Oireachtas Joint and Select Committees

Thursday, 5 November 2020

Public Accounts Committee

2019 Annual Report of the Comptroller and Auditor General and Appropriation Accounts
Vote 7 - Office of Minister for Finance
Chapter 1 - Exchequer Financial Outturn for 2019
Chapter 17 - Ireland Apple Escrow Fund

Mr. Derek Moran(Secretary General, Department of Finance)called and examined.

11:30 am

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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I bid "Good morning" to the witnesses. I welcome Mr. Moran. It is his first visit to the current Committee of Public Accounts. We are joined remotely by the Comptroller and Auditor General, Mr. Seamus McCarthy, as a permanent witness to the committee. I remind all of those in attendance to ensure that their mobile phones are switched off or on silent mode.

There are a number of matters for examination from the Comptroller and Auditor General's appropriation accounts 2019, Vote 7 – Office of the Minister for Finance from the audited financial statements of the Exchequer for the financial year 1 January to 31 December 2019 and the Comptroller and Auditor General's Report on the Accounts of the Public Services 2019, chapter 1 - Exchequer financial outturn for 2019, and chapter 17 - Ireland Apple escrow fund.

To assist us in our examination of the matters before us today, and with regard to public health guidelines, we are joined in person by: Mr. Derek Moran, Secretary General of the Department; Mr. John McCarthy, assistant secretary and chief economist; and Mr. Gary Tobin, assistant secretary, EU and international division. We are also joined remotely by representatives of the Department of Public Expenditure and Reform, who work in the Finance Vote section, namely, Ms Victoria Cahill; and Mr. Brian O'Malley, principal officer. I welcome them all here today. It is the first time that they have come to the current committee of the Thirty-third Dáil. I thank them for the briefing that they have provided to the committee.

Witnesses are protected by absolute privilege in respect of the presentation they make to the committee. This means that they have an absolute defence against any defamation action for anything they say at the meeting. However, witnesses are expected not to abuse this privilege and it is my duty as Chair to ensure this privilege is not abused. Therefore, if witnesses' statements are potentially defamatory in relation to an identifiable person or entity, the witnesses will be directed to discontinue their remarks. It is imperative that witnesses comply with any such direction. While we expect witnesses to answer questions asked by the committee clearly and frankly, witnesses can and should expect to be treated fairly and with respect and consideration at all times, in accordance with the witness protocol.

Members are reminded of the provisions within Standing Order 218 that the committee shall refrain from inquiring into the merits of a policy or policies of the Government or a Minister of the Government or the merits of the objectives of such policies. Members are also reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.

I would also ask that members and witnesses remove their masks when speaking to ensure they can be heard, and that when members are leaving and taking their seats, that they sanitise their area.

I now call on the Comptroller and Auditor General, Mr. Seamus McCarthy, for his opening statement.

Mr. Seamus McCarthy:

I thank the Chairman.

All revenues of the State are paid into the Central Fund of the Exchequer, unless otherwise determined by law. Most public services are funded by issues of money from that Central Fund, either through annual voted provisions or directly to pay for what are called Central Fund services.

The annual finance accounts present the receipts into and issues from the Central Fund, together with a set of statements and schedules that itemise the transactions. The format of the accounts is unusual, with a significant amount of explanation and information presented in footnotes to the schedules.

Chapter 1 of my report on the accounts of the public services is a recurring report, which is designed to summarise the transactions on the Central Fund in a more accessible format, and to highlight relevant trends over time.

Overall, the Central Fund receipts and issues in 2019 were close to balance.

Exchequer receipts in 2019 totalled €64.4 billion. Over 92% of this was accounted for by tax receipts. Payment of just under €2.4 billion by the Central Bank from its 2018 surplus income accounted for a further 3.7% of the receipts.

Issues from the Central Fund in 2019 amounted to €63.8 billion. Issues to fund voted expenditure accounted for €54.1 billion, or just under 85% of the total. Service of the national debt accounted for €5.2 billion, while Ireland's contribution to the European Union's budget accounted for €2.4 billion.

The finance accounts do not include any kind of balance sheet, or statement of the Exchequer's financial position at the year end. For this reason, the chapter on the Exchequer outturn tries to set out the summary position in relation to key assets and liabilities at the year end.

At the end of 2019, Ireland's gross national debt stood at €206.7 billion; this was up €1.5 billion from end 2018. However, the cost to the Exchequer of servicing the national debt continued to fall in 2019, reflecting the impact of the refinancing of debt by the National Treasury Management Agency in the prevailing low-interest market.

Liabilities under public private partnerships, PPPs, are regarded as "off balance sheet" from a general government perspective. Separately from the finance accounts, information published by the Department of Public Expenditure and Reform indicates that PPP-related commitments totalling an estimated €7.1 billion were outstanding at the end of 2019.

Finally, the value of cash and other financial assets held by the Exchequer stood at €18.5 billion at end 2019. This was up 5% on the 2018 year-end position, continuing the significant upward trend from end 2016.

Members of the committee will be familiar with the circumstances that gave rise to the Ireland Apple escrow fund account. In summary, following an investigation, the EU Commission ordered Ireland to recover alleged state aid, plus interest, related to the tax on profits reported by Apple for a ten-year period. The money in the escrow account is held under the terms of a formal agreement between the Minister for Finance and two companies in the Apple group, pending the outcome of legal proceedings. The use of the account allows the escrow parties to determine jointly how the fund is to be managed and invested, until the owner of the fund is determined. Any gains or losses in the interim will be incurred by the eventual owner. The parties have agreed to pursue a low-risk investment strategy for the fund.

Apple's lodgements to the account between May and September 2018 totalled €14.285 billion. By end 2019, the net assets of the fund had declined to €14.02 billion – a loss in value of €265 million. The largest part of the reduction in value related to a €209 million withdrawal from the fund in respect of what is referred to as a "third country adjustment". This related to payment by Apple of tax in another jurisdiction on the profits within the scope of the state aid decision.

The remainder of the loss in fund value was attributable to investment losses, administrative expenses and tax.

Separate from the administration expenses incurred by the fund account, State bodies have incurred significant costs in setting up the escrow account and in mounting legal challenges to the Commission's state aid determination. The 2019 appropriation account for the Vote 7 records gross expenditure of just over €60 million. This is divided between two expenditure programmes. These relate to the costs incurred in respect of economic and fiscal policy, on which the Department spent €47.5 million, and banking and financial services policy, on which the Department spent €12.6 million.

Expenditure under the economic and fiscal policy programme included a very substantial exceptional item. Note 6.3 on the account discloses that the Department reached settlements relating to protracted legal proceedings arising from an air travel tax introduced in budget 2009. Payments under the terms of the settlement totalled €24 million and were charged to subhead A4 for "consultancy services and other services". The payments were not provided for in the original Estimate, with the result that a Supplementary Estimate was required for the Vote in 2019. When this item is excluded, the programme expenditure in 2019 was only marginally up on the 2018 expenditure.

Members may also wish to note that the National Treasury Management Agency, NTMA, has provided a number of staff on loan to the Department to work in its banking unit. The related staff costs and certain consultancy costs are paid by the NTMA, and are not recouped from the Department. As a result, the reported expenditure on banking and financial services policy recorded in the appropriation account does not include the full costs of the functions undertaken.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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I thank Mr. McCarthy. I invite Mr. Moran to make his opening statement to the committee.

Mr. Derek Moran:

I thank the Chairman and members of the committee for affording me the opportunity to address them. With me today are Mr. John McCarthy, the Department's chief economist, and Mr. Gary Tobin, head of the EU and international division. I will focus on the specific items on today's agenda and keep my comments brief.

The Estimate for the Department of Finance for 2019 was originally set at €41.1 million, or €39.7 million net of appropriations-in-aid available. A Supplementary Estimate was obtained in December 2019, bringing our gross estimate to €62.3 million, or €60.9 million net of appropriations-in-aid. The net outturn for 2019 was €58.8 million, leaving a surplus to be surrendered to the Exchequer of approximately €2.083 million.

The Supplementary Estimate for Vote 7 was to meet the cost of legal settlements entered into by the State following advice from senior counsel and approved by the Attorney General's office. The settlements were in respect of protracted legal proceedings arising from the air travel tax introduced in budget 2009, and agreements were entered into following mediation.

Savings which had arisen during the year were used to offset partly the supplementary allocation required. These savings were approximately €1.4 million in capital and €1 million of the original consultancy allocation. Despite this, at the end of the year a surplus arose for a number of reasons. There was an underspend of €1.1 million on programme-related costs arising from lower legal and consultancy costs, mainly relating to the shareholding and financial advisory division of the Department. There were savings of €200,000 relating to the disabled drivers fuel grant scheme, and €300,000 was returned to the Exchequer in respect of the Office of the Financial Services and Pensions Ombudsman. Underspending of some €500,000 occurred in respect of non-pay administration expenses, €300,000 of which was due to capital projects not proceeding during the year.

Regarding the Exchequer financial outturn for 2019, I draw the committee's attention to the following key points. Tax revenues for 2019, at €59.3 billion, were up €3.8 billion, or 7%, year on year and €1.3 billion, or 2.4%, on profile. Regarding income tax, the largest tax head, the 2019 performance was strong, with receipts finishing the year €1.7 billion, or 8%, ahead of those for 2018 and in line with profile. Corporation tax receipts in 2019, amounting to €10.9 billion, were up by €500 million year on year and some €1.4 billion ahead of profile. VAT returns saw strong annual growth of 6.2% in 2019 and were in line with expectations. Total VAT collected during 2019 was just over €15 billion. Excise receipts were in line with profile, with some €5.9 billion collected. This represented an increase of nearly 10%, or more than €500 million, on 2018. On the expenditure side, total expenditure, at €63.8 billion, represented an increase of some €3.6 billion on 2018.

As the committee is aware, as part of the European Commission's decision of August 2016, Ireland was ordered to recover from Apple the alleged state aid, plus interest, related to a ten-year period from 2003 up to 2014. Notwithstanding Ireland's appeal against the Commission's decision, the Irish Government complied with its obligation and recovered a sum of €13.1 billion plus interest of a further €1.2 billion. The Minister for Finance agreed with Apple that the amounts collected should be held in an escrow fund until the legal process is completed. The Ireland Apple escrow fund was established under the terms of a formal agreement between the Minister for Finance and Apple pending the final outcome of legal challenges to the findings of a state aid investigation undertaken by the European Commission. The investment and management of the fund is jointly overseen by the Minister and Apple, with the Minister's functions delegated to the NTMA.

In July this year, the General Court of the European Union annulled the Commission's decision, with the award of costs to Ireland. However, the Commission has now lodged an appeal with the Court of Justice of the European Union, so it could be at least a further two years before legal proceedings are concluded. The Ireland Apple escrow fund will continue to be operational during this time. I welcome the Comptroller and Auditor General's report, which presents an excellent overview of the performance of the fund and how it is managed.

The Department's mission is to manage Government finances and play a central role in the achievement of the Government's economic and social goals, having regard to the programme for Government. The Department is currently in the process of drafting a new strategy statement for the period 2021 to 2023. It will set out how the Department will continue to work towards achieving strategic goals pertaining to public finances, the economy and the financial sector.

In 2019, the Department continued to make progress on achieving its goals, which are fully aligned with the two programmes set out in the Department's appropriation account for 2019. Solid economic growth was recorded in 2019, notwithstanding heightened uncertainty regarding the form that the UK's exit from the European Union would take. GDP grew by 5.6% over the year, with modified domestic demand – a better indicator of domestic economic conditions – recording an increase of 3.3%. Robust economic growth continued to pay dividends in the labour market. Employment growth of around 3% or higher was recorded for the seventh year straight, with the level of employment reaching 2.3 million in the fourth quarter, the highest level on record. Accordingly, the unemployment rate edged below 5%, which is broadly consistent with the achievement of full employment in economic terms.

The role of the Department and others in the Brexit process has been to protect the economic and financial interests of the State and to minimise disruption to trade to the greatest extent possible. Brexit is mainstreamed in the Department's work in all areas including economic analysis, financial services and taxation. During 2019, the Department continued to contribute to the EU-UK negotiations and to domestic preparedness work within the whole-of-government structures overseen by the Department of the Taoiseach. The Department's dedicated Brexit unit oversaw the co-ordination of this work. In fulfilling its mission, the Department carried out a broad range of activities in 2019, as well as international outreach, representing Ireland's economic and financial interests abroad as well as strengthening Ireland's alliance-building efforts.

The arrival of Covid-19 in 2020 has had a profound impact on both the economy and the public finances. The very positive outturn for 2019 has helped to facilitate an early, ongoing and economically appropriate countercyclical response to the crisis. We went from virtually full employment in quarter 1 to a peak unemployment rate of 27% in quarter 2, with an expected average of around 16% for the year as a whole. This illustrates the scale of the challenges we face. I would like to refer to some of the Department's work this year in responding to Covid-19. It has managed this work in a very different way. The temporary wage subsidy scheme, TWSS, was introduced in March to provide income support to eligible employees where the employer's business activities were negatively impacted by Covid-19. The aim of the scheme was to maximise staff retention and firm viability by maintaining the link between the employer and employee. The July jobs stimulus plan contained a suite of tax, loan and expenditure measures designed to directly support businesses at all levels of the economy that are negatively impacted by Covid-19. The employment wage subsidy scheme replaced the TWSS in September. It is an economy-wide support open to all sectors and gives a subsidy to qualifying employers on the basis of the number of paid employees on the employer's payroll.

Budget 2021 was set against much uncertainty for the coming period in the context of Covid-19 and Brexit. Despite the challenges posed by the current pandemic, the Department delivered on the budget from both policy and logistical perspectives.

The Covid-19 restrictions support scheme has been designed to assist those businesses whose trade has been significantly impacted or temporarily closed as a result of the restrictions set out in the Government’s plan for living with Covid-19.

We are in the process of applying for EU funding towards the costs of the temporary wage subsidy scheme, TWSS. The European instrument for temporary support to mitigate unemployment risks, SURE, could result in Ireland accessing just under €2.5 billion and will help to diversify sources of funding for the Exchequer.

We have been engaging with the European Commission while it develops the details of how the Brexit adjustment reserve will be allocated and how it must be spent to put forward our case that it should reflect, in particular, Ireland’s significant adjustment and expenditure needs.

I once again express my appreciation to the staff at the Department for their ongoing hard work, particularly this year in light of the additional challenges faced on foot of Covid-19. It is only through their hard work, professionalism and commitment that we can continue to deliver.

I thank the Chairman and committee for their attention and welcome any follow-up questions.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I welcome Mr. Moran and his team. I will take up where he finished and thank all his staff and everybody in the Department who have been working during what has been a very challenging six or seven months at this stage.

There is a lot of interest, as Mr. Moran knows, in the Apple escrow account and how it is managed. The sums of money involved are beyond people's imaginations. They are so massive that there is a public interest in understanding how they operate. One of the areas of particular interest is the issue regarding the fact that payments of approximately €9 million were paid to investment managers, escrow agents and custodians. That is a huge amount of money. There was an issue about the VAT payment, I understand, that resulted in payment being deferred and made late. Why were those payments not made on time? Did the fund incur any interest or penalty charges as a result of the error?

Mr. Derek Moran:

All the expenses of the investment managers were paid out of the fund. There is an agreement between the parties that those costs are charged to the fund and the net amount at the end is returned either to the Irish Exchequer or Apple.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I was talking about withholding tax.

Mr. Derek Moran:

The Deputy asked about withholding tax and the VAT payments. There was some uncertainty about whether the fund was liable to withholding tax or VAT. Tax advice was sought on that. My view is that if one thinks one has a tax liability, one pays it and recovers from the Revenue authorities in due course. I understand that, as it turned out, the VAT payment and withholding tax payment were due and were probably chargeable to the fund.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I understand the expense that was incurred was in or around €2 million.

Mr. Derek Moran:

Yes.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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That was in 2019 in respect of the withholding tax. It seems strange because this is essentially in respect of the payment of experts, legal and otherwise.

Mr. Derek Moran:

Yes.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I would have imagined that one of those experts would have been able to say that tax must be paid on their fees.

Mr. Derek Moran:

The Deputy referred to the scale of the fund. We tend to see the big number of €14.2 billion and the run-offs on that. This is small, but I agree with the Deputy that this should have been caught at an earlier stage. It is small in the overall context but given the nature of the level of advice available to the fund, one would think it would have been caught earlier.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Part of the fear that people have is that because this fund is so large that sums of millions can be described as relatively small, pound signs will be shining on lots of the usual suspect, if you like. I wonder has Mr. Moran any fears because of the way in which the fund is managed. As he says, it is almost in the ether so nobody knows who is losing at the end of the day, whether it is Apple or the Irish State, in terms of any expenditure. Lawyers, financial advisers and investment firms see an opportunity to make a lot of money, in real terms. Is Mr. Moran satisfied that the safeguards are in place to ensure that these guys are actually providing value for money, in the first instance, and that there is appropriate accountability on whether they are being paid for doing real and valid work?

Mr. Derek Moran:

A huge amount of effort went into ensuring that the management of the fund, jointly managed by the National Treasury Management Agency, NTMA, on behalf of the Minister, and Apple, would seek to minimise these sorts of costs and monitor the performance of the investment managers. If they are underperforming, the portfolios can be redistributed among those who are performing better to ensure that the amount of money in the fund is maintained to the greatest possible extent. The Comptroller and Auditor General referred to the fact that it is a very conservative investment mandate and that is at the heart of the care being taken to make sure that the costs are not excessive and the losses are minimised.

Our options were to put that money on deposit if we could find somebody to take it or to put it into escrow. The risk with putting it on deposit is that in the negative interest rate environment, the fund would probably lose €60 million or €70 million a year every year.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Companies and individuals are paid directly out of the fund for a raft of different services. I understand that William Fry, for example, has received approximately €3 million. The current Attorney General had received €612,000 up to March of this year. Those are substantial sums of money. Could Mr. Moran give an indication of the type of work that would be conducted in order to receive those types of funds from this account?

Mr. Derek Moran:

The Deputy is describing the fees associated with the establishment of the fund and the defence of the case which are different from the internal management of the fund which is handled by a joint investment committee, made up of the NTMA and Apple. The costs that have been charged to the Exchequer for the Apple case run to something like a cumulative €8.6 million.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Will Mr. Moran repeat that? Is that the cost to the Exchequer?

Mr. Derek Moran:

It is.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Okay.

Mr. Derek Moran:

There are three pieces to this, namely, defending the case, establishing the escrow and the internal costs of the escrow which are met within that. The fees break down as roughly €4 million for the establishment of the escrow and that detailed legal work has now been completed. The €4.6 million is the cost of the legal team, expert witnesses and so on, in contesting the case itself. I have provided a detailed breakdown of what fees were paid to whom and I think the Deputy is quoting from that.

The Deputy also referred to the solicitors that were engaged. They would have been engaged competitively. We have a framework and there would have been a tender process. We have a set of qualifying solicitors and we would have carried out a sub-tender within that. A company won the contract. We did what we needed to do to ensure the best value we could get there. As I say, in terms of the establishment of the escrow, those costs are finished.

On the defence of the case, we have a team that we think is appropriate to the defence of what is an enormous case. As the committee will have seen in July, the case was annulled with the award of costs by the general court so there is a potential to recover those but I understand that both sides tend to meet their own costs in these sorts of cases. That said, there is an award of costs that is now being appealed. The legal team is employed within the framework of the Chief State Solicitor's office, the Attorney General's office and so on and so forth. The procurement of legal advice tends to be done through those channels rather than through ourselves and they are the experts in fee structures for that work.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I am trying to figure out what is the actual cost to the Exchequer. It may have no bearing on the Irish State, depending what happens with the escrow fund.

It may have a substantial bearing if we were to lose the case, ironically. I note from the Comptroller and Auditor General's report that €4.4 million is associated with costs to the State and other statutory bodies, apart from legal appeals. On the forthcoming appeal, is there any estimate on how much it is likely to cost the State in legal fees?

Mr. Derek Moran:

Not at this juncture. We are looking at the terms of the appeal and the Government will have to consider how it responds to that in due course. It will be December before it does that. In the end, we will be represented. Will we be represented at the same level that we were heretofore? Again, the approach taken will be determined by the legal advice. This time around it is the Commission appealing the decision rather than Ireland making the running, which possibly changes the balance. At this juncture it will continue to cost for the duration to the next hearing, which probably will not happen for two to three years. I could not say what the costs will be at the end.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I note an issue regarding staff allocation. The Minister had delegated a number of banking system functions to the NTMA. That delegation was revoked in August 2011. The NTMA banking unit has now been seconded to the Department of Finance. The staff allocation appears to still be attributed to the NTMA. Why is this the case?

Mr. Derek Moran:

It has been the case from the start that the NTMA has been able to recruit the staff with some specialist expertise within its structures and make them available to us on an ongoing basis. The NTMA has met the costs for the past ten years or whatever the period has been.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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It is the same pot of money essentially.

Mr. Derek Moran:

It is reflected in the NTMA's accounts.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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These are people who currently are working in the Department.

Mr. Derek Moran:

Yes, on secondment.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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With regard to salary scales, would they earn the same as people in the Department?

Mr. Derek Moran:

They are all on individual contracts. At this stage, and to the best of my knowledge, they are all staff of the NTMA and have been recruited-----

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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But they are working in the Department of Finance.

Mr. Derek Moran:

Yes, working in the Department of Finance.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Could there be a situation whereby two people doing the same work in the Department are on different salary scales?

Mr. Derek Moran:

While it is integrated into the Department the unit is quite discrete. There are people who are civil servants and people who are on secondment from the NTMA who are working in the same area. This is the financial advisory aspect whereby they bring in expertise that we do not have ready access to, and they bring that to the table. The comparison regarding salaries is-----

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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How many staff are we talking about in total?

Mr. Derek Moran:

It is in the region of ten. I do not have the current-----

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Does Mr. Moran not see a reason to regularise it in any way?

Mr. Derek Moran:

One way we could regularise it would be to pay NTMA the money, but that would seem to be a circular transfer. If they meet the costs we would just be transferring it on to the Exchequer to pay them. I suppose that when we started down this road the expectation that 12 years after the financial crisis the State would still have bank holdings was probably not what we expected. We do need people who have experience and expertise in this area who supplement the existing staff within the Department.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I do not have much time left but I want to touch on the issue of airline costs. Will Mr. Moran give a short background again as to what the dispute was about and the parties that received payments.

Mr. Derek Moran:

The Deputy is probably asking more than I can deliver if I am to make the response as short as possible. The air travel tax was one of those first impositions that were made at the start of the previous crisis.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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It was a €10 charge.

Mr. Derek Moran:

It was a €10 charge for flights generally, and a lower rate of €2 for flights within a 300 km radius of Dublin, which took in the north of England and all the regional airports in Ireland. There were two pieces. There were four of five strands of precedents around this. The first challenge was a complaint made by Ryanair to the Commission that it was state aid, and that they should be refunded the difference between €10 and €2 on their flights. The second strand was when the Commission spoke to us on the basis that the imposition of differential rates had an impact on freedom of travel within the Union. The Directorate-General for Competition was dealing with two elements, one on a complaint from Ryanair and one on the concern that it distorted the freedom to travel within the Union. On the first matter we engaged with them and within one year the conclusion was that a single rate was most appropriate. Some 12 months after the measure had been introduced, we imposed a single rate of €3.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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What were the legal costs? We know the settlement costs were substantial but what were the legal costs of the Department in that?

Mr. Derek Moran:

I will get a note on that for the Deputy.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Does Mr. Moran know if the matter is closed or are there additional funds to be paid?

Mr. Derek Moran:

By the time we had collected nearly €19 million in state aid and closed that case, there was one outstanding piece relating to Aer Arann. That matter was before the courts last month and involves the recovery of a balancing payment of some €3.6 million.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I want to come in quickly on a different matter before the Chairman cuts me off. Ireland's contribution to the EU budget in 2019 amounted to €2.4 billion. Does the Department have the net figure for offsetting our receipts from EU sources and the corresponding estimates for this year yet?

Mr. Gary Tobin:

The Deputy is right. The contribution to the EU budget was €2.4 billion. Our net receipts from the EU budget are in or around €1.8 billion per annum. I can get the exact figure for that year but we can work it out that Ireland's net contribution would be some €600 million or €700 million.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Do we know if it will be similar for this year in 2020?

Mr. Gary Tobin:

Our net contribution to the EU budget is increasing. This year our net contribution to the budget will probably be €3 billion. Over the next seven years it will probably go up to €4 billion per annum.

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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I thank the representatives for meeting with the committee today and for all the work they have been doing during this extraordinary financial crisis as well as health crisis.

Can we just go back to the Apple account? Obviously, it is such a substantial amount of money in management, and it is so important for everybody. The decision is now being appealed to the European Court of Justice and it is anticipated this process might take up to two years in reality. Will Mr. Moran talk us through what will happen if Ireland loses that case? What will happen to the money in the fund if we lose?

Mr. Derek Moran:

I struggle about winning and losing on this one.

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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I appreciate that, but if, in technical terms, the case goes against us, our contention-----

Mr. Derek Moran:

If we lose, then the €13 billion becomes payable to the Exchequer and is transferred. I think I am right on that, and my colleagues here have also said "Yes". That money would come into the Exchequer. Whatever the residual balance is on the escrow account at that point will come, in this case, to the State.

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Does the third-party country operation interact with that in any way? Is the Department sure about that or is it contested in any way?

Mr. Derek Moran:

The third-country adjustments are just the ordinary operation of international tax. For example, at any given time the Irish competent authority, which would be the Revenue Commissioners, could be in discussion with the competent authority in the United States of America or in Italy or Spain about companies that have a presence in multiple jurisdictions, and if a portion of that tax should be paid here, and vice versa. These adjustments are reasonably routine. Do not forget that this Apple money goes back over a period of ten years so the adjustments were made. Third-country adjustment has very little, if anything, to do with the case itself. It is that tax moneys are owing to the country. These are routine transactions that go on. They probably could diminish over time given the fact that this is historical.

They are just properly payable and the Commission, when it reached its adjudication, recognised that there would be some draw on these funds and that adjustment could be made of the top without us in any way invalidating its obligation to collect the money.

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Regarding the decision on the escrow account, why an escrow account? I appreciate the difficulty of finding somewhere to put something of that nature on deposit in a negative interest rate environment, but can Mr. Moran tell us about the decision making to move to an escrow account and the implications?

Mr. Derek Moran:

The interesting thing is that on the day of the decision, the Commission had mentioned that this money should probably be lodged to an escrow. The Commission had said it. As it was pending we had been doing much thinking about it. One of the risks of not doing so was giving the Exchequer a large exposure to having to meet any shortfall. If one puts it on deposit at a negative interest rate of whatever it might be, there is an annual fall in the value of it. I must get this right. If, ironically, we were to win and the money was going back to Apple, the State could be in for several hundred million in terms of moneys lost to negative interest rate charges. If that had been on deposit with the Central Bank, it would have seriously distorted its balance sheet. We would have got 80% of that in additional profit back from the Central Bank, so there is a gap. One can see in the Comptroller and Auditor General's report the third country adjustments. There was a loss. Negative interest rates would be a contributing factor to that. The benefit of the escrow is that at the end of it, let us say three years hence, if one loses €40 million per year to negative interest rates the State does not have to make up the difference.

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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It is clear already that there are losses of that nature. It is €37 million in 2019 and €16 million in the half-year period. It is already losing money as a consequence of the negative interest rate environment. Other than that, the State would be liable at the end of whatever the period is for additional money in circumstances where the case goes the way the State would like it to go - we will take out the words "winning" and "losing" - in our overall best interests. It is not the case that there is an amount of money that can be tapped into in the interim. In circumstances where one tapped into that money for houses, coronavirus supports or whatever else, the State would ultimately be liable should the case go the way we want it to go. It would be additionally liable for those funds to Apple.

Mr. Derek Moran:

In every state aid case where we have to collect money where state aid is granted or accused of being granted, one holds that money in an escrow or in suspense or in a bank account, pending the outcome of the case. There was one case that ran for approximately 16 years with money going both in and out of the fund, albeit a much smaller scale, before it was finally settled and taken in. Deputy Carthy referred to the air travel case. We would have taken in moneys on suspense, as it were, covering the state aid, pending the outcome of the legal process. When that is completed the moneys come to the State in that instance.

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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The money is not there to be taken.

Mr. Derek Moran:

No, it never is.

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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There are no rainbows in international corporate tax policy and if there are, there are certainly no pots of gold at the end of them.

Mr. Derek Moran:

If we lose, yes, there will be a big injection of €13 billion.

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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If we lose, however, there is a massive implication for other companies that had operated in Ireland in the 1990s and early 2000s which may then face, or anticipate facing, similar tax liabilities. What is the implication in terms of retrospective certainty in that instance?

Mr. Derek Moran:

The implications for certainty are huge. It is important to remember that in contesting the case it is very much about saying that the Irish tax system abides by the law, does not give favourable deals and the like. In other words, it asserts that certainty that it applies the rule of law both nationally and internationally and does not exercise discretion. It is much less about the company for the State than it is about the principles. That gives companies certainty that we are willing to defend our tax system against all of those.

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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That is a concern that has grown about this amount of money, the certainty about it and the read across other companies. It is complex. Unquestionably, international corporate tax policy and international corporate tax law are incredibly complex and difficult. On the idea that there is a fund we are simply not availing of, not only are we not availing of it but to get to a position where it reverts to the Exchequer is deeply risky for the rest of the foreign direct investment base, the companies that have been here for many years, and the read across for them in terms of retrospective certainty, and in planning for the future in terms of tax policy and attracting investment into Ireland.

Mr. Derek Moran:

I do not disagree with any of that. Ultimately, if the Commission had decided not to appeal, we probably would be unwinding the escrow now and the money would be going back to Apple. If one had spent it, one starts borrowing for it, so the money is held separate until the end of the legal proceedings.

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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It is just a set of shared facts based on how we accrue money and how it is therefore available for disposition or otherwise.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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The next speaker is Deputy MacSharry.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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I welcome the witnesses. They will be familiar with me raising the IBRC liquidation previously, going back to my interest in having a committee of inspection appointed to the liquidation. It is the biggest liquidation in the history of Europe and has been ongoing since February 2013. I am aware that subsequent to us raising it here that legal cases were brought relating to oversight. I appreciate that the witnesses cannot talk about courts and so forth, but can they give us a status update on that and in terms of oversight of matters such as professional fees and so forth? Having not proceeded with the appointment of a committee of inspection have they, in parallel with ongoing court cases, padded out the level of oversight regarding professional fees?

Mr. Derek Moran:

We are back to this again. On the status of the two cases taken by Mr. Hall and Mr. McKillen, both cases were concluded. They withdrew the cases in the end, so they are completed. We published the seventh liquidation update last July. It refers to the Deputy's concerns. We operate within the law and this is a special liquidation so there is no committee.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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We wrote the law, however.

Mr. Derek Moran:

I do not think the Department can be criticised for applying the policy. We had this discussion previously.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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I appreciate that.

Mr. Derek Moran:

I recognise the Deputy's concerns about costs, oversight and so forth. We engaged consultants to look at the costs associated with this liquidation versus a range of other comparable liquidations, to the extent it is possible to do that. We published the findings of that last July. I do not know if the Deputy has seen them.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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I did not.

Mr. Derek Moran:

I am happy to make that available to the committee.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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That would be great.

Mr. Derek Moran:

To run through it, essentially, they looked at comparable liquidations to the extent they could. Liquidations are all different, but it is the scale here. They looked at the hourly rates applicable and found them to be lower than court-approved rates. Given the exchanges we have had with the Deputy over the last couple of years, it was really important that we get somebody, not us, to look at this. There are lower than average UK insolvency rates. There has been no increase in the fees over the period since the liquidation started, which is unusual. Usually one would have a liquidator going to the court and looking for increases of fees because of the duration. If the Deputy remembers there was a rebate on fees of €5 million that was agreed with the liquidators and, while they could not be exhaustive on this, they had not come across a situation like that. I am happy to make it available to the Deputy and I am happy to deal with any queries.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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That would be good. The other query about it at the time was that, apart from the fees being low, and I am sure these particular liquidators are the exception, in the past accountancy firms have been known to add hours to the time measure and stick that time into liquidation A or liquidation B. That is the reason for oversight.

I have no doubt that the hourly rates are competitive. Indeed, they were based on the NAMA rates. That concern still exists. Does the report deal with the matter?

Mr. Derek Moran:

It does on an aggregate level. What it endeavours to do is compare the costs of similar scale. I think the fees up to the end of 2019 were about €277 million. The Estimate, when this is over, will come to somewhere between €304 million and €313 million.

When this ends is open to question. The IBRC currently still has 40 active legal cases - 26 in which they are defending and 14 where they are the plaintiff so this remains complex.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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The Secretary General has said it is €277 million. Is that just to the joint special liquidators or is that all professional fees?

Mr. Derek Moran:

I will follow up and check that.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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Up to 2017 we were already at €222 million for total fees and I think the joint special liquidator account for €123 million. I am interested to know the totality of professional fees up to the last year end.

Mr. Derek Moran:

Yes.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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The Secretary General has said that the cases have been settled or stopped, which is fine if that is the case. Is a separate constitutional case being taken as to the legal basis of the 2009 Act?

Mr. Derek Moran:

There is.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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Who is taking it?

Mr. Derek Moran:

Mr. McKillen.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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Are we defending that?

Mr. Derek Moran:

We are.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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Is that new?

Mr. Derek Moran:

It is relatively new. If the Deputy wants some detail on that I can get it for him as well.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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Brilliant. I thank the Secretary General.

Photo of Imelda MunsterImelda Munster (Louth, Sinn Fein)
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The Comptroller and Auditor General's report made reference to the €209 million that was paid to the third country in 2019. Is it expected that other claims on the fund will be made by other countries before the resolution of the Apple appeals ruling?

Mr. Derek Moran:

That is possible but I think it diminishes over time. Do not forget, these are moneys collected in respect of the period 2004 to 2014. It does take a long time to resolve these between countries. So, I could not say definitely but there is a chance that there will still remain third party court claims.

Photo of Imelda MunsterImelda Munster (Louth, Sinn Fein)
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The Secretary General has said he cannot say definitively. Does he have an idea of the scale or cost?

Mr. Derek Moran:

This will be something dealt with by our colleagues, the competent authority, which is the Revenue Commissioners. That happens between the Revenue teams on both sides so we would not have line of sight on it. Is that Mr. Tobin's understanding as well?

Mr. Gary Tobin:

Yes. I think that is correct. Everything that the Secretary General has said is absolutely correct. Given the scale of moneys involved, it is quite conceivable that other competent authorities, so other tax authorities, may decide that they feel due some of the Apple money. Members will recall that the way the OECD views taxing rights is on the basis of where the added value was created. This follows the international arm's length principle. So, it is conceivable that another jurisdiction may feel that it is due some of the taxing rights involved so they may lodge a claim.

Photo of Imelda MunsterImelda Munster (Louth, Sinn Fein)
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It is a very real possibility.

Mr. Gary Tobin:

It is certainly a possibility but we will not know until they actually do lodge a claim.

Photo of Imelda MunsterImelda Munster (Louth, Sinn Fein)
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In terms of the costs associated with establishing the escrow fund, the report outlines the cost consultancy fees, etc. but excludes the cost of the appeals case taken to the European courts. Do we know how much it cost?

Mr. Derek Moran:

The case, I think, to date has cost about the same, €4.6 million, some of which is borne by ourselves and some of which is borne by the Chief State Solicitor's Office, CSSO, etc.

Photo of Imelda MunsterImelda Munster (Louth, Sinn Fein)
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What percentage is borne by ourselves?

Mr. Derek Moran:

By the Department, it is somewhere in here. At the end of the day, €4.6 million is borne by Exchequer whether it is the Department of Finance, the CSSO or the Attorney General's office.

Photo of Imelda MunsterImelda Munster (Louth, Sinn Fein)
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It is a cost to the State.

Mr. Derek Moran:

Yes, it costs the State that amount.

Photo of Imelda MunsterImelda Munster (Louth, Sinn Fein)
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The report referred to the mandate of the escrow account whereby investment managers must preserve the fund's capital to the greatest extent possible. To me, that appears to slightly differ from the normal investment manager's mandate. One would imagine that it would be to grow the fund's capital, not just merely preserve it. Is that the case?

Mr. Derek Moran:

This is not a typical investment fund. This is an amount held because of the court case or the proceedings taken by the EU.

Photo of Imelda MunsterImelda Munster (Louth, Sinn Fein)
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Why has a passive approach been adopted?

Mr. Derek Moran:

The preservation principle abides. They made a determination that the €14.2 billion or whatever the total number was, capital plus interest, and it is a question of trying to make sure, to the greatest extent possible, that that amount is still there at the end. It is a not-for-profit investment fund, if the Deputy knows what I mean.

Mr. Derek Moran:

We have not set up a sovereign wealth fund or anything like that albeit it has some of the characteristics and some of the scale. It is a very conservative mandate to preserve the amount.

Photo of Imelda MunsterImelda Munster (Louth, Sinn Fein)
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By preserving it alone or just aiming to maintain the capital value of the account, is it more in danger of falling short, as opposed to trying to grow the fund?

Mr. Derek Moran:

At the end of the day, it may make a profit even with a conservative mandate. Let us say interest rates change next year and we no longer have a negative interest rate but a small positive interest rate, one can expect it to start earning money. At the end of the day, it is whatever is in the fund that is surrendered on either side. It either goes back to Apple or it comes to the State. That is the key amount and, in real terms, that amount of money has been preserved.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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Deputy Munster will have an opportunity for a second round of questioning.

Photo of Colm BurkeColm Burke (Cork North Central, Fine Gael)
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I thank the Secretary General for his presentation. I want to touch on a few issues concerning the Exchequer financial outturns.

Irish Water received €96 million in 2015, €184 million in 2016, €270 million in 2017 and nothing in 2018. In 2019, Irish Water received €758 million by way of a capital contribution. Please outline the difference between a capital contribution and a capital grant. I understand that no shares were issued to the State in respect of the funding and that it was in relation to the domestic debt of Irish Water. What is the scenario in terms of non-domestic debt? Is there not a structure in place for the State to fund Irish Water? What is the reason for the variation in contributions?

The dividends amount received from State bodies has decreased from €551 million in 2016 to €262 million in 2019. Why? What is the prognosis for dividends from State companies for the next number of years?

Finally, in terms of the value of State shareholdings, I understood that a public sector balance sheet was to be produced. Where are we with that?

Mr. Derek Moran:

On Irish Water and the big €758 million amount that is reflected in the 2019 accounts, it is really a function of the history of Irish Water. Irish Water, as originally conceived, was supposed to be a commercial semi-State company. It had, therefore, a commercial borrowing mandate. It had approved borrowings up to a certain amount. It had exercised an amount of that. However, as we all know, EUROSTAT determined that actually it was not off-balance sheet. It was not commercial in that sense. It was on-balance sheet so what one had is them carrying debt at commercial interest rates when the State could actually replace that debt at zero or, possibly, negative interest rates. Essentially what we did is we rolled up to cope with that debt and funded it through the Exchequer.

In direct terms, it has a cost on the Exchequer side but in general government or wider accounting terms, it is neutral. We changed that level of debt for the same level of debt differently funded. One accrues a saving on the interest payments going forward. Does Mr. McCarthy think that is a reasonable summary?

Mr. John McCarthy:

Absolutely. I suppose the key thing is that there may have been an impact on the Exchequer. It was more than offset by an impact on Irish Water. Both entities are within general government. From a general government perspective, which is the bottom line from a European perspective because it is what investors look at and so forth, it was absolutely neutral. This transaction had important cash flow savings to the State by way of lower debt service payments by replacing commercial debt with cheaper sovereign debt, so to speak. This was, therefore, a positive without any general government balance implication.

Photo of Colm BurkeColm Burke (Cork North Central, Fine Gael)
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If Irish Water borrows into the future, does this mean the State will end up having to cover those loans even though the Government may not be directly involved in the level of borrowing?

Mr. Gary Tobin:

If Irish Water borrows in future, it will go on the general government balance sheet. It is the same process if the Exchequer borrows on that basis and gives the money to Irish Water. A cheaper way of doing it, however, would be if the Exchequer borrowed via the NTMA and then provided the money to Irish Water. In other words, that is a cheaper way of financing Irish Water.

Mr. Derek Moran:

Extensive work has been done around the balance sheet in Mr. Tobin's area.

Mr. Gary Tobin:

Deputy Colm Burke is correct. This came up last year and possibly the year before. My team has done an great deal of work on this public sector balance sheet. It is a crucial area and it is something we gave much priority to. We are nearly there. The whole Covid-19 issue has put us off-track slightly but by the end of this month we will publish data between 2000 and 2019 as well as a paper explaining why these issues are so important. My team has done the data right up to 2018. They are finalising 2019 and we will publish in the next couple of weeks.

Photo of Colm BurkeColm Burke (Cork North Central, Fine Gael)
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That includes shareholding in all the banks as well.

Mr. Gary Tobin:

To the extent that they are within the public sector, yes.

Neasa Hourigan (Dublin Central, Green Party)
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My particular interest is around Ireland's contribution to the EU budget. For this session, we were sent some briefing notes that included previous recommendations from this committee and responses from the Department of Finance. Recommendation 3 was around annual reporting of all contributions. It is useful to see the report that was put out by the Department in September. I think that even sectoral committees should look at that information.

I am mindful that a huge amount of change and debate is happening in the EU at the moment in the context of tax. We have the base erosion and profit shifting, BEPS, process and the OECD process. We have a new EU subcommittee on tax matters. Obviously, Ireland attends the code of conduct group on business taxation which debates the future of taxation measures in the EU. As a new person in all of this, I find it difficult to glean always from the information available to me what position our Government takes on some of those issues within these debates. I am aware that there is a twice yearly report from the code of conduct group to ECOFIN, but it does not always give me the information I am looking for. Is it possible to have the minutes of those meetings made available and tabled to this committee on a regular basis?

Mr. Derek Moran:

The code of conduct on harmful tax practice, to give it its full title, is a sort of soft law instrument within the context of the EU. We attend it like all other members. It allows for a discussion where somebody thinks something harmful is happening in one jurisdiction and an element of persuasion in terms of the correction of that. That goes on all the time. As the Deputy correctly said, a report goes to ECOFIN twice a year. Mr. Tobin may wish to speak to those reports because he is more familiar with them than I am.

Mr. Gary Tobin:

I thank Deputy Hourigan for the question. Certainly, much is happening at EU level with regard to taxation at the moment. Obviously, the BEPS process is happening at the OECD. In many ways, the OECD process is a multilateral process that will inform the EU process. Some of what is happening at EU level, therefore, will probably only kick in once the OECD has completed its work, as the Deputy will be aware.

The subcommittee on tax matters mentioned by the Deputy has been set up. As I understand it, it is a subcommittee of the European Parliament. Currently, as things stand, the European Parliament does not have any jurisdiction with regard to taxation matters at the EU level. It is a matter for the Council.

Neasa Hourigan (Dublin Central, Green Party)
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I am sorry to cut across Mr. Tobin. The workings of the code of conduct group are interesting because the group deals with the position of member states. When those meetings happen, I am trying to understand the positions of member states which are being put forward both by our own and other governments. Can we have the minutes?

Mr. Gary Tobin:

As the Secretary General mentioned, the EU code of conduct group is a soft law body where the member states come together and discuss matters relating to particular tax regimes that operate in particular member states. The Commission will generally table a view with regard to particular tax regimes.

Neasa Hourigan (Dublin Central, Green Party)
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I want to ask another question before my time is up. Is it possible to get the minutes?

Mr. Gary Tobin:

Obviously, it is not for us to issue the minutes because it is a body under the European Council.

Neasa Hourigan (Dublin Central, Green Party)
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As people who attend those meetings, I presume the officials in the Department get a copy of the minutes. Could it table them to this group considering the German Bundestag receives those minutes on a regular basis?

Mr. Gary Tobin:

We can certainly contact the Council secretariat in Brussels and see if it is possible to make the minutes of those meetings available.

Neasa Hourigan (Dublin Central, Green Party)
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That is great, thank you.

Mr. Gary Tobin:

I am not honestly sure whether those meetings are deemed to be confidential.

Neasa Hourigan (Dublin Central, Green Party)
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If they are being tabled to the German Parliament, I do not see that there will be a problem tabling them to the Irish Parliament.

Mr. Gary Tobin:

I have no doubt that the Irish Parliament is equally as competent as the German Parliament.

Neasa Hourigan (Dublin Central, Green Party)
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I agree. I have a quick question. In the summer of last year, the European Commission served formal notice on Ireland asking us to implement key anti-tax avoidance rules earlier than the delay we put on it to 2024. It was reported that we would work with the Commission to speed up the implementation of those tax avoidance rules on how companies use interest payments to cut their tax bills. Can we have an update on that?

Mr. Derek Moran:

I would like to pick up on the Deputy's reference to the first annual report on the EU contributions. This becomes increasingly important as we move from 40 years of being a net beneficiary into being a net contributor. I understand that over the next seven years, we will move from paying approximately €2.5 billion per year up to €4 billion by the end of the seventh year. It is important that people are informed and the Deputy made the point that it is relevant to sectoral committees as well.

Neasa Hourigan (Dublin Central, Green Party)
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I complement Mr. Moran on the clarity of that report. It was very good.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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I will let the Deputy in for a second round later in the meeting. I call Deputy Catherine Murphy.

Photo of Catherine MurphyCatherine Murphy (Kildare North, Social Democrats)
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I apologise for missing part of the meeting. I watched some of it from my office so the Chairman might tell me if I go over old ground. The Irish Bank Resolution Corporation, IBRC, which was a combination of Anglo Irish Bank and Irish Nationwide Building Society, had a huge cost somewhere in the region of €35 billion. It was €30 billion and €5 billion, respectively. Much of that is simply not recoverable. We can see that €682 million was received by the Exchequer in 2019. Is there anything due in 2020? What is the schedule for receipts with regard to the IBRC?

When is the liquidation expected to conclude? What costs have been incurred by the Department to date in the liquidation process?

Mr. Derek Moran:

We spoke about that with Deputy MacSharry. I should have my notes in front of me. We hope that it will be concluded over the next two years. I believe I mentioned a figure of €277 million for the total cost of fees in the liquidation stage. It could be in the region of €305 million to €315 million by the end. When this will end is not in the liquidator's control or ours, as there are still 40 legal cases outstanding. They are approximately split between 26 cases in which the liquidator is the defendant and 14 cases where the liquidator is the plaintiff. There is still money to come back to the State from the liquidation process. I will correct myself in due course if I am wrong, but we expect approximately €150 million to come back next year and a further €300 million or €400 million the year after.

Photo of Catherine MurphyCatherine Murphy (Kildare North, Social Democrats)
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What about this year? I do not see a figure for 2020.

Mr. Derek Moran:

I do not believe there will be moneys this year.

Photo of Catherine MurphyCatherine Murphy (Kildare North, Social Democrats)
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In one case, there is litigation between the IBRC and Permanent TSB. Is there any indication of the cost of that to date or the potential cost?

Mr. Derek Moran:

No. I have given the committee a sense of what we believe the overall cost will be at the end of the process. If I can find any information on that point, I will provide it.

Photo of Catherine MurphyCatherine Murphy (Kildare North, Social Democrats)
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Will the witnesses provide us with a list of what has happened in each year since the outset of the liquidation process?

Mr. Derek Moran:

We published a seventh update on the process in July, but I will talk to my team and we will send whatever information we can to the committee.

Photo of Catherine MurphyCatherine Murphy (Kildare North, Social Democrats)
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Regarding risks to the economy, corporate taxes have played a sizable role in keeping the finances as on track as they can be in the current climate. That is one of the main risks. What are the Department's projections? What immediate concerns should we have, given what is known about the corporate tax receipts?

Mr. Derek Moran:

One of the key features of this year has been the resilience of income and corporation tax. Both taxes have held up. The multinational sector includes ultra-modern ICT services, pharmaceuticals and so on and has done well during the crisis, if the Deputy understands what I mean. This means that revenues from that source have helpfully stood up strongly, which is a positive.

We in the Department have always spoken about - we were probably the earliest to do so - the risks to corporation tax in the medium term, particularly given the changing global environment in the form of BEPS I, BEPS II and so on. In the previous budget or the one before that, we began including a negative drag on corporation tax receipts from about 2023 onwards, accumulating to approximately €2 billion in value, because we recognised-----

Photo of Catherine MurphyCatherine Murphy (Kildare North, Social Democrats)
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Annually?

Mr. Derek Moran:

Yes. It will accumulate to approximately €2 billion.

Mr. John McCarthy:

That is very close. We published a medium-term forecast for the economy and the public finances in January in advance of the election because the situation vis-à-visthe budget had changed. The budget was based on a disorderly Brexit. In January, we said that because of BEPS, we would lose €500 million every year from 2022 onwards. That amount would accumulate. There would be €500 million in 2022 and €1 billion in 2023. We went out to 2025, when the loss would have accumulated to €2 billion. We also said that that owed purely to BEPS and that if a company relocated from Ireland, there would be an additional hit on the corporation tax front.

Verona Murphy (Wexford, Fine Gael)
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I thank the witnesses for attending and the Department for its hard work. Under the Exchequer assets and liabilities heading on page 7 of the briefing document, the post office savings fund is stated to be worth €2.1 billion. Is that figure for 2018 or 2019?

Mr. Derek Moran:

All of the briefing documents relate to 2019.

Verona Murphy (Wexford, Fine Gael)
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Is that fund growing or decreasing year on year?

Mr. Derek Moran:

I would have to check.

Verona Murphy (Wexford, Fine Gael)
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I want to see a direct comparison between the fund and how our post office network operates.

Mr. Derek Moran:

We can run a tracker on that.

Verona Murphy (Wexford, Fine Gael)
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Does the Department consider it an important fund?

Mr. Derek Moran:

As one of the funds that fund the State, it absolutely is.

Verona Murphy (Wexford, Fine Gael)
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Regarding the Exchequer balance in terms of Central Fund transactions on the national debt, €5.2 billion is the figure for servicing the debt. What was the national debt in 2019?

Mr. Derek Moran:

It was €209 billion.

Mr. John McCarthy:

Perhaps I could give the Deputy the 2020 figure. Would that be-----

Verona Murphy (Wexford, Fine Gael)
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If Mr. McCarthy can give me that figure, can he give me the projected figure for the cost of servicing the national debt?

Mr. John McCarthy:

I can probably give the Deputy the figures for 2019 and 2020, if she just bears with me for a second. I will speak in terms of the general government debt, which is the wider definition. We fund the Exchequer, but we must also fund other areas. In 2019, it was €4.5 billion and it will be €3.9 billion in 2020. Some of that is interest costs that we have to pay to the owners of the bonds and there is a couple of hundred million euro each year in NTMA costs.

Verona Murphy (Wexford, Fine Gael)
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That is not clear from this document. Could Mr. McCarthy provide that breakdown to the committee?

Mr. John McCarthy:

I certainly can.

Verona Murphy (Wexford, Fine Gael)
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I would appreciate it.

I am concerned about our EU contributions and where Brexit will leave us in that regard. In light of what the contributions were last year, what does the Department expect they will be post Brexit? Will they increase or decrease?

Mr. Gary Tobin:

That is an interesting question. The UK has left the EU and we are now talking about an EU 27. A country's EU budget contribution is based on the percentage size of its economy relative to the entire EU's. Essentially all member states will have to absorb the fact that the UK will no longer be paying into the EU budget in the way it was. Interestingly, it is important to say that, depending on the ongoing Brexit negotiations, the UK may decide to remain in aspects of certain programmes. For example, it is well known that there has been some discussion about the UK remaining in the Erasmus+ programme. If the UK remains in certain programmes under a deal scenario, it could be envisaged that there would be certain payments by the UK into the budget in the coming years. However, the Deputy's overall point is accurate. The UK has left, so all other member states will have to pick up the-----

Verona Murphy (Wexford, Fine Gael)
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Do we have an estimate for that cost?

Mr. Gary Tobin:

Yes. As Deputy Hourigan mentioned, we published the first annual report on Ireland's transactions with the EU. It sets out our projections of our contributions to the EU budget over the next seven years. Table 2 in section 3.5 indicates that our EU budget contributions are likely to increase from €3 billion or thereabouts to approximately €4 billion. They will average in or around €3.5 billion per annum over the next seven years. As I-----

Verona Murphy (Wexford, Fine Gael)
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I am sorry, but I am tight for time and I do not want to overrun into anyone else's time. I wish to ask a question for the benefit of the committee. It is difficult to see the formulae for calculating Ireland's contribution.

Could the formulae be submitted to the committee in writing? I do not want the question answered now.

Paul McAuliffe (Dublin North West, Fianna Fail)
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To assist, I wish to focus on two areas, the Apple escrow account and the Irish Water transactions.

Questions were asked about the overall fund's decline between 2018 and 2019. A political point might be that one would wonder how there is anything left in the account given the number of times Opposition politicians have asked that it be spent. With regard to the decreasing balance, I believe there is a figure of €209 million for the transfer and €56 million for investment losses, administration and taxation. On the investment losses, I heard the contributions on whether the moneys should be on deposit or in an escrow account but a loss of €37 million is a loss of €37 million in an investment strategy. It could amount to nearly €100 million if it lasted for over three years. What is being done to address that? Why was the loss so acute between May 2019 and December 2019? The figure is €60 million.

Mr. Derek Moran:

We have gone over some of this already. In a negative interest rate environment, even the preservation of the capital amount is going to be a challenge. There is a very conservative mandate. The mandate is to preserve the actual amount in so far as that is possible. It is not an investment fund to make big profits, although there could be a profit at the end of the day. However, it is a winner-takes-all formula.

One of the reasons for the escrow is to protect the State against the risk of exactly what the Deputy is describing - large losses or potentially large losses. The arrangement was seen by the Commission in the first instance and by ourselves as the best way to protect the State from that risk.

Paul McAuliffe (Dublin North West, Fianna Fail)
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So that strategy is agreed between the Commission and Ireland.

Mr. Derek Moran:

On the day the Commission announced its decision, it actually suggested that the moneys be held by way of escrow. This is unprecedented. These are extraordinary amounts of money. Generally, when one is talking about state aid, one is talking about tens, 12s, 15s and 20s of million, not about €14 billion.

Paul McAuliffe (Dublin North West, Fianna Fail)
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Does Mr. Moran believe there is an alternative way to preserve the balance without accruing that sort of annual loss?

Mr. Derek Moran:

The account is jointly overseen by Apple and the NTMA. They will be monitoring the performance of the investment managers. It is for them to keep the pressure on to make sure the fund performs at the level indicated. The loss is less than it would be if the money were on deposit, based on a rudimentary calculation, but there is certainly room for improvement. That is what the investment committee and the oversight of both the company-----

Paul McAuliffe (Dublin North West, Fianna Fail)
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The investment committee was mentioned a number of times. Could Mr. Moran outline its membership?

Mr. Derek Moran:

We can get that for the Deputy.

Paul McAuliffe (Dublin North West, Fianna Fail)
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Does it include representatives from Apple?

Mr. Derek Moran:

Apple and the NTMA.

Paul McAuliffe (Dublin North West, Fianna Fail)
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It was asked earlier whether there would be any liability if the case went the other way in respect of Apple's involvement. That is key to having the agreement.

Mr. Derek Moran:

If we win the case and the money goes back to Apple, the State will not have any additional liability other than to hand back the amount of money in the escrow. That is one of the fundamental things we want to protect.

Paul McAuliffe (Dublin North West, Fianna Fail)
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The alternative is also considerable. If it came back to the Exchequer and we lost €100 million over three years, I would be a fairly terrifying prospect as well.

Mr. Derek Moran:

Yes, but one has to compare and contrast with the alternative, trying to hold the money on deposit, which would almost certainly give a worse outcome.

Paul McAuliffe (Dublin North West, Fianna Fail)
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Is there no review of the investment strategy over the period?

Mr. Derek Moran:

The investment strategy is set and agreed between the parties. What they do is monitor the performance of the investment managers within that.

Paul McAuliffe (Dublin North West, Fianna Fail)
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On the €758 million transferred to Irish Water, could Mr. Moran talk to us about the difference between a capital contribution and a capital grant? Am I right in saying that was the equivalent of the property tax collected in the first year? Irish people have a stake in where the money goes. There was no rearrangement of shares or any sort of acknowledgment. How was it treated from an accounting perspective?

Mr. Derek Moran:

This is a relatively simple transaction. Irish Water was meant to be commercial and was a commercial borrowing authority. It borrowed at commercial rates and paid interest on the borrowings. The body was then deemed not be commercial and it was on the State's balance sheet. The State can borrow a whole lot cheaper. What the State did was intervene and replace commercial debt with sovereign debt, with no impact on the overall balance sheet, which saw €758 million going in and €758 million going out, bearing in mind the position on costs and general government expenditure. The longer-term debt-servicing cost is cheaper. In the round, it is. It can look very complex but, in substance, it is not.

Alan Dillon (Mayo, Fine Gael)
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I welcome the witnesses and thank them for all they have done in recent months with regard to Covid. It has been an extremely challenging time for many Departments.

I would like to have an understanding of the position of mergers and acquisitions regarding corporation tax receipts. The year 2019 was probably one of the busiest in terms of biopharmaceutical, life sciences and technology companies. Recently, there was a €46 billion acquisition of Allergan by Abbvie. How does the Department factor that into the receipts? Is it accounted for in the report? What process is used to determine the figures and transactions?

Mr. Derek Moran:

Regarding transactions like the Abbvie transaction last year, mergers and acquisitions are not necessarily something we have sight of but the issue in the case in question was that there was a corporation tax issue and a stamp duty issue. That amount has been paid. It is roughly in the order of €600 million. The company has paid this but it will appeal it through the Tax Appeals Commission in the normal way.

We deal with the information we have available to us. Sometimes, through the Revenue Commissioners, we can get more granular information that feeds into the work of Mr. McCarthy and his colleagues on forecasting, including in respect of potential restructurings, changes of payment dates, acquisitions and so on. On the forecasting, does Mr. McCarthy want to give us a flavour of what happens?

Mr. John McCarthy:

Sure. Ultimately, corporate taxes paid are a function of corporate profitably. What we are trying to do in the Department is forecast what profitability might be. We know the effective rate of corporation tax is around 8% or 9%, in total. We forecast profitability, which is pretty much a function of GDP and so forth, so it is very much a macro-driven process. As Mr. Moran mentioned, however, we also supplement it with additional information from the Revenue Commissioners regarding restructurings, changes in payment date and so on. I would point out, however, that there are important Chinese walls. We could never be given the name of a particular company. It is illegal for me to receive that but we can get an indication that there is a big transaction that is going to affect our results.

When we are compiling our forecasts, it is a combination of a top-down approach, again based on a macroeconomic base. I refer to information on corporate tax, which is related to corporate profitability, supplemented by additional information from our colleagues in the Revenue Commissioners. We will take into account factors such as mergers and acquisitions.

Alan Dillon (Mayo, Fine Gael)
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I have a question on the insurance compensation fund. The Comptroller and Auditor General's report refers to a repayment from the Exchequer to the fund of €80 million in 2019.

The balance is currently €555 million. When is that expected to be repaid?

Mr. Derek Moran:

The State had to make a loan of approximately €1 billion in respect of the failure of Quinn Insurance, and a levy is repaying that over time. That money has been coming in, and on current estimates, it could be approximately another 10 years before that is repaid.

Alan Dillon (Mayo, Fine Gael)
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Has any repayment been made in 2020?

Mr. Derek Moran:

The 2% levy flows in, so I think the answer is yes, but we can double-check that. There is a 2% levy on insurance policies that are repaying that debt over time.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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I have a few questions, then I will let members in for a second round of questions. The cost of servicing the national debt was set out by Mr. John McCarthy. Could he remind me of that figure? Could he provide me with a figure for the cost of servicing what is referred to as the bailout part of the debt per annum?

Mr. John McCarthy:

In terms of the overall cost of servicing national debt, the general government cost was €4.5 billion in 2019, and this year, it was €3.9 billion. It is difficult to separate out or to decompose the overall amount of debt into regular banking debt and the normal deficit-----

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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I am mindful of time. In terms of the figure of €3.9 billion, a sizeable portion of that will be interest repayments on the bank debt. The Department of Finance must have some figure for that. Is it €1 billion, €500 million or €1.5 billion? What is it?

Mr. John McCarthy:

I cannot give the Chairman a figure off the top of my head, but the total amount of debt that was due to banks was approximately €40 billion. That is just a ballpark figure because we have got some of it back. The total debt this year will be €220 billion, so if one divides 40 by 220, one can pro ratathat over-----

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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So the figure would be just north of €1 billion pro rata.

Mr. Seamus McCarthy:

I can contribute to answering the Chairman's question. There was a chapter that I published in last year's report, which dealt with the cost of banking stabilisation, and our estimate of the long-term recurring annual cost of servicing the debt is somewhere between €1.1 and €1.3 billion.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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I will remain with the issue of banks for the moment. The State has shares in three banks. It has a 13.95% share in the Bank of Ireland, and as I understand it, there was a dividend payment of €24 million in 2019. In respect of AIB, the State has a share of just over 71% in the bank, and, in 2019, there was a dividend payment of just over €228 million. How much of a share does the State have in Permanent TSB? There was no dividend payment from that bank in 2019. Will Mr. Moran address that point briefly? How much of a share does the State have in Permanent TSB?

Mr. Derek Moran:

The share in Permanent TSB is approximately 70%. The Chairman is correct that there was no dividend payment payable, but that may well have been due to the trading circumstances of the bank itself.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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To be polite about it, the bank is charging fairly healthy interest rates on mortgages and loans in comparison to other institutions.

Mr. Derek Moran:

I do not disagree with the Chairman or contest that. Did it make a profit, and did the regulator, given some of the structural problems experienced by the bank, allow it to make a dividend payment? Those two things have to be considered.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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At the end of 2018, bank debt stood at €41.7 billion and the State received €300 million in dividend payments in 2019. It seems that the taxpayers have taken a substantial hit, if all the State received was €300 million from the three banks from which it should receive dividends, when the annual cost of servicing the debt, according to the Comptroller and Auditor General, is somewhere between €1.1 and €1.3 billion, and the overall debt is approximately €40 billion now. Does the Government or the Department have any plans to sell the shares that the State has in the banks?

Mr. Derek Moran:

I will take that from a different angle. The amount of the gross investment in those three banks was approximately €29.6 billion at the start. Over the years, in terms of sales of shares, investment income and fees paid by the banks, the State has got back approximately €19 billion of that and, therefore, the gap between what the State put in and what it has got back, is about €10 billion. The equity value of the three banks is currently approximately €2.3 billion, so there is a gap of €7 billion in terms of the State being able to recover the full amount of the investment. It is a question of strategy. All bank shares across Europe and the world have done particularly badly over the past two years. If I had attended the committee two years ago, I would have put a value on the banks' shares closer to the full €10 billion that is outstanding.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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Are there any plans to divest or sell off any of those shares?

Mr. Derek Moran:

We have to consider that in the context of the market. It would be very poor value for the taxpayer to consider that option at this stage but one has to look at the opportunities that come along.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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I do not advocate such an action, by the way.

Mr. Derek Moran:

I did not think the Chairman would.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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Irish Water received €2.599 billion in Revenue payments over the past three years, and another €1.028 billion, which amounts to €3.6 billion approximately in payments from the State in that period. I acknowledge that Irish Water is not subject to audit by the Comptroller and Auditor General. I was in the Dáil when it was established and I spoke to the Minister at the time about the issue as I was a spokesperson. I always felt that it should be subject to audit, but that is the way it is. The figure I mentioned amounts to a substantial sum compared to the other semi-State bodies. Due to how Irish Water was initially structured, subsequent events and how everything panned out from a policy perspective, there is now a substantial transfer of taxpayer's money to it. Does the Department receive annual financial reports from Irish Water? If there is such a large tranche of taxpayers' money going to this body, and the Comptroller and Auditor General does not have the opportunity to audit its accounts, and the committee does not see its accounts, is the Department seeing detailed financial reports from Irish Water on income, expenditure, investment plans, etc?

Mr. Derek Moran:

The policy responsibility for the monitoring and oversight of Irish water rests with the Department of Housing, Local Government and Heritage. My Department was involved in the financing and refinancing of the debt, but in respect of oversight of-----

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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What I am getting at is whether there is anyone with financial expertise. There is a significant financial expertise in Mr. Moran's Department overseeing this. There is a large sum of money going to Irish Water - a cartload with creels on it. From the public's perspective, the concern, which has been a concern since the body was established, is that no audit conducted by the Comptroller and Auditor General. Mr. Moran said that his Department writes the cheque, and that is how it is structured and that is the role that the Department has been given. However, neither the Department of Finance or the Department of Public Expenditure and Reform is overseeing the payment of this money to Irish Water and getting detailed reports on its business plans, income, expenditure and financial practices.

Mr. John McCarthy:

Ultimately, that is an expenditure issue.

The Department does not have responsibility for monitoring or auditing expenditure issues. Our colleagues in the expenditure division-----

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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I know that. Let me clarify. What I am saying is that the cheque is going across from your Department or the Department of Public Expenditure and Reform. It is basically being left to the Department of Housing, Local Government and Heritage to oversee this. That is what the officials here are confirming. There is no Department with a financial remit overseeing this expenditure.

Mr. John McCarthy:

A cheque is not going from the Department of Finance. I do not know what arrangements are in place in the Department of Public Expenditure and Reform regarding oversight but I presume that the arrangements are in line with the normal guidelines.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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My thanks to the witnesses for attending and for the information they have provided. I wish to ask three specific questions. The first relates to the insurance compensation fund. A repayment of €80 million was made to the Exchequer and to the fund in 2019. This will reduce outstanding balance to €555.7 million as of 31 December this year. When is that balance due to be repaid? Were any amounts received this year?

My second question relates to the financial accounts for 2019. I have before me section 11 of the financial statements. My question relates to the State savings schemes. The figures show a comparison between 2018 and 2019. I gather that the Department will not have figures for 2020 yet but I assume there will be an increase this year in terms of investment in those schemes. Can the officials elaborate on that?

My third question relates to the statements for current non-voted expenditure. One thing that caught my eye was the sugar levy. There is an amount for 2018 but nothing for 2019. Why is that? Will the officials come back to me on those questions, please?

Mr. Derek Moran:

We spoke about the compensation fund some time back. It is coming back through a levy on insurance policies over time. We reckon there will be ten more years before that will be full repaid.

We promised Deputy Murphy a note on the savings funds. That is an important part of it. We will do that.

I am unsure about the question on non-voted expenditure.

Mr. John McCarthy:

I am sorry - I missed the third question.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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It relates to non-voted expenditure and sugar levies. I note that there is an amount for 2018 but nothing for 2019. Why is that? It is in statement 1.6, which deals with non-voted expenditure.

Mr. Derek Moran:

We will have to get back to Deputy Devlin on that.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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That is no problem. My final question relates to the appearance of officials before the committee last May. There was a recommendation from the committee about insufficient progress being made on the PULSE system. Work was due to be completed by 2020. I realise the officials might not have the information at the committee today, but perhaps they can come back to me on that. I understand clear timelines were agreed by the Central Statistics Office and An Garda Síochána. I would be interested in anything the Department has on that.

Mr. Derek Moran:

I do not think it was our appearance. We might clarify that with the secretariat afterwards.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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That is perfect.

Mr. John McCarthy:

I wish to add one comment. Deputy Devlin made a valid point about the State savings schemes and so forth. One of the real issues at the moment is not so much State savings but household savings. That is probably where Deputy Devlin was coming from. There has been a vast increase in household savings. It seems to be mostly at the commercial banks but I imagine it would affect the State savings schemes as well. We have seen data from the period from March to August. It is double what it was in the same period last year. That is a valid point.

Mr. Derek Moran:

The figure peaked at 35% of disposable income. That was the savings rate during the previous lockdown.

Mr. John McCarthy:

Household savings typically run between 12% and 13%. The highest ever figure was 16% or 17%, but the figure hit 35% in the second quarter of this year. It was the same in the UK and the USA, where the figures hit 30% or 33%. These are figures we have never seen before.

Photo of Catherine MurphyCatherine Murphy (Kildare North, Social Democrats)
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Will we ever seen these figures again?

Mr. Derek Moran:

I suspect not. I think it was an absence of the opportunity to spend the money. That was the challenge rather than the desire to save it.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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It was because the pubs and bookies were closed.

Mr. Derek Moran:

Exactly.

Photo of Colm BurkeColm Burke (Cork North Central, Fine Gael)
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I want to come back on an issue I raised relating to dividends from State companies. The figure has decreased substantially in the past five years. Is there an explanation for that? What is the expectation over the coming three years? Is there a particular reason it has literally come down by more than 50%?

Mr. John McCarthy:

I will come back to the Deputy formally with an explanation but I think the figures he is referring to start at 2015. It could easily have been that there was a one-off issue in 2015 because the figure comes down and then stabilises on the basis of the figures in later years. It is possible that it was a one-off but I will ask my colleagues to firm up on that and come back to Deputy Colm Burke in writing.

Photo of Colm BurkeColm Burke (Cork North Central, Fine Gael)
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It is a fairly substantial reduction.

Mr. John McCarthy:

If there was a one-off transaction, that could explain it. There may have been a vast profit for some extraordinary reason in 2015. We need to bear that in mind.

Photo of Colm BurkeColm Burke (Cork North Central, Fine Gael)
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The question of servicing of the State debt was touched on earlier. The figure was €209 billion at the end of December 2019. It will now be up to €220 billion. Will there be a substantial increase? We are obviously going to have to pay back capital as well as interest. What likely change will arise in respect of same?

Mr. John McCarthy:

That is a very relevant question. I can set out the trajectory in pure money amounts. Last year the figure was €204 billion. For 2020, we estimate €219 billion by the end of the year. For next year, we are looking at a debt of €239 billion. My view is that the State can absorb the one-off increase in the level of public indebtedness. What really matters is the trajectory of the debt to income ratio, in other words, debt to GDP or debt to GNI*. In spring, the Government will set out the stability programme and a medium-term trajectory to get that debt ratio on a downward path. Most economists take the view that economic growth can do the bulk of the heavy lifting. In other words, even if the nominal amount has increased to almost €240 billion, the growth rate in GDP will reduce the ratio over time. Forgive me for going on. Deputy Colm Burke also made a point about the burden of servicing the debt. It is important that monetary policy has reacted on this occasion. In recent years we have seen interest rates fall, not only at the short end of the curve - in other words the policy rate - but also at the longer end of the curve, as the European Central Bank has stepped in via quantitative easing and what is now called the pandemic emergency purchase programme. It is hovering up a great deal of Euro area sovereign debt. It is keeping long-term borrowing costs down. For instance, the Irish sovereign can borrow ten-year money at approximately 0% at the moment. That does not mean it will always be the case. The one thing we do know is that is a non-equilibrium position. Interest rates will rise. It is a question of when. The key point I wish to make is that Euro area sovereigns can carry a higher burden of debt because of the lower interest rate environment.

Neasa Hourigan (Dublin Central, Green Party)
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I wish to talk about credit unions for a moment. We have financial statements from the 13 bodies that the Department has responsibility for from 2018 but we have not had an audited financial statement from the Credit Union Restructuring Board since 2016.

Is that board still active or is it being wound up? I will not beat the drum for a system of public banking, as we often do in the Green Party. However, in the absence of a kind person with €2 billion or €3 billion to capitalise a community bank, we are reliant on the commitment in the programme for Government to a reform of policy around credit unions to enable them to grow and to broaden the remit of credit unions and post offices to allow them to provide some community banking facilities. Is work being done on that and, if so, where are we in that regard?

Mr. Derek Moran:

I will ask my colleague, Mr. Tobin, to come in on the issue of community banking.

Mr. Gary Tobin:

In a former life, I worked on the banking side in the Department. We would have done a lot of work on the issue of community banking. In particular, we looked at the German model. There are a few points to make. In Ireland, we already have credit unions and the Post Office Savings Bank.

Neasa Hourigan (Dublin Central, Green Party)
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In this committee and in a number of other committees we have talked a bit about public banking in general and why it is a particular challenge in the Irish context. My question is if there is a review under way of the policy framework around credit unions and if the credit union restructuring board is still active or if it has been wound up.

Mr. Derek Moran:

My understanding is ReBo is being wound up. There is outstanding work around the finalisation of financial statements for its final years which are being worked through.

Neasa Hourigan (Dublin Central, Green Party)
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We can expect them to be submitted to the-----

Mr. Derek Moran:

If I am wrong in any aspect of that, I will come back to the committee on it. That is my understanding.

Neasa Hourigan (Dublin Central, Green Party)
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Is there a review of the policy framework around credit unions?

Mr. Derek Moran:

There is an extraordinarily good engagement between the Department and the representative bodies of the credit unions. A unit of the Department deals with them regularly. We have had to produce amending legislation to allow them to hold their AGMs incorporeally, which would not be permitted within the existing legislation. We worked very closely with them on that. All I can say is that we continue to work closely with them.

Neasa Hourigan (Dublin Central, Green Party)
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The credit unions say that they would like to utilise their €18 billion in a more productive way.

Mr. Derek Moran:

Some of them, not all.

Neasa Hourigan (Dublin Central, Green Party)
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Is there any work being done to allow them to do that?

Mr. Derek Moran:

There is an issue around creating a special purpose vehicle, SPV, so they can use their collective resources to lend, but there is nothing prohibiting them doing that. In some cases, they want the State to take on the risk of paying for and managing the SPV. That is a very different discussion.

Photo of Catherine MurphyCatherine Murphy (Kildare North, Social Democrats)
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The witnesses mentioned the low cost of borrowing. We know that because of Covid there is a relaxation of state aid and other measures that would have been part of the fiscal treaty restrictions. We know we have significant deficiencies on the capital side in terms of infrastructure, sustainable transport, social housing and so on. If we are to have a recovery that is job rich, investment in those areas will be important. Is there scope within the current low-cost borrowing environment to scale up spending on the capital side and, if so, to what extent?

Mr. Derek Moran:

There is a review of the capital programme under way. It is fair to say that in terms of the budget, which was announced only three weeks ago but seems like a lifetime ago, the amount of money being pumped into the economy is larger than ever before. In terms of what we have done this year and plan to do next year by way of additional borrowing, which is in the range of €42 billion to €45 billion, a lot of that will go into capital. A lot of it will also go into supporting the economy as it is and to kick-start it. We often speak at this committee about the fiscal rules and how they constrain spend. I once heard the fiscal rules characterised as being in place so that one can repair the roof when the sun is shining so that when it is raining one does not get wet. The Department is of the view that the response in terms of additional borrowing and investing in the economy and supporting incomes is the correct countercyclical policy at this juncture. I will ask Mr. McCarthy to comment further.

Mr. John McCarthy:

I agree with everything that has been said. The total budgetary package was €17.75 billion, which is unheard of. On the capital side, €9.2 billion is the figure for this year, which is the highest ever. It increases to just under €10 billion for next year, which is unprecedented.

Photo of Catherine MurphyCatherine Murphy (Kildare North, Social Democrats)
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We have to spend it very wisely and get a return because we are playing catch-up. I would like to move to the whole-time equivalents in the Department. The NTMA banking unit has been seconded to the Department. I have no issue with that. We need to resource Departments properly. How many NTMA staff have been seconded and are they employed on the same basis as departmental staff?

Mr. Derek Moran:

There are approximately ten staff and they are employed on individual contracts by the NTMA.

Photo of Catherine MurphyCatherine Murphy (Kildare North, Social Democrats)
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They are employed on a contract basis with the NTMA as opposed to the Department.

Mr. Derek Moran:

When I say individual contracts, they are employees of the NTMA within the group and framework that the NTMA uses.

Photo of Catherine MurphyCatherine Murphy (Kildare North, Social Democrats)
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What are they doing in the Department?

Mr. Derek Moran:

Among other things, they deal with management of the shareholding and, as referenced by the Chairman, they deal with the financial advice that we get. They also deal with the credit unions. That is the type of role. It is in that core banking piece.

Verona Murphy (Wexford, Fine Gael)
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I would like to return to the issue of the credit unions. Why were the audited financial statements of the restructuring board not completed since 2016 when the credit unions have been audited up to 2018?

Mr. Derek Moran:

The Comptroller and Auditor General might be better able to answer that question. I do not know the answer but I will try to find it.

Mr. Seamus McCarthy:

There has been an ongoing problem with the finalisation of the accounts. The board, as I understand it, is no longer in place and it falls to the Department to prepare the accounts. I cannot audit them until I receive them. It is a matter that needs to be tidied up.

Verona Murphy (Wexford, Fine Gael)
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If the Comptroller and Auditor General cannot audit them until he receives them, how is it proposed he will get them?

Mr. Derek Moran:

The board has been wound-up. It is gone and, therefore, there is no structure for the audit to be done. We have to take it on.

Verona Murphy (Wexford, Fine Gael)
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Is there a timeline for when that work will be done?

Mr. Derek Moran:

The financial statements for 2017 were completed. We are working out the last issues around the 2018 statements. As the Comptroller and Auditor General said, until we resolve this issue with his office he cannot audit them.

Verona Murphy (Wexford, Fine Gael)
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Is there any timeline in that regard?

Mr. Derek Moran:

I do not have it here. It is hoped it will be not too distant future. I am sorry. I do not know is the correct answer.

Verona Murphy (Wexford, Fine Gael)
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Will Mr. Moran come back to me on it?

Mr. Derek Moran:

Yes.

Verona Murphy (Wexford, Fine Gael)
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How much did the restructuring process cost?

Mr. Derek Moran:

I do not have that here but it was not a huge amount.

Verona Murphy (Wexford, Fine Gael)
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The Department does have the figure but Mr. Moran does not have it with him today.

Mr. Derek Moran:

We do have it. I just do not have it in front of me.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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I will allow one question from Deputy Devlin.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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Returning to the accounts and the capital receipts from the European Union, there is a differential between the figure for 2018 and 2019 for the European Regional Development Fund. I am sure there is a reason for that, which the witnesses can come back to me with if they do not know it today.

Mr. Gary Tobin:

We will come back to the Deputy with a definitive answer. These receipts do differ from year to year. One of the reasons can be that some of these funds can be competitive. Applications for certain projects in particular years can be successful in some years and unsuccessful in others. It can also be that sometimes these projects take longer to get off the ground and so the receipts can be a bit lumpy. We will come back to the Deputy with a definitive answer.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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Yes, in particular in regard to those projects that we discussed.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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In regard to the dividends from the semi-State bodies, do the witnesses have a breakdown of the individual figures? If not, I ask that they be forwarded to the committee.

Mr. John McCarthy:

I only have the aggregate figure. I can come back to the committee on the individual ones.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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Mr. McCarthy might come back with the figure for the ESB, Coillte, Bord na Móna and so on.

Mr. John McCarthy:

I have figures here and we have projections, but we only do it at an aggregate level.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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Has there been any engagement with Bord na Móna? It has been through a very difficult time in terms of restructuring. It has had to do in one year what is supposed to happen over ten years in terms of moving from brown to green. It has big investment plans in place. Has the Department engaged with it at any level in regard to its plans?

Mr. John McCarthy:

I would have to check with my colleagues.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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I ask Mr. McCarthy to come back to me on it.

Mr. John McCarthy:

Yes.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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Bord na Móna is actively engaged in setting out a path forward. The issue of transition in the midlands is very important.

Photo of Colm BurkeColm Burke (Cork North Central, Fine Gael)
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Can we get a breakdown of the figures for each of the years?

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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I have asked for that information.

Mr. John McCarthy:

I am certain we can provide it subject to confidentiality. I do not think there are confidentiality issues.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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I have seen them in other years.

Mr. John McCarthy:

I would imagine so.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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We would like to know the companies involved and the figures for each of the last five years.

Mr. John McCarthy:

Yes.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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I thank the witnesses for attending today and for the information they provided to the committee, which will be useful. I also thank the Comptroller and Auditor General and the parliamentary liaison officer of the Comptroller and Auditor General's office for attending and assisting us. Is it agreed that Clerk seek any follow-up information to carry out any agreed actions arising from today's meeting? Agreed. Is it also agreed that we note and publish the opening statements and briefings provided to us at today's meeting? Agreed.

The witnesses withdrew.

The committee adjourned at 1.32 p.m. until 4.30 p.m. on Wednesday, 11 November 2020.