Dáil debates

Tuesday, 9 November 2010

4:00 am

Photo of Enda KennyEnda Kenny (Mayo, Fine Gael)
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This country has never been in the position in which it now finds itself. Of the many storms approaching the country, the one that is sure to hit is the issue of mortgage arrears and distressed mortgage holders. At the end of June, the figure for serious arrears was approximately 37,000. One year ago, the Fine Gael Party warned of this impending storm and yesterday the economist, Morgan Kelly, estimated that up to 100,000 mortgage holders could be in serious difficulties in the near future. The Financial Regulator, Matthew Elderfield, made the same point today about mortgage holders in distress.

The Taoiseach will recall that when the NAMA legislation was going through the House, my party proposed an amendment that would have facilitated temporary relief among distressed mortgage holders. Of the many problems facing the Government and the country, this one is staring a significant number of people in the face, whether single, married or with families. As we speak, many of them are realising they will not be able to meet their mortgage payments inside a short period. One year after NAMA bailed out banks because of their reckless lending practices and we became aware this storm would hit us, I ask the Taoiseach what preparations are being put in place by the Government to deal with this economic storm, which will have serious consequences for a great number of people.

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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Hear, hear.

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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I will make a general point before taking up the Deputy's specific question. The Central Bank and the Financial Regulator have set capital levels for the banks to ensure they can absorb losses across all parts of their loan books, including mortgages, and the loss assumptions used by the Central Bank followed an extensive examination of the banks. The assumptions applied were tougher than those used in the EU tests.

The level of default in mortgage books is closely related to the rate of unemployment. Recent data shows a fall in the number of the unemployed in each of the past two months. Reference was made to the experience of American states such as Florida and Arizona in predicting mortgage losses. The Irish and US mortgage markets are different in many respects, including the fact that mainstream Irish banks rightly do not see merit in forcing repossessions in a depressed housing market.

The net cost of resolving the financial crisis is estimated by the Central Bank and its new Governor, Professor Patrick Honohan, at €35 billion. This is a once-off cost, as compared to the €19 billion budget deficit which we also have to address. Anglo Irish Bank's loan book, before provisions, will be almost halved in size after its loans have transferred to NAMA. Very substantial impairments of its remaining loan book have been factored into the bank's capital forecasts. The suggestion that AIB and Bank of Ireland combined will incur the same level of loss as Anglo Irish Bank, because they might have had the same exposure to developers, is not a true reading of the situation as far as the Department is concerned. The steps taken by the Government have been based on the advice of the NTMA, the Governor of the Central Bank and the Attorney General.

There was some suggestion that at least 100,000 mortgages have seen negotiated repayment reductions or defaults. This significantly overstates the situation. The figure is closer to 70,000, which includes restructured payments and the arrears figure of 36,000. The Government is very conscious of the high value placed on home ownership in Ireland and, in particular, the efforts of Irish people to secure and retain their own homes. The Government's social and economic policy objective is that home owners who lose their jobs should be assisted to retain their homes during periods of unemployment. Members will be familiar with the work of the Credit Review Office, which is headed by Mr. John Trethowan.

The repossession rate remains low. Some 86 homes were repossessed in the second quarter of 2010, of which 66 were abandonments or voluntary surrenders. The Government has done much to support those who are in difficulty with their mortgages. We have provided financial help to over 17,700 families through the mortgage interest subsidy scheme. We have increased the advisory services provided through the Money Advice and Budgeting Service. We have introduced a statutory code of conduct on mortgage arrears, which applies to all lenders. We have extended the six-month moratorium on legal proceedings to 12 months. We have refocused mortgage interest relief on those who bought their homes at the peak of the market, with extensions up to the end of 2017. We have established a mortgage arrears and personal debt expert group, which made recommendations in its first report.

The Government has been able to ensure that a uniform process has been established across all banks to deal with people who have mortgage arrears problems. A mortgage arrears resolution process has been set up. It will be incorporated into the code of conduct. Therefore, the uniform process will be binding. Banks will have to negotiate on forbearance with lenders, in terms of interest-only periods or interest holidays being provided where appropriate. An appeals process is in place. Bankers cannot force mortgagees off their tracker mortgages when they are rescheduling. They cannot charge penalty interest if people are co-operating with the mortgage resolution process. Changes have been made to the mortgage interest supplement scheme to help borrowers. There was a time when one could not get the supplement unless one was unemployed, but now one can get it on a means-tested basis if one is working less than 30 hours a week.

Those recommendations, among others - there were over 40 recommendations in the first report - are being implemented. The group we established is due to report again within the next couple of weeks. It is clear that we will consider any further recommendations it makes in that regard. It is important to set out those issues in response to the Deputy's question about the practical steps that are being taken on an operational basis to assist people with mortgage arrears. We are making sure there is a uniform process across the banking sector. We are trying to ensure the banks deal sympathetically with those who find themselves in difficulty, perhaps through no fault of their own, as a result of a change of circumstance. Such issues will be examined further in the context of the second report.

Photo of Enda KennyEnda Kenny (Mayo, Fine Gael)
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The measures mentioned by the Taoiseach give scant relief to those who are facing personal and family crises. I accept that they have given relief to people in some cases. His predecessor had to apologise for suggesting that those who complained about the housing market should commit suicide. In November 2007, the Taoiseach told the annual dinner of the financial services industry that "fundamentals in the Housing market remain strong and the central scenario is for a soft landing". Those who were seduced and pressurised into buying houses in 2006, 2007 and 2008 are staring into a very bleak future. I refer, for example, to a couple with two or three children who spent €500,000 on a house on a hillside 60 miles from Dublin, but have since lost one or both of their jobs. The measures mentioned by the Taoiseach will not deal with their problems. While I recognise that there is no magic wand for anybody in a situation like this, I should mention that a growing number of them are experiencing enormous pressure and stress.

The Taoiseach said the expert group will produce a report shortly. The Government needs to recognise that those who were caught in a pincer movement between the housing bubble, which was inflamed by the Government, and the economic collapse are now being crushed to the extent that they see no hope for the future. A newspaper report on one of the likely recommendations of the expert group is worth noting:

For those considered unlikely to be ever able to afford to repay their mortgage, the expert group will recommend in its final report that they should be encouraged to hand back their keys and seek social housing.

There are 56,000 people on the social housing waiting list at present. I ask the Taoiseach to outline, on behalf of the Government, the preparations that are being made to deal with the storm that is about to strike. Is the Government telling those who lived in Ireland when it was suggested that economic growth would never end that they should hand back their keys and seek social housing? To what extent is the Government preparing to deal with the catastrophic storm that is affecting so many people?

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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The Deputy does not add any validity to his point by engaging in rhetoric about inflaming markets and impending catastrophes. I accept there are difficulties in the mortgage sector. Of the more than 1 million mortgages in this country, some 930,000 are being dealt with as planned. Of the remaining 70,000, some 36,000 are in arrears. We have redesigned the mortgage interest relief scheme to assist those who bought at the top of the market. The mortgage interest subsidy scheme, which is providing financial help to over 17,700 families, will be continued until 2017 to assist those who bought when the market was at its height. A further 34,000 mortgage holders are rescheduling. That is in line with the processes which have been put in place and are now available across the banking sector to ensure people are dealt with appropriately. Various things can be done, depending on the circumstances, to help people to avoid going into further arrears. I refer to interest-only periods and interest holidays, for example. There is also an appeals process.

All parts of our approach are very important. The approach is consistently helping customers of all institutions that have provided mortgages to people on the ground in Ireland. It has been adopted in response to the fact that people value home ownership. We want to see people retain their homes where it is possible and viable for them to do so. I mentioned the level of repossessions in the second quarter of the year, which is an indication of the forbearance that has been shown and needs to be shown in this jurisdiction regarding the whole question of repossessing homes. That is the situation.

I could address some of the points the Deputy made up. There was no question of inflaming the property market.

Photo of James ReillyJames Reilly (Dublin North, Fine Gael)
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The Government did not just inflame the market - it burned it to the ground.

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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As Minister for Finance I withdrew reliefs, as the Deputy Kenny knows. I was the first-----

Photo of Enda KennyEnda Kenny (Mayo, Fine Gael)
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What about the social housing recommendation?

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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At the moment, in order to apply for social housing, one needs to have handed over possession of one's home. The idea is that people would not have to take that ultimate step before being able to apply for social housing. They would not be disbarred from looking at social housing as an option, and being able to apply for it, while still living in their homes and trying to deal with the situation with their bank or building society. That is what is in mind there and, therefore, it is a question of awaiting the second report's recommendations, which will obviously be urgently considered by the Government within the next couple of weeks. The particular point the Deputy raised is about improving the current situation for people to look at social housing as an option while still in possession of a home that may subsequently be repossessed or vacated.

Photo of Eamon GilmoreEamon Gilmore (Dún Laoghaire, Labour)
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This is the first opportunity we have had since last Thursday to ask the Taoiseach about the decision announced by the Government that day to cut the 2011 budget by €6 billion. That announcement does not appear to have greatly impressed the markets. There was a cut of €4 billion last year and no growth resulted. It is intended to have a cut of €6 billion in next year's budget and the Government expects growth of 1.75%.

I have a number of questions about this. First, has the Taoiseach any concerns that a cut of this magnitude will further depress the economy, will work against job creation and will hamper growth in the economy? Second, with regard to the promised four-year budgetary plan, can he give us some clarification as to where that plan is at? What is the date of publication for the plan? Third, has a draft of the plan been submitted to the European Commission?

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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First, the €6 billion adjustment is a judgment that the Government has had to make in the context of the full circumstances of our situation. I do not know if everyone took the opportunity to meet Commissioner Rehn earlier but, as the Deputy will know from his party spokesperson, the Commissioner has indicated the support of the European Commission for the front-loading of €6 billion as part of our moving down our deficit to 3% of GDP by 2014. The Government came out of the markets to prepare a budget and a plan to show a clear pathway to that 3% target. As the Deputy will be aware, there has been a lot of volatility in the markets and there have been wider European issues involved as well. However, I would like to make it clear that while everyone has come to assist and be of help to us, the responsibility for these matters lies with our own Government and our own Dáil at the end of the day.

Second, the difference of €19 billion in what we spend and what we are taking in has to be closed and that has to continue. I have stated on previous occasions that the adjustments we have made in previous budgets amount to approximately €14.5 billion and we expect that by the end of next year two thirds of the total adjustment to be made between 2008 and 2014 will be completed. It is true to say that a consolidation of €6 billion or any correction will have a dampening effect on growth potential in the economy but it is also true to say that if we do not make this level of adjustment, the ability of our State to be funded on an ongoing basis will be put at risk. No strategy is absent of risk but the very best judgment that we have made is the one that we have made.

As I understand Deputy Gilmore's position, he agrees to the target of 3% of GDP by the end of 2014, he believes that an adjustment of €4.5 billion would be more appropriate next year and he does not accept that €15 billion is the calculation for the adjustment based on growth projections that have been submitted. As we have said, if there is a better performance than that, the level of adjustment will not be of that order but we believe that level of adjustment has met, and can meet, the endorsement of wider international bodies and that is an important part of building credibility in the pathway to the 3% target.

However, it is also the case that if this country and this Parliament fails to make the necessary adjustments, then we put at risk the funding of the State after July of next year and what will happen then is that we will be faced with a situation where we will only be able to spend €31 billion. As I said earlier during Taoiseach's Question Time in reply to Deputy Ó Caoláin, who does not agree with this strategy, one cannot go on spending €50 billion when one is only taking in €31 billion. Being only able to spend €31 billion would involve a serious adjustment in the level of services that could be provided. No responsible government, therefore, could contemplate that approach. The approach we are taking is the one we believe in our judgment best balances the imperatives of making a serious consolidation in the coming year, of allowing for growth potential in the economy to continue and, at the end of next year, of being able to say that up to two thirds of the adjustment has been completed. I believe, taking all those considerations into account, that is the correct approach.

What was the Deputy's other question?

Photo of Eamon GilmoreEamon Gilmore (Dún Laoghaire, Labour)
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I asked about the publication date for the four-year plan.

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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We have indicated that the date will be mid-November. We have to finalise that plan and we have to approve it as a government. That work will continue in the coming weeks. I will not have an exact date until the decision is made but that is the indicative timeframe we have in mind. What is important is we have stepped out of the markets, we will bring forward a four-year plan followed by the budget and we need, as we all are being reminded today, to emphasise the strengths in this economy. We know the weaknesses in terms of the fiscal position but we also need to identify and articulate the strengths. There seems to be an unfortunate predilection in some quarters to magnify weaknesses and ignore strengths.

Photo of Eamon GilmoreEamon Gilmore (Dún Laoghaire, Labour)
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If the Government intends to publish the four-year plan in mid-November, I presume it will be approved next week. Is it that imminent or will it be somewhat later? It would be helpful if the Taoiseach could indicate when we are likely to see it. I asked the Taoiseach if a draft of the plan had been supplied to the European Commission and I would like him to respond to that when he replies to my supplementary question.

With regard to the €6 billion adjustment, the Taoiseach made two points. The first is the adjustment is intended to convince people outside the country and certain institutions that the Government is in earnest about making fiscal adjustments. It does not appear to have made a particularly big impact on the markets. The Taoiseach's second argument is that it is a matter of judgment and he is right in that.

Photo of Séamus KirkSéamus Kirk (Louth, Ceann Comhairle)
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Does the Deputy have a question?

Photo of Eamon GilmoreEamon Gilmore (Dún Laoghaire, Labour)
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On the matter of judgment, is it now the case that the markets, in particular, are looking at the lack of growth in the economy as much as they are looking at the fiscal position? I draw to the Taoiseach's attention to comments made at the weekend by two senior business people in an article in The Sunday Business Post. The first was by Mr. Martin Murphy, managing director of Hewlett-Packard, who placed an emphasis on job creation and said there has not been enough discussion about job creation in the lead up to the budget. The second comment was by Dr. Craig Barrett, the former chief executive officer of Intel Ireland, who warned against cutting too deeply in next month's budget. He stated:

You need to invest in these bad times. The only companies I know that have been ultimately successful have invested their way out of a recession and not tried to save their way out of it.

It seems that in both of those cases an argument is being put to the Taoiseach regarding the concentration by Government on cutting without investing in getting us out of the recession. The warning they make about what we are doing, which is shared by many other commentators, is that a cut of the order of €6 billion is too deep and will damage growth and the potential for job creation. The Taoiseach says it is a judgment call but I put it to him that his judgment in this matter may be wrong.

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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My answer to Deputy Gilmore is that there is no strategy that is not without risk. No one can say this with certainty but I want to be clear. First, we are not doing this in an effort to convince markets, we are doing it because it is imperative that we reduce the gap between what we spend and what we bring in. That is important for the country. It is important for sustainable policies going forward. It is also important as a means of generating growth because we have seen from the policies we implemented, which were opposed by the Opposition and which it is entitled to do, that they have brought us from a contraction in the economy of minus 10% last year to stabilisation this year. We must move into a growth path over the next number of years. It is true that the consolidation of public finances is necessary. It has to be done.

If the Deputy's view is that what we are doing has not generated sufficient confidence, I do not know how €4.5 billion would generate more confidence.

Photo of Eamon GilmoreEamon Gilmore (Dún Laoghaire, Labour)
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There would be growth.

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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No. In terms of the growth issue, the investment side of the equation is in regard to a capital programme, which has been historically high; it has been twice the European Union average and has been a far better stimulant to the Irish economy in terms of the putting in place of infrastructure than some of the stimulus packages that are often spoken about by the Deputies opposite as being, in the European context, the best way forward.

Our strategy for science, technology and innovation has worked. Increasing resources have been allocated to those areas. The commitment to that agenda has enabled IDA Ireland and Enterprise Ireland at home to scale up companies, improve our export performance and improve our competitiveness. An investment pipeline is coming to Ireland at this time, which is favourable and which has been spoken about. Many companies are investing in Ireland because of the environment we continue to seek to create here for that sort of investment. That has happened against a background of a contraction in the economy of 10% last year and even in that year more than 100 projects were brought to Ireland. That has happened because there is a commitment in regard to those areas, about which Craig Barrett has spoken on many occasions.

There is the question of investing in research and development and improving our education curriculum quite apart from spending more money. There are structural policies and reforms that must also form part of our strategy for growth and recovery in the future. That covers the first point.

On the second point, quite apart from the size of the adjustment, its composition is important. I note what the Commissioner had to say today. I listened carefully to what Deputy Gilmore said in his contribution to the economic debate we had last week. He made the point that in his view the split in the composition of the adjustment, which he stated should be around €4 billion to €4.5 billion, should be split 50:50 between tax and expenditure cuts. Commissioner Rehn made it clear today - I am making the point in terms of how people view it and the opinion on it - that a greater emphasis on expenditure cuts rather than tax raising is important in terms of creating investment opportunities, promoting job creation and reducing the tax on labour would be preferable in this first major phase of consolidation. They are the issues for debate and upon which there can be differences, but at least let us have a constructive debate which recognises the realities. The reality is that this country is currently spending more on the provision of services than can be provided to the Exchequer through the efforts of our hard pressed taxpayers.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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It is spending more on the banks.

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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We must close that gap. That gap will not change.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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It is spending the money on the banks.

Photo of Séamus KirkSéamus Kirk (Louth, Ceann Comhairle)
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Deputy Burton, please.

Photo of Paul KehoePaul Kehoe (Wexford, Fine Gael)
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Whose fault is that?

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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Quite apart from whether there was a banking crisis-----

Photo of Paul KehoePaul Kehoe (Wexford, Fine Gael)
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Whose fault was that?

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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-----the issue today is a €19 billion recurrent gap that must be closed.

On the banking issue, clearly, the identification of the figure we believe is involved and spreading that over a ten to 15 year period-----

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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What about the kitchen cabinet?

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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-----is a way in which we can manage the situation but the point we are concerned with here is how does Ireland recover, create jobs and grow? It cannot grow on the basis of deficits of the order of 11.9%. It must reduce these deficits to restore confidence domestically and abroad. That is the basis and thrust of the current Government consideration.

Photo of Séamus KirkSéamus Kirk (Louth, Ceann Comhairle)
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That concludes Leaders' Questions.

Photo of Eamon GilmoreEamon Gilmore (Dún Laoghaire, Labour)
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What about the draft plan for the Commission?

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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What is date for that?