Priority Questions.

Banking Sector Regulation.

Richard Bruton

Question:

1 Deputy Richard Bruton asked the Minister for Finance his views on whether experience shows that putting off decisions on restructuring financial institutions only serves to deepen and prolong a crisis; and the strategy necessary to ensure there is a continuing flow of credit for enterprises and families. [39081/08]

When I introduced the Credit Institutions (Financial Support) Act to this House, I made it clear the disruption in international financial markets required a strong and decisive response by the Government to underpin the commitment of the authorities to Ireland's financial stability. This Government moved swiftly to put in place a guarantee to ensure Irish financial institutions' access to the normal liquidity and funding for their day to day business, and to give confidence to depositors and wholesale lenders. The Government quickly demonstrated its resolve to support the financial system in order to support in turn the economy and society, enterprises and families.

In tandem with the guarantee, the intensified scrutiny and oversight of financial institutions put in place since the onset of the turmoil in financial markets has been maintained and further strengthened to ensure that high standards of regulation are achieved in Ireland and that the quality of corporate governance applying in all institutions, including lending practices, safeguards the interests of taxpayers. The goal at the end of this process is a banking system that is fit for purpose for the transformed financial environment in which it will find itself operating in the coming decades.

The Government continues to work closely with the Financial Regulator and the Central Bank to monitor, assess and ensure the stability of the system and flow of credit. The functions set out in the legislation, following consultation with the Central Bank and the Financial Regulator, are specifically provided to protect the stability of credit institutions and maintain the financial stability of the State. The legislation provides a detailed framework for the authorities to oversee and guide the assessment of strategic options by the banks themselves. The Irish scheme is firmly aligned with the main themes of the euro group plan, which contains an option to provide additional capital resources where appropriate to the banks. The position is being assessed and monitored on an ongoing basis.

Each institution must take appropriate steps to ensure their levels of capital are aligned with their needs. The State has a keen interest in the health and security of the banking institutions because of their role in the economy. My Department, the Central Bank and the Financial Regulator will be in continuing contact with the institutions on their business plans, capital position and liquidity. If it is the case that an assessment is made by a particular institution, or by the regulator, that higher capitalisation would be appropriate, the first step is for the institution itself to consider all possible options to meet this requirement.

Does the Minister agree there is now mounting evidence credit to strong and viable enterprises is drying up, and there are more and more examples where people have had their overdraft facility cut back and are having to lay off staff in the face of credit problems? Against that problem does he agree the issue of the adequacy of the capitalisation of our banks is now a major source of focus and one of the reasons they are finding it hard to raise term deposits externally? Others have moved to higher capital ratios being required. The banks may meet the minimum criteria set by the regulator but no longer look to be strongly capitalised by comparison with other countries.

Does the Minister believe it is within the banks' own capacity to resolve their capital problems? If, as the Minister says, he believes private sources of funds would be the best first option, does he agree there must be clarity on the Government's approach before people will risk private equity in any recapitalisation? Government policy — with the new powers — could have a very big impact on private investors' views of putting capital into a bank.

With regard to the shortage of credit for particular businesses and especially small and medium sized Irish firms, I have asked my Department to liaise with the Central Bank, the Financial Regulator and the financial institutions to assess the reality of the many claims put forward in that regard.

On capitalisation, which was the main burden of the question put by Deputy Bruton, the Deputy opened the issue by saying the banks were experiencing difficulty in obtaining deposits. Statistics show the degree of funds attracted to the Irish banks as a result of the liquidity——

I spoke about long-term deposits.

The Deputy did not qualify it. He would appreciate I was going to make the point that the degree of liquidity attracted by the banks through the guarantee was actually greater than the amount of liquidity available to the banks as of 1 September. On that date, as Deputy Bruton is aware, the difficulties had not yet emerged that led to the giving of the guarantee in late September.

On the question of capitalisation, as part of the review of the banking system now taking place, the question of the adequacy of capital ratios must be examined because of the position that now obtains in other European countries. I have made it clear at all stages that my view and that of the Government is that capitalisation by the State must only be an ultimate and last resort.

I want to allow a brief supplementary question.

I accept the point made by Deputy Bruton that as a result of the degree of supervision by the State of credit institutions entailed by the guarantee, there is an onus on the State to assist institutions if they come up with appropriate proposals.

The central question is if the approach of the Government, in saying banks must exhaust all other options before there is a question of the State becoming involved in recapitalisation, risks this problem festering? In the process, genuine businesses could be starved of credit, which will in turn prolong the difficulties in the economy. There is a worry the Government is sitting back on its oars when other governments have moved ahead with other actions. I say this without seeking to prejudice what they may be. We are stuck at base camp one while others have moved on.

I assure Deputy Bruton we do not rest on our oars. We did not rest on our oars in giving the guarantee in the first place. Our political difficulty in Europe was that we were ahead in giving the guarantee.

The Government is behind now.

We did not rest on our oars in bringing forward the budget either and we will not do so with this issue.

Joan Burton

Question:

2 Deputy Joan Burton asked the Minister for Finance his views of the level of asset impairment of the institutions covered by the credit institutions financial support scheme; the progress of the review by PriceWaterhouseCoopers; his views of expected write-downs or required capital replacement of those institutions; the estimated exposure or contingent liability of the taxpayer for the guarantee; his assessment of the impact of the guarantee on the availability of credit to business and personal borrowers; and if he will make a statement on the matter. [38949/08]

The credit institutions financial support scheme provides a guarantee for covered institutions until 29 September 2010. I have been advised by the Financial Regulator that it recently commissioned PriceWaterhouseCoopers to conduct a review of loan portfolios of the covered credit institutions. PriceWaterhouseCoopers is currently progressing with this work and the Financial Regulator will keep me advised of progress as appropriate. Deputy Burton will appreciate this review is highly commercially sensitive.

Given the general deterioration in the economic conditions, both national and international, the Financial Regulator has advised that he would expect the current levels of impairment in covered institutions to increase over the next few years. The expected levels of impairment charges for particular institutions will be dependent on borrowers' financial position and the level of collateral provided. The regulator's review of the loan books of the covered banks has shown that the covered institutions did not hold any exposures to the US sub-prime mortgages and also they have limited exposures to banks which have recently been liquidated or encountered difficulties, including Lehman's and the Icelandic banks. It is also important to note that the covered banks continue to be profitable.

With regard to the availability of credit, the extended international credit crunch we have experienced has brought home to all of us the pivotal role of the financial system in the economy and in the day to day lives of ordinary people. One of the stated objectives of the scheme is to maintain financial stability, not for its own sake but in the best interests of the public and the economy of the State. The scheme helps the banks access additional liquidity which will allow the banks to continue to lend in a sustainable manner, supporting the appropriate availability of credit and favouring business activity in the wider economy of the State, especially trading activities. The scheme therefore includes the application of strict terms and conditions on covered institutions to ensure the public interest, which includes the general consumer and small business sector, is paramount.

It is the responsibility of the covered institutions to ensure they meet capital requirements and I expect covered institutions to take appropriate steps to ensure their levels of capital are aligned to their needs. My Department, the Central Bank and the Financial Regulator will be in continuing contact with the covered institutions on their business plans, liquidity and capital position.

The Deputy inquired about the estimated contingent liability of the scheme. As previously stated by me it is estimated the scheme will cover liabilities of approximately €440 billion.

First, that answer is inadequate given the difficulties faced by the Irish banking sector and because, at present, banks in effect are cutting off the pipelines of credit to many small, medium and large businesses, as well as to many individual borrowers, including those who seek to purchase homes. This is about Main Street and not our equivalent of Wall Street. The Minister only appears concerned about the Irish equivalent of Wall Street. He is not concerned about what is happening to local businesses. Will the Minister publish the details of the terms of reference of the PriceWaterhouseCoopers review, in which the Financial Regulator stated he intended to drill down deep into the balance sheets of Irish banks? The Minister should provide some evidence of what such drilling comprises and what it covers. The reason I stated the Minister's answer is dishonest is that I wish to address the gaps in his answer.

The Deputy did not say that.

I stated his answer was less than adequate. Allow me to rephrase what I stated. The Minister stated the regulator knows the Irish banks in the scheme are not necessarily exposed to sub-prime mortgages. Everyone knows that already because the sub-prime business was only beginning to get off the ground in Ireland. The Minister also stated we are not exposed to, for example, fall-out from the US banks or Lehman Brothers. However, he avoided what I wish to know, namely, the exposure of every bank in the scheme to bad-risk construction lending and lending for land speculation. That is where the risks are, particularly in respect of two of the institutions covered by the guarantee. The Minister should answer that question. As for the contingent liability of €440 million, did the Minister not acknowledge to me last Thursday that there is no cross-indemnity between the banks in the scheme, contrary to what the Minister and the Taoiseach had implied? Is it true that the first port of call on the €440 million now is Joe and Josephine Taxpayer?

I never have visited Wall Street and my fundamental concern in this matter——

The Minister ought to.

——is to ensure the Irish banks have the capacity to ensure the economy remains viable, businesses continue to thrive and consumers can borrow. As for the Deputy's reference to the inability to acquire housing finance, the Government introduced an initiative in the budget to address that specific issue in cases in which the banks failed to advance credit. While I would welcome the opportunity to visit Wall Street, there has been too much to do in the Department of Finance since my appointment to take time out and visit such an institution.

As far as the terms of reference and the requests made of PriceWaterhouseCoopers are concerned, I will examine the request made by the Deputy and will forward such information as I can within my possession. As for the exposures of the banks, the purpose of the exercise commissioned by the regulator with PriceWaterhouseCoopers is to assess that degree of exposure and bad risk on the asset side in the loan book. That element of risk may not necessarily be connected exclusively with construction or investment in land. It may relate to other loans and advances that financial institutions have made. However, the purpose of the PriceWaterhouseCoopers inquiry is to establish the extent and depth of such exposure.

As for the issue of the cross-indemnity and the guarantee, the Taoiseach and I have always made clear that were any deficiency to arise, the financial sector would be levied for it. That was made clear at all stages and is reflected in the language of the scheme. However, the particular reference to the scheme to which Deputy Burton refers is the specific legal obligation here and now on the institutions. Deputy Burton is aware that no institution would have signed the guarantees under those conditions.

The Deputy may ask a brief supplementary question as we are well over time.

I have two supplementary questions. The Minister finally has confirmed there is no cross-indemnity and, therefore, at a minimum, the Minister and the Taoiseach misled the House.

Is there a question?

I ask the Minister to answer my question again. The Financial Regulator and PriceWaterhouseCoopers for several weeks have been engaged in this review to drill deep into the balance sheets.

We are well over time.

Can the Minister indicate what such drilling has revealed thus far in respect of risky construction and land speculation loans? That is where the risks are, particularly in respect of two of the institutions concerned. Is the Minister more concerned to save the developers than to save the capacity of ordinary businesses to borrow for legitimate business requirements?

An tAire, a brief reply.

The fundamental issue for me is to safeguard all businesses, irrespective of their activities, which are in good standing, need credit and are capable of contributing to this economy.

They are not getting it.

That is a fundamental objective behind the installation of the guarantee and is the reason the Government will continue to reform the banking sector, now that the guarantee agreements have been concluded with the individual institutions. As for the cross-indemnity issue, I repeat it was never the case under the scheme that there was a cross-indemnity. Deputy Burton is aware I never suggested there was such an indemnity. However, a general undertaking has been given by the Government that any deficiency would be levied on the financial sector.

Budgetary Forecasts.

Kieran O'Donnell

Question:

3 Deputy Kieran O’Donnell asked the Minister for Finance if he is satisfied that the forecasts in the Budget Statement 2009 on which he has based his projections of taxation and borrowing are robust; and if he will make a statement on the matter. [39082/08]

Since budget day my Department has received the October data as regards tax revenue and expenditure, which are broadly in line with what was expected. The October Exchequer returns showed an Exchequer deficit at the end of October of just over €11 billion.

The Exchequer returns also showed that in the first ten months of the year, tax receipts fell approximately €4.3 billion short of expectations with all tax headings being behind profile. In the month of October, there was a tax shortfall on profile of €693 million. While tax receipts in October have continued the poor performance of recent months, they nonetheless are broadly in line with what was anticipated in formulating the recent budget forecast for the year as a whole. In this regard, my Department anticipates a further slippage in revenues of approximately €2.25 billion in November and December, reflecting the fact that November is a key month for tax collection. This will result in an annual shortfall of the order of €6.5 billion.

As for the forecasts for 2009, the budget was framed against the most challenging fiscal and economic position for some time. In 2008, my Department expects approximately €42.4 billion in tax revenue, followed by €42.8 billion in tax receipts in 2009. This equates to a forecast of just 1% growth in taxes after the introduction of approximately €2 billion worth of additional revenue raising measures in the budget. My Department does not believe that these forecasts are overly optimistic. In its view, they reflect the underlying poor economic conditions that obtain at present.

All forecasts, irrespective of the budgetary context, are subject to risks and are affected by developments in both the international and domestic economy. This is especially so in the current circumstances, where it is unclear to what extent the upheaval in global financial markets will have a further impact on economic activity in the world's advanced economies. In this context, macro-economic forecasts for a small globally integrated economy such as Ireland, which also is experiencing a significant housing market correction, are even more uncertain than normal. However, taking these risks on board, I believe the budget is based on a balanced set of forecasts from my Department.

The assumptions on which the Minister has based the budget do not correspond with the observations of several economic commentators, including some Government bodies such as FÁS and the ESRI. The Department is projecting a 1% increase in tax receipts However, although it projected an increase of 3% last year, a decrease of approximately 10% was experienced. Several economic commentators have predicted there will be a decrease in tax receipts of the order of 9%.

Is there a question?

This does not appear to be robust.

Second, the Minister should comment on the unemployment rate. Although the Government is predicting a rate of 7.3%, other economic commentators are predicting a rate of 8%. As the Government may have overestimated tax receipts by €5 billion, will the Minister introduce a supplementary budget as a matter of urgency, rather than introducing stealth taxes through the Departments that will provide no confidence to the market and will be highly unfair to the public? Will the Minister introduce a supplementary budget?

There is no question of the introduction of a supplementary budget because the tax burden has been increased in the budget that was announced this October for next year. An additional €2 billion in tax will be levied next year. Members will have an ample opportunity to examine the detailed financial provisions during the passage of the Finance Bill. Accordingly, an additional supplementary budget next year levying further taxation would in all probability inflict further damage on the economy. In the current position, as Deputy O'Donnell is well aware, the great majority of our tax items that rest on discretionary purchases, be they houses, goods, alcohol or cigarettes, are seriously down and increases in those taxes would not lead to any increased income for the State. The only option for the State in terms of further increases in taxation is increased taxation on income. Increases on income, above and beyond the levy proposed in the Finance Bill, would amount to a substantial disincentive to labour in the year ahead.

I have never suggested there should be a mini budget next year. There has been considerable speculation about it and there was an inaccurate report inThe Irish Times on Tuesday,which I am pleased to note it corrected today. There is no question of a mini budget. Of course if there is a deterioration in the public finances I will bring appropriate proposals to Government to address that.

The Minister's figures do not add up. He believes he will have a fall in growth of 1% but various economic commentators indicate it will be 3%. How will the Minister meet the requirements of the European Commission in terms of general Government balance as a percentage of GDP? Economic commentators say that will be of the order of 8% or 9% and the Minister's figure is 5.5%. Does he not take seriously the warning from the European Commission? How can he not introduce a supplementary budget?

The Deputy would want to get his figures right first. The figure stated in the budget is 6.5%. In its economic assessment the Commission estimated it would be 6.7% for next year, which is not broadly out of line with those of the Government. There is a divergence of opinion between the Commission and the Government in regard to 2010 but I am satisfied that will be resolved in time as the Commission realises what measures we have adopted and their implications for 2010.

How can the Minister justify a 1% increase in tax receipts?

As I said on a number of occasions, forecasting is not an exact science. A range of organisations both in the public and private sectors produces forecasts at different frequencies during the year. When preparing an economic forecast a wide range of different variables has to be considered. All forecasts are subject to risks and are affected by developments in both the international and domestic economy. I am pleased the Commission is broadly in line with the Government's forecasts for next year and I am working very closely with it on the operation of the Stability and Growth Pact.

Does the Minister expect to have a 1% increase in taxes?

I have had a number of constructive meetings with Commissioner Almunia, who has indicated also on the public record in this State that he is optimistic about the eventual outcome for the Irish economy.

Public Sector Pay.

Richard Bruton

Question:

4 Deputy Richard Bruton asked the Minister for Finance if he plans to contain the growth of the public service pay bill; and if he will make a statement on the matter. [39083/08]

I am keeping the public service pay bill under continuous review and I have already taken steps to contain its growth. The draft pay agreement, Review and Transitional Agreement 2008-2009, provides for a pay pause of 11 months in the public service. The private sector pay pause is to last for three months. Furthermore, public service employers are required to achieve a 3% cut in payroll costs in 2009 and no specific additional provision has been made for the cost in 2009 of the increase provided for in the new draft pay agreement. The cost of this increase must be met from within the approved allocations.

Payroll costs are a function of staff numbers. As I indicated in the Budget Statement, we must do more with less in regard to public service pay and numbers. Where there are clear staff surpluses in certain areas, or where policy priorities change, staff numbers must be correspondingly reduced or re-assigned.

The Government has already decided that a targeted voluntary early retirement scheme will be introduced for the HSE. Discussions are under way on the development of such a scheme. It is essential to extend such schemes, in a targeted manner, to other areas of the public service where surplus staff are identified. In this context, the Government has decided to conduct a focused review of public sector numbers in all branches of Government to assess whether the resources are being fully deployed in an efficient and effective manner and what economies can be made. This decision will be implemented when the report of the task force on the public service is received later this month.

Public service pay levels can only increase at a rate that is consistent with budgetary discipline and national competitiveness. I am satisfied the measures put in place support this stance. As I have mentioned, we are keeping public service pay, along with other major expenditure categories, under ongoing review. Should further corrective action be necessary, it will be taken.

I am seriously alarmed at the approach being taken by the Government on public sector pay. In the past three months the Minister has committed to €2 billion extra pay, to be paid by taxpayers, between the September payment just ten weeks ago and the commitments to be made in the next two years. Can the Minister afford to make that payment? Does he believe the public finances can afford that payment? Surely if we learned anything from benchmarking it was that one has to put a reform agenda on the table before one makes pay commitments rather than afterwards. Why has the Minister made those commitments and is only now talking about a review within the public service and of the proposed reform and new policy agendas to get better efficiency? Surely he should have taken the reverse approach and brought forward before the budget a radical reform agenda, which would see the restructuring of very expensive administrative overheads in many State agencies.

Does the Minister not think it is lunacy to preside over a situation whereby when the HSE is short of money it closes beds and leaves staff to whom we are paying top dollar sitting around doing very little when patients are turned away? What sort of public pay policy is it that results in that situation?

Based on current staffing and numbers it is estimated that the cumulative costs of implementing the pay increases provided for in the draft agreement, Review and Transitional Agreement 2008-2009, will be approximately €260 million in 2009. Those figures are subject——

What will be the cost in 2010?

In 2010 the figure will be €990 million.

What will be the cost of the agreement reached eight weeks ago on 1 September?

These are the figures on foot of the agreement.

Can the Minister add the three elements together?

The agreement was the result of negotiations with the social partners, which did have regard to the difficult economic environment. It is accepted by all the parties involved that the talks were among the most challenging and complex yet faced. No specific additional provision has been made for the costs in 2009 of the increase provided for in the new draft pay agreement and those costs must be made from within the approved allocations.

Early last July when I announced a round of savings throughout Departments, payroll and administrative expenses, as referred to by Deputy Bruton, were addressed. The savings then targeted were achieved. Likewise, in this budget right across the range of Departments, further payroll savings are required and will be achieved. Public service reform is easy to discuss in the abstract but it requires hard, difficult decisions to be made on the ground.

Does the Minister not agree that it is a parlous situation when 40% of our borrowing this year is going on day-to-day public spending? If the European Union's projection is correct, and the Minister does not make €5 billion in savings next year, which he has not specified, we will be spending 60% of our borrowing just to keep day-to-day services going. Are we not on a highly dangerous trajectory, and do we not need to address as a matter of urgency how we run the shop more effectively to ensure we do not waste money in administration and we protect front line services? Where is the thrust for that in the budget? What decisions were made in the budget that will deliver that? I do not see them.

Deputy Bruton's summary of the borrowing position for current purposes is not correct. The bulk of the borrowing this year is to fund investment in the public capital programme. That is where the bulk of the borrowing is concerned.

I said 40%. The Minister should look at his own figures.

That is a deliberate statistical mistake.

That is not a deliberate statistical mistake. The Minister should look at his own figures.

Deputy Bruton is only arriving at that conclusion on the basis that the public capital programme is being funded by the taxpayer and not by borrowing. I agree with much of what Deputy Bruton said about the gravity of our position but the realistic way to look at the matter is to accept we are borrowing this year to fund approximately 10% of all our current expenditure. I agree that is unacceptable. It amounts in total to a borrowing of €4.7 billion, which will have to be paid for in future.

That is 40% of the Exchequer balance.

The Deputies will have to check their figures again.

They are the Minister's own figures.

The figures in respect of the capital programme are in excess of €8 billion so the Deputies' percentages do not add up.

Does the Minister want a calculator?

It is essential that we eliminate the current budget deficit in the years ahead. It is unacceptable but, given the rapid deterioration that has occurred this year, it is unavoidable. We must take firm steps to eliminate it that will involve public sector reform in addition to taxation.

Government Borrowing.

Kieran O'Donnell

Question:

5 Deputy Kieran O’Donnell asked the Minister for Finance if he has received an analysis of the reason Irish debt costs are rising relative to those of other states. [39084/08]

As the Deputy is aware, the day-to-day management of the debt is handled by the National Treasury Management Agency, NTMA, and, as such, it is on its advice that the Government relies regarding the operation of our debt funding.

The cost of raising long-term debt in the capital markets can be measured in relative terms compared to other countries. This is known as the "spread". In the case of Ireland, its cost of borrowing can be measured against the relative borrowing costs of other states, for example, Germany, The Netherlands, Portugal or Greece. The spread to Germany is the benchmark measure and it is observed by comparing the yields on bonds of similar maturity.

The recent turbulence in financial markets has been severe and this has been reflected in bond spreads. Only time and an historical perspective will allow a true analysis of the causes and, more important, the relative weight that should be ascribed to the different factors. As international difficulties have evolved over the past few months, all small and non-core sovereign issuers, such as Ireland, have experienced widening spreads. Liquidity has been a major factor. Most investors have focused on German Government debt as it is considered the most liquid investment. This means German bonds can be readily accessed and traded, and also that there is a liquid futures market in German Government bonds to manage the associated market risks. However, while spreads have widened against Germany, absolute yields have remained low or even decreased, depending on the timeframe, because of the extent to which German yields have fallen.

Ireland's economic success has resulted in a relatively low ratio of debt to GDP and also a low absolute level of debt. We have not been a frequent issuer of bonds which reflects both the relative size of the economy and the healthy state of the public finances for the past decade. These positive factors have had the effect of contributing to liquidity difficulties for Ireland in the current market.

There are a number of other factors in addition to liquidity that influence borrowing costs. These include the state of the public finances, the borrowing required and competition for funding in the sovereign debt markets. It is not possible to state the extent to which each of these factors will affect the spread in the future.

The strategy underpinning budget 2009 is designed with the clear intention of restoring balance to the public finances over the medium-term cycle while having reference to the overall economic climate. In doing so, the Government seeks to restore the current budget to surplus and to limit the level of borrowing required as order and stability return to the Exchequer finances.

Does the Minister agree he must borrow €18.4 billion to balance the public finances in the coming year? Since the Government's guarantee scheme for the banks was introduced in September, the cost of Government borrowing increased by 0.6%. The borrowing of €18.4 billion will therefore give rise to an additional cost of €91 million in interest payments. The Minister has devalued the international credit worthiness of the Irish economy. The reasons, as already stated by the Minister, include the state of the public finances. The Government has not made the critical hard decisions. In light of the bank guarantee scheme and the worry in the financial markets over the need for capitalisation of the banks by the Government, it is critical that the Minister introduce proper reform measures. He will be borrowing in the order of over 35% to ensure a current budget balance. I suggest he look at this figures again.

With a view to lowering the cost of State borrowing, what does the Minister propose to do to inspire confidence in the international market in terms of the state of the public finances, the bank guarantee scheme and the capitalisation of the banks?

Deputy O'Donnell is now referring correctly to the percentage of the borrowing total and not to borrowing as a percentage of the expenditure total. This has been the source of the disagreement between us on the statistics.

I referred to 40% of the Minister's borrowing.

I am trying to be of assistance to the Deputy because it is very easy to throw out a catchphrase during Question Time. Deputy O'Donnell was referring the percentage of borrowing on the current account as a percentage of total borrowing, not to the percentage of borrowing on the current account as a total of current expenditure.

Tax was never deemed to be an expenditure item. The Minister should get his facts correct.

He referred to the giving of the guarantee to the banks and seemed to be unaware of the fact that far more extensive guarantees and direct capital investments have been made in banking systems by Governments throughout Europe. Our guarantee has been the cheapest of any given in Europe.

It involves a payment for the guarantee by the relevant institutions to the Exchequer. It is worth noting that because it is clear that the widening spreads in bond markets reflect massive investment in the banking sector right across Europe.

Our credit worthiness is on a scale with that of Italy, which has consistently experienced difficulties with general Government bonds over many years. On the spread the Minster referred to, the figure is 1.2% higher in Germany than in Ireland. How does the Minister explain the 0.6% increase in the cost of borrowing to the Irish Government since the introduction of the bank guarantee scheme? What will he do to lower the cost?

Despite the difficult and volatile market conditions since September, the NTMA has continued to be successful in raising finance for the Exchequer.

Over €2.5 billion in short-term funding was raised in October and, this week, the NTMA issued a new €4 billion three-year benchmark bond.

It will cost €49 million extra.

The bond was oversubscribed within 36 hours and close to 100 applicants participated in the transaction. The successful launch of the bond in these conditions confirms the confidence of investors in the Irish Government bond market.

Will the Minister explain the reason for the increase?

There is a wide variety of factors.