Written answers

Thursday, 9 March 2017

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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87. To ask the Minister for Finance the classification of the announced dividend for the State from a bank (details supplied) in terms of being on-balance sheet or off-balance sheet revenue; if it will take the form of a financial transaction; the purposes for which it can be used; and if he will make a statement on the matter. [12632/17]

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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88. To ask the Minister for Finance if it is possible to use the proceeds of the sale of a bank (details supplied) or dividends from the bank to fund or partly fund the proposed National Children's Hospital; if he has been consulted on this issue by the Minister for Health; and if he will make a statement on the matter. [12633/17]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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I propose to take Questions Nos. 87 and 88 together.

The Ireland Strategic Investment Fund (ISIF) holds the AIB shares on behalf of the State. Dividend payments are therefore made to the ISIF. Payments from the ISIF to the Exchequer arising from the proceeds of the disposal of the State's shareholdings in the Banks are provided for under the NTMA (Amendment) Act 2014. This legislation allows the Minister to direct the Agency to make such payments after having consulted the Agency.  

Regarding the sale of financial assets, these type of transactions do not result in a beneficial impact to the General Government Balance (GGB) under the European System of Accounts (ESA) framework. This is due to the fact that it is classified as a 'financial transaction' whereby it is essentially the exchange of one form of asset (shares, equities, loans) for another kind (cash). Consequently, the sale of any shareholding in Allied Irish Bank (AIB) would not count as general government revenue. Accordingly, there will not be increased capacity to spend on capital projects as a result of the sale of shares in AIB without affecting the general government balance.

However, while not improving the deficit, cash proceeds arising from the sale of AIB shares that are transferred to the Exchequer would reduce the Exchequer borrowing requirement and ultimately result in lower general government debt. A lower level of debt is not only beneficial in terms of the fiscal sustainability of the State but would also result in reduced interest payments in future years. The strategy of reducing the national debt is consistent with the Government policy of repaying the borrowing previously undertaken to finance the recapitalisation of the banking sector during the financial crisis. It is my view, therefore, that because public indebtedness rose partly due to the recapitalisation of the Banks, it is appropriate to use one-off revenue from divesting the State of its banking assets to reduce debt 

Regarding proceeds from dividends, these are typically recorded as property income in the ESA framework. Therefore any dividend payments would be recorded as General Government Revenue and, as such, would improve the General Government Balance. 

As to what this revenue can be spent on, money in the Exchequer is fungible. Accordingly, there is no linkage between specific receipts and specific expenditures.

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