Eoghan Murphy (Dublin Bay South, Fine Gael) | Oireachtas source

It is the Government's policy that the State will exit its shareholding in Allied Irish Banks and other banking investments over time and in a prudent manner. The taking of these important decisions should not be impacted or influenced by discussions around future capital expenditure because, as the Minister for Finance outlined, these issues are not related.

The programme for a partnership Government provides for a 25% sale of AIB and our other banking investments during 2017 and 2018. This reflects and reaffirms the Government's commitment to maximising the recovery from these investments for the taxpayer and reducing the residual risks associated with these shareholdings. Concrete steps towards achieving these objectives have been taken in recent months, as the Minister described. It is the Government's clear position that the proceeds from the sale of banks assets will be used to pay down our national debt.

While the reductions in our debt to GDP ratio and debt servicing costs are to be welcomed, I urge caution from extrapolating from this that our elevated debt levels are no longer of concern. Notwithstanding the recent reduction in our debt to GDP ratio to slightly more than 75% of GDP at the end of 2016, risks remain. As a small open economy, Ireland is sensitive to economic shocks in any region of the world. The new debt to GDP target of 45% announced last October will provide an additional buffer against risk and increase the capacity of Governments to borrow to alleviate the impact of such shocks in future.

We need to be cautious in respect of current low debt servicing costs as these costs are being partially driven by the ongoing non-standard monetary policy measures being undertaken by the European Central Bank. These measures cannot be expected to continue indefinitely. The consistently stated Government position is that the proceeds from the sale of bank assets will be used to pay down debt. This policy has been clearly articulated by government since 2011 and consistently endorsed by a number of market analysts and international financial institutions. For example, the International Monetary Fund's 2015 Article 4 report on Ireland noted the importance of the State actively seeking to sell down its bank shareholdings in order to further reduce public debt and contain contingent liabilities. A change in this position, as proposed in the Labour Party's motion, would be detrimental to the market's perception of our ability to reduce our overall debt levels in the medium term.

The need for sustainable capital investment is evident to all of us and the Government intends to further increase such investment in the years ahead, with funds to be allocated to key priority areas as identified by the outcome of the ongoing review of the capital plan, Building on Recovery. The plan sets out a €42 billion framework to address our priority capital projects up to 2021 and is the appropriate forum for addressing these priorities. The Minister for Public Expenditure and Reform will consider the various submissions received from the public consultation along with proposals received from Departments, with a view to making recommendations to the Government in the third quarter of 2017 to inform final decisions on revised capital allocations which will be announced in the context of budget 2018.

Some Deputies believe the State should retain ownership of AIB or the other banks indefinitely. I beg to differ as it does not make sense for the State to continue to own a significant portion of the banking sector in perpetuity. Reducing debt and building fiscal shock absorbers give the State the flexibility to invest in more appropriate areas and allow it to respond to economic downturns in a way that underpins sustainable medium-term economic growth and future growth potential. Moreover, if we have learned anything over the past ten years, it is that banks are risky entities. As long as the State holds bank shares, taxpayers will be exposed to this risk and competition in the sector will be restrained. The Government does not want to see a scenario in which vital competition is hampered or taxpayers are exposed to the risks arising from the private activities of commercial organisations. Ultimately, it is necessary for the State to clearly separate the sovereign and banking system by selling the State's shareholdings in the banks. It would be inadvisable to link or delay the sale of bank shareholdings as sought in the motion until we can effect changes in the fiscal rules for which there is no concrete timetable.

I thank Deputies for introducing the motion for discussion and participating in this debate, which has facilitated discussion on a number of important policy areas. I encourage the House to support the amendment proposed by the Minister for Finance.

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