Seanad debates
Thursday, 6 October 2011
Statements on Finance
11:00 am
Catherine Noone (Fine Gael)
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I welcome the Minister to the House once again. He gives the Seanad great attention and we appreciate it.
12:00 pm
Michael Noonan (Limerick City, Fine Gael)
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I thank the Acting Chairman. I am pleased to be in the Seanad to discuss the latest economic and financial developments. At the outset, I wish to highlight that, notwithstanding the more negative view of the euro area and global economies which has emerged recently, both market and international sentiment towards Ireland has improved since the summer. I believe that this reflects a number of developments. The economy is expanding once again; the public finances are on track; tangible progress is being made in resolving the banking situation, at a lower than assumed cost to the taxpayer; and the cost of external financial assistance to the State has been reduced significantly.
This, I believe, highlights the importance of continuing to do what we can to put our own house in order. In my opening remarks, I will elaborate on each of these key developments, outlining in each case the main policies the Government is putting in place to nourish the emerging economic recovery. First, as regards the macro-economic situation, the latest published figures provide at least some grounds for encouragement. Gross domestic product increased by 1.6% in the second quarter of this year, following on from a relatively robust expansion in the first quarter. This was the first time there have been two successive quarters of increasing activity since 2006. As has been well documented, the external sector is leading the way. Exports of goods and services are now well in excess of pre-crisis levels, confirming that the improvement in competitiveness is standing to us. Last year, the balance of payments moved into surplus for the first time in over a decade.
I would also highlight that recent inward investment announcements provide further grounds for optimism, clearly demonstrating that Ireland remains an attractive location for the production and export of high-technology goods and services. I see this as a clear demonstration that the Government's strategy regarding the 12.5% corporation tax rate is an appropriate one and I believe most Members of this House would endorse this position. The broadening of the Irish export performance to include large parts of the indigenous exporting sectors is also a welcome development. For instance, the agrifood sector is making a significant contribution as is the tourism sector, in part due to the measures implemented as part of the Government's recent jobs initiative.
While the exporting sector has certainly been the shining light in recent times, I am very conscious of the ongoing difficulties elsewhere in our economy and, indeed, in our society. For instance, large parts of the household sector have ramped up their precautionary savings in response to the major deterioration in the labour market. Unemployment has risen to over 14%, an unacceptably high figure and addressing this statistic is undoubtedly the greatest challenge facing the Government. I assure Members that virtually all the main macro-economic policies being implemented by the Government, from recapitalising the banking system to fiscal consolidation, are designed with the objective of boosting employment in a sustainable manner so that unemployment can be put on a downward path once again.
In the euro area, the sovereign debt crisis has entered a new phase, with negative spill-over effects to parts of the European banking system. While the euro area is not unique among advanced economies in terms of sovereign debt problems, unfortunately it has been the focus of markets. There is considerable uncertainty and nervousness and this is weighing on growth prospects in many of our main export markets. At this stage, the most likely scenario appears to be for a slowdown in our main trading partners as opposed to a slip back into recession. Even this, however, will have less favourable consequences for Irish growth prospects. On balance, it would appear that notwithstanding the relatively good performance in the first half of the year, a slowdown appears likely in the second half, mainly on foot of external developments. A full assessment is currently being undertaken by my Department and will be published in the pre-budget outlook later this month. In this context, I note that the Central Bank earlier this week scaled back its growth forecasts for next year, a not unreasonable decision at this stage.
Moving onto the public finances, my Department published figures for the first nine months of this year last Tuesday. The position at the end of September is one in which the Exchequer deficit, excluding banking-related payments, is over €3 billion lower than it was in the same period last year. There is clear evidence that real progress is being made in terms of putting our public finances on a more sustainable path. However, there can be no room for complacency; our deficit remains far too large, and it is crucial that we continue to bridge the gap between revenue and expenditure in the coming years.
The agreed target for next year is a deficit of no more than 8.6% of GDP and the Government is committed to implementing the necessary level of consolidation to ensure that target is achieved. In this regard, the results of the comprehensive review of expenditure will inform the future path and composition of public spending. The final CRE reports have now been submitted by all Departments to my colleague, the Minister for Public Expenditure and Reform.
It is important that we provide as much clarity as possible regarding future consolidation in order to generate certainty and thereby enable households and firms to plan their spending and investment decisions. In this regard, the forthcoming pre-budget outlook will set out a medium-term fiscal consolidation path covering the period 2012 to 2015, with the overall composition of revenue and expenditure adjustments for each year being outlined.
With regard to the banking sector, it is fair to say that signs of progress are becoming increasingly visible. As Senators will be aware, the Government's overall strategy is to create a leaner, more resilient banking system centred around two pillar banks whose primary focus is supporting economic recovery in Ireland. In terms of resilience, a €24 billion recapitalisation of the banking sector took place in July of this year, in line with the PCAR analysis. The State's net direct investment was €16.4 billion, considerably lower than initially envisaged. The remaining capital was sourced from liability management exercises with subordinated bondholders in the various banks, anticipated asset sales and the injection of private capital into one major bank. I see the private capital injection as a vote of confidence in the Irish banking system and indeed, in the future of the Irish economy. With this additional capital, Irish banks are now very well capitalised and capable of withstanding very distressed scenarios.
Progress with regard to restructuring has been significant in recent months. The legal merger of AIB and EBS was completed on 1 July 2011, as was the merger of Anglo and INBS. Restructuring is also continuing at Irish Life & Permanent. Considerable progress has also been made on the renewal of the boards of banks, while management structures have been strengthened with clearer roles and lines of responsibility. The banks have also had success in securing term wholesale funding from international banks with some €4.5 billion funded to date and further transactions being negotiated. This is ahead of the second quarter 2013 schedule envisaged in March 2011. At the same time, the programme of asset deleveraging is under way, with significant progress expected to be made this year in spite of the difficult environment in international financial markets. It should be noted that more than 80% of the assets to be disposed of by the end of 2013 are located outside Ireland. All of these measures are helping to rebuild international investor confidence in the Irish banking sector. We have confidence in and are committed to the bank restructuring plans.
Within the European context, we actively participate in and contribute to the discussions. However, we maintain a steady and considered dialogue with all of the European authorities regarding the current challenges while continuing to ensure that the primary focus is on needs of the Irish people and our economy.
The cost of external financial assistance is also moving in the right direction. Last July, the Heads of State and Government in the euro area agreed to address design flaws in the financial support mechanisms available to member states. In particular, it was agreed that the cost of the EFSF facility to beneficiary countries should be close to funding costs. Combined with other technical changes, this will imply a reduction in EFSF lending rates of around 2.6% when approved by all euro area member states. The Chancellor of the Exchequer in the United Kingdom has also agreed to reduce the margin charged on the bilateral loan, although the precise figure has yet to be finalised. In September, the European Commission proposed to eliminate the margin on the EFSM facility.
This was considered at this week's ECOFIN meeting, and while no objections were raised, national parliamentary procedures must be completed before a final decision is made.
Given these changes, figures provided by the NTMA show that the total savings on the original facility, with an average life of 7.5 years, are approximately €9 billion, or approximately 5.7% of GDP. In addition, the cost of our IMF loans will decline as a result of recent and forthcoming increases in our IMF quota. Again the saving is significant. In the case of the IMF loans, the estimated savings take account of a quota increase which will not come into effect before autumn 2012 at the earliest. These expected savings may change either upwards or downwards in the light of future quota revisions.
At the same time, changes are being implemented to both the EFSF and EFSM to allow for longer loan maturities. While there are costs associated with this - borrowing over a longer time horizon is typically more expensive - the lengthening of maturities is beneficial from a cash flow perspective as well as ensuring that the profile of redemptions is more orderly. In other words, the benefits exceed the costs, so this is to be welcomed.
As has been well documented, yields on ten-year Irish Government paper have fallen by over 600 basis points since their peak in July. The message from this is unambiguous - clear, comprehensive, timely and credible polices that are consistently implemented help to reassure markets. With greater reassurance comes lower borrowing costs.
There is, of course, much more to be done. Our deficit remains unsustainably high and further consolidation is necessary. The external outlook is much less benign than it was six months ago and notwithstanding the decline in market interest rates, borrowing costs remain excessive and are not yet consistent with a return to market-based funding. There are substantial challenges ahead, but we are on the right path, and that is where we intend to remain.
I look forward to hearing the comments of Senators.
Darragh O'Brien (Fianna Fail)
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I thank the Minister for his comprehensive statement and would like to go over some areas of it. The Minister referred in his statement to the jobs initiative and the improvement in the agrifood and tourism sectors, saying this was in part due to measures implemented as part of the Government's recent jobs initiative. We see in the figures announced this week that approximately €461 million was raided from private pension schemes across the country to pay for the jobs initiative. We discussed this at length and opposed it in the Finance (No. 2) Bill on the basis of the effect it would have on people and existing annuitants in defined benefit, defined contribution and all pension schemes and pointed out that 80% of them are under funded.
The Department of Finance received advice on the pension levy, but decided not to publish that advice until a freedom of information request was submitted? We have seen the documents that were submitted on the pension levy. Many people, including the Minister's colleague in Cabinet, Deputy Joan Burton, argued vociferously against the pension levy on the basis of the effect it would have on pension schemes. That has been well documented. We have seen the effect with a scheme I raised in this House, the airline staff scheme at Dublin Airport which has 15,000 members. I am sure the Minister has received correspondence on this matter from the Tara Mines pensioners, who have seen a 10% reduction in their annuities and their average pension is now reduced from €10,000 to €9,000. We will see the same losses happening across the board over the next few months. I have no doubt the Minister has been inundated with correspondence from scheme trustees.
The Government decided on a jobs budget and is going ahead with it. I welcomed certain measures in that, among them the VAT reductions. How is the Department tracking whether the VAT reductions are being or have been passed on to consumers? What is the target for jobs? We have seen no target for the number of jobs to be created, yet the Minister is raising just short of €1.8 billion, effectively from people's savings, to pay for an initiative that has no set targets. The Minister believes that the jobs initiative has had an impact, particularly in the agrifood and tourism sectors. What positive impact has it had? Has the impact been quantified and have any new jobs been created in these sectors?
The Taoiseach has committed to there being no income tax increases and no social welfare cuts in the budget. The Minister seems to be at odds with the Taoiseach in that regard. Deputy Noonan has been more upfront on that by not ruling out any income tax increases or social welfare cuts. The parameters of the budget have been set and a minimum of €1.5 billion is to be raised through taxation. I do not see how that can be done without increases in income tax nor can I see how there can be savings of €2.1 billion without cuts to social welfare. Is the Government still committed to the announcement made by the Taoiseach and the Tánaiste at the much touted 100-days press conference? What is the Minister's view now and has the Government changed its view? Will we see tax increases? There have been social welfare cuts already, to the household benefits package and to the fuel allowances which kicked in this month. I ask the Minister to address these issues in his response.
The Minister mentioned the comprehensive spending review, but when does he intend to publish that? Will he wait until after the budget to publish it or will he publish it beforehand so that we have an opportunity to debate the budget in both Houses? With the comprehensive review available to all Members, we can have a proper analysis of the budget.
The Minister mentioned the initiatives being taken by the Government. I agree that creating jobs is what it is all about. The Government has established NewERA under the Minister of State, Deputy O'Dowd. Why has it established this without permission from the troika to use the moneys from the sale of State assets for job creation rather than for lowering the national debt? How are discussions in that regard going? Will the Minister confirm to the House that in the original EU-IMF deal with Ireland, there was no commitment to the sale of State assets, nor was there any figure given? Will he confirm that it was in the revised memorandum of understanding, negotiated by the Minister and the Taoiseach on behalf of the people, that the figure of €2 billion was first mentioned and that the Minister clearly said that he specifically recommended that an accelerated sale process should be considered? What had been mentioned previously was "possible privatisation". However, now it is in the Government agenda to sell State assets. Will the Minister confirm that was not part of the original deal?
We are all concerned by the ongoing crisis within Europe and the Minister mentioned this in his statement. He was at a meeting in Luxembourg on Monday and I was disappointed that the EU finance Ministers left that meeting without any decisions being taken again. I do not lay the blame at Deputy Noonan's door; I am sure he is doing his level best. Most people will agree that Europe is just struggling on week by week, without dealing with the banking crisis in the European sector. Two years ago, when we had our banking issues, many of us pointed out there was a European banking crisis. This is borne out now by what is happening in Dexia and the effect that will have in Belgium and France. What is the European view on recapitalisation? Chancellor Merkel has effectively said that she would be for the recapitalisation of European banks. A figure of €200 billion has been set out, but that is probably well short of what is required. What concerns does the Department of Finance have about this contagion spreading or any knock-on effects? The Minister has rightly said that our banks are well capitalised and I am sure he will agree that much of that work was done by the previous Administration. I welcome the fact the Minister has continued that work and our banks should be robust.
I disagree with the two-pillar bank approach taken by the Government. One of the issues in our banking crisis was that the banks were allowed become too big and they became larger than the economy. We missed a major opportunity by not selling EBS to the US consortium, which would have provided a third banking force in this country. What we will have now will be a massive AIB and Bank of Ireland and it is thanks to the UK Government that Ulster Bank will still have a presence here. Businesses will have only three banks. What is the Minister's view on the EBS? While it has been merged, will he leave it as a separate retail bank under the auspices of AIB? What has happened in that regard?
The Fine Gael election manifesto promised homeowners that mortgage interest relief would be increased to 30% for properties purchased within a four-year period. The Government said that it would be implemented but it has not been. Senator Marc MacSharry introduced a Bill in this House that would have brought real protection to principal private residences. It was defeated by the Government. The Government said it would increase mortgage interest relief and the average increase of that measure would have been €166 net per month. This would be significant for the electorate when it was deciding how it would place votes and place trust in the Fine Gael Party to do something about distressed mortgages and people in arrears. When will the Government do something for people with distressed mortgages and those who are in arrears? Will it see through the commitment it gave prior to the election to increase mortgage interest relief to 30%?
Catherine Noone (Fine Gael)
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Does the Minister want to contribute?
Michael Noonan (Limerick City, Fine Gael)
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I am at the disposal of the House if Members want me to answer questions.
Michael D'Arcy (Fine Gael)
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I welcome the Minister to the Chamber. Sometimes I wonder whether Senator Darragh O'Brien was in the same place I was, watching the calamity I was watching.
Darragh O'Brien (Fianna Fail)
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I see the same policies being pursued, I do not see any change at all.
Michael D'Arcy (Fine Gael)
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I have a number of questions to ask. When we look back and wonder how we got to this place, it is clear that it is from the calamitous decisions made by the previous Government. I am sorry, Senator O'Brien, but there are no two ways about it. We see that the Sinn Féin policies are more akin to voodoo economics than any version of real economics. The Minister's time at the Department of Finance has been steady and sound, which is what the nation needed. We are in a European cycle that is difficult, although the level of debt is not as bad as it was two weeks ago in the debate on the Bill dealing with the European financial stability fund. European debt is €6.5 trillion and US debt is over €10 trillion and in both cases there is a ratio of 2:1 of publicly traded funds to privately traded Government funds and ECB and Government bonds. The question Europe is failing to answer is whether we are prepared to do what is required to take us out of this. It is not that difficult and other countries that are sound and that have a triple-A rating are capable of paying more. The question is whether they will. To date it has not been answered.
One crucial point is that we have friends in Europe again. For too long, we lost all our contacts and, following years of good diplomacy by various Governments and diplomats, we backed ourselves into a corner and were left exposed and isolated. We had no friends there and that was seen in the deal brought back by the previous Government. Fine Gael said it would renegotiate the deal and it has done so. We will continue to improve the circumstances, terms and conditions as we see fit from time to time.
I will not try to cover the ground covered by the Minister. I come across a number of issues at the coalface when dealing with constituents who are clients of banks. Banks are trying to force people, who are capable of paying interest only, from interest only payments. I realise that the interest only deal was put in place for a certain period but banks are now trying to force people into repaying interest and principal. If the banks force people into that payment regime, they will stop getting any money and people will default. People are not capable of paying the interest and principal, which amounts to a doubling of the interest payment. It is a mistake because, if people are capable of keeping their heads above water by making interest payments, the banks should be told that is the appropriate payment at this time. As market conditions improve and as the economy progresses, they can move towards interest and principal. However, making this mistake now will force people into default on payments.
Senator Darragh O'Brien touched on mortgage protection, which I spoke about before. I am dealing with a number of repossessions, which is not fun. I am dealing with the State-backed banks and the banks that are not backed by the State. The latter are prepared to negotiate a position with people who realise they have no further outlet other than handing back the keys of the property or allow the property to be repossessed through the courts. This category of banks is more reasonable to negotiate with. It is fair that, if a property is handed back, the remaining debt on the property should be written down. I have heard the Minister speak about this before and, according to the Blackrock stress tests, a figure was assigned for further recapitalisation of Irish pillar banks so that these amounts could be written down.
Anecdotal evidence is supported by the evidence of the witness from AIB who appeared before the Joint Committee on Finance, Public Expenditure and Reform who told us that in 2011, AIB had written off €600,000. The anecdotal evidence is that banks not backed by the State are writing off sums of money and treating it is as a non-recourse loan but the Irish pillar banks have taken the recapitalisation funds and they are not writing off amounts from mortgages. They are still trying to force people to retain the debt even though the House has been returned to the bank. It is unfair and unreasonable and I would like to hear the Minister's thoughts on this point. We must look at where we are going and we must be more clever in how we do things. The budget arithmetic is coming up in the next few weeks and it is a welcome improvement to reduce spending by some €3 billion. It is not a choice because it has been agreed with the Troika and that must continue.
The black market is booming, particularly in construction. Perhaps we should reduce VAT on labour to 0% and increase VAT on products so that, if someone buys a product, VAT must be paid. It is crucial that we do not raise income taxes. Middle Ireland is paying significant taxes and should not pay more income tax. Those who earn €37,500 pay tax at, in effect, 59% on every euro above that amount when income tax, levies, PRSI and other factors are calculated.
There is a great deal of talk about commercial rates at the moment. The commercial sector is being hit hard. Local authorities receive €1 billion in rates and, within one of the Finance Acts, there is the option to reduce rates by up to 10%. That would cost €100 million and I do not know exactly where the money should come from but the measure should be considered. Local authorities have shown that when the block grant is reduced, they are able to cut costs. However, if the block grant is not reduced but rates are reduced, the effect will be the same. The difference is that the commercial ratepayer receives the amount of the reduction.
The Ministers for Transport, Tourism and Sport and Arts, Heritage and the Gaeltacht appeared in the Chamber. Arts and sport are two vehicles by which we can get positive coverage for the country. We saw the benefit of President Obama's private visit and of the Queen's state visit. We can also see the benefit of a sports event happening in the country.
According to figures I saw, when Wembley hosted the Champions' League final, the city of London benefited by approximately £50 million. Croke Park in Dublin would be a wonderful facility in which to hold a Champions' League final at some stage in the future. The next available final is 2014. This would be of major benefit to the city and also to the State because of the increase in tax revenues. The GAA would benefit from the rent, and we would have a great opportunity to showcase ourselves in a similar way to the visits of President Obama and the Queen of England.
Catherine Noone (Fine Gael)
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My apologies. The way in which it is written here is not very clear. Senator Marie-Louise O'Donnell.
Mary Ann O'Brien (Independent)
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I will take three minutes, with four minutes for Senator O'Donnell and one minute for Senator Mac Conghail.
I wish the Minister, Deputy Noonan, a good afternoon. The new Government is doing a lot to assist charities in fund-raising by addressing issues with regard to taxation on charitable donations. I understand the Department of Finance has a working group which is collaborating with the sector to simplify taxation regulation and ensure the benefits go to the charities. It is also considering a reduction in the threshold of qualification for tax relief, which is advisable in the current economic climate. Reducing the threshold would also benefit a great number of charities.
There is, however, a continuing impediment to the work of charities in that the sector cannot reclaim its VAT in the same way as businesses can. As someone associated with both business and the charities sector, I am very aware of this issue. The sector pays VAT on essential expenditure and on initiatives and events to raise funds independently. This includes everything from information leaflets to equipment and facilities in buildings. This severely restricts the level of work that can be undertaken by charities and also has an impact on independent fund-raising. The Society of St. Vincent de Paul, for example, which I understand raises more than 80% of its funds independently and therefore does not rely on the State for the bulk of its work, pays approximately €4 million to the State that it cannot reclaim.
I m aware there are complications in EU law on this issue but the European Commission has stated that a VAT compensation scheme offers a solution. As far back as December 2006, the then Minister for Finance stated in reply to a Dáil question: "[T]here is nothing to prevent national Governments paying charities a subsidy to compensate them for the irrecoverable VAT". The Government of Denmark, a country similar in its size and charity sector structure to Ireland, has introduced such a compensation scheme. I am proposing that the Minister set up a working group to examine VAT issues affecting charities, similar to the current working group which I understand is dealing effectively and positively with the general tax issue. The process in Denmark was resolved over a two-year period of discussion. I hope that in the lifetime of the current Government the issue of VAT for charities will be resolved to the satisfaction of both the sector and the Department of Finance through a process of discussion and agreement, as I have outlined.
We know what we spend on overseas aid, but what about domestic charities across the spectrum of arts, sports, education and health? What is the total spend by the Government on domestic Irish charities? Would the Minister be kind enough to let us know how many registered charities in Ireland receive over 50% of their annual budgets in State funding?
Marie Louise O'Donnell (Independent)
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I welcome the Minister to the House. As a young Senator, it is a privilege for me to be here, although my age deceives. I can be considered ageless on some days. I congratulate the Minister on his actions so far. He has been catching up and cleaning up, which is difficult, and he has done an extraordinary job. I am not an expert on finance at all, but I am somewhat of an expert on debt. We have all become experts on debt as victims of the greed of banking power and the power of banking greed.
NAMA has taken over €71 billion of loans from the top 180 borrowers. That is €71 thousand million. It is better to verbalise it because one could not get enough paper to write down the noughts. However, NAMA paid only €30 billion for these, leaving a shortfall of €40 thousand million, which we as taxpayers in Ireland must pay for. NAMA then went to the ECB, borrowed €31 billion on our account and came back to Treasury Buildings, which is owned by a builder who is himself in NAMA. NAMA terms of reference were outlined by lawyers and accountants whom we are also paying for, and the fees are currently estimated to be around €2 billion to €3 billion. I would like to know if this will be added to the €40 billion that taxpayers are already being asked to pay.
How constrained is the Minister by the laws that NAMA has made up for itself? Has it become a runaway train? What control is being exercised by the Minister on the people within NAMA, and can he as Minister find out what is happening there? Is it time he broke the NAMA code, since the people of Ireland have no say, not even a whisper, in what NAMA is doing with the €31 billion borrowed on our account? It is time for somebody to knock on the door. Can we as citizens have such a write-down on our debt?
My second question is to do with the builders and speculators who we know are broke because they are in NAMA and we are paying for their debts, as well as €31 billion borrowed from the ECB on our account and a €40 billion shortfall that we are also paying for. Can the Minister explain to me how the same builders and developers, and indeed their wives, are building hotels and houses in other countries? Where are they getting the money, when they owe millions to our banks that we are paying for? We see in the papers that they are building houses, knocking down houses, re-erecting houses and spending great amounts of money to buy houses without mortgages. It is like a magic show in Las Vegas. I want to know why they are not on the dole and where they are getting the money. Is there any mechanism for finding out why we are paying for their debts in Ireland while they are living the high life in other countries?
As a taxpayer I, along with other taxpayers, put €3.5 billion into Bank of Ireland; I had no choice. Canadian investors put €1.1 billion into Mr. Boucher's folly. The sums were done and they were outstanding, because the Canadian investors now own one third of the bank for €1.1 billion, while I own 12% for my €3.5 billion. How did that happen? It is fantastic. As taxpayers who paid €3.5 thousand million, can we get involved with these Canadian investors, who have obviously, again, been at some kind of magic show? The most interesting thing is that Mr. Boucher is getting slapped on the back for this. It is extremely questionable. The sad thing about the whole situation is that NAMA seems to be hiding behind phrases such as "the right thing to do" and "the only thing to do", along with the smart suits and sharp pens and the people who look extremely acceptable and very knowing. Yet, what it is really doing is undermining democracy, fair play, justice and our citizens' belief in transparency and honesty. It is continuing to desecrate faith in law, regulation and finance. NAMA seems to be made up by, through and for wide boys.
Fiach MacConghail (Independent)
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I thank the Minister for attending the Seanad. I have two questions which, if answered, will inform me on how to approach my Seanad decision making with regard to public finances. I know the Seanad has no real power, but I want to be able to explain the macro-factors of the public finances to my communities. I thank the Minister for giving us an overview of the public finances.
As Senator O'Brien also mentioned, can the Minister co-ordinate the publication of the comprehensive review of expenditure with the pre-budget outlook? The Minister is known for being frank and succinct and we are beginning to trust what he says, whether we agree or disagree with his actions. I ask him to co-operate with his fellow Minister, Deputy Howlin, to publish the review of expenditure and the pre-budget outlook at the same time.
Since we are considering a pre-budget outlook for 2012 to 2015, what is the opinion of the Minister and his officials on multi-annual funding, particularly for State agencies? I am considering this based on my own experience in, for example, the Arts Council. We know that cuts are expected and that there will be a decrease in funding. Introducing a system of multi-annual funding for civil society groups would facilitate more prudent and efficient expenditure.
John Gilroy (Labour)
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I welcome the Minister to the Chamber. It is good to see that we are at last beginning to turn the corner, as indicated by the good news outlined in the Minister's speech. I propose to focus on an issue which is somewhat under the radar but nevertheless important. Before doing so, I take the opportunity to register my bemusement at Senator O'Brien claiming credit for recapitalising the banks.
What is the Minister's view on the future of social investment and whether it can play a significant part in extricating ourselves from current difficulties? There is a strong desire among people to help themselves at this difficult time. Social investment offers a mechanism to tap into and release that potential. Financial investment intended to achieve social objectives means we score on the double, simultaneously making our communities better places to live and producing financial returns for investors. In recent years the voluntary and community sector has not been taken seriously by the economic players who ruled and ruined this country. In the social partnership process, for example, mere lip-service was paid to the sector. I have seen the same dynamic at play in local government where, in the strategic policy committees, for example, the voluntary and community pillars were virtually ignored or, perhaps worse, patronised. Now that we have seen that the economic emperors have no clothes, it is time to move the social and voluntary sector to centre stage where it can and will play a role in our economic recovery.
It is important not to confuse the social and voluntary sector with the social economy. While many of the actors in the social economy are involved in the community and voluntary sector, the two are distinct entities. Our social economy remains relatively underdeveloped when compared with that of other countries and there is significant room for growth. In Europe as a whole, for instance, the sector accounts for more than 5% of GDP, whereas in Ireland it represents a mere 3%. A report launched last July by the Minister for the Environment, Community and Local Government, Deputy Phil Hogan, indicated that it is possible to create up to 5,000 jobs annually in the sector, which would equate to a potential social welfare saving of up to €100 million. Significant investment is already happening in the area, with the Irish League of Credit Unions estimating that some 10% of its loan book is dedicated to various types of social finance provision.
When discussing social finance it is important to remind ourselves that we are not talking about ill-defined community projects with poor delivery outcomes. Rather, it is a system of finance based on a robust business model where there is direct investment and repayable loan finance. Normal loan criteria in regard to ability to pay and security apply, but because of the social nature of the loan, a special low rate of interest is applicable, perhaps in conjunction with a longer repayment period. In 2006 the Government established the Social Finance Foundation to act as a wholesale supplier of funding for social finance, with €25 million provided by the banking industry as seed capital. By February 2010 loans to the value of more than €20 million had been approved.
With a potential saving of up to €100 million in social welfare alone, not to mention potential tax receipts, this area provides genuine opportunities. Given the difficult conditions now prevailing, it is time to take a closer look at this model and to consider expanding the role of social finance into our economy. For instance, micro-finance social lending organisations facilitate those with viable business propositions and support micro-businesses which require working capital or experience temporary cashflow shortages. Agencies such as Clann Credo and First Step are doing valuable work in this area, but we must find a way to expand this activity. The initiative in this regard could be taken by any Department, but it is important that the Department of Finance should take the lead. We must find ways to encourage people to invest in these funds, perhaps by way a tax relief on investment, encouragement of philanthropic donations or the establishment of a State guarantee social bond. We must examine ways of encouraging people to invest funds where money raised locally is spent locally. The social bond system is operating with considerable success in the United Kingdom and is included in the programme for Government.
The obstacles we face in mobilising social economic activity include the fear or risk surrounding a failure to recover debt, fear of excessive demand, lack of promotion of social finance facilities and excessive bureaucracy. We must incentivise people on two fronts. First, we must encourage investment in social investment funds and, second, we must facilitate social entrepreneurs to utilise these funds to maximum effect. I look forward to hearing the Minister's views on this issue.
On an unrelated matter, I am aware that some organisations in receipt of public funds are slow to pay their bills and are escaping the provisions which oblige State agencies to make repayment within a specific timeframe. Is there any mechanism for extending this facility? Any organisation that is in receipt of public funding should pay its bills in a timely fashion.
Sean Barrett (Independent)
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I welcome the Minister and assure him of my support in the vital task he is undertaking. It is essential that we restore the country's finances to order. Senator O'Keeffe referred to the Minister, Deputy Noonan, and his colleagues, the Minister for Public Expenditure and Reform, Deputy Howlin, and the Minister of State at the Department of Finance, Deputy Brian Hayes, as the Celtic troika. We wish them every success as they engage with the Ministers of the spending Departments. I am pleased it is a troika as the contest was unequal in the past with one Minister for Finance being hounded by 12 spending Ministers at the Cabinet table.
The Minister referred in his contribution to four themes. The last of these is non-controversial and I commend him on his achievement in reducing the cost of borrowing. There are signs the economy is expanding, but they are extremely tentative. The EU report on Ireland's economic adjustment predicts that it will be 2015 before we get back to the nominal GDP value we attained in 2008. Despite all our efforts in the area, the numbers working in industry have declined by 53,000 since before the recession. The McCarthy report on the disposal of State assets indicated that our real GDP should be 42% higher in 2013 than it is likely to be. The Minister is attempting an incredible degree of adjustment.
I am particularly interested in measures to prevent a recurrence of the disasters which began with the wholesale guarantee of financial institutions three years ago last Friday and culminated in our rescue by the EU and IMF on 1 December last year. I accept what Senator O'Donnell said about all of that. In terms of enhanced governance, I hope this House will play a substantial role in ensuring greater scrutiny of Government decision-making. It is strange to reflect that on the night of the guarantee one Minister was in Sandymount and another, a constituency colleague of the Minister, Deputy Noonan, was in Limerick, when they received a knock on the door asking them to sign off on the Cabinet decision. It is not clear how many Ministers attended the Cabinet meeting. We in the Oireachtas Committee on Finance, Public Expenditure and Reform have found it difficult even to obtain the records of what happened that night. The decision that was made was subsequently criticised by Christine Lagarde and Alistair Darling as excessive. Moreover, it is my understanding that a memorandum of understanding from 1 June 2008 indicates that at that time, the various Central Banks and Finance Ministers in Europe were agreed that this was a European problem. I hope the Minister will reactivate that memorandum of 1 June 2008 in the Department's archive. The bottom line is that we mistakenly nationalised what was a Europe-wide problem.
Moral hazard is an important issue in all of this. If the bankers, builders, lawyers, auctioneers and senior public servants who caused this problem are all exempted from the consequences and they are borne by ordinary taxpayers, have we any guarantee they will not do it again? NAMA is appalling, as it has brought in the same developers and employed the same legal firms and auctioneers. That sends all the wrong signals. I would like the two zombie banks to be sold immediately and NAMA shut down. We must build a new economy and the people who caused all the problems cannot be allowed to get away and they cannot be rewarded for their inefficiency.
I am a member of the Joint Committee on Finance, Public Expenditure and Reform and representatives of the banks have appeared before us. They do not get it; they do not realise the damage they have done to this country. AIB is looking for a salary of €690,000 for its new chief executive officer and I will support the Minister right down the line regarding his position on that. This is outrageous. We want so-called Captain Mainwaring banks or utility banks and not casino banks and I do not see why anyone running one of them would need to earn more than the Taoiseach or Ministers. I acknowledge what the Minister has done in this regard.
I am still waiting, as is the Minister, for the chartered accountants regulatory body to report. Accountants prepared accounts for these zombie banks. There have been cases of people acquiring companies that had dud accounts who successfully sued the accountants. That should not be ruled out on behalf of the taxpayer. The fact that the accountants still cannot tell us three years later through the regulatory body whether there was impropriety in the preparation of those accounts is appalling. Most independent analysis says there was.
I note the IMF reference to the comprehensive review of expenditure. There are concerns that the spending Departments have slowed it down and that it might not be published. We need it to be published and if the Minister is under pressure not to publish, I ask him to resist those requests because we must have a full discussion as to how a country had to borrow 32% of GDP last year because of its banks. I acknowledge that was exceptional but we cannot keep borrowing at this level. Expenditure must be analysed and subject to scrutiny.
According to the an bord snip nua report, the number of senior civil servants increased by 82% between 1997 and 2009 and number of civil servants overall by 27%. The growth of senior bureaucracy at the expense of front-line services in the education and health systems has been notorious. This part of the report should be investigated. The Wright report highlighted the lack of economic competence in the Civil Service. It found only 7% of civil servants in the Department of Finance had such competence as opposed to 60% in the corresponding department in Canada. We badly need to upgrade in this regard given the size of the task faced by the Minister.
The Minister for Public Expenditure and Reform referred to people being captured by lobbying. The banks had inordinate influence over economic policy on that dreadful night three years ago. The construction industry had such influence prior to that and the Galway tent was the embodiment of that. Tax lawyers and accountants also have influence. It is estimated that they have successfully chiselled €12.8 billion out of recent budgets in tax expenditures. This was done secretly and the proposals were not debated openly. When members of the tax commission raised this, the representatives of tax lawyers and accountants on the commission said these loopholes could not be abolished because they made their living out of them. It is unproductive for them to be this powerful as they are depriving the Exchequer of money it needs. Will the Minister examine this?
Yesterday the metro north project was given final approval but it has been hopelessly analysed in economic terms. The pressure being put on the Minister is based on the belief that because so much money has been spent, we cannot stop now. We need a central project evaluation office. Such projects should not be analysed by the promoters or by the Departments seeking to secure them, as happens now; this should be done independently. The analysis should be available for a year and everyone could examine it to ascertain whether it represents value for money. The current way of deciding on large projects, including compensating the partners in roads schemes because the volumes of traffic were incorrectly predicted, should fall under the Minister's scrutiny. Public private partnerships combine the worst of both worlds with dud projects getting through. They are similar to hire purchases where the projects eventually cost much more than they would have if the State had undertaken them with proper project appraisal.
We must address why we were rescued by the IMF across a wide range of fronts and I commend the Minister on that. A great deal of work remains to be done on the public finances and he has to be hard - and public opinion wishes him to be harder - on banks, accountants, property developers and their lawyers. Yesterday the issue of the jailing of the lady from Tullamore, County Offaly, was raised, yet the people who brought the country to its knees are still walking around. The Minister would have support if he adopted a much tougher regime for those people. That is part of what everyone wants - measures to prevent a recurrence. What happened between September 2008 and December 2010 must never be allowed to happen again. We need new institutions to cope with such eventualities. I wish the Minister every success and I will support him in that.
David Cullinane (Sinn Fein)
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On a point of order, on four occasions Ministers have come to the House to take statements and questions. On each occasion, Sinn Féin was given an opportunity to make a statement but we have been informed we are not being given that opportunity in the presence of the Minister for Finance. It is interesting that we are the only party that does not share the economic consensus of the other parties in the House. We have been denied the opportunity to make statements on important financial issues facing the country.
David Cullinane (Sinn Fein)
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The Government is out of order for gagging the Sinn Féin party and for not allowing us-----
Paul Coghlan (Fine Gael)
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The Order of Business is clear that group spokespersons-----
David Cullinane (Sinn Fein)
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-----to challenge the Minister for Finance in the same way as any other grouping or party in the Chamber.
Paul Coghlan (Fine Gael)
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The Senator will have to raise that another way. He is out of order. I will allow him to ask questions shortly.
David Cullinane (Sinn Fein)
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Why was that decision made? Why are we not being allowed the opportunity to challenge the Minister for Finance?
Paul Coghlan (Fine Gael)
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The Senator will have to take that up with the Committee on Procedure and Privileges.
David Cullinane (Sinn Fein)
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I am taking it up with the Chair and the Deputy Leader and I would like a response from one or both of them.
Paul Coghlan (Fine Gael)
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The Senator will get a response from the Cathaoirleach.
David Cullinane (Sinn Fein)
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I would like the response now, with respect.
Paul Coghlan (Fine Gael)
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I cannot give the Senator a response.
Paul Coghlan (Fine Gael)
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I am a servant of the House in the Chair and I am ruling in accordance with the Order of Business, which was agreed by the House.
David Cullinane (Sinn Fein)
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Why was that order made? It is a reasonable question to ask.
Paul Coghlan (Fine Gael)
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I am not entering into a debate with the Senator. We will discuss it afterwards.
David Cullinane (Sinn Fein)
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It is a reasonable question to ask and I ask that it be answered.
Paul Coghlan (Fine Gael)
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The Senator is asking in the wrong forum.
Michael Noonan (Limerick City, Fine Gael)
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I thank all Senators for their contributions and I hope to answer the questions of other Senators once I have made my initial response. There are many questions but some Members went over the same ground. I will give a quick run through and if I leave anything out, they can remind me and I will come back to it.
The jobs initiative was funded by and large, as Senator O'Brien said, by a levy of 0.6% on pensions. Nobody likes tax but the initiative had to be paid for. There is no money under the mattress anymore and there are no untapped sources of income around. If we decide that unemployment is the greatest problem we have and we want it addressed, initiatives such as this have to be paid for. If we will the ends, we have to will the means. We decided to pay for the jobs initiative in this way rather than taxing work. Anything directed towards income tax and so on would be a straight tax on work. This is a minor provision. There is a great deal of money in pension funds but 41% of funds are built up because of tax relief given at the marginal rate to people who subscribe to pensions. Of every €1,000 in a pension fund, €410 is supplied by the taxpayer and we are taking €6 back a year for four years. That is reasonable, especially when the money is being dedicated to the creation of jobs.
There are always lobbies and the industry is lobbying hard but the industry is taking far more in charges than 0.6% and if the industry wanted to absorb some of this it had the discretion to do so. The problem with a lot of politics in this country is that as soon as a lobby group gears up and starts e-mailing Senators and TDs, the Senators and the TDs run around to the front of the lobby group and lead the charge without realising-----
Darragh O'Brien (Fianna Fail)
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With all due respect, that is an unfair charge.
Paul Coghlan (Fine Gael)
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The Minister without interruption, please.
Darragh O'Brien (Fianna Fail)
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That is a very unfair charge. I raised this long before anyone from the pensions industry-----
Paul Coghlan (Fine Gael)
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The Senator will be allowed to ask a question.
Michael Noonan (Limerick City, Fine Gael)
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I challenge Senator O'Brien and anyone else who wants to contribute to the debate-----
Michael Noonan (Limerick City, Fine Gael)
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-----to explain how a 0.6% levy on a pension fund leads to a drop of 10% of the payout on an annual basis. Does the Senator know what is going on? That is people in badly managed pension funds-----
Michael Noonan (Limerick City, Fine Gael)
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-----pretending that the loss in the fund is due to the levy-----
Michael Noonan (Limerick City, Fine Gael)
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-----when the loss is due to the defining market and, in some cases, their own mismanagement.
Darragh O'Brien (Fianna Fail)
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In some cases but mostly matured funds-----
Paul Coghlan (Fine Gael)
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Please, Senator. You will have your opportunity to speak.
Michael Noonan (Limerick City, Fine Gael)
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Yes, in some cases. I will subject any of the extravagant claims to audit if they send me their full returns-----
Michael Noonan (Limerick City, Fine Gael)
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-----but I cannot understand how a 0.6% levy on a pension fund leads to a reduction in pension payouts of 10% per annum to the beneficiaries. That makes no financial sense and it is a made up story-----
Michael Noonan (Limerick City, Fine Gael)
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-----to hide something else.
Darragh O'Brien (Fianna Fail)
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Did the Minister see the Tara Mines statement?
Michael Noonan (Limerick City, Fine Gael)
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The Senator asked other questions about the effectiveness of the jobs initiative. Anybody who got even a week's holidays this summer will be aware that it had a big impact on the hospitality industry. There were more people in coffee shops, bars and restaurants this summer. People were going out again and they were spending. It was a confidence builder but it also reduced the prices. We began to get the tourism industry moving again. It declined about 30% since 2007. We do not have final figures yet but it appears there was a return of at least 10% or 12%, if not more, varying from region to region. It was very successful.
As to whether the VAT reductions are being passed on, by and large in the food business, the hospitality business and the hotel bedroom business it appears it is being passed on but we are not going to put 1,000 inspectors on the road to check who is and is not passing on the reduction. Some people did not pass it on but they stayed in business because it gave them the extra margin. They would have been closing down with a loss of jobs. That is a valid way of doing business as well. Things are so strained in the hospitality and tourism industries I do not believe anyone is profiting out of it. The vast bulk of people passed it on in full. Some people partially passed it on. Others employed extra people and did not pass it on. Others stayed afloat. There is no exact science in this but overall it seems to be working.
We had other initiatives about shovel ready projects in schools, insulation of houses and so on. The only objective evidence we have is the round of unemployment figures published yesterday which I believe indicated a reduction of 33,000 in the live register, the biggest reduction since figures were first calculated.
All we can say about unemployment is that it is too high at 14% but it is stabilising, and the jobs initiative was a contributor to that but it is an inexact science. I will put it this way to the Senator. If we keep doing the same things we always did we will never get out of this crisis. We will have no chance, and therefore we have to try new initiatives. It was a brave initiative to cut the VAT rate from 13.5% to 9%, and it had to be paid for, but it was worth doing rather than saying we will do what we always did, pray and hope it will go away. It will not go away. We must think outside the box in this crisis. We have to do different things in different ways. A compliment paid to me when the jobs initiative was announced was from one of the Senator's former fellow Senators who stated: "Why did we not do all those things when we were in government?" We must think differently, and we will do other things as well.
Darragh O'Brien (Fianna Fail)
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Who was that? Tell me. I will have a word with him.
Michael Noonan (Limerick City, Fine Gael)
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I will tell the Senator privately.
NewERA is another example of new thinking, and I hope it works. The concept is simple. There is money in the pension fund. There is money that we hope we will be allowed use from the sale of State assets. We do not have a bob to put into any kind of stimulus package in the economy to develop new infrastructure, and we are trying to fund it in a different way. We are using the resources of the National Treasury Management Agency, NTMA, and of the pension fund, which is skilled in measuring investment to determine if we can develop new initiatives, and it will be geared towards modern infrastructure. It is the beginning of an initiative and I hope it runs fairly well.
A number of Senators asked about strategic investment, and the Senator asked about micro-finance. The people now in NewERA tell me they will have proposals for a strategic investment fund very shortly which they will forward to the Department. I hope that involves elements of micro-financing as well.
Senator O'Brien also referred to the position in Europe and alleged that no decisions were taken in Luxembourg. Many decisions were taken in Luxembourg and the Senator will see the decisions emerging as the weeks go by. It is clear already that there is now a commitment to recapitalise the European banks which are impaired. That is an important decision. To my mind the wrong question has been asked. The big question in recent weeks is what Europe will do about Greece. That is the wrong question. The question is what Europe should do about the eurozone and if that question is answered, Greece falls into context. In terms of what Europe should do about the eurozone, it should recapitalise the impaired banks, build a financial firewall against contagion because we saw what happened when the contagion spread from Greece to Italy and Spain, and then in parallel it should sort out the Greek situation. It should then move on to the governance issues, as Senator Barrett stated, so that there is a system in Europe to ensure all of this does not happen again and that we do not have a recurring tragedy every four or five years.
1:00 pm
Michael Noonan (Limerick City, Fine Gael)
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We do not want a Greek tragedy every four or five years. We must make sure it does not happen again, and that is the governance issues. The six pack of measures for Governments was adopted at the Luxembourg ECOFIN. It will come through the Houses of the Oireachtas because we will have to legislate to put it in place but that is a very strong element of governance and it will have to continue.
The fifth item, and I put these on the agenda in Europe, is that we cannot live by austerity alone. There must be a European plan to make economies grow and the responsibility will have to be taken by the big, strong economies to make it grow. Greece will fall into place when all that is done.
There seems to be a change of mindset in Europe now. They seem to be addressing the recapitalisation and from remarks passed by the European director of the International Monetary Fund it appears they are looking at building the wall against contagion as well in some form. I hope a lot will happen in the coming weeks because if it does not, we are facing an unmitigated disaster. I certainly hope that does not happen.
The Senator spoke about the two pillar banks being too dominant and so on. In restructuring the banks all we can feasibly manage at the moment is two pillar banks but some competition will be provided by the overseas banks still operating in Ireland, and I hope that side would build up. There are issues of competition that can be validly raised and what used to be called the third banking force is very important but the combination of the foreign banks still trading here would fill that gap in the market. I hope the foreign banks do not withdraw from Ireland. I want to encourage overseas banks that have branches here to continue trading. They are very important. Senator D'Arcy said they have a different way of dealing with impaired mortgages than the pillar banks, which I was glad to hear.
The Senator spoke about the commitment in the programme for Government to additional tax relief for persons who took out mortgages between 2004 and 2008. Income tax would not be changed in mid-year. These are budgetary matters and they will be examined in the context of the budget.
The issue of what to do with people in difficulty with their mortgages has been the subject of a report within the Department of Finance.
We have that report and it will go to Government on Tuesday. I hope to publish it soon after that and have a full debate in both Houses of the Oireachtas. No party has property rights over the difficulties of mortgage holders. A set of ideas will come from the expert group but I will take on board any ideas Senator or TDs might bring forward because this is a pressing issue that must be addressed.
The figure of 55,000 mortgages in arrears is quoted by the Central Bank. This represents 45,000 people or families because some people have two mortgages. The figure of 55,000 is not quite accurate because there is a doubling up of mortgages. While 45,000 is a big number, it is manageable if we take the right initiatives and the proposals will be fully debated.
Senator D'Arcy had some good ideas and comments about Europe. I talked about the mortgage situation and I take his point on the black market. There are two parts to the black economy: those who are working and not paying tax and those who are working, not paying tax and drawing welfare. The second category is the more damaging. It is also true, however, and I am not trying to excuse people, that when we start to come out of a recession, initial activity is often in the black economy because people get three or four days work and do not sign off. After a while, when they get continuous work, especially in the building trade, they move out of the black economy and become legitimate taxpayers. The Revenue Commissioners are aware of this; I have had discussions with the Chairman of the Revenue Commissioners on this and they are watching it. It might be necessary to change the welfare rules as well so it is easier to move in and out of welfare payments if a person is getting intermittent casual work. I also agree with Senator D'Arcy on the importance of sport and culture. It is great for the image of Ireland and there is a strong economic aspect to it.
Senator Mary Ann O'Brien talked about charities and she is right. A group of officials from the Department, the Revenue Commissioners and the charities are examining these issues and we can ask the group to look at this VAT situation. A second group is dealing with philanthropy. We might be able to do something about this when the budget is being introduced.
Senator O'Donnell talked about NAMA. We could talk about NAMA and the various theories thereon all night. I am not sure NAMA was the correct solution but it was set up under law and the Bill went through both Houses of the Oireachtas. There is a great legal substructure holding it up now and part of that relates to confidentiality of their dealings and the fact the agency cannot be lobbied. The former Chairman of the Revenue Commissioners, Frank Daly, is the Chairman of NAMA and he is an open, decent man and a good public servant. He agreed when I discussed it with him to provide information to Senators and TDs and there is a specific email address and telephone number for public representatives and they are entitled to information. They are forbidden under law from lobbying but they are entitled to information, which is a way around much of the confidentiality restriction. If someone feels he has been wronged, he can get a read-out by getting a public representative to make a telephone call. He is legally protected because this has been officially agreed.
The business plan for dealing with developers, where they are given a sum of money to run their impaired business on behalf of NAMA, is controversial but the alternative is to place them into receivership and the fee for receivers is €180 per hour. When we start adding up all the hours that receivers would work, we can see the sense in having the developer who knows his own assets working for €100,000. Most of them are getting between €75,000 and €100,000, with two getting more than €100,000, one of whom is on €200,000 because he is looking after a huge portfolio of assets. A lot of things happened earlier where assets were transferred to spouses and money was sent abroad. Part of the deal in the negotiations was that an awful lot of this stuff has come back into the control of NAMA. It is a work in progress.
Also, NAMA is now starting to get stuff on to the market. The deal in London was a good one. Even though it had a loan book of €75 billion, it paid about €30 billion for it. When it sells, it tries to sell assets at a profit and will take as much as it can get. It is not trying to recover €30 billion; it is trying to recover everything. NAMA does not own property, it owns the loan books underpinning it. I would prefer if there was a more systematic way to get the Irish property market moving again. NAMA is such a big player that until it is in a position to get actively involved, there will not be much movement in the property market.
Upward only rent reviews make it hard for purchasers to price anything in Ireland. The Minister for Justice and Equality will be making an announcement on that shortly; legislation is in preparation in the Attorney General's office but once there is an announcement we will have some clarity. If someone comes from America to buy a shopping centre, if the law is changed to allow rent to go down as well as up, the value of the entire enterprise goes down. That would inhibit sales and must be clarified.
A senior international banker has spent the last ten days examining NAMA for me. I am to meet him tomorrow evening and he will advise me. He is over in the castle for other purposes with the diaspora but he has a great deal of experience with this so I will get a better read-out of it. I do not propose to change the legislation yet. In the last three months NAMA has moved more efficiently than was previously the case. The people who work for it are above reproach, they are good public servants who are working very hard. It is a colossal task.
Senator Mac Conghail asked about the pre-budget outlook and the expenditure review. That is all the Minister for Public Expenditure and Reform's area. Currently we are looking at how we get this material into the Houses to be discussed. It is a work in progress but the idea is to make the data available and to have debates on them. We are not quite sure of a timeframe for that but we do not intend to hold it like a bad hand of cards until budget day; the information will be released as we go along. We must make decisions on the capital side, then the current side and the taxation side. As we project forward from 2012 to 2015, there will be a lot of material. In the middle of that, the troika will be here for ten days and we must run ideas past them. We will move out commitments in the programme that we inherited and do not want.
For example, the €250 million per annum for income tax increases. While, as the Taoiseach has stated, the Government does not want to introduce income tax increases in the next budget, we will have to get the permission of the troika to have that provision removed. While I do not believe we will have any difficulty in that regard we will, as it is provided for in the programme, have to include tax measures of equal value in order to have it removed, which is what the troika will be interested in. The troika will not insist on income tax increases but will insist that the replacement adds up. We have gone through this before with the troika and do not believe we will have any particular difficulty in that regard.
Members may aware a new fiscal council has been established. The fiscal council will produce its first report some time in October. With the troika and fiscal council, we must get our ducks in a row before we can make available material which will allow for a real contribution from elected Members. I can assure Members that we will not hand it all down in one parcel on budget day. There will be information available prior to that but nothing has yet been arranged.
Senators also asked about multi-annual funding. The Minister, Deputy Howlin, is interested in moving towards multi-annual budgeting. That will be the next step after the expenditure review which is examining all programmes. This will ensure we do not have the annual bone fight of Departments with the Department of Finance about the small modules of expenditure which are either add-ons or cutbacks. It will be much better if we could budget for three years. The programme which we will be producing for 2012-2015 will contain elements of this.
Senator Gilroy made an interesting contribution on social investment. My officials have taken note of the points he made, which are important. We will take a look at it to see what scope is there. I thank Senator Barrett for his support. I have already dealt with the Government's problems. Moral hazard is one of the big issues. We must ensure we do not have a recurrence of what happened in the past. The Senator is correct that, by and large, it is the ordinary taxpayer who made no contribution to the decisions that got us into this difficulty that is paying the heaviest price. Many of those involved walked away free. Many other people have also paid prices, including people who had bank shares. They were completely wiped out. Many elderly people who were encouraged by their bank managers to buy shares because there was a bigger coupon on the dividend than if they left their money in a deposit account had their life savings wiped out. Anglo Irish Bank shares were completely wiped out, Allied Irish Banks shares are now only worth pennies and Bank of Ireland shares are down to 10 cent.
Senator O'Donnell referred to the good bargain that foreign investors got in Bank of Ireland. It was on the market for a long time and no one wanted to invest so I do not believe it was a great bargain. They paid ten cents for shares. At what they are being quoted today one could still make a profit, if the Senator is interested in a punt. The €3 billion plus put into Bank of Ireland by the previous Government is not all lost; some of it remains in the bank by way of preference shares. In the deal, we have maintained the preference share position. I believe approximately 10% off that is being paid to the Exchequer.
At some point, we will realise that investment and get the money back. In normal circumstances, as Bank of Ireland begins to trade profitably again, investor advice will be for it to buy the preference shares from the State because they are costing the bank too much in terms of the interest rate, which is higher than the market rate. An incentive is built in to encourage the new owners to rid themselves of the preference shares. I am hopeful we will get a good tranche of money back in the future. We will not recover it all. The money put in as straight capital is gone; it has been wiped out. However, the money put in as preference shares is recoverable. It is hoped as we move forward that we will get a return on the 15% we are holding as capital values increase. That was a policy decision. We could have sold the lot and left the State with nothing but we thought because of the money already invested that we should hold 15% of the bank so that as capital values increase we would begin to recover our money. We will see how that goes. Bank of Ireland is trading well at the moment and is attracting money on the wholesale market. It is doing well. We need to keep chasing Allied Irish Banks to ensure it keeps pace and provides an effective pillar bank.
While I have not answered all questions, that is all I wish to say that this point.
Tom Shehan (Fine Gael)
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I welcome the Minister and thank him for his comprehensive overview of the banking sector. My questions are on the credit union sector and the imminent credit institutions Bill.
There has been much talk of the credit unions being in a great deal of bother owing to investments they made. Credit unions are run by volunteers. There are not too many chartered accountants, barristers or qualified experts involved in credit unions. The credit unions paid Davy's a high price for advice and lost the vast majority of their money in a product known as the Central Treasury Management Fund, which was approved by the Financial Regulator in March 2006. Can the Minister guarantee, by way of the proposed credit institutions Bill, that Joe and Josephine, just as they have done for the past 20 or 30 years, will be able to go to their credit union this Christmas for a loan of, say, €1,000? Will he remove the regulation that forbids credit unions from renegotiating terms and conditions on loans?
The Minister stated in his speech that changes are being implemented by the EFSF and EFSM to allow for longer loan maturities. While there are costs associated with this, borrowing over a longer term horizon is typically more expensive. The lengthening of maturities is beneficial from a cashflow perspective, as well as ensuring that the profile of redemptions is more orderly. In other words, the benefits exceed the costs. A report published last week states that there is approximately €1 billion of arrears on loans in credit unions. People are in arrears because credit unions are forbidden to extend terms and conditions on loans. Can the Minister guarantee that Joe and Josephine will be able to get their credit union loan of €1,000 this Christmas and will he remove the regulation that forbids credit unions from extending the terms and conditions of loans?
Marc MacSharry (Fianna Fail)
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I welcome the Minister to the House. While there is much I would like to speak about, I will, because there are many Members wishing to ask questions, confine myself to questions to the Minister. With the recapitalisation of European banks likely at this stage, can the Minister guarantee that the template used for Irish banks, if adjusted by the troika, will be retrospectively visited if a sweeter deal is done for the stakeholders in the European banks? I fear that while stakeholders here were clubbed by the troika in the template designed for Ireland an easier deal may be put in place to deal with the European banks. Can the Minister guarantee that if that is the case it can be retrospectively adjusted in favour of the stakeholders here? The Minister referred earlier to the various shareholdings wiped out here.
The expert group's report will go to the Cabinet next week, after which it will be discussed in the House. Can we have tangible, visible action from banks to deal with people in mortgage difficulties? It has been stated that those engaged in mortgage arrears resolution processes with banks are being given alternatives, but they are not. It is a superficial engagement in which the bank determines to move on because someone is a financial basket case and cannot operate. Can the same level of openness be applied when dealing with people with distressed mortgages as was applied to Ireland when the repayment period for our national debt was extended with a consequential interest rate reduction?
As the German Government did previously, will our Government consider applying a maximum chargeable interest rate on all lending? The Minister is aware that 187% is legally chargeable for short-term lending. As can be borne out by research, this promotes the black economy, in particular illegal moneylending.
Ivana Bacik (Independent)
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I welcome the Minister to the House and thank him for his comprehensive response to the questions and statements of spokespersons. They covered a wide range of topics. I also thank the Minister for clarifying that information on the National Asset Management Agency, NAMA, will be made available to Members. I do not know whether all colleagues were aware that there would be a hotline, as it were, to NAMA.
The report of the new fiscal council is due in October. Will it be available for Senators to debate in the House? The Minister might have stated it would be, but I am seeking clarification. It is important that information be made available before budget day so that people are not taken by surprise.
I have spoken with the Minister for Public Expenditure and Reform, Deputy Howlin, about a Tobin tax on international financial transactions. What is the State's view on such a tax? It has always appeared to be a commendable idea, but it is difficult in practice, particularly where there is a large financial services industry. There have been moves at EU level to progress the concept of an international tax. What is the Minister's opinion and what view will Ireland take if this matter arises at EU level?
Michael Noonan (Limerick City, Fine Gael)
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Senator Sheahan asked about the credit union movement. The restructuring of the banks has been mentioned. The last element of the financial retail industry that must be restructured is the credit unions. It is an open secret that while the credit unions have done wonderful work down the years and one could not be complimentary enough about the volunteers who give of their time to provide credit lines to their neighbours when the latter could not get them by any traditional way through the banking system, a difficulty has arisen in some of them. If the movement was one large bank with individual branches, it would have no problems because the good ones would balance the bad ones, but individual credit unions have problems that are coming down the road quickly.
From a policy point of view, there have been a number of occurrences. In June, a commission was set up to examine the credit unions. On it sit representatives of the Irish League of Credit Unions, ILCU, the Credit Union Advisory Committee, CUAC, and the other large credit union body. The commission has made an interim report, which will be put before the Government on Tuesday and, hopefully, will be published and fully debated. It sets out the commission's first cut at what it perceives as the set of problems and what needs to be done in a regulatory way. Subsequently, the commitment is to have credit union legislation before Christmas. The commission will continue its work until approximately April, at which point it will make a final report on the overall credit union policy parameters.
Matters have been overtaken by events. The Central Bank has requested that we use the Central Bank and Credit Institutions (Resolution) (No. 2) Bill 2011, Report Stage of which will be debated on Wednesday, to give it additional powers to deal with credit unions that are on the brink and that it foresees entering into difficulty before the main legislation can be passed ahead of Christmas. The Central Bank must span that gap. I moved amendments on Committee Stage last week to address this issue. They were broad stroke amendments. Now that we have had more time and consulted with the credit union movement, we will narrow the focus of the amendments on Report Stage and remove some of the elements to which the movement objects. On reflection, bits of the amendments are unnecessary to meet what we must in the coming weeks. We will be taking other measures in this regard.
The Minister is not the regulator of the credit unions. The Central Bank, the Financial Regulator and the Registrar of Credit Unions form the regulator. I cannot guarantee the Senator that the regulator of the credit unions will provide €1,000 for the family at Christmas that has always relied on that money to carry it through Christmas. Yesterday, I answered questions in the Lower House. The regulator has issued directions to more than 50% of credit unions instructing them to limit the amount they can advance to particular customers. Some of the seriously impaired credit unions have been limited to €1,000, but that is low. I will ask my officials to speak informally with the people who issued these directives to increase the amount to a more reasonable ceiling and to allow negotiations within those parameters.
It is not a one size fits all situation. Some credit unions have no problems and others are on the brink of falling down a hole, to put it in its bluntest terms. They must be treated differently. I will inquire into the matter of negotiating the terms of loans. I do not know whether it is down to advice based on best practice or the imposition by banks of a statutory regulation, but I will pass on the Senator's request. I am not the regulator. All I can do is ask people to deal with an issue I have encountered. I cannot direct in any way, as doing so would be interference with the credit unions.
I am pro-credit unions and I intend to sort them out. Some of them will need to be dealt with immediately, but we will not do it in one big bang. My advice is that this will cost between €500 million and €1 billion. The major element of sorting them out will be their recapitalisation. The amount is small in contrast with the banks, but it is still a big hunk of money. Since we recapitalised the banks for less than expected, we have a bit in hand for the credit unions and will not need to revert to the Exchequer.
The dialogue has been good. We all have contacts in the credit union movement. Often, one needs information to filter through to Dublin. Even though there are large credit unions in Dublin, one gets more information from the credit union in the small town or community that knows exactly what is happening.
The intention is to secure the future of the credit unions along the lines I have suggested. We will proceed with amendments on Report Stage to meet the needs of the many people who have called and spoken with me. When we publish the interim report, it will give Senators a great deal of information that they can solidly debate. We will legislate before Christmas. In parallel, the regulator and the Central Bank will take action. We will recapitalise the credit unions over a period and put them on a firm footing again. This will probably involve consolidation, in that small credit unions may need to merge and we may need a hub-and-spoke system. These decisions have not been taken, but they are around. A large credit union would be the regional leader with IT and risk management centralised to it. However, smaller credit unions would draw from that central resource but would still operate independently in their own communities. A number of ideas have been put forward, and we will wait for the commission's report to see how we will do it. It is a very important topic and I am glad the Senator asked the question.
Senator MacSharry asked three questions, the first being on whether we can get back in the game retrospectively and ensure we did not settle hard while others settle soft if a better deal is done in Europe on the recapitalisation of the banks. We have no guarantee on this and we have had no discussions on it. However, the Senator will notice I have been positioning a renegotiation of the promissory note on Anglo Irish Bank and I think this will be the door through which we might be able to go because it amounts to €30 billion. If we had a different arrangement on this we could lessen the debt burden.
I do not know whether Europe would retrospectively take shares in AIB. This and the previous Government recapitalised AIB to the tune of approximately €20 billion. It has been very expensive and I suppose its market value is much less than €1 billion at present. I have been trying to anticipate the possibility of what Senator MacSharry has stated. I am trying to develop alternatives that we might arrive at the same solution, but there is no sign yet that there will be a softer deal anywhere else with the exception of Greece whose banking system is in much difficulty.
This morning's Financial Times mentioned a twin track approach whereby banks in smaller countries would be given the facility from the EFSF which we received to recapitalise banks, while recapitalisation funds for banks in larger countries would be a matter for their national governments.
Paddy Burke (Fine Gael)
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A number of other Senators have questions.
Caít Keane (Fine Gael)
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The Senator already asked three questions.
Marc MacSharry (Fianna Fail)
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I appreciate that but I want to make a very important point. The troika prescribed the level of capital that would be required for recapitalisation far in advance so the markets cleaned the shareholder. This will probably not be the process used this time, to the advantage of the European banks and their shareholders and the people in Europe. On this point we should look for something and I am sure the Minister will.
Michael Noonan (Limerick City, Fine Gael)
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I know what the Senator is saying. There is no easy way through this and no button we can press to avail of it but I am conscious of what the Senator has said. Issues arise from it.
The report of the interdepartmental group on impaired mortgages will be published next week and we will debate it in both Houses. We will see what comes of it. The idea is that it is not a report to be put on the shelf. As soon as we debate it in the Houses we will try to put a timeline on implementation and move from an interdepartmental group to an implementation group so we are not merely entertaining ourselves by debating it. A real need exists and we must get on with it, particularly with regard to new solvency and new bankruptcy legislation because this is the key starting position. It must be a priority.
I will examine what the Senator stated about extraordinarily high legal interest rates of 187% and see whether anything can be done about this. Normally, an interest rate is a measure of risk so a super high interest rate would suggest a super high risk. There is a connection and I do not know what is valid and whether one can limit it. If the amount of interest charged is limited one might eliminate risk and encourage people to borrow wildly without being aware of the risk.
To answer Senator Bacik, the fiscal council is independent. I understand how it will proceed, as it will arrive at its conclusions and publish a report. It is within the competence of the Seanad to decide to debate the published report. It does not have to be tracked through the Department of Finance because it is independent. The Seanad will be free to deal with it as it sees fit.
With regard to the Tobin tax, last week the Commission published its proposals on a financial transaction tax and I assume information on this is available on its website. Our attitude is that if there was a move towards a financial transaction tax it would be better if it was organised by a group such as the G20 and applied worldwide. If it was to be a European tax, it would be very important to Ireland's interests that it applied to the 27 member states and not the 17 eurozone states. I would be very nervous of a transaction tax existing in Dublin but not in London. It is the type of industry that can move with the click of a finger from computer to computer. It can be switched overnight to a new office in London handling what was previously handled in Dublin. This displacement effect must be considered.
There is no agreement in Europe on this. It is the usual story of various countries having differing views. The UK is very much against a transaction tax while France is very much in favour of it and other countries such as Ireland are watching their interests to ensure if it is introduced it will be under the best possible circumstances. Recommendations have also been made on the proceeds. The Commission has recommended it would be a Europe-wide tax for funding the European budget. We have always maintained the position that the European budget should be built up by contributions from the sovereign countries in proportion to their rating. We would not like to move to it being funded by Europe-wide taxation because that is only a couple of steps from tax harmonisation.
Jillian van Turnhout (Independent)
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I thank the Minister and welcome him to the House. I like the way he tells it the way it is but I do not always like what he tells us. He is in the midst of budget preparations and I would like to take this opportunity to remind him of child benefit payment. Child benefit is based on the principle of horizontal equity and is about income distribution from those without children to those with children, because many of us will benefit through our pensions from those children when they grow up. It cannot be looked at simplistically. Often it is proposed to tax or means test child benefit but as the Children's Right Alliance has proved, this would be a very costly administrative exercise and the previous Government eventually came around to this position. I can provide the Minister with much research on this from the UK and other countries. Will the Minister confirm that child benefit payment should remain universal and paid equally to all children? As the Supreme Court stated, child benefit is children's money and it should be paid equally to all children and not taxed.
Paddy Burke (Fine Gael)
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Less than ten minutes remain and there is one minute per question.
Jillian van Turnhout (Independent)
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Child poverty increased to 9% in 2009 from 6% in 2008 and is expected to increase again. Will the Minister pay particular attention to not reducing vital budgets such as child income supports and services for vulnerable children? Perhaps I will be able to speak more to the Minister about this on another opportunity.
Caít Keane (Fine Gael)
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With regard to the Central Bank keeping an eye on its money, and we are all aware of its abysmal record in not preventing the economic meltdown, recently it advertised online - where very few people would see it - for consultants to upgrade its offices. Does the Minister know about this? How much will it cost? Is it necessary given all the offices which are vacant? We know that if one watches the pennies, the pounds will look after themselves. We know how the Central Bank did not keep an eye on our money, and it looks as though it has not learned a lesson. When it was asked how much this work, which will take a few years, will cost, the Central Bank answered that it did not know the scale or value of the framework. It did not know the scale or value of the economic meltdown. If it does not know the scale or value of what it proposes to spend itself, how can we trust it to handle our finances? The Minister may not know the answer to this today but I ask him to please inquire and inform the House.
Thomas Byrne (Fianna Fail)
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I thank the Minister for coming to the House and very comprehensively answering questions. I also thank him for continuing the banking policy of the late Brian Lenihan. We certainly support him in these endeavours.
Thomas Byrne (Fianna Fail)
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With regard to credit unions, a small handful of credit unions will be affected by the measure being introduced. When the regulator goes about the job, I do not want to see Deputies and Senators complaining about the regulator and arguing that a particular credit union had been doing a great job. We need to support and uphold the independent regulator and wish it well in its work. Too often we are tied down by local interests.
I refer to the jobs initiative and the moneys from the pension levy. The total cost of the measures in the jobs initiative is €379 million. Fianna Fáil had promised to allocate a total of €124 million out of the €379 million. Like the summer works scheme for schools, Fianna Fáil had already promised this work but the Government dressed it up as a jobs budget. The cost of the additional measures is €255 million.
Ivana Bacik (Independent)
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The Senator could not resist that either.
Thomas Byrne (Fianna Fail)
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I remind Senator Bacik that this is a very important point because it is a rip-off of workers and of pensioners. Instead of creating jobs, the pension levy is being used to improve the Exchequer figures by approximately €200 million in 2011. This is an unfair imposition on pensioners. The Tara mines pensioners in my own constituency have received a 10% cut in their pensions as a result.
Michael Noonan (Limerick City, Fine Gael)
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Not because of the levy.
Thomas Byrne (Fianna Fail)
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Senator Darragh O'Brien raised the same scenario with regard to airport workers in the debate on the Finance (No.2) Bill. It is because of the levy. It is because of the way their pension scheme is structured and Senator O'Brien raised this issue with regard to another company at the time the legislation was being debated.
Thomas Byrne (Fianna Fail)
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About €200 million from the jobs initiative, money from the pension levy, is not being used for job creation. This money is just being used to make things look better and to make the budget options easier. Workers and pensioners are being ripped off.
John Crown (Independent)
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I wish to preface my questions to the Minister by offering him a very personal and very belated thanks for the attention he gave to cancer services when he was Minister for Health. On his first day as Minister he gave a speech which has been forgotten but should not be in which he was the first person from the public side of governance to acknowledge the disaster which was our cancer treatment service. He set out his stall with regard to attempting to fix it and I wish to offer him my thanks for his courage and foresight.
I wish to ask two financial questions. The first relates to privately-held pension funds. I have been doing some research and at a time of a significant shortage of liquidity or money or solvency, whatever one wishes to call it, it is estimated that €100 billion is held in pension funds by Irish private pension investors. This money has been legally collected with the assistance of various tax incentives over the years and this investment is regarded as part of a prudent provision for people's old age. A total of 95% of that money is held outside the State and mostly held in foreign investments. Many of the people who made these prudent personal investments took the advice from people who in previous generations were to be trusted, such as bank managers, mortgage advisors, real estate agents, that they should buy real estate-----
John Crown (Independent)
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-----using different rules. Will the Minister consider amending current pension law to allow people in negative equity and who are in danger of losing their home many years before they can access their pension funds, to be given premature access to that fund? This would give the Minister tax revenue and it would improve liquidity in the banks and reduce personal debt.
Will the Minister consider ending the practice of mandatory retirement in the public service which is age-based? I belatedly congratulate the Minister on his 68th birthday last May. I note he is a vigorous, fit, very active man but if he were a consultant neurologist or psychiatrist he would have been caring for his roses for the past three years, which would have been a terrible waste for this country.
Paschal Mooney (Fianna Fail)
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I thank the Minister for the lucidity he brings to a very complex area. The Institute of Taxation has indicated this week that the Minister will have very little wriggle room for getting more taxation from the system. It suggests he should look at the VAT rates as being the only area in which he will have some wriggle room, despite the EU. I refer to his comments relating to the beneficial impact of the reduction in the service VAT rate to 9% which has created jobs. The restaurant association states that 500 new jobs have been created. Has the Minister any comment to make on the quarterly report of the Central Bank regarding the debate on whether the amount will be €3.6 billion or €4 billion? Based on his earlier comments, will he be less austere in his approach? Austerity measures do not stimulate growth. The figures in the Central Bank report show that the worst tax returns were last year and there is growth in the economy this year. This can be contrasted with the severe austerity measures in 2008 and 2009 which resulted in a flatlining of the economy. I accept that these are budgetary issues but I would be interested to hear the Minister's thoughts. Ultimately it is all about job creation and protection of the economy. Has the Minister any views on the capital expenditure programme? Does he think there should be a more Keynesian approach taken although this seems to be out of favour at the moment in Europe?
Michael D'Arcy (Fine Gael)
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Will the Minister allow sufficient time to people who may choose to leave the public service so that they will have sufficient time to leave prior to any changes in the budget arithmetic which may impact upon their pension?
I refer to the proposal from President Sarkozy and Chancellor Merkel for a constitutional law in each of the eurozone countries in order to extend borrowing beyond a certain amount.
While Sinn Féin colleagues may have said they did not have an opportunity to speak -----
Paddy Burke (Fine Gael)
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That is not a matter for a question to the Minister.
Michael D'Arcy (Fine Gael)
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I wish to point out they did not take the opportunity to speak on questions.
Michael Mullins (Fine Gael)
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I welcome the Minister and compliment him on the fine job in restoring the image of our country both at home and abroad. There is anecdotal evidence that significant sums of money are being lost through various tax avoidance schemes and operations such as diesel fuel laundering, cigarette smuggling, cross-Border activity and VAT scams. Will the Minister say what sums are involved and what is the loss to the Exchequer? Are resources being put in place to tackle these criminals who are depriving the country of badly needed revenues at a time when services have to be cut because of falling revenues?
I support the Minister's comments about credit unions. I hope we will continue to have a strong and robust credit union movement which has served this country well over the years. The credit unions are the banks for the small person but they also provide employment in all parts of the country and they must be maintained.
Paul Coghlan (Fine Gael)
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I ask if the Minister would provide the House with a brief update. I know his heart is in the right place as regards the people at board level and senior management who steered the ship onto the rocks, so to speak. Will he tell the House how many of these people - I mean senior management - are still managing impaired loan portfolios as agents on behalf of NAMA?
Paddy Burke (Fine Gael)
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Senator Bacik has indicated she wishes to propose a change to the Order of Business.
Ivana Bacik (Independent)
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I propose a change to the Order of Business to extend the time by five minutes to enable the Minister to respond to those questions.
Michael Noonan (Limerick City, Fine Gael)
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I thank all the Senators who asked questions. Senator van Turnhout's questions are matters that might be the subject of discussion under the expenditure review and in the first instance, the Minister for Public Expenditure and Reform, Deputy Howlin, is interchanged with the Department of Social Protection. I do not know of any intention he has to move adversely into that area. It is a matter I cannot deal with until budget day. I take the points she raised and I will communicate her views to the Minister and ensure he knows them.
Regarding Senator Keane's query about the Central Bank, I will ask my officials to supply that information to the Senator. The Central Bank has a new Governor and a new regulator has been appointed. They are operating very effectively and are doing good work.
Michael Noonan (Limerick City, Fine Gael)
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The Senator's party picked them well.
Michael D'Arcy (Fine Gael)
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His party should have picked the previous regulator properly.
Michael Noonan (Limerick City, Fine Gael)
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I thank Senator Byrne for his support with regard to the credit unions. It is very important that the regulatory authorities be supported as they move to recapitalise the credit unions. Every Senator and Deputy will be lobbied. It is not so long ago, this time last year, since we were being assured by all the banks that the Irish banking industry was completely different, that there were no impaired loans in Ireland, that Lehman's was an American event and sub-prime lending was an American practice, that we had the best banks in the world and our situation was completely different. I remember that a fortnight before Anglo Irish Bank went bust, the senior people there briefed the current Taoiseach and my colleague Richard Bruton and gave them absolute assurances that there was no problem and that it was only vicious rumours by trade competitors that were causing the problem.
Paschal Mooney (Fianna Fail)
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Did they not suggest they should buy shares in it?
Michael Noonan (Limerick City, Fine Gael)
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I do not know whether they got that advice, but that was the situation. Many of the credit unions are fine, but several were seriously impaired. Therefore, one should check the facts before running with what one is told. There is some mismanagement and, naturally, people who mismanage will give their side of the story. The issue must be approached systematically. I appreciate what the Senator said.
I made it very clear when I announced the jobs initiative that it was costed over a four-year period. It is a four-year programme rather than a six-month programme. The Senator is right that there is more revenue available in the six months to the end of this year than is necessary to fund the jobs initiative, but that balances out over the four years. It has been costed to be fiscally neutral over the four years, but not in the first six months. Obviously, the jobs initiative came in from 1 July and the levy on the pension fund is a full year levy. There is nothing new about that and I explained it in detail when we were discussing the jobs initiative and when we had a short finance Bill to implement it.
I thank Senator Crown for his complimentary remarks. I am glad the original cancer initiative was continued, despite the gap in the middle. We now seem to have a pretty good cancer treatment service. I thank the Senator for putting my esteemed age on the record. I suppose all I can do is return the compliment and say that if it had not been for the Senator's profession, I would probably not be standing here today.
Michael Noonan (Limerick City, Fine Gael)
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Senator Mooney asked about the taxation. There is little enough scope and we have ruled out income tax increases. Therefore, we will have to look at other tax heads. The figure of €3.6 billion is the correction in the breakdown, but it is not the target. The target is a deficit of €8.6 billion. The €3.6 is a variable and the variation will be upward rather than downward.
Michael Noonan (Limerick City, Fine Gael)
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It is a different debate as to whether we would voluntarily go further. The point I am making is that if we make an adjustment of €3.6 billion, we may not reach a deficit of €8.6 billion. With that, we have to go further just to arrive at €8.6 billion. Whether, as a policy measure, it would be desirable to go further is another issue. We are pitching for the deficit of €8.6 billion. That is our target and in the breakdown in the programme it is an adjustment of €2.1 billion in expenditure and €1.5 billion in tax measures. That is how it is made up and we are trying to figure out how to achieve that. We have not got enough information yet to know precisely what the correction will be, but we are working on the targets in the programme. It is a secondary issue whether we will go further or not. There is mixed advice on that. The IMF says "No". It says going further would take too much demand out of the economy and if we just meet the target, that will be sufficient. The European authorities, the Commission in particular, are pushing us to go harder. There are mixed views within the troika and we must make the best judgment ourselves.
The days of Keynesian economics and big demand stimulus packages are gone. We do not have the money for that. However, one of the purposes of NewERA is to provide some element of a stimulus package and we are opting to go for new infrastructure and better water systems.
Paschal Mooney (Fianna Fail)
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I was thinking of the suspension of the roads programme, particularly with regard to metro north, which would create jobs and stimulate the economy.
Michael Noonan (Limerick City, Fine Gael)
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There are some things in the capital budget we do not need now in a smaller economy. We must be realistic about these things. Senator Mooney will know how the Keynesian model works - where there is a multiplier effect. We are such an open economy now that the multiplier effect on capital investment is about one and not much more than that. Therefore, we do not get the ongoing bang that they got in the new deal in America in the 1930s in a closed economy, because any benefits leak out almost straight away.
I think I have answered all the questions. Thank you.
John Crown (Independent)
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I asked two questions that were not answered. I asked about the possibility of considering allowing people earlier access to retirement funds if they are in negative equity. I also asked whether the Minister would consider the wisdom of changing mandatory retirement in the public service, which has the effect of transforming productive taxpayers into State dependants.
Michael Noonan (Limerick City, Fine Gael)
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The Minister for Public Expenditure and Reform, Deputy Howlin, has brought forward a new pension Bill. While it does not move mandatory retirement, it moves the age upwards and by the mid-2020s the retirement age will be 68 rather than the current age. Therefore, there is movement in the direction required, but by a different means. Please remind me of the second question.
John Crown (Independent)
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I asked about allowing citizens who have substantial savings in private pension funds which they cannot access until they are 65, by which time they may have lost their homes, to get early access to those funds. They could pay the tax, plus a penalty premium for early encashment, thereby giving the Minister tax money, providing liquidity to the banks and reducing personal debt.
Michael Noonan (Limerick City, Fine Gael)
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There has been mixed advice on that, but I am looking at it. A proposal in the Fine Gael programme for Government suggested that people would be allowed draw down 2.5% of their fund for each of four consecutive years, a total of 10%. However, that proposal was not carried forward into the programme for Government. We are looking at the possibilities. There is a case for and against. We do not want to impair pension payments for the future either as that would be a problem.
Senator D'Arcy asked about a constitutional break. Anything that requires a referendum will be difficult now, especially if it has been suggested by Europe. However, we will have a fiscal stability Bill before Christmas and we may be able to include the break in legislation rather than putting it by way of referendum into the Constitution.
Senator Mullins asked about diesel and cigarette smuggling etc. The Revenue Commissioners are examining that issue and taking action on it. The customs service is at the front line on that. It is a big problem and I have discussions regularly in that regard with the chairperson of the Revenue Commissioners.
Michael Mullins (Fine Gael)
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Is there any estimate of how much it costs the State?
Michael Noonan (Limerick City, Fine Gael)
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There are various estimates, but how can we know the real figure with illegal activity? We just have a rough estimate. I can get some figures on it for the Senator, but I would not vouch for their accuracy.
Michael D'Arcy (Fine Gael)
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Has the Minister any information on people who are about to retire on pension, either before or after the budget?
Michael Noonan (Limerick City, Fine Gael)
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People must make up their own minds on that. The big run of retirements from the public service are people who can retire up to February of 2012 and have their pension based on public service pay before the reductions were introduced. That is the big incentive and quite a lot of people are contemplating that. I cannot be more accurate than that.
I will have to get the figure with regard to the number of developers in NAMA, but it is not very big. I think some 25 developers have 40% of the loan books in NAMA. It is a small number of people, with a huge quantum of loans and some of those are gone into receivership. I can get the fuller figures for Senator Coghlan, but I do not have them to hand. An Adjournment debate on NAMA is coming up shortly.
Ivana Bacik (Independent)
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Ag leathuair tar éis a dó, Dé Máirt.