Richard Bruton
Question:24 Mr. Bruton asked the Minister for Finance his Department’s view regarding the defined benefit pension schemes in public bodies and the accounting standards applied in pensions funding. [25173/06]
Priority Questions.
Pension Provisions.
The pensions policy in the non-commercial bodies is that recommended by the pensions commission and accepted by the Government, that is, the defined benefit model is generally used. However, there may be circumstances where, if staff are engaged on private sector pay terms and conditions, a defined contribution arrangement is appropriate.
In regard to commercial State bodies, pension schemes are generally funded and, to date, the great majority of commercial State bodies have opted for defined benefit schemes. The schemes are a matter in the first instance for the boards concerned and the relevant legislation usually provides that they are subject to the agreement of the responsible Minister and the concurrence of the Minister for Finance.
In putting forward particular schemes, the boards of commercial State bodies must take account of a wide variety of issues and must ensure that the pension arrangements safeguard the long-term viability of the scheme and are consistent with the financial position of the body concerned. Thus, it is for the bodies themselves in the first instance to determine the nature of their pension scheme in terms of whether it be a defined benefit or a defined contribution scheme. Thereafter, the relevant Department and then the Department of Finance will consider each scheme on its merits.
As regards the accounting standards applied in pensions funding, this is primarily a matter for the board and auditors of each body, having regard to accounting standards in place.
I thank the Minister for his reply. I am sure he has seen reports in the media of the experience of the board of one State company which was considering moving from a defined benefit to a defined contribution scheme. On approaching the Department of Finance to discuss the matter, the board was told that if the idea of moving to defined contributions were to surface ahead of the national pay talks, unions would use the talks process to put that possibility beyond bounds, at least for the public sector. It seems the Department of Finance is adopting a remarkably strange position in this matter.
Will the Minister clarify whether it is the view of his Department that public bodies should migrate towards defined contribution schemes, or is it his view that defined benefits should continue to be the norm? Will he comment also on the remarks reportedly attributed to the Taoiseach expressing concern at the private sector move towards defined contributions? If accurate, these reports suggest that the Taoiseach and the Minister's Department are not on the same page in their approach to pensions. What is his view on future policy in regard to these two competing schemes?
My reply clearly states that pensions are, in the first instance, primarily a matter for the relevant board. Commercial State bodies have their own autonomy and it is for them to work out with their stakeholders how they wish to proceed on such matters. They seek my approval in regard to their pension scheme only after they have reached agreement on it at that level.
The principle that guides this issue in regard to commercial State bodies is that it is a matter for the board concerned in the first instance, with the relevant legislation generally requiring the subsequent agreement of the responsible Minister and the concurrence of the Minister for Finance. In dealing with such proposals the bodies have regard to all relevant considerations, including discussions with employees and legal, contractual and procedural matters. It is not a matter that I pre-empt.
I accept it is not a matter the Minister should pre-empt. As he indicated in his reply, however, the attitude of the Department of Finance to public pay and condition norms in State bodies has always been central to the way in which they developed. Is the Minister saying the reports are incorrect that an approach was made to his Department and that the latter was at best two-faced in suggesting it would not confront this issue in case those representing workers might hear of it and raise it in the partnership process? Does the Minister deny this occurred?
Will the Minister give his view on the future direction of pension schemes? There is widespread discontent that there is a migration away from defined benefit schemes, most recently in the case of one of the banks. Is it Government policy that this is something that ought to be resisted or is it the case, as the newspaper reports suggest, that the Minister is saying one thing under his breath while being of the opposite view that it should be encouraged, even among the boards of State bodies?
I am not saying anything under my breath. I have said that the primary responsibility for these matters rests with the individual boards. The question of the sustainability of a pension scheme and the issues that arise in this regard will vary from board to board and body to body. The defined benefit scheme has generally been the norm in the non-commercial sector.
Difficulties may arise in regard to the adequacy of pension provisions into the future and, in such circumstances, there is often the necessity that a contribution be made by the company and its employees. In the case of the initial public offering, IPO, for Aer Lingus, there must be a preparedness on our part to contribute to resolving a particular structural problem that has emerged. In regard to specific commercial bodies in general, which have a commercialisation agenda and have been given the autonomy to run their businesses commercially, if issues arise that must be addressed in the pensions area, as in any other area of their activity, they must work out a solution to that problem themselves.
In the context of the migration away from defined benefit pensions, I notice the Irish Congress of Trade Unions has suggested that part of the problem is the demanding accounting standards that pertain. It has put forward a proposal for a scheme under which the State would act to some extent as a holding company for the purchase of the annuities. Is this something the Minister has examined and is he well disposed towards the concept?
The general pensions policy has been discussed in some detail in the context of social partnership. The agreement we have obtained includes a commitment to the production of a Green Paper on this issue in the next 12 months. The Minister for Social and Family Affairs has begun the process of consultation in this regard and I will also be centrally involved in terms of any issues that may arise for the taxpayer.
My initial position is that these are matters above and beyond those relating to State pension provisions, which are the responsibility of the State. The question of supplementary pension provision is one that must be addressed primarily by those who are the beneficiaries, including the companies and employees concerned. In regard to individual State bodies, it is a matter for the boards of those bodies in the first instance. In the case of any State body with a deficit on its scheme, it is a matter for that body to address the problem in a sustainable manner that does not compromise the commercial viability of the company. In regard to accounting issues, commercial bodies are expected to observe appropriate accounting standards and there is a general awareness of that requirement.
Tax Code.
Joan Burton
Question:25 Ms Burton asked the Minister for Finance his views on the increasing number of high net worth persons avoiding capital acquisitions tax on multi-million house transfers as a consequence of section 86 of the Capital Acquisitions Tax Consolidation Act 2003 and the increasing use of licensing arrangements in respect of land transfer and development land deals, thereby avoiding capital taxation, including stamp duty; the number of house properties and estates and the number of land transfer and development schemes qualifying for the avoidance of capital taxes for each year from 2000 to date in 2006; and if he will make a statement on the matter. [25179/06]
The Deputy refers to two separate circumstances of potential abuse of the tax system. The first relates to section 86 of the Capital Acquisitions Tax Consolidation Act 2003, known as the family home relief, which provides an exemption in regard to second dwellings.
With regard to section 86 of the Capital Acquisitions Tax Consolidation Act 2003, the purpose of this exemption is to benefit individuals who had been living in their own family home for a period prior to acquiring the house, either by way of gift or inheritance. The provision came into effect for gifts or inheritances taken on or after 1 December 1999. The main conditions attaching to the exemption are that the beneficiary, that is, the person who receives the gift or inheritance of the dwelling house, must have resided in the house for a minimum of three years prior to the gift or inheritance and must not have had an interest in any other dwelling house. In addition, the beneficiary must continue to occupy that dwelling house as his or her only or main residence for a period of six years commencing on the date of the gift or inheritance. This lengthy owner-occupier condition was included in the legislation to restrict the relief to genuine cases and avoid the relief being used as a means of tax avoidance. These conditions of ownership and residence after acquisition may be waived where the beneficiary requires long-term medical care in a hospital, nursing home or convalescent home or where the beneficiary is aged 55 or over.
I am informed by the Revenue Commissioners that statistics are available on the number of claims under section 86 since the introduction of the relief. The number of claims was three in 2000, 24 in 2001, 13 in 2002, 252 in 2003, 553 in 2004 and 542 in 2005. This compares to almost 20,000 capital acquisitions tax returns in 2005, or just under 3% in that year.
The relief was introduced in the 2000 budget to help those sharing the family home who were faced with very large tax bills when inheriting the home they had lived in for some time. The relief was particularly addressed at cohabiting couples not catered for in the law before then, aunt and niece type cases and same sex couples. It was widely welcomed when it was introduced and applies irrespective of the value of the dwelling house being transferred.
I have no evidence that this provision is being abused. The fact that the numbers using the relief have increased sharply since it was introduced is not evidence of abuse in itself. The number of persons claiming relief under section 86 made up less than 3% of the overall number of claims under capital acquisitions tax in 2005. If the Deputy has evidence to support her concerns of abuse she should being it to the attention of the Department or the Revenue Commissioners.
The second matter raised by the Deputy refers to the avoidance of stamp duty liability and capital taxation charges by developers using licence arrangements. Stamp duty is a charge on documents, which are mostly legal, used in the transfer of property. Where a property is purchased, stamp duty is charged on the conveyance or transfer effecting change of legal ownership of the property concerned. If there is no conveyance, there is no stamp duty. A builder or developer can, therefore, obtain a licence from a vendor to build on land owned by the vendor without incurring a stamp duty charge at that stage of the venture. Once the buildings, whether commercial or residential, are completed the conveyances or transfers of such properties to purchases are liable to stamp duty in the normal manner unless specific exemptions are available to such purchasers.
Taking account of the proliferation of developments generally in recent times and in the context of its major project in the construction sector in 2006, the use of licensing and similar arrangements is being reviewed by the Revenue Commissioners as part of its audit and compliance programmes. The review, as with Revenue's overall approach to business, will focus on risk. I have asked Revenue to inform me of the outcome of its review and I will decide what action, if any, is required, bearing in mind the effect on the housing market and the cost to the Exchequer.
Information requested by the Deputy on the number of land transfer and development schemes involved is not available.
The Deputy is concerned that the use of licence arrangements by developers might constitute avoidance of capital taxation on the part of the developer but the Revenue Commissioners have informed me that as capital sums payable to landowners for the disposal of property by way of licence agreements are chargeable to capital gains tax in the normal manner, it is not considered that such tax is avoided by the use of these arrangements.
Is the Minister considering, in the context of the next budget and Finance Act, amending avoidance legislation to cut off what have become two of the more notorious new ways in which very wealthy people can avoid legitimate taxation on very valuable property?
According to the Minister's reply, 1,400 homes have been transferred under section 86, a Charlie McCreevy "special" from the former Minister for Finance in the Finance Act 2000. Given that the exemption per child on house transfers for capital acquisitions purposes is approximately €500,000, does the Minister accept that people who own properties worth many tens of millions of euro are using this loophole to avoid any capital acquisitions tax arising?
I asked the Minister to indicate the value of the 1,400 properties subject to this special arrangement. Why is that information not available? It must be available. Is the Minister or the Revenue Commissioners hiding the information so that we cannot find out about this particularly lucrative form of tax avoidance, which in reality is only available to the very wealthy, given that one must transfer one's property in full to a resident person?
Can the Minister tell me whether a major property deal is going through in this country at the moment which is subject to stamp duty at 9%? His officials must know this from examining the files. People buying a second-hand home are paying stamp duty, yet every builder in town who is involved in multi-million euro transfers of property can avoid the duty. We have seen extraordinary prices in the Ballsbridge area, for example. All those deals are subject to licensing arrangements, as the favoured method, or to the transfer of shares.
Ordinary taxpayers are paying a heavy price in stamp duty, their children are paying capital acquisitions tax when the family home is transferred and yet the Minister is leading a coach and four through the taxation system so that very wealthy individuals can engage in tax avoidance with regard to capital taxes. These are the same people for whom the Minister has a whole regime of special schemes to allow them to avoid income tax.
Unfortunately, the supplementary questions were prepared prior to my giving the answer. With regard to the first part of the Deputy's question on section 86, I have pointed out that the Revenue Commissioners do no have evidence of abuse as suggested. Claims under the section represent less than 3% of the cases. It is very unfortunate that the Deputy is suggesting that we are not giving her the information she seeks. The information, if it is available, is always given. There is no agency more adept or proactive in that regard than the Revenue Commissioners.
In the light of any concerns raised regarding the potential for abuse, the Revenue Commissioners have decided to carry out a survey, for the sake of assurance, of a proportion of cases where the relief was granted. That will be carried out over the coming months with a view to completion in advance of next year's Finance Bill. I have asked Revenue to keep me informed of progress in this regard. On the face of it, the Revenue Commissioners feel that abuse is not taking place but will carry out a review for assurance purposes, and that is fair enough.
With regard to the other matters raised by the Deputy, I have given the full picture in my reply. A review is taking place across a range of areas relating to the construction sector, including with regard to the matters raised. When that review becomes available and we have the evidence from the Revenue Commissioners, we will determine if action is required.
Section 86, as I understand it, was welcomed by all sides of the House when it was introduced in the Finance Bill. To portray it otherwise is inaccurate.
Property is being sold in the Ballsbridge area on a weekly basis for over €1 million per acre and many deals of €50 million and upwards are being completed. The saving through the loophole regarding stamp duty costs the Exchequer approximately €5 million a week in Ballsbridge alone. Meanwhile, young couples who buy a second-hand house in the same area pay 9% stamp duty. That loophole is used by Fianna Fáil's friends in the construction industry, and it must be reviewed and eliminated. I welcome the news that the Minister is having a review carried out regarding both capital tax elements. When it is made available, will he publish its results in full? I cannot understand how the Revenue Commissioners do not receive the value of large house estates being passed under section 86.
I reject the usual innuendoes from that side of the House regarding these matters. Unfortunately, I must listen to the same old stuff every day. I have no personal knowledge of anyone availing of such exceptions or reliefs. As is the requirement and norm for questions, I am giving the relevant information rather than engaging in assertion and innuendo.
The reviews are being carried out at the initiative of the Revenue Commissioners. I brought the matter to the attention of the House at Question Time in replies given some months ago. There is nothing new in the fact that those reviews are taking place. It was the intention of the Revenue Commissioners to have them, and they have announced a targeted approach towards the construction industry for this year, with the involvement of 25% of audit personnel concentrating specifically on this sector. It is a national audit focusing on risk in the construction industry under various tax heads. The project is being managed by a national steering group reporting to Revenue management.
The Revenue, in association with the Irish Taxation Institute, organised a series of open fora on the construction industry project. As I have said, those are the sorts of mechanisms the Revenue Commissioners have employed in other sectors where they feel revenue protection might be at risk. When they report to me, I will decide what action is required. I will give no commitment before receiving the report.
Cross-Border Projects.
Caoimhghín Ó Caoláin
Question:26 Caoimhghín Ó Caoláin asked the Minister for Finance the measures in relation to increased north south co-operation that he envisages will be included in the National Development Plan 2007-2013; and the discussions he has had to date with the relevant Departments or other interested groups in the Six Counties in relation to this matter. [25070/06]
The all-island dimension will be an important horizontal theme of the National Development Plan 2007-2013, which will be published next November. We face common challenges in the two parts of the island, such as the need to invest in infrastructure, energy provision, education and training, new technology and research and development. Co-operation in those and other areas can be of mutual benefit, and the NDP will set out an agreed strategic framework for such co-operation.
My Department, in its co-ordinating role drafting the next NDP, has engaged with other Departments on the issue of North-South co-operation, with particular reference in this context to programmes in their area of responsibility. More generally, there is ongoing liaison between Departments and their Northern counterparts on matters pertaining to North-South co-operation. My Department will shortly engage in direct consultation with its Northern counterpart on the North-South dimension of the NDP.
As the Deputy will appreciate, I cannot speculate at this stage on the context of the North-South co-operation elements of the NDP. I can, however, assure him that it is my objective that it be a substantive element that will set a basis for further mutually beneficial co-operation.
I thank the Minister for his reply.
Will he confirm that his Department and all others have been requested by the Minister for Foreign Affairs, Deputy Dermot Ahern, to incorporate the all-Ireland dimension in their submissions for the next National Development Plan 2007-2013? I assume the Minister can refer directly only to his own Department, but as it is the anchor Department regarding preparation of the NDP, can he give us a sense of how seriously the issue is being taken across the Departments? What discussion and consultation has taken place with ministerial counterparts North of the Border? Has there been any consultation with the parties and other interested sectors in the North of Ireland? Were submissions sought, for instance?
While the common chapter of the National Development Plan 2000-2006 marked what one might term a tentative step away from the back-to-back approach that applied hitherto, which resulted in serious under development and the failure of natural communities to reach their full potential on both sides of the Border, does the Minister agree that we need not a common chapter but a common development plan to address all past failures properly and substantively?
Did the Minister note a statement by John Bradley of the Economic and Social Research Institute in a paper that he presented in Armagh earlier this year entitled "An island economy or island economies? Ireland after the Belfast Agreement"? In it, he said that the unfortunate reality is that both North and South are attempting to improve their competitive advantages largely in isolation from each other. What is the new regime now in place? Can the Minister elaborate on his reply, assuring us that we are in a new era of co-operation? What new areas of co-operation are intended under the new NDP?
Given the logic of an island economy, it is an important horizontal theme cutting across the entire plan whereby one avoids duplication, applying a strategic framework that makes sense and is of mutual benefit to the two jurisdictions. That is eminently sensible and complies with the letter and spirit of the Agreement. It is true that there is an institutional requirement for everyone to ensure that the potential for North-South co-operation in all its aspects is not only promoted and spoken about but actively implemented. I have already mentioned that with regard to infrastructure, where development is envisaged on both sides of the Border and required for the competitive economy of the 21st century that we are trying to build. The same is true of energy provision, education and training, new technology and research and development.
Under the Good Friday Agreement, implementation bodies for trade and other areas have had some success. A great deal of work has gone into them, and we must continue promoting that culture of co-operation, which is to everyone's benefit and should therefore encounter no objections from anyone.
We also know that as soon as we can get a devolved administration up and running again under the terms of the Agreement, we will have local, democratically accountable Ministers in the Executive who could promote and be active in this area in a manner specific to the situation's requirements. The assurance that I can give the House is that this makes a great deal of economic sense. It informs our discussions on the North-South Ministerial Council pending the return of devolution.
From our perspective, it is a very important strand of the Agreement that must be actively promoted and implemented. I hope that in coming months we will see momentum entering the political process reflected in an economic agenda that ensures the success that we can achieve. I assure the Deputy as co-ordinator of the NDP that it is an area of activity in which I have a personal interest.
I thank the Minister for reflecting so positively. I share his hope that we will see the devolved administration back up and running very shortly, since we both recognise that it will be the critical catalyst for delivery of much of the content of the NDP and plans North and South. The Minister stated in his first response that he was not able to speculate on specific content, but perhaps I might explore one or two areas very briefly. In terms of strategic development, particularly the need for a strategic transport corridor to the north west which will have tremendous benefits for both this area and the Six Counties, and the need to develop in a co-ordinated fashion the N2-A5 transport route, which currently fails to properly assist and encourage economic growth in the serviced counties from here to Donegal and Derry, does the Minister anticipate that we will see real co-operation in terms of this type of infrastructural development, which has been highlighted recently in a number of fora at local authority level, both North and South? Unquestionably, there is cross-party and cross-community support for such an approach.
Is there any prospect of an all-Ireland environmental protection agency being established? The creation of such an agency has previously been mooted. Is this option being considered? What will be contained in the plan in terms of enabling people in the Border areas to access health services which are closest to them rather than being practically herded or driven towards a particular service entity within their respective jurisdictions? These areas include primary care, encompassing GP and out-of-hours services, for which a pilot project is signalled for this year, and hospital access and procedures, including accident and emergency services. The real benefits of this approach have yet to be realised. These are the areas that will prove the real potential of cross-Border co-operation and working together.
The common chapter of the national development plan for 2000-06 committed the Irish and UK Governments to integrating the divided telecommunications system. Despite the fact there have been some improvements in areas such as roaming charges, we still have what applied at the introduction of the last NDP in 2000. Is the current review taking on board areas that have not progressed as hoped? What further steps can the Minister take to realise the hopes and aspirations of the NDP launched in 2000? I welcome any elaboration by the Minister.
It is unfortunate that the necessary trust and confidence one would have expected to have been built up in respect of the mutual benefit of North-South co-operation is still not universally understood, accepted or comprehended by various shades of political opinion. This is clearly unfortunate. However, it does not take away from the fact that on any objective analysis, and there have been such analyses carried out during the period when the executive was in position, progress was made in promoting and providing examples where North-South co-operation clearly made considerable sense. Considerable progress was also evident outside the structures, for example, in the energy sector. It is obvious that there is a range of tangible outputs that could benefit from genuine co-operation, for example, the areas of transport, energy, education, health and spatial planning. We have witnessed the co-operation and working together initiative, which was the first cross-Border initiative in health. Although this initiative is on a small scale, it indicates what can be achieved. For example, people in Cooley go to Daisy Hill Hospital in Newry for renal dialysis so a considerable amount of practical co-operation across jurisdictions is taking place, which should be the forerunner to far wider provision. We have seen this in the cancer care strategy, where we are trying to finalise arrangements that would be more suitable for people in the north west than would be the case were they to travel to Dublin, Cork or somewhere else. A considerable amount of work is ongoing. When people take the politics out of it, it would be far better if we could promote it to demonstrate that cancer incidence would be reduced and availability of cancer care improved, an area in which much progress has been achieved in recent months although it has not yet been finalised. Hopefully, it will soon be successfully finalised.
Practical co-operation can also exist in the area of environmental protection. The question of whether it would be the responsibility of an island-wide agency is open to question because the issue really concerns co-operation rather than getting caught up in structures. It is the substance of the co-operation that is important. There may be certain regulatory differentiations between both jurisdictions which might militate against an island-wide organisation. However, both jurisdictions co-operate in many areas, for example, waste management strategy. The question of whether an island-wide waste strategy can be used to deal with commercial or hazardous waste is an obvious opportunity to avoid duplication and the waste of resources and to establish more effective initiatives.
Cross-Border co-operation can be used across all major activities, including physical infrastructure, which is an obvious candidate. The British-Irish Intergovernmental Conference indicated last month that both Governments, the Minister for Foreign Affairs and the Secretary of State for Northern Ireland, Peter Hain, MP, are committed to exploring the potential for joint investment in key infrastructural projects which affect both sides of the Border.
Under the north-west gateway initiative, the National Roads Authority and its counterpart in Northern Ireland are currently engaged in a joint study of various options and will consider the action that is appropriate on foot of this study. People are also aware of the existence of assistance of €7.5 million, which was provided by the Exchequer towards the development of the City of Derry Airport. Where the political will has existed, co-operation has taken place. I hope this political will will increase rather than decrease and lead to more cross-Border co-operation.
Decentralisation Programme.
Paul McGrath
Question:27 Mr. P. McGrath asked the Minister for Finance his views on the stated opinion that core policy units may not be moved in the context of decentralisation; and if he will make a statement on the matter. [25172/06]
There has been no change in the Government's overall approach to the implementation of the decentralisation programme, including that element that provides for the relocation of departmental headquarters. As the Deputy is aware, it is proposed, in respect of the Civil Service, to move the headquarters and the full staffing complement of eight Departments and the Office of Public Works out of Dublin, leaving seven Departments with headquarters in Dublin.
It was always envisaged that Ministers with headquarters outside Dublin would be provided with a centralised suite of offices close to the Houses of the Oireachtas for a small secretariat so they could conduct business while in Dublin and when the Dáil is in session. With regard to providing support for Ministers, the decentralisation implementation group considered that while logistical arrangements needed to be put in place to ensure this did not cause any difficulties, this issue should not create any particular problem for decentralised Departments.
Officials will be required to be in Dublin on occasions to attend to matters such as briefing Ministers generally, providing support during the passage of legislation, attending meetings of Oireachtas committees and participating in interdepartmental groups. These matters will impact in different ways across Departments and will, therefore, need to be considered by them as part of their implementation planning.
I understand from the chairman of the decentralisation implementation group that following his group's round of meetings with the Secretaries General of decentralising Departments, the group is satisfied with the level of planning in each of the Departments and is confident the senior members of the Civil Service are leading the implementation of this programme in a professional and carefully planned manner.
Over the course of the next few months, advance parties will be on the way to three of the locations that will eventually be home to the headquarters of Departments. The Departments and locations in question are the Department of Communications, Marine and Natural Resources, which will go to Cavan; the Department of Arts, Sport and Tourism, which will go to Killarney; and the Department of Community, Rural and Gaeltacht Affairs, which is sending an advance party to temporary accommodation in Tubbercurry prior to ultimately basing the entire Department at Knock Airport.
The Minister is effectively saying the Taoiseach misled the Dáil. The Taoiseach said in the Dáil that the core policy units may be not be moved as part of decentralisation. However, the Minister has now said that the full decentralisation programme, as originally planned, is going ahead. This opinion differs from that expressed in this House by the Taoiseach. One can only conclude that either the Taoiseach or the Minister was mistaken and misled the Dáil. Alternatively, is it a case that the Taoiseach and the Minister are not talking to each other and a final policy decision has not been taken?
It was initially promised that 10,000 civil servants would have moved to decentralised locations by December 2006. This was the original proposal and commitment given to the Dáil. The reality is that by December 2006, no more than 1,000 civil servants will have moved. The programme is getting shakier by the day in respect of what will happen on other fronts. A further parliamentary question also explores possibilities in respect of decentralisation and what will happen. Was the Taoiseach wrong in telling the Dáil that the core policy groups within the Departments may not move from Dublin? Will the Minister give the House a straight answer?
I know what the Taoiseach said in the House. He was answering a number of supplementary questions and clearly set out the situation. One version of the situation is continually given by the other side of House. The decentralisation programme was announced and then there was a decentralisation implementation group, which was charged with the responsibility to work through the issues and implement the plan. We know how complex and wide-ranging that work is.
In 2005, the group produced a report that revised the timescale, which was accepted by the Government. The Government's position is not to have 10,000 staff relocated by 2007. Rather, we agree with the decentralisation implementation group's revision of the timetable. The group identified some early movers, highlighted outstanding issues to be addressed and spoke on State agencies, professional technical groups and the need for a ground-breaking initiative concerning State agencies that do not have the tradition of transferring staff that the Civil Service has and that has proven successful in the implementation of previous smaller plans. This has been the up-to-date position since 2005.
I have outlined that there is no change in the substantive policy of the Government, namely, to relocate Departments in some cases. In his response, the Taoiseach also pointed out that the situation of the agencies has not been resolved, but there is an agreement to enter into an industrial relations process. The arrangements are voluntary, as was always the case, but we were not getting any engagement to try to advance matters, even from those in State agencies who wanted to relocate to ear-marked Departments or vice versa.
In the context of decentralised Departments moving to new locations in toto, personnel will be required in Dublin to handle Dáil or other business. That is the pragmatic outcome, but the basic principle of relocating sections of or whole Departments to new headquarters remains in place.
The Minister has set out all the reasons for the delay in the decentralisation programme and I accept much of what he has said, such as that the three-year timeframe was far too ambitious, the difficulties that have arisen and so on, but he has not answered the core question. The Taoiseach told the Dáil that the core policy groups of decentralising Departments would not be moving. Was he wrong or is the Minister wrong?
The only people to whom the Minister has referred are the small secretarial back-up groups that will be required for a Minister to do his or her Dáil business. For example, the Minister has indicated that the only group to remain when the Department of Education and Science decentralises will be a secretarial back-up. Is the Minister wrong when he says Departments will fully decentralise or was the Taoiseach wrong when he told the House that core policy groups will remain in Dublin?
The Taoiseach did not say that.
He did.
As the Deputy will not examine the record, I have the Taoiseach's script.
The Minister should tell us.
In reply to Deputy Rabbitte, the Taoiseach stated:
However, the Deputy is talking about a small hard core, and all Members who have been in Government, including the Deputy, know that policy units are small. That issue is being discussed in the implementation group and it has been put forward by senior civil servants, especially from the higher grades. Their case must be listened to because the process is voluntary and the Government has stated throughout that we will consider such arguments.
We have not accepted those arguments.
There it is.
No.
In the Minister's own words, he stated that——
Yes, in my own words.
——the Taoiseach's words indicate what is occurring.
Order.
The words confirm that ideas have been put forward and will be discussed by the implementation group, but those ideas have not been accepted.
They must be listened to.
I listen to discussions all of the time. I even listen to the Deputy, but that does not mean I agree with him.
The Minister might learn something.
He might benefit from our wisdom.
It is part of the dialogue process. The programme will proceed as planned.
It is not proceeding as planned.
It is. According to the record, the Deputy's attempt to suggest that the Taoiseach stated otherwise is not correct. The Taoiseach indicated and acknowledged that positions put to the group by certain elements of the Civil Service will be discussed. However, that does not mean we have decided to proceed as they have suggested and forget about our own plans, as those plans are in place on the basis of discussions.
Like us, I presume the Deputy wants to ensure that we have a situation whereby we have successfully implemented the decentralisation programme. We cannot have parallel systems, that is, two identical Departments in different locations. A Department will relocate if that decision has been made. We will carry out such relocations in the same way that we have successfully relocated large numbers of civil servants and others previously, although not to the same extent.
Already, 200 posts have moved out of Dublin and more than 1,700 have been assigned to posts that will decentralise, representing more than 20% of the total number of Civil Service posts relocating under the programme. The property acquisition negotiations have been completed or are significantly advanced in 30 locations and all decentralising organisations have produced implementation plans setting out the detailed arrangements they are putting in place to plan for relocation while also ensuring business continuity and the effective delivery of services to consumers. The implementation group has held a series of meetings with Secretaries General involved in the programme to discuss the planning framework, assess progress and hear about the challenges arising and steps proposed to address them. The group is also meeting chief executives of a number of State agencies.
There are areas in which we are not making as much progress as we would like and a ground-breaking initiative is required, especially in the State agency area. Taking FÁS as an example, entering an industrial relations process and working through issues is the best way forward. I was told during my last Question Time that such would not happen, but it has and is continuing. While it does not guarantee a successful outcome, it places the matter in a process whereby people are engaged in dialogue rather than a stand-off, where people would put forward different positions and the issue goes nowhere despite some of their organisations' members wanting to relocate. Like others, those people must also be represented.
Points about the implementation group's proposals and how they are proceeding have been raised by various groups, but the basic policy remains. The Government's position is to decentralise. The Taoiseach was acknowledging that the discussion had taken place, but he was not accepting the argument. We are not at that position where a number of these issues are concerned.
We must proceed to Question No. 28.
The Minister is saying that not only is the plan not working, it is also running behind time.
I am not saying that.
He is. Those are the facts of the matter.
The Deputy should do his research. I will explain my position and he can explain his.
Decentralisation is not happening within the three years promised. Instead, it will take much longer.
The Deputy should read the record.
The Minister is confirming that the Taoiseach was talking out of both sides of his mouth.
No.
We must proceed to Question No. 28.
On the one hand, the Taoiseach said that core groups would stay to pacify the Civil Service and, on the other, the Minister said that everything is proceeding as planned.
I must reply. The Deputy is predictable and obviously has no intention to deal with the issue in a serious way. The Taoiseach rightly outlined the various issues that arose in discussions, but this does not mean that the Government has changed its policy. Everyone knows what issues will be raised in discussions, as they were raised in previous discussions on implementation plans and the decentralisation programme. The Opposition's political line in the House has always been to suggest that nothing is working and the programme should be forgotten. I am fed up answering questions on decentralisation asked by the Deputy and Members of his party.
The Government made a promise in the House.
The Government said it would take three years and would be completed by December of this year.
The Minister himself said it.
One would not want to hold one's breath.
Order.
The people who are talking out of both sides of their mouth are members of the party to which Deputies Paul McGrath and Bruton belong.
It was supposed to be completed by December this year. The Minister never answers a question from me about decentralisation.
As he is retiring I am not so interested in the Deputy anymore. I can provide plenty of examples of people who speak out of both sides of their mouth on the issue.
The Government has been working on it for three years.
We must move on to Question No. 28.
Some 10% of the moves have taken place in three years — that is not much of an achievement.
F minus.
The Deputies do not want to refer to the decentralisation implementation group decision of 2005 because it does not suit their purpose. They want to forget about it and pretend it never happened.
Is that the new Cabinet?
That group did not make the commitment. It was the Minister's predecessor and the Government of which the Minister is a member.
It comprises the people who are implementing the programme. I wish to move on to Question No. 28 as I have exhausted my time with Deputy McGrath. I will certainly not convince him today.
The Minister is doing well.
Maybe during his retirement he will come to the opening of the new offices in Mullingar and finally acknowledge that decentralisation became a reality.
Will the Minister invite me to it?
I am always there.
The Minister might prepare breakfast.
Interest Rates.
Joan Burton
Question:28 Ms Burton asked the Minister for Finance his views on the fact that monthly mortgage repayments have increased over the past year by approximately €120 per month on an average €300,000 mortgage and by approximately €200 per month on an average €500,000 mortgage; if he intends to implement measures to provide clear information for mortgage holders on the effect of projected future interest rate increases on their monthly payments; if his attention has been drawn to the fact that the European Central Bank has indicated the likelihood of further interest rate rises; and if he will make a statement on the matter. [25180/06]
As the Deputy will be aware, there is a broad range of factors that determine the effect of changes in interest rates on individual loan repayments. These include, for example, the outstanding loan amount, whether the lending rate is fixed or variable, the length of time over which the increase takes place, the pass-through of interest rate changes to lending rates, the repayment term and the specific nature of the financial product involved. In reviewing the broad impact of projected increases in interest rates on households, account must also be taken of such factors as private sector savings levels as any increase in interest rates will obviously have beneficial effects for savers, as well as the broader macroeconomic climate comprising strong employment and incomes growth and continuing robust performance of the economy overall.
As far as the provision of information by mortgage lenders is concerned, mortgage providers are specifically obliged under the Consumer Credit Act 1995, to inform borrowers of the effect on the amount of their repayment instalments of a one percentage point increase in interest rates in the first year of their mortgages. This is intended to ensure that consumers, when making such a significant borrowing decision, are properly informed regarding the impact that changes in the cost of servicing the loan will have on the household budget over time.
A further strengthening of the regulatory framework will be achieved through the introduction of the financial regulator's proposed consumer protection code. This code will place obligations on regulated entities that provide mortgages to act in their customers' best interests by ensuring that they seek appropriate information about a consumer so that they know and understand their customers' needs. Providers must also ensure that mortgages are suitable to each individual consumer's circumstances. These obligations will be additional to the statutory prior information and warnings required under the Consumer Credit Act 1995.
The financial regulator has also developed a number of specific initiatives to help consumers make informed choices in terms of their financial decisions, including those on mortgages. As the Deputy will be aware, mortgage lending practices are closely supervised by the financial regulator, with appropriate stress testing of borrowers' ability to meet their obligations as the interest rate environment changes.
As far as the level of mortgage interest rates is concerned, it is important to make the point that Ireland's euro area membership, along with the high degree of competition in the Irish mortgage market, fostered by new entrants, has produced a low interest rate environment for Ireland relative to its historical experience. A competitive market benefits consumers through increased choice, lower prices, better service and a wide range of competitively priced products aligned with the personal needs of individual borrowers.
It is a matter for each individual to judge the level of debt that is appropriate to his or her circumstances. While the pattern of mortgage growth and associated debt in the economy is supported by a range of fundamental factors such as growing employment, rising incomes, favourable demographics and low inflation and interest rates, the Central Bank has highlighted the need for borrowers and lenders to take account of the current low level of interest rates and that this situation cannot continue indefinitely. I share the view that borrowers and lenders need to factor into their financial decision-making the prospective impact of potential changes in the future economic and financial environment.
Is the Minister aware of the considerable stress experienced by young home purchasers and people intending to buy a home? Is he aware that the European Central Bank has indicated it intends to allow interest rates to rise on a quarterly basis by as much as 0.25%, which would mean an increase of 0.5% for each six months in the coming year? Does he agree that the impact of that on most young home owners with mortgages of between €300,000 and €500,000 will mean an extra monthly repayment of between €100 and €150, depending on the term of the mortgage?
Does the Minister appreciate the stress suffered by many people who are borrowed up to the gills with house mortgages, credit card loans and loans for furniture for their new homes? The stress is caused by the fact that they have no safety cushion to enable them to absorb huge increases in mortgage payments. Does he recognise that if the mortgage rate continues to rise the amount of cash that can be made available for mortgages will be reduced by €100,000 for first-time buyers? Many first-time buyers obtain loans of €300,000 but if interest rates keep rising they will be able to borrow less. Does the Minister heed the warning by Mr. Jean-Claude Trichet of the European Central Bank to the Irish Government about rate increases?
Mr. Trichet has been nothing but complimentary about the performance of the Irish economy at every meeting I have attended of either ECOFIN Ministers or euro area Ministers. Future interest rate policy is a matter for the European Central Bank and is not something on which I comment as a matter of policy. The European Central Bank has been excellent in its management of interest rate policy and the stance Mr. Trichet and other governors of the bank have taken has ensured the exchange rate credibility of the euro has not been undermined.
Rising rates obviously have an impact on mortgage holders. The Central Bank's recently published financial stability report concluded that a range of fundamental factors, such as growing employment and incomes, low inflation and interest rates have underpinned the pattern of mortgage growth and associated debt levels in the economy. Interest rates remain at low levels compared with any period in our recent economic history. For example, an increase of one percentage point in the current level of mortgage interest rates to approximately 5% would still compare favourably with average mortgage interest rates of 8.5% during the 1990s.
The maintenance of low inflation through the setting of an appropriate level of interest rates for the euro area by the European Central Bank benefits all consumers and preserves the real value of incomes and savings. The most recent financial stability study published by the Central Bank also emphasises the importance of responsible behaviour by borrowers and lenders in the form of factoring into their decision-making the prospective impact of potential changes in the future economic environment. In its recently quarterly bulletin the Central Bank warns that credit continues to grow very strongly, with mortgage credit accounting for a large part of this. I share the Central Bank's assessment of the importance of maintaining financial and economic stability.
The stability report to which I referred, which was published last autumn, showed the trend for mortgage repayments for first-time buyers over the past 15 years within a range of approximately 23% to 33% of household disposable income on a national basis. Irish house buyers benefit from a range of supporting factors, including healthy income growth, low income tax rates and relatively low level of interest rates by historical standards. Affordability is also supported by the strength of the economy, record employment levels and relatively high savings rates. The expected shift in the interest rate environment will impact on affordability which, together with the large increase in new housing supply, should support equilibrium in the market. It is important we present the results in that context.
Banks are required to stress-test at a rate above existing rates. It is also in the interests of financial institutions to have good loan books as that determines profitability in the longer term. The growth in credit is a matter for the Central Bank, particularly through its participation in the European Central Bank where interest rates are set. From the point of view of the borrower and the investor, the function of Government is to provide an appropriate legislative framework of regulation of the financial services sector that is comprehensive and robust. I am satisfied that, with the progress made in recent years, especially in the establishment of the financial regulator, with a particular focus on the interest of the consumer, we have such a framework in place.
On what planet is the Minister living? He talks about low inflation rates when house prices have risen by an astonishing amount — far in excess of building cost inflation — because there is incredible profiteering in land values and house prices by the construction sector. I remind the Minister of what Mr. Trichet said last week in reply to a query from a colleague of the Minister's, Eoin Ryan MEP, who is also a Member of this House. He said management of housing markets was the business of the EU member states. Does the Minister agree? He also said there was a need to incorporate prudential warnings and messages that combined with decisions taken at EU level into the economic cycles of EU member states.
Does the Minister understand the nervousness people feel? The Taoiseach asked us a couple of months ago to be kind to the banks. The Minister and the Taoiseach are never done talking up the construction industry but do not seem to have any concern for people who are anxious to try to afford a house. Affordability is moving further away from them and the Minister is heaping fuel on the bonfire.
The planet on which I am living is the one that contains the country that has seen real interest rates, taking inflation into account, at historically low levels going back over 60 to 70 years.
That was a couple of years ago. House prices are now rising at a fabulous rate.
I want to reply to the Deputy's question. The planet on which I live——
I am talking about now and the future.
The Minister without interruption.
The Minister is like Oisín, always looking back at Tír na nÓg.
I am not.
We want to live now and in the future.
The Tír na nÓg in which the Deputy lived before 1997 had an unemployment rate of 10% and working people's average industrial wage was €11,000 lower. The Deputy should not give me lectures on her Tír na nÓg. The future for this country would be best provided by a Government which provides——
The Minister is like Oisín and Niamh——
The Deputy is making stupid sound bites.
Will the Minister talk about the future for our young people?
I am talking about the future — the future which has created 0.5 million jobs since we returned to office and the future which is making sure we now have a greater capacity for construction than was the case when the Deputy's party was in office. The Deputy has being doing as much as she can on the ground which has been debilitating against progress in providing more housing despite her claim.
I understand that if there are interest rate increases, it affects affordability. However, many factors impact on people's ability to finance mortgage repayments. They include income levels, the income tax regime and the current interest rate. Irish earnings and employment levels have increased significantly since 1997. There has been a 56% increase in the average industrial wage over that period and employment has risen by more than 0.5 million jobs. Interest rates are much lower than in 1997. I can go back to 1993-95 when the Deputy's party was in Government and the real interest rate was 9% higher than the inflation rate. I can go back to those times. I was a Member of this House.
That was the legacy of the Government under Albert Reynolds.
The changes to the income tax regime since 1997 — the Deputy's party halted reductions in tax for workers — mean that the average tax rate has been reduced at all income levels. After the last budget I brought in, the average tax rate for a single person on the average industrial wage will be 15% as compared with more than 27% in 1997.
In those days nurses could afford a house which they now cannot.
A single PAYE payer on the average industrial wage has seen his or her after tax income increase by approximately 44% in real terms since 1997 of which approximately half is due to tax reductions. The last factor influencing repayment ability is the interest rates available to the market. At present mortgage interest rates are approximately 4% down significantly from the rates of 7.1% to 8.85% which prevailed before we came into office. However, the prospect that interest rates are likely to be higher over the medium term with obvious implications for the burden on repayments should be kept firmly in mind by borrowers.
On the issues which affect affordability, we are in a better position now than when the Deputy's party was in office. The policies we have pursued will continue to bring an ability for people to repay on the basis of the policies we are implementing.
People have 40 year mortgages.
The Deputy keeps interrupting. When the objective facts are put on the table, the Deputy keeps interrupting. One does not win the argument by interrupting.
The Minister has not dealt with the objective facts. There has been a huge rise in prices.
I listened respectfully to what the Deputy said and the questions she asked. The minute I try to answer them and the Deputy finds she might lose the argument, she starts to shout me down.
I am not losing the argument. The Minister is not answering the argument.
It is infantile behaviour.
The Minister is not answering the argument.
I have answered all the arguments the Deputy put.
The Minister did not answer any of them.
I have answered all of them. The Deputy did not like the answers. That is the problem.