Deputy Joe Walsh has been given permission to raise on the adjournment of the House the arrangement between the Minister for Agriculture, the Revenue Commissioners, AIB, and Bank of Ireland in relation to the waiving of corporation tax in certain circumstances. He has ten minutes and the Minister has five minutes.
Adjournment Debate. - Farm Rescue Package.
With your permission I should like to divide my time with Deputy Noonan. We will take five minutes each.
I thank you, Sir, for allowing me to raise the plight of a large number of farmers who are in severe financial difficulties. I want to make a case for the extension of the rescue package for these farmers. This scheme was initiated three years ago under a Fianna Fáil Government and it was one of the most outstanding agricultural schemes. There are 5,228 farmers participating in this scheme and in a recent survey carried out by ACOT it was established that at least 2,500 of our best developing farmers would go out of business if the scheme was terminated as proposed by the present administration.
The funding of the scheme is of a peculiar type — a very sensible arrangement where Revenue waive corporation profits tax and tax credits in relation to some of the financial institutions, and the banks contribute 25 per cent of the cost of this scheme. The banks have gone on record as saying that they are in favour of the continuation of the scheme. Now it is up to the Minister and his Department to facilitate the staying in business of several thousand of our very best farmers.
In the present acute situation, because the milk quota has been foisted on them by blunders in the estimated amount of milk, the farmers are unable to meet their quotas and their repayments without the aid of this scheme. As the Minister knows, this scheme reduces the rate of interest to 10.5 per cent so that farmers can programme their repayments and know exactly how much they have to pay at the end of the day rather than fluctuating interest rates and not knowing what they will have to pay at the end of any particular year.
I would like to contrast the situation with industry. Industrial firms which run into financial difficulties are restructured with the aid of Fóir Teoranta, a State body which in 1983 spent £21 million and in 1984 £25 million as against the cost of this scheme, which in 1983 cost £1.7 million and in 1984 £4.5 million. The farming and agricultural industries are entitled to the same type of arrangement as industry. I want to strongly put the case for the farming community that this scheme be extended. The cost of the scheme as outlined in the original budget will not be any more if it is extended for a further two years because of the decrease in interest rates over the last two years. I want to give a commitment on behalf of the Fianna Fáil Party that when we are returned we will continue this scheme and have a permanent structure to restructure the best of our developing farmers.
(Limerick West): Like my colleague Deputy Walsh, I ask the Minister to continue this rescue package. I want to reiterate on behalf of Fianna Fáil our total commitment to the continuation of this rescue package when we are back in Government. Farmers are now facing greater interest rates than they faced last year. This is due to excessive Government borrowing in the domestic market. The increase of 2 per cent in interest rates last December occurred against a background of falling international interest rates and declining inflation rates. The farm sector is currently operating in an extremely difficult economic environment despite the fact that international rates are falling. The Government's lack of commitment to agricultural development has created a barrier to increased output by farmers who participated in the rescue package and farmers who were pioneers of agricultural development. The unwillingness of the Government to continue this rescue package is another way of pulling the plug and ending any prospects of future agricultural development.
The Minister should extend the reduced interest rates subsidy scheme to enable farmers to regain economic viability. We know the Government underspent the original allocation for this scheme by close on £12 million, so the extension of the scheme will not cost additional money. Farmers will face a most difficult year in 1985 and by extending this scheme the Government can display some willingness to restore farmer confidence in the future. The scheme, which was originally introduced by Fianna Fáil, has helped quite a number of farmers to get back on the rails. It is vital to extend the scheme to ensure the survival of many more farmers. I appeal to the Minister and the Government to continue this scheme to ensure that more farmers reach viability. Fianna Fáil have a commitment to continue that scheme when back in Government.
How many minutes have I?
Not more than five.
The reduced interest scheme for farmers in severe financial difficulty had its genesis in the five year period from 1976 to 1980, inclusive, when farm incomes were rising and the outlook for Irish agriculture was very promising. Consequently many farmers undertook a considerable volume of developmental work and were indeed encouraged to do so by various official agencies. However, quite a number of them were forced to borrow quite heavily to finance this development work. At the time the repayment of borrowings presented no major problems, but in subsequent years the position deteriorated partly because of the more difficult economic climate generally and partly because the development of farm incomes was not favourable as seemed probable earlier on. In particular, a sharp increase in interest rates posed very serious problems for farmers who had substantial borrowings.
By 1981 it was clear that a substantial number of farmers would be unable to cope without special assistance. Protracted negotiations were entered into between the Government Departments concerned — Agriculture and Finance — on the one hand and on the other hand the four associated banks and the ACC, who between them are the major sources of capital borrowed by farmers. As a result, the reduced interest scheme for farmers in severe financial difficulty was introduced on 1 April 1982 by the then Minister for Agriculture in association with the associated banks and the Agricultural Credit Corporation.
The scheme, which was to apply for a three year period, had as its objective the aim of providing funds at a reduced interest to full-time farmers who were in severe financial difficulty but who could over the three year period of the scheme be brought to viability with the aid of the reduced interest.
We know all that.
A Deputy
Get to the point.
(Interruptions.)
There are obviously a few things Deputies did not know. The level of the subsidy provided varied according to prevailing interest rates but it was provided that the maximum subsidy would be 8¾ per cent and that the participating farmer would bear a minimum interest rate of 10½ per cent.
I do not believe it is necessary to go in detail into the rather complicated conditions relating to the scheme but I must say a few words about the way the scheme was operated and how the financial cost was shared between the Exchequer and the lending institutions involved. First of all, the scheme was unique in my experience of schemes financed or partly financed by the State in that it was operated not by the Department of Agriculture but by the lending institutions concerned. This was necessary because only the institutions from which a farmer borrowed would have the full facts about a farmer's level of indebtedness, his record of servicing his debts and so on and consequently only they could decide, in accordance with guidelines agreed between the lending institutions and the Department of Agriculture, whether a farmer was in severe financial difficulty and whether a financial reconstruction plan to restore that farm to viability could be drawn up.
As regards the sharing of the financial cost, the agreement was that the State would bear 75 per cent of the cost of the scheme, the remaining 25 per cent being borne by the lending institutions concerned. In practice, what happens is that the lending institution concerned gives a participating farmer the benefit of a reduced interest on his eligible borrowings and submits a claim to the Department of Agriculture for a refund of the part of the cost to be borne by the State. In fact, the State contribution is made by a combination of direct cash payments, loss of corporation profits tax because of a reduction in the profits liable for this tax and tax credits against corporation profits tax. I shall have to return to this matter later on in more detail.
As I said earlier, the scheme was to last for three years and the intention was that the participants would be made viable by the end of the three year period. This period ends on 1 April 1985 for bank borrowings and 1 May 1985 for borrowings for the Agricultural Credit Corporation. However, it seems that not all participants have made as much progress as anticipated. This is due to a number of circumstances. The anticipated pickup in the economy generally has not been as strong as at one time seemed possible; interest rates have not dropped as much as anticipated and factors such as the milk super-levy have imposed constraints on the development of agricultural incomes. I am sure most of the Deputies present are familiar with the ACOT survey on the progress of participants in the reduced interest schemes. This survey shows that about 50 per cent of participants can be made viable without further assistance while 15 per cent of participants are unlikely to recover viability even if the scheme is extended. An extension of the scheme would be needed by 35 per cent of participants who would not have achieved viability by the end of the scheme. I am of course deeply concerned at this development and I have been examining the possibility of continuing the scheme for a further period for those who need it. The problem is of course, lack of finance. Deputies are aware of the need to curb growth in Government expenditure. We cannot take measures which would reduce the amount of money accruing to the State to meet financial commitments.
As far as this scheme is concerned, I acknowledge that there are 35 per cent of the people involved who would have severe problems in regaining viability if the scheme is not prolonged or if some other scheme is not introduced. The lending agencies and farm organisations agree that there are other ways in which people with heavy borrowings can be helped. My Department are looking at various options open to them.
A Deputy
Remove all the grants.
Every effort will be made and every effort is being made to ensure that the people caught in this trap will be helped.
Are you going to extend it for two years?
Everything possible is being done. I notice that both Deputies Walsh and Noonan took credit for a Fianna Fáil decision of 1982. This matter took two years to prepare and all the Deputies did was walk in with the paper which had been prepared for them.
(Interruptions.)
I give an absolute undertaking that everything that can be done will be done for those people.
(Interruptions.)
Order.
I hope that in the not too distant future it will be seen that this Government, as always, will stand with the people.
The Dáil adjourned at 9 p.m. until 10.30 a.m. on Thursday, 14 March 1985.