Thursday, 23 July 2020
Credit Guarantee (Amendment) Bill 2020: Committee and Remaining Stages
Unfortunately, as it has been ruled out of order I cannot really speak on it. My hope was that it would have been a potential saving for the State. Earlier, the Minister of State called for accuracy from others in the House. With regard to being accurate, I know the policy intent is that the SMEs benefit but if there is interest on the loans there is still a profit mechanism built into that money and finance. In a scenario where these loans are successful and the businesses thrive, the profit would go into the banks and would be part of their annual profits. The focus is not the amount, as I think that will probably be small, but there is an important point of principle. The point of principle that applies here also extends to other credit guarantees that have been given. There are also questions about the bank guarantees. There is a strong link. This is the principle that those who do not take the risk should not be allowed to keep all of the profit. Unfortunately, the amendment has been ruled out of order. With great respect, I understand the Cathaoirleach is bound in this regard so I will wait to make further points on the other amendment I have tabled.
We did not rule it out of order. After the legislation passes through the Houses we will complete agreements with the banks. Agreements will be signed between the Strategic Banking Corporation of Ireland, ourselves and the banks, which will detail what they intend to do. We will have tables that will show the benefit of the scheme and the guarantee. The legislation is intended to provide assistance from the State to qualifying enterprises. It leverages financial institutions in the network to provide much-needed liquidity to SMEs. The benefits under the EU framework are for SMEs and not for banks.
The Senator mentioned the banks making a profit if the loans are successful. If the loans are successful there will be no drawing on the guarantee because it is to guarantee the loan. It is used if the loans are not successful. To be clear, this is not to give the banks increased or excess profits. It is to introduce an interest reduction. That is what we are trying to do. This is the benefit to the SME. There is no benefit to the bank if there is an interest reduction because it will receive less interest. The guarantee puts them in a position to lend. We want banks to loan the money at a lower cost in a greater capacity. This is why we are choosing to do this. We are asking the banks to loan this money. We are giving this guarantee because we want SMEs supported.
I am not arguing the policy intent as to why there is a guarantee. I have accepted this. The Minister of State called for people to be factual earlier and he needs to be factual. Of course, it would only be called on if there were a loss. This is the legislation whereby the State says if there is loss it will take that hit. What I am pointing out is that there is still a profit even at 2% or 1%, and I hope it is very low. I would be delighted if the Minister of State were to inform me, for example, that any interest made on those loans that are successful goes back in some way to other enterprises that might be struggling more. Perhaps any profit that comes from those who use the scheme and succeed will be redirected to give leniency to those who might be struggling or take a longer time.That would be a situation in which there was not profit and it was redirected within the scheme. That is certainly not in what is before us today. I look forward to seeing the statutory instruments when they are drawn up, but at the moment there is the potential for loss which the State absorbs 80% of. There is a potential for profit, which the banks will hold. That is a fact, that is how it is. We should be clear on it. I absolutely realise that the policy intent is that the State wants to drive this to happen but let us be clear.
Let us also be clear that we are concerned that if we do not have this credit guarantee a lot of businesses might be in a position where they cannot access funding. They might fail and we would lose jobs. We want to do this, it is a business support and that is what we are trying to do here. Most people understand the necessity of doing that because this lending might not happen without this guarantee. As such it is about saving jobs and businesses. That is what we are trying to do and it is important that we do that.
On the area of the guarantee, the big game-changer is that the State is now backing these loans to 80%.
A lot of the SMEs have been through a horrendous time with the banking industry. There is very little trust between the SME sector and the banking sector. The banks were offering the SME sector millions of euro in 2008 and 2009 but would not even give them a €50,000 overdraft in 2011 or 2012 when they needed it to survive. The banks asked the SMEs to put their own pension schemes on the line and to put their children's education fund on the line to keep their businesses going. As such there is an element of mistrust between the banking industry and the SME sector. I want this to work. The Minister of State wants this to work. Everybody wants this to work because it has to work for us to survive. This goes back to the independence of the banking sector in making decisions. I am the last one who wants to add layers of bureaucracy to this process. I want to get access to this funding as quickly as possible. However, the funding provided to the sector must stand up and must be credible. There is no point in us funding businesses that probably cannot survive.
This is where the industry lead, which in my industry is Fáilte Ireland, has a great role to play as the intermediary. Perhaps I should be going to Fáilte Ireland for approval of my potential loan with a banking institution, whether it be for improvements to the business, health and safety improvements that need to be done and so on. I could walk into whatever bank I choose with an 80% guarantee under my arm which says: "I have a guarantee of 80%, all I am asking you to do as the retail bank is to take the risk on the other 20%". It might help create better trust in the system. It is very late in the day to bring this but these things can evolve over time. As the Minister of State said, this is a different scheme. The old scheme clearly did not work for the SME sector and the figures are there. This is a change. I want it to work. I am the last person who wants to add layers of bureaucracy to this but perhaps there is an independent way where our lead body, in my case Fáilte Ireland, has a role to play in this process. It would be a greater role to play than they had before. Years ago they were funding hotels to the tune of £100,000 to £250,000. They had no problems in doing that. As such, the capacity is within the organisation to identify what the industry needs specifically, what it should be funding, and perhaps how viable that particular business is, because they understand it. Not all banking institutions understand industries.
I do not wish to belabour the point. We have been clear that we support the Minister of State on this Bill today. It is important, however, to get the facts correct. I accept entirely that this scheme is not for the benefit of the banks.This scheme is for the benefit of SMEs and that is why we support it. To be absolutely clear, the banks will make money out of this scheme.
Sinn Féin's position is very clear: the banks should not be allowed to defer tax on any of their profits. That is an ideological difference between us on the left and those on the right. The idea that they can defer tax, particularly in this scheme which will be backed by the State, is fundamentally and morally wrong.
We are trying to support businesses and support the banks in getting money out to them at a cheaper rate. That is what we are trying to do. There is no cost to the State if the loan is successful, and that is a success all around because we want businesses to be sustained, to survive, thrive and grow. I accept that the banks still have a lot of work to do to rebuild that trust between them and their communities and the business community. There is no doubt about that. In their response to Covid-19, the banks have a chance to build those relationships and rebuild that trust. That concern about the banks comes up in every debate. We will track and monitor this scheme through the SBCI and it will be visible to everybody that the banks are passing on an interest rate reduction. Customers will also vote with their feet. If banks have competition among themselves and one does not pass on as great a rate as the next, people will move banks and follow that rate. We will track this and we can reapportion the share of this guarantee to banks in response. After this legislation is passed, there will be negotiations with the banks, building on the ones we have had already, to make sure we can track what is happening and see what we want to see coming out of this scheme, which is lower-cost finance for businesses.
The deferral of tax for banks and other companies has been in place for a long time. Every functional country has such a system for business, though people might not always like it. While it did not come up in the discussion in the Dáil last night, Senator Higgins has led the discussion on it here today and it is an ongoing debate. It is a matter for different legislation and a different conversation with a different Minister because this Bill is not about banks' profits. It is about businesses' survival and that is what we are trying to achieve. I do not want to labour the point. I was happy to make some comments on this matter, although I was not really supposed to.
I welcome industry bodies such as Tourism Ireland or Fáilte Ireland playing a role in loan applications. Having worked with businesses for many years, both as a politician and otherwise, while many businesses are brilliant at what they do, whether that is running a hotel or window manufacturing, they often need additional guidance as regards cash flow statements, financial products, form-filling and so on. They often need advice when putting in applications for future growth or putting together a growth expansion plan, and there is no one better than the representative bodies of those sectors to give that advice. They should always have a role and we encourage that. Many of the Department's clients work through LEOs and Enterprise Ireland to get that expert advice and guidance. Each sector brings its own expertise and that should always feature on loan applications because they can often fall down on detailed financial plans, cash flow statements and so on, which do not always make a positive judgment possible. In the microenterprise loan space, we work with our clients on their application forms to fill in more information and adjust them because the quality of the application has a big impact on the success of the loan drawdown. The credit guarantee puts banks, credit unions and everybody else in a stronger position to deliver a better financial product, which customers now need if they are going to get through Covid-19 and keep their business doors open. That is what we are supporting and focusing on.
I move amendment No. 2:
In page 5, between lines 32 and 33, to insert the following: “Report on Credit Guarantees
7.(1) The Minister shall, within eight months of the commencement of this Act, prepare, in consultation with the Minister for Finance and the Minister for Public Expenditure and Reform, a report to consider:(a) the role played by the State through credit guarantees under this Act and the Act of 2012;(2) The report, referred to in subsection (1), shall be published within 12 months of the commencement of this Act and laid before both Houses of the Oireachtas.”.
(b) the risk absorbed by the State through credit guarantees under this Act and the Act of 2012; and
(c) the implications of credit guarantees for future public policy in relation to the banking sector, including options in relation to the use of Deferred Tax Assets.
I am proposing a report on credit guarantees. As this matter relates to both Ministers, I ask that in the eight months following the commencement of this Act, the Ministers for Finance and for Public Expenditure and Reform put together a joint report considering the role played by the State in both this and previous credit guarantees; the risk absorbed by the State under credit guarantees; and the implications of the credit guarantees and banking guarantees, which are linked to this, for future public policy relating to the banking sector, including the options for the use of the deferred tax assets.This is related. Banking is given unique supports from the State and the sector has responsibilities in respect of the role it plays in enterprise, the economy and supporting business. However, it also has a responsibility in terms of recognising the support the State has given to it. There is, as previous speakers noted, a lack of trust and an issue that trust has been eroded. The experience of businesses when they sought support from banks is part of that and trust between SMEs and the banks needs to be rebuilt.
More widely, trust between the public and the banks also needs to be rebuilt. The public made huge sacrifices in respect of the bank guarantee. As a result of the bank guaranteed they suffered a direct impact on their lives and those of their children with regard to the opportunities available to them, their education and health and in many other ways. Trust needs to be rebuilt. The public stepped up and gave support to the banks. Are the banks genuinely there to serve the common good of the State to any degree?
On the question of deferred tax assets, the Minister of State mentioned choices. There are choices. It is important to remember that tax relief is public expenditure. It is a choice, money spent in helping a sector which could be used for something else. If we give VAT relief to the hospitality sector, for example, that is a choice. It is an expenditure we decided to make because we believed there would be a collective benefit of some kind from it. Similarly, if we give a tax relief to the banks through the deferred tax assets scheme, we are making a choice in terms of money that will not then be available for a national childcare scheme, special needs assistants, direct supports for business, sectoral interventions or a new scheme through Bord Fáilte, as was mentioned. All those options are available in terms of how the State spends its money. If we choose to spend our money in basically giving a tax-free card to the banks, that is a choice. It is important to remember that. This has not always been a natural right where current profits are always written off against the past. Between 2009 and 2014, the then Minister for Finance, the late Brian Lenihan, put a reasonable measure in place. While I do not like the deferred tax assets scheme at all, the then Minister made a reasonable compromise in providing that only 50% of profits could be set against this scheme. If a bank made profits, it had to pay tax on at least 50% of its profits. It could only use tax schemes to get rid of 50% of their profits. That was a reasonable scheme. If the banks are not making profits, this approach does not hurt them and if they are making profits, they can afford to contribute.
That is a basic principle. That was the case between 2009 and 2014. Mr. Lenihan's successor as Minister for Finance, Mr. Michael Noonan, changed and widened that scheme so that 100% of all profits made by the banks could be written off. The Comptroller and Auditor General, who sets and measures the financial interests of the State in a way that is beyond and separate from all of us, has estimated the cost to the State of the deferred tax assets scheme will be €29 billion, of which €12 billion will arise specifically in the finance sector. That is not me, as an Opposition Senator, saying that, nor was it said by a vested political interest. It is the Comptroller and Auditor General telling us that.
I fully accept the Minister of State's bona fides. The goal of this scheme is to get money to SMEs but the action we are taking to achieve that goal is underwriting the risk for the banks. The State's decision to take that action should be balanced by another related action by which the State tells the banks that, having helped and taken the risks for the banks, we want them to contribute to taxation as any shop, small business, sheep farmer, producer, such as those we spoke about earlier, hotel or any other company would.It is not too much to ask that the banks do that as well. I am simply saying there is a policy link and a continuum. I realise the Minister of State may not accept this in the Bill but I hope that, as Minister of State with responsibility for enterprise, he brings the issue into the discussion and informs the Minister for Finance, in his conversations with him, that the banking sector should pay its share so we can support all the other sectors. That is a conversation that will be carried through in the budget. I hope the Minister of State can accept the report. If he cannot produce the report, I hope he will at least consider the issues raised in it.
I thank Senator Higgins for tabling this amendment. I know she probably spoke to the first amendment more than the second. I understand that she has genuine issues around that and that she wants to have a genuine conversation. The Senator makes extremely valid arguments about choice and the conversations we must have. I am afraid we cannot have them with this Bill because I am not in charge of the banks, but it is a conversation worth having and it is an issue that has been debated in this House.
The Ministers for Finance and for Public Expenditure and Reform will always say it is appropriate that every company, not necessarily only the banks, should pay the correct amount of tax. That conversation is taking place all over the world, not only in Ireland. The Senator has a particular view on it, and she makes some valid points, but I am afraid I cannot facilitate that conversation in this legislation because our main priority and focus is to get lending out to SMEs that need it. We all genuinely believe that if we can make money available at lower interest rates and with different conditions, the scheme will be more successful and more businesses will draw it down. This is about giving a guarantee. The Senator spoke about profits and she is right, but if this scheme works and the money gets out to businesses which are then able to stay open and create jobs, there will not be a draw on the State.
Senator Higgins is in a different conversation, one about banks, profits and so on which is not necessarily part of this discussion. The whole aim of the European framework and the changes to it proposed in this scheme, is to pass on the interest rate reduction to businesses. They are the beneficiaries of this guarantee, not the banks. We are using the banks to channel the funding because that is the most cost-effective way to do this. We can reach customers quickly because we want to get this funding out within the framework timeline of December of this year. It is important that we do that. While I can relay the Senator's message to the Minister for Finance, I cannot address her concerns in this legislation. That is my response to her first amendment.
The amendment before us is on the need for reporting. That is not necessary and I will oppose the amendment. The Department keeps all programmes under review and the credit guarantee is kept under review, specifically with regard to this scheme. I assure Senator Higgins that the Strategic Banking Corporation of Ireland, SBCI, will operate the scheme and monitor all the loan portfolios. If a finance provider is not using the scheme for its customers or passing on the interest rate reduction, the operator may reallocate part of the funding under the scheme to another finance provider.
I made the point earlier that the conversation is with the three main pillar banks, after which there is an open call for the rest. If a provider secures a portion of this guarantee and does not use it or its customers do not want it because they have not been given good terms, we can reapportion that funding. We will deal with that issue. The SBCI, with which we will be in regular contact, will do that on behalf of the Department.
Likewise, the Tánaiste has met the banks to discuss this and we and our officials will meet them again as we complete the design of this scheme over the next couple of weeks. The purpose of this legislation is to ensure money is made available to the various sectors mentioned today faster, at a lower interest rate and under different terms. We will ensure the scheme is utilised to its fullest possible extent, that the SMEs, primary producers and small mid-caps have the greatest possible access to the liquidity they need to recover from the economic impacts of Covid-19 and that the participating finance providers are also active participants in providing support to enterprises. We will monitor that.
In more general terms, my Department works closely with the Irish Government Economic and Evaluation Service in the Department of Public Expenditure and Reform to produce a series of overviews on the loan schemes and other expenditure programmes which are funded by the Department of Business, Enterprise and Innovation. These spending reviews are submitted to the Minister for Public Expenditure and Reform and are also published on the website of his Department.We can track it there. The Covid-19 credit guarantee scheme will be reviewed as part of this series and therefore this amendment is not necessary. I understand the Senator's logic and motive in tabling it, which I know are genuine, but we believe we do not need additional requirements for reporting under the scheme.