Local Loans Fund (Amendment) Bill, 1987: Second Stage.

Minister for Finance (Mr. MacSharry)

I move: "That the Bill be now read a Second Time."

The main purpose of this Bill is to allow the Minister for Finance to write off amounts outstanding on a loan from the local loans fund where he considers it appropriate to do so. This is essentially a technical provision which arises from a decision to simplify the system of financing capital programmes operated by local authorities.

The present system has developed into an expensive and time-consuming circle of payments and has been in need of reform for some time. The changes will have no adverse effect on the finances of either the Exchequer or local authorities but will reduce administration costs.

The local loans fund was set up by the Local Loans Fund Act, 1935. Prior to this a non-statutory fund was financed by a grant-in-aid, voted annually. The origins of this fund go back about 100 years. Loans from the fund are available for local capital programmes, repayable over periods of 25 to 50 years, the principal programmes being house building and sanitary services. The fund is also used to finance housing mortgages issued by local authoities. When formally established in 1935 a limit of £5 million was set on advances from the fund. The most recent amendment in 1986 increased this limit to £4,500 million.

The financing of repayments has changed substantially over the past 20 years. As local authorities undertook more capital programmes and borrowed more from the fund, their burden of repayments increased until it became necessary to introduce subsidies on some loan charges. These subsidies were gradually increased and the Exchequer now subsidises the vast bulk of the repayments. The subsidies on loan charges now range from between 40 per cent and 60 per cent for sanitary services programmes up to 100 per cent for local authority housing. Such subsidies are not paid on the loans for house purchase.

The position now is that the majority of the loans to local authorities are loans in name only. Giving a 100 per cent subsidy means that, having provided the loan, the Exchequer also provides the repayments. Even where a loan is partially subsidised the Exchequer in effect meets all the repayments, a portion through the loan charges subsidy and the remainder through the rates support grant. The result is that the Exchequer meets the entire cost of funding local authority capital programmes by means of an elaborate, expensive and needless circle of payments.

In order to break this circle and reduce the administration costs I propose to alter the system. From 1988 onwards grants will be given for all those programmes which previously qualified for subsidised loans. In consequence of this change I must also have power to write off the outstanding principal and interest due on existing loans.

The writing off of the loans will have no net effect on either local authority or Exchequer finances. Where a loan which was fully subsidised is written off obviously there will be no change in the finances of the local authority or the Exchequer. Where a loan which was partially subsidised is written off, the rates support grant payable to the local authority concerned will be reduced by an amount corresponding to the unsubsidised portion of the loan charges. Overall the net cash position remains unchanged.

Loans for house purchase mortgages will continue to be provided. There is no need to change the present arrangement in this case as the householders repay their mortgages and there is no circle of payments due to subsidies.

This legislation will allow the arrangements for funding local authorities capital programmes to be greatly simplified and will remove a costly apparatus required to administer the present method of subsidised repayments. The legislation will have no adverse effect on the amount of funds available from the Exchequer to local authorities but will reduce the administrative cost of providing these funds. Arrangements for the actual writing off of existing repayments and the adjustments in grants to local authorities will be made in consultation with Ministers concerned. The intention is that the substitution of capital grants for loans and the adjustment of the rate support grant will take effect from 1 January 1988.

Section 1 of the Bill provides that the Minister for Finance may waive the repayment of any unpaid balance, including interest, on a loan advance from the local loans fund.

Section 2 provides that a statement of such waivers shall be laid before each House of the Oireachtas from time to time.

Section 3 provides for consequential amendments in two other Acts which have sections dealing with the writing off of sums outstanding on loans from the local loans fund.

I commend the Bill for the approval of the House.

Mr. Noonan

(Limerick East): This is a technical Bill which brings about administrative improvements in the way the local fund is administered. I welcome it. I have absolutely no objection to it. I am glad the Minister has indicated that the Bill will not have an adverse effect on the amount of funds available from the Exchequer to local authorities but that it will reduce the administrative costs of providing the funds. I welcome the fact also that details of any action he takes under section 2 of the Bill in the area of waivers for loans will be laid before the Houses of the Oireachtas from time to time.

The local loans fund which was set up in 1935 has been an effective vehicle for investment in local authorities for a long time, especially in the area of houses and sanitary services. This Bill makes no changes in the effectiveness of the local loans fund except in the administrative area. I do not want to delay the House. Practically everything in the Minister's speech is already included in the explanatory memorandum.

I would like to ask one question. I understand that in calculating the national debt there is an element of double counting when one takes the local loans fund into account. I wonder will this movement from a loans scheme to a grant scheme change the methodology of the arithmetic and will it eliminate some of the double counting in the area of the national debt? I would like the Minister to comment on this in detail. I had already put down a parliamentary question which was answered before the summer recess. The Minister gave me some information but that did not make the position totally clear to me. I would like the Minister to go over that ground again, to explain how the double counting occurs and say whether this Bill will affect that in any way or if he intends to bring in legislation to change the system. We are perceived to owe enough already without artificially inflating that amount by double counting what the Government lend to local authorities and what the local authorities owe. I welcome the Bill.

Mr. McDowell

Like Deputy Noonan I, too, welcome this Bill. It simplifies public accounting procedures and does away with what is in effect a myth — that is, that central Government lend money to local government for capital purposes. That is desirable and I commend the Minister for substituting an honest and realistic scheme of grants where grants have been given and for simplifying the local loans procedure or effectively abolishing it so as to reflect the realities of the situation.

This is only the tip of the iceberg because in two respects this Bill has a significance which should not be lost here today. First, a number of things have happened — I do not want to trespass on next week's Estimates consideration — which suggest that funding of two local authorities is being reduced and that the rate support grant which is referred to in the Minister's speech is to be substantially reduced. I get the feeling that the slow death of local democracy which started some time in the seventies, depending on what side of the House you were on then, is now reaching a critical point and that we are hearing and will hear over the next year the death rattles of local democracy. This calls into question the financing of local democracy and how it is to proceed about its business. Is central Government to continue to give grants to local authorities for capital purposes or are local authorities, who make the decisions in many cases, to seek their own funding? I do not want to blow my own trumpet or to sound my own death knell but it is about time this House seriously addressed the issue of local authority financing.

Although this is a welcome reform it is an accounting reform. There is a substantive reform to be made and that is to permit local authorities to finance their own statutory functions, to redefine those functions and to reassign responsibility for making decisions and financing those decisions. It can only be in the light of the trend of public finances that that must increasingly fall on local authorities themselves and that they must be more and more liable to fund their own activities from some form of revenue.

I have looked back at all the White Papers which were published by the Minister's predecessor in office in 1972 about funding local government. It seems, and it would be the consensus of virtually all this House if everyone addressed their minds to it and were not afraid to speak of it regardless of political consequences, that the only way to finance local government is by local taxation and the one practical way to achieve local taxation is by a tax on property. I do not want to expand further on that save to say that when local democracy makes decisions on capital projects it should not simply come with a begging bowl to the Minister for Finance looking for a grant. Local government should be able to capitalise on many things and repay the capital debts themselves, and raise money if necessary to do so. I think this country is about to take that step one way or the other, whatever party are in power and whatever influence any political party have over the process in the next five years.

The PDs do not want to prolong this debate or make unnecessary or irrelevant points, but on the occasion of an improvement of this kind, which is a procedural improvement, substantive improvements are to be made and the agenda is still there regardless of whether this House chooses to address it.

Mr. Sherlock

The Bill is being introduced to make the system easier and more manageable, but when local authorities are being notified of a reduction of 14 per cent in the rate support grant one is suspicious that perhaps there is something that one does not see at this time. I want to avail of this opportunity to say that the subsidy on loan charges is 100 per cent on housing but 50 per cent — it can vary — on the sanitary service charges, and the Minister should make the necessary arrangements to have the subsidy on the loan charges for sanitary services 100 per cent.

We are aware that when smaller local authorities undertook major capital schemes in their areas there was a special subvention payable which was in excess of the 50 per cent on loan charges. Will the Minister clarify whether that will still be available to the smaller local authorities? The Minister said that where a loan which is partially subsidised is written off the rate support grant payable to the local authority concerned will be reduced by an amount corresponding to the unsubsidised portion of the loan charges, but overall the net cash position remains the same. In this year of 1987 local authorities are looking to the 1988 Estimates. How will the position be affected in 1988? I am confused about that. A Bill is to be passed in the Dail to make the system of financing easier and more direct. Loans which were previously granted to local authorities under the local loans fund will be waived and the Minister said that in such cases the rate support grant will be reduced. If so, will that happen immediately on the passing of this legislation?

The main point on which I seek clarification is in regard to the special subvention to local authorities. The Bill is not very important in that it is unlikely to make any difference to local authorities. I am a member of two local authorities, Cork County Council and Mallow UDC, both of whom will be fighting for survival. I have commented publicly to the effect that if the shortfall in finances is to affect Cork County Council the business of the council will fold up in May or June 1988.

During the election campaign Fianna Fail promised a total review of local government finances and in their Programme for National Recovery they said that Fianna Fail would eliminate the present uncertainty whereby local authorities cannot anticipate what money from the central Exchequer will be allocated to them each year. I hope that will be rectified but I think this measure will only create more confusion in this regard.

The legislation is to provide that local authorities will receive a statutory contribution each year from the Exchequer which will be sufficient to provide a satisfactory level of necessary services. The question——

An Ceann Comhairle

I hesitate to interrupt the Deputy but he is rather straying from the subject matter before the House. This matter deals with local loans funding. The matter he is referring would be more appropriate on the Estimate for the Department of the Environment.

Mr. Sherlock

Most local authorities will have no money for housing, drainage or anything else and the inevitable result of the decision to chop by £145 million the allocation from the Department of the Environment will be a chronic worsening of services at local level with deteriorating roads, additional water and sewerage problems, an increase in pollution, little or no house building or maintenance and worsening——

An Ceann Comhairle

I am sorry, Deputy, I have already admonished you that this is a relatively confined measure and does not permit ranging widely over local authority affairs.

Mr. Sherlock

Sir, you will recall I said at the outset that at this time local authorities are being notified that there is a reduction of 14 per cent in the rate support grant and that the introduction of legislation of this nature makes one suspicious. I ask the Minister to clarify the points I have made.

Mr. Roche

Like other speakers I welcome this change. It is a long overdue administrative reform. As I read the Bill I was thinking of some ten years ago when I was an official in the Department of Finance and we were convinced of the need for reforms of this nature. The situation in 1987 is different from what it was in 1935 when the local loans fund was formalised. The problem that has grown up in the local loans fund administration in the past 15 years has been that a disgraceful amount of administrative time, a good deal of administrative effort and not a small amount of public funds were invested in certain funding arrangements which served no purpose other than to be wasteful and which distorted the accounting figures in local government and, further, distorted the national accounting figures. For that reason alone this is a welcome administrative change.

As the Minister and his Department have identified this circulatory transfer for elimination, they could now extend the same principle to other areas. Certainly other funding arrangements in subsidiary bodies of Government again involve circulatory transfers and in so far as they distort the public finances and are wasteful of the time of officials and sometimes of this House, such circulatory transfers should be treated in the same manner as this one and wiped out. I welcome the Minister's undertaking that there will be no elimination of support for schemes by the change which is being brought about in this Bill.

The effect of this administrative change will be seen in the national income and expenditure tables. Table 17 which deals with local government has always struck me as being based more on hypothesis and speculation than on real measurements of changes and transfers between central Government and local government. I hope that the reforms being introduced by the Minister will extend to that. It is vital in an economy such as ours at a time such as this that we can have the utmost confidence in the way we measure the national accounts.

As the debate has been broadened slightly from the pure administrative and technical detail of this Bill I will make one or two brief comments. As the Minister has discussed changing an implicit subsidy to a grant I would like some attention to be given to the whole question of transfers by grants to local authorities. Members of local authorities are aware of the frustration at the level of specific grants in local Government. If, while these administration changes are being made consideration could be given to broadening the block grant allocations to cover a range of capital activities by the local authorities, that would be another worthwhile administrative change.

I do not agree with the final points made that the death knell is somehow sounding in local government because efficiencies are being demanded. Like other Deputies who spoke, I am a member of a local authority and we would be deluding ourselves to suggest that local authorities cannot make efficiencies of ten, fifteen or even higher percentage points. There is not one local authority here who operate at 100 per cent efficiency. I happen to operate in two local authorities who make efforts to be efficient but I would defy any critic of Government or defender of local democracy to prove that any local authority here are operating at anything like 100 per cent. The final points made by Deputy Sherlock are not only not germane to this Bill but are simply a misstatement of the facts. This is a very welcome and long overdue administrative change. I hope that the Minister and his Department having started down this path will now take the same critical view of other transfers to subsidiary bodies with a view to tidying up the national accounts generally and the whole question of transfers from central to subsidiary government, giving us a truer picture of the reality.

Mr. Dempsey

I also welcome this Bill, not just for the Bill but for the spirit behind it. The Members of this House especially those who are members of local authorities and other organisations are familiar with the problem we have of administration for the sake of administration. The spirit of this Bill, which I hope is only a start in tackling the problem of bureaucracy, is to be welcomed. It is simply a streamlining of the outdated system which has been with us since 1935, which has served us well but is now no longer relevant as it is not only time-consuming but costly.

Members of the House may not be aware of the administration that is involed in something like the housing subsidy paid to local authorities. When the Department of the Environment have approved a housing scheme the local authority has to request money from the Local Loans Fund. When the money is transferred and the houses built the local authority pays the local loans fund and then requests repayment of that money from the Department. The Department have to check with the Office of Public Works who do all the calculations, and once it is agreed, they are sent back to the Department of the Environment and the money is then paid to the local authority. There are about six or seven stages in the payment. All of this takes time and costs money. I am glad that the Bill will overcome a lot of the administration involved there.

Like other Deputies, I am conscious of a number of other areas where similar pure administration exists. I will cite a few examples. In relation to the higher education grants scheme administered by the local authorities, the local authority does all the processing of the applications. They go into all the details and into all the checking. When that is done they go to the Department of Education which duplicates the checking and rechecking of the application. I know the Department must keep an eye on administration of the scheme but a simple spot check system would be quite sufficient. There is no local authority that would give grants in contravention of the terms of the higher education grants scheme. There is a useless and wasteful duplication of administration in that instance.

In the area of VEC grants a lot of administration could be cut out. At the moment if a student from Meath applies to Letterkenny, Sligo, or some other RTC for a grant, Letterkenny RTC have to apply to Donegal VEC for payment of that grant, Donegal VEC pay the grant and apply to Meath VEC for a repayment of the grant and Meath VEC pay the grant and then apply to the Department for a repayment of the grant. About five or six different bodies are involved there, whereas the simple thing to do would be to allow Letterkenny RTC to vet the grant and Donegal VEC to pay it and so cut out all this administration.

Another point on which I will touch in relation to local authorities is that a number of local authorities have received demands from the Revenue Commissioners in relation to investment income they receive. Some local authorities have managed their funds very well and have managed to lay aside capital reserves for housing and other such ventures. The Revenue Commissioners are now pursuing these local authorities for interest on the investment income on these capital accounts. They are asking some local authorities to go back as far as the early seventies and there is no doubt that according to the 1967 Finance Act they have the power to do so, but now, hard pressed local authorities are being asked to act as tax inspectors and go back over books for ten or 15 years. They will have to let vital and valuable services fall behind because of pure administration problems. If the Department of Finance want to deduct tax on those accounts why could they not simply ask the local authorities to submit details of their income from capital accounts and deduct that amount from the grants that the local authorities are suppose to get. I do not agree that this tax should be taken from them. Local authorities that have been judicious in saving money and investing it should be encouraged to do so rather than penalised and taxed.

Another area where there is duplication of administration is in group water schemes. Every member of a local authority is well aware that the local authority is the best organisation to look after the administration and vetting of group water schemes.

An Ceann Comhairle

I am sorry to interrupt but the Deputy is straying somewhat from the subject matter that is before us today.

Mr. Noonan

(Limerick East): There will not be any more group water schemes after the Estimates. The grant is gone.

Mr. Dempsey

I am highlighting other areas that could be tackled by the Minister but I accept the ruling of the Chair.

In conclusion, I welcome the spirit of this Bill. Bureaucracy should be simplified. All types of application forms and systems should be looked at, examined and simplified for both the administrators and the clients.

Mr. McCartan

I echo Deputy Sherlock's remarks on behalf of The Workers' Party. We welcome in principle the ideas in the Bill. Anything that helps to tidy up the organisation of funding and make it more cost effective is to be welcomed.

Having said that much, I would not trumpet in this legislation with all the noise that some of the Deputies on the Government side have sought to do. It is very important to highlight some of the dangers that might creep in in regard to the funding of local authorities consequent on this very Bill. I would like to highlight its shortcomings.

We are a party who have constantly made the point that local authorities can never function effectively without a sound financial basis, that is, a pre-determined, fixed, assured basis of financing that allows a local authority each year to know where it is going and what it can hope to budget for in the coming years. Since 1977 there has been a fundamental change in the basis of local authority financing consequent on the abolition of funding raised at local level. Over the years there has been a unilateral decision by central government as to what moneys local authorities would have available to them for their use throughout the year. I have a major concern about the explanation that the Minister has advanced in respect of the operation of the powers under this Bill. Where central government is funding the local authority 100 per cent one cannot even begin to imagine how since 1935, we have had this circuitous way of dealing with the operation of the money being paid out being considered as a loan and having to be returned through a fiction. One welcomes the tidying up of that aspect but the Bill does not, for example, suggest the abolition in its entirety of the local fund. It does not, for example, suggest that those persons employed, be it within the Department or at local level, with the operation of the mechanisms of the fund will now be available and free for other duties. In fact, there is very little in real terms that will be saved in man hours or in persons being released for other duties. This is a very tiny step in the tidying up operation.

I do not look on this as a major step in local Government funding reorganisation. It is a very tiny step and we must recognise it as such. The local fund will be there as will all the personnel who were working there previously. Interestingly, the Minister has given no indication as to how this will be a great cost saving and streamlining exercise. I do not see it except in a very small way and only in the area of the 100 per cent funding operation.

There was one profound concern in the question of funding and that relates to those projects that are partially funded. The Minister said:

Where a loan which was partially subsidised is written off, the rates support grant payable to the local authority concerned will be reduced by an amount corresponding to the unsubsidised portion of the loan charges.

I would like the Minister to explain a little more how he and his Department intend to operate that. I am concerned about this because since 1977, on a yearly basis the cost effectiveness of the rates support grant to local authorities has been reduced. It is not a rates support grant, it is a portion thereof because it has never kept apace with the loss to local authorities of the revenue they would have had had they been collecting rates on a local basis. If local authorities are granted a partial support for a capital scheme they repay that, not within a year but over a period of years. If at some stage along the way the Minister decides, because of the scale of it, or the inability of the local authority to pay, to wipe out the portion of grant, will the local authorities rate support grant for that particular year be reduced to make up the loss that central revenue would otherwise have, or will the reduction of the rates support grant be spread over a number of years to reflect what would, in fact, have been the liability of the local authority to that partial support grant in that current year? Will there be any negotiation by central government with the local authority in deciding, for example, what should be written off and on what terms it will be written off? Upon what terms will the rates support grant be altered.

For too long now, there has been an attitude at central government, no different in Coalition days than in Fianna Fáil days, of making unilateral decisions. Last year, there was a £3.5 million reduction in finances to Dublin Corporation, of which I am a member. This year, it is £4 million to £4.5 million. We have been told that at local level by letter.

An Ceann Comhairle

The Deputy will appreciate that we cannot discuss the financing of local authorities now.

Mr. McCartan

I am merely illustrating a major concern that is raised in the context of the Minister's speech where he says that the rates support grant payable to local authorities will be reduced.

Mr. MacSharry

That is not a proper quotation. The Deputy should not take it out of context but should read the whole paragraph.

Mr. McCartan

I quote:

I agree with that but the sentence that concerns me and on which I want some clarification is as follows:

To make my point in case I have not made it clearly and the Minister is missing it, I want to know on what basis that alteration or write-off of the rates support grant will be made. Will it be made in consultation and not in the unilateral way central Government have been treating local authorities since the introduction of the rate support grant in 1977?

As Deputy Roche indicated, the debate has strayed a little from the kernel of the matter. Deputy Roche suggested that there is not a local authority that could not achieve efficiencies of the order of 10 per cent to 15 per cent but my simple answer to that is that while all local authorities like all other bodies are capable of efficiencies, those efficiencies should be sought in the spirit of consultation and not by the big stick method of unilateral decisions being made by central Government without consultation. Until central Government introduce legislation that allows local authorities to engage, for example, in the disposal of waste on a commercial basis, or the building of houses for the private sector, they will never be able to deal with the whole question of efficiencies. When the Government with, I have no doubt, the support of some of the Opposition parties, agree to the expansion of the operations of local authorities they will get the efficiencies they require.

Mr. Noonan

(Limerick East): There is the basis for several coalitions around here.

Mr. Cullen

I support the Bill. Anything that helps to eliminate bureaucracy, which is rampant at present, is to be welcomed. Some of the Members have identified waste in local authorities and while it may exist I do not think the blame lies entirely with those who are endeavouring to administer a very outdated system. It is important that that point is made. We must attack the system rather than those who are trying to operate it. It has always been my contention that local authorities have an important role to play but they have been unable to do that for many years. That has arisen because local authorities do not have any control over their own finances and that has marginalised the role of elected representatives. The efficiency level of local authorities has been reduced because they do not have any say in the spending of the funds available to them. They cannot engage in long term planning for their own areas.

From year to year the rate support grant has been varied downwards and local authorities have reached crisis level in terms of their finances. They are facing 1988 in that state. Where do we go from here? In my view the Minister, in conjunction with this measure, should have introduced more wide-ranging measures in connection with local authorities. I am sure he, like all Members, wants an efficient and effective local authority system. The Revenue Commissioners have asked local authorities to withhold the withholding tax on statutory payments to, for example, local government auditors which amounts to one Department penalising another. It is an example of, more bureaucracy and we must eliminate it. The only way to do so is to overhaul the entire system. Central to that overhaul is the introduction of some form of local property tax, as suggested by the Progressive Democrats. It is vital in the long term interests of local authorities that they should be in a position——

An Ceann Comhairle

That is hardly appropriate on this measure. The Deputy will have an opportunity to elaborate on such matters next week or in the debate on the appropriate Estimate. He cannot do so now.

Mr. Cullen

The measure introduced by the Minister does not amount to a huge step forward but it is a step in the right direction. We want to encourage the Minister to go much further. It is in all our interests that local authorities are able to function to the maximum of their ability. It is a case of local authority officials not being allowed to do so because the system they operate under does not permit them to perform in that way. I urge the Minister to bring forward more measures to benefit local authorities.

Mr. Flood

I welcome the Bill which makes very sound sense in our efforts to try to tidy up the way the fund is administered. Many of us who serve on local authorities will be aware of the bureaucracy that is attached to the administration of those bodies. While the Bill may be described as a small step forward, it is a move in the right direction. There is a great deal of duplication in the administration of local authorities. Nowhere is that more evident than in the Dublin region where three local authorities operate side-by-side in terms of housing development, planning and road construction. Administratively that is a poor way to conduct business.

I should like to ask the Minister to consider the effect the Bill will have in relation to the authority of elected representatives on local authorities. As I understand it, in the past a manager anxious to raise a loan through the local loans fund had to bring a request to raise that loan before a meeting of the council. It appears that will not be necessary in future under the grants system. If that is so I ask the Minister to tell us how legislation will be changed to cope with it. Elected representatives should always be consulted on such matters as raising loans for housing development, sanitary services schemes and so on. I do not think a manager should be allowed ignore the views of elected representatives.

In certain cases in this year and into next year there will be some effect on the rates support grant. Elected members will have to have some say about any change or adjustment in the rates support grant arising out of this Bill. It is right that Members should have some control over the management of local authorities in relation to the raising of loans, particularly where there might be an effect on the total finances available to local authorities.

This is a good Bill in terms of tidying up a situation which has existed since 1935 and the effect of which has grown quite considerably over the years, particularly in the last ten to 15 years. Anything that a Minister can do to improve the efficiency and operation of local authorities is to be welcomed, whether it be the Minister for Finance or the Minister for the Environment. For too long we have seen a great duplication of effort and service which ultimately leads to a waste of the taxpayer's money in many cases. That is something that all of us are interested in trying to avoid. I welcome the Bill and hope that the Minister will be able to respond to the points made about the control of elected members over decisions by the management. That is important for local democracy.

Minister for Finance (Mr. MacSharry)

First and very sincerely, I want to thank all the Deputies who contributed. Every contribution welcomed this Bill and the reasons behind its introduction, even with regard to those who were trying to suggest that something sinister was being done, particularly in relation to the rates support grant which I shall come to in a moment. I want first to deal with a very important point made by Deputy Noonan on the national debt and the elimination of the double counting and the fact that we have, at least on the face of it, reduced the amount that we are supposed to owe, or are perceived to owe. It does not change the overall liabilities we have. I should like to give the factual position of this switch from subsidised loans to grants which will result in reduction in the national debt statement as at present computed.

The extent of the Exchequer's liability to subsidise future capital repayments by the local authorities through the local loans fund is included as an item in the national debt statement, even though the Exchequer provides the advances in the first place from its general borrowings which are also included in the statement. Although from a gross accounting point of view this procedure may be technically correct, it means that the indebtedness of the Exchequer is overstated. The debt which is charged to the Exchequer to represent the loan charges subsidy is, in fact, owed to the Exchequer itself. Following the change now proposed, the figure for the national debt will be reduced by about £1,600 million. It must be emphasised, of course, that this technical accounting adjustment to the national debt figure does not affect the real burden of the debt. The heavy cost of debt service on the budget is not affected in any way and the necessity for reducing public expenditure in order to stabilise the debt will be in no way diminished.

Mr. Noonan

(Limerick East): It will help the GNP.

Mr. MacSharry

There are no other major items of this nature in the national debt statement so that there is no possibility of any similar type of reduction in the debt figure. If we get any fall-out from it, I am sure the Deputy will be as glad as we shall be. I am sure, too, that the same goes for every Deputy in the House, because we all want to see movement in that downward direction, however it is brought about. However, this does not change the overall liability or the necessity for controlling and curtailing expenditure.

Mr. Noonan

(Limerick East): The Minister says that the limit on the local loans fund is £4½ billion at the moment. That amount will not be put on a grant basis, I take it. There is a partial write-off and new advances will be put on a grant basis.

Mr. MacSharry

I know what the Deputy is getting at, especially because of the £1,600 million that I have mentioned also. It would take some minutes to work out exactly what is being done, but I can give the figures to the Deputy.

Mr. Noonan

(Limerick East): On the face of it, there is an overstatement of £4½ billion in the debt, because of the double counting.

Mr. MacSharry

Not necessarily, because what we are doing here is not eliminating circular transfers. We are talking about house mortgages and a whole series of other things. I could start to work it out now from the brief but that would cause a delay of half an hour. I know the point the Deputy is making and I am sure the officials will have the figures communicated to him and to others who wish to have them.

Mr. Noonan

(Limerick East): Would the Minister not agree that the change would help the GNP/national debt ratio to get into equilibrium?

Mr. MacSharry

That is not the purpose of the exercise because it does not change the situation overall. The situation is that we still owe the money. All we are trying to do is to eliminate, as the Deputy said, double counting.

Mr. Noonan

(Limerick East): It is nice to be getting side benefits from this.

Mr. MacSharry

If they are there, we shall all welcome them. I shall get the information requested by the Deputy in relation to the difference between the overall limits of £4.5 billion and the amount of reduction of £1,600 million of the national debt.

Deputy McDowell raised the bigger question of local authority financing which is very important. The Ceann Comhairle had difficulty in keeping Deputies' contributions on the rails in relation to what is contained in this legislation and the wider question of local authority finances. I know that the Ceann Comhairle will allow me to say that the entire question of local authority functions and financing is being examined by the Minister for the Environment. There will be other occasions in this House, as the Ceann Comhairle has said, for all of us to make a contribution in that regard.

Deputy Sherlock raised a number of very important points. I should love to see sanitary services having a 100 per cent grant, too. Some are higher than others, because of special concessions given in some cases. We must consider the general situation and the burden on the Exchequer. It is not intended that grants of 40 per cent to 60 per cent at the moment would be brought up to 100 per cent. There are other items on the special local loans fund.

The most important point and the one with which we are most concerned is the special subvention made to certain small local authorities. I can assure the House that that will be taken fully into account in the adjustments which will be made and that the special concession which is available now to these certain small local authorities will still be available. The local authority finance review was also mentioned. However, I shall not go into that because it is a wider question.

Turning to the question raised by Deputy McCartan, and which I think was touched on by a number of Deputies, first, while it has been said that it is important and necessary and that we are over-emphasising its importance, it is a saving. It is anything from £250,000 upwards in administrative costs and that is a saving. That is not small in any terms and we are looking around for savings of £4,000 and £5,000 under particular subheads throughout the whole Book of Estimates, as the Government have been doing over the last three or four months and as the House will be debating next week. It may be considered small, but it is important.

The major point the Deputy was making which was referred to by other Deputies was the impact on local authorities. The best that I can do is to repeat some of what I said and to add to my opening remarks. The changeover to the new system of capital grants will be arranged so that it will have a neutral effect on local authority finances. Local authorities will be no better or no worse off under the new system, no matter what the calculations are. This will be achieved by writing off the outstanding capital and interest on the local loans fund loan draws at a date or dates fixed following the enactment of the Bill. Loan charges which would have been payable in that year on total local loan fund loan draws will not be levied on local authorities. In cases such as local authority housing where loan charges are 100 per cent subsidisable, no subsidy will be paid. In cases where loan charges are partially subsidisable, generally around 50 per cent, neutral financial impact will be achieved by not paying a subsidy and reducing the rates support grant by the amount of the loan charges which authorities would have had to meet from their own resources. The financial neutrality of the changeover will be maintained in subsequent years through the annual determination of the rates support grants, where account will be taken of the removal from local authorities of the burden of meeting net loan charges on subsidisable local loan fund loans from their own resources. That should fully clarify the position.

Deputies Dempsey, Cullen and others raised fundamental points that we shall take fully into account in relation to unnecessary administration involved, particularly in the educational area. I am sure we will do everything possible to eliminate any waste. The points which were raised in relation to education will be brought to the attention of the Department of Education. We are most anxious to eliminate unnecessary administrative details and the delays which are involved in the processing of applications for grants.

Deputy Dempsey also referred to the local authorities, the Revenue Commissioners and the Department of Finance in relation to the deposit interest retention tax which was introduced last year. We will consider the point he has made and see what may or may not be done about it. The Deputy also referred to group water schemes and said they would be better managed by the local authorities rather than by the Department of the Environment. As the Ceann Comhairle rightly said, that is a matter for the wider debate on local authority services generally.

Most of the points which were raised were in welcome for what was being done. I will convey to Deputy Noonan the information which was asked by him before we take Committee Stage, which I presume will be taken sometime next week, subject to agreement between the Whips. At that time we can go into greater detail on the points which I may not have responded to this morning. This is a short Bill comprising of only three or four sections and on Committee Stage we will be able to go into great detail on some of the points on which it was not possible to give a reply on Second Stage. I look forward to being in a position to help Deputies in any way I can on Committee Stage.

Question put and agreed to.

Dáil Éireann debate - Thursday, 15 Oct 1987

Local Loans Fund (Amendment) Bill, 1987: Second Stage.

Dáil Éireann debate -
Thursday, 15 Oct 1987