Matt Shanahan (Waterford, Independent) | Oireachtas source

As I said in the Chamber recently, I find myself in agreement but Deputy Boyd Barrett at times. I certainly could not disagree with much of what he said just there, particularly in respect of the banking sector.

The credit guarantee scheme of €2 billion, based on the relaxation of state aid rules for a limited time, will be given primarily to primary producers, SMEs and mid-caps. This is to be welcomed. It is to secure employment and, in doing so, it will, hopefully, secure the future of our youth, our culture and our society. These are not small things to be considered. We are at a very difficult juncture in our State.

I want to address the history of the guarantee scheme which is not too rosy. The previous one was initiated in 2012 with more than €1.2 billion made available over an eight-year period. Only €152 million of it, 13%, was drawn down in the eight years. If the same drawdown was to occur with this scheme, it would represent an injection of €260 million. SMEs have been told they need liquidity. One has to ask if the scheme is properly constructed. Ireland is facing tremendous challenges and some earlier speakers referred to Brexit. Again, society will be challenged by Covid and we will have to do more to keep this disease at bay. What has happened in the economic environment is demand has fallen off a cliff. That is a difficult place for businesses. Sometimes, when one is in business, it can be hard to know how to stimulate demand. Demand is often not stimulated but taken advantage of.

Liquidity schemes are needed to support businesses, but some of the narrative, mostly in the public sphere, has been about giving out free money. Some people do not understand what money is needed for. I have a background in business. Were I in business today, I might be using that money to clear creditors, buy stock, pay write-downs on existing stock or pay for utilities, bills for which I would probably have amassed over three, four or five months. If I wanted to reinvent my business, I would have to look into new products and service development. That would take time and money. I would have to pay the annual fees my business incurred - utilities, rents and, if I had registered technology, patents. I would also need something to support the losses incurred in returning to non-profitable work. As many businesses have already seen, once they return to work, they find that demand and revenue are down and they have opened into markets where they are losing money every month. They are hoping to climb, climb and climb, but they need this money to support them on the way.

I will provide some examples of companies that might need significant funding currently. There are pharmaceutical wholesalers that have to buy products with a one- or two-year lifespan. They must be able to hold those products in the marketplace for a year. They have potentially lost six to eight months in their supply chains, which means that products they bought for their stock will have to be destroyed, representing a loss on their books. People involved in the large capital equipment business have lost orders after having bought machines on lease purchase schemes in the hope of selling them on. They cannot sell that stock and will have to continue funding it in the hope the economy improves and some of their customers return. Motor retailers are in a similar situation. Consider the amount of stock write-off that was done by food manufacturers. I will not mention the company's name, but a large yoghurt manufacturer in this country had stock primarily for a market outside Europe. That trade stopped and all of the stock had to be destroyed. These are the types of situation for which money is needed.

A credit guarantee scheme is needed, but is this scheme the correct one? Like others, I welcome the lifting of the portfolio cap. It was necessary. Compare this scheme with the most recent working capital scheme, though. To date, it has seen a drawdown of €86 million, 3,376 applications and only 705 loans sanctioned, or 21% of the total. The Department tells us that the remainder are still under consideration. I believe the Tánaiste recently spoke about delays to stimulation and an interest coupon of 4% to cover defaults. The SME restart grant has been more successful with €128 million drawn down. This grant through local authorities is for between €2,000 and €10,000, which is far more manageable for smaller businesses and is popular. It lacks funding breadth, though, and as the Minister of State knows, it has run out. It needs to be replenished. Businesses needed that money as soon as it became available to them, given that they had been waiting.

There are microfinance loans of up to €50,000. Some €18 million has been drawn down to date, with 1,015 applications and 665 approvals, representing a 65% successful drawdown rate for a loan with an APR of 4.5%. Germany and France are charging 1.4% interest to their microenterprises. We are charging ours 4.5%, are passing on a relatively high interest rate to companies that are already facing challenges, operating at a loss and in debt, yet we somehow think we are helping them.

I will reference another matter that has been mentioned, that being, the risk to banks. It is as if small business people do not have skin in the game because they only need 80% backing. There is the concept of moral hazard, but everyone involved in small business has a great deal of skin in the game. Most people have spent lifetimes wrapped up in their businesses, their employment and their pensions. There is no sense that they will take off into the sunset with money supplied by the State. Rather, this money is to resuscitate them and, I hope, get them back into business.

A number of business groups have appeared before the Covid committee. They told us that they needed a quantum of money with few strings attached. They primarily asked for grants to stimulate and recover the business lost and to protect employment.

What are the implications of a fund that does not work at the level required? First and foremost, there will be SME losses. The smallest businesses and those in the regions will go the fastest. There is internal demand in Dublin, but there is less demand in Waterford and far less in Cahersiveen. These businesses must be protected. We will have closures, unemployment and rural stagnation. Many of us outside of Dublin know what that feels like. How can we ask pillar banks to fund tourism-related businesses through loans when business plans are shot to ribbons? Has the Minister of State ever tried to sit down with a bank manager and give him or her his projections when his turnover is down 50% and likely to stay that way for the next 12 or 18 months? See how sympathetic the manager will be and how willing to jump on board to help the business.

Debt is toxic, but that message is not getting through. Grants are needed to shore up balance sheets, particularly of small businesses. Loans on tops of previous debts make business recovery far more difficult, if not impossible. This message must get through.

What must we implement within this credit guarantee scheme? All Covid loans being given by the commercial banks, which Deputy Boyd Barrett pointed out have been backed by socialised debt for a number of years, need to be extended to five years. People cannot be asked to start repaying money after one, two or three years when they are incurring losses during the first 12 months they spend back in operation. The credit guarantee scheme loans up to €1 million. Its terms should be extended to seven years, given that it is a different quantum of money. Repayments pose an issue in light of the coupon the Government is proposing to attach to it. Loan repayments should be deferred for the first 12 months. This would allow companies to get working capital back into their business. Instead, we are asking them to give that capital up in order to repay a loan that the State is backing. If the loans go bad, the State would lose on them anyway. It makes no sense to me.

Debt is toxic whenever turnover is non-existent. That is a fundamental in business. Repayment holidays would inject some capital into every business. Interest rates should be as close to the ECB wholesale margin as possible. As other Deputies have pointed out, it makes no sense to transfer money, put it back in our business case and then have the State try to add a coupon of its own to try to make something out of the transaction.

Why is the Strategic Banking Corporation of Ireland, SBCI, the right vehicle for this purpose? Why have a banking vehicle that lends to the pillar banks? It makes no sense to me at all and I have never understood it. It is time to view the SBCI as a separate bank. Maybe it is time to change its articles of association and allow it to become a commercial bank. Why not use it as a vehicle for lending alongside credit unions and post offices? Can we not be more radical in our thinking and dynamic in the way we view these problems? There is quite an amount of money in credit unions that is earning no interest. It could be put into bonds and funds, people could get some return on it and it could be put to work in our communities. This would be a way of invigorating people's sense of ownership in their areas.

I wish to discuss how the finances of our country are measured and GNI* versus GDP. We moved away from speaking about GDP a while ago, yet when it comes to Europe, we still look at ourselves in GDP terms. This sometimes leaves us at a significant disadvantage. In 2019, GDP was €356 billion whereas GNI* was €214 billion, a 40% discrepancy. This is what happens when we take out the moneys from aircraft leasing, off-balance sheet transactions, the knowledge box and so on, yet we count all of that as if we have created economic value. It is a myth. It is ethereal. It does not exist. We need to get back to quantifying what we do and what we do not do.

Turning to the €750 billion EU package, we are 1% of the European project's population, but I do not believe we are getting €7.5 billion from the EU in rescue funding. I might be wrong on that.

Regarding the July stimulus, it has been said a number of times that we have to revisit VAT rates, in particular for the tourism sector. We cannot go to 0%, but we can certainly go to 5%. It might have to return to 9%, but there has to be a VAT holiday for a significant time. People say that a VAT reduction does not stimulate demand, but it certainly does not hurt demand when prices drop.

The Government must examine the issue of rents and utilities.

There are significant problems for people who are caught up in upward only rent agreements. The Government has spoken about this on a number of occasions but it has done nothing about it. We also need to identify the landlords who are profiteering at a high rate. There are a number of private companies providing student accommodation in this country that have not returned moneys to hard-pressed families and students who paid in advance for student accommodation. The Government has done nothing about this as of yet. I refer to a particular accommodation attached to University College Cork. I would appreciate if the Minister of State's officials could make inquiries into what is happening in that regard. A commitment was given through the university that moneys would be returned.

On insurance, the reform of this sector has been under way since 2016. The Minister of State needs to find a means to get behind the significant problem in the sector. There are industries that are completely monopolised by one insurer such that companies have to take or leave it. We need to get on top of this issue.

Another issue is administration light, in respect of which I am sure the Minister of State is aware of the issues. If a company is not turning over in excess of €1 million it cannot afford to seek administrative assistance for its business. Essentially, it goes under and the liquidators call-in its debts. Larger companies can turnover that but small companies that are challenged, particularly in these times, need to be protected. There are plenty of provocative people in the administration area. The Government needs to consider the introduction of legislation, perhaps emergency legislation, to protect companies that are having their debts called in and being forced into liquidation.

On public sector procurement and the reference earlier to turbo charging a public procurement fund, the Government needs to review and radically reform public procurement, particularly within local authorities and the wider public sector. There are people in the local authorities who are drafting and awarding tenders every week. The manner in which the tenders are drafted and grouped does not favour local business. It makes no sense to me to send Government income into an area and to have people then draft tenders to send it back out again. The small business people find it too difficult to meet the tender criteria. This needs to be raised with the people who are giving out money. People working in procurement for the local authority are like customer services. They have money to give out to hard pressed businesses and we need that money to stay within the regions. An examination of the procurement process would take care of that.

Ireland has challenges, including Covid-19 and Brexit. We need to again socialise and save our commercial sector. We must save our employers and in turn to save our citizens. The time is now right for dynamic and innovative planning. I hope that this credit guarantee scheme will be the beginning. I look forward to the debate to follow in the hope that we will manage to craft legislation that will rescue our SME communities.

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