Dáil debates

Tuesday, 3 March 2009

Investment of the National Pensions Reserve Fund and Miscellaneous Provisions Bill 2009: Second Stage

 

6:00 pm

Photo of Chris AndrewsChris Andrews (Dublin South East, Fianna Fail)

I wish to share time with Deputy Michael McGrath. I thank the Acting Chairman for the opportunity to speak. Ulysses is always difficult to understand, however one reads it. The purpose of the Bill is to amend the National Pensions Reserve Fund Act 2000 to enable the National Pensions Reserve Fund Commission to make investments in the public interest in listed credit institutions and it amends the Taxes Consolidation Act 1997 in respect of the taxation of such investments. The National Pensions Reserve Fund was established with great foresight by the Government of the day and under the careful eye of the then Minister for Finance, Charlie McCreevy, in 2001. The original objective of the National Pensions Reserve Fund was to meet as much as possible the costs of social welfare and public service pensions from 2025 onwards. Demographic projections indicate that the age structure of the population is due to undergo a major transformation in the coming years. The proportion of persons of working age relative to those greater than 65 years of age is projected to fall from a current 5:1 ratio to less than 2:1 by 2050. This will inevitably put severe strains on the capacity of future Governments to continue to fund social welfare and public service pension liabilities on a pay-as-you-go basis.

The National Pensions Reserve Fund represented a move towards a part pre-funded public pension system. It involves the statutory setting aside and investing of 1% of GNP annually. Currently the fund is valued in the region of €16.5 billion. Late in 2008, due to a number of factors, national and international, and coupled with the ongoing turmoil in global financial markets, the Government initiated intensive discussions with several banks with a view to securing their position.

The Government decided on a comprehensive recapitalisation package, which will reinforce the stability of our financial system, increase confidence in the banking system here, and facilitate the banks involved in lending to the economy. Every day we hear of the difficulties of viable small and medium enterprises in accessing credit and cash. Such small and medium sized enterprises are struggling and must be given support. This measure will go some way towards doing so. Further steps will be required in addition to the steps already taken. There is no magic wand and no one silver bullet that will solve everything. Everything cannot be neatly packaged into one small box and rolled out on one day. Given the current turmoil and the meltdown of the financial markets it is very difficult to predict what will come next. I note the comments of an economist who stated that what was needed was small steps not giant leaps. This measure is one small step that will assist the economy and small and medium enterprises.

The purpose of the Bill is to allow moneys from the National Pensions Reserve Fund to be used for this programme of recapitalisation and I support this proposal. The plan will see €3.5 billion invested in each bank, the Bank of Ireland and Allied Irish Banks, in return for preference shares with a guaranteed dividend of 8%. There is concern in some quarters that 8% may not be sufficient but it was the case in other countries that a higher dividend had to be reduced subsequently. This dividend is balanced and good and the Government will also have the right to appoint one quarter of the number of directors at each bank and obtain one quarter of ordinary voting rights at board meetings. In return for the funding, both banks have agreed that bonuses for staff will not be paid for activities in 2008 and 2009. While salaries for senior executives will be cut by at least 33%, the banks have also agreed to increase lending to small business by 10% and to first-time buyers by 30%. This will be welcomed by all those involved and those who appreciate the serious demands on small and medium enterprises.

An effective banking system is vital for business and consumers alike and is essential to Ireland's economic recovery. The recapitalisation of these banks will have a positive impact on the ability of businesses to acquire finance and maintain business activity. Recapitalisation will boost confidence and will send a strong message to the domestic and international business community that Ireland is a safe place in which to do business.

Businesses are really struggling. The reduction in gas and electricity prices is a very good step and must be a great relief to both the residential and the business consumer. Businesses are finding it difficult to pay rent and rates and local authority charges. In Grafton Street, not too far from here, there are proposals for bids for district improvement which is also adding on charges for additional services. While these services are very welcome and the bids concept is a good proposal, it imposes a heavy burden on many businesses which are already struggling. I heard of one landlord who was seeking to increase the rent. It is amazing that anyone would try to do that at this time——

Comments

No comments

Log in or join to post a public comment.