John McGuinness (Carlow-Kilkenny, Fianna Fail)
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We are dealing with the pre-ECOFIN engagement and I invite the Minister to give his opening statement.

Paschal Donohoe (Dublin Central, Fine Gael)
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I thank the committee for inviting me to speak to it in advance of the next ECOFIN Council of Ministers meeting, which will take place on Tuesday. This is the first meeting of the Estonian Presidency and will be my second Council to attend since my appointment as Minister for Finance, having attended the June Council in Luxembourg. In light of these developments, I want to discuss quickly the issues that are before finance Ministers at the ECOFIN meeting. In the committee's invitation, it asked if I would also provide a brief overview of the proceedings of the June ECOFIN meeting, so I will address that first.

The June ECOFIN meeting took place in Luxembourg on 16 June and it was the last under the Maltese Presidency. The June agenda included discussions relating to the reduced VAT rate for electronically supplied publications, known as ebooks, the general reverse charge mechanism, which I will explain quickly for the benefit of members, strengthening of the banking union and risk reduction measures, and an update on the current financial services legislative proposals. On the non-legislative part of the meeting there were discussions on non-performing loans, the fight against the financing of terrorism, the capital markets union, the contribution to the June European Council meeting, and the Stability and Growth Pact. As usual for the final meeting of a Presidency, it was busy.

The first item on the agenda was a proposal to amend the Council directive dealing with a reduced VAT rate for epublications. At present, the EU VAT directive prevents member states from applying the same VAT rates to epublications as currently applies to physical publications. The result is a less favourable VAT treatment of epublications in most member states. The modernisation of VAT on ecommerce proposals published by the Commission on 1 December 2016 includes provision to grant all member states the possibility to apply the same VAT rates to electronically supplied publications as member states currently apply to printed publications. Furthermore, the proposal also allows all member states to apply a zero or super-reduced VAT rate, which is below 5%, to publications in any format. Until now, only member states that applied such treatment to physical publications on and since 1 January 1991 could avail of zero or super-reduced rating. Unfortunately, no agreement was reached on this.

The second item dealt with a proposal to amend the directive on the common system of VAT specifically relating to the temporary application of a generalised reverse charge mechanism relating to supplies of goods and services above a certain threshold. This item was last discussed at the March ECOFIN meeting. The current EU VAT directive provides for sectoral reverse charge mechanisms to apply in certain circumstances where known fraud exists. However, it is proposed to introduce a generalised reverse charge mechanism which extends the reverse charge to all supplies of goods and services in a member state and not just to a specific sector. Under the reverse charge mechanism, the person liable for payment of VAT to the tax authorities is the consumer and not the supplier. This is an anti-fraud mechanism. As with the ebooks proposal, no agreement was reached on this matter either, as they both require unanimity to proceed.

Ministers also discussed a number of legislative proposals that dealt with strengthening the banking union and also dealt with risk reduction measures. Two of the proposals, namely, a draft directive on the ranking of unsecured debt instruments in insolvency proceedings relating to bank creditor hierarchy and a draft regulation on transitional arrangements to phase in the regulatory capital impact of International Financial Reporting Standard 9, IFRS 9, were agreed by Ministers. The first general approach seeks to harmonise the ranking of unsecured debt instruments across Europe, that is, to establish a common hierarchy for the repayment of creditors when an institution is resolved. The second general approach introduces transitional arrangements to phase in the impact on bank capital of IFRS 9, an accounting standard that comes into effect on 1 January 2018, and to phase out the exemption of sovereign bonds from the large exposure rules due to expire at the end of 2017. This means that the Presidency can commence discussion on these draft proposals with the European Parliament as soon as the Parliament has approved its own negotiating stance.

The Council noted the progress made by working parties on the remaining four draft proposals. These relate to bank capital requirements, the directive on bank recovery, a regulation on the Single Resolution Mechanism and a regulation establishing a European deposit insurance scheme. The first three proposals are aimed at reducing risk to the financial sector and are designed to incorporate into EU law standards agreed at the global level by the Basel committee on banking supervision and the financial stability board. The final proposal sets out to establish an EU-level insurance scheme to strengthen the protection of bank deposits. Work will now continue at a technical level on these proposals. We were given an update on non-performing loans in Europe, the mid-term review of the capital markets union action plan and progress made on the implementation of the action plan for strengthening the fight against terrorist financing. As the Council will return to the first two topics in July, I will say more about them later.

Let me now turn to the remaining two items on the June ECOFIN agenda: the contribution to the European Council meeting to the European semester and the implementation of the Stability and Growth Pact. The EU semester refers to the EU economic governance rules and related monitoring. This is an annual cycle of economic and budgetary policy guidance which culminates in the adoption of country-specific recommendations. The Council discussed and approved the recommendations on each member state's country-specific recommendations. This is a routine part of the annual EU semester process and these recommendations were endorsed by the European Council in June and will be adopted at the July ECOFIN meeting. We are broadly satisfied with the policy guidance contained in the three country-specific recommendations addressed to Ireland. Finally, ECOFIN was asked to approve the draft Council decisions to abrogate the excessive deficit procedures of Portugal and Croatia. Both countries outlined the progress made with respect to their economies and welcomed this. The Council also agreed to launch a significant deviation procedure for Romania as part of the preventative arm of the Stability and Growth Pact with a view to correcting its significant deviation from the structural adjustment path towards its budgetary objective.

Next week will be the first ECOFIN meeting under the Estonian Presidency and I wish it well. I remind the committee that this is a draft agenda and there may be changes between now and the meeting. On the legislative side of the agenda, Ministers will be informed, as usual by the Presidency, of the state of play on the current financial services legislative proposals. The Commission will make a presentation about its recently published proposal on the mandatory disclosure of tax schemes by tax advisers. This would require tax advisers to disclose to tax authorities when they market or promote tax planning schemes that meet certain so-called hallmarks. The disclosures would be shared with all other member states. The logic for that proposal is that tax authorities would be made aware of arrangements that may constitute tax avoidance and therefore would be able to carry out more detailed audits or introduce legislative changes to close loopholes. The proposal stems from the recommendation in the OECD base erosion and profit shifting, BEPS, process.

This is a Commission proposal that has not been contributed to yet by member states. Ireland and other member states will now examine the proposal in detail and discuss it at Council working parties under the Estonian Presidency. These technical discussions have not yet begun. The Presidency has not made this proposal one of its tax priorities but the Commission will be eager for agreement to be reached in the coming months. Ireland already has mandatory disclosure rules in place and is one of only four member states to have such rules. A Government decision in September 2016 confirmed Ireland's support in principle for all member states agreeing a directive to introduce similar rules to the extent that they are in line with the BEPS Action 12 report.

Turning to the non-legislative side of the agenda, there are three topics down for consideration.

The first item will be a presentation on the work programme of the Estonian Presidency which will be made by the Estonian Finance Minister, Mr. Toomas Tõniste, as is usual at the start of a presidential term. The main overall objectives of the Estonian Presidency are: an open and innovative European economy; a safe and secure Europe; a digital Europe and free movement of data; and an inclusive and sustainable Europe. The Presidency views an open and innovative European economy as developing a business environment which supports knowledge-based growth and competitiveness. It is also committed to the principle of better regulation and will examine opportunities for e-solutions.

The second item will be the topic of the Commission's mid-term review of the capital markets union action plan, on which Ministers will seek to adopt draft Council conclusions which we generally support. As I mentioned, this item featured on the agenda for the June Council. The mid-term review which was published on 8 June details the progress made so far and sets out timelines for new actions in the coming months. Ireland is broadly supportive of the capital markets union project and welcomes the continued efforts of the Commission to implement the action plan, including through the review which shows that significant progress has been made across many measures. The capital markets union action plan has the potential to increase the sources of finance for Irish businesses and investors. The creation of larger and deeper capital markets in Europe would also be of benefit to our financial services industry. The majority of the proposed new measures will help to achieve these objectives. It is generally the case that the cumulative effect of many measures will have an impact, rather than any single measure being transformative by itself.

The report of the expert group of the financial services committee subgroup on non-performing loans will be presented to Ministers and followed by an exchange of views. The Council will also be asked to adopt draft conclusions. From an Irish perspective, notwithstanding the progress made and the strong pace of reductions in 2014, 2015 and 2016, pressure remains on Irish banks to reduce the value of non-performing loans at a faster pace. The value of impaired loans in Ireland has fallen by approximately 63%, from a peak of €85 billion at the end of 2013. In 2016 alone it fell by approximately 25%. The momentum of this reduction in the value of non-performing loans has continued into 2017. Ireland is broadly supportive of proposed measures which cover 19 policy proposals across four core areas: supervision; insolvency and legal frameworks; the development of secondary markets; and the restructuring of the banking sector. The aim of the proposals is to introduce consistent and strong supervision of non-performing loans; improve the legal frameworks and efficiency across the European Union; enhance the consistency of approaches to secondary markets; and assist member states in setting up asset management companies. However, we do have some concerns about specific elements of the proposals. For example, we are concerned that restructuring activity will be disincentivised in favour of loan sales, or that possible changes to legal and insolvency frameworks might need to make allowance for the independence of the courts system and our common law framework. The draft conclusions make it clear that the matter will be reviewed. Accordingly, we are broadly supportive of the draft Council conclusions.

I trust that the Chairman and members of the committee have found the summary of last month's meeting and the outline of this month's agenda informative. I thank them for their attention and will be happy to respond to questions or observations members may have.

Pearse Doherty (Donegal, Sinn Fein)
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This is the Minister's first time in front of the committee and I hope we will have many good engagements during his period as Minister for Finance. As we enter into the budgetary process, he can trigger the process whereby his officials engage with members of the Opposition in the preparation of an alternative budget. It requires annual sanction and I ask him to sanction the process for this year - I have engaged with a number of Ministers of State in the past - in order that officials might engage with me on one particular policy issue. I ask the Minister to do so without delay, if possible.

Paschal Donohoe (Dublin Central, Fine Gael)
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I will give that sanction immediately, but my officials are always available to any Member to answer questions and respond oo any issue they might wish to raise. The protocol for the giving of financial information to allow the Deputy to prepare draft proposals will be respected by me.

Pearse Doherty (Donegal, Sinn Fein)
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I thank the Minister. I would not expect anything less of him and welcome his clarification on whether officials can engage with members of the Opposition.

I wish to discuss the fiscal rules, the Commission's stance on the budget and banking union. This will be the Minister's second ECOFIN meeting and the first we have had a chance to discuss with him. Did he discuss the need for reform of the fiscal rules at the last ECOFIN meeting? Will he do so at an upcoming meeting? Did he raise the case for flexibility for Ireland within the rules, particularly in the light of Brexit?

Paschal Donohoe (Dublin Central, Fine Gael)
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I did not discuss it at the last ECOFIN meeting because there was no agenda item that would have allowed me to do so. In my opening statement I asked for an opportunity to address colleagues and I did refer to Brexit. I referred to the pressures Ireland specifically would be under as a result of Brexit and it is my intention at future meetings to continue to raise the matter. Where it will be of help to us, I will press the case for recognition of the specific needs of the economy. The following day I participated in a meeting of the governors of the European Investment Bank, at which I pressed the case for investment in Ireland to recognise our circumstances. I referred, in particular, to Northern Ireland and will continue to do so. I used, as an example, the investment of the European Investment Bank in Derry and pointed out that by facilitating the building of the peace bridge and other such projects, it had played a role in the economic rejuvenation of a fabulous city, as well as producing a far more important political dividend. I will continue to raise the matter, particularly with the EIB.

Pearse Doherty (Donegal, Sinn Fein)
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It is welcome that the Minister raised the issue with the EIB. I have raised it with the governor and there is nothing to prevent the bank from continuing to invest in a non-European Union country. There should be special recognition for the North. It is now accepted across the board that there is a need for an adjustment to the fiscal rules and I encourage the Minister to put the matter formally on the agenda.

Prior to the Minister's elevation I discussed proposals related to Brexit with officials. If the Minister has not seen them, I will send them to the Department again. They concern flexibilities which are possible within the existing fiscal rules and rules on state aid. They also deal with changes that need to take place to the globalisation fund to alleviate distortion as a result of Brexit. A number of practical solutions should be considered and I call on the Minister to raise them, with the other things bring raised by the Department. I ask him to put forward more concrete proposals at ECOFIN meetings. We saw what the Brits did on fishing rights and time will slip away from us unless we start to make a stronger case on these matters.

Paschal Donohoe (Dublin Central, Fine Gael)
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The main point of my contribution to the ECOFIN meeting was that Ireland, as an island, was an outward-looking country which saw its future in the European Union but that, because of what was happening in the United Kingdom, we faced acute risks. Many other countries contend that they face equal trading risks which I have to acknowledge. Other finance Ministers tell me that a large share of their trade comprises exports to the United Kingdom. However, Ireland is the only country that shares a land border with the United Kingdom and the disruptive effects, particularly on supply chains, will be particularly acute for us.

Pearse Doherty (Donegal, Sinn Fein)
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I appreciate that and the fact that Brexit will be a dominant factor for a number of years.

Even without Brexit we still need a change to the fiscal rules. Everybody who is tuned in around this table knows there will be changes to the fiscal rules. There has to be because they are not working. They could not have worked because of the way they were designed and they are definitely not working. It has been acknowledged by all sides with regard to the impact they are having on our inability to invest in certain areas. The Minister's Department officials are scrambling to try to find vehicles that are off-balance sheet so we can invest in social housing and elsewhere. The reason we have to do it off-balance sheet is because the fiscal rules do not allow us to spend money we may have at our disposal on these matters. Even in the absence of Brexit, there is a need to raise the issue of the fiscal rules and show a pathway to having those fiscal rules re-examined so we can put our case forward in terms of the impact it is having.

Paschal Donohoe (Dublin Central, Fine Gael)
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These rules, as with any others, have to be kept under review. We have to see if they fit the needs of an economy at any point in time, in this case the European economy. This could be an area in which we have different views but I contend that many of the objectives contained in the fiscal rules are appropriate and necessary for our economy. To have a deficit below 3% and a debt as a percentage of our national income that is below 60% are sensible choices for our economy. Even if the fiscal rules were not there, they are good, sensible choices for a small, open economy that has a currency but does not print its own currency. That being said, we had low debt levels and low deficit levels before the crisis began and all these things unravelled with shocking speed. I would never say those things on their own provide full insulation in the uncertain waters we are working our way through. They are an essential part of what insulation and security looks like for an open economy like Ireland. Although I welcome that for a number of years under the fiscal rules capital expenditure has been treated differently from current expenditure, I have indicated we will continue to look for recognition of the needs of the Irish economy. The objectives of the fiscal rules are sensible and appropriate for Ireland. While we have all gone through a very difficult period at huge social cost, we now have a eurozone and eurozone economy that is growing. At the peak of the difficulties, we had over 20 eurozone member states in the excessive deficit procedure. We now have around four or five.

Pearse Doherty (Donegal, Sinn Fein)
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Is it the Minister's view, because I am a wee bit confused, given some of the major policy changes and given we have a new Minister for Finance and new Taoiseach, that we need changes to the fiscal rules?

Paschal Donohoe (Dublin Central, Fine Gael)
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They need to be kept under review. The needs of the Irish economy, in particular with regard to demographics and Brexit, need to be recognised in the fiscal rules in the future. The objectives of the fiscal rules make sense.

Pearse Doherty (Donegal, Sinn Fein)
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Does that mean changes to the fiscal rules?

Paschal Donohoe (Dublin Central, Fine Gael)
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It means working with all member states. When I look at, for example, the stance the United Kingdom has taken on fisheries, which the Deputy brought up, I would look to make changes in a different way. Our demographics alone mean capital expenditure in Ireland needs to be treated in a different way. I also do not want to overstate the agreement. The objectives of the fiscal rules on deficit-----

Pearse Doherty (Donegal, Sinn Fein)
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Nobody disagrees with the objectives of the fiscal rules. The objectives of the fiscal rules are keeping debt low and running balanced budgets. Nobody disagrees with the objectives. It is the criteria being used to get to those objectives that are not working and require change. We need to formally put that demand for change onto ECOFIN.

If the Minister delays any longer on the summer economic statement, which was originally called the spring economic statement, it will be the autumn economic statement. The Minister's reply to a parliamentary question I tabled in early June said it was due before the end of that month. Now he is saying it is before the end of this month. When will we see the summer economic statement and why is there such a delay in the summer economic statement?

Paschal Donohoe (Dublin Central, Fine Gael)
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Assuming the agreement of the Business Committee, I am hoping to do it next week. Why are we doing it next week? I have many colleagues who are now in new roles. They are entitled to a period of time to understand the needs of their Departments and to understand some of the things we need to manage and to have a fuller discussion about it.

Pearse Doherty (Donegal, Sinn Fein)
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When will it be published?

Paschal Donohoe (Dublin Central, Fine Gael)
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It depends on the day on which the summer economic statement is confirmed in the Oireachtas. I am hoping we will get it on Thursday or Friday. Subject to the Cabinet agreeing to it, I will publish it as early in the week as I can.

Pearse Doherty (Donegal, Sinn Fein)
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Will the Minister get it on Thursday or Friday? Is that what he is suggesting?

Paschal Donohoe (Dublin Central, Fine Gael)
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No. I am saying the Oireachtas needs to determine when it is on and I am hoping it will either be next Thursday or Friday.

Pearse Doherty (Donegal, Sinn Fein)
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Will the debate be next Thursday or Friday?

Paschal Donohoe (Dublin Central, Fine Gael)
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Yes.

Pearse Doherty (Donegal, Sinn Fein)
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The summer economic statement will be published earlier next week.

Paschal Donohoe (Dublin Central, Fine Gael)
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I want to make it available to the Oireachtas in advance of the debate.

Pearse Doherty (Donegal, Sinn Fein)
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Are we likely to see any significant changes to the fiscal space in the summer economic statement?

Paschal Donohoe (Dublin Central, Fine Gael)
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We will have a Cabinet discussion on it this afternoon. At this point in time, I cannot say. As I have said on a number of occasions recently, our estimate on the so-called fiscal space for next year is broadly unchanged from a number of months ago. It is a matter that can change at any point during the year. We will be having an assessment of this matter during the summer and I will be making a final calibration of where we are in advance of the budget.

Pearse Doherty (Donegal, Sinn Fein)
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We will come back to it in the budgetary committee because many of the ingredients that are locked into the fiscal space are locked in at this point in time. There should not be that much flexibility at any time during the year in terms of the fiscal space. It should be very much locked in at this point in time.

Paschal Donohoe (Dublin Central, Fine Gael)
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I disagree with the Deputy on a number of points. Due to the openness of our economy and the number of moving parts within it, any form of a change can have an effect on resources that are available next year. An increase from €5 to €6, for the sake of argument, is not a big percentage change but can have quite an effect on the discussions that I have with colleagues. I want to ensure that any indication I give of resources that are available next year, which I will finally do after the summer, is as accurate as possible, but I will give the Deputy my current understanding of it.

Pearse Doherty (Donegal, Sinn Fein)
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My last question is on the issue of the banking union. It seems that the whole plan of the banking union has now untangled. It has fallen at the first hurdle. We had this great promise from the European Union that taxpayers' money would not be used in rescuing the banks. The first challenge to the European Union on that was in Italy and lo and behold, MPS, a bank in Italy, has been sanctioned by the Commission to use public funds in a rescue of that bank. It sets a new expectation in the markets that other countries may follow suit.

Paschal Donohoe (Dublin Central, Fine Gael)
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The first time in which the new approach was tested, at least in this year, was in Spain rather than Italy. At that point, a merger took place between two very significant banks which did not involve the use of Spanish taxpayers' money. That is Banco Popular. The Deputy is correct to say the Italian-----

Pearse Doherty (Donegal, Sinn Fein)
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Was there a bail-in in the Spanish scenario?

Paschal Donohoe (Dublin Central, Fine Gael)
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Yes

Pearse Doherty (Donegal, Sinn Fein)
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Was it of senior bondholders?

Paschal Donohoe (Dublin Central, Fine Gael)
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No, there were enough in junior bondholders.

Pearse Doherty (Donegal, Sinn Fein)
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That is the point I am making. There were bail-ins of junior bondholders in other areas but the significance of the new model was that senior bondholders were bailed in before there would be any call on funds. That is the point about Italy. I am sorry to split hairs.

Paschal Donohoe (Dublin Central, Fine Gael)
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The point I am making about the situation in Spain is that a significant retail bank which was managed under the single supervisory mechanism was involved in a merger and the management of risk happened without the contagion effect within the Spanish or European economy that was the norm a number of years ago. The Deputy is correct when he says Italian taxpayers' money was used in dealing with the situation in Italy. The Italian Government made that decision in recognition of the fact that the way debt was held in the Italian banks was very different from the European norm. That was agreed to by the single supervisory mechanism and the European Commission.

Pearse Doherty (Donegal, Sinn Fein)
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It was a major blow to the process and serious questions need to be asked about the Commission's decision to allow it to happen. There is either a new model or there is not. If this were to happen in Ireland or Luxembourg next, there would be an expectation in the markets that rather than applying the new "suck it up, folks" model that is supposed to involve the bail-in of junior and senior creditors across the European Union, governments would use public funds to bail out the banks again, just as we did in Ireland in recent years, before European public funds would be drawn on.

Paschal Donohoe (Dublin Central, Fine Gael)
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I take a different view. If what happened recently in Spain and Italy had had happened in the eurozone a number of years ago, particularly during and in the aftermath of the crisis, we would be dealing with how banks elsewhere in the eurozone were affected, but we are not dealing with such issues. The fact that this has not happened - we have seen the resolution of two national banking issues without a contagion effect within their national economies or the eurozone - proves that the system has improved significantly in recent years. Having said that, the single supervisory mechanism is a relatively new institution by European standards. Of course, there is always a needs for an assessment of how these matters are handled. I am resolute on two points. First, we do not want to see this happen in Ireland again. Second, Ireland is now demonstrating a path to allow taxpayers to get their money back. This has happened in the case of AIB. I see the strengthening of banking union as a way for us to mitigate the risk faced by taxpayers and I hope eliminate it at some future point.

Pearse Doherty (Donegal, Sinn Fein)
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I thank the Minister.

Rose Conway Walsh (Sinn Fein)
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I welcome the Minister to the committee and wish him well in all of his various roles.

I want to focus on non-performing loans. I was taken aback when the Commission bluntly recommended that Ireland needed to encourage a more durable reduction in the value of non-performing loans through resolution strategies that involvd write-offs for viable businesses and households, with a special emphasis on resolving the issue of long-term arrears. Is the Commission telling us, almost a decade after the crash, that we need to get our act together? Its specific call for a policy of write-offs is unprecedented as we know that we have a Government which is simply not going to insist on it. What steps will the Minister take to implement that recommendation?

Paschal Donohoe (Dublin Central, Fine Gael)
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The Government and its predecessor have overseen an improvement in the value of non-performing loans. The rate of change has been extraordinary by European standards. The value of non-performing loans decreased by approximately €10 billion in 2016 alone. A reduction of €10 billion was achieved in a single year. The rate of improvement, by comparison with where we were at the peak, is absolutely massive. I will give some figures to illustrate the point I am making and I am using our own measurements. The Central Bank provides figures for five covered institutions. At the depth of our difficulties in 2015, there was €52.3 billion of non-performing loans. It was a gigantic challenge for families and businesses throughout the State. At the end of the first quarter of this year, that figure was €36.1 billion. There was a change of €16 billion in the value of non-performing loans. Having said that, our rate of non-performing loans is still high by comparison with the European average. We want to see it come down further and it is steadily. Services such as Abhaile and the Personal Insolvency Service of Ireland, as well as commercial enterprises and companies all over the country, are engaging with banks to try to restructure loans on terms that would be mutually beneficial.

Rose Conway Walsh (Sinn Fein)
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Is the Minister saying we will continue on with more of the same? The Commission is stating we need changes. We have not had the write-offs about which it is talking. When the Minister is talking about non-performing loans, is he talking about loans that have been sold to vulture funds?

Paschal Donohoe (Dublin Central, Fine Gael)
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No, I am not.

Rose Conway Walsh (Sinn Fein)
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Is the Minister talking about what is within the bank?

Paschal Donohoe (Dublin Central, Fine Gael)
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No. I would never advocate "more of the same" just for the sake of it. We will continue our policies if they work. The evidence on the progress we have made in dealing with non-performing loans is very positive. We want to keep at it. I will give the Senator a concrete example. The Central Bank has noted that since the peak in June 2013, approximately 120,000 private mortgages have been restructured and that 88% of those participating in the restructured mortgages are meeting their commitments, but that is not to deny that there continues to be great difficulty. I know that, but we have seen successive quarters of improvement in non-performing loans. In fact, that rate of resolution is now the fastest in Europe.

Rose Conway Walsh (Sinn Fein)
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Have there been write-offs for viable businesses and households?

Paschal Donohoe (Dublin Central, Fine Gael)
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I expect so, particularly for businesses, but it will vary on a business by business basis. Businesses have reached agreements with banks that have reduced the nominal value of debts, agreed to the making of repayments over longer periods of time and to the repayment of lower levels of debt in response for being treated better in other ways. All of this will vary, depending on the bank and the customer.

Rose Conway Walsh (Sinn Fein)
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Therefore, we have no aggregate figures for write-offs.

Paschal Donohoe (Dublin Central, Fine Gael)
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I have just provided figures which show that there has been a very significant reduction the value of in non-performing loans. The rate of reduction is particularly fast by European standards.

I did not get a chance to answer the Senator's final question about private equity firms because I was dealing with her point about where we were with mortgages. At the end of June 2016, private equity firms held loans on 10,000 principal dwelling houses in the State. As there are 740,000 such loans in total, it is clear that private equity firms hold a very small share of the total number of household and private dwelling loans in the country.

Rose Conway Walsh (Sinn Fein)
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Does the Minister expect the number of loans held by such firms to increase as a result of the changes within AIB? Representatives of the banks have been before the committee on several occasions and have all indicated that there is likely to be a further sell-off of loans.

Paschal Donohoe (Dublin Central, Fine Gael)
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That is a matter for the banks. I have asked my team to give me the most up-to-date figures available to us. The figures I have just provided are the most up-to-date available to me. I mention them because the starting point - the number of loans private equity firms have in the State which relate to units in which people actually live - is much lower than some indicate, but the position might change. That, however, is a matter for the banks which are coming from a low base. As the Senator is aware, we introduced legislation two years ago. Under the Consumer Protection (Regulation of Credit Servicing Firms) Act 2015, if a loan is sold, the rights of the mortgage holder or consumer with regard to the loan are maintained, even though ownership of it has changed.

Rose Conway Walsh (Sinn Fein)
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Does that also apply to unregulated vulture funds?

Paschal Donohoe (Dublin Central, Fine Gael)
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They will not be unregulated by virtue of this legislation.

They are regulated in this way. I am using the phrase "private equity firms". I will keep a close eye on how these companies and units operate because I want to ensure they are respecting their commitments to people. The loans to which we are referring are contingent on what happens to people's homes, of which I am always aware. The majority of the funds are providing for investment in the State to fund commercial construction which we all acknowledge is happening. That means that Irish banks are not the main source of such credit. That is an important objective for the economy to realise.

Rose Conway Walsh (Sinn Fein)
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The Minister is not concerned at all about private equity firms as he calls them and people not knowing when their mortgage is sold who is the mortgage holder. These are the cases we come across every day.

Paschal Donohoe (Dublin Central, Fine Gael)
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I never said I was not concerned. In fact, I said the very opposite. I indicated that I was keenly aware that somebody's home was the backup for his or her loan. I understand that. I have dealt with as many people as the Senator who are in intense mortgage distress or living in a property the ownership of which is changing. I am as aware as anybody else in the House of the human face of the problem. I am simply making the point that legislation was introduced in 2015 to ensure that if a loan changed hands, the person who was dependent on the asset with which the loan was related still had the protection he or she needed. I will keep the matter under review because I want to make sure we will do what we reasonably can to deal with the great social and personal distress people can endure.

Rose Conway Walsh (Sinn Fein)
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The Minister is just into his job. We will see how it goes.

Paschal Donohoe (Dublin Central, Fine Gael)
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I thank the Senator for her encouragement.

Rose Conway Walsh (Sinn Fein)
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The programme for Government also committed to reviewing the insolvency thresholds, but there is no sign of that happening. A special court to deal with mortgages with accompanying legislation was promised, but there is no sign of that happening. How will the Government implement this country specific recommendation? Is it legally obliged to do so?

Paschal Donohoe (Dublin Central, Fine Gael)
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In response to the questions about dealing with the level of arrears and potential repossessions, for 15 consecutive quarters the level of mortgage arrears has come down. We want to do all we reasonably can to ensure people stay in their homes or properties. The number of repossessions was unchanged in 2014, 2015 and 2016. Lest there be any risk my comments will be misinterpreted by others, I want to ensure we will do all we reasonably can to help people to stay in their homes, but there are limits. In 2016, the last full year for which I have figures, there were 847 repossessions. In the same period there were 1,201 voluntary surrenders.

The question of establishing a particular court to deal with this matter is still under consideration by the Government. We have the Abhaile mortgage arrears resolution service and I am very pleased to see the advertising and prominence it is being given across the State. It is trying to make funding available to people in debt and distress who are not approaching the banks to deal with their difficulties. The State is going to fund and make a significant contribution to helping them to access services and, through the Money Advice and Budgeting Service, MABS, procure those services for them. It is a very new service and it is reasonable to wait a little time to see how it is going to go. The debt thresholds are a matter for the Department of Justice and Equality in consultation with me. The Insolvency Service of Ireland was put in place in 2015 and is offering three forms of debt relief.

Rose Conway Walsh (Sinn Fein)
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Are we legally obliged to do it?

Paschal Donohoe (Dublin Central, Fine Gael)
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We are legally obliged to respond to the objectives set within the country specific recommendation. The Government has latitude in deciding how we should do so.

Rose Conway Walsh (Sinn Fein)
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On the Brexit projections, the Irish Fiscal Council Advisory and the Economic and Social Research Institute, ESRI, have clearly voiced concerns that the model for Ireland being used by the Department, the COre Structural MOdel, COSMO, may underestimate the potential effect of a hard Brexit. The Irish Fiscal Advisory Council's chief economist told the Oireachtas Committee on Budgetary Oversight that it was worried that the figures from the Department of Finance were too optimistic, on three grounds, that the model used did not take into account the fact that exports to Britain were more labour intensive than in other export markets; that COSMO could underestimate the shock impact of Brexit and that the model did not take into account the exchange rate changes which had been a feature of the Brexit process to that point. When he was pushed on the possible implications, he confirmed that the effect could be significant. That is a significant statement which adds to the argument against cutting the universal social charge. What action has the Minister taken on foot of it and has he discussed the matter with his officials or the Irish Fiscal Advisory Council or the ESRI that share that analysis? It is a question of the model being used.

Paschal Donohoe (Dublin Central, Fine Gael)
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Our mid-term fiscal forecasts have been endorsed by the Irish Fiscal Advisory Council as being inside the range of what it judges to be permissible and realistic. The ESRI is an independent body which offers its views on how the Department, the Government and the economy are performing and I respect them. The Irish Fiscal Advisory Council assesses whether our fiscal forecasts are inside a reasonable range of accuracy and whether they reflect the risks. It has endorsed our mid-term forecasts. It has acknowledged that the figures are inside parameters it believes are reasonable. We have assumed that the impact of Brexit, even before it happens, will eliminate approximately 0.5% of the projected growth of the economy and recognised this in the forecasts made.

In respect of the impact on fiscal resources, the ESRI came up with a figure of €600 million over three years. In those three years we will spend approximately €180 billion and collect approximately the same amount in taxes. While that is a risk we need to manage, it is one calculated across three years.

I do not have a Brexit and a non-Brexit part of my day. It has changed all the work we do in respect of the economy and permeates all discussions I have with my officials on economic matters.

Rose Conway Walsh (Sinn Fein)
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Is the Minister happy with the COSMO model being used?

Paschal Donohoe (Dublin Central, Fine Gael)
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The forecasting model used by my Department is as accurate as such models can be. If we have learned anything in regard to predictive models within the economy, it is that open economies are sophisticated, change quickly and have many moving parts. When discussing growth forecasts, I use approximate figures that are liable to change or are inside a certain range. Whether it be my own economic models or those made available to me by others, members must understand these things can change very quickly. However, the outputs from the models available to my Department have been endorsed by the Irish Fiscal Advisory Council.

Kieran O'Donnell (Fine Gael)
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I welcome the Minister and his colleagues. I wish him well in his new combined role. In the context of the issue of non-performing loans, the Minister indicated that there are some concerns in regard to specific elements of the proposal, such as that restructuring activities will be disincentivised in favour of forced loan sales. KPMG is currently conducting due diligence on AIB's loan book. The State, on behalf of Irish citizens, is the principal shareholder in AIB. The Minister stated that there have been very few forced repossessions, although those that do occur are hugely significant for the individuals concerned. What is the Minister's view on the proposal regarding non-performing loans that has been put forward by the financial services committee subgroup on non-performing loans in the context of SME, farm, home and buy-to-let loans and what impact that will have on the work-out in respect of AIB and, possibly, those relating to other banks?

Paschal Donohoe (Dublin Central, Fine Gael)
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The work-out of issues relating to AIB, the sale of its shares the week before last and other measures I have recently taken indicate what a landmark moment the sale of the shares was in terms of the State trying to get money back for its support of the banking system in the past.

On the financial services committee report and its suggestions on non-performing loans, it is offering four pillars in terms of the broad way in which that should be done. It is considering supervisory tools - for example, extending non-profit loan guidance to all European Union banks - the use of insolvency and debt recovery frameworks, such as how there could be better transparency in the context of insolvency outcomes, the development of secondary markets, which goes back to another point on the agenda regarding the development of a single capital market for Europe and what measures need to be taken in the context of restructuring the European banking sector. Those are the four ways in which the committee is considering the issue. The Government will engage constructively with what is being proposed. I have said that certain matters need to be monitored. We must ensure that the forced loan route is not unnecessarily favoured over the restructuring route. Both can play a very valuable role, which is the experience we have had in the economy in recent years. There is a need to be sensible regarding additional powers such as the Single Supervisory Mechanism that are made available to other bodies and we must ensure that any developments in respect of the restructuring directive currently being debated in Europe recognise Ireland's legal framework and, in particular, its common law framework. Many of the matters that are being debated and that will be the subject of negotiation are constructive in nature but we must ensure that they respect the direction in which Ireland is moving.

Kieran O'Donnell (Fine Gael)
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The issue of the timeframe relating to the restructuring of non-performing loans in Ireland is coming down the tracks. I fully accept and recognise that the public flotation of AIB shares was very welcome but many individuals with bank loans - including those with small business, farm and buy-to-let loans and, in particular, home loans - have come to members with concerns. The public knows extensive work is taking place within AIB. Many loans that are being dealt with have already been written down to the value of whatever security the bank holds. What is the timeframe in terms of the European development and its implications for any work-out of loans in Irish institutions?

Paschal Donohoe (Dublin Central, Fine Gael)
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It will take a significant period. For the foreseeable future, the framework within which these matters will be dealt is the Irish law constructs I have outlined. The existing policy will be used to resolve these types of matters. There is plenty of debate and negotiation ahead in regard to these European issues. That said, we will engage constructively in that process. The development of a banking union and a capital market by the Department of Public Expenditure and Reform will be of benefit to Ireland in the long run. I am always open to deliverable ideas that make sense in dealing with this kind of issue. Significant progress has been made in respect of non-performing loans. The point is being approached where non-performing loans that have been extant for a significant period are being dealt with and some choices for those holding such loans could be difficult. People with non-performing home loans in particular should consider the role of the Abhaile scheme offered by the MABS because engagement with banks, backed up by professional support, can yield outcomes which, while not always ideal, might be more acceptable to people than if they do not engage with banks. The Abhaile scheme will be very important in that regard.

Kieran O'Donnell (Fine Gael)
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I accept that. The element of uncertainty in terms of banks and the public is where problems arise in the context of discerning exactly what will happen. That has been seen in other institutions. I welcome that the Minister is open to exploring various routes to deal with these issues. Can the Minister indicate whether discussions are taking place at European level in terms of allowing a combination of flexibility and innovation regarding the fiscal rules governing capital investment?

Paschal Donohoe (Dublin Central, Fine Gael)
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Discussions and negotiations on these rules or other matters are constantly under way.

On capital expenditure, the one area of caution we need to be aware of is that as money becomes available to our economy, we need to make sure that we release it back into our economy in a way that is genuinely sustainable for everybody. I will give the Senator an example of what I mean by that before we make any further changes regarding the availability of capital. He knows that my view is that we need to increase capital expenditure in certain areas, but if I look at what we currently have, with no further change, in 2018 we will be spending 47% more in capital expenditure than we spent in 2014. That would be an increase of €1.7 billion. In 2019, with no further change in our policy stance, we will spend €800 million more than we were planning to do in 2018. We have to ensure that as we release and put in investment into our economy, it turns into investment as opposed to what happened in the past, which is that we released large amounts of capital into our economy. That had two effects. It drove up the price for projects we wanted to build and it was one of the triggers of the huge difficulties all of us got into. They are "watch outs" that will be available to me at all times.

Kieran O'Donnell (Fine Gael)
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The Minister will appreciate that we are coming off a very low base in terms of capital; it virtually went off a cliff. I completely agree with the Minister in terms of the delivery of projects, and that is about ensuring that a proper cost-benefit analysis is done upfront, which was not done of many projects in the past. Capital investment for our country is hugely important, as is achieving a balance between capital and current expenditure, but if projects stand up financially, there are no restrictions on us under the fiscal rules making that additional capital expenditure available.

Paschal Donohoe (Dublin Central, Fine Gael)
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The fiscal rules make sure that if we borrow money, we are capable of repaying it and that it will not have any other adverse effects on our economy. Fiscal rules or not, that is what I will want to do anyway. To emphasise the point, I am saying that I also want to look at how we can deliver new forms of capital investment. All of this comes with a caveat in terms of the direction we are on. I accept there is a need to examine how we can do more than we are able to do currently, but between 2014 and 2021, we will double capital investment in our country.

Kieran O'Donnell (Fine Gael)
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I accept that, yes.

Paschal Donohoe (Dublin Central, Fine Gael)
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We will double it over a seven year period. By 2021, with no further change, we will be investing €7.3 billion in capital investment in our country. The highest point we ever got to was €9 billion and look what happened after that. We need to be very careful about making money available in a way that delivers the investment the Senator is talking about. I make that point conscious of the fact that it is entirely possible we will get to a point next year where we have an unemployment level well below 6%. That has major consequences for how we make sure that this money is used within our economy.

Paddy Burke (Fine Gael)
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I welcome the Minister. I congratulate him and wish him well in his joint portfolio.

Regarding the meeting, the Minister said that under the reverse charge mechanism the person liable for payment of VAT to the tax authorities is the consumer, not the supplier. What does he mean by that? Does that mean the ordinary consumer will now pay VAT to Revenue rather than the position heretofore where the business collects the tax from the consumer and hands it over to Revenue?

Paschal Donohoe (Dublin Central, Fine Gael)
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I am sorry. I understand the reason the Senator is asking the question. When I said "consumer", I meant the person who would purchase the good before they would normally sell it on again. A better word to use might have been "intermediary", for example, a retailer, a wholesaler or somebody who is selling a good or a service.

Paddy Burke (Fine Gael)
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Has that not been the case heretofore?

Paschal Donohoe (Dublin Central, Fine Gael)
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Yes.

Paddy Burke (Fine Gael)
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The retailer or whoever collects the VAT.

Paschal Donohoe (Dublin Central, Fine Gael)
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I will come back to the Senator on that point because this is something one country wants to trial. We believe the current way in which we operate our VAT system works. We believe it is a very sensible safeguard against fraud and that it is well implemented. However, our colleagues, particularly in the Czech Republic, may well have a different way of collecting VAT from us, and this change makes sense for them.

Paddy Burke (Fine Gael)
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The way it operates here is that the business collects the VAT from the consumer and hands it over to Revenue. I could not see how the consumer would be handing over the VAT to the Revenue unless it was something similar to the way one pays one's income tax.

Paschal Donohoe (Dublin Central, Fine Gael)
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The point of difference in all of this is probably the way the system operates in the Czech Republic. They were eager to see if there was a new way of collecting VAT versus what they are currently doing. We believe our system is working well. This was a change they were looking to trial in their country.

Paddy Burke (Fine Gael)
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Regarding the meeting, will the Minister raise the issue of the sale of State assets, such as the share in AIB, to reduce our debt or the possibility that it could be used for infrastructural projects?

Paschal Donohoe (Dublin Central, Fine Gael)
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No. I do not plan to raise that because the fiscal rules indicate clearly that we need to use the sale of that asset to reduce our debt. That is due to the way the credit worthiness of our country is calculated. It does not differentiate between a share in a bank and our balance sheet and funding the Government may hold. The European bodies that calculate the credit worthiness of a country do not see our credit worthiness having changed as a result of this transaction. What they see is the composition of our balance sheet changing.

Paddy Burke (Fine Gael)
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If our economy grows further, it will alter the balance sheet.

Paschal Donohoe (Dublin Central, Fine Gael)
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That is correct.

Paddy Burke (Fine Gael)
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So if the AIB funds were used to grow the economy, we would have a different balance sheet.

Paschal Donohoe (Dublin Central, Fine Gael)
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There are other sources of funding open to us that will allow us to do it.

Paddy Burke (Fine Gael)
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If our economy shrinks, the balance sheet changes.

Paschal Donohoe (Dublin Central, Fine Gael)
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Yes.

Paddy Burke (Fine Gael)
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If the activity in the economy increases, the balance sheet will change also.

Paschal Donohoe (Dublin Central, Fine Gael)
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That is correct.

Paddy Burke (Fine Gael)
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If the Minister used the €3.5 billion to grow the economy, the balance sheet would change.

Paschal Donohoe (Dublin Central, Fine Gael)
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If an economy grows, the balance sheet of a country changes as well, but as I have already said to the Senator, I believe there are other sources of funding that will be open to us to allow us increase capital investment, apart from the need to do anything with the AIB shares. More broadly, at a time when the State getting involved in the banking system caused such anger in our country and we had to borrow to do it, it makes perfect sense to me to try to pay back that borrowing, which is what we are looking to do.

Paddy Burke (Fine Gael)
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We could well be paying a lower interest rate on the long-term borrowing than new funds that may be available to grow the economy.

Paschal Donohoe (Dublin Central, Fine Gael)
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At the moment, we are able to borrow less than 1%.

Paddy Burke (Fine Gael)
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Is the long-term debt less or more than that?

Paschal Donohoe (Dublin Central, Fine Gael)
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I do not have the figure available to me on the average interest rate and our national debt, but I know that the figure is in excess of €200 billion. That figure is too high. The sale of AIB would offer the ability to gain back in total €12 billion, roughly based on current market valuation. That is a very significant change in our country's level of national debt.

Paddy Burke (Fine Gael)
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I want to follow up on a point raised by Senator O'Donnell.

An article in today's Irish Independentstates that the Ireland Strategic Investment Fund supports a lender called Activate Capital. It has backed Cairn Homes to buy the RTE site for a huge amount of money. It was probably bidding against other companies, which may also have been backed by the Ireland Strategic Investment Fund. In this case, the State could be bumping up the price of homes unbeknownst to itself. It would be better if State funds were used more directly with developers and builders to build houses rather than to be helping companies such as Cairn Homes, which might have thousands of sites around Dublin and which is quoted on the stock market in London. That company is, in its own right, capable of getting funding elsewhere rather than from the State's pension fund, which should be helping smaller banks here to fund developers and builders who are building. The Minister should look at the issue. The smaller companies seem to be starved of capital. Any builder I talk to will say that he cannot get money to develop and yet here we are giving €50 million, through the Ireland Strategic Investment Fund, to a publicly quoted company to buy a site close to the centre of Dublin.

Paschal Donohoe (Dublin Central, Fine Gael)
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The Ireland Strategic Investment Fund is playing a role in supporting all types of companies throughout the country. As the Senator knows, one of the Ireland Strategic Investment Fund's goals is to provide funding to our pillar banks, which, in turn, allows those banks to lend money at a lower rate than would otherwise be the case. It does all of that in any event.

The most recent credit report made available by John Trethowan, who runs the office that looks after this, shows that, by and large, companies applying for credit from our banking system receive a satisfactory engagement with the banking system. However, the demand for credit has decreased in recent quarters.

The Ireland Strategic Investment Fund provided financing to Activate Capital, a private commercial entity. We do not hold equity in Activate Capital and we are not involved in the management of it. At any rate, I could not provide information to the Senator about a commercially-sensitive transaction that would take place with another company. In turn, Activate Capital provided credit to Cairn Homes which facilitated the latter in proceeding with the purchase of land on which, I believe, will 400 homes will be built. As Minister for Finance, the last thing I want to see is taxpayers taking equity stakes in developers. We will not go down the path of being involved in co-funding commercial activity on behalf of construction companies, big or small.

Paddy Burke (Fine Gael)
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I did not say that.

Paschal Donohoe (Dublin Central, Fine Gael)
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I think the Senator did.

Paddy Burke (Fine Gael)
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I did not say that. I said that the bank should be used-----

Paschal Donohoe (Dublin Central, Fine Gael)
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Instead, we will provide support for the local infrastructure housing activation fund which will help co-fund infrastructure. That, in turn, will allow private developers or local authorities to build on that land. We will be involved where needed in making credit more affordable to companies and that is the role of the Ireland Strategic Investment Fund.

Paddy Burke (Fine Gael)
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I did not say that the State should be backing developers and builders. I said it should be giving the money to the banks.

Paschal Donohoe (Dublin Central, Fine Gael)
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Okay.

Paddy Burke (Fine Gael)
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In this case it is being given, through Activate Capital, to a publicly-quoted company. These builders tell us they cannot get funding. That is part of the problem.

Paschal Donohoe (Dublin Central, Fine Gael)
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What the Senator has described there of the State playing a role in trying to ensure that credit is more readily available to facilitate the building of homes while our banking system-----

Paddy Burke (Fine Gael)
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Through the banks.

Paschal Donohoe (Dublin Central, Fine Gael)
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Yes, it is being done through the banks while they are trying to normalise themselves and sort out difficulties they have on which they are making progress. That is exactly what the Ireland Strategic Investment Fund is trying to do. The fund provides credit lines to our pillar banks to allow them to lend for commercial activity. That is the kind of transaction that has occurred here with Cairn Homes. That said, I take the Senator's point that we need to ensure that we remove the roadblocks so that credit is made available in a sustainable way to companies of various types that can build more homes to meet the need that exists. I know that needs to be done and we are trying to do it.

Gerry Horkan (Fianna Fail)
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I welcome the Minister. He is the only member of Cabinet who kept his old job and got another job on top of it. I wish him the best of luck with all his responsibilities. No doubt we will be seeing plenty of him and his Ministers of State in this committee and in the Seanad. He has had a good interaction with all of us here this morning, including all the Senators present and Deputy Pearse Doherty.

Many of the points have been covered. The Minister mentioned at one stage there was a peak in 2015 of €52 billion in non-performing loans. In his opening contribution, however, he said there was a peak in 2013 of €85 billion and that it is now down by 63%. Obviously, the best way to resolve an impaired loan is for it to be paid off in full. Of that 63% reduction from €85 billion, how much of it did we get back in repayments and how much was in write-offs? How much of it was restructured and moved into a category of unimpaired loans?

Paschal Donohoe (Dublin Central, Fine Gael)
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I do not have that information available for the Senator now.

Gerry Horkan (Fianna Fail)
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That is fair enough.

Paschal Donohoe (Dublin Central, Fine Gael)
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However, I will see if I can get it for the Senator.

Gerry Horkan (Fianna Fail)
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If much or all of it was written off, it is obviously not as impressive as if it was repaid. Perhaps it was repaid. I am just looking for that information.

Deputy Noonan, on his final appearance in the Seanad on the day before he retired from his position as Minister for Finance, referred to the State having the second largest debt level per person in the world after Japan. I ask the Minister to tease out the position in that regard a bit more. The Minister made the point that some people are suggesting we need to spend much more money. At the same time, however, there is all this debt. Sometimes people forget just how much debt we have and sometimes the debt-to-GDP ratio is only falling because the GDP figures are rising. It is good that GDP is rising, but the debt may not be falling all that rapidly or at all. I ask the Minister to outline his position on debt and debt reduction. How does he envisage it in future?

Paschal Donohoe (Dublin Central, Fine Gael)
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It would be very helpful - I understand this will happen soon - for us to come up with a more appropriate measurement for our national income that can strip out some of the big changes that can happen quarterly and yearly. The CSO is working on that and I believe it will offer such an assessment quite soon. Any call the CSO makes on that is up to it.

The level of debt is broadly in line with the figures I have given the committee. Depending on the year under consideration it will be between €200 billion and €205 billion. It is a very high figure, but it is reducing as a percentage of our national income.

Gerry Horkan (Fianna Fail)
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The national income is rising, but debt may not be falling.

Paschal Donohoe (Dublin Central, Fine Gael)
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The Senator took the words out of my mouth. In the late 1990s and early 2000s, as our national income grew and the level of debt remained the same, the percentage obviously dramatically improved. I would like us be able to do both. I would like our national income to begin to grow in a sustainable way and for us, by running budget surpluses over a reasonable period, to begin to steadily reduce our level of debt. In addition, one of the most significant ways to reduce the level of debt is what we do regarding our shares in the banking system.

Gerry Horkan (Fianna Fail)
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The Minister is basically saying that the most likely way of reducing debt, or the quickest way of using the sales of the bank shares to reduce that debt it is to put it straight into-----

Paschal Donohoe (Dublin Central, Fine Gael)
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No, the quickest to achieve this comes down to we do with our deficit. The factor that most quickly leads to debt accumulation is the running of large budget deficits year after year. We are not going in that direction and our objective for next year, as the committee knows, is to balance the books. In the years that follow we will run a moderate surplus, just as we have at other points in our history. This would be the quickest way of incrementally taking down our debt. I answered a question from Deputy Michael McGrath in the Dáil yesterday about the shares we hold in other Irish banks. I indicated to him that I have no immediate plans to proceed with any further sales. In any event, I cannot go any further with AIB because we are in what is known as the lockdown period. It would be a bit disingenuous of me to say these are the sales that are going to reduce our debt immediately given that I said yesterday that I would not do that.

Gerry Horkan (Fianna Fail)
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On the issue of corporation tax, we have had various commissioners into us here discussing the common consolidated corporate tax base, CCCTB, the pressures on our tax base and how our income from corporation tax might be affected by various proposals from Europe. I accept that there needs to be unanimity but there may be pressure in other ways to get us to adapt our position. We have a very significant reliance on a small number of foreign multinationals, with approximately 40% of our corporation tax returns coming from about ten of them. Approximately 80% of the corporation tax comes, by and large, from American FDI more generally. We welcome the fact they are here and the tax is, as we all acknowledge, very welcome. As a State, however, we are very dependent on a relatively small number of large businesses. What is the Minister's take on this and how can it best be managed? If anything were to happen to the tax formulae or if any of these companies were to decide to move around and locate elsewhere, we are very vulnerable. I would like to hear Deputy Donohoe's thoughts on this as the new Minister for Finance.

Paschal Donohoe (Dublin Central, Fine Gael)
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I will address the points the Senator has put to me, starting with the matter of the CCCTB. We will engage constructively in any action from the European Commission on matters like this. We will not, however, agree to any proposal that might undermine our competitiveness as a country. We need to be very clear here about corporation tax. Many other countries have made choices around how they want to deliver a competitive edge for their citizens. Due to our size, location and relatively small population, it is entirely appropriate that we have a corporation tax policy that reduces the kind of costs and risks faced by a small, open, island economy as it tries to do business. Like every other recent Minister for Finance, I too will maintain that approach.

The Senator's second question concerned the role of corporation tax and its effects on our tax base. The first point I would make is that many other countries face the same challenge, but that does not mean that we should not do something about it here in Ireland. In the coming years we are going to see a change in how our dependence on corporate tax take is driven by a certain number of companies. The simple reason for this is that as the rest of our domestic economy grows, as our banks begin to recover profitability, for example, all these developments will change the composition of our corporate tax base. To answer the question as to how I want to deal with this matter in the coming while, the first thing is to continue to support a change in our economic prospects that means that more companies of different kinds and, it is hoped, more investors will pay corporation tax here in Ireland. That is change number one. The second change is simply to make other decisions on other forms of personal tax, meaning that we do not end up being over-reliant on corporation tax in the future.

Gerry Horkan (Fianna Fail)
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I thank the Minister for that. He is obviously also still the Minister for Public Expenditure and this joint committee is as much concerned with public expenditure as it is with finance. On the spending elements, the population is growing and people are living longer, which is welcome. Population growth in itself, however, puts a lot of pressure on things like school places and the Minister and his Departments will have to spend a lot more money just to stand still. When it comes to the projections and requirements heading into next year and the year after, how much extra money will be needed just to stand still? Has this been calculated in this way?

Paschal Donohoe (Dublin Central, Fine Gael)
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My expectation is that to maintain the demographic, capital and public pay commitments we currently have, expenditure for next year will increase by approximately €1.8 billion.

Gerry Horkan (Fianna Fail)
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That figure is not to improve anything. It is just to keep things as they are.

Paschal Donohoe (Dublin Central, Fine Gael)
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Yes, but on the other hand this involves hiring more teachers, for example, or more special needs assistants, as we indicated yesterday.

Gerry Horkan (Fianna Fail)
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That is just because the population is growing, however. It will not reduce the pupil-teacher ratio or give additional SNAs to a greater percentage of pupils. That is what I am really asking here. More teachers will be hired simply because there are more pupils.

Paschal Donohoe (Dublin Central, Fine Gael)
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That is correct. It still involves hiring many more teachers, however, and many more people to work in our social services. I will outline what share of that figure is driven by the demographic opportunities the Senator refers to when we publish the summer economic statement and the follow-on expenditure papers.

Gerry Horkan (Fianna Fail)
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Last week the European Commission published its reflections on the EU budget. It makes for sobering reading in how it outlines the challenges facing the EU budget, particularly in the aftermath of Brexit. Has the Minister or his officials had any time to reflect upon or review this report? What challenges and difficulties are contained within it?

Paschal Donohoe (Dublin Central, Fine Gael)
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I am aware of the report but it only came out last week. The consequences of losing the UK's contribution to the EU budget will be handled by forthcoming processes from Michel Barnier. I have no comment to make on the report for now other than to acknowledge that the UK's exit will obviously pose big challenges for the European budget. This is one of the many matters that this and the other European Governments will have to deal with.

Gerry Horkan (Fianna Fail)
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I thank the Minister and wish him well in his new role.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Over the course of the meeting the Minister gave us some figures around repossessions and voluntary surrenders and so forth. Will he submit to us a comprehensive note on all those figures? We get some information from the Central Bank but we would like to see it from the Department's perspective. Will the Minister give us a breakdown of those figures?

Paschal Donohoe (Dublin Central, Fine Gael)
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We will do that, Chairman. I have just been informed that many of the figures I gave the committee earlier today come from either the Courts Service or the Central Bank. Even from my notes here, however, I can see that we have figures available for 2014, 2015 and 2016. We will provide the committee with anything that we have.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Please do. I would like to know more about the issue of voluntary surrender, about this idea of putting a client up against the wall and taking the keys from his pocket, as it were. I would like the background to some of those figures so it would be helpful if the Minister could also provide that.

Will all the extra €400 million earned from the sale of the AIB shares go towards reducing the debt? Will nothing be spent in the context of the budget?

Paschal Donohoe (Dublin Central, Fine Gael)
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That is correct.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The reform agenda was part of the Minister's old brief and is now part of his new one. Could we schedule a meeting with him at some stage to discuss the general reform within Departments and services as it comes under the remit of this committee?

Paschal Donohoe (Dublin Central, Fine Gael)
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Yes, very much so. I will be working on this area with the Minister of State, Deputy Patrick O'Donovan. We have a number of legislative proposals before the Oireachtas that colleagues in these Houses have differing views on. I respect that. I would certainly welcome the opportunity to meet this committee again to see if we can chart a way forward on these proposals.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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On the issue of the payment of taxes, the State has an arrangement with a number of banks regarding their general tax liabilities and their non-payment, or deferment of payment, over a period.

Paschal Donohoe (Dublin Central, Fine Gael)
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It is not so much that we have them with banks. We have a deferred tax mechanism that works for losses for commercial companies and organisations and it includes banks.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Are the banks included?

Paschal Donohoe (Dublin Central, Fine Gael)
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Yes, they are.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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They have deferred liabilities in terms of assets. How long does the period last?

Paschal Donohoe (Dublin Central, Fine Gael)
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I do not have a time period apart from saying that deferred tax liabilities are there due to losses. They are no different from anything that we make available to another Irish company or organisation here.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I understand that. The likelihood is that the banks will not pay taxes for quite a long number of years because of the deferred assets and the amount that is involved.

Paschal Donohoe (Dublin Central, Fine Gael)
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That depends on how they perform across the coming years. If we were to change the status of those deferred losses then that, in turn, would affect the capital status of the banks thus causing an entirely different problem for the Government and the Irish economy.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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In terms of the insurance and the recent raid on offices, particularly relative to the report compiled by this committee and the work done by the former Minister of State, Deputy Eoghan Murphy, is the Minister satisfied that consumer protection is prioritised by the Central Bank? Will we see higher insurance premia for a long period to come? It seems from our interaction with customers that the cost of public liability, employers' liability, general insurance premia for properties and car insurance premia have rocketed.

Paschal Donohoe (Dublin Central, Fine Gael)
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I am satisfied that the matter is a priority. I also know that the high level of premia is a really big issue for people in terms of their day-to-day cost of living. Insurance is also a big challenge for companies, particularly small companies.

The Chairman did not ask me to comment but I will not comment on what happened last Monday. Yesterday morning, the Cabinet agreed to begin drafting the heads of a Bill to consider how we can deal with the consequences of the Setanta ruling and what it means for the level of capital that insurance companies based in Ireland need to hold. I have been informed by the Irish insurance industry that the level of capital holding and how high it has been in the past has, in turn, contributed to increased premia. As we put in place measures to address these issues, I want to see this play a role in reducing premia in the long run. I cannot force that to happen because neither I nor the State owns the insurance companies. If we put in place measures that address issues that the industry has, I expect to see that reflected, in the long run, in the level of premia that people pay.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Obviously, the Minister cannot go into the following but when a report or outcome is finalised and is released into the public domain, if there is a need for an initiative to be taken by the Department relative to insurance and insurance companies or what might arise, will the Minister either pass legislation or take action? Is he watching how this matter will proceed and is he concerned about it? What can the Department do to affect a reduction in the premia that people must pay?

Paschal Donohoe (Dublin Central, Fine Gael)
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I am absolutely looking at it. My Minister of State, Deputy Michael D'Arcy, also has a particular responsibility for the area.

In terms of what we are doing about the matter, it is not a case that we will take an initiative in the future because we have already done so. The cost of insurance working group's report has made 71 recommendations that should be implemented by the end of 2018. We are going to deliver 45 of the recommendations by the end of this year.

The figure that is available to me from the Central Statistics Office is an average macro figure. I always understand that there will be people whose day-to-day experience differs from the figure that I will outline. The figure indicates that the overall cost of motor insurance has stabilised. In fact, there was a decrease of 8.5% in May 2017 versus May 2016. I knew as I made that point that every member of this committee probably has examples that do not reflect a decrease.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That is the problem.

Paschal Donohoe (Dublin Central, Fine Gael)
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I view the decrease more than the beginning of the work that we need to carry out. We need to create an environment in which this kind of change occurs on a yearly basis.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I am conscious of the time so I have two more short questions.

In terms of the responsibilities attached to the position of risk manager in each of the banks and their obligations to report to the Central Bank, is the Minister satisfied from his engagement with the Central Bank that there has been no breach of any kind in any of the banks or that the Central Bank has nothing to report in that area?

Paschal Donohoe (Dublin Central, Fine Gael)
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I have been informed of no such breaches. I will meet the Governor of the Central Bank in the coming days and I will raise this matter with him.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I am talking about recent times. The Central Bank produces quarterly reports. I am sure that if a risk manager reports one matter, it is deemed a breach of legislation and, therefore, must be acted upon. Has a breach been reported over the past number of years? The Central Bank, in its report, noted a concern that the current banks were reverting back to their irresponsible activities of the past but I will not go into the matter now.

Paschal Donohoe (Dublin Central, Fine Gael)
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I remember when the legislation came in that created the special managers the Chairman referred to. I know what the role is and how important it is. I am sure the Central Bank would take it very seriously if the legal requirements were not met. We are a few weeks in and I have not been informed of such a breach. If there is an issue in terms of this matter, I am happy to update the Chairman at my next hearing. In any event, I will meet officials from the Central Bank in the next few days.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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On an historical note, I ask the Minister to ask the Central Bank why it has not acted on the report compiled by Mr. Jonathan Sugarman. He gave a submission to this committee and highlighted a breach of regulations, which was absolutely substantial. The Central Bank has replied to Mr. Sugarman's evidence but took no action. Either the rules have been breached or they have not. I do not expect the Minister to know the detail of it now but I ask him to raise the matter with the Governor of the Central Bank.

There is unease about the manner in which the Central Bank offers consumer protection as it is not extensive. The Central Bank's response to the tracker mortgage issue has been pathetic. and it must do more to protect consumers. The committee hears complaints about the Central Bank on a regular basis. I have expressed my opinion and I ask the Minister to raise the matter with the Central Bank.

On a more important issue to me, the National Housing Co-operative Bill 2017 was discussed in the Seanad last week with the Minister of State at the Department of Finance, Deputy D'Arcy. A Bill to establish a co-operative is part of an overall approach. The legislation was not voted on and the debate will resume, but the Minister of State spoke against the Bill. The main Opposition party contributed to the debate but only hinted at the real situation, did not offer much of a solution and avoided the issue. I think the issue should be taken up. In line with what Deputy Pearse Doherty asked earlier, is it possible for Department officials to engage with the people who wrote the Bill, including the Master of the High Court, Mr. Ed Honohan? The latter has expressed an interest in meeting the Minister. Liaising would be worthwhile as the legislation could be developed into a Bill that offers solutions. In the past week or so, the legislation has been cleared with the Ceann Comhairle, with an amendment. It is not a money Bill and I hope, in the same spirit as what Deputy Doherty asked earlier, we could discuss this legislation with Department officials.

The committee has received a submission and we have had a good debate with those who are putting the Bill forward. It has been constructive. This has been debated to a limited degree in the Seanad. We heard the contribution of the Minister of State, Deputy Michael D'Arcy. A further meeting with the Department, as soon as possible, would be of assistance.

Paschal Donohoe (Dublin Central, Fine Gael)
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I am happy to have that. The Chairman will know the concerns we have about the Bill are genuine. It is not clear to us how this entity would be funded. It appears it would need to issue some form of bond to pay for the financial commitment. We do not understand how that would happen. Furthermore, we are not at all clear how such a unit would be kept off the balance sheet of the country. I acknowledge the committee has heard this from the Minister of State, Deputy D'Arcy. I, or my officials, would be happy to meet members to tease these issues out further.

Peter Burke (Longford-Westmeath, Fine Gael)
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Our national debt-GDP ratio peaked at 120% and decreased to 76% by 31 December 2016. In the most recent budget, it was mentioned that in the context of our Stability and Growth Pact target of 60%, we will try to reach 45% by 2020 or thereabouts. Has that target changed given the backdrop of our infrastructural needs?

With regard to our total economic debt, an economist made the point that approximately 75% of our debt is associated with financing budgetary deficits for almost a decade. Does the Minister have any detail on that? What percentage of our debt is related to financing our banking sector, and what percentage is associated with financing our budget deficits?

Paschal Donohoe (Dublin Central, Fine Gael)
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The bank-related part is between one fifth and one quarter. The rest is the accumulated cost of running deficits. This is why, when Senator Horkan asked me about this point, I said the best way we can begin to get our debt soon is related to what we do in terms of our need to borrow every year. The level of debt in the economy is between €200 billion and €205 billion, which is a very high figure. The percentage of Government tax revenue absorbed to service that debt is high by comparison with the norm. It puts us among the countries that have a debt issue requiring management. That said, I am optimistic that we will be able to do it through what we will be able to do with surpluses in the future and through what I believe is the right thing to do with our shares in the banking system.

With regard to debt per capitain the country overall, there has been some confusion over these matters in that the level of private debt that is added on top of the public debt often includes the private debt associated with financial institutions based here in Ireland and the corporate debt of big companies located in Ireland. That is not the way debtper capita should be calculated for our country because we are so open and have such a high degree of foreign direct investment. It means that the debt per head for our country would be calculated as far higher than for a country with a low level of foreign direct investment, for example.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I thank the Minister for attending and I also thank his officials. I wish him well in his position.

The committee agreed earlier that the EU proposals listed in Schedule B - COM (2017) 169, COM (2017) 170, COM (2017) 188 and COM (2017) 293 - do not warrant further scrutiny. The committee agreed that the EU proposals listed in Schedule A - COM (2017) 164, COM (2017) 165, COM (2017) 208, COM (2017) 256 and COM (2017) 276 - do not warrant further scrutiny.