Written answers

Tuesday, 3 May 2011

9:00 pm

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Question 77: To ask the Minister for Finance taking account of the additional bank recapitalisation following the recent bank stress tests, the amount of interest he anticipates will be paid on the national debt for each of the years 2012, 2013, 2014 and 2015; and the percentage of the total tax take that will be accounted for by such payments for each of those years. [9692/11]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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The recently conducted banking stress tests identified €24 billion of additional support as being required by the banking sector. However, it is not expected that the State will provide this full amount and the debt forecasts which are contained in the Stability Programme Update recently submitted to the European Commission are predicated upon the State providing €20 billion in capital support, some €10 billion of which is due to come from the National Pensions Reserve Fund and was already factored into the debt forecasts at budget time. The additional €10 billion which has now been identified will add to the level of debt and this has been taken account of in the Stability Programme Update which was laid before the Dáil on 29 April 2011. Based on these assumptions, the Stability Programme Update projections of debt interest costs and those costs as a percentage of total tax receipts are outlined in the below table:

Stability Programme Update Projections:

2012201320142015
National Debt Interest (€ bn)7.28.08.79.2
Tax Revenue (€ bn)37.539.942.344.3
Debt Interest as % of Tax Revenue19.220.120.720.8

At almost 21 per cent, the proportion of tax revenues going towards debt interest in 2015 is undoubtedly at a significant level. However, it is worth bearing in mind that it is well below the ratios experienced in the mid-1980s when around a third of the tax revenues generated in the State went towards servicing the interest on the national debt.

There is now a general appreciation at European level of the importance of debt sustainability considerations in the pricing of EU and euro area financial assistance loans to Member States. In this regard, the Heads of State or Government of the euro area decided on 11 March last that the "pricing of the EFSF (loans) should be lowered to better take into account debt sustainability of the recipient countries, while remaining above the funding costs of the facility, with an adequate mark up for risk, and in line with IMF pricing principles."

The European Council also decided that the interest rate on the loans to Greece will be adjusted by 100 basis points. The position in relation to the pricing of Ireland's loans was also considered in the context of wider political discussions but the Council did not take any decision in the matter. The pricing of Ireland's loan is being pursued vigorously by myself and my Department at European level. The decision on this will be made by Eurogroup and ECOFIN Ministers, and it is being addressed through that forum. However, every opportunity to present our case on the interest rate is being taken – including the EU/IMF quarterly review which took place last month.

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