Eoghan Murphy (Dublin South East, Fine Gael)
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Question 89: To ask the Minister for Finance the strategies he has in place for increasing and maintaining deposits in Irish banks; and his views on a zero rate of DIRT for one year as a possible option. [22116/11]

Michael Noonan (Limerick City, Fine Gael)
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As the Deputy will be aware, deposits in Irish banks were on a downward trajectory during 2009 and 2010 as fears grew about the health of their balance sheets and rating agencies downgraded their recommendations. The government's first priority was therefore to ensure that they were adequately capitalised to not only restore depositor and investor confidence, but to ensure they were in a position to support the economy going forward in terms of new lending. The Central Bank completed an in depth analysis of the banks' balance sheets in Q1 of this year using external consultants and the €24 billion capital need identified as a result of this exercise is currently being provided for. The exercise has generally been judged a success by the market a result which was highlighted again last week when the EBA stress tests results were released.

As I understand it, the result of this further recapitalisation of the banks is that if depositors on the ground now have any concerns it tends to resolve around uncertainties at a European level rather than the health of the Irish banking system.

Of course recapitalisation of our banks takes place against a general restructuring effort which will shrink not only the number of players in the market but the size and shape of these institutions and this will also bear fruit in terms of providing a road map to stability.

At a broader level the government remains focused on stabilising and growing the domestic economy such that rising incomes will be reflected in increased deposits in the Irish banking system.

As regards the suggestion of a zero rate of DIRT for one year, if this proposal was introduced that yield would be lost to the Exchequer and the money would have to be found elsewhere, whether through increased taxation from other sources or reduced expenditure. To indicate the amount that may be involved, the 2010 yield from DIRT was €445 million. I do not feel charging DIRT on deposit interest is a significant deterrent to saving, especially since DIRT is a final liability tax (that is, no further income tax is due on interest subject to DIRT) and income subject to DIRT is not liable to the Universal Social Charge. Even if reducing the DIRT rate encouraged savings in Irish Banks, making the reduction for one year would not encourage the maintenance of deposits there. Also, under European law we would be required to charge the same rate of tax on deposit interest in banks throughout the EU.

I have no plans at this time to make the suggested change. However, any taxation changes will be determined in the context of the Budget and Finance Bill.