Joe Carey (Clare, Fine Gael)

I welcome this Bill, which has been presented by the Minister today. I propose to speak on just one element of the proposed legislation. While welcome, the reform of the Bankruptcy Act 1988 - whereby the period of bankruptcy is to be reduced from 12 years to six years, as per the terms of this Bill - is really just tokenism. Deputy Rabbitte has already referred to that matter, which is a minimalistic solution to a real problem we are encountering in this country. The proposed reform is insignificant and ultimately does little to deal with the enormous problem coming down the tracks for this or any future Government.

In recent weeks, we have had much debate in the House on our budgetary position. Recovery is predicated on achieving a deficit figure of 3% of GDP by 2014. Economic growth, however sluggish, is factored into our calculations.

At this stage, NAMA is in operation dealing with enormous property loans. The banks have been recapitalised on the basis of NAMA and we have had three fiscally adjusting budgets. The issue of personal debt and the ability to repay is one of the most significant pressures now facing this country, especially young families and individuals.

The fact that we are a modern consumer society with a dependency on credit, means it is critical for us to establish a principles-based system allowing for debt resolution in a way that limits the overall costs to society. In essence this means a modernisation of our bankruptcy laws. The element contained in this legislation dealing with the issue is far too little at this point in time.

The moral hazard issue concerning debt is valid, even though it has not been applied to our banks. Nonetheless, we cannot allow debt in itself to become all consuming, as it has the potential to do, because of our particular Irish set of personal debt circumstances as they stand. We must create the correct balance between the rights and obligations of creditors' expectations of repayment and debtors' ability to pay. Debt forgiveness or structured write-downs must be earned. There can be no suggestion of a free lunch or allowing for free riders. Abuse of any reformed system should be dealt with in a more stringent manner than that which might exist prior to the adoption or availing of any proposed system. I would prefer the Minister to bring such legislation before the House.

The Government's most significant input to deal with Irish indebtedness has been the reform of bankruptcy laws. On the surface and in a very limited way a small element of this Bill begins this process by reducing the period from 12 to six years. However the Minister and his Government must acknowledge that their handling of the economy during the past three years has been abysmal. Every decision has been reactive and tardy in its introduction. The Government must not make the same mistake on this issue. Now is the time to introduce proper and far-reaching legislation on personal indebtedness, not when the crisis reaches its inevitable crescendo. It is clear that the budgetary decisions to be taken by the State over the coming years will exacerbate the problem. The Government must not allow itself to be placed in a hopelessly reactive position, as is commonplace now.

Work on the issue of debt in Ireland has been reactive in nature, taking place generally when an individual is already over-indebted. This must change. Only two countries in Europe function without personal debt management legislation, namely, Ireland and Greece. This suggests something. This legislation does not fundamentally reform and update the Bankruptcy Act 1988. The fact that there were only eight bankruptcies in Ireland in 2008 rising to 17 in 2009 does not accurately reflect the level of debt and pressure in the country.

The process of examinership and debt write-down is only for the wealthy, since we operate a court-based system with High Court costs in the region of tens of thousands of euro per day. Ireland must introduce a system of non-judicial debt settlement for Irish people and SMEs such as the individual voluntary arrangement, IVA, system in operation in the UK, pitched to operate at a level from €50,000.

In 1995, Ireland had a household debt - including mortgages - to disposable income ratio of 48%. By 2008, this had risen to 176%, an increase of almost 270%. This rise is significantly higher than for other countries where similar comparative data exist. I have before me an analysis of this comparison supplied by Goodbody Stockbrokers. It sets out the difference in the household debt to disposable income ratio. In the UK in 1995, the ratio was 106% and increased to 173% in 2008, representing a 63% increase. In France in 1995, the ratio was 66% and increased to 72% in 2008, representing a 9% increase. In Spain in 1995, the ratio was 59% and increased to 130% in 2008, representing a 120% increase. In Canada in 1995, the ratio was 103% and increased to 130% in 2008, representing a 26% increase. This illustrates the real problem Ireland has with indebtedness.

MABS has published interesting statistics dealing with the period between 2008 and 2009. Analysis shows that from 2008 to 2009, levels of debt among MABS clients increased across most debt types. Personal loans with financial institutions, utilities and credit cards form the largest proportion of debt. Four types of debt experienced increases of more than 70% between 2008 and 2009. These include sub-prime at 82.5%, overdraft at 75.4%, hire purchase loans at 72.1% and catalogue at 70.8%. The necessity for people to prioritise their debt, especially secured debt over unsecured debt, may result in debt with the highest interest rates being paid last. This may mean that it will take longer overall to exit from debt.

In Ireland, there is a lack of formal insolvency schemes and the current bankruptcy system is unsuitable for a majority of current debtors. By contrast, there are personal insolvency options in England, Wales and the USA. We must address this shortcoming as quickly as possible. The Central Bank estimates that non-mortgage related debt amounts to 18% of all debt in Ireland. Total household debt, including mortgages, stands at €147 billion, implying personal debt of approximately €27 billion. One must expect that some of this debt, such as the debt that has been dealt with by NAMA, must once again be addressed on the banks' balance sheets. The same data from the Central Bank indicates that during the past two years the levels of outstanding debt decreased in six of the nine types of debt to credit institutions. Only overdrafts, other loans and securities and credit cards increased from 2008 to 2010. This is interesting for two reasons. All of these types of debt involve higher rates of interest and remain to be paid after the mortgage because of fear of loss of home or eviction and after utilities debt because of fear of disconnection. All of this underlies the point that the Government must deal with the problem of personal debt immediately.

The Law Reform Commission and the Mortgage Arrears and Personal Debt Review Group Task Force among others are deliberating on the issue. The small amendment to the Bankruptcy Act 1988 contained in this legislation, while welcome, is merely window dressing. The Government must act more aggressively on this issue to counter the significant problem it, no doubt, will become in future.

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