Thursday, 18 May 2017
Sale of State Assets
I propose to take Questions Nos. 8 and 19 together.
As I outlined previously, the sales of financial assets such as bank shares are transactions which do not result in a beneficial impact on the general Government balance under EUROSTAT rules. Such disposals are classified as financial transactions that essentially involve the exchange of one form of asset such as shares, equities and loans for another such as cash. Consequently, the sale of any shareholding in AIB would not count as general Government revenue. Therefore, we would not have increased capacity to spend money on capital projects as a result of the sale of shares in AIB without affecting the general Government balance. While cash proceeds from any sale of shares would not improve the deficit, they would result in a reduced requirement for Exchequer borrowing which would ultimately result in lower debt. A lower debt level would be beneficial for the fiscal sustainability of the State and lead to reduced interest payments in future years.
My strong view is that because public indebtedness increased partly due to the recapitalisation of the banks in which the State has investments, the appropriate way to treat one-off revenue from divesting the State of its banking assets would be to use such proceeds for debt reduction. Such disposals would also help to contain contingent liabilities for the State. This view has been endorsed by a number of outside institutions, including the IMF as part of its most recent Article IV review of Ireland. Furthermore, the Government does not believe the State should own and support banks when the capital markets are capable of providing this function and willing to do so. Equity investments in any sector are risky propositions. The State’s resources are better allocated to more appropriate areas. In addition, reducing the State’s shareholdings will help to foster greater competition in the banking sector. It is difficult to encourage new entrants when the State is seen as owning large elements of the banking sector. The sale of a significant shareholding in AIB is important to convey the message to investors that the State does not want to interfere in the operation of banks or to retain these investments indefinitely.
Question No. 19 relates specifically to the possibility of a Dáil vote. The programme for Government allows for the sale of not more than 25% of any bank before the end of 2018, plus any over-allotment option. As I said previously, I am committed to keeping Members of the House informed on the process and, ultimately, of any decision made in due course. I have not yet made a decision to proceed with a sale of shares in AIB. In order to proceed with an initial public offering, I would need to be satisfied that the market was prepared to put a fair and reasonable value on the bank's equity, bearing in mind its current performance, future prospects and the outlook for the economy. I would do so on the advice of officials in the Department of Finance and our financial advisers. The State's shareholding in AIB is held in the Ireland Strategic Investment Fund's directed portfolio. If I were to decide to take any action on the State's shareholding in AIB, I would write to the fund and direct it accordingly.
I would like to make a further comment that does not relate to banking policy. I have previously acknowledged the need for increased public investment. The current capital plan sets a baseline from which the Government intends to increase investment in critical infrastructure and in areas such as housing and health services, as the Deputy identified, into the future.
As outlined in the 2017 Estimates, gross voted capital expenditure will increase to €4.5 billion in 2017. This represents an increase of almost €400 million in comparison to the 2016 outturn. By 2021, it is envisaged that gross voted capital expenditure will reach €7.3 billion, an increase of over 100% in comparison to its level in 2014. Based on my Department's gross national product, GNP, forecasts, Ireland's Exchequer public investment will reach 2.7% of GNP by 2021. These increases in investment in the coming years will be allocated to identified priorities on the basis of the outcome of the review of the capital plan under way.