Kieran O'Donnell (Limerick City, Fine Gael) | Oireachtas source

I support this Bill. I want to put it in an Irish context. There is a great deal of theoretical talk about debt sustainability in the Irish context and there has been considerable debate on the impact various measures will have. It is a little disingenuous that the Opposition states continually that this will not work and that will not work. Anyone who has been involved in business will be aware that it is not about one measure; it is about a range of measures. On debt sustainability, outside of one's capacity to repay, any business loan encompasses three key elements: the amount of the loan, the interest rate on the loan and the repayment terms. Those are all elements to it.

First, I want to deal with the restructuring of the European financial stability fund, EFSF, that is currently under way, as announced by the Government yesterday. I welcome that measure. To put it in context, if one can defer repayment of a loan, it increases the sustainability of that loan. Furthermore, if one extends the term of a loan by a number of years, by the time that loan comes to be repaid, the value of the loan in real terms will have fallen due to inflation, and that is often overlooked. It would be akin to someone taking out a loan of £40,000 in the late 1980s to buy a house and, effectively, repaying the loan now. A sum of £40,000 back then would have been worth a significant amount more than £40,000 today. I very much welcome that measure, but I see it as part of a range of measures.

The Government previously negotiated a reduction in the interest rate on these particular loans, the EFSF and the European Commission loans, which is to be welcomed. The second element of it is the repayment.

There has been much debate about the promissory note. In layman's terms, effectively, there was no, or very little, interest charged to the State for the first three years of the promissory note. That had no impact on the current account of the budgetary system or on the ordinary citizen. The difference is that for 2013, 2014 and 2015, it has a significant impact. For 2013, it has an impact just short of €1.9 billion on the general Government deficit. For 2014, it has an impact just short of €1.8 billion, and for 2015, it has an impact just short of €1.7 billion. For those three years combined, one is talking about an impact of over €5 billion on the Government's budgetary position. Any relief we get on the interest in respect of the promissory note has a considerable beneficial knock-on effect on reaching our budgetary targets, on our debt-to-GDP ratio and on ordinary people's lives. That is why I wish the Government success in the negotiations. It is not merely about the amount. The interest is a key factor in the promissory note because of the way it was constructed. The previous Government arranged that no interest would hit the budgetary position for the first three years. For want of a term, it squeezed the interest over a shorter period of time. The interest was approximately 5.9% over the length of the promissory note. It ended up being nearly 9% because they squeezed it into these particular years.

Equally, lengthening the repayment term of the promissory note has almost the impact of reducing the loan. If one pushes the loan down the road, over time the real value of it drops. What I am looking at here is that we must get it to the position where, if we get a reduction in the promissory note interest, it will make our debt significantly more sustainable and make a considerable improvement in our budgetary position which will have an impact on the lives of ordinary people who we all represent in this House.

This is business. This is not about show-boating. There is a great deal of show-boating on this particular issue. This is about euro and cent. With the promissory note, we are looking at getting the interest rate down so that instead of having payments in the order of €1.9 billion in 2013, €1.8 billion in 2014 and €1.7 billion in 2015, those sums would be reduced. In 2013, the promissory note will make up 20% of the interest charges on our debt. In 2014, it will make up 18% and in 2015, it will make up 17%.

On the issue of the contingent capital, CoCo, notes in the banks and weighing it up, the Government, like any business, must de-risk the balance sheet of the State. There is a risk attached to having those contingency funds in the banks.

Furthermore, our debt-to-GDP ratio in 2013 will be 121%. We need to try to bring that down. Selling those contingency funds going directly to reducing our debt levels also has an impact on our debt sustainability. We must also operate in an environment whereby Ireland pays its way. We are seeking a raft of practical measures to improve our debt sustainability significantly. It has a positive impact on ordinary people's lives.

Reducing the interest rate on the promissory note will have a very significant influence, which has been overlooked. I would like to see what I would regard as a measured, knowledgeable and constructive debate on how our debt operates and how effectively we can get it back with a suite of measures. I am looking for a matrix of tools within debt sustainability through selling the CoCo notes and putting that towards reducing our debt levels and expanding the repayment terms in regard to the EFSF. It is often overlooked that funds we have drawn down in more recent times from the EU programme are over a far longer period of time, which is to our benefit. By the time they come to be repaid with inflation, they will have effectively reduced in real terms.

The significance of the interest charge on the promissory note on the ordinary citizen has been overlooked. If we get the reduction in the interest rate on that note, it will have a significant effect on reaching our deficit-GDP target and have an impact on the ordinary person through the various current balance budgetary measures that need to be introduced. It will ensure the markets respond more favourably and, when we exit bailout programme, which I have no doubt we will, it will ensure the cost of borrowings are sustainable in the future. In the coming months we should have an informed and robust debate on the impact. Rather than the headline seeking and clichéd attacks, let us have a reasoned and measured debate on our debt.

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