Dáil Éireann debate -
Tuesday, 20 Jun 1967

Vol. 229 No. 6

6½ Per Cent Exchequer Stock, 2000-2005. - Statement by Minister for Finance.

Minister for Finance (Mr. Haughey)

In my Budget Statement I mentioned that discussions were in progress on what might be done to meet the requirements of life assurance companies and pension funds for a longer-term security to match the maturities of their liabilities.

As a result of these discussions, I am now announcing the creation of £10,000,000 6½ per cent Exchequer Stock, 2000-2005, at an issue price of £95 which gives a yield to final redemption of £6 16s 8d. The life of the stock is 33 to 38 years as against the usual life for National Loans of 20 to 25 years or less.

This issue is to be what is called a "tap" issue. This means that sufficient of the stock is being created to meet requirements for a year or more ahead. The amount not taken by the market on the date of issue will be taken up by the departmental funds under my control and sold through the Government Stockbroker to meet demands at current market prices from time to time. Applications for the stock on issue must be for not less than £5,000 but, of course, when the stock comes on the market, there will be no minimum. The regular National Loan will be issued, as usual, in the late autumn to cater for the requirements of investors in general.

The management of the new stock will be given to the Central Bank.

Deputies will also be interested to know that, to improve the marketability of Government stocks, I have arranged that the Government Stockbroker will in future buy and sell the new stock and existing stocks in amounts totalling up to £100,000 on any day at the opening price for that day and additional amounts at the appropriate market price.

These arrangements are important steps in the development of a more active capital market in Ireland and in adapting our financial institutions to the requirements of our developing economy.

Mr. T.F. O'Higgins

We would just like to say that we accept and support the statement by the Minister. His statement is not intended to apply to the small investor but rather to the institutional investor. Nor is what he proposes intended to affect or replace in any way what I assume will be an annual National Loan. In so far as the proposal is intended to provide and help towards a more active capital market in Ireland, it certainly has our support.

Mr. Corish

For the Labour Party, I should like to say that this seems to us to represent a step towards the broadening of the Irish capital market, that is, the creation and issue of £10 million in Exchequer stock. There have been complaints inside and outside this House that there have been few opportunities, apart from the National Loan, for investment in our economy by people such as those mentioned by the Minister. There is also a criticism to which I think the Taoiseach referred some time ago, that is, that there is too much money going abroad. I think at present our private external assets amount to £400 million. If this helps towards repatriation, it will have done a good thing.

I think the Taoiseach did appeal, in his first major speech, for a repatriation, to some degree, of these foreign assets. What success there has been, I do not know. We hope, therefore, that the creation and issue of this Exchequer stock will be of benefit to insurance companies, and even other sizeable companies who avail of the stock and to those who have complained that there were not enough avenues for investment here in Ireland, that this will leave more money for national development and will represent a sum which will be on the issues books for investment in the country.

My final word to the Minister and the Government is this: they should take care of their priorities in investment a little better than they have been doing in recent years. The priorities we all know are: housing, schools, hospitals and, of course, investment in agriculture. We trust that moneys available to the Minister will be used in this direction.

Mr. Dillon

This is not the usual National Loan statement which ordinarily is made by the Minister for Finance. It is an entirely new departure. Therefore, I think it reasonable, as a backbench Member, to seek elucidation. I want to put to the Minister two questions in regard to this "tap" loan. A "tap" loan is now being inaugurated with a 32 year life, with a redemption interest——

Mr. Haughey

33 to 38 years.

Mr. Dillon

——a very long-term loan, with an interest rate on redemption of approximately £6 17s 0d per cent. That is a very high rate of interest. One would expect the term of so long a loan to be to the advantage of the Government issuing it. Does the Minister contemplate that rate of interest obtaining in the money market over the next 35 or 38 years? All international activity would suggest that the aim is to bring interest rates down.

I want to ask a question nobody wants to ask, which I think makes it all the more necessary that it should be asked. Development in this country and in every other country largely depends on the ability of the Government to get money by way of loan, and the Minister is directing this loan, not to the average investor but to the institutional investor who is backed by the best actuarial and financial advice. If inflation is to continue at the rate it has been continuing over the past ten years in our society, I do not think I need elaborate that the Minister's cal-relatively high rate of interest of this long-term loan because, were inflation to continue on the basis on which it has been proceeding, far from gaining interest on the loan, you would be losing money over a long-term investment of this kind.

If we are to embark—and there is a great deal to be said for embarking —on the "tap" loan system over a long term, is there any indication from anybody that the progress of inflation will be arrested? Without stability of money, the capacity of this or any other Government to raise the necessary capital to carry on any capital programme will steadily erode.

Has the Minister given any consideration to this aspect of the loan, with a very high rate of interest, because, if he has not, I think it is time he did.

Mr. Haughey

The first thing I want to emphasise about this loan is that it is not brought forward because of any particular requirement of mine to raise money at the present time. Indeed, I am quite prepared to take up the entire amount from departmental funds at my disposal. It is to create a new type of investment for institutions seeking to place their funds on long-term investment. To that extent, as Deputy Corish said, its main purpose is to introduce a greater degree of flexibility into our capital market in Ireland. I cannot guarantee Deputy Dillon that inflation will not continue. There are some economists who maintain that a gradual fall in the value of money is a necessary concomitant of economic development, and small doses of inflation may be good. But it is the aim of this Government at the present time to do anything within their power to stabilise costs in every direction.

As regards the future of the stock, the only assurance I can give the House is that this stock will be managed in the best interest of the Exchequer and of the economy. It is simply a matter of having a fair amount of this type of stock available, on tap, for institutions as they require it, and not to force them—as we have been doing, to some extent up to now —to do all their investing in Government securities, in a National Loan, at a certain time of the year, which might not always be suitable from their point of view and for a period of time which might be too short for these institutions, bearing in mind the maturity ratio of their own liabilities.

Mr. Sweetman

Will this be dealt with through the Government shop?

Mr. Haughey

Yes.