Oireachtas Joint and Select Committees
Thursday, 30 November 2023
Public Accounts Committee
Appropriation Accounts 2022
Vote 7 - Office of the Minister for Finance
Finance Accounts 2022
Report on the Accounts of the Public Services 2022
Chapter 1 – Exchequer Financial Outturn for 2022
Chapter 2 – Reporting Ireland’s EU Transactions
Chapter 24 – Performance of the Ireland Apple Escrow Fund
Chapter 25 – Irish Fiscal Advisory Council
9:30 am
Brian Stanley (Laois-Offaly, Sinn Fein)
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We have received apologies from Deputies Colm Burke and Alan Dillon, who are unavoidably absent. The witnesses are very welcome. I remind all those in attendance to ensure their mobile phones are on silent mode or switched off.
Before we start, I wish to explain some limitations to parliamentary privilege and the practice of the Houses as regards reference witnesses may make to other persons in their evidence. The evidence of witnesses physically present or who give evidence from within the parliamentary precincts is protected, pursuant to both the Constitution and statute, by absolute privilege. This means that witnesses have an absolute defence against any defamation action for anything they say at the meeting. However, they are expected not to abuse this privilege and it is my duty as Cathaoirleach to ensure that it is not abused. Therefore, if their statements are potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative that they comply with any such direction. Witnesses are reminded of the long-standing parliamentary practice that they should not comment on, criticise or make charges against any person or entity by name or in such a way as to make him or her identifiable or otherwise engage in speech that might be regarded as damaging to the good name of a person or entity. Therefore, if their statements are potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative that they comply with any such direction.
Members are reminded of the provisions of 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 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.
The Comptroller and Auditor General, Mr. Seamus McCarthy, is a permanent witness to the committee. He is accompanied by Ms Ruth Foley, deputy director of audit at the Office of the Comptroller and Auditor General.
This morning we will engage with officials from the Department of Finance to examine the following matters: Appropriation Accounts 2022, Vote 7 – Office of the Minister of Finance, Finance Accounts 2022 and the Report on the Accounts of the Public Services 2022: Chapter 1 – Exchequer financial outturn for 2022; Chapter 2 – Reporting Ireland’s EU transactions; Chapter 24 – Performance of the Ireland Apple escrow fund; and Chapter 25 – Irish Fiscal Advisory Council. We are joined by the following officials from the Department of Finance: Mr. John Hogan, Secretary General; Ms Scline Scott, principal officer; Ms Emma Cunningham, assistant secretary; Ms Laurna Cunningham, assistant principal; Mr. John McCarthy, assistant secretary; Mr. Des Carville, assistant secretary; and Mr. Michael McGrath, assistant secretary - so there are two Michael McGrath's in finance, one staff, and the other political. We are also joined by Mr. Dermot Nolan, principal officer at the Department of Public Expenditure, National Development Plan Delivery and Reform. They are all very welcome.
I call on the Comptroller and Auditor General, Mr. Seamus McCarthy, for his opening statement.
Mr. Seamus McCarthy:
Bunreacht na hÉireann requires all revenues of the State to be paid into the Central Fund of the Exchequer unless required otherwise by law. Around three quarters of total annual Government receipts and spending passes through the Central Fund. The finance accounts are prepared each year by the Department of Finance to present an account of the Central Fund transactions. The Exchequer account presents the cash receipts into and cash issues from the Central Fund. The account is presented together with a set of schedules that analyse the transactions. The financial statements of the national debt of Ireland, which are prepared by the National Treasury Management Agency, are also appended as part of the finance accounts. For the 2022 accounts and onwards, the sundry moneys account is now included in part 3 of the finance accounts. This account is used to hold funds on a temporary basis until final accounting instructions are received.
Chapter 1 of my report on the accounts of the public services is a recurring chapter, designed to summarise the transactions on the Central Fund and to highlight key trends. In 2022, the Exchequer surplus was just under €5 billion. This represents a significant improvement in the Exchequer balance from the deficit of €7.4 billion reported in 2021. The improvement of almost €12.4 billion was driven largely by increases in tax revenue in 2022 and a decline in Covid-19-related expenditure.
The finance accounts do not include a balance sheet or a statement of the Exchequer’s financial position at the year end. The key liability is in relation to Ireland’s national debt, which stood at €231.2 billion at the year end. This represented a decrease of 2.5%, or almost €6 billion, during 2022. The cost of servicing Ireland’s national debt in 2022 was €3.84 billion. This was up 2.6% compared to 2021, reflecting the impact of rising interest rates.
Chapter 2, on the reporting of Ireland’s EU transactions, examines the contributions to and receipts from the European Union during 2022. The chapter also assesses how receipts from the EU are accounted for in departmental appropriation accounts and in the finance accounts. Since 2013, Ireland has been a net contributor to the EU budget. Ireland’s contribution in 2022 was €3.6 billion and is expected to rise to almost €4.5 billion by 2027. I drew attention to the funding of €915 million available to Ireland under the EU recovery and resilience fund. Even though the national plan for the drawdown was approved in September 2021, Ireland was one of just a few member states that had not applied for a drawdown by July 2023. I understand that an application was lodged for drawdown in September 2023. The report recommends that the Department of Finance’s annual report on Ireland’s transactions should be expanded to provide better information on Ireland’s overall performance in managing EU funding. Availability of enhanced information in the appropriation accounts would facilitate the Department of Finance in improving the scope of its reporting on EU transactions.
Chapter 24 provides an update on the performance of the Ireland Apple escrow fund. At the end of 2022, the net assets of the fund were €13.374 billion. This represents a decrease of €259 million euro from end-2021. The decline in the value of the fund’s net assets was primarily due to movements in the global market for fixed income securities. Since the publication of the report, the Advocate General at the European Court published his opinion on the Apple case. The Accounting Officer will be able to update the committee on this.
I am required by law to include a chapter on the Irish Fiscal Advisory Council’s financial statements in my annual report. There are no significant matters in that regard to draw attention to this morning.
I will conclude with the appropriation account for Vote 7 - Office of the Minister for Finance.
The 2022 appropriation account records gross expenditure of €40.39 million divided between two expenditure programmes, namely, the economic and fiscal policy programme, on which the Department spent just under €25 million, and the banking and financial services policy programme, on which the Department spent €15.4 million. In addition, the National Treasury Management Agency, NTMA, incurred costs of €4.4 million in respect of staff and activities of the shareholding and financial advisory division of the Department. The surplus on Vote 7 for surrender at year end was €3.4 million, which was after allowance for carryover of €100,000 to 2023. Both the Vote and the finance accounts received clear audit opinions.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I thank Mr. McCarthy. I invite Mr. Hogan to make his opening statement. It is quite long, so he might wish to summarise parts of it, given that it has been circulated to members.
Mr. John Hogan:
I will endeavour to move through it as quickly as I can. I thank the Chairman and members of the committee for affording me the opportunity to address them. With me today are John McCarthy, the Department’s chief economist, Emma Cunningham, Des Carville, Michael McGrath, Scline Scott and Laurna Cunningham. I will focus on the specific items on today’s agenda and try to keep my comments brief.
On Vote 7, I thank the Comptroller and Auditor General. We are always grateful to his office for the engagement and assistance we receive in ensuring the Department produces accounts that meet the highest standards in public accounting. As we know, this recognition is important and timely given that the office is this year marking its centenary. I offer my congratulations to the office on its marking of this milestone in public service.
The Estimate for the Department of Finance for 2022 was set at €43.98 million, or €42.9 million net of appropriations-in-aid. The gross outturn spend for the year was just under €40.4 million, or 8% under the available allocation. The Department carried €100,000 of its capital allocation into 2023 and, as a result, the Department surrendered over €3.4 million to the Exchequer. The end-year surplus arose for a number of reasons. There was an underspend of over €1 billion on consultancy and other services costs, an underspend on pay of €1.131 million and an underspend on the disabled drivers fuel grant scheme of €1.242 million. This scheme is demand led and is difficult to predict with great certainty.
With regard to the Exchequer financial outturn for 2022, I would draw the committee’s attention to the following key points. Tax revenues held up well, rising by €14.7 billion, or 21.5%, on 2021. The key drivers of the better-than-expected performance were income tax, VAT and, in particular, corporation tax. Income tax is the largest tax head, accounting for just under 37% of overall tax revenues in 2022. Receipts in the year were €30.7 billion, almost €4.1 billion higher than in 2021. The strong performance in income taxes was very encouraging. The economy in general, and the labour market in particular, performed well during the year, which was reflected in the tax returns. Corporation tax receipts once again over-performed, mainly due to high levels of profitability in a number of key sectors. Committee members will be aware the Department of Finance has consistently warned about the windfall nature of a significant proportion of this revenue. In budget 2024, we estimated that the level of corporation tax revenue at risk in 2023 could be in the region of €11 billion.
Corporation tax, CT, performance in recent Exchequer returns is notable in this regard. As the Deputies will know, this month, in particular, is a key month for corporation tax returns and we will have a clearer picture in the coming days. Due to the risks involved, the fiscal metrics published with the budget reflect the underlying vulnerability. The general Government balance for this year, adjusted for excess CT, or GGB*, is forecast to be a deficit of €2 billion. The robust economy was also reflected in VAT receipts, which saw an increase of over 20% on the previous year. On the expenditure side, total net voted expenditure was €72.8 billion, an increase of €1.3 billion, or 1.8%, on 2021.
Turning to the chapter on reporting European Union transactions, Ireland’s net contribution to the European Union in 2021 was just under €1 billion, with receipts of €2.5 billion and a contribution to the EU budget of €3.5 billion. Information and data for the year 2022 will be published in the coming weeks. The timing of receipts of EU moneys is contingent on a number of factors, such as project timelines. Accordingly, the Department does not forecast EU budget receipts annually. We anticipate, however, that Ireland’s receipts for the remainder of the multi-annual financial framework to 2027 will be in the range of €2 billion to €2.5 billion each year. The success of the economy over recent years has meant an increase in our contribution to the EU budget. Overall, our net contribution is likely to grow to around €2 billion by 2027. The Department will continue to report on EU receipts and contributions as soon as all relevant data becomes available.
Turning to the Ireland-Apple escrow fund, the 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. The financial statements for 2022, published on 5 July 2023, set out the net assets of the fund as at 31 December 2022 and totalled €13.37 billion. The €259 million reduction in the fund in 2022 consists of €253 million resulting from changes in the fair value of the assets and €6 million in operating expenses for investment management and custodian fees.
The Irish Fiscal Advisory Council is a key pillar of the fiscal architecture of the State. In particular, its work is crucial to the budgetary process, ensuring independent oversight of the macroeconomic forecast. The council was established under the Fiscal Responsibility Act 2012 and work is under way on the preparation of draft heads of a Bill to amend that. The proposed amendments to the Act will ensure the council can continue to play its part in the budgetary cycle as well as contribute to broader economic and fiscal debate.
I will now briefly discuss current economic conditions as well as future challenges. As committee members will know, 2022 began with a lot of optimism. The worst of the pandemic was receding, and although some post-pandemic inflationary pressures were evident, there was a generalised belief in a global economic rebound. Russia’s war of aggression against Ukraine tempered those expectations and added significantly to inflation, particularly via the energy markets. Central banks responded by rapidly increasing interest rates. Since July 2022, the ECB has increased its main refinancing rate by 450 basis points. Notwithstanding the economic shock of such a rapid change in monetary policy conditions, the economy has fared well. The number of people in work reached a record 2.7 million in the third quarter of this year. We have been at or near full employment for around 18 months. Monetary policy, however, acts on economic conditions with a lag. The cumulative effects of the increase in rates have probably not yet been fully felt, either in Ireland or globally. In fact, data suggest growth in Europe has slowed, and while the overall level of employment is still very high, the most recent Irish data suggest a softening in labour market conditions.
The country also faces more structural challenges. At the most recent national economic dialogue, attendees discussed these challenges within the framework of the four Ds - demographics, decarbonisation, digitisation and deglobalisation. Each of these phenomena poses an economic, fiscal or societal challenge. Taken together, they represent a complete transformation for both domestic and global economies. The senior management team and I will continue to work with the Government to address those challenges and ensure the economic progress that has been achieved over recent decades is sustained.
I thank the staff of the Department for the contribution they have made over the year under review. I also thank the Chairman and the committee for their invitation to address them, as well as for their attention. My colleagues and I are available for follow-up questions.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I thank Mr. Hogan.
Imelda Munster (Louth, Sinn Fein)
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Good morning to everybody. I want to start with PRSI receipts. Mr. Hogan will be aware that the Commission on Taxation and Welfare has proposed that substantial changes be made to our tax base, primarily due to the reliance on multinational corporations, and recommended that PRSI contributions be materially increased over the coming years to fund age-related expenditure. Does the Department accept that the current revenue we receive from employer PRSI is too low?
Mr. John Hogan:
I might just give some background on the increase that has recently been approved by Cabinet for PRSI, which covers the period 2024 to 2028, inclusive. It is a means of underpinning the long-term sustainability of the Social Insurance Fund and providing the introduction of a pay-related benefits system for newly unemployed jobseekers. We are seeing that over the coming decades shifting demographics will result in a slower pace of economic expansion and increase expenditure. Ireland will have one of the most rapidly ageing populations in the EU over the coming decades as a result of fewer babies being born and people living longer. Due to this shift in the demographic structure, the number of working-age people for each person in retirement age is projected to fall from around four today to under two by 2060. These are all material considerations we will look at in the context of the PRSI contribution.
Analysis by our Department suggests age-related expenditure will be €7 billion to €8 billion higher by the end of the decade than at the start of the decade, and that the single largest component of age-related costs, and the component that is projected to account for most of this increase, is pensions. This is down, in part, to the decision not to increase the pension age to 68 by 2028. An actuarial review of the Social Insurance Fund has found that, in the base-case scenario, the fund will begin to experience shortfalls beginning in 2034 and that accumulated surpluses will be exhausted by 2043. The Department of Social Protection, which has policy responsibility generally in this area, published a PRSI roadmap on 21 November, following approval from Government.
Under that roadmap, there will be increases in the rate of PRSI from 1 October 2024 for employers, employees and self-employed workers of 0.1% in 2024 and 2025, respectively, 0.15% in 2026 and 2027, respectively, and 0.2% in 2028.
Imelda Munster (Louth, Sinn Fein)
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That is to alleviate the fact the Department feels it is too low to meet future demands.
Mr. John Hogan:
That is right. More generally, we have been looking at our own planning around the economy and future ageing costs and I referred to the four Ds in my opening statement. The Deputy will have noticed that, in the budget, the Minister announced what we are going to do with the windfall element of the corporation tax receipts. The creation of two new funds to look at alleviating future costs, particularly the future Ireland fund, would be there in the longer term to provide for those ageing demographics and those changes in the profile of Ireland's population to-----
Imelda Munster (Louth, Sinn Fein)
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Okay. I am conscious of time. Part of my reason for asking that particular question was the growing trend of bogus self-employment across the State, as Mr. Hogan's Department can see right across a number of sectors. This committee found evidence that it is happening in media and journalism, with RTÉ being a prime example. Last week, we heard about one third of the staff in universities. We had the hospitality, technology and construction sectors and delivery workers. The list goes on. I am sure Mr. Hogan is aware of the Supreme Court case two weeks ago that found Dominos Pizza was engaging in mass bogus self-employment. Is Mr. Hogan concerned about that trend? Would he accept that increased trend is contributing to the lower intake of employer PRSI each year and would also be contributing long-term to our pensions crisis?
Imelda Munster (Louth, Sinn Fein)
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The Irish Congress of Trade Unions estimated that it is costing approximately €700 million per year. More research and oversight is probably needed on that. What has the Department actually done in that regard?
Mr. John Hogan:
I believe the Revenue Commissioners are looking at that particular judgment the Deputy mentioned regarding the Dominos Pizza case. They are looking at it as part of their work in drafting a new tax and duty manual around the classification of individuals as employees or self-employees for tax purposes. Once that draft is available, it will be shared with the relevant stakeholders, including the representative bodies. We have asked to be informed when this occurs. They also indicated they are aware of a UK Supreme Court ruling that dealt with whether Deliveroo drivers, another category of workers who are similar to the ones who were considered under the domestic ruling-----
Imelda Munster (Louth, Sinn Fein)
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The PAC published a report around the courier sector around 2021. We sought an independent review, if you like, by an auditor of all that voluntary PRSI system and, in particular, the deal that was agreed between Revenue and the courier sector. That is going back to 2021. We wanted to know how much was lost to the State as a result of that agreement, the number of workers impacted and the financial cost to those workers. That would have covered everything from DHL to UPS, Tesco, Deliveroo and all those workers. Given that was published back in 2021, has the Department commissioned an investigation into it?
Imelda Munster (Louth, Sinn Fein)
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It is a serious and increasing issue. What has happened with it since?
Imelda Munster (Louth, Sinn Fein)
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What was the result of that? Was there action?
Imelda Munster (Louth, Sinn Fein)
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What were those actions?
Imelda Munster (Louth, Sinn Fein)
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It is a big enough issue that Mr. Hogan should know if concrete action was decided upon, never mind taken.
Imelda Munster (Louth, Sinn Fein)
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Does anybody with Mr. Hogan have it? He has a team with him. Does anybody know?
Mr. John Hogan:
I do not think we have, for which I apologise. What I do have is some information that a revised code of practice on determining employment status was published by the Minister for Social Protection in July 2021. The purpose of that code was to provide an enhancement of standing of employment status taking into account current labour market practices. These developments include, for example, new forms of work such as that platform work or gig economy the Deputy mentioned.
Imelda Munster (Louth, Sinn Fein)
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No, I am just-----
Imelda Munster (Louth, Sinn Fein)
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My point is that there has been nothing concrete. No action has been taken as such. The report published by us flagged up all those issues and Mr. Hogan's Department has not commissioned anything to carry out any investigation into that report.
Imelda Munster (Louth, Sinn Fein)
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Yes, but through the Department.
Mr. John Hogan:
-----and that is ongoing. To the extent that the Revenue Commissioners or Department of Social Protection would come to us, if additional legislation is required, that is the role we would have in all of this. If the Deputy can give me some time, we can come back to her in terms of what was done in that earlier report.
Imelda Munster (Louth, Sinn Fein)
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Okay. I want to touch on the Central Bank of Ireland and the instructions it gave to sell non-performing loans, if you like, to vulture funds. That was confirmed to us last April by Governor Makhlouf. I want to know Mr. Hogan's view on that. Was the Department informed at the time? If it had known, would it have stepped in and placed pressure on the banks not to do that?
Mr. John Hogan:
As part of the realignment of the banking system, decisions were taken with regard to the movement of loans out of the main retail banks into these other entities. Mr. Carville might wish to give a perspective in terms of some of the transactions that would have happened over recent years.
Mr. Des Carville:
I thank the Deputy for the question. In the big picture, there is a big European drive from the Single Supervisory Mechanism, which is part of the European Central Bank, to clean up balance sheets within the banking system in Europe. There are a number of ways of achieving that. One of the ways is to sell non-performing exposures. That crystallises a loss or a gain from the banks' point of view depending in the number of provisions they have taken against the portfolio of loans. We are really pretty much at the end of that process at this stage. If I think back, AIB at one stage had almost 30% of its loan book that was non-performing. Today, it is approximately 3% plus or minus maybe-----
Imelda Munster (Louth, Sinn Fein)
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No, I am talking about the current situation where we are actually facilitating the transfer from, say, pillar or highly regulated retail banks to vulture funds and the stress that would cause mortgage holders given that vulture funds are charging 9% interest rate while a retail bank is charging 4%.
Mr. Des Carville:
Of course, as the Deputy well knows, the contractual terms of the loan do not change. We and the Central Bank and other commentators have always encouraged individuals who find themselves in the position where they are struggling for whatever reason to engage, whether it is with a pillar bank or non-bank, and try to enter into an arrangement.
Imelda Munster (Louth, Sinn Fein)
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The point is the Central Bank has very few regulations when it comes to the conduct of vulture funds, if you like. People are, therefore, at the mercy of those vulture funds. To the Central Bank and Department's thinking, does Mr. Carville not feel the Central Bank and the regulator should have a role to protect those mortgage holders?
Mr. Des Carville:
There is a role in terms of the service providers being under the auspices of the Central Bank. The code of conduct on mortgage arrears, CCMA, which is the code of practice in mortgage arrears, for example, continues to have full force. It does not matter where the loan is held or who owns the loan.
Imelda Munster (Louth, Sinn Fein)
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For example, why would the Department not ensure the Central Bank was given powers to cap interest rates by vulture funds?
Why would that not be given? That would automatically give some sense of security or comfort to those paying more than double what a retail bank pays and left with no choice but to pay it or lose their homes. Why is that never decided upon?
Imelda Munster (Louth, Sinn Fein)
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It would say it has not got the powers.
Imelda Munster (Louth, Sinn Fein)
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From a policy perspective, has the Department ever worked with the Minister to ensure that those powers were given?
Imelda Munster (Louth, Sinn Fein)
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The witnesses are tasked with policy, are they not?
Imelda Munster (Louth, Sinn Fein)
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That is a question on policy as to why.
Imelda Munster (Louth, Sinn Fein)
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Has the Minister ever spoken to the Department about that issue?
Imelda Munster (Louth, Sinn Fein)
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There are 4,500 offset mortgages in Ulster Bank that will be sold off by the bank. That is another tranche of mortgage holders who could well be at the mercy of vulture funds and all that involves.
Imelda Munster (Louth, Sinn Fein)
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Ulster Bank had chosen to change the terms of those customers’ mortgages so it is not incumbent on them-----
Imelda Munster (Louth, Sinn Fein)
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As it stands, there are 4,500 families worried that their mortgages could be sold to vulture funds in circumstances where their interest rates would more than double instantly. Has the Department liaised with the Minister or anybody else on putting measures in places to prevent the sale of those mortgages to the vulture funds or has it liaised with the Central Bank on capping those interest rates?
Mr. John Hogan:
With all of these things, there is a general principle that the Minister does not get involved in commercial decisions of financial institutions but there are frameworks to protect individuals when they transfer and there are strong measures from the CCMA for mortgage holders who find themselves in difficulties. Over the past ten years, the suite of measures put in place to support borrowers in difficulty have been built around the principle of engagement if there is a difficulty, as well as options from individual financial institutions to adjust or adapt the product the borrower has in order to alleviate some of the pressure.
Brian Stanley (Laois-Offaly, Sinn Fein)
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The key issue is the doubling of interest rates. We heard this was a policy matter at the time. We felt the impression was given there would be some level of regulation of vulture funds and there would not be runaway interest rates. The problem with these Ulster Bank ones is that with the previous ones every Deputy and anyone around heard that people’s interest rates doubled overnight. There are people now on 9%. I think that is the question. I asked Gabriel Makhlouf when he was before the committee if the Central Bank had the power to halt that. He said no. I asked would he want to have the power and he said no. How do we stop this? It is a real problem. I know the framework is there but it does not deal with that key issue of doubling or tripling interest rates.
Marc Ó Cathasaigh (Waterford, Green Party)
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I offer a warm welcome to the Secretary General and his officials. I will turn to Europe first. We have become net contributors. I am less focused on money out to Europe and I understand why we have become net contributors. We have benefitted greatly from our participation in the European Union and its predecessors over the years. However, I am worried about money coming in, whether we are applying for money in a timely way and making full use of those facilities and the manner in which we account for the money.
Looking at Chapter 2 of the Report on the Accounts of the Public Services 2022, paragraph 2.13 identifies a time lag in reporting by the Department of Finance. It outlines a significant time lag between when the money comes in and when it is accounted for and states that the Department must do better in the future, essentially. I will not go into the details. Paragraph 2.14 states the Department of Finance reports from 2018 to 2020 might give us the bare numbers but do not tell us about disallowances, fines incurred or long-term commitments. We get the number but do not have a sense of whether we missed out on funding, whether that was a percentage of total funding or if we were disallowed. Paragraph 2.15 tell us less than half of funds received from the EU in 2021 were accounted for through central government accounts presented to the Oireachtas. This is a significant amount of money. As an Oireachtas Member and member of the Committee of Public Accounts, I cannot watch it. Paragraph 2.17 states:
The current disclosures in appropriation accounts in relation to EU funding provide a limited amount of detail. This makes it difficult for users of those accounts — including members of the Oireachtas — to assess the performance of a central government department or office in managing [EU funds] it receives ...
The broad picture is that I, as an Oireachtas Member tasked with oversight of these moneys, do not have a good line of sight on them. Can the witnesses tell me why that is and what the Department plans to do to remediate that situation so we can do our job a little bit better?
Mr. John Hogan:
The response from the Department to the C and AG’s recommendations has been to wholeheartedly take them on board. We want to give effect to the changes he suggests around all of this. One of the big programmes under way is the national recovery and resilience plan. Ireland’s allocation under that programme is about €914 million.
Marc Ó Cathasaigh (Waterford, Green Party)
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It took us until September of this year to put in for it. We were among the last five member states. We do not report at all in this 19 July figure, one of only five member states not to.
Marc Ó Cathasaigh (Waterford, Green Party)
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Italy managed to get its hands on nearly €67 billion in the interim, while we sat idly by.
Mr. John Hogan:
I do not think we sat idly by. Some of these allocations are made at a central level within the European Union. This is an allocation there for us. We are drawing it down at the moment. It is very much focused on digitalisation projects and projects in the green and climate area. We are making progress-----
Marc Ó Cathasaigh (Waterford, Green Party)
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I know where the money is intending to go. Why did it take us so long to submit the application?
Marc Ó Cathasaigh (Waterford, Green Party)
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I am sure all member states did work in the background before submitting an application.
Mr. John Hogan:
Work was being done by ourselves with the Department of public expenditure, which has a lead in identification of projects, and with individual Departments to fine-tune the applications and make sure they are the ones that will have the most benefit and direct effect on the economy. This is an area in which we are conscious we need to make improvements. We have been reporting over the last number of years through our domestic departmental report on EU financial transactions in an effort to bring more clarity and light to this debate. I hope that has been helpful.
Marc Ó Cathasaigh (Waterford, Green Party)
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That would certainly be to our benefit as members of the Committee of Public Accounts.
I will return to the broader question in a minute but Mr. Hogan mentioned the recovery and resilience facility, RRF, and we have been tardy in putting the application together for its drawdown.
On the European Regional Development Fund, ERDF, my information is that €283 million was drawn down in 2021 but I have no information for 2022. The most information I have is a bare statement from page 27 of the Department's report. That is all I see and that is all the oversight there is. This is an issue that was raised by the president of the European Court of Auditors when he visited the Oireachtas last week when Deputy Naughten had him in for a briefing. We have been slow in drawing down the RRF and I am seeing a zero value recorded in 2022 for the ERDF, which again is a sizable pot of money.
Mr. John Hogan:
The drawdown of that is with the Department of public expenditure and reform. The way it works is the moneys for these programmes are secured at a European level, often through the ECOFIN group of Ministers, but within our Administration, the Department of Public Expenditure, National Development Plan Delivery and Reform-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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We have somebody here from the Department of Public Expenditure, National Development Plan Delivery and Reform.
Marc Ó Cathasaigh (Waterford, Green Party)
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I drew this figure from the Department of Finance's financial accounts. If the Department of Finance is putting a zero figure in there when we had a substantial amount the previous year, surely the Department of Finance would go to the Department of Public Expenditure, National Development Plan Delivery and Reform about it. I wonder if the official from the Department of Public Expenditure, National Development Plan Delivery and Reform would like to respond.
Mr. Dermot Nolan:
I will preface anything I say by saying I am not one of the experts handling this issue. However, I can say that there are a number of sections in the Department of Public Expenditure, National Development Plan Delivery and Reform, including two that have been set up in recent years, to deal with the Brexit adjustment reserve and the national recovery and resilience plan. The individual Departments have to develop programmes and projects that are eligible for drawdown from European Union funds. They have to meet the-----
Marc Ó Cathasaigh (Waterford, Green Party)
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I understand all of that but I have a zero figure for 2022 and a substantial figure for 2021. Will there be drawdown from the 2022 round or did we fail to make an application? Why do I see a zero figure recorded?
Mr. Dermot Nolan:
I cannot answer that question but we can follow up through the clerk to the committee and give the Deputy specific information and briefing on that. The Department of Public Expenditure, National Development Plan Delivery and Reform negotiates with the individual Departments about what sort of projects and programmes it will be able to develop that would be classified as eligible for drawing down European funding. The application is then put in and what tends to happen is the money is spent through the Exchequer. We provide the money to the Departments and there is usually quite a rigorous follow-up by the European Commission on the expenditure to make sure that complies with European rules.
Marc Ó Cathasaigh (Waterford, Green Party)
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The Comptroller and Auditor General is looking to make a contribution.
Mr. Seamus McCarthy:
The difficulty is that, while last week the Secretary General of the Department of public expenditure was here, in none of that Department's accounts will you see a figure for the ERDF because the money comes into the accounts of the Department of Finance. There is a difficulty that if you cannot see in the financial statements where the funding is, then it is difficult to pursue from the committee's point of view. That is why I was encouraging more transparency around the drawdown. I did so in order that we would at least know what had been applied for, what was available, what had been disallowed and what had been received. My suggestion is that funds, claims and so on not being on any set of financial statements makes it difficult for the committee to pursue the matter.
Marc Ó Cathasaigh (Waterford, Green Party)
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That is the crucial point. We need to know how much was applied for, turned down or disallowed. The Comptroller and Auditor General has made a specific point about the ERDF but CAP funding is a really substantial stream of funding we derive from Europe as well. Am I right in saying that as a member of the Committee of Public Accounts, I do not get eyes on that? Does this flow straight into the Department of agriculture? How is that reported on? What visibility will I have, as a member of the Committee of Public Accounts, on the funding we derive from CAP?
Marc Ó Cathasaigh (Waterford, Green Party)
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The committee on agriculture would see the Vote and we could look for that from that committee but I am hearing that I have little visibility of it.
Marc Ó Cathasaigh (Waterford, Green Party)
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I understand that but the Department of Finance is supposed to be central with the money that comes into the country. I am hearing that we have a disjointed picture and that this committee does not have clear oversight of the various funding streams, be they the CAP, the RRF or the ERDF. I do not get a timely and complete picture put in front of me so that I can understand and assess.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Mr. John McCarthy is indicating that he wants to come in.
Mr. John McCarthy:
For the help of the Deputy, the Department publishes an annual report on transactions with the EU. We lay out receipts and expenditure going all the way back to 1973 under the different headings, be they the European Agriculture Guarantee Funds, FEOGA, the ERDF and so forth. That is presented every year and it is on our website, including receipts and expenditure. That might help to provide the information the Deputy wishes to have.
Marc Ó Cathasaigh (Waterford, Green Party)
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I have a load of other issues I want to raise but I will wait for the second round.
Brian Stanley (Laois-Offaly, Sinn Fein)
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There will be a second round so the Deputy can pop back in if he has to go to another committee meeting.
John Brady (Wicklow, Sinn Fein)
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I welcome our guests. I want to ask some specific questions on the National Treasury Management Agency, NTMA, and the Ireland Strategic Investment Fund. Mr. Hogan is probably aware of a Bill that was recently brought forward in the Dáil, the Illegal Israeli Settlements Divestment Bill 2023. I want to focus specifically on that and the investments ISIF has made in business entities operating on a UN database that highlights a number of businesses that are operating in the illegal Israeli settlements in East Jerusalem and on the West Bank. Is Mr. Hogan aware of that Bill?
John Brady (Wicklow, Sinn Fein)
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I introduced it.
John Brady (Wicklow, Sinn Fein)
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I want to ask some specific questions on the portfolio and the investments. How many businesses do we have shares in that appear on that UN database that was published by the UN Human Rights Council?
Mr. John Hogan:
We have been reflecting and engaging on that issue. Officials from the Department of Finance were before the Oireachtas Joint Committee on Foreign Affairs and Defence recently on that. Representatives of the NTMA and the Ireland Strategic Investment Fund also attended. As I understand it, the committee is seeking legal advice on the Bill.
John Brady (Wicklow, Sinn Fein)
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I am aware-----
John Brady (Wicklow, Sinn Fein)
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I was at that meeting. I am just asking, for the public record, if Mr. Hogan can give details of how many companies that we, as taxpayers, have invested in through ISIF that appear on that database?
Mr. John Hogan:
My understanding is it is 11 companies. I want to mention some of the issues and challenges we have around all of this, and the Department is seeking legal advice on it as we look to engage. Part of the rationale behind having a timed amendment is that we can do that work in the background to see what is possible and feasible in this.
John Brady (Wicklow, Sinn Fein)
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I will get to all of that. I am just conscious of the time and I want to establish the facts.
John Brady (Wicklow, Sinn Fein)
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The overall investment is €4.2 million, which is €4.2 million too much to be invested in businesses that are on a UN database for operating illegally in illegal settlements. That is the crux of the issue.
With regard to engagement with the Minister, has the Minister at this point met with the NTMA on those investments?
Mr. John Hogan:
The Minister is briefed on the Bill itself and the challenges that are around the Bill. He would have covered it in the recent oral parliamentary question, PQ, session, where he indicated that he was looking at the challenges around this legislation and how best to engage with it. He is aware of the background to the Bill.
One of the concerns is the UN database itself. Even the UN itself accepts that the database is probably incomplete. There are businesses that come on and come off it. There is a difficulty-----
John Brady (Wicklow, Sinn Fein)
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Okay, so there is a piece of work ongoing there at the moment, which is welcome. That is only lately that piece of work has been embarked upon on foot of the legislation that was introduced. Were concerns around those investments highlighted to the Department prior to the introduction of that legislation?
Mr. John Hogan:
The Deputy mentioned we were only engaging recently in it, but the work has probably been going on in the background to this since the Bill was put before the Oireachtas. Part of the issue is to get to the facts as to the extent of the investment by ISIF in these particular companies and the nature of that investment.
John Brady (Wicklow, Sinn Fein)
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Had concerns been raised with the Department prior to the introduction of the legislation? Had there been engagement with any NGOs citing serious concerns about the investments in these companies?
John Brady (Wicklow, Sinn Fein)
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To my knowledge, there have been engagements going back a number of years with NGOs raising serious concerns about the portfolio and the investments. It would be safe to say that nothing was moved upon on foot of those engagements. It was only when the legislation was introduced that there seemed to be a bit of a scatter in trying to get the house in order. Would I be right in saying that?
Mr. John Hogan:
I am certainly not looking to mislead the Deputy in any way on this. I just do not have the information that was concrete and that crossed my desk. I will say that, in the past, when there have been issues with particular industries or aspects of investment that ISIF has made, there have been changes by ISIF in its investments. The Deputy knows the ones I am talking about, like cluster munitions and fossil fuels.
John Brady (Wicklow, Sinn Fein)
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Yes, and that all has to be welcomed.
John Brady (Wicklow, Sinn Fein)
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On those investments, Mr. Hogan says it is a relatively small amount of money. I would say it is €4.2 million too much to be invested in illegal settlements. Four of those companies are Israeli banks, and we know how instrumental they are in the expansion of those illegal settlements. Would Mr. Hogan have any information regarding the return on those investments? How much of a return is there annually? Would he have that detail?
John Brady (Wicklow, Sinn Fein)
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I would be grateful if Mr. Hogan could get that.
John Brady (Wicklow, Sinn Fein)
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Absolutely, but Mr. Hogan takes the point that it is a stated Government position that the settlements are illegal. That is the position of the UN also. It is a hypocritical position that we as a State and taxpayers have been made shareholders in the illegal enterprise that is the expansion of the illegal settlements. That is the point I am making. Irrespective of the overall view and whether €4.2 million is a large or small investment, any investment contradicts the stated position of the Government and the UN that these settlements are illegal. We know how critical the Israeli banks are in funding and expanding the settlements.
Mr. John Hogan:
What I can say to the Deputy, as I have said already, is that we are engaging with the Bill. We are looking at the engagements and we have engaged with the joint Oireachtas committee and had ISIF on board. We will await the legal advice from the committee with interest and we are also looking at our own advice from the Attorney General.
John Brady (Wicklow, Sinn Fein)
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It would be useful to have the annual returns and the dividends the State gets through ISIF, and information on how long - how many years - those investments have been in place.
On a broader question, I am conscious the Department of Foreign Affairs has engaged in a new public consultation process on business and human rights and the national plan. With regard to engagement between Department of Foreign Affairs and the Department of Finance on business and human rights, what type of engagement and guidelines are there to ensure investments being made through the NTMA comply with business and human rights legislation? Is there any engagement with the Department of Foreign Affairs?
Mr. John Hogan:
There is continuous engagement with the Department of Foreign Affairs across a whole range of issues, and I would imagine this is one of the points that arise in some of the senior officials groups we are involved in. This goes into the broader question of environmental, social and governance, ESG, issues, and the rules and procedures that are associated with that. We are very conscious that we need to reflect further on how best we can enforce those rules and make them as effective as possible in reflecting Government policy.
John Brady (Wicklow, Sinn Fein)
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Okay. I am aware we are looking at a new national plan on business and human rights. There was an existing plan from 2017. I think it was up to 2020. If Mr. Hogan is correct in what he is saying, there is ongoing engagement with regard to compliance with those guidelines. I would say there has been a distinct failure to comply with those. If we still have, which we do, shareholdings in businesses operating in those illegal settlements, I would say we are non-compliant with our own guidelines we are issuing and advice we are giving to businesses globally. If we are non-compliant with those guidelines, how can we issue guidelines to any other businesses?
Catherine Murphy (Kildare North, Social Democrats)
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The witnesses are very welcome. On the general government debt, what agencies have substantial borrowings other than, obviously, government bodies like local authorities and, I presume, Irish Water, which would be another significant one?
Mr. John McCarthy:
By far, the main borrower is central government. There are some local authority and semi-State borrowings. There are borrowings from individuals, such as these State savings products that the NTMA runs. Then we have a whole host of other bodies, and there are literally hundreds within the general government sector, but they are relatively small.
Catherine Murphy (Kildare North, Social Democrats)
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I am just looking for the bigger ones.
Catherine Murphy (Kildare North, Social Democrats)
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Irish Water would be quite a big one,
Catherine Murphy (Kildare North, Social Democrats)
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No, I understand that.
Catherine Murphy (Kildare North, Social Democrats)
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Consultancy.uk is talking about the multibillion investment, and we understand that there is a lag and a lot of catch-up with regard to the investment needed. I do not doubt it. It is looking to bring in funds from the private sector.
Why would it be looking to bring in funds from the private sector? Is it PPPs? Does the Department control that? What is going on there?
Catherine Murphy (Kildare North, Social Democrats)
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Yes.
Mr. John Hogan:
We have replaced any private sector funding with Government borrowing over the last number of years. Looking at the facilities agreement that was signed by the Minister on 20 April, seven facilities have been provided to Irish Water, running from €127 million in the first facility all the way up to €204 million-----
Catherine Murphy (Kildare North, Social Democrats)
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The Department is not aware that there is-----
Catherine Murphy (Kildare North, Social Democrats)
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I read it in an article and it jumped out at me. I was wondering why that would happen. It just does not stack up with what-----
Catherine Murphy (Kildare North, Social Democrats)
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Yes, I would have thought it was more expensive.
Catherine Murphy (Kildare North, Social Democrats)
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I might come back to the witnesses on that. It just jumped out at me.
Catherine Murphy (Kildare North, Social Democrats)
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I presume the local authorities are still under quite a strict regime in relation to seeking authority to spend if they are borrowing. Does that still limit their ability to spend the development contributions?
Catherine Murphy (Kildare North, Social Democrats)
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They have to make it up.
I want to ask about the IBRC. In the tenth progress report, relating to 2021 and 2022, Russia and the Czech Republic are included together. Why is that the case? I think we can all appreciate that Russia would be in a different category. There is 57% of the portfolio of assets in Russia and the Czech Republic. Do we know what the figure is for the Czech Republic alone?
Catherine Murphy (Kildare North, Social Democrats)
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Presumably, it would be easier to deal with the assets in the Czech Republic, where there is one less issue, let us say, like a war.
Catherine Murphy (Kildare North, Social Democrats)
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I know we are coming to the end of the investigation and we can see the end in sight, and that it was delayed by the pandemic. According to page 15 of the report, there is something like nine recovery and enforcement actions and some of these cases were instigated prior to the appointment of the special liquidators. What is the earliest date for some of these cases?
Mr. Des Carville:
Some of these cases go right back to prior to 2013, when the liquidators were appointed. Many of the cases are cases that were taken against the bank, rather than the bank taking cases against a former borrower. Some of the litigation can take an awfully long time. There are also appeals and parties trying to get court dates. Discovery can be difficult as well.
Catherine Murphy (Kildare North, Social Democrats)
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They date back to 2013.
Catherine Murphy (Kildare North, Social Democrats)
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We have been told that some of the cases date back to 2013. How many? Do we know that?
Catherine Murphy (Kildare North, Social Democrats)
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Perhaps the Department can come back to us with that.
Catherine Murphy (Kildare North, Social Democrats)
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The representatives of the Department are the only people we can ask about the assets because of the nature of this special liquidation and the fact that the oversight is with the Department of Finance. I understand that the assets in the USA are residential and office assets. I note that 8% of the assets are in Ireland and 12% are in Asia. As I said, Russia and Ukraine are in a different category. What are the impediments to finalising those?
Mr. Des Carville:
The liquidators are really at the end of the portfolio, so these are the harder assets to deal with. There is a particular story and case behind each one of the assets. I do not want to get into the specific geography, but in the case of one asset, for example, a bank was a tenant in an office block and the bank went bust, so the tenant left. Rather than sell the unit with vacant possession, they were hoping that another bank would come in or somebody else would step in. There is a story behind each one of these cases.
Catherine Murphy (Kildare North, Social Democrats)
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The reason I am asking is that a two-year extension has been granted from December 2022 to December 2024, so there must be a projection of resolution. There are cases in the courts that date back prior to 2013, in some cases. As would be expected, the assets that are more difficult to dispose of are left at the end. How is the date of 2024 being factored into it by the bank? There must be a plan of action for each of these.
Mr. Des Carville:
There most certainly is a plan of action for every asset. As I said, every asset has a particular set of unique circumstances behind it, whether it was trying to get clear title to the asset or, in the case of some of the hospitality assets, they could not be sold during Covid because the value would have been destroyed. At this point in time, at the end of 2023 as we head into 2024, it really does feel like there is a good window of opportunity for the liquidators to dispose of these assets. Touch wood, that is what is due to happen in the first half of 2024. We are planning towards the end of 2024 for what happens if there is anything left over at that point in time. We have to bring this liquidation to a close.
Catherine Murphy (Kildare North, Social Democrats)
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What kind of plan is in place? Is it something that will be taken over by the Department to resolve the outstanding issues?
Mr. Des Carville:
That is actually the subject of my afternoon, ahead of me. We have a plan in terms of what will be done with the assets and, if there is still litigation outstanding, where that stuff might go. We are working our way through that at the moment. We would be hopeful of announcing in quarter 1 next year exactly what we plan to do.
Catherine Murphy (Kildare North, Social Democrats)
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Is 2024 the conclusion date or target date?
Catherine Murphy (Kildare North, Social Democrats)
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The special liquidator changed in April this year.
Catherine Murphy (Kildare North, Social Democrats)
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Were there issues around that? Was it a smooth transition? Obviously, when you come in, you have to apprise yourself and all the rest of it.
Mr. Des Carville:
Going back 12 months before that change took place, the two special liquidators announced they were leaving KPMG and were going to join a firm called Interpath. There was a 12-month lead time, so the Department was very actively engaged with the liquidators, Interpath and KPMG at managing partner level to ensure a smooth transition and, very importantly, to ensure that there was no additional-----
Catherine Murphy (Kildare North, Social Democrats)
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Mr. Carville is saying there were no issues.
Catherine Murphy (Kildare North, Social Democrats)
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Is there a projected cost to December 2024 for the special liquidator?
Mr. Des Carville:
The costs have remained pretty much unchanged from the ninth update report to the tenth report. We are projecting that fees of between €8.5 million and €10 million will be incurred to complete the liquidation. That gives a total fee, at the end of 2024, with everybody included, of between €219.5 million an €221.5 million.
Catherine Murphy (Kildare North, Social Democrats)
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When there was a change over from one special liquidator to another, was there a change in fees?
Catherine Murphy (Kildare North, Social Democrats)
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On PPPs, I understand that six are at development stage.
There are future PPP commitments totalling over €6.3 billion. Is that amount on the State's side? Obviously, there is private investment.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Before I ask Mr. Hogan to answer those questions, I wish to acknowledge the delegation from the Committee for Financial and Budgetary Affairs of Vietnam’s National Assembly in the Public Gallery. There are a number of politicians and public servants present, a bit like our own mixture this morning. I welcome them to the Committee of Public Accounts. We have the Department of Finance before us today. Obviously, it is an important Department. Our budget was passed by our Parliament in October. We are examining the 2022 accounts now. I hope our guests get something from this experience.
Mr. Hogan might continue.
Mr. John McCarthy:
I can provide a small amount of detail. I am not an expert. According to CSO data from the end of October, the total contractual capital in PPPs at the end of last year was just over €4 billion. Approximately €500 million of that was on-balance sheet and €3.5 billion was off-balance sheet. The unitary charge payments, which are payments by the Government to the private partners and conditional on performance under the contracts, amounted to just under €370 million in 2022.
If the committee needs more information, we can provide it, but I stress that I am not an expert in this area.
Catherine Murphy (Kildare North, Social Democrats)
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We did some work on value for money in PPPs. Perhaps we have to return to the issue. Presumably, only the commitments from the State’s side are counted. Obviously, there is an investment on the other side.
I will contribute again later.
Brian Stanley (Laois-Offaly, Sinn Fein)
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A figure for total commitments was mentioned. According to my notes, 30 PPP schemes were fully operational at the end of 2022, six were at development stage and future commitments totalled €6.3 billion. I have in front of me a pie chart setting out figures for the OPW, housing, health, the courts, education and transport, with the final two being the largest, at €1.7 billion for education and €2.7 billion for transport.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Yes.
Brian Stanley (Laois-Offaly, Sinn Fein)
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There will be an average of €335 million in ongoing costs up to 2035. The expectation is that they will taper off after then. How steep will that fall be? What is the projected reduction?
Brian Stanley (Laois-Offaly, Sinn Fein)
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Is there anyone present who deals with this area?
Brian Stanley (Laois-Offaly, Sinn Fein)
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Mr. Nolan might have some information.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Regarding the six at development stage, I presume payments only commence when they become operational, or is it from when the contracts are signed?
Brian Stanley (Laois-Offaly, Sinn Fein)
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I had intended to discuss PPPs later, but since we have hit them, I will continue. The servicing costs of €1.7 billion in respect of education PPPs have increased a fair bit. Is much of that related to new developments at third level colleges?
Brian Stanley (Laois-Offaly, Sinn Fein)
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The witnesses might provide a note.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Is the school bundle where there were problems with the construction work a PPP or was it a design and build?
Brian Stanley (Laois-Offaly, Sinn Fein)
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It was a PPP.
Brian Stanley (Laois-Offaly, Sinn Fein)
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The State carried the risk on those.
Mr. John McCarthy:
I have some figures that I can share with the Cathaoirleach after the meeting. The contractual values for those school bundles are €120 million, €130 million and €64 million. There are another four or five that average at approximately €70 million or €80 million. I am happy to share this document with the Cathaoirleach.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I will move on to the national debt. As I understand it, the current amount outstanding is €235 billion.
Brian Stanley (Laois-Offaly, Sinn Fein)
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A portion of that comes from the bank bailout. There is a figure of €40.9 billion for EU programme loans. Is that the bank debt?
Mr. John McCarthy:
No. There was banking debt, but there was also a considerable increase in debt on foot of the gap between revenue and expenditure from 2008 onwards. The ratio is roughly 2:1. Total debt after the collapse increased by approximately €180 billion. Two thirds of that was due to the fiscal deficit and one third was due to banking. The EFSF and the EFSM are mostly due to the fiscal deficit rather than banking.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Where does the financing of the banking debt stand now? Some of the money that was borrowed for it was subsequently refinanced at a lower rate.
Brian Stanley (Laois-Offaly, Sinn Fein)
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When will the servicing of those loans be completed? Is it a few decades away?
Mr. John McCarthy:
It certainly is. Some of the EFSF loans will be 2029 and 2030, but they are further out the curve. The Cathaoirleach is right about much of the banking debt. The promissory notes, which are completed now, were taken out by the Central Bank and then offloaded by it over a period of approximately ten years. They are all gone now and off the Central Bank’s balance sheet.
They have been refinanced at the 1% or 2% at which we have been able to issue debt over the past couple of years. The debt service costs associated with the bank bailout, so to speak, have been minimised. That is the best way I would describe it.
Brian Stanley (Laois-Offaly, Sinn Fein)
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The Department’s overall services costs for 2022 were €3.84 billion, an increase of 2.6%, although, obviously, changes interest rates are affecting that. What is the likely projection for the next few years? There was news this morning suggesting that we might not yet be finished with interest rate increases.
Mr. John McCarthy:
That is a very relevant question. Again, there is a slight difference between general government and Exchequer, but it is on the margins. This year, the total interest bill is €3.4 billion, which is similar to the €3.2 billion the Chairman mentioned. We project the interest bill by the end of our forecast horizon to be €3.7 billion. What is really going on is that it takes a while for the higher interest rates to pass through into higher interest payments, because so much of the debt that was issued over the past couple of years is ten-, 15- or even 20-year debt. That is all fixed-rate debt, so it is going to be a long time before it needs to be refinanced. When it is refinanced, however, instead of it being at zero rates, which is what it was issued at, it will have to be refinanced at something like 3%, if we were to do it at the moment, but probably a little higher over the medium term.
Brian Stanley (Laois-Offaly, Sinn Fein)
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In respect of the residue of national debt, when is that likely to be completed? As I recall, when the legislation was going through - we called it "prom night" - the Department was looking out to 2040-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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A few of us will not be around for it.
Mr. John McCarthy:
Indeed. The first thing to say is there is no segregated amount within our €223 billion that is just bank debt. It is all fungible. Of the €64 billion, however, and I am talking in ballpark terms here, €30 billion due to Anglo Irish Bank is forever on the debt. Obviously, as we sell AIB shares - I think Bank of Ireland is fully disposed of at this stage - that will come in and will be used to repay the debt. The net cost of debt, therefore, will really be the net cost of Anglo Irish Bank, but Mr. Carville might speak to this further.
Brian Stanley (Laois-Offaly, Sinn Fein)
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All cash from coming in from bank shares is going to service the national debt. Is that correct?
Mr. Des Carville:
The Chairman is right. A total of €64 billion went into rescuing the banks, which we had to spend, given we did not have any choice. Some €35 billion, in round numbers, of that is gone, through Irish Nationwide and the Irish Bank Resolution Corporation, IBRC. We might get less than €1 billion, perhaps €500 million, back but to all intents and purposes it is gone. A total of €29.4 billion went into the three remaining banks, AIB, Bank of Ireland and PTSB, and we made a gain in cash terms of €2.1 billion on the Bank of Ireland position. As the Chairman knows, we have no shareholding there now. We sold it as contingent convertibles, CoCos, and Department shares as well-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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It is 100% back into private ownership.
Brian Stanley (Laois-Offaly, Sinn Fein)
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What is the current situation with AIB?
Mr. Des Carville:
We started off at 99.8% in that bank and raised €3.4 billion in 2017 to extend to 72%. After 2017, we had Brexit and Covid and there were lots of reasons we could not go into the market and sell shares. Over the past couple of years, we have been realising value through directed buybacks, buybacks, dividends and four accelerated book-build exercises at roughly €500 million each, and we have a trading plan in place, which we have extended three times-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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What is the percentage at the moment?
Brian Stanley (Laois-Offaly, Sinn Fein)
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The percentage 40.8% is still in the domain of the Soviet in regard to public ownership.
Mr. Des Carville:
Yes, okay. I shall reflect on that. Our net position in AIB at the moment is that we are €2.7 billion down on the investment. A total of €21 billion, in round sum numbers, went in, while €4 billion went into PTSB and we are €640 million down on that, based on current share prices. We continue to look at opportunities to reduce the shareholdings and de-risk the balance sheet from the State's point of view.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Given the profitability of the banks, which is jaw-dropping if we look at the half-yearly profit margins, would it not have been wise to hang on for another bit and not dispose of the shares too quickly?
Mr. Des Carville:
That is a really interesting question, and it is something we grapple with all the time because our job is to maximise the return. I would remind the Chairman that the losses the banks made were also jaw-dropping, so these institutions can be cyclical and we are very conscious of that at the back of our minds.
Brian Stanley (Laois-Offaly, Sinn Fein)
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When the State disposed of its shares in the banks - I am open to correction on this - the view reported in the media was that at that point, post the disposal of the State's shares, the banks seemed to be heading into a really profitable period.
Mr. Des Carville:
The important point there is that the stock market values the future performance of an entity rather than its historical performance. We would like to think a very large part, if not all, of that is built into the share price when we sell. Moreover, we have about €5 billion worth of stock in AIB left to sell and we clearly cannot sell that in one go. The IPO in 2017 was the second largest in the world, and that was only €3.4 billion. We have to try to remain disciplined and sell into a rising market. We will, hopefully, continue to sell at higher prices and there will, hopefully, continue to be a large number of high-quality buyers on the other side-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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It will be a lot more attractive now given the profitability.
Mr. Des Carville:
Yes, but in a funny kind of way, people on the buy side in the market community are looking at the inflation data for Ireland that came out yesterday and the stuff that will be coming out from Europe in the next couple of days and trying to predict what the ECB might do in terms of rates. Are we at the peak of the interest rate cycle whereby rates will start to fall and, therefore, bank profitability will start to fall? Those are the kinds of things the buy side grapples with.
Brian Stanley (Laois-Offaly, Sinn Fein)
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To go back to the national debt for a moment, how much of an impact has Covid had on overall State debt?
Mr. John Hogan:
The piece on the national debt is really interesting over the past ten years. We would have had some quite expensive debt on the books, which the NTMA has, in a strategic way, managed to elongate and reduce the cost of by refinancing, particularly when interest rates were very low. Clearly, during the course of the Covid period, we had to address the costs associated with managing the economy through Covid and they were quite substantial. We had a number of those high-profile schemes, which the Chairman will remember, such as EWSS, the PUP, CRSS and so on, that were there very much to support the economy through the Covid period. We-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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What is the ballpark figure?
Mr. John McCarthy:
The Chairman is correct. The increase was actually not that large. It was about €5 billion or €6 billion; I will get the Chairman the exact figure in a moment. That might sound surprising because, as Mr. Hogan said, there was a lot of expenditure, but we had a good Covid, if I can use that horrible expression, because a number of pandemic-proof sectors did really well. We were producing the vaccines and the antiviral drugs in Ireland, and everybody went online, so ICT profitability was strong. Corporation taxes essentially doubled between the year before the pandemic and 2022 and that kind of offset a lot of the expenditure Mr. Hogan was talking about.
I will get the Cathaoirleach the exact figure for the increase, but it was €4 billion to €5 billion or in that ballpark. I will come back in a minute.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Okay, so roughly €5 billion to €6 billion of a-----
Mr. Seamus McCarthy:
Another thing to bear in mind is there were balances in funds that were drawn down during Covid. I think the Social Insurance Fund had about €3 billion in it at the beginning of Covid and nothing at the end. In addition, €5 billion or €6 billion was added to the debt and there was also the loss of this value that was sitting in other funds, which I think could have been-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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That makes about €8 billion or €9 billion. We cannot keep raiding the Social Insurance Fund, based on the previous conversation between Deputy Munster and the officials. It is a topical issue at the moment.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I thank Mr. McCarthy for that. We will suspend for a short break.
Brian Stanley (Laois-Offaly, Sinn Fein)
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We will resume our discussion on the national debt. I understand Mr. John McCarthy wants to provide some figures.
Mr. John McCarthy:
There was an increase of €21 billion in the debt between 2019 and 2022. However, we accumulated a lot of financial assets, as the Secretary General said, at 0% debt, so the increase in net debt was approximately half of that, or about €13 billion, right across the pandemic period. The key point is that it was lower than might have been anticipated given the size of the outlays during the pandemic. As a percentage of-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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Are we factoring into that the €3 billion-plus that was taken out of the social fund?
Brian Stanley (Laois-Offaly, Sinn Fein)
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In the Covid period overall then, we took a hit of about €13 billion.
Brian Stanley (Laois-Offaly, Sinn Fein)
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We can make the comparison with State income.
Brian Stanley (Laois-Offaly, Sinn Fein)
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In regard to the war in Ukraine, what kind of effect has that had on the public finances? Has it had any impact on our level of debt?
Brian Stanley (Laois-Offaly, Sinn Fein)
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Will Mr. McCarthy repeat that figure?
Brian Stanley (Laois-Offaly, Sinn Fein)
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In which year?
Brian Stanley (Laois-Offaly, Sinn Fein)
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Is that mainly related to supports for temporary international protection?
Brian Stanley (Laois-Offaly, Sinn Fein)
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To clarify, does that cover spending within the State?
Brian Stanley (Laois-Offaly, Sinn Fein)
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The figure for servicing the debt is running at just under €4 billion a year. Is it correct that none of that servicing outlay is contributing towards reducing the actual overall amount of the debt?
Mr. John McCarthy:
Correct. That is just the debt service cost. On the upside, it is an effective interest rate, which means the total interest rate over the stock of debt is about 1.5%. That is reasonably good by historical standards and reflects what the Secretary General said about borrowing at 0% during quantitative easing, QE, and during the pandemic.
Brian Stanley (Laois-Offaly, Sinn Fein)
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There is still a vulnerability there. An upward curve in interest rates would alter the situation significantly because of the sheer amount of the debt. It is a very high amount. The servicing of it is manageable at this point because the interest rate is 1.2% to 1.5% across the deck. However, if the rate were to fluctuate upwards by 1% or 1.5%, it would change things dramatically. We would be looking at a service cost of €8 billion a year.
Brian Stanley (Laois-Offaly, Sinn Fein)
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It takes time to work through.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Therein lies a big vulnerability.
Mr. John Hogan:
An important point to make is that we have protected ourselves to a certain extent. The NTMA may even have overborrowed at very low interest rates,or negative interest rates over the past number of years, which allows us to see a period unfolding in front of us where, albeit we are experiencing high interest rates now, the exposure for the unwinding of the debt at those lower rates will not occur for some time yet. That is why the figure we see is quite stable over the period out to 2027 or 2028.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I am interested in what the debt, and the servicing of the debt, means for the ordinary person. How much is owed per household?
Brian Stanley (Laois-Offaly, Sinn Fein)
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What is the annual cost of servicing the debt per capita?
Brian Stanley (Laois-Offaly, Sinn Fein)
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That is okay. We will leave it to the economists. The next speaker is Deputy Ó Cathasaigh. He has eight minutes.
Marc Ó Cathasaigh (Waterford, Green Party)
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I will stay with the subject of the debt, on which there has been great progress. I did not realise the average maturity was quite so long. I was going to ask about how that interest rate profile will look over the medium term. From what Mr. McCarthy is saying, it is quite a good picture. We have a stated debt-to-GNI* target of 85% to reach by 2025. We hit 82.3% in 2022, which is good news.
We have hit and surpassed the stated target ahead of time. We are supposedly trying to get to 60% under EU fiscal rules and I note GDP, GNI*, etc. Given that we hit target three years early, are we revising the target to be a little more ambitious about that debt pay-down and where we would like the trajectory to go?
Mr. John McCarthy:
I will do. The debt target of 85% of GNI* was introduced by the Minister, Deputy Donohoe, in 2019. Of course, it was subsequently overtaken then by Covid and all the stuff there. There was an increase in the money amount of debt. What we have seen is the denominator, GNI*, really surprise on the upside. Last year, it was something like 13% in nominal terms. That is what has really driven the ratio down earlier than we would have thought.
It has not really been raised over the past couple of years because Covid took over, but it is below the 85%. It is not on the agenda at the moment to target anything further below that. Our trajectory has continued easing in the debt-to-GDP ratio because we are running budgetary surpluses and because we are forecasting reasonably solid GNI*.
The Deputy is absolutely right. The problem is GDP, which is not a great metric from an Irish perspective. We are below 40%, really, at the moment. Sixty per cent is the European threshold and it does create problems for us.
Marc Ó Cathasaigh (Waterford, Green Party)
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I am sure it creates problems for the Department but I suppose the fact that the trajectory in relation to GNI* is so positive is a good thing.
Marc Ó Cathasaigh (Waterford, Green Party)
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It is the last positive thing I will say to the officials. I said I would start with something nice. I wanted to have a look, and I hope it was not raised in the interim while I was out, at the surplus public expenditure moneys, SPEM, account. It is memorably named. A lot of money has ended up in this and it attracts a negative interest rate. Paragraph 1.15 of the Exchequer financial outturn for 2022 states that a "Negative interest has been charged on Central Bank accounts". We had a very small amount of money in this account in 2018. It was relatively stable between 2019 and 2020. It really spiked in 2021-2022. It costs us money to keep it there. Why do we have this €2 billion plus in there?
Marc Ó Cathasaigh (Waterford, Green Party)
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That is the negative interest charged, sorry.
Marc Ó Cathasaigh (Waterford, Green Party)
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Is there €28 billion in there?
Marc Ó Cathasaigh (Waterford, Green Party)
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This is why I should not be trusted with accounts. It is figure 1.6, yes.
Marc Ó Cathasaigh (Waterford, Green Party)
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To cut a long story short, it is costing us money to keep this money in an account.
Marc Ó Cathasaigh (Waterford, Green Party)
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That is what I would have hoped. I did not like seeing that.
Marc Ó Cathasaigh (Waterford, Green Party)
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That situation is resolved, is what Mr. Hogan is telling me.
Marc Ó Cathasaigh (Waterford, Green Party)
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We have lost the money. We cannot do much about that but it has been resolved.
A different issue was around debt relief payment. I welcome that we paid off a bunch of debt - IMF-administered funds for Somalia and Sudan. That kind of financing is something I very much approve of, but then we did it in the wrong way and we had to transfer moneys between central banks and the Department. Will Mr. Hogan explain how that mistake was made? I have no problem with the expenditure, but why was the mistake made in how we spent the money?
Mr. John Hogan:
While my colleague is trying to find my note for me, I will talk a little bit about it. There were two payments. There was one for South Sudan which was handled in a particular way, which we then tried to replicate through the other mechanism. When the second transaction was undertaken, the ECB issued an opinion which found that particular transaction was counter to monetary financing rules so we had to reverse the nature of how we did it. We did that second one in good faith expecting that there would not be any difficulty in the way the first one was managed. It was just a situation where there was a change in perspective at ECB level which allowed us to treat it differently.
Marc Ó Cathasaigh (Waterford, Green Party)
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As I say, I am quite happy with the expenditure. It is just whether we are taking steps to make sure we do not replicate the mistake.
Marc Ó Cathasaigh (Waterford, Green Party)
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I understand that. The last issue I will raise in the time that I have, I hope it was not raised already, is the sundry moneys account. I am looking at figure 1.9 in the Exchequer financial outturn for 2022. The sundry moneys account did not have a great deal of money in it and then we saw a huge spike in 2020. It is still there in 2021 and 2022. We have this language around how it is supposed to be used, that the money is "held back until proper and sufficient instructions are received for final disposal" and "the objective is to minimise the time that funds are held in the account, to ensure their timely receipt into the Central Fund", but there are portions of that money hanging around longer than we would like. Why are we seeing such an explosion in how much money is in there and why we are not seeing transfers out of that account in a timely manner? Is somebody not issuing instructions quickly enough?
Marc Ó Cathasaigh (Waterford, Green Party)
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Two receipts, in particular, totalling €80,000, had been knocking around those accounts for more than three years.
Marc Ó Cathasaigh (Waterford, Green Party)
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It might be something that the committee would benefit from in more detail.
Marc Ó Cathasaigh (Waterford, Green Party)
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I thank the Chairperson.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I call Deputy Catherine Murphy.
Catherine Murphy (Kildare North, Social Democrats)
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There are a couple of things. Regarding the Apple escrow fund, the Advocate General came down on the side of the Commission and we are waiting to see if that is upheld in court. Some funds could be claimed by other jurisdictions. Presumably, the Department has started to plan in case that happens. I presume it would go from an escrow account to another type of account, if that happens. Will Mr. Hogan confirm the mechanism the Department is likely to use?
Mr. John Hogan:
The situation as it stands is there is a detailed legal agreement surrounding the escrow fund and the management of both the entry into it and how it is concluded. The situation, for the record, is as the Deputy will have seen from the earlier presentations. The financial statements for 2022 would indicate there was €13.37 billion in the fund and the Deputy rightly mentioned there can be third-party adjustments to it which took part during the course of the year.
Catherine Murphy (Kildare North, Social Democrats)
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No, it is the mechanisms the Department is likely to use.
Mr. John Hogan:
At this stage, we have the Advocate General's opinion. I am constrained to a certain extent in that we have an active legal case under way. I will not comment on that but it will be some time yet before we understand what the final outcome of the court case will be. The reality with a lot of these state aid cases is that we have in the past seen instances where the case itself has moved between both the general court and the Court of Justice on points of law and on points of detail. I suppose this was always one that had the potential to operate in the same manner, but when it becomes clear that there is a final outcome and resolution to the case, I am confident we can move the moneys quickly.
Catherine Murphy (Kildare North, Social Democrats)
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Presumably the Department is doing some research into different scenarios. In the event tax is claimed from other jurisdictions, is the cost of the administration something Mr. Hogan has considered? Presumably Mr. Hogan can even talk about this in a hypothetical way.
Is that potential claim in perpetuity or is it time limited?
Catherine Murphy (Kildare North, Social Democrats)
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Right.
Catherine Murphy (Kildare North, Social Democrats)
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What is the extent of those claims?
Mr. John Hogan:
So far in third country adjustments, a total of €457 million has been paid out. In 2019, €209 million was returned to Apple in respect of the third country adjustment and a further third country adjustment of €248 million took place in May 2021. That brings the total to €457 million between the two claims.
Catherine Murphy (Kildare North, Social Democrats)
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I will move to something else. Mr. Hogan referred to bundle 1 and bundle 2 regarding housing. Would they be PPPs or what is the nature of housing that would be-----
Catherine Murphy (Kildare North, Social Democrats)
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Yes.
Catherine Murphy (Kildare North, Social Democrats)
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Presumably the Department has some oversight on this. We have representatives from the Department of Public Expenditure, National Development Plan Delivery and Reform in a number of weeks ago and obviously it was one of the questions I asked. For example, there is a whole range of different housing options now. One of them is long leasing and it drives me absolutely bonkers because it is such bad value. New houses are leased, which are called "social housing products" by the people offering them. They are leased for 25 years with a four-yearly rent review, after 25 years there is a refurbishment, and then potentially they go back to the original owner or else there is an extension on that lease. There is no asset at the end. The person who is leasing is essentially paying the mortgage. It is really bad value for money. Is the Department of Finance consulted on that kind of thing? Is that considered a PPP, just part of the deficit, or how would that be counted?
Catherine Murphy (Kildare North, Social Democrats)
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I am just asking how it would be counted.
Catherine Murphy (Kildare North, Social Democrats)
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A commitment is made for 25 years and there is a contractual obligation. How that is handled is important. I would appreciate a note on that-----
Catherine Murphy (Kildare North, Social Democrats)
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-----and on what role, if any, the Department of Finance or the Department of Public Expenditure, National Development Plan Delivery and Reform has in inputting into that kind of a mechanism or if it is exclusive that the Department deals with it and makes that decision. I have no problem with us having borrowings when there are assets on the other side. It is an entirely different thing when there are assets on the other side such as the investments in infrastructure, transport, and housing and so on, because effectively they can end up saving money. We are spending a lot of money, for example, on housing assistance payments which is going to be a residual cost instead of the capital cost of actually building.
Mr. John McCarthy:
I will make one additional clarification. Apologies, I will be very brief. We publish what is called contingent liabilities a couple of times a year. In other words, if something was to happen, the State would be on the balance sheet. Were one of those private providers within the PPP to default, that is included in a contingent liability. It is not on the balance sheet but it is a contingent liability.
Catherine Murphy (Kildare North, Social Democrats)
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Until it materialises, if it materialises. Okay.
Can I ask about the staff in the Department? I am always very conscious of this because around the time of the crash, it was said there was a lack of expertise in the Department. I am aware some people have been seconded into the Department. Are consultancies used at the moment? I am very conscious of the case in Australia with PwC. Is there a health warning that goes with that? Is that something to which the Department is paying attention? What is the staffing situation now? Are there vacancies or is the Department right up to complement? Are there particular disciplines with vacancies that are required to be filled?
Mr. John Hogan:
Our current staffing cohort at the end of October is 337 and a half. We have 37 members of staff seconded into the Department. It may be helpful to give some sense of these because it varies between people from the Office of the Attorney General who have been seconded in to work directly with us, to people from Revenue, the Department of Foreign Affairs, the CSO, and from the credit review office. We have a secondee in from UK Treasury and we have a number of people who are working actively on some of the banking issues in response to the banking review last year. We have secondees from the CCPC and from the Central Bank. Then, of course, we have our NTMA secondees within the shareholder financial advisory division headed by Des Carville who is here today.
The Deputy raised the issue of secondees from some of the larger organisations and particularly in the instance we saw in Australia. We have not had secondees of that nature for quite some time in the Department. She is right that we have built up expertise both from what we have imported from the NTMA but also by actively looking at the secondments from other Departments. We used to do a lot of our recruitment through the PAS system but we have taken the initiative over the last 12 months to go directly and advertise as the Department of Finance in the marketplace and we have got really good people in as a result of that at AP level. We will continue to do that because there is a particular brand associated with the Department, which is quite positive. People want to come and work with us. There are exciting opportunities opening up over the next two years, not least as we begin to plan for the EU Presidency which Ireland will take over in the second half of 2026. This is going to be mean quite a lot of pressure on the Department and we will need to expand and plan accordingly to service this. As I recall, the last time we had secondees in from those big four firms was probably ten years ago. Some of the work that secondees in from the private sector have done over the years has been really important and fruitful. I can think of two pieces of work in particular, and they would have been familiar to the group here. One was dedicated work by an expert from one of the big four firms that resulted in a report on mortgage arrears and charted a path for the Government's response to the mortgage crisis 12 or 15 years ago. It introduced recommendations around things like the reform of the personal insolvency legislation, the introduction of mortgage to rent, and special supports for borrowers, and we see the fruits of that even currently around the existing Abhaile scheme. One of the recommendations was that this reform of the personal insolvency legislation and we took somebody from one of the legal firms to work actively on that. This was crucial in focusing our attention on what was quite an innovative approach to the development of personal insolvency legislation. When people come in, they sign the Official Secrets Act so there is that discipline from those secondees that come in, so we are confident in the way we manage that.
Catherine Murphy (Kildare North, Social Democrats)
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It is something I presume the Department puts on a risk register anyway.
Mr. John Hogan:
If there are people in from outside, we would absolutely identify the challenges and the restrictions that might necessarily be there. However, there is also an element on the other side of which we have to be conscious, which is the trust piece. We are bringing people in who we trust to a certain extent. We trust the work they are going to do for us and get the best out of them.
Catherine Murphy (Kildare North, Social Democrats)
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I completely understand that there could be a specialist area that needs attention. It is the residual that I was particularly asking about. On the PAS system, Mr. Hogan is saying that direct advertising was better. Is it quicker?
Mr. John Hogan:
In this instance, I think it was quicker actually, but I know there is a very conscious effort within the PAS system at the moment to increase the responsiveness by which it deals with us and other Departments. In the plan that we look forward to, we have an increase in our expected headcount over the next number of years, subject to my colleagues from Department of Public Expenditure, National Development Plan Delivery and Reform giving us the approval around the whole thing. We have drawn a number of measures to recruit the type of people we need. There will be that direct recruitment but also to the extent that we have utilised the PAS system, we will continue to do so.
Catherine Murphy (Kildare North, Social Democrats)
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Is the Department of Finance the only Department doing that directly?
Catherine Murphy (Kildare North, Social Democrats)
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Is the PAS system not working then?
Mr. John Hogan:
I think there has been pressure on the PAS system over the last number of years. We had a recent update at the Civil Service management board on this. There is a real focus on recasting the way PAS is doing its recruitment process, shortening it, looking at ways it can be more responsive and seeing if there are elements of the process that it can compress in order to be much more responsive to Departments and their needs. It has had difficulties over the last while. With us going out and recruiting directly, it relieves some of the pressure on PAS itself. There is a dual mandate for us in terms of what we want to do for ourselves but also to relieve that pressure on PAS.
Catherine Murphy (Kildare North, Social Democrats)
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Mr. Hogan spoke about the Department of Finance. Would it not have been absolutely obvious that the jobs that were available or that were to be advertised would have been with the Department of Finance?
Mr. John Hogan:
We have done it both ways in that we have utilised PAS to advertise on our behalf. We often recruit through the centralised system. Regarding the AP grade, someone coming through the AP1 competition can end up in the Department of Finance, the Department of the Taoiseach or the Department of Public Expenditure, National Development Plan Delivery and Reform. Somebody may have a particular interest in working in the Department of Finance or the Department of the Taoiseach, but it is not guaranteed by coming through the system that they will necessarily end up there. We also have recruitment for the Irish Government Economic Evaluation Service. Mr. McCarthy might like to say a few words about that because it is also important in this context.
Mr. John McCarthy:
The Irish Government Economic Evaluation Service, which is run by our colleagues in the Department of Public Expenditure, National Development Plan Delivery and Reform, is another mechanism that has been a big improvement over the past decade or so. It stems from the Wright report of ten or 15 years ago which identified the need for specialists in many areas including in economics. That is an additional vehicle for us to get people to come in to do economic work in the Department of Finance and also in the Department of Public Expenditure, National Development Plan Delivery and Reform. When they come in, they tend to move around Departments so long as they are doing economic work. There are strict criteria there. They are not supposed to be absorbed into the wider bureaucratic system, shall we say. They are supposed to be doing technical economic work and supporting evidence-based decision-making etc. That is another important way that we have been able to get people. We work well with our colleagues in the Department of Public Expenditure, National Development Plan Delivery and Reform. We sit on interview boards to identify people who have sufficiently strong economic skills to come in and help us.
Brian Stanley (Laois-Offaly, Sinn Fein)
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There are staff in the NTMA to ensure that the banking system is functioning properly in the shareholding and financial advisory division. I believe there are 13 people working in that within the division. The cost for that division incurred by the NTMA in 2022 was €4.4 million. In 2021 it was €2.2 million. The professional adviser costs were €2.7 million in 2021. Is that correct?
Brian Stanley (Laois-Offaly, Sinn Fein)
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Sorry, 2022.
Brian Stanley (Laois-Offaly, Sinn Fein)
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The previous conversation referred to staff being seconded. Regarding outside professional advice, it is a small country and Dublin is a small town in some ways. Presumably that is an outside firm that the Department brings in. What safeguards are there in terms of advice? In the previous discussion this morning I asked whether we are getting the best value. It is a bit like selling a bullock before it is fully fattened - there is a higher value on it. The banks have become much more profitable. I am not an economist but the evidence is there that they have come back into profitability and are in a better state in terms of the return. The half-yearly profits are substantial. How can Mr. Hogan safeguard against professional advice being given that might skew things against the public interest and in favour of private interests?
Brian Stanley (Laois-Offaly, Sinn Fein)
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How can we safeguard that?
Mr. Des Carville:
It is subject to a procurement process. One of the first things I did when I came in ten years ago was to set up panels. We have a legal panel and a financial advisory panel. Within the financial advisory, there are sub-panels as well. The first thing is a requirement to jump through procurement hoops. We have run a very thorough process with lots of checks and balances to get on a panel. If we are doing a specific transaction, we will run a mini competition from within the panel and have different firms play off against each other. That really helps us get the best of both. We get legal protection because all the terms, conditions, warranties, indemnities and all that kind of stuff are agreed upfront in a competitive way and also the fees are dealt with in a competitive way. If we are selling shares for example, we might have a syndicate. The last one we had included three international banks and they gave us advice-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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The Department hires a company to advise it.
Brian Stanley (Laois-Offaly, Sinn Fein)
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The last one was Merrill Lynch, was it?
Mr. Des Carville:
It varies. This is very important because to keep everybody honest, hungry and keen, we move the advisory mandates around quite a bit at various points in time depending on league tables and how various firms are performing. We also have an independent adviser on top of the selling banks. At the moment we are using Rothschild out of London. It gave us advice. As the Secretary General said, within the Department we have people employed like me and my team who have spent many years in these areas. If somebody is trying to give us advice that is questionable or skewed, I would really like to think that my team and I can see that a mile away.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Does Mr. Carville understand the point I am making about potential risk? Maybe we are not getting the full value.
Brian Stanley (Laois-Offaly, Sinn Fein)
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How much does it cost to get that? For the advice on the sale of the AIB and Bank of Ireland shares at the moment, how much has that cost?
Brian Stanley (Laois-Offaly, Sinn Fein)
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I know, but it costs money though.
Brian Stanley (Laois-Offaly, Sinn Fein)
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However, the Department must pay the company that it hires.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Roughly how much is being spent on it?
Brian Stanley (Laois-Offaly, Sinn Fein)
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That would be the latest tranche of-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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-----AIB ones.
Brian Stanley (Laois-Offaly, Sinn Fein)
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If we take the overall of what has been disposed of in the past five, six or seven years, it could run into millions.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I will ask about a cap. I know this is a policy area. Has there been any discussion about lifting the €500,000 cap for senior executives of the banks? Where is that proposal at the moment? Is that cap still in place?
Brian Stanley (Laois-Offaly, Sinn Fein)
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It has been lifted.
Brian Stanley (Laois-Offaly, Sinn Fein)
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It has been lifted by the Bank of Ireland. Okay.
There is a considerable mismatch in the banks compared with other European banks in respect of deposit and borrowing interest rates. The issue directly affects the public. People who may be saving for a mortgage have money on deposit. They are trying to get the deposit together but are getting only a 0.1% or 0.01% interest rate on the few bob they are trying to save for a deposit. On the other hand, when they take out a mortgage, they could be paying in excess of 4% in interest rates. What kind of pressure can the Department put on the Central Bank to control that? As I mentioned earlier, many people would have been surprised by the answer Gabriel Makhlouf gave us. In our innocence, we would think the Department of Finance and the Central Bank, with the power of the State behind them, would have some influence when trying to address these types of mismatches. I understand the banks are commercial entities that are there to make money. They have operational costs and shareholders. I understand all of that. However, we have to admit that compared with other European banks and the banking system across Europe, it appears we have a very wide gap between deposit and borrowing interest rates. What can we do? Can the Department bring to bear any power or influence to narrow the gap between deposit and borrowing interest rates?
Brian Stanley (Laois-Offaly, Sinn Fein)
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It has been tiny.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Look at the tables. Someone who goes to open a bank account will be asking about this. Look at the offerings from the banks. An interest rate of 0.1% is about as good as it gets. If you go in to borrow money, you are looking at multiples of that and perhaps a rate of 4%.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Is Mr. Carville talking about the short term?
Brian Stanley (Laois-Offaly, Sinn Fein)
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The ECB sets borrowing interest rates. Let us be fair about this. I am talking about deposit rates. The State still has a share of a little more than 40% in AIB. Who calls the shots for deposit interest rates? Our guests will tell me the banks do. With the power of the State, the Central Bank and the Department of Finance-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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We do not have a shareholding in Bank of Ireland or Permanent TSB.
Brian Stanley (Laois-Offaly, Sinn Fein)
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We do not have shares in Bank of Ireland.
Brian Stanley (Laois-Offaly, Sinn Fein)
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We are out of Bank of Ireland now. We do not have a shareholding any longer.
Brian Stanley (Laois-Offaly, Sinn Fein)
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We do not have any skin in the Bank of Ireland game because it is not in State ownership.
Mr. Des Carville:
That is exactly the case. It is completely independent. It is owned in its entirety by the private sector. It is up to the board of management to set rates as it sees fit, based on a range of factors, ranging from driving markets share to competitive forces, where it thinks rates are going to go and so on.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Mr. Carville is saying the ECB - and the Governor of the Central Bank sits on that body, which is made up of the 27 member states - sets borrowing interest rates. Between the European Union in the form of the ECB, the Central Bank here and the Department of Finance, no one has any power to influence deposit interest rates.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I understand they are commercial entities. I understand that part of it. We are at their mercy on that point.
I will turn to the banking unit within the Department. The Irish Bank Resolution Corporation, IBRC, has been liquidated and NAMA is being wound down. We are nearly at the tail-end of that. The State ownership of the banks has reduced. Is there still a need for the banking unit?
Mr. John Hogan:
I think there is, in the context of the outstanding work that has to be done. We have been able to get the unit to do additional work for us that we have not done in the past. By the title of the unit, the committee can tell it was initially in the shareholder management sphere. Increasingly, it is coming into the financial advisory sphere to guide us on developments at international level and new ideas.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Is the output of the unit reviewed?
Brian Stanley (Laois-Offaly, Sinn Fein)
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I take it from the answer that the unit will be kept in position. It is unlikely its staff will return to the National Treasury Management Agency, NTMA.
Mr. John Hogan:
They will not return in the short term. We have an outstanding portfolio of shareholdings in the banks that need to be managed. As I say, I am also mindful that we faced a lot of criticism from the banking inquiry about the lack of available skills to respond at the time of the banking crisis.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I will move on to discuss the cashless society, which is a topic of interest to a large section of the population. AIB was going to go cashless in 70 branches. Was the Department informed of that beforehand?
Mr. John Hogan:
Given AIB is one of the banks we control, I will ask Mr. Carville to speak about it. The whole issue of access to cash is interesting. The Cathaoirleach will recall that approximately a year ago, we published a review of the retail banking system. When we started that work, the access to cash issue was not as prominent as we might have expected. Over the course of the review and the public consultation we held in Tullamore in the Cathaoirleach's constituency, it was an issue that came to the fore, as was the issue of financial literacy. On those two issues, we are now moving to introduce particular legislation to deal with the access to cash piece. A lot of work is going on in the Department at the moment.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Is that to protect and retain access to cash?
Mr. John Hogan:
It is. It might be helpful to give the committee a note on what we intend to do. The work on the legislation started approximately a year ago. We began a targeted consultation around access to cash in July this year. It involved dealing with key stakeholders in the cash management area, including representatives of the retail banks.
Brian Stanley (Laois-Offaly, Sinn Fein)
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On AIB, I asked if the Department was informed of its move beforehand. We had a substantial shareholding at that time.
Mr. Des Carville:
Yes. When AIB is making any kind of material announcement like that, it would inform us about it. It seems like an awful long time ago but it was summer of last year when that happened. To be fair to the bank, the chief executive was out very quickly. He was on "Morning Ireland", if I recall, holding his hands up and saying the bank got it wrong, and the decision was reversed very quickly.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Did the Department play a role in that U-turn by the bank?
Mr. Des Carville:
No. This goes back to my earlier point about the relationship frameworks. It is a commercial decision by the bank in that case - in every case, actually - and it realised it got it wrong based on the customer feedback it was getting through multiple channels. I am not always fair to banks but, to be fair to AIB, it reversed course very quickly on that.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Many people now operate on a dual basis, cash and card. They carry both. I think that is the way it is going to be. I think I saw figures or some report recently to the effect that, across Europe, Ireland is one of the countries that has gone most cashless. In a lot of other European countries, cash is still the dominant way of-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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Yes. I know that.
Mr. John Hogan:
-----with the possibility of infection at that time. I think many people have defaulted now, as part of their ongoing transactions, to tapping and using cards in a manner in which they might not have done before that. We are conscious, however, of the need to protect access to cash. That is why I talk about the legislation we have in planning at the moment, which is very much in that field. It is a particular vulnerability for older people who-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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With the cost-of-living issue being big in society, I think many people still like cash because-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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Yes. You can feel your pocket getting empty, whereas with the card you do not know until you get the red letter in the door, which can be a bit unsettling. From the Department's point of view, there is a move afoot to try to protect that cash society. I see Ms Cunningham nodding in approval.
May I ask about the ATM network? Three quarters of the network within the State will no longer be under the control of the retail banks in 2024. That is my understanding. Those ATMs are being sold to independent ATM companies, which are unregulated. We know that, in other European countries, which have a bit of experience of this, if you withdraw cash at an ATM - there is one particular company whose ATMs are painted a certain colour; you see them in a lot of European countries - the charges are extortionate for just that simple transaction. If you withdraw €400, it can cost you nearly €30 to do it. Are we facing that situation?
Brian Stanley (Laois-Offaly, Sinn Fein)
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As regards the other ATMs and the mainstream banks in those countries, however, the charge would be fairly similar to the charge here. The risk here is that it is likely that three quarters of the ATM network - am I accurate in saying that? - will be sold next year to independent companies that are not regulated. Will the witnesses confirm that for me?
Brian Stanley (Laois-Offaly, Sinn Fein)
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There is an urgency to this, though, because ATMs are used a lot. The point I am making is that I think the concern here is that it is a bit like the vulture funds. When the vulture funds started buying loans and when we had the discussions about that, some vague commitments were given that there would be protection and a level of regulation. As I said earlier, for the person now paying an 8.5% interest rate on a loan they took out at 3%, those vague commitments did not give them any protection. As regards the ATM network, if three quarters of the machines are controlled by independent ATM companies, not the banks, we are heading into difficult territory for the public who use ATMs weekly.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Is it possible to bring in legislation to protect that?
Brian Stanley (Laois-Offaly, Sinn Fein)
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Can we factor into that the charge for withdrawal?
Brian Stanley (Laois-Offaly, Sinn Fein)
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This is really the issue that will hit customers if they are charged the figures I have just given, and I have seen them. There is a certain type of ATM in some countries and that is the rate being charged for their use. They are on the streets. They are all over the place.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Yes. That is the case.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I will ask some questions about the insurance levy. That comes under your Department, Mr. Hogan. Are we heading to a situation where that levy is now being reduced? There were some alterations made to it in the budget.
Brian Stanley (Laois-Offaly, Sinn Fein)
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You might explain that.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I refer to the outworkings and the effects of that.
Mr. Michael McGrath:
There are three different parts to that. There is a 2% ICF levy on all non-life products. That is essentially to refund the Exchequer and, effectively, the taxpayer in respect of contributions that were given predominantly in the collapse of Quinn Insurance over a decade or so. You will recall that, earlier in the year, we were before the committee and the figure for outstanding balance and so on is about €380 million. Ballpark, we are receiving a little over €100 million a year. The expectation is that the amount of money would have been repaid by about 2027. If there were no other collapses or a requirement for advancing of State moneys, the expectation would be that that levy would then go on all of that. That is the 2% ICF.
Then there was the motor insurance investor compensation fund, which is another 2%. That is just on motor policies. That is what is known as an in-advance or an ex antefund to build up towards €200 million, but the legislation provided that once that reached a figure of €150 million, the Minister could reduce the levy. This summer that was just short of €150 million and the Minister, in anticipation of it reaching €150 million, signed a statutory instrument in October to bring that 2% levy to 1%. That will kick in on 1 January 2024. We anticipate that should head towards the €200 million figure that is seen as a sizeable pot to guard against any future events in a number of years' time. Then there is a provision in law for the levy to go to zero at that point, unless there is a draw on the fund.
The last piece, which is not a levy but a stamp duty, is that there is 3% on all insurance. Generally speaking, most people, the motorists-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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May I ask about the old PMPA one or Axa? Is that finished?
Brian Stanley (Laois-Offaly, Sinn Fein)
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May I ask about the banking services and the companies involved? Does the Department monitor those as to whether some of them are going to hit an iceberg? If some of them are running into risky waters or shaky financial positions in terms of the balance sheets, does the Department monitor those to try to head off the situation?
Motorists, and customers generally, have been hit with these levies to compensate for the collapse of companies in the insurance sector. Does the Department monitor those companies that are active in the market to try, where there is a risk, to bring some order or check on it? I do not want to see other bail outs.
Mr. Michael McGrath:
The short answer is the State does. It is the Central Bank that looks at that. There are very strict rules at a European level under the solvency directives. The Central Bank looks at it to ensure there is a sufficient amount of capital. As we know from insurance, you write and make a commitment for something that will happen in the future, and take in a very small fraction today, but if something does happen there is then a large payout. The Central Bank actively supervises and regulates all the insurance companies that are both here and selling into here in terms of that issue.
Quinn was quite an exceptional case but there have been a couple of other failures of a smaller amount in terms of Setanta-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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What was the total hit with Quinn?
Brian Stanley (Laois-Offaly, Sinn Fein)
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It was substantial.
Brian Stanley (Laois-Offaly, Sinn Fein)
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It was a big hit. On the national claims insurance database that was established, do we have any information on trends in that? What is happening there?
Mr. Michael McGrath:
The National Claims Information Database, NCID, was established some years ago. I think we have had three annual reports from the Central Bank. They show that in relation to motor. In more recent years, we have had a similar type of reporting in relation to employer liability and public liability. It is not as granular because that is more difficult and there is a very unique aspect to that. It is showing, generally speaking, from the motor perspective, that the number of claims are mostly settled directly with the insurance company. A small amount go to PIAB.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Is the number per claim falling?
Brian Stanley (Laois-Offaly, Sinn Fein)
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What about outside the motor sector?
Brian Stanley (Laois-Offaly, Sinn Fein)
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On paying for the database, is that covered by part of the levy? Who funds that database?
Mr. Michael McGrath:
The Central Bank is running it but we are required, as was mentioned, to provide monetary financing from the State. The Central Bank pass that charge back to the industry at an aggregate level, but there is no dedicated levy to fund the database. It is a cost back to the industry, but one can surmise that obviously the industry might absorb some of that cost or pass it directly on. There is no direct levy back onto it, but we think it is very important information and probably a burden that is worth charging for.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Ultimately what happens is the companies involved pay it, but most likely-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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We have covered all the ground we need to for today.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Yes, that is just servicing the debt. Is €46,000 the-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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More shoulders to carry it on.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Okay. We are looking at €650 per year-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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Per member of the workforce, we are looking at in the region of about €1,500.
Brian Stanley (Laois-Offaly, Sinn Fein)
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It is €1,400.
Brian Stanley (Laois-Offaly, Sinn Fein)
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No, per person working.
Brian Stanley (Laois-Offaly, Sinn Fein)
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It is substantial. It is €28 a week.
Brian Stanley (Laois-Offaly, Sinn Fein)
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That is the figure I wanted to hear. It is about €28 a week. I thank the witnesses from the Department of Finance and Mr. Nolan, the representative from the Department of public expenditure and reform. I also thank the Comptroller and Auditor General's office for attending and assisting the meeting. Is it agreed that the clerk will seek any follow-up information and carry out any agreed actions arising from the meeting? Agreed. I take it that it is also agreed that we note and publish the opening statements and the briefing for the meeting.
I will suspend the meeting until 1.30 p.m. when we resume in public session to address correspondence and any other business of the committee.