COMMITTEE OF PUBLIC ACCOUNTS debate

Finance Accounts 2012

Mr. John Moran(Secretary General, Department of Finance) called and examined.

Chairman

We now move to No. 7, 2012 Annual Report of the Comptroller and Auditor General and Appropriation Accounts; Vote 7 - Office of the Minister for Finance; Chapter 1 - Exchequer Financial Outturn for 2012; Chapter 2 - Government Debt and Finance Accounts 2012.

Before we commence, I ask members, witnesses and those in the Visitors Gallery to switch off their mobile telephones. Also, I advise witnesses that they are protected by absolute privilege in respect of the evidence they are to give to the committee. However, if they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a Member of either House, a person outside the Houses or an official, by name or in such a way as to make him or her identifiable.

Members are reminded of the provisions within Standing Order 163 that the committee shall refrain from inquiring into the merits of a policy or policies of the Government or a Minister of the Government or the merits of the objectives of such policy or policies.

I welcome Mr. John Moran, Secretary General, Department of Finance and his officials and in doing so acknowledge that this is the last occasion on which Mr. Moran will appear before the committee. I wish Mr. Moran well in the future and thank him for his past contributions to the Committee of Public Accounts.

His contribution was constructive and informative. I have no doubt that he will go to pastures green and to better things. I wish him well. I ask him to introduce his officials.

Mr. John Moran

I thank the Chairman for those particularly kind words. I am accompanied by a number of officials today. They include Mr. Greg Dempsey, our chief financial officer, Ms Cep Carthy, who works with him in the finance unit, Mr. John McCarthy, our new chief economist, Mr. John Hogan, head of banking policy, and Mr. Des Carville, head of our shareholding management unit. Mr. Dermot Quigley, whom I am not sure I am supposed to introduce, is also present. He is our colleague from the Department of Public Expenditure and Reform.

Chairman

I invite Mr. McCarthy, the Comptroller and Auditor General, to make his opening statement.

Mr. Seamus McCarthy

The annual finance accounts present the receipts into and issues from the Central Fund of the Exchequer, together with a set of statements that analyse the transactions. The financial statements of the national debt, which are prepared by the National Treasury Management Agency, NTMA, are presented in full as Part 2 of the finance accounts. The chapters that are the subject of today's meeting were compiled to highlight key aggregates and trends in Central Fund transactions and in broader State liabilities.

Chapter 1 summarises the Exchequer's financial outturn for 2012 when Central Fund issues exceeded receipts by almost €15 billion. Receipts into the Central Fund in 2012 totalled €41.1 billion, representing an increase of 6% year on year. Issues from the Central Fund amounted to €56 billion in 2012, a decrease of 13% year on year. General Government debt is the standard and most complete measure used to report Government debt under Maastricht treaty provisions. At the end of 2012, Ireland's general Government debt stood at around €192 billion. The debt represented 117% of Ireland's gross domestic product at the end of 2012 compared with 104% a year earlier.

The principal components of the general Government debt at the end of 2012 were borrowing by the NTMA on behalf of the State, which is referred to as gross national debt and which is accounted for in the national debt account, and promissory notes issued in 2010 by the Minister for Finance to the Irish Bank Resolution Corporation and the EBS Building Society, which were not included in the NTMA's national debt accounting.

The nominal value of the promissory notes at the end of 2012 was just over €25 billion. In the context of the liquidation of the Irish Bank Resolution Corporation in February 2013, the related promissory notes were cancelled and replaced with floating-rate Government bonds issued by the NTMA. The bonds now form part of the gross national debt. Almost 90% of the June 2013 gross national debt was in the form of medium to long-term debt instruments. Funding received under the EU-IMF programme of financial support for Ireland accounted for almost one third of that debt. Figure 2.6 presents a maturity profile of the debt and indicates that, at that date, over €100 billion would fall due for repayment for re-financing by 2020. Exchequer payments in 2012 related to servicing of the national debt totalled over €5.8 billion. This was up 23% when compared to the debt-servicing costs in 2011. It should be noted that this excluded the interest that accrued in the promissory notes.

The NTMA estimates that the weighted average cost of servicing the gross national debt was 3.8% at the end of June 2013. Around 80% of the debt was at fixed rates.

Cash and other financial assets held by the Exchequer totalled €23.8 billion at the end of 2012, rising to €30.6 billion at the end of June 2013. This reflects an increase of over 28% in that six-month period. Almost 46% of the end-of-June total is held as cash on deposit in the Central Bank. The average interest rate earned on such deposits was 0.09%. A significant portion of the available cash balances was held in short-term bank deposits and non-Irish treasury bills. Those investments earn a higher rate of return than the interest on Central Bank deposits but they also carry a higher risk.

The build-up of cash and other financial assets reflects the State's intention to have sufficient advance funding in place by the end of 2013 to cover 12 to 15 months of Exchequer financing needs after the EU-IMF programme came to an end. However, there is a cost to the Exchequer associated with maintaining high levels of cash balances because the return on those assets is lower than the State’s average cost of borrowing.

Accrued pension entitlements of public servants are a significant liability of the State but these are not reflected in the finance accounts. At the end of December 2009, an estimated €116 billion had accrued in respect of such pensions. The 2012 finance accounts continued to note the estimated end-2009 liability. Later assessments of the liability had not been made despite the very significant changes in public sector employment and remuneration in the intervening years. As discussed when the Accounting Officer of the Department of Public Expenditure and Reform appeared before the committee recently, a more up-to-date estimate has now been prepared and actuarial reviews and projections of public service pension costs will, in future, be carried out regularly. This should help to ensure decision-makers are aware of the long-term cost impact of public sector pensions and of changes in pension terms, and that the timing of pension outflows.

In the 2011 report on the accounts of the public services, I recommended that the Department of Finance should review the level and quality of disclosure in the finance accounts so as to increase the transparency of information about the public finances. The Accounting Officer agreed with the recommendation. In March 2013, a team from the International Monetary Fund, IMF, visited Ireland to evaluate Ireland's fiscal management and reporting arrangements based on the IMF's fiscal transparency code standards. The report of the review team, published in July 2013, contains detailed recommendations on the reform of a number of areas, including the nature, content and timing of fiscal reporting, and a proposed action plan for implementing the recommendations over the period 2013 to 2017. The report's recommendations are set out in Annex 1 to Chapter 1.

The Government has asked a steering group under the joint leadership of the Departments of Finance and Public Expenditure and Reform to implement the proposed action plan, as appropriate. My office is represented on that steering group. The Accounting Officer will be able to brief the committee on progress to date in that regard.

Finally, the 2012 appropriation account for the Vote of the Office of the Minister for Finance records expenditure totalling €26.2 million on four programme areas. These relate to the costs incurred in respect of budget and economic policy, financial services and taxation policy, banking sector policy and the provision of shared services. The expenditure on banking sector policy recorded in the appropriation account is €6.8 million. However, members should note that this does not include costs associated with staff seconded to the Department from the NTMA to deal with banking sector issues and certain related consultancy costs. Those costs are borne by the NTMA and are not recouped from the Department. The level of costs incurred is not disclosed in either the appropriation account or the NTMA's financial statements.

At the end of 2012, the Department had underspent by €7.5 million relative to its budget. That amount was accordingly liable for surrender back to the Exchequer. Note 3 indicates that much of the shortfall related to delays in the filling of vacancies and the use of pro bono staff in a number of key senior posts and lower-than-expected legal advisory fees arising from the postponement of certain bank and debt restructuring projects.

Chairman

I invite Mr. Moran to make his opening statement.

Mr. John Moran

I thank the Chairman. I thank also the Comptroller and Auditor General and his team for their help in producing the accounts. As ever, they have worked satisfactorily with our team. I have already distributed a statement that contains a number of observations for the committee. I thought it would be useful given that this is the last time I will be appearing before it. I do not plan to read all of the statement but I would like to identify some of the important issues in it.

Chairman

May we publish that statement?

Mr. John Moran

Yes. We distributed the statement earlier. If members have questions on it, they may ask them if there is time.

Essentially, we are here to examine the accounts of 2012. However, the environment is fast moving and an awful lot has changed so, with the permission of the Chairman, I will probably touch on much of what has changed since the production of that set of accounts.

Everybody recalls that, in 2012, given the number of changes, we decided to revise our statement of strategy to refocus the Department across five goals which were not necessarily related only to a particular division. These were, essentially, the economy and jobs, the public finances, living standards of citizens, the exit from the troika programme and the banking sector. As these were the objectives when I took up my role, I felt I owed the committee the courtesy of announcing my resignation, which I announced to the Minister yesterday, so that it would be aware of that before this hearing, rather than doing it afterwards.

Because of the announcement yesterday, I have given a lot of thought to what I might actually highlight to the committee today among the many things that have happened in the Department. Of course, I could have spoken first about the performance in the accounts and the savings that we actually produced in delivering our outcomes. I could also have spoken about the stabilisation of the economy and the work we have done in the fiscal and banking sector. We made a somewhat brave statement in terms of resetting our objectives, which were agreed by the management team, and actually putting as our first objective the economy and jobs. We did that despite the fact that it was a task not just for our own Department, because a lot of actors have a role in this, and in view of the fact that at the time the Irish economy was losing 350 jobs a week. It was a particularly unusual task. The management team felt that what we had to do was to actually put that as the core of everything we did and, in effect, embark on a programme to see what we as a Department could contribute to what is one of the most troublesome issues in our economy at the moment. We tried to do so by, in some respects, enlarging the scope of what we had anticipated we would be doing in 2012 and to run that through into 2013 by conducting with the new economics team a micro-analysis of the economy. We did this by looking at different sectors and seeing what barriers existed, which, of course, informed our decisions around our budget, as well as through a relentless pursuit of solutions for banking and the financing of the economy, which I am sure we will talk about, and also a very public engagement with foreign and domestic investors and business communities around Ireland to try to rebuild confidence, which was essential to getting investment into the economy.

It is only appropriate that we should take some satisfaction from the fact that, in a relatively short period since the statement of strategy, we have moved from a situation of considerable job losses to one in which unemployment continues to drop every month, and has come from a peak of 15.1% down to 11.7%. Alongside that, the rate of interest paid by the NTMA to finance any of the activities of Government has dropped from a high of 14% to below 2.75% today. These are two key measures in terms of where we were going.

We distributed an annual review earlier, so rather than actually go through all of our specific performance against our goals, of which there are many, I thought it was more appropriate to simply distribute the document to members. I am happy to answer any questions on that. The review speaks for itself in terms of delivery over the course of the last year. However, I will take this opportunity to thank the staff in the Department and, equally, their families for their personal contributions and the single-minded dedication to these tasks that I saw over the last two years.

Something I have often heard is that people do not appreciate the size of the Department and the feat of delivery in view of this. There are just over 300 people in the Department, of whom 60 or 70 are engaged in very significant transaction-based material and work in Tullamore. That means we have produced these annual reviews using less than 1% of the Civil Service. In a sense, we have done that by dividing people into overlapping teams which have concentrated in the last year on different types of project. There are the business-as-usual projects that people more typically associate with the Department, and we have also had a separate group of people working towards a reform agenda to achieve a higher-performing Department. We have people looking at legacy issues from the crisis and we have had a team looking in particular at the Presidency of the Council of the European Union, which was, of course, a major priority for us during the course of last year.

Given that this is going to be my last appearance before the committee in my current role-----

Deputy Shane Ross

Mr. Moran hopes it is.

Mr. John Moran

I hope it is-----I thought it appropriate to share with the committee some more detailed observations about changes and improvements we have been making in the Department and, therefore, engage in a conversation about why we felt they were necessary. There will be no specific issues raised on the accounts by the Comptroller and Auditor General, so perhaps this is an area where a discussion today might help people to understand some of what we have been doing. For me, it is a question not so much of looking at individual policy issues and the result of our handling of them, but of using those policy issues as a way to test whether we have in fact managed to change the Department so that it can identify issues into the future, perhaps come up with strategies to avoid risks and, if things do occur, as they often do, actually have a strategy and a way of dealing with them.

Many have questioned in the last two or three years the failings that occurred in our system. I think it would be useful for me to explain what we have been trying to do over the course of the last number of years to fix those problems. We believe that new processes which embed better governance, more effective communication and a culture of open challenge and encouraging questioning among staff in the Department will go a long way towards addressing the problems we have seen in the Department in the past. Therefore, I am grateful for the time to explain some of the things we have been doing in respect of that.

First, I would like to talk about this issue that keeps coming up with regard to management teams and managing change. The right combination of management change in an environment such as we have had draws on the skills and knowledge of the past and supplements them with new skills and new perspectives, while coaching the entire team as a unit and training the whole team. In that way, we can build a new cohesive unit to actually tackle the problems. It is probably appropriate for me to say, as I have said in the statement, that it would be foolhardy to believe that somebody can land into a complex situation and not draw on the best experience of the people found in that Department. With that combination of experience, which is what we had, we have now got a new set of views in the Department about the problems we have had to address. Inevitably, there are changes of personnel as people move on to new challenges. Like myself, two other senior managers will be leaving the Department, one for a shorter period of time and another in retirement. I would like to thank both of these in particular - Jim O'Brien and Michael McGrath - for their efforts, particularly on the international framework in Europe in the last couple of years.

We have seen the physical reforms in terms of the economy and the banking sector, but what has perhaps not been so obvious to the public is what we have been doing to live up to our statement of strategy and try to build a more modern, professional and forward-looking Department, and to introduce new principles and values into that, which are the principles of equity, partnership, leadership, challenge and integrity, and, of course, openness and transparency. In many ways, when people reflect on what is described in the statement, they will understand that the challenge we have set ourselves in terms of change has actually gone beyond the recommendations of the Wright report in respect of the Department. At the time, in 2012, we had a Department with three policy areas but, quite frankly, less attention had been directed towards the support and control function, and many of the changes are actually reflected in what we have done there. We continue to work away quietly on this. The job is now well mapped out among the team in the Department and we are well under way, but we have not finished everything that needs to come into place.

We have, as we set out in 2012, taken the decision to reunite the budget and tax policy areas so that they work together, and we have also reunited the banking and financial services areas, for reasons that will become obvious if we get into the issue of funding the economy, where we see those two as being much more interconnected. Our newly created international division has actually opened up the Department to the world a lot more than before, and I will come back to that later. Our last important policy area is the building of our new economics division, which was possible following John McCarthy's appointment as chief economist.

We have tried to move the focus of the Department away from just short-term forecasting to a much more robust discussion of broader economic areas and an engagement with the external world in respect of developing our thoughts. In the next few years, we would like to move towards a system under which we can have additional economic modelling capacity over and above what we have had in the Department in the past and, more importantly, to integrate what is being done in the economics area with the important work that has been developing in the risk and financial stability capabilities.

Most importantly, what we think has been the change in the Department is a completely different focus on what support, risk functions and control functions mean. We have changed our internal structures to better facilitate a culture of greater challenge. We have new risk, legal and compliance functions and a completely different way of carrying out peer review of policy directions and advice to the Minister, which are now central pillars of the way we work. The State's accounts are now produced by a team led by Greg Dempsey, who is on my right and who is an accountant with 20 years' experience. We have a team of risk officers led by Neil Ryan, who has more than 20 years of legal and banking experience. We now have a new policy committee under the direction of Ann Nolan, who is one of our most experienced civil servants and who has an unparalleled knowledge of each area of practice within the Department, in order to encourage cross-discipline and cross-unit debate. We have established a legal and compliance unit under Antoine Mac Donncha with a newly recruited experienced compliance officer added to that team, along with other recruited lawyers, to facilitate the legislative process. Our management advisory committee is operating in a way that looks more like an executive-style management board. Under Mr. Dempsey's direction, we have also added a new corporate office to support the function in the first instance of the management committee and the new sub-committees - the risk committee and the policy committee. More importantly, it houses a project management office which now runs quarterly business planning processes and has weekly updates to the management as well as training for all staff in project management techniques. We have also set out to reinvent how we communicate with the outside world in terms of sharing information both within and outside Ireland. I think people will have seen the first half of this. We are also continuing to change the way we communicate internally in the Department.

Under the leadership of Niall O'Ceallaigh, who joined the Department shortly before my appointment, we have outsourced operational HR to the shared services function established by the Department of Public Expenditure and Reform. This has freed up our HR function to become what one would expect to see in a professional HR function - focusing on issues such as how we recruit people, how we carry out learning and development, how we carry out flexible resource management, with a biannual exercise that involves looking at our resources and priorities and, more importantly, how we carry out performance management integrated fully with our business planning process. It is worth saying that we believe we are now managing both the good and bad performance of our teams. We started this process with a 32% compliance record on performance management systems but we completed that exercise in 2013 with 100% compliance. Therefore, every staff member in the Department had a full process of evaluation of their performance and the objectives set for them into the future.

We have begun what will, unfortunately, be a very long process of enhancing the IT systems in the Department, starting with a new external website for clearer communication but, equally, using that and other methodologies for better internal communication, document sharing and working while we are on the road and out of the office. As I mentioned to the committee last year, during the course of last year we redirected our internal review and audit committee to look not just at specific issues but much more at the vulnerabilities in the way we tackle strategic areas and help us to scope what the remedial action should be. This year, we have also begun the process of taking the best of what we have learned from the troika management team and integrating that with our medium-term economic strategy team into a unit to focus on driving economic development and growth.

The reputation of the Department, like that of Ireland, took a very significant beating. I believe things are now quite different on both levels. People recognise the changes that we are trying to make in the Department. Back in 2012, statements made abroad about being Irish were treated in the same way as working at the Department of Finance was treated. It was something people avoided volunteering to others. I can say that this is not a comfortable place from which to drive policy, innovation and implementation. It was not a comfortable place for our management team to begin the important task of rebuilding morale, our reputation and the belief in delivery that our team need in order to be able to achieve its objectives. Many members of the team in the past were just diligently doing what they had been asked to do. Many of them then jumped in with extraordinary efforts once the crisis hit to try to solve the problems facing the country. It was not a comfortable place for me when I joined the Department in terms of the task and reputational risks that were being put in place. More importantly, given that the Committee of Public Accounts is a committee that looks across the entire system, it is not a comfortable place in respect of discussions around hiring people whom we are trying to persuade to come into the public sector. They all have the same worries about reputational risk. The Department and, in some respects, the broader public sector had gone from being a place where one would want to work to being a place that people preferred to avoid. That is a task that I would ask the committee, along with other colleagues that remain in the system, to continue to think very seriously about. We also ask the committee to do what it can to support ways in which we can continue to improve the system, to be innovative, to be brave in setting our targets and to attract the best talent to the public sector.

On the plus side, as with the economy of Ireland, we found that the fundamental foundations of the Department were the right ones for a rebuilding exercise. The staff had a deep commitment to the job at hand and a willingness to go beyond the call of duty to devote time and energy to their task. There was, however, an acknowledgement that it was necessary to deploy more investment. There was an equal acknowledgement that there was a need for additional skills. Over the course of the past few years, we have now recruited more than 100 new people into a Department of 300, a statistic that may surprise some people who believe that things have not changed. Many of our team members have refocused, are being trained, are coaching and are being mentored so that they can compete for new positions and prove that sometimes people who are already in the Department are the best people for the job. To prove that point and to reinforce it, we have also been operating in the past year or two a rule that is unique to the Department. We will only fill positions at the levels of assistant principal and above through a competition that is open to the public, including internal staff.

We have been changing the way we do business to put stakeholders first. I have identified a number of issues in the statement that go towards the various stakeholders. I will not necessarily go through them in great detail other than to point out that we believe that for the Government and Oireachtas, we have changed very significantly the way we interact to allow ourselves to be open to fair challenge of our own thoughts and, more importantly, not be afraid to change our own advice if new perspectives or arguments are brought to our attention. However, we needed to change quite dramatically the way in which information is handled and stored in the Department. This job will be costly and it will take a lot of time to achieve best practice. While there has been much improvement in recent years in the quality of information on which we must base our daily decisions, it is still very much below what I would consider to be the optimal level for policy decisions to be made on a national basis. It will require considerable further investment of technology and time. We are not yet where we need to be to data-mine the wealth of information that must be present across all Government organs of State so as to make the best decisions. This should be a priority across the entire system. We need to continue to break down silos and improve communication flows, to be more efficient and to use technology to do that. One of the small successes that is of particular importance as a starting point for us is that after processing 5,866 parliamentary questions using a paper-based system in 2013, we now have an electronic system, so moving physical files around the Department will no longer be a feature of our work in 2014.

Equally, we are aware of the leadership role that we need to play. In dealing with stakeholders we have been trying to engage somewhat differently with the wider public service by showing greater leadership and leading from the front. Mr. John Hogan has chaired two very important committees on mortgage arrears and SME credit to drive a cross-departmental piece of work. I commend, in particular, the way he has embraced the new management techniques we have been using in the Department and has allowed them to be used across a much broader system. We have also been responsible, under the direction of Mr. Paul Ryan, for a number of shared services projects which are key to making the public service more efficient. We have been involved in the Clearing House strategic group and have led the performance of the medium-term economic strategy, as well as supporting Action Plan for Jobs. We have also stepped up to the mark in Europe. My colleague, Mr. Aidan Carrigan, has been appointed vice chairman of the financial services committee in Europe, which has significantly increased Ireland's influence in respect of policy decisions coming out of Europe.

I have heard it said over the course of the past two years that the Department is closed to the views of industry and the social pillar, but this is not the case. For many years, under Mr. Derek Moran's direction, the tax policy unit in particular has been leading the way in terms of the way it consults outside stakeholders. However, we recognised that more could be done and that we could be more transparent. As a result, we have published diaries on our website to ensure people know who we are meeting and that we are available for meetings. We have also taken a break from tradition by identifying on our website - by name and photo - our management team in order that people understand who is responsible for what within the Department and to promote accountability for our actions.

The example that sticks out the most for me in terms of changes to the way the Department operates is the way in which we handled the preparation of the medium-term economic strategy. We consulted not just with people in the system, that is, the economists with whom we discussed the type of areas we should be examining as we developed a plan for the next seven years, but also with external stakeholders of an official type. More important, as we worked our way through the system, we realised that this is a country that has changed dramatically, and so we set up a young entrepreneurs event where we brought people of diversity into the environment. We invited young entrepreneurs under the age of 35, female entrepreneurs and people who did not grow up in Ireland to give their views, which assisted us in developing a path for the next seven years. The way in which we deal with academia has also changed significantly. We now think we are moving into an environment where the Department is able to produce papers and information which will help others to analyse the same policy issues with which we are struggling as we go through the various actions we have to do.

I have mentioned the way in which we have changed our engagement with the international world. Ireland does not live in a vacuum and we have commented on the need for a new engagement with respect to Europe and the outer world. By having a new international division, we have done that, not only by having our people visiting other areas but also by engaging in very significant bilateral secondments to other treasuries and to the European Commission as we build our team and have new people come to work with us.

The public, however, remains our most important stakeholder. Our Department is less public facing than others in terms of the delivery of our services. We are conscious, however, that every decision we make has a direct or indirect impact on all public shareholders. This means we are fully aware at all times of our responsibility not only to work to increase living standards but also to ensure we do the maximum to ensure sustainable growth for the future and avoid pitfalls that are inevitably lurking ahead. We have invested a lot of time in improving the communication channels we use for the public. I can also say that in the Department there is a greater recognition that we owe a particular duty to the public to ensure we do whatever we can to avoid falling into another failing in the management of the economy. For that job, the embedding of a new culture of openness, of internal and external challenge, peer review, risk management and robust and innovative policy formulation is key. This is not easy stuff, in case anyone thinks it is. It requires ensuring adequate investment to have access to the best talent and the best information. It also means learning to listen and embracing an environment - often lacking in organisations - of open, free and honest debate and mutual trust, where everyone's views are well received and cheap shots avoided. It means nurturing talent to create the leaders of tomorrow who need to be instilled with a sense of creativity to help to develop policies for a changing world and also a sense of conviction and of courage to be able to identify the next problem and shout "stop" when it is needed.

As I said earlier, I am proud of the team with whom I have worked. I hope this committee and our other stakeholders are happier with what we have been doing in recent years. Along the way I have had occasion to mention many of the senior managers of our team, but it is the other unsung members of the staff to whom real credit must go. They are the people who have made our results a reality. I thank the committee members for their attention and hope I have stirred some thoughts and ideas about what we might talk about. I welcome the opportunity to address the committee and look forward to questions from members.

Deputy Eoghan Murphy

I thank Mr. Moran and his officials for appearing today. I echo what the Chairman said in his opening remarks as I have always enjoyed our exchanges with Mr. Moran at this committee. He has been a transformative Secretary General at the Department of Finance. As he said in his opening statement, today is a good opportunity to look back at the past two years and how the Department has been managed. If we have time, I would also like to look at the medium-term strategy because it is probably the most important document the Department has produced during Mr. Moran's tenure and it merits detailed examination. As this may be Mr. Moran's last appearance before the committee, I invite him to be as open and forthcoming as he would like to be in discussing issues relating to the Department.

Deputy Eoghan Murphy

The type of changes that have taken place in the Department would imply that it was not being well managed prior to Mr. Moran's appointment as Secretary General. Would that be fair?

Mr. John Moran

I think everybody understands there were failings in the system. It is very difficult with hindsight to try to decide what one would or would not have done. One observation I had during the time I was there was that compared with other environments in which I had worked, we were looking at a series of challenges that were being managed by people that were critical point issues to be dealt with across the system. Even at that stage, there was some limited information in terms of being able to deal with them. It is easy to say that in other environments we would have seen more people dealing with those issues. However, people took the decisions, which were perhaps understandable at the time in terms of budgetary restrictions, not to resource the problems as much as they might have. One of the lessons is that we have to find a just medium, both at this committee and elsewhere, to avoid creating an environment where people are afraid to spend money and invest in dealing with problems.

Deputy Eoghan Murphy

Mr. Moran referred to getting settled in the Department and then turning to the departmental report on the Wright report and how it would implement it. Are there any recommendations Mr. Moran did not agree with in that report?

Mr. John Moran

We both have a shared purpose and shared views on infrastructure and development in the State. They help to identify the projects that need to be done. Our Department can bring to that some of the other elements of what we do in terms of financing techniques to bring new financing to those type of objectives.

Deputy Eoghan Murphy

Are there fluent management structures between both Departments? Could an assistant secretary or a second secretary go straight to a staff member at the Department of Public Expenditure and Reform with a task? I know they are in the same building but are they completely siloed in separate Departments?

Mr. John Moran

There is a surprising amount of work done. In fact, during the short break we were talking to some of the people who asked if we would present to one of their committees on some of the work we are doing. Therefore, we do get this integration. The proximity, in terms of being in the same building, certainly helps.

Deputy Eoghan Murphy

Mr. Moran spoke about opening up the competition for an assistant secretary to people outside the Department.

Early on, I said that it is not done. There is a path to go through. We now have a risk committee that meets monthly. The committee will have to continue to meet and talk about risks. With each subsequent discussion, the discussion gets better. The process works better and the crossover between that and the policy committee and all the various communications that have to happen improves.

The parliamentary question submission system means that process is now paperless. We are moving that technology to cover all submissions that go through on policy matters. This will help to create a much improved record of the process of deliberation. The system will be automated to allow it be searched more easily. It is a continuous process of improvement and it does not just stop.

Deputy Eoghan Murphy

Are other Departments mirroring this and copying the improvements the Department of Finance is making in, for example, the information flow for parliamentary questions?

Mr. John McCarthy

Parliamentary questions are a very good example. The Deputy asked about our interaction with the Department of Public Expenditure and Reform. Both Departments have engaged in doing that together. The outsourced information technology is a function of the Department of Public Expenditure and Reform and we are moving to an automated system, having already done so in relation to parliamentary questions, for ministerial and policy submissions. We are moving together; therefore we can roll it out further. The genesis for the exercise was a journey one of our people undertook to other Departments to spot other best practices. Some Departments are ahead of others. There were others which already had some of this stuff.

Deputy Eoghan Murphy

If other members want to come in on this subject, I will wait to ask questions on the strategy for growth.

Deputy Sean Fleming

Mr. Moran is welcome to the committee. I wish him the best in whatever career he moves to. He will do very well. I thank him for his years as Secretary General. The fact he came from the outside was a good idea.

I cannot recall the figure for 2008.

In respect of the IBRC liquidation, can Mr. Moran give an estimate of the fees and costs associated with the IBRC liquidation of February of last year? It is well in train and we are nearly there.

Mr. John Moran

Mr. Des Carville

The Deputy is absolutely right that confidentiality was maintained prior to liquidation. It was a very closed circle of knowledge and it is a credit to the people involved that confidentiality was maintained right until the ultimate announcement.

In regard to the costs, they are based on NAMA agreed rates with liquidators for services of this nature. In addition, we managed to negotiate an additional discount, based on the volume of work, both on the legal side and on the side of the special liquidators. However, I am not in a position today to give an actual quantum figure.

Deputy Kieran O'Donnell

I welcome Mr. Moran and his colleagues. I take the opportunity to commend him for the work he has done to date, but I must admit that I am somewhat intrigued as to why he is leaving the Department of Finance. I suspect many others feel the same way. I was trying to think of an analogy for what is happening and the one I have come up with is that it is similar to going to the cinema to see a film and walking out halfway through. That said, it is incumbent on me to note that a great deal of work has been done and the fact that the public finances have stabilised, that there is growth in the economy and that the national debt is decreasing, albeit it very slowly. When one considers the work already done and what has been put in train, it is difficult to understand why Mr. Moran is leaving.

Will Mr. Moran outline the current position of AIB, Permanent TSB and Bank of Ireland in terms of the State's investment in them and their being fully privatised again at some point in the future? In the context of the 2013 statement by the European Union to the effect that it would consider the recapitalisation of the Irish banks, will he comment on the sheer cost of the financial crisis to Ireland? I would like our debt levels to be reduced even further and the issue of bank debt is a central element in that regard. Will Mr. Moran outline his general views on where our dealings with the European Union on the retrospective recapitalisation of Irish banks come into play in this matter?

On SME and mortgage lending, representatives of the banks appeared before the Joint Committee on Finance, Public Expenditure and Reform in recent weeks. Will Mr. Moran comment on the fact that almost 50% of the so-called sustainable solutions relating to mortgage debt take the form of legal letters, rather than anything more concrete or long-term in nature? There are only approximately 38 mortgage-to-rent schemes, of which AIB and Bank of Ireland have each only approved one. During a recent lecture - I do not know whether it was intended to be the case, but this ended up in the public domain - Professor Morgan Kelly commented on the possible impact SME lending could have on economic recovery. Has the Department had interaction with Professor Kelly?

We wish Mr. Moran well. Let us develop that. Obviously, many good things have happened. Let us focus on the banking system. Will Mr. Moran offer his thoughts on where he sees the future for AIB, Permanent TSB and Bank of Ireland? Can he link that to the mortgage restructuring arrangements that are taking place and the fact that 50% of these appear to be in legal letter form? There is an issue in terms of remuneration. I am asking the questions that the person looking in wants asked. There is an issue with the large salaries of some of the chief executives of the banks. What is Mr. Moran's view on how to deal with that?

The first question is one of timing. The first precondition to a real discussion on any direct recapitalisation is the establishment of the European Financial Stabilisation Mechanism, EFSM. It will be in place at the end of this year. The earliest date at which one can see any meaningful result will be once that is in place and, I suspect, once the results of the stress tests are known and other countries consider how to bring the EFSM into operation.

Originally, we took great care to have written into the relevant documentation an acknowledgement that some situations, most notably from our perspective our situation, should be retrospectively or retroactively – I am never sure which word is right – examined on a case-by-case basis to open up the door for a discussion on-----

Deputy Kieran O'Donnell

Does Mr. Moran see that as still being live?

Mr. John Moran

At no stage have we allowed that sort of text to drop out of any of the conversations, but we must wait for the time to have the conversation.

Deputy Kieran O'Donnell

I have two final questions. First, Mr. Moran commented on the mortgage crisis. Second, and this will kind of be Mr. Moran’s last testament, what is his opinion of how Ireland will progress during the next three years – I will not make it five, as that would be too long – and the risks that could impact on it?

Mr. John Moran

In respect of mortgages and the SME sector, I acknowledge the work that Mr. Moran and his team have undertaken and the achievements within the number of years he was been working there because we are in a different place. However, we are in a different place with a set of new challenges. The new challenges relating to mortgages and the SME sector have, by and large, not been dealt with. There is a significant debt in the bank relative to mortgages and SMEs. They have not been addressed with any great speed to release these families and individuals back into the real economy to allow them to perform fully again. When I look at the amount of money being paid to the senior executives in the bank on both sides, it raises the question of why more is not being done for the SME sector and mortgages.

Some of the young people with mortgages within those banks are being dealt with in a deplorable fashion. All of us here, and I am sure I am no exception, have seen people come into our clinics whose health is now becoming an issue because of the actions of the banks, some of whom are outside the arrangement in terms of how many times they phone the person and so on. It is appalling. As it is, the lives of these people have been devastated, they see no way out and they are being offered no way out. The mortgage-to-rent scheme has just not been successful. They see no way out and the banks pursue them daily. I want to hear Mr. Moran tell me what the Department can do to make the banks respond in a real way to settle these bad debts and to deal with people realistically. The real message here is that they cannot pay. They will never pay their debts back. They are simply unable to do so and the banks do not seem to recognise that.

Quite a number of SMEs cannot pay their debts back either. We risk losing them as performers within the economy if we do not address in real terms the debts they have. Has the Department quantified within the banks or have the banks told it exactly how much money within their system is at risk because people will not be able to pay? Has the Department taken into account the fact that when people lose their homes, they qualify for rent allowance, local authority housing and all of that and that there is an associated cost to the State? We have gone way past moral hazard and I do not see the banks doing anything real in terms of mortgages for individuals and families and the SME sector in comparison with some of the write-offs the corporate world has achieved. Has the Department assessed-----

Mr. John Moran

I will give some general statements and will call on Mr. Hogan who is closer to the market side to come in. Taking it in inverse order and dealing with the SME sector, I referred earlier to the fact that in the earlier part of the crisis, much of our focus, appropriately so, was on trying to get lending to SMEs. The target for that lending obviously included viable businesses that should have been able to draw down money to grow. Otherwise the economy simply would not be able to conduct itself.

The analysis or policy tools used to try to drive lending in the banks included the lending targets and the Credit Review Office to adjudicate as a third-party on what was deemed a fair or unfair decision by the banks in respect of lending. Certainly, it has taken longer than we might have wished for the population of small and medium-sized enterprises to become more comfortable using the Credit Review Office as an arbitrator in that respect but there has been some success where that has happened.

Bearing in mind that much of this effort started in 2011, one thing we observed along the way was that several SMEs which up to that point had been grouped as one category were in reality in a very different category, in that they were SMEs with unsustainable debt or with significant debt that may have had nothing to do with the underlying business. The two categories had to be disaggregated. In many cases the balance sheets of either the SME or the owners of the SME had been destroyed by property businesses attached to them which had failed.

The speech to which I referred earlier made at the Irish Banking Federation in 2012 was an exhortation by us to the banks to get moving on the resolution of SME lending and to deal with the problems we have referred to, in particular the need for those SMEs with too much debt to have a resolution. At the time, more of the focus was on the mortgage arrears issue, which in many ways reflects the same thing but the situation was capable of being addressed.

My understanding of the latest statistics is that Bank of Ireland claims to have resolved over 90% of what it considers to be the troubled loans in terms of offering SMEs real solutions. I gather Allied Irish Banks is probably at 65% or 68% at the moment and working towards the completion of that by the end of this year. For Permanent TSB this is not necessarily an issue.

Like with the mortgage arrears, the difficulty experienced in resolving the problem, particularly in 2011 and early 2012, was that the banks were simply unable to deal with these issues. They were not ready, they did not have operational systems and they did not necessarily have the right mindset to work through the resolution of the mortgages. However, since then and under pressure from the regulator, they have in fact been moving considerably on the SME side.

There is another point on the SME side. To the extent that we went through this process, there was initially a focus on the banking sector and what we would do to get more lending out of the banks. Then we evolved with the policy decisions to an understanding that there was a need for other sources of financing for businesses in Ireland, in particular for rebuilding balance sheets, because many companies had gone through years when they had depleted the reserves that one might typically see associated with a firm seeking a bank loan. We needed to be able to find mechanisms to put equity into those balance sheets before they could get borrowing from other banks. That has been the focus and there is almost €1 billion of State money put aside in the National Pensions Reserve Fund for a turnaround, growth and credit fund for businesses. We are trying to deal with the bank situation and the Credit Review Office for the smaller companies but we have the Microfinance Ireland fund and credit guarantee fund and so on as well.

Chairman

The reality is that retailers, for example, have exhausted all of their money. Their savings are gone. Some of them are staying open out of pride. They would have a good business if only the overall debt was dealt with. It might have been debt created by the purchase of property, as Mr. Moran said. The banks are not responding to them in any real or meaningful terms. I am shocked by the numbers in my constituency and I imagine it is reflected throughout the country. These people are being left to hang out to dry. They are now being pushed to the point where they will not recover. The banks will break them. We did not allow the banks to go; we saved them. I consider the retail sector and the high streets of this country to be an important part of our economy, but we are allowing them to go broke. Let us consider the number of properties that are boarded up in every village, town and city throughout the country. One cannot but be shocked. The names over the doors indicate that families have been in business for generations but they simply cannot continue. It will take a vast amount of money to rebuild that part of Ireland but the banks are not playing a role. I think they are disgraceful in the way they are behaving.

Deputy O'Donnell pointed out that on the mortgage side they have said that they have taken action but 50% of the action they have taken has involved sending letters. I have seen letters to individuals in which they have been declared unco-operative. One individual came to me and explained that he was setting aside a €50 repayment each week into an account but his lender was not taking the money. Then he got a letter suggesting that he was not co-operating.

A considerable number of people will find themselves without a home and on the streets after this because they simply cannot get the bank to understand that they do not have the money to pay. The local authorities do not have the houses to give them. The rent allowance system and the rental accommodation scheme are at breaking point in terms of the money the Government is putting in but that is their only escape. I am afraid the banks have failed to respond at that level. I agree with Mr. Moran that there is change at the higher level. I suppose I am referring to the smaller end of the SME sector, including the retail sector. All these businesses represent indigenous jobs created in towns and villages but the banks are letting them die. I appreciate the job Mr. Moran did and I understand that he is finishing up, but I believe his team should be focused on those community businesses that would be feasible if they got half a chance.

Mr. John Moran

One of the difficulties covers some of the population to which the Chairman referred. Let us consider the mortgage situation and the SME sector. There has been considerable discussion about how the banks have not been playing ball and that we should have someone come in to help to find a resolution - the Insolvency Service of Ireland has been put into place and so on - ultimately to bring people together to reach agreement. That requires a recognition of the reality of the situation on the bank side and on the borrower side.

Since there are fewer SMEs than there are mortgages and the population is smaller, it should be easier to deal with them. Through the regulatory system we have tried to put pressure on the banks to resolve the loans rather than simply ignore the problem. Sadly, that was what was happening during the earlier phases of this crisis. There is a third party which I believe can play a valuable role in resolving the type of situations to which the Chairman referred. It could bring assistance to the family that has run a business for many generations but who may not be used to dealing with the banks in this kind of a discussion. I am referring to the Credit Review Office. The office has a team of people and they have been successful. Some people have raised problems individually with us but it is not appropriate for us to engage with the banks in respect of an individual borrower. However, we have asked the Credit Review Office to engage and to try to mediate a resolution of the situation. In some cases the office has successfully done so and in some cases we have seen the introduction of third parties to do so. If there is a problem with the operation of the Credit Review Office in this respect, we would like to understand what that is.

Chairman

I have no wish to labour this any more, but there is a problem with the banks and how they deal with individual mortgage holders and the SME sector at a particular level. This is my final question for Mr. Moran. Will he please acknowledge that and have it as part of the conversation with the banks on a regular basis? Have the banks given him a figure relating to those mortgages and SMEs that are in difficulty with their loans?

Have the banks provided a breakdown of the figure for the number of mortgages and loans to small to medium-sized enterprises, SMEs, those being, employers of one to ten employees, that are in difficulty? Have they indicated to the Department whether more money may be necessary to deal with this situation, given the fact that a substantial amount of money might not be repaid?

Mr. John Moran

The asset quality review, which came through at the end of last year, indicates that we must put aside more money for the loans on the banks’ balance sheets.

Chairman

So we will have to give them more money.

Mr. John Moran

The asset quality review worked by determining the extent of the loans that the banks or external third parties considered were not likely to have full repayments. The regulator pointed out the level at which the banks would have to make provision against bad debts.

Chairman

What type of provision have they made for bad debts relating to mortgages that will not be repaid by people who are now out of work and are in houses that were purchased for €250,000 but are now valued at, for example, €80,000? There must be a figure for such cases. What provision has been made in respect of the SME sector? How much money will the banks need to deal with all of that? This is the type of information that is required.

The Secretary General can respond shortly as I wish to ask a further question on a matter that has been mentioned. This crisis has lasted since late 2007, yet we are still dealing with SME and mortgage issues. In 2012, there was a discussion on banking versus sovereign debt and so on. The EU took a particular stance on what we should and should not do with bondholders in banks. In the past two days, a senior adviser or official stated that it should be recognised that we were badly treated at the time. The country and the individuals who comprise the debt, be they SMEs, mortgage holders, household debtors or so on, will not be able to repay it in their lifetimes. Is there any indication that Europe will change its stance on our role in saving the euro system? It has been recognised, although I cannot cite the name of the European official who made the comment.

Deputy Peter Mathews

He was European Commission President Barroso’s assistant.

Chairman

Where would we be without our own adviser on the right-hand side? President Barroso’s former adviser made the statement and it has been recognised, but there is no tangible result that would allow us to deal more sympathetically with the businesses and individuals who, having had their lives ruined, now want to move on and do something different. Has Mr. Moran any opinion in this regard?

Mr. John Moran

Chairman

The kernel of this problem is that when the banks are being examined in terms of the stress test, the figures and the statistics they give Mr. Moran hide the fact that individuals simply cannot pay the debt. There are significantly more of those people, and SMEs than is being discussed in their conversation with Mr. Moran and the Department. I say that because I have seen the letters that have been issued to individuals who have no hope of paying back the mortgage. They are unemployed. They have gone from a marriage to a separation where two of them were working. They are now separated, the house is in negative equity, the amounts due on it have not a hope of being repaid yet the banks continue to write to these people as if there was some hope in that regard.

There is a significant number of such people turning up at local authorities who also have a debt in this regard. They have another system of loans that is in arrears. In the context of the stress test for the banks, I ask them to please give us the figure for the exact amount owed to them that obviously will not be repaid. Even if the house was sold it is a cost to the Exchequer because the people must get housing from the local authority, rent allowance or go on the rental accommodation scheme. I would like to see that analysis.

Separate to that I would like to see the figure for SMEs that have a viable business but a bad property debt somewhere. I believe it is greater than the figures I have seen. Economists who have looked at this and other people who have carried out an analysis of it will tell Mr. Moran that the debt is greater than the banks are telling us. That is one issue. The other side of both of those issues is that they are not giving individuals a chance when the banks got a chance, supported by the Irish taxpayers. That is the point I am making. I would like to see that conversation take place.

Mr. Moran has been here since 12 o'clock answering questions and before I call Deputy Collins and Deputy Murphy, would he like to take a break for ten minutes?

Mr. John Moran

I am okay. We will keep going for a while. I thank the Chairman for the offer.

Chairman

I call Deputy Collins.

Deputy Áine Collins

Mr. Moran and his officials are very welcome. I will comment briefly on some of the discussions the Chairman had on mortgage and legacy issues with the SME sector, divided into core and non-core business. In terms of some of the problems, particularly with private mortgages, it is a clear there is a communication problem between the bank and the mortgage holder. Usually, there are health, stress or other issues involved. People can go to an insolvency agent but there is a cost to that. On the social protection side we need to consider providing somebody with assistance. People are going to the Money Advice and Budgeting Service but it is swamped with these cases. There is a need for somebody to be brought in to help both individuals. With all due respect to the banks, we cannot expect them to make a decision without information. They are dealing with people who are extremely stressed for one reason or another and they do not understand the need to get that information to the bank. There is a void in that regard. A fund was set up in the Department of Social Protection to help such people but it does not appear to have been activated. Mr. Moran might examine that to see if we can help people who are in that bind.

Listening to what is happening on the ground, and I am quite close to the business sector, it is clear the banks are helping where viable plans have been put before them. The situation has improved in that regard. I am not saying it is perfect but it seems to be moving in the right direction. In terms of issues that arise with small businesses and so on, the local enterprise offices, LEOs, have been set up and it is hoped mentors can be put in place.

It is very easy to talk about retailers on the high street but retailers in rural Ireland are facing major issues with online businesses. We must understand that it is not just a banking problem. We may need to examine a different way of keeping rural Ireland open such as a co-operative model or social enterprise, which is the buzz word now in Europe. If we are to have the services they will have to be provided in a different format in terms of a business that is all about profit. We need to examine a number of issues as opposed to simply saying that everything is to do with the banking scenario.

My only question for Mr. Moran is on SME lending, the growth of the SME sector and, in particular, start-up businesses and the appetite for risks. It is not fair for us to ask the banks to regard this as being their problem. We are putting in place all the regulation on banks which means they cannot lend money unless they have a certain percentage set aside to reduce risk. We want to be serious about driving the economy and creating more jobs. We talk about supporting start-ups and entrepreneurs but they do not have access to real capital unless they apply for high potential start-up, HPSU, funding from Enterprise Ireland but they must have a potential start-up. Only a small number of people get through that process. Various operations are going on throughout the country but there is very little finance for them unless they get angel investors or find a different source of finance. That is a real problem in the economy.

I would welcome Mr. Moran's opinion on that and on what we can do going forward. I am aware of the microfinance fund but the targets in that regard are not being reached. Again, there is an issue with it in terms of appetite for risk.

I have many concerns in regard to the bureaucracy around the fund. As I said, in terms of targets, it is way behind. On the credit guarantee fund, I regularly come across businesses that want to expand but cannot access the funds to do so. I am not suggesting that the banks are the appropriate lenders in this regard. Many of the new investment funds mentioned are not in this space either. I am speaking in this regard not of SMEs but micro-businesses which employ 70% of all people employed in this country and are located in every small and large urban town in Ireland. This is a real problem. I would welcome Mr. Moran's views on it.

Mr. John Moran

During my presentation last week on future banking, I tried to explain our thought process around funding enterprise. It is not of any comfort to us but worth noting that this is not only an Irish problem. The point being made over and again by us in respect of the process is that Ireland's economic difficulties and the creation of jobs will only be solved through a vibrant SME sector. This will not happen without funding being available to companies. The slide which Deputies can now see is taken from the presentation I gave in Europe. It shows the significant differences in funding rates available in Germany and France versus Italy and Spain. Europe is struggling with the same issues across the whole system.

The way in which we have been trying to handle this is well set out in broader terms in the medium-term strategy and in a more specific way in the Action Plan for Jobs in the context of the sector on funding for growth. One of the particular difficulties being experienced in Ireland, which may explain some of the issues raised by Deputy Collins, is that in the past in Ireland when a person was setting up a business it was often capitalised by positive equity from the business owner's home. This served as a personal guarantee in respect of the business. In other words, the positive equity from the business owner's house, or, perhaps, that of his or her parents, served as a security for the banks in lending money to the start-up business. We believe this led to the belief at that time that the banks were funding businesses when in fact they were funding the credit side of the balance sheet and the equity and mezzanine risk of the balance sheet.

As a result of the crisis, a huge amount of available capital in Ireland that might be used, in particular in the smaller business sector and also the larger business sector in terms of growth, no longer exists because many of the houses that might be used for this capital are in negative equity. This is the reason for the market failure of start-ups. It is also the reason getting the microfinance and credit guarantee funds, and angel investors and others, to work more effectively in Ireland is a key part of the solution. This is a more critical issue than it would have been in a different environment where there was a lot of positive equity in the system because positive equity would allow the banks to extend loans which are in many ways from a risk perspective at the enterprise level equivalent to an equity risk. As a result of this, we will have to move to an enterprise environment that is more open to sharing ownership of companies, perhaps at an earlier phase than has been historically the case.

In Germany, one sees the opposite to this. For example, many of these businesses there are family business because an equity pool has been built up that allows families to create a balance sheet that can take credit from the banks. We do not have the capacity to do that. We are also in a much more dynamic situation in terms of start-ups and, therefore, the model will probably be somewhat similar to the model seen in more dynamic start-up environments such as the United States. As such there will be a greater requirement for angel capital and growth. The part of the trough in which perhaps there is a shortage in this regard is the growth capital area.

Colleagues on the group chaired by Mr. Hogan are reviewing the efficiency or otherwise of the microfinance and credit guarantee funds. These are important parts of the system. As stated, small SMEs essentially need to be backed by way of resolution of the negative equity problem and the putting in place of alternative mechanisms through which start-up capital can be provided to companies, with the banks playing a particular role after that. When business grows through the system the banks can then have a role to play. However, venture capital is needed first. There are other charts I could show to the committee which show that there are considerable differences between the amount of venture capital available in Europe as compared with the amount of venture capital available in the United States. If we want to move towards an environment of entrepreneurship and start-up, particularly in the technology space, it being a key part of our economy, these are the issues we need to resolve. It is at the equity start-up phase that Enterprise Ireland will have to be key and have a broader range.

Deputy Collins referred earlier to the LEOs. The LEOs on the ground will need to play a key role in joining the dots for enterprise in terms of working out where they are going. We have discovered along the way that many companies did not have all the right training. The issue of finding more mentoring for companies and better education has been mentioned before. The Department of Education and Skills is now participating in the SME credit committee in the context of the provision of education. Another key part of technology currently in development and close to launch, which we have put together with other colleagues across the system, is a website which allows a small business trying to find a solution to a particular problem, be it in regard to funding and so on, to log on, indicate its location, size and problem and be directed to the various supports that are available. We have learned through the process that there are many supports available but is hard to know which ones work or are relevant. By way of testing, the new website has been trialed with approximately 700 SMEs with a view to seeing if it can be improved in terms of the solutions loaded onto it. I will now ask Mr. Hogan to respond to the issues on the equity side.

Mr. John Hogan

The issue of equity was mentioned a few times today, including by Deputy Collins. It is an issue of which we are very mindful. Next week, we will be putting together a group involving representatives from the Departments of Finance and Jobs, Enterprise and Innovation, ISME, SFA and other relevant actors in the State agencies to consider the constraints and solutions around equity. We have also opened up a consultation process on our own website, through which submissions can be made to the Department for consideration by the group. The closing date of that process is some time during the course of this month. This is an important part of the work which we will be doing over the coming months to try to address that particular gap. Mr. Moran mentioned the online tool which is close to being launched and will be very important. The feedback from businesses that have seen it already has been very positive in terms of it actually giving them a real sense of how to access the vast array of State supports available.

Deputy Collins also raised the issue of mortgages, mortgage arrears, the advice function and the Department of Social Protection fund. This involved payment by the banks of a fee in respect of advice to be given to individuals coming to them seeking an assessment of their situations, having been presented with a long-term solution by their financial institution. One of the things we are looking at in terms of that review is does that advice come at the proper time or is it too early or too late. One of the recommendations which we are currently putting in place is that there would be a two-stage payment, with the first payment being made available at an early stage when the individual is completing the SFS form and engaging in the first instance with the financial institution. I believe that is very important in terms of addressing the gap mentioned by the Deputy.

It is important at a later stage for that assessment to be made by the adviser in terms of the actual sustainable solutions being placed in front of him.

Deputy Áine Collins

That is good to know as it is a big issue, given the spiralling out of control.

With regard to the equity model, we have some mechanisms, including the BES, that have never been used. Perhaps the BES could be re-examined and made more simple. There is an old relief, the seed capital relief, which has been in place for 20 years but which has never really featured to the extent it should have. It involves investing money and getting tax back on it. Equity is very hard to have at an early stage of investment because one has to prove oneself. There are different rounds and phases. There is the real start-up stage where one needs to have some money. Usually, when one gets State funding, one needs to have matching funding. There is a lot of bureaucracy in that regard. While it is great to have websites, trying to get ten applications in is a job in itself on top of trying to start and develop the business. There needs to be more awareness of what one person is capable of doing. We need to make the system easier.

I thank Mr. Moran for his contribution as Secretary General in the Department of Finance and for the work he has done in helping us through the banking crisis. I wish him well in his new career, wherever that will be.

Deputy Eoghan Murphy

I thank Mr. Moran and his officials for being here for so long. I wanted to wait until the end of the meeting because I wanted to examine the strategy for growth, or the medium-term economic review, which was released when we exited the bailout programme last December. My first question concerns the status of the document. Is it a recommendation to the Government? Does it outline our obligations regarding our commitments to our European partners? Was it approved or seen by the troika before it was published?

Mr. John Moran

First, this is a Government-approved document. Its genesis was in an earlier period when we indicated it was important, as we got closer to the end of the troika programme, to have a plan or strategy for the direction of travel thereafter. Last year in particular, it would have been part of our own allocation or Estimates. With a group of people, some of whom were in my colleague's area, we embarked on consultation both across the system and with various other stakeholders on what we believed was important for the Irish economy as it entered the next phase of growth. All the economists in the public sector met in one forum in Dublin Castle. We identified quite early on a number of horizontal themes we believed were important as we went through the process of considering the levers we could pull. Not surprisingly, those were the issues of innovation and how we could upskill the economy. Also to be borne in mind were entrepreneurship and how we could take advantage of our significant FDI-type environment and the domestic entrepreneurial environment in terms of start-ups, the butcher and farmer, all of whom are entrepreneurs in their own way. We sometimes forget about them and think only about the technology sector. It was also a question of trying to broaden the thinking so people would actually want to set up their own business as opposed to working for somebody else.

The third element we thought merited particular attention was that we felt we were at the beginning of a new era of interaction between Ireland, the rest of Europe and the outside world as Europe was developing and as the Irish domestic population was developing in terms of an open labour force and various other phenomena. We referred to the upside risks in this regard. There are constraints we do not have in Ireland in terms of the growth potential of the economy because, in fact, labour mobility in a single market, such as the one we have, is much different than it might otherwise be. We wanted to analyse the opportunities for Ireland to start thinking about itself less as a national economy but more as a regional economy in a European environment developing a banking union.

Having done that work, we decided it was best presented with three pillars, the first being the requirement to actually maintain a responsible public finance position. We can go through the details of that. It was basically a matter of returning to circumstance involving the State paying its own way and in which we would start to reduce the debt.

It was already used. The troika did not have a problem with it being in the document.

Let me turn to page 12 and to the issues Mr. McCarthy was addressing. There is a note under the table on page 12 that refers to the general Government balance after 2016 as being a technical assumption that indicates what is required to support the achievement of the medium-term objective of a structural balance by 2019 and its maintenance thereafter. When we examine that table and the figures for after 2016, we note a technical assumption will be based on a future policy decision. Is it a necessary policy decision to keep us in line with our commitments?

Mr. John McCarthy

It is. The reforms of the Stability and Growth Pact were necessitated by the crisis. The reforms in 2011, particularly in the preventive arm of the pact, introduced what is known as an expenditure rule.

This is sometimes called the expenditure benchmark. To assess compliance with progress towards one's medium-term objective, one looks at the improvement in the structural budget balance but one also complements that analysis with how one is performing vis-à-vis the expenditure rule. What the expenditure rule essentially says is that one will have nominal growth in revenue in line with the potential growth rate in the economy. If, for example, GDP is growing by 3% in nominal terms, revenue will grow in line with that figure in the long run. The figure varies from year to year because the elasticity can vary depending on, for instance, the composition of aggregate demand. However, on balance and over time, revenue growth tends to move in tandem with GDP growth.

I thank the committee.

The committee adjourned at 3.55 p.m. until 10 a.m. on Thursday, 15 May 2014.

The witnesses withdrew.

COMMITTEE OF PUBLIC ACCOUNTS debate - Thursday, 8 May 2014

Finance Accounts 2012

Mr. John Moran

Mr. Seamus McCarthy

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John McCarthy

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. Des Carville

Mr. Des Carville

Mr. Des Carville

Mr. John Moran

Mr. Des Carville

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

Mr. John Moran

COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 8 May 2014