Thursday, 18 May 2017
Sale of State Assets
8. To ask the Minister for Finance if he will use the proceeds from the sale of a bank (details supplied) to fund the State's infrastructure deficit and invest in housing and health services, rather than paying down the national debt; if he will publish the cost-benefit analysis of selling the bank; and if he will make a statement on the matter. [23573/17]
19. To ask the Minister for Finance if Dáil Éireann will be allowed to vote before a final decision is made on the future of a State-owned bank (details supplied) given that the bank is 99.9% owned by the State and received €20.8 billion in public funds when it was bailed out; and if he will make a statement on the matter. [23560/17]
Both questions relate to the possible sale of a portion of AIB, something that should not happen in advance of a Dáil vote and the publication of a cost-benefit analysis. However, as a result of a motion passed by the Dáil earlier today preventing the sale of AIB in advance of the renegotiation of the fiscal rules, these questions might be irrelevant at this stage
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.
The result of the vote earlier has not changed anything in terms of a reply I received previously on this matter. What I am seeking is a cost benefit analysis and that the Dáil be the final arbiter in voting on this issue. It was the people who took on board the cost of bailing out the bank which is 99.9% owned by the State. Whether it is to be sold, we need to see a cost benefit analysis and to be convinced in that respect. As the Minister knows, we can often save money by spending money. We will spend a great deal of money on fines, for example, because we are not investing in public transport. It is costing a good deal of money in having very unsatisfactory arrangements for housing provision because we are dealing with a crisis. We are at the point where AIB is producing a dividend which, I understand, can be spent on, for example, capital projects. If we were to sell a portion of AIB to pay debt, the difference would be negligible in servicing the debt. I do not understand the rationale for doing so.
I will make two points. In terms of the general government debt balance under EUROSTAT rules, selling AIB shares would not make a difference because we hold the asset in shares. When one sells it, one holds it in cash, but it has the same value and it is the same amount. It would not give us the freedom to spend under EUROSTAT rules. Therefore, if we were to spend, we would be in breach of the fiscal rules in general. It is due to the fact that this type of disposal is clarified as a financial transaction, whereas essentially it is the exchange of an asset in one form such as shares, equities and loans for another, namely, cash. Consequently, the shareholding in AIB would not count as general government revenue. When it comes to investing in infrastructure, it is a not a shortage of cash that is inhibiting additional investment in infrastructure but the fact that we have reached the ceiling under the fiscal rules. The issue is our capacity legally to spend additional moneys or capital, not the availability of cash. Therefore, the sale of AIB is irrelevant to the argument. We can borrow money very cheaply on any day of the week from the markets through the National Treasury Management Agency, NTMA, but we are not allowed to spend it if we have already used up the fiscal space available. We are exploring the possibility of funding quite a lot of infrastructure off balance sheet. We are in discussions with the European Investment Bank to see if we can achieve this objective.
That shows how eminently wise the Dáil was today in voting not to sell AIB shares until the fiscal rules were renegotiated. The rules favour the economies of countries where infrastructure is more developed. We will end up incurring fines, for example, owing to missing climate change targets because we do not have the ability to spend money on required projects and that will produce a cost for us into the future. What efforts are being made to renegotiate the fiscal rules to ensure that, as a country that is developing, we will have the capacity to spend to deal with essential issues to ensure sustainable development?
There was a misunderstanding in the vote this morning and the matter is still the subject of discussion with the Ceann Comhairle's office. We will see how it works out. Lest we forget, it was only in 2008 that the country virtually went bankrupt and it did so because too much was being spent against a reducing revenue flow. Whatever mythology one applies to burning bondholders and so on, the facts of the matter are that when the housing and development industry collapsed, every 10,000 houses built carried a value of €1 billion. When the output of houses went from almost 100,000 to 30,000 - the Deputy can do the sums - about €6 billion was taken from our revenue flow and we were no longer able to afford to pay for the running of the country on the basis on which it had been designed. We should not go back there. Day after day we hear people advocate for more spending on every kind of desirable project which might be popular with the electorate, but we have to think of what happened and might happen again.