Dáil Éireann debate -
Thursday, 20 Nov 1986

Vol. 370 No. 1

Trustee (Authorised Investments) Order, 1986: Motion.

Minister of State at the Department of Finance (Mr. J. O'Keeffe)

I move:

That Dáil Éireann approves the following Order in draft:

Trustee (Authorised Investments) Order, 1986,

a copy of which Order in draft was laid before the House on 14 October 1986.

The purpose of the draft order before the House is to amend the list of investments in which trustees may invest funds, unless expressly forbidden by the instrument, if any, which creates the trust. The order is made under the Trustee (Authorised Investments) Act, 1958. The principal purpose of this legislation is to protect the beneficiaries of trusts by offering a range of suitable investments. Although a trust deed may specify wider powers of investment on the trustees, many trusts and analogous funds are confined to investments authorised under the Act.

Under Section 2 of the Act the Minister for Finance is empowered to amend the list of authorised trustee investments by order. A draft of the order must be laid before both Houses of the Oireachtas and a motion of approval of the draft must be passed by each House. The list is kept under review and changes are proposed when appropriate. The latest amendment was made in July 1985.

I ask the House now to approve a draft order adding three new investments to the list, namely investment in interest-bearing deposit accounts with two banks — Ansbacher & Company Limited and Smurfit Paribas Bank Limited — as well as investment in units of Bank of Ireland Gilt and Bond Fund. The draft order also proposes the deletion of investment in interest-bearing deposit accounts with Royal Trust Company (Ireland) Limited from the list, as the company are no longer engaged in banking operations.

I will deal first with the additions. The two banks, Ansbacher and Smurfit Paribas, have been recommended for trustee status by the Central Bank. In recommending any bank for such status the Central Bank takes into account the standing of the bank, its capital levels and its record of compliance with Central Bank licensing and supervisory requirements. The institution must also have gross assets and gross domestic assets in excess of £25 million.

The Bank of Ireland Gilt and Bond Fund invests only in securities which are themselves authorised for trustee investments, namely Government fixed interest securities. The managers of the fund have confirmed this policy and I am satisfied that units of the fund are a suitable investment for trustees.

The deletion of interest-bearing deposit accounts with Royal Trust Company (Ireland) Limited is appropriate as the company, formerly Royal Trust Bank (Ireland) Limited no longer holds a banking licence. Although the bank was both profitable and unquestionably solvent, the parent company, Royal Trust the Canadian Trust company, decided in 1983 that the subsidiary should be wound down as part of a rationalisation scheme. The winding-up process is now virtually complete with no loss of funds to depositors or other creditors.

The Minister for Finance is obliged to consult with the following persons in regard to the terms of any order he proposes to make under the Act: a judge of the High Court nominated by the Chief Justice, the Governor of the Central Bank, the Public Trustee, the Chairman of the Irish Banks' Standing Committee, the President of the Incorporated Law Society of Ireland and the President of the Stock Exchange-Irish. These statutory referees have all been consulted and no objections have been raised to the amendment of the list.

I am satisfied the proposed deletion and the three additions to the list are appropriate. The additions will expand the investment options available for trust funds and will facilitate the operations of trustees, solicitors, accountants, the courts and others bound by this legislation. I, therefore, commend the motion for approval by the House.

Mr. O'Kennedy

We are happy to support the motion to extend the list of authorised trust banks to include the two nominated banks in this instance. I will make some comments in relation to the nature of the authorised trustee accounts and the type of deposit holders who will be affected by this order. As the House is aware, all court funds have to be lodged in authorised trusts as set out under this order. That includes a very wide variety of people whom the law has a special obligation to protect. I refer particularly to wards of court, people who have been deemed incapable of looking after their own interests because they are of unsound mind and to infants who have been awarded court decrees sometimes for very substantial sums. The funds that accrue to these people from court decrees or settlements have to be lodged in the authorised trust accounts by the President of the High Court or those acting on their behalf. The courts have no option but to place the accounts accruing to the benefit of these people into one or other of the authorised trust funds. That is as it should be because, as the Minister has indicated, the procedures applied before a bank is included in an authorised trust fund are very comprehensive to ensure the protection of the funds lodged in court for people incapable of managing their own affairs. Having ensured the protection of these funds by introducing this order, the Government, are making a savage attack on the funds, with the deposit interest retention tax. It is not known widely outside this House that money lodged for the benefit of wards of court, infants and people who are generally recognised as being under a special disadvantage——

An Ceann Comhairle

The Chair must be satisfied that the debate is on the order——

Mr. O'Kennedy

If this is out of order, I would have to say——

An Ceann Comhairle

The Deputy will have to think.

Mr. O'Kennedy

The court have no option but to place the funds on deposit in these authorised trust accounts for infants, wards of court and lunatics. Am I not entitled to suggest that these people who are disadvantaged in law, to the extent that they require the special protection of the court, should not be subject to the application of the deposit interest retention tax?

An Ceann Comhairle

I suppose the Deputy can make the case that funds should not be lodged in any accounts that are subject to the tax.

Mr. O'Kennedy

Unfortunately that option is not available to the courts. I am pleading in this instance, and it is reasonable and important that I should——

An Ceann Comhairle

All I am saying is that in my opinion, and I am satisfied I am right, a discussion on the retention tax is not in order.

Mr. O'Kennedy

I promise I will not get into a discussion on the retention tax.

An Ceann Comhairle

The case the Deputy is now making is a budgetary matter, a matter to be discussed on the budget, on the Finance Act or on the Estimate for the Department.

Mr. O'Kennedy

The point I am making does not go that far. These trusts, in so far as they hold money on deposit, for infants, people described as lunatics, or people of unsound mind who cannot manage their own affairs, should be exempt from the application of the deposit interest retention tax.

An Ceann Comhairle

The Deputy might as well make the case that such funds should not be liable for income tax.

Mr. O'Kennedy

I am not making that case.

An Ceann Comhairle

If you can validly make one case you can make another.

Mr. O'Kennedy

I am not making such a case.

An Ceann Comhairle

It would be as logical as the case the Deputy proposes to make. I do not want to have a wrangle with the Deputy as I dislike it——

Mr. O'Kennedy

I agree. However, the case I made is reasonable because it has been brought to my attention by people who are specially involved in placing these funds on deposit. They regard this tax as unjust in cases where there is no other option but to place funds on deposit——

An Ceann Comhairle

Does the Deputy mean that there should be no tax on these funds?

Mr. O'Kennedy

Not the DIRT.

An Ceann Comhairle

If the Deputy can make a case for one tax, another Deputy could make the same point in relation to another tax.

Mr. O'Kennedy

I do not think anyone here or elsewhere would make that suggestion. However, if people are obliged to place money on deposit in these trust funds which, by definition, are liable to DIRT, then the very people for whom we have made laws to protect will have their basic income reduced as a consequence of interest deductions. Funds placed on deposit for the categories to whom I have referred should be exempt from deposit interest retention tax.

An Ceann Comhairle

I will take it as a passing reference.

Mr. O'Kennedy

I hope the Government will take due note of that and, in considering the case I made, perhaps they will consult with the officers of the wards of court, the office of the President of the High Court and anyone else who has responsibility for looking after disadvantaged people. They should ask how they see the application of this tax to funds placed on deposit in authorised trust funds. I hope the Minister will engage in such consultations because we are very anxious to ensure the status of these trust funds and to ensure that the position of those who are obliged to place their funds on deposit with them will not be undermined or attacked.

We welcome the fact that two new banks are being added to the list. One, the Smurfit Paribas Bank Limited, has a very significant place in the whole role of Irish business. Ansbacher and Company Limited are a foreign bank with an established record here also. The whole scope of financial institutions for attracting deposits is a matter of major consequence for us but, unfortunately, it is not yielding the dividends it should. Some of those already on this list are pursuing their major banking programmes outside the country. I welcome the fact that Smurfit are big and mature enough to operate successfully elsewhere but I would welcome it even more if the conditions for investment and deposit-taking in this country were more attractive than they are at present.

We are concerned to create a role for financial institutions in which they can develop having regard to the fact that they are the base of the whole commercial enterprise in this country. Unfortunately, in view of the DIRT, the climate is not as healthy as it should be. Interest rates recently have risen to an all-time high rate, in real terms well over 13 per cent. This is a direct consequence of the Government soaking up the limited amount of money available for investment for deposit. Government gilts offer a return of something over 13 per cent and they are not subject to the tax I mentioned. Demand for the limited money supply is pushing up interest rates here which is creating critical problems for every level of commercial activity. It affects farmers, business people and mortgage holders——

An Ceann Comhairle

The Deputy is widening the scope of the Bill.

Mr. O'Kennedy

I want to make the point that while we welcome the fact that two new banks are being added to the list, I am quite satisfied that in a reasonable climate for investment, especially for deposit holding in our financial institutions, the Minister would not be just adding two to the list but perhaps 12. We should be attracting much more investment in financial institutions in this country, as it could and should become a major centre for financial services. We have very considerable advantages as we are in the same time zone as London. We have a very sophisticated level of knowledge and capacity in our financial institutions, finance houses and banking institutions which, when tested elsewhere, is recognised to be not just among the best but the very best. There is great scope for developing this huge sector in the economy but the Government through their policies are doing quite the opposite and are erecting a major barrier against it.

Those are the only two points I want to make. In accepting and adopting this proposal from the Minister I wish to stress that the two points are of major importance. In relation to my first point, I urge the Minister to engage in immediate consultations to ensure that that section of society, decreed by law to be especially disadvantaged and requiring the protection of the courts for their income and property, should not be subject to DIRT on the money they are obliged to place in funds as laid down by the courts. If he engages in such consultations perhaps we could re-establish the protection which has always existed for disadvantaged sectors in society. Subject to that, we support the proposal.

Minister of State at the Department of Finance (Mr. J. O'Keeffe)

I am glad this proposal has the support of the Opposition. I will reply to points made by Deputy O'Kennedy. He displays a fundamental lack of knowledge about the operation of trustee accounts because the normal procedure in relation to trust funds and those held under the protection of the courts is that on a long-term basis they are invested in Government gilts. The list of trustee authorised investments inclues all securities of the Government, securities guaranteed as to capital and interest by the Minister for Finance, the stock of the Bank of Ireland, the securities of the ESB and Bord na Móna etc. Therefore, there is a very wide and comprehensive list available and authorised under the Act. Obviously, for anybody making medium to long term investments in gilts or for someone who has the authority to do so on behalf of others, such as a trustee, that is the area in which they normally will invest their funds. I appreciate why Deputy O'Kennedy wants to drag in the retention tax at every opportunity but it is entirely irrelevant to the situation.

Mr. O'Kennedy

The Minister's opening statement specifies what exactly these trust funds are. The Minister specified quite precisely that they are there for the purposes of investment from court funds etc. How can the Minister say that what I am talking of is irrelevant?

Mr. J. O'Keeffe

Obviously, any investment manager takes all the factors into account. The point the Deputy focused on was in relation to funds held on a medium to a long term basis under the control of the courts. I am advised that these funds are normally invested in Government gilts.

Mr. O'Kennedy

On a point of order, if the Minister is saying that the trust funds do not extend to moneys lodged by the courts on behalf of wards or infants, let him say so. In the last line of his speech the Minister said that the additions will expand the investment options available to trust funds and will facilitate the operations of trustees, solicitors, accountants, the courts and others. Now, he is telling us it is irrelevant. Of course, it is not irrelevant.

Mr. J. O'Keeffe

The question of long term investment of funds under the courts, which is the avenue and route through which Deputy O'Kennedy tried to drag in the rentention tax, is irrelevant because these medium and long term investments are normally in Government gilts.

Mr. O'Kennedy

Why not remove them from the list?

Mr. J. O'Keeffe

That is why the point raised by Deputy O'Kennedy is not very sensible.

Mr. O'Kennedy

The Minister is quite wrong.

Mr. J. O'Keeffe

Having said that, if trustees taking all the factors into account, decide, whether on a short or medium term basis, to avail of other avenues for investment there is a wide and comprehensive list available. The list includes interest bearing deposit accounts with a very wide range of banks. The Deputy displayed a bleeding heart for, as he described them, specially disadvantaged people whose substantial funds are lodged by the courts for long periods. These investments are normally in Government gilts.

Mr. O'Kennedy

That is nonsense. The President of the High Court and the officer of the wards of court are authorised and obliged under law to lodge funds to the best advantage as they judge it.

Mr. J. O'Keeffe

Yes.

Mr. O'Kennedy

The Minister's statement makes it quite clear that even a judge of the High Court has to be consulted in all of this.

Mr. J. O'Keeffe

Yes.

Mr. O'Kennedy

Is the Minister now suggesting that the President of the High Court and others should not lodge moneys on account in trust funds which are liable to the deposit interest retention tax?

Mr. J. O'Keeffe

I make no such suggestion.

Mr. O'Kennedy

Then, it is entirely irrelevant.

Mr. J. O'Keeffe

I am speaking from experience.

Mr. O'Kennedy

What experience?

Mr. J. O'Keeffe

My experience is that these investments are normally in Government gilts and that is a fact.

Mr. O'Kennedy

If you are speaking from experience I am saying that my experience is longer than the Minister's.

Mr. J. O'Keeffe

Perhaps, there is a difference between the experience of someone who is a former solicitor who dealt with the cold face of these things as opposed to a barrister who deals with it at an entirely different level but let us not get into that. I am saying that that is normal practice. What we are talking about today is the extension of the list of authorised investments. Naturally, if the trustees or the President of the High Court or the officers working under his control feel it is in the better interests of wards to divert funds into interest bearing deposit accounts, either with the existing list or the expanded list, that is the proper thing to do but as a matter of practice my understanding is that that is not the normal manner in which medium to long term funds are invested when they are under the control of the courts. In so far as the Deputy raises the point about the impact of retention tax on specially disadvantaged people, the list is very wide and apart from the normal practice it includes a side range of authorised investments which are not subject to the retention tax.

Mr. O'Kennedy

Government gilts.

Mr. J. O'Keeffe

Indeed, and various other securities of the ESB, Bórd na Mona——

Mr. O'Kennedy

Government and State stock. Is the Minister effectively saying——

An Leas-Cheann Comhairle

Deputy, please.

Mr. J. O'Keeffe

I can make a list available to the Deputy. It is three pages long and includes the debenture stock of any industrial or commercial company registered in the State and quoted on the Stock Exchange subject to certain conditions. Therefore, it is not confined to Government stock.

Mr. O'Kennedy

It is almost exclusively Government Stock.

Mr. J. O'Keeffe

We have to get a balance as regards this list. When I practiced as a solicitor I always felt that if one had trustees they should be authorised to go beyond the list, perhaps into equities in blue chip companies. I do not think the State can extend the list to cover those. There has to be, as I am sure the Deputy will appreciate, a balance from the point of view of ensuring that in all circumstances any investment in authorised securities is totally protected.

Mr. O'Kennedy

The Minister knows from his practice that the normal trustee may allow investment in funds other than those.

Mr. J. O'Keeffe

Yes.

Mr. O'Kennedy

That is not the point.

Mr. J. O'Keeffe

When I used to draw up deeds of trust I normally included a provision to remove the requirement of having to invest in authorised securities but from the State point of view, as I am sure the Deputy will appreciate, the list has to be somewhat restrictive. It normally comes into operation in relation to funds in court and it also comes into operation when there is a trust deed which does not remove the restriction. We are probably at one on that point. The purpose of the list is protection and from that point of view any additions to the list are carefully selected. There is a well defined procedure laid down under the 1958 Act for the examination of any proposed addition and for referees to be consulted and there are various criteria to be taken into account in the examination by the Central Bank and so on. There is no issue on that. I do not know whether arising from this red herring which has been raised——

Mr. O'Kennedy

How is this a red herring?

Mr. J. O'Keeffe

——by Deputy O'Kennedy it would be appropriate for me to go into the question of the retention tax.

An Leas-Cheann Comhairle

That is not at issue.

Mr. J. O'Keeffe

I note the Deputy did not make any suggestion as to what alternative revenue raising measure he would have in mind if the retention tax were removed.

Mr. O'Kennedy

If I were allowed to, I would.

An Leas-Cheann Comhairle

You are tempting the Deputy, Minister.

Mr. J. O'Keeffe

Is the Deputy suggesting the PAYE reliefs allowed in the last budget because of funds raised by the retention tax would have been withdrawn by him?

Mr. O'Kennedy

On a point of order, I have no right to make any suggestion. If I were to make a suggestion, it would be out of order.

Mr. J. O'Keeffe

We shall reserve discussion on that issue for another day and perhaps at that stage Deputy O'Kennedy will have his proposals ready. On the other question of the operation of the various banks referred to in this list, I want to make it clear that all the banks on that list are established under Irish company law. They are both registered and licensed here and provide a whole range of banking services including bonding, foreign exchange and so forth. It is a considerable advantage to the country that they are here in such numbers. It is an indication of the confidence in the future of the economy. That makes me very happy indeed.

On the other issue raised by the Deputy, I can confirm that the Government have been examining the question of the provision of offshore banking services. The recent announcement by the Minister for Industry and Commerce in that regard is related to Shannon Airport.

Mr. O'Kennedy

It is the Minister for Finance about whom I am talking. This is a wider issue than the Industry and Commerce one referred to. The Minister for Finance is responsible here.

Mr. J. O'Keeffe

The Minister for Industry and Commerce indicated that offshore banking operations will be allowed to be established at Shannon. On the wider issue of Ireland becoming in the future a major centre for financial services, on that score I would be ad idem with the Deputy. The measures to which I referred earlier are perhaps a small step in that direction but it might be better in this whole area to proceed with a step-by-step approach. In time, the prospect exists that we could develop such a major centre here, something which cannot be done overnight. I would not exclude that possibility over a period of time. We have strayed a little from the terms of the motion and we had better get back to that subject matter.

Mr. O'Kennedy

Will the Minister or some Minister engage in consultation either with the officers or the President of the High Court, or the wards of court, to have their views as to the impact of this proposal on deposits on behalf of infants and people of unsound mind? That is all that I am asking.

Mr. J. O'Keeffe

On that issue my understanding is that, in fact, in the normal course of events there have been discussions with the officers of my Department in relation to those matters.

Mr. O'Kennedy

Dialogue des sounds — dialogue of the deaf. Nobody is listening.

Mr. J. O'Keeffe

I see no reason why these discussions should not continue. To get back to the terms of the motion, I am glad of the welcome given by the House to the motion. On that basis the list of authorised investment is improved by the addition which I have made.

Question put and agreed to.