Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

When the Government was formed in March 2011, Ireland was facing an unprecedented economic emergency. The parties received a mandate from the people and formed a Government that resolved to restore the country's finances, repair Ireland's broken financial system and rebuild Ireland's reputation on the international stage. The priorities for my Department are influenced by the progress that has been achieved on its previous priorities, which include the clean exit from the EU-IMF programme, the successful post-bailout return by the NTMA to the markets, the control of and stability in public finances, the fall in unemployment for seven consecutive quarters from 15.1% to 11.9% in February and the creation of 61,000 jobs by businesses across the country in 2013, representing the strongest rate of employment growth recorded in the past six years.

I can assure Members that the exit from the EU-IMF programme was by no means an end in itself. The Government was not elected simply to steer Ireland out of a bailout. Given the costs that have been incurred by the people, such as unemployment, emigration and reductions in quality of life, their demands rightly are much greater than that. The Government wishes to see an economy that is growing, creating more jobs and delivering real improvements in people's quality of life. The Medium-Term Economic Strategy 2014-2020, published in conjunction with Ireland's exit from the EU-IMF programme, is the Government's strategy for putting the economy on a path of long-term economic growth. The strategy has at its core the objective of returning the economy to full employment by 2020 and is based on three interconnected pillars. The first is to ensure debt sustainability by reducing the deficit to below 3% by 2015 and eliminating it by 2018. The second pillar is about financing growth and ensuring credit is available for investment, while the third pillar is about supporting employment and living standards and as I stated, the target is to have full employment by 2020.

This is the first year of the strategy and the priorities of the Department of Finance in 2014 are very much driven by the aforementioned three pillars. A central priority for the Government has been the return of the public finances to stability. Sustainable public finances mean a fair and progressive taxation system that supports economic growth while at the same time providing the resources for high quality public services. The spiral of debt that engulfed this country in the period leading up to 2011 resulted in Ireland's debt-to-GDP ratio hitting 104% from a low of 25% just four years previously. This accumulation of debt was brought about by the biggest public finance and banking crisis the country had ever seen and led to a severe contraction in economic activity. Confidence in the sustainability of the public finances is a precondition for a strong and lasting economic recovery. The Department of Finance is responsible for the implementation of rigorous new national and European debt, deficit and spending rules and institutional reforms. The fiscal targets are a 4.8% deficit in 2014, a 3% deficit by 2015 and the elimination of the deficit entirely by 2018. The Government has demonstrated its steadfast commitment to stick to its fiscal objectives by outperforming its deficit targets in 2011, 2012 and 2013. This has been vital for fostering market confidence in Ireland's recovery. By continuing to reduce the deficit in line with the strategy, the Government will stop adding to the debt. Ireland's gross debt levels, while very high at over 120% of GDP, will peak this year and the net debt position is just below 100%. When the equity stakes in the banks are taken into account, this figure is much closer to the EU average of 75% net debt to GDP.

Confidence in the Irish banks is beginning to return and has helped to reduce their reliance on Eurosystem funding and to bring to an end the bank guarantee. Since April 2012, there has been no emergency lending to the main Irish banks and their reliance on monetary authority funding had fallen to €27 billion at end of January, a level last seen in 2008. Reflecting this, AIB, Bank of Ireland and Permanent TSB all have accessed funding on capital markets at reasonable rates. A priority for the Department of Finance this year is to explore and develop opportunities to reduce further the gross and net debt levels. Sustainable public finances are one element and the State's shareholding in the financial system is another major part of this. The Government already has shown how the State can make a profitable return on an investment in the banks. Since 2009, the State invested €4.8 billion in Bank of Ireland, which has returned €6 billion to the State through sales and guarantee fees. In addition, the State retains a 14% shareholding in Bank of Ireland that currently is valued at €1.5 billion. It is the Government's stated policy position to continue to dispose of its holding in the Irish banking system and to use the proceeds to further reduce debt levels. It will do this through carefully adding value to its banking assets.

The gathering momentum of positive sentiment in the Irish economy is also reflected in the performance of NAMA. It generated approximately €5.8 billion in cash in 2013, including €3.8 billion from asset disposals with the total cash generated in the period of 45 months since its inception to the end of 2013 reaching €16.5 billion. The chairman of NAMA, Mr. Frank Daly, announced last week the agency's intention to repay a further €3 billion in NAMA bonds by the end of March this year and to have repaid half of the NAMA bonds by the end of this year. It is likely that the increase in NAMA asset sales to fund these redemptions will support construction activity in the economy, as purchasers of these assets will want to create income-generating assets as quickly as possible. A strategic review of the agency is under way in the Department. The sales processes for the remaining portfolios in IBRC are ongoing and the vast majority are expected to be concluded by mid-year. The IBRC liquidation is progressing in a satisfactory manner. The sale of the Rock and Salt portfolios on top of the success of the Project Evergreen sale late last year will reduce considerably the amount of assets that now are expected to transfer to NAMA. This bodes well for the ultimate success of the liquidation.

As set out in the medium-term economic strategy, in tandem with potential private sector disposals, the Eurogroup has agreed that retroactive recapitalisation may be decided on a case-by-case basis in line with the commitment from the Heads of State and Government on 29 June 2012. The European Stability Mechanism direct bank recapitalisation instrument, known as the DBR, is the technical mechanism that provides for this. There is still a lot of negotiation to be done on the finer details of this instrument but the agreement now in place gives the Government the option of applying to the ESM for a retrospective direct recapitalisation of the Irish banks. There is significant time for consideration of this option, as retroactive recapitalisation can only occur after the single supervisory mechanism is operational, most likely towards the end of 2014. Any application for retroactive recapitalisation will be considered in light of the potential returns to the State from alternative options for realising the value of the State's bank holdings.

Ensuring an adequate flow of credit availability to SMEs is a key objective for my Department this year. As the economy grows and demand for credit increases, it is essential that competitively-priced financing is available to support business to trade, to grow and create jobs. In the medium-term economic strategy, the Government set out its ambition of developing a more diversified, competitive and responsive financial infrastructure that can finance this growth across the economy. A range of actions were included in the Action Plan for Jobs 2014 to deliver this ambition. In 2014, the Department of Finance will continue to prioritise measures to ensure adequate flows of domestic and international credit to fund households and enterprises.

This is essential for job creation and infrastructure development. My Department is specifically focusing on the establishment of the Ireland Strategic Investment Fund as part of the forthcoming NTMA amendment legislation, which will also establish NewERA to accelerate investment in strategic infrastructure; the conclusion of an agreement with KfW to increase the supply of credit to SMEs and to consider the potential for the creation of a State investment bank; and the expanded use of the National Pensions Reserve Fund for SME funding, which includes the funds already established for the purpose of turnaround, SME equity, SME corporate and the partnership with the Silicon Valley Bank and the Chinese Investment Corporation.

Following on from the turnaround of the banking system over the past three years, my Department will continue to work to repair and restore trust in the banks. This is vital to ensure that businesses are sufficiently confident to seek out credit to fund expansion opportunities.

Tackling mortgage arrears is an essential element of this repair job and it is vital that the banks continue to agree solution with customers who are in arrears. This Government has put in place a comprehensive programme of actions to assist householders struggling to pay their mortgages. Consumers and lenders are agreeing permanent restructures for those in arrears or those who think they will fall into arrears. This is the priority for this year. The Central Bank has set mortgage arrears resolution targets for the six main mortgage lenders. By the end of June, lenders will have to put in place solutions for 75% of customers in arrears of more than 90 days. Some 35% of the over 90 days in arrears category will have to be in a concluded solution. This is the minimum expected from the banks this year and my Department will actively manage the banks progress.

As I outlined earlier, the core objective of the medium-term economic strategy is full employment by 2020. This can only be achieved by delivering on the other objectives of the strategy, returning sustainability to the public finances and ensuring adequate supply of credit to business.

My Department's key direct policy area that influences economic growth is taxation, which is primarily set out in the annual budget. My Department will continue to prioritise taxation measures that ensure the recovery is jobs rich. In the past three budgets, we have shown how we can, through targeted measures, make our tax system more competitive and thus support a high quality of life and strong economic growth. I mention a €500 million tax package for businesses in budget 2014; support for the tourism sector through the zero air travel tax and the reduced VAT rate to 9%; tax policies to encourage the transfer of land to the younger generation in the agrifood sector; and re-establishing a fit-for-purpose construction sector through the introduction of real estate investment trust legislation, the home renovation tax incentive and an exemption from capital gains tax so that the overhang of commercial property in Dublin will be bought.

In line with the medium-term economic strategy, we will continue to explore opportunities to use tax as an economic tool to drive job creation and to build strong sectors across the economy. For example, as announced in budget 2014, a review of the agri-taxation reliefs is under way. The purpose of this review will be to assess the costs and benefits of the various agricultural tax expenditures with a view to ensuring that the maximum benefit to the sector and the wider economy is obtained. Ensuring the recovery is jobs rich also requires a medium to long-term focus and continually improving productivity as it is the key component of long-term Irish growth levels. This means we will focus on investment in people, building strong sectors and boosting competition and innovation to drive growth.

My Department plays a very significant role in representing Ireland at European and international institutions and we intend to use all of our interactions to ensure these institutions are focused on increasing global economic growth. Higher levels of global growth will be to our benefit as a small open economy, where our relations within Europe and across the world are crucial to our economic prosperity.

Building on the widely acknowledged success of the 2013 Presidency, my Department will continue to intensify its strategic engagement with Europe and international institutions to focus them on action that will lead to higher levels of global economic growth. My Department's immediate international and EU priorities are engaging in the European semester process to ensure that all member states act in the best interests of strong European economic growth; completing the banking union so as to support the creation of a single banking market in the EU. This will reduce the disparity of credit costs between banks in different member states; focusing European investment on innovation and greater competition that will increase the EU's long-term growth levels; earlier and continued involvement in a range of wider European policies and developments; and setting out the benefits of increased international trade for global economic growth.

The implementation of the strategies outlined in the programme for Government has resulted in Ireland's reputation improving dramatically in recent years. As well as the successful programme exit, Ireland's stewardship of the EU Presidency was recognised on an international stage as being well run and very productive. All rating agencies now recognise Ireland as investment grade and Forbesmagazine recognises Ireland as being the best country in the world to do business.

We have achieved a great deal over the past three years but we must not become complacent. We will continue to place job creation at the heart of all our economic policies. The medium-term economic strategy 2014-2020 is the new blueprint to sustain a competitive economy that can pay its own way, serve society and that can survive and thrive in a reformed eurozone and an increasingly globalised international economy. Full employment by 2020 is the target and I am confident that the steps that we are taking this year will move us closer to achieving this objective.

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