Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I am not misrepresenting the Senator's party. I will give the Senator the codes from Deputy Pearse Doherty and several of the party spokesperson. I agree with what Senator Conway-Walsh was saying, it is just that she is saying something different now. The policy right across this House and the other House was that we must break the link between the sovereigns and the bank, because if we do not break the link between the sovereign and the bank, every time a bank gets into trouble, it is the taxpayer who is the last line of defence. If one wants to break the link between the sovereign and the banks, one must put the banks back in private ownership. This is the policy in banking union across Europe now. If one looks at what has happened, the banking union and the bank resolution Bill that came through the Oireachtas, the bank resolution Bill that was generated in Europe, it is stand alone now and the banks' investors are liable in future if banks go under - starting with the shareholders, then the senior bondholders, then the junior bondholders and down along the line to corporate depositors. There is a cascade of responsibility and the assets are bailed in to rescue the bank, the taxpayer is not going in because the break is talking place now. In line with that policy which is all across the banking union in Europe, we need to break the link between the sovereign and the banks as well. Fundamental to breaking the link is progressively to restore the banks to private ownership so that the private investors carry the risk, not the Irish taxpayer. All the political parties from every platform have said that we must never let it happen again. We must never have the taxpayer going in bailing out the banks again. Well, one will not, if one changes the ownership, but one will, if one does not change the ownership because if there was to be a crisis in one of our banks that is publicly owned at present, the taxpayer would be the last line of defence. If one wants to separate and to take out the contingent liability, that is the fundamental reason that the ownership issue is a very important issue. We also want to get the taxpayer's money back

The Senator raised a very good question about value. Some €6.8 billion has been recovered from AIB already in terms of contingent convertibles, CoCos, preference shares and fees and all sorts of things, which is a good lump of money. A value of €12 billion was given, but I am not endorsing that, however,t I know that many analysts have put that kind of value on it. If one adds €6.8 billion to €12 billion, one reach €18.8 billion, which is very nearly €19 billion. The figure of €19 billion is not so far off of the €20.6 billion that was put into the bank. We are coming close a situation where one can see the full investment of the Irish taxpayer being returned. I do not think the next Minister will be coming back in 12 months time to sell another 25% of the bank, but I think over a period of eight years, it is possible and by strategically putting shares on the market, it is possible not only to recover what the taxpayer has put in but to show a significant profit. If the economy keeps going, the bank gets more valuable and so on. That is the issue of value.

In respect of the capital, it is a financial transaction. It is an exchange of shares paper with cash. It does not, under the fiscal rules, give the Exchequer any capacity to spend more. If we were to spend the €3 billion which notionally is coming from AIB, it would be added on to the debt, because it is treated under the fiscal rules as a financial transaction. Now, that is not to say that we should not invest in infrastructure. Of course, we should and we should invest more in both economic and social infrastructure in this country. Coming out of a recession that would be good macro-economic management. We are doing it at this stage and we are doing it quite significantly but we do not need the money from AIB to do so. We have a strategic fund and there are several billion in it. There must be €5 billion to €6 billion still in it looking for opportunities to invest. Yesterday, the interest rate on Irish ten year bonds was 0.79%, that is four fifths of 1%. We can get money on the market of four fifths of 1%. There is no shortage of cash. There is plenty of cash.What we have is a legal arrangement under the fiscal rules which does not allow spending above certain levels. This was brought in for all sorts of good reasons as well. It was often left out of the debate in Ireland that overspending was as much a cause of the crash as were the banks. The accumulated deficits over the years have taken the debt up to €200 billion, which is a serious amount of debt. When we measure the debt, as it is done internationally in terms of debt-to-GDP ratios, it appears as though we have it under control. It is currently approximately 74%, which is well below the European average. In 2015, some of the multinational companies onshored their intellectual properties such that in one year GDP increased by 26%. This is in accordance with the EUROSTAT rules and it was reckoned in Irish GDP but it did not reflect real economic activity in this country. Leaving that year out of it, our debt is nearer to 100% than to 74%, which is well outside the European average.

Moving away from the criteria of debt to GDP to per capitadebt, per capitadebt in Ireland is second only to that of Japan, at €42,000 for every man, woman and child in the country. It is a serious risk. In what might be my last day in the Seanad, I want to underline the fact there are a number of external risks, including Brexit and President Trump's policies in the US, but our most significant internal risk is the debt. It is high by any standards. Taking a different criteria and measuring this by historic standards, before the crisis, in 2007, the debt was approximately €25 billion of GDP. It has increased now to €200 billion, which is eight times what it was in 2007. Regardless of the criteria used, it is very high and it is a risk to us. If there were another recession across Europe and other bad problems across the world such that we hit bad times again, because our debt is very high, we would have very little scope.

On capital spend, the Government is as committed as anyone else but we have to spend in accordance with the fiscal rules. The capital plan, building on recovery, provides a €42 billion framework to address our capital priorities up to 2021. The sum of €42 billion is a huge amount of money. As well as this, the Minister for Public Expenditure and Reform has said that Exchequer capital expenditure is projected to increase by almost 75% between 2016 and 2021. That is a significant increase in capital spending. The Minister for Public Expenditure and Reform will set out the details in that regard in the autumn in the context of the budget. There is also off-balance sheet funding. Public private partnerships on schools, health centres, main roads and so on are off-balance sheet and are not caught by the fiscal rules. There is more scope in that area. Senators may have heard or read in the media about our engagement the week before last with the European Investment Bank, which was focused on exploring how we could expand further on the off-balance sheet funding.

I agree with Senators that there is a necessity for more capital expenditure but I disagree that there is any connection between that and the sale of the State's 25% shareholding in Allied Irish Banks. There is money available. The issue is the legality of spending in accordance with the fiscal rules. We have raised many times in Europe the point that because we are coming out of recession, we need more scope, and there have been a significant number of rule changes already. For example, there is now a smoothing arrangement for capital expenditure such that 25% rather than 100% of a country's capital commitment is now taken out of the fiscal space in year one, which means, for example, that a four-year capital investment is smoothed over a line. This provides a great deal of scope. When the fiscal rules were first introduced, a member state had to evaluate the fiscal space over three years. This is done annually now, which gives us more space as well. There are a number of exceptions relating to spending beyond the fiscal rules, such as in a crisis, be that an earthquake, volcanic eruption or flood. Italy has done this very significantly.

There were a number of questions posed, which, if I do not respond to today, will be responded to directly for Senators in due course. On fees, the bank rather than the Exchequer will pay the fees. There is an arrangement in place in this regard. We are not paying the advisers out of Exchequer taxpayers' money. AIB will meet that cost. There is no commitment to any shares for senior bank management or to any enhancement on bonuses, salaries and so on. There is no provision being made in that regard. The bank has a good management that is working very hard, but we all know what the context is so there is nothing like that in this particular IPO. The Senator asked who are the advisers. Rothschild & Co. are the advisers to me as Minister for Finance and to my successor. There are other advisers to help with the IPO. J&E Davy, Deutsche Bank and Bank of America are the principal advisers. There are many other institutions and banks, known as "book runners", who engage in FaceTime with investors in order that they will buy the shares. If the Senator, or Deputy Pearse Doherty on his behalf, would like to table a parliamentary question on the matter, all the information will be provided. There is nothing secret about this process and I have no problem providing any information in this regard. I hope the process will be successful. By way of clarification, the timing has nothing to do with my impending retirement. There is a theory that I am announcing this before I retire. There is a commitment in this regard in A Programme for a Partnership Government. Throughout the year, I have been telling my colleagues in the Dáil in answer to parliamentary questions that the first investment window is from mid-May to the end of June or the first week in July. If we miss that, because of the way the market goes in the summer time, the next window is mid-October into November, after the budget. It looks as if now is the right time. Values have increased and the advice is to avail of this window to sell.

I thank Senators for their questions and contributions.