then made on whether or not to open up an EDP.
I trust the Chairman found the summary of last month's ECOFIN meeting and the outline of this month's ECOFIN agenda informative. I believe they give a good insight into the current issues before the Council. I thank the committee for its attention. At this point, I will be happy to respond to any questions or observations from the committee members.
I propose that we adhere to the usual ground rules. This will ensure that we give everybody an opportunity to ask questions so that we can achieve the best possible meeting. I propose that the lead speakers for each group will have five minutes, if that is agreeable, to give everyone a chance. The Minister must leave by 7.30 p.m.
If we tried five minutes, we might get through the members. Both the clerk to the committee and I will be keeping an eye on it. I will advise when there is one minute to go and if anyone has further questions, time permitting, he or she can speak again.
I welcome the Minister. I will ask the most obvious question about his proposed meeting. I am sure that everyone who listened to his speech was struck by the elephant in the room that he chose not to mention. Why was there no mention of the Greek situation? If the Eurogroup of finance Ministers believe that the impact of an unsatisfactory end to Greece's economic adjustment programme at the end of June will be confined to the 17 euro countries, I fail to understand why Greece is not central to the meeting.
I briefed it on that meeting on the basis of the agenda that was agreed up to yesterday, even though some items have fallen off of it. The only way that the ECOFIN Council will discuss Greece is in terms of a report by the president of the Eurogroup, which he will provide at the start of the meeting. He will report on what happened at the Eurogroup meeting. It is the Eurogroup that will discuss Greece. The president of the Eurogroup, Mr. Jeroen Dijsselbloem, the Dutch finance Minister, will report to ECOFIN at the start of its meeting, but it is not an agenda item. I have no problem with Deputy Fleming discussing Greece now. I do not have much light to cast on the situation. I am doing what the committee requested me to do.
The formal agenda. Perhaps it is a matter for consideration, given the fact that some issues that are not on the formal agenda might be discussed. For future reference, there might be a mechanism to have such a debate.
I will ask two questions briefly, as our time is limited. The Minister mentioned the issue of banks that were too big to fail. I have a problem with that concept, but how many banks in the EU are considered too big to fail? How many of those are in Ireland? How many trade in the IFSC? The Minister also mentioned the single resolution mechanism. Does it apply to a separate group? There are set criteria. Is the mechanism meant for a group other than those banks that are too big to fail? If banks are too big to fail, must domestic taxpayers pick up the tab? Is it only when the taxpayer fails that the single resolution mechanism for providing assistance at EU level can be used? Are we accepting in our framework the principle of a bank being too big to fail without even examining each case? The domestic taxpayer in whatever the country will be caught again. How can the Minister expect the banks to learn lessons if they will always have the safety net of the single resolution mechanism? Sometimes, it might be right to let a bank fail, even if it is big.
The "too big to fail" phrase came from an analysis of the American response to the collapse of Lehman Brothers. It became the conversation point, in that people believed that banks were too big to fail. The American authorities then allowed Lehman Brothers to fail. The phrase has no legal status and no bank in Europe is too big to fail. What is being done here is so that banks can be resolved less expensively. If there is a residual piece that must be bailed out by the taxpayers of Europe rather than the taxpayers of an individual country, a division is being made in terms of larger banks between the activities in which they indulge for their profitability and their functions as retails banks in supplying to individuals and small to medium-sized enterprises, SMEs, the credit streams that countries need to grow economically.
A version of this approach arose several years ago when we were discussing the first run of the banking crisis, with investment banking separate from retail banking. The purpose of the current approach is to reduce the piece that must be resolved subsequently.
If the investment bank goes down, that is the business of the shareholders and the bank owners. There will be no crossing. It is an improvement and limits the potential liability of a European bank resolution fund. This is my understanding of the approach. I have given the committee the headline figures. The first shot at a definition-----
Yes, and the transactions over €7 million and so on. We are generally supportive of that proposal even though we may decide that we would like a change of limits in a downward direction. However, it does not apply to Irish banks.
It can, but the contributions are phased over a ten-year period in instalments. As it moves along, an increasing proportion of the resolution fund gets mutualised. Early on, one only has access to what one contributes and a bit of the residue. As the fund gets mutualised, the full fund becomes available on a pan-European basis to banks that fail.
I will be brief. It is just one sentence. The Minister stated that the common system of VAT for the standard VAT return was not progressing. Which country will lose as a result of that system not progressing? Will we gain or lose? There must be some winners or losers in terms of foreign direct investment, FDI, companies that have branches and group companies in the EU. Some countries must gain under the status quowhile others might lose under the new arrangement.
To go back a bit, I wish to make it clear that there are two issues involved in the bank resolution issue. It is different from the bank structural reform, which is not primarily driven by considerations of resolution. A structural reform is taking place separately from the other consideration.
While I was checking that situation, the Deputy asked a question. The Commission has withdrawn the proposal. There is not sufficient agreement on it to bring it to the political side. It is clear that a common approach is not possible. I will alert the committee at one of our briefing sessions if the proposal returns. At the moment, though,-----
The Minister is welcome. I will not refer to any of the jargon, but I will take up his comment that he would not mind questions on Greece. Yesterday, we met Commissioner Jonathan Hill. The Minister and I briefly discussed the visit beforehand. The Commissioner was interesting. We discussed a possible Brexit and Grexit. Given the Greek situation is a delicate stage, it is generally agreed that Greece falsified its position and lied its way into the euro. What is the Minister's take on this? Can we keep Greece in the club while returning it to the drachma? Are there possible adverse impacts for us? Deputy Rabbitte might correct me but, on balance, the Commissioner seemed inclined to believe that Greece could still be held within it, if there was the political will. We would be interested in the Minister's view.
I have great sympathy for the Greek people. They have suffered a great deal for a long time. They have experienced a level of suffering that we did not even though our community had to make many sacrifices. This is the first point that I would make.
I have great regrets that Greece, which was on the cusp of recovery at the start of 2015, has returned to recession.
On the hopes of an arrangement being made between the European creditor countries and the Greek authorities, no paper is available to me at the current time that suggests we will have any paper-based discussion at the meeting of the Eurogroup on Thursday. No negotiation is proceeding at the current time. In the middle of last week it looked as if we were on the cusp of an arrangement, but that dissipated, as the committee is probably aware from newspaper reports, and there is no proposal on the table. While there will be some discussion on Greece, in the absence of paper generated by the institutions formerly called the troika, there will not be a substantive discussion on it.
A proposal was put forward after the meeting in Berlin by the President of France, the German Chancellor, Mr. Draghi, Mr. Juncker and the chief executive of the IMF, Ms Lagarde. After that meeting a common paper was put forward. There might not have been a commonality of view, but there was an agreed text, which was offered to the Greek authorities, and it seemed as though it was acceptable from the reports we got back. It then went off the rails again for reasons with which I am not totally au fait.
We are coming up to a difficult position. The triggers are always the repayment dates for Greece, of which there were four in the month of June for the IMF. There is small print in IMF contract documents and there is at least one precedent that if a country owes a number of repayments to the IMF in the one month, it can bundle them and put them to the end of the month. There was a decision to do that. Even if a repayment was not made at the end of June, there would not be an immediate default. It would be considered to be arrears due for another calendar month. That would not create a crisis. The problem is not in that area. Rather, the problem arises if Greece needs extra money not to default, because in certain countries such as Germany and Finland there has to be a parliamentary process to vote extra money. Other parliaments, including ours, are going into recess in July, and because of the recess in Germany and other countries, very little space would be available to conduct the necessary parliamentary process to vote the money from individual counties or authorise the money under the legal authorisations required in other countries if an agreement was reached with Greece.
In terms of payments, about €3.5 billion is due to the ECB on 20 July. As a result of the parliamentary process necessary, we will reach the endpoint before 20 July.
The IMF agreed to the document that emanated from the Berlin meeting. When the negotiations appeared at first to be successful and then went off the rails again, the IMF withdrew from the negotiations. That does not mean it is out. People withdraw from negotiations and come back again. What is absolute is that the timeframe is now very tight and, even with the best will in the world, accidents can happen.
The agenda for the ECOFIN meeting underlines the deep, comprehensive and invasive reach that the EU has within the Irish economy. Given the immediacy for Greece of the existential threat to the euro, I imagine most of the discussion, if not the thought, within the ECOFIN meeting will concern the crisis in Greece. Has the Government had any direct input into the negotiations regarding Greece?
We are not on the negotiating team, but neither are representatives from any other country because the negotiations are done by technical teams on both sides and there are references back. Large countries such as France and Germany, which are major creditors and would be major paymasters if there was a new Greek programme or anything along those lines, organise meetings and bilateral meetings to push the agenda forward.
Our position from the start has been that we want Greece to stay in the euro, but we do not want write-offs in its nominal debt. We are prepared to accommodate it in other ways to make its debt more sustainable, and do not have a principled objection to that. Our red lines are very limited and would be same as many other small European countries.
This country has more skin in the game per capitathan other countries in terms of the debt crisis, given the level of its debt burden. The Government has not made a direct positive engagement with regard to the write-down of Greek debt so far in the negotiations.
Our position is that we have to look after our own interests as a sovereign country. I have a lot of sympathy for the Greek people and would like the situation there to be resolved. I can see that it cannot continue under the current arrangements and I am prepared to participate in negotiating new arrangements in the context of the Eurogroup, which is the context in which I and all of the Eurogroup countries have an input. Otherwise, the arrangements are taking place between the technical people from the IMF, the Commission and the Central Bank, and those from Athens representing the Greek Government.
I do not think they have. As I said, I am not familiar with the details of the negotiation. When we were involved with the troika, it made certain proposals to us, but we could accept or reject those on taxation. If we did not accept a taxation proposal, we had a obligation to bring forward a proposal of equal fiscal value, whether by way of expenditure cut or an alternative tax increase. That is the negotiating position for all programme countries and it is the same for Greece. That does not take away their sovereign right to set rates of taxation.
One of the points with regard to ECOFIN is the proposal on mandatory and automatic exchange of information on cross-border rulings. We all know where that came from. Does the Minister expect that the Commission will find there was a breach with regard to the Apple investigation? If it does, will Ireland stand to gain with regard to the repayment of taxes? If that is the case, will we appeal the ruling?
The referral of Apple to the appropriate Commissioner, Margrethe Vestager, is because it is a state aid issue rather than a taxation issue. It is an assessment by the Competition Commission that it needed to examine the Apple position, which it is doing. It is a quasi-judicial process. It does not prejudge the position. It has not signalled where it will go. It may find that Ireland has no case to answer.
It is Ireland's relationship with Apple that is being investigated. It can go in a number of directions.
We met the Irish Fiscal Advisory Council last week and it was very critical of the spring statement and the Government's multi-annual projections with regard to budgeting. Its representatives also mentioned the fact that GDP is forecast to rise by 17.3% between 2016 and 2020 but Government consumption would only rise by 5.7%, meaning State spending as a proportion of GDP would actually shrink. Is that the objective of the Government?
I asked the fiscal council what the level of Government investment in the economy should be. Its delegates said it should be 4% but the Government's projection is for a decrease from 1.8% to 1.5% in that timescale. That would mean the capital stock of the country would suffer as a result.
The fiscal council has a specific job to do under law. In summary, it is supposed to give a contrarian view, an opposite view to that of the Government. If one goes back to the research done into the banking crisis and the collapse of the Irish economy, it was identified on a number of occasions-----
The Deputy has asked a question. He should let me answer it as I am not reluctant to answer questions, despite the propaganda that emanates from his party. May I go ahead?
The work of the fiscal council is enshrined in law. If it said, "Great Government - throw your hats into the air. Three cheers for the Government.", I do not think it would be doing its job. That does not mean that, while it exercises its independent view, I as Minister for Finance have to agree with it. It made a statement to the effect that we would not meet European fiscal rules. The referee on European fiscal rules is the Commission and the Commission has already said we will meet both of them. The Commission put out new forecasts after the spring statement was published. We knew they were coming out and that they would be more optimistic than the ones we had in the spring statement but we could not prejudge them and had to put in what we had. The argument of the fiscal council is that we will not reduce the structural deficit by more that 0.5% each year, which is the rule, and the spring statement said we would reduce it by 0.3% but it failed to note that, a couple of weeks afterwards, the Commission put out new forecasts. The Commission's view, which it has made public, is that we will not adjust by 0.3% but by 0.8% in 2016, which would be well ahead of the requirement to adjust by more than 0.5% in the year. I do not know why the fiscal council was not aware of that. It is the Commission that decides whether we meet the target or not.
The Irish Fiscal Advisory Council also seemed to imply that we did not take any account of demographic changes but there is €300 million for demographic changes.
As a politician I have a problem with people telling me that I should tie the hands of the next Government. The next Government is reaching out to 2020. We gave very specific indicators of the budget for 2016 but we said that, beyond that, we had identified the fiscal space. The projections are on a no policy change basis so the policy changes will be a matter for the Minister for Finance on the day he brings in the budget. If he has a four or five year mandate, he can indicate for the full period but it is anti-democratic for a Minister, when an election is due within 12 months, to prescribe the details of budgets for the next five years. I am, however, outlining the fiscal space in accordance with the fiscal rules.
The fiscal council also said we will correct excessive deficits this year and that is a very positive statement. I do not have a lot of quarrel with the fiscal council's overall analysis and I share its overall analysis. I think the council is very important and I admire its work, which is difficult. It is independent but so am I, apart from being accountable to Deputies in the Parliament.
I will make one last point. The fiscal council suggests it is unwise to use the fiscal space of €1.2 billion in next year's budget but that €750 million would be more appropriate. Does the Deputy think that macroeconomics is such a refined art that the spending of an extra €450 million will ruin a country with a budget in excess of €50 billion? The amount of money it has identified as being between its position and my position for 2016 seems within a margin of error and it is certainly around the figure by which the Department of Health overruns its Estimate in most years. I do not get the argument but that is not to say the fiscal council does not do a good job and, generally, it is in the same space as I am in terms of the management of fiscal affairs. We are obliged to reply to the fiscal council's submission and we will do so in detail in the next couple of weeks. We will then publish our reply on the website.
I think the Minister is being harsh. It is the second time I have heard Sinn Féin come out in full support of the Irish Fiscal Advisory Council. That might be useful to note as the year goes on.
Government Deputies were here last week complaining that they could not get a bypass put around Mallow. They said Europe was stopping the bypass around Mallow but it is because of the Government's policy.
It is good to see the Minister is convinced of the benefits of democracy and the right of governments to decide on fiscal policy, given his support for the fiscal treaty, the six-pack and the two-pack, which are all about-----
I will start with a question on Greece. I contend strongly that the negotiations from the point of view of the European institutions are not being carried out in a frame of mind consistent with negotiations between partners to achieve a mutually beneficial solution. They are being carried out to inflict humiliation on the Greek Government and the Greek people in order to send a message across Europe not to take a risk with Podemos in Spain or governments of the Left in Ireland or Portugal. The European institutions have not taken seriously any of the significant concessions made by Syriza in the course of negotiations and they are not negotiating seriously to find an agreement. Does the Minister concur with that analysis or does he think there is just no agreement?
The institutions are negotiating in good faith and a number of examples have appeared in the media without contradiction. One of the key requirements for the Greek authorities is that the primary surplus of 4.5%, which was originally required, would no longer be required. That was a huge concession by the European institutions. As colleagues know, a primary surplus is the surplus a country has if it does not have to make any debt repayments and the surplus exists to make the debt sustainable. As I understand it, they have offered a much lower primary surplus, at 1% for 2015 escalating to 3.5% by 2017-2018, but they have moved away from the primary requirement.
I am using that only as an example to suggest that, from what I have read in the media, which was not contradicted by either side, there is a genuine effort by the institutions to reach a middle position. I was talking to colleagues on the telephone last week and it appeared to them, according to their information from Brussels, that we were on the cusp of an agreement.
It seems that the last paper from the Greek Government to the institutions was dismissed out of hand, despite the fact that it represented an attempt to sum up the negotiations and a compromise. In terms of the primary surplus, Syriza and the Greek Government have moved on a rise in value added tax, VAT, on postponing the rise in the minimum wage, collective bargaining, pensions and a whole range of issues but the line from the institutions is that the other side is not seriously willing to negotiate. Is there not politics at play here? Is it not just the same as when the Minister talks about looking after our interest? Are those not the interests of the Government as opposed to the people?
I was not party to the negotiations because I can only play a part in them at Eurogroup and ECOFIN meetings. We do not have an Irish representative at the technical talks but nor does any other country. The negotiations involve the representatives of the three institutions and of the Greek Government. By the middle of last week, all information emanating publicly and privately suggested that both sides were compromising. I cannot endorse the individual items the Deputy mentions. Within that range of items, there was certainly movement by the Greek authorities. There was a corresponding movement from the institutions and by late Wednesday evening it looked as if it was moving towards resolution of the issue with an agreement but that is not the position now. When the Greek Prime Minister spoke in the Greek Parliament on Friday night last, it was quite clear the situation had changed. The gap now seems to be again unbridgeable.
To go further on the question of our interests, earlier the Minister said he was against debt write-downs. Is that just debt write-downs for Greece or is the Minister against them for Ireland, if they were to be offered, or if we were to get them if we asked for them, or is it debt write-downs only for tremendously rich private individuals paid for by the taxpayer and not for the country? Is it not the case that our interests coincide with the interests of ordinary people in Greece? We have similar targets on primary surplus from the troika and the EU institutions. We spend a similar percentage of gross domestic product, GDP, on our interest on our debt every year. We have similar high levels of debt, although the Greek debt is higher. Do we not have a common interest, within that framework, of lower primary surplus targets and reduced debt?
Deputy Murphy's last intervention is composed of series of rhetorical questions which are not real questions. They are rhetorical questions to make political points. As I stated at the start of the process we are engaged in now, we stated our position very early on at the first meeting where this was discussed in the Eurogroup and ECOFIN. At the meeting, and publicly, I stated the Irish position was that we want Greece to stay in the euro and we are opposed to any write-downs of Greek nominal debt. We also went on to say that we appreciated the difficulty of Greece, the amount of sacrifices made and the amount of suffering incurred by many ordinary individuals in Greece. We said we were willing to participate in a negotiation which would alleviate the burden and that there are other ways to do that rather than nominal write-downs.
If Greece were to get a write-down on its debt, in whatever way, would that not be beneficial to us who still have a massive debt, still pay €7 billion a year in interest, a figure that will rise? Would it not be in our interest that there would be a European debt conference and a process of write-down of unsustainable debt? I do not understand how it is not in our interests that we have our own debt written down, together with that of Greece, Spain, Portugal, etc.
We have substantially done our negotiations because we are no longer a programme country. I told the Greek Finance Minister that he should look at the way we resolved our problems when we were refused a write-down on the private debt element. We resolved our problems by getting very long extensions of the maturities of the official loans to Ireland. We got all the margins removed, relating to the moral persuasion issue and came down to very low interest rates on the debt. We negotiated a separate arrangement to replace the promissory note. That was before the Deputy won the by-election. We were obliged to pay €3.1 billion every March. That was going to go on for more than a decade, then diminishing amounts for another decade. We negotiated to reduce the burden of debt. Our debt peaked at 123% of GDP last year. It will be 109% at the end of this year.
I hope to break the 100% with the measures we are taking in the budget, which will be announced on 13 October for the end of 2016. If we are down to 100% or 99% at the end of 2016 and the eurozone average is 94.5%, we will be very near the average. That is not taking into account any sale of assets or bank shares or anything like that, or the adjustments which the Central Statistics Office, CSO, will make in early July when it takes new ways of calculating GDP into account. That, I believe, will run in a small way to our advantage as well. We negotiated.
I have no animus towards the Greek people. I like the Greek people. I get on reasonably well with the Greek Finance Minister but I would prefer if he did not interfere in Irish politics and start making noises of approval about Sinn Féin. I do not make noises of approval about his political opponents. That being said, he is a reasonable man to talk to and he is an interesting person. The issue is that he damages the balance sheet of every European country if he insists on the write-down of debt on a nominal basis. On the other hand, if he negotiates an extension on maturities and a lowering of interest rates, even though Greek interest rates are already very low on official debt, there is scope there. There is also scope on the primary surplus, which has already been conceded by the institutions. In these negotiations, to get something one has to give something. That is the way we approached it.
To continue on the same lines, I find it pretty amazing and quite shocking that neither the Minister nor the European Commissioner with responsibility for Financial Stability, Financial Services and Capital Markets Union, Commissioner Hill, whom I met yesterday, will give any detail about the gap between the European Union and the Greek Government, when we talk about that gap potentially leading to Greece’s exit from the eurozone. Commissioner Hill says he does not know the details, we can get them in the media and the Minister is more or less telling us he does not know the details, yet we are talking about an existential crisis.
If we were only involved in the negotiation of a pay increase for two nightwatchmen we would not announce the gap because it would affect the possibility of a resolution. Nobody negotiates on the basis of saying “the gap is now this much”. That only paints people into corners.
That is what I do not accept. We are not getting the details of the gap. We are not supposed to be talking about conflicting sides. In a negotiation between a nightwatchman and an employer, arguably they are conflicting sides. We are talking about people who are supposed to be partners. Greece is supposed to be a partner in the European Union. All sides are supposed to be working towards a resolution that is in the best interests of all, yet it is being framed, as the Minister has just framed it, as some sort of hostile negotiation that we cannot get the details of. I find that suspicious, to put it mildly. I believe the reason we cannot get details of the gap from the Minister or the Commissioner is that if we did get them we would discover the EU is being vindictive, that this is a question of trying to politically discipline the Greek Government and send a signal that we are not going to appear to give any ground to a government which has demanded an end to austerity.
Is that not the reason? Even if it is not, how can the Minister, as the representative of the State, say that he does not know the detail?
I believe Deputy Boyd Barrett's analysis is incorrect. I am not in favour of austerity. I finished austerity in Ireland in the last budget. We increased no taxes and imposed no further expenditure cuts. There is no austerity regime in this country. Austerity was a means to an end and we are all glad it is over. It is the same in every European country, whether in Spain, Portugal, Cyprus, Italy or Greece. There are governments of various shapes, sizes and colours all over Europe and many of them would not fit into what one particular country would regard as the model government, but we work with everybody, and so do the institutions. The trouble about Jonathan Hill or me answering the Deputy's question is, first, that I am not party to the details of the negotiations, because they are not being carried out at a political level.
May I answer Deputy Boyd Barrett's question? The bigger problem is that while I can access the position of the institutions and can get reasonable information, I do not know what the Greek position is, because many of the Greek statistics are fictional. That makes it very difficult, if one does not know the position of the interlocutors. There are always two sides when creditors are negotiating with debtors. That does not mean there is no goodwill and that the interests of Greece as a whole are not being taken into account by the institutions, but both sides have to give.
There is no significant gap between what the Greeks are taking in and what they are spending. The only issue at stake is the payment of the debt. Yet the one thing Europe is saying, even though Greece is more or less in balance and may still have a slight surplus, is that it must pay the debt, whatever it takes and no matter how much suffering it may inflict, and that Europe is willing to allow the possibility of a Greek exit from the eurozone over that. The Minister is telling me he does not even know the details.
With respect, Deputy Boyd Barrett does not understand the position of many of the European countries. European countries that contributed to Greece's two programmes went to their parliaments and then the parliamentarians went to their people and told them that they were giving loans to Greece which would be paid back. That is what they told their taxpayers and they are accountable to their taxpayers. We are not in for a lot of money, so it is not as big a political issue here, but the taxpayers and the parliaments of the European creditor countries were given a commitment that what was involved was a repayable loan.
To give another flavour of what is going on, I have heard the finance Ministers of at least five smaller countries asking how they can get more money for Greece when the Greek minimum wage is higher than that in their own country and when the pension proposed for Greece is significantly higher and the age at which it kicks in lower than what we can achieve in our own country. Deputy Boyd Barrett is a politician. How does one tell the finance Ministers of small northern European states to go to their parliaments and their taxpayers looking for more money for countries that, on the face of it, have better policy positions than they have at home?
May I get one more question in? I take the Minister's point, but I disagree with it and it is very revealing. What the Minister is saying now, and he is giving us a little more information, is that there actually is a vindictive agenda. As if Greece has not taken enough punishment, when one looks at the humanitarian indexes of that country, we are not going to allow a situation where they have anything resembling a half-decent minimum wage or pensions that might be a little bit better, supposedly, than those elsewhere. We are going to hammer them down. There is no solidarity there. The attitude is that we are going to hammer them down because we consider them to have too much. How anybody could think that anybody in Greece, other than the very rich, has too much is beyond me. I have a final question-----
No, I would rather reply separately, because Deputy Boyd Barrett has made a whole series of unsubstantiated charges again. There is great solidarity between the member states of Europe, all 27 of them, and the Greek Government and the Greek people. That solidarity has been proven in two separate programmes where European taxpayers contributed €350 million to Greece, which would have gone down long ago if it had not been for the solidarity shown by European taxpayers. The goodwill is there and it has been proved. They are involved in real negotiations again because everyone knows the Greek situation has to be alleviated and they are prepared to do a deal on that. However, I cannot envisage a world where, if one pays money, one does not pay it back and still gets more money. Even if the present Greek situation were resolved, they need a contract or a third programme, and who is going to give it to them if they refuse point blank to make any effort to repay the €350 million they already owe?
This is my very last question. In both our case and their case, this revolves around the debt. I will bring the discussion back to Ireland and the macro-financial review from the Central Bank today. The ECOFIN meeting is also discussing imbalances. They are commenting now that the major domestic threat facing the Irish economy is the issue of housing, property and so on, apart from the humanitarian-----
This is the macro-financial review. They talk about external threats and then they talk about the disastrous rise in rents, property prices, and so on, and the threat it represents. The way to address that is through major capital investment in housing in order to provide a supply and bring down the costs, to make it affordable and to deal with what is now a major macro-economic threat, never mind a humanitarian crisis, in this country. Is it not the case that we cannot do that because next year we are paying €8 billion in debt interest?
That is my question. Is the debt not, therefore, the key issue for us, as it is with the Greeks? We are not able to address what is now a major social crisis and macro-economic threat because we are paying out €8 billion in interest next year.
First, it is very important that we reduce the burden of our sovereign debt and, indeed, the burden of personal indebtedness. They are priorities of the Government, as I described earlier. I hope to have debt under 100% of GDP by the end of 2016. It is not the fact that we have to repay a great deal of interest each year that prevents us from putting extra money into capital investment, it is the tightness of the fiscal rules. It is the tightness of the fiscal rules that enables us to reduce the debt, but if we spend the money, it will not reduce the debt.
There is a space there where we will have a very strong investment programme and the Minister for Public Expenditure and Reform will, I understand, be announcing a capital investment programme before too long.