Richard Bruton
Question:36 Deputy Richard Bruton asked the Minister for Finance if he is satisfied that the budgetary strategy for 2009 is adequate to meet the economic challenges which the country faces. [6589/09]
Priority Questions.
Fiscal Policy.
There is no doubt that 2009 is a very challenging year for the global economy. Ireland is very much a part of the global economy and we are experiencing an international recession of unrivalled severity, prompted in turn by the worst crisis in international financial markets in living memory. Domestic processes in the Irish economy, in particular, the ongoing contraction in the construction sector and its effect on the wider economy, compound the deterioration in international economic conditions. Consequently, GNP is forecast to decline by 4.5% this year. Unfortunately, overall employment levels will decline considerably and, as a result, unemployment, which has increased significantly in recent months, will continue to rise this year.
The deterioration in economic conditions has had a significant effect on the public finances. Due to the unprecedented pace of developments in the global and domestic economic environment, the forecasts contained in the October budget were revised in light of the end-year data. Consequently, in early January revised forecasts for 2009 and the following years to 2013 were set out in the addendum to Ireland's stability programme update, which was submitted to the European Commission on 9 January 2009.
I am happy to report that the relevant recommendation for a Council opinion was published by the Commission this morning. An inaccurate version appeared in a leading Irish newspaper this morning which is not in accordance with the terms of the opinion. The Commission has made it clear in the opinion recommended to the Council that the measures adopted by the Government in response to the downturn can be regarded as welcome and adequate, given the high deficit and sharply increasing debt position, and in line with the European economic recovery plan.
In terms of tax receipts assumed for this year, my Department expects that tax revenue of just under €37 billion will be collected in 2009. This means that revenue is expected to contract by 9.25%, thus representing a decline of about 20% from the taxes collected in 2007. Current expenditure now exceeds revenue and in simple terms this is not sustainable.
In overall terms, an Exchequer borrowing requirement of almost €20 billion is expected in 2009 not just to finance capital spending, but also to pay for current expenditure as well as the associated costs from the bank recapitalisation programme. However, it must be acknowledged that we have a low debt ratio relative to many other EU countries. At the end of 2008, general Government debt stood at 41% of GDP, well below the 60% average of our EU partners. This measure does not take account of the significant value of the National Pensions Reserve Fund — which was accumulated in better times — or the substantial cash balances held by the National Treasury Management Agency. When account is taken of these, our net debt at end-2008 was close to 20% of GDP. While this will increase in the coming years, our low level of debt has provided us with the leeway to target a restoration of balance to the public finances over a number of years. In this way, we can avoid placing too great a shock upon the system as we restore order to the public finances and re-position our economy.
Consequently, the Government has been clear in its strategy to address the difficulties in the public finances over the medium term and is strongly resolved to do so. Given the scale of the problem, we have set out a five-year framework for the consideration of the Commission on the restoration of order to the public finances. In this year's budget, I brought forward various tax measures to secure a substantial amount of additional Exchequer revenue for this year. On 3 February, the Government announced a series of measures to secure the targeted savings of up to €2 billion on a full year basis that are needed to help restore fiscal balance. The larger part of these savings is in the area of public sector pay and pension contributions, yielding savings of €1.4 billion in a full year.
These measures are focused not just on short term needs, but on the vital need to prepare the ground for economic recovery. By increasing welfare payments this year in the budget, at a time of easing inflationary pressures, we have sought to protect those less well off and those bearing the brunt of the poorer labour market conditions.
Additional information not given on the floor of the House
We have also sought to maintain capital spending in real terms and redirected some of it to areas that can protect jobs. More needs to be done in a planned way in 2010, 2011 and beyond. The Government's Framework for Sustainable Economic Renewal, published before Christmas, provides the guiding light to show the way. What is now clear is that further controls on expenditure, ensuring greater value for money and additional taxation will all be required as we work our way through the five-year plan for restoring fiscal sustainability. In this regard, further budgetary decisions will be informed by the important work being conducted by the special group on public service numbers and expenditure programmes and the commission on taxation.
The budgetary strategy the Government has set out is challenging and will require that we all put our shoulders to the wheel in the national effort to deal with this unprecedented economic downturn. The fiscal position we take, especially this year and next year, is of fundamental importance to the future of the country. The stabilisation and sustainability of the public finances is an essential prerequisite to the renewal of the economy and it is for this reason that it is the primary focus of our budgetary strategy.
I thank the Minister for his reply. People are terrified their jobs will be the next to go. Businesses are fearful they will have to pull down the shutters because they can neither get credit nor paid. The confidence the Minister expressed that the Government has a strategy that is understood and clear is far from shared by either international markets or people at home. People feel leaderless and lack direction and this is a core problem. If we want to protect jobs, people must have confidence the Government knows what it is doing.
If the Exchequer position deteriorates relative to the Minister's forecasts, will the Government allow the deterioration to be taken up in extra borrowing or does he intend to introduce other measures? We need clarity on that issue.
While the Minister may dispute the description of the strategy he sent to Europe as "unclear" and "underdeveloped", I would describe it as nothing less. Would he not agree that if we want people to invest for the future, whether in energy or elsewhere, we need clarity about the direction of Government thinking on taxation and other matters covering the five-year period? Without that clarity people will continue to postpone investment and wait to see what happens.
The words "unclear" and "underdeveloped" are not contained in the Commission opinion.
They are an accurate description of the true position.
The Deputy may choose to borrow words inaccurately attributed to the opinion, but I must go by the record of what the Commission said, namely, that the measures adopted by the Government in response to the downturn can be regarded as welcome and adequate. That is an endorsement from the Commission. I worked closely with the Commission——
I did not mention the Commission. The Minister should answer the questions he was asked.
I have had numerous contacts with the Commission since last September to deal with Ireland's position in advance of going into the excessive deficit procedure because it is important we work with it to resolve our difficulties. We have the support of the Commission on the measures we are taking.
The fundamental issue with regard to generating confidence is the need to stabilise our public finances. This is essential in terms of fostering public confidence. At all stages, we have taken the necessary measures to stabilise public finances — last July, last October in the budget and through the announcement made by the Taoiseach in early February with regard to further expenditure adjustments.
I will allow a brief supplementary from Deputy Bruton.
I must beg the Chair's indulgence as the Minister did not answer either of the questions I asked him. He proceeded to cite inept measures the Government adopted in the past, as if this would in some way demonstrate it has been decisive. The truth is a flimsy document was submitted to the European Commission, we have no forecast of what the Government believes it will collect under any tax head in the next year, we have no monthly forecast of what it expects to collect each month, and we do not know its view on what will happen if we do not meet the borrowing target of €20 billion, if that. Goodbody forecasts the requirement will be at least €2 billion over that.
What will happen if it is €2 billion over? Will the Minister take additional measures? He did not answer that question. How does the Minister expect people to make decisions if they do not know the direction of his thinking on key variables that will affect the climate for making decisions? We need a five-year programme that has credibility. The Minister has not delivered that.
Whoever described the plan as "unclear", "unconvincing" and "underdeveloped" got it right, even if it was someone in Timbuktu. People are saying the same thing on the streets. People are losing jobs because there is no leadership from the Minister, his Department or the Government.
People are losing jobs because of the unprecedented international climate, as the Deputy is well aware. The forecast in my Department for the downturn this year is 4.5% and this forecast is in line with the bulk of other forecasts. On the question of tax receipts for this year, an overall predictive figure for tax receipts has been produced and the receipts received in January are in line with the overall predicted figures.
Says who?
I am advised by my Department that they are in line.
The Minister has not published those figures.
The Deputy should bear with me. The percentage which January tends to bear to the year as a whole has been confirmed in the receipts received this January. The predicted overall tax receipts this year, as the Deputy is aware, are well short of what was received last year.
With regard to the detailed monthly breakdown and the breakdown under the different heads, my Department is taking particular care with its forecasts this year, but they will be available later this month. It is a five year programme and it would be a brave person who could predict what will happen in 2011 and beyond. We need to stabilise our finances now——
What will the Minister do in 2009?
I am afraid we need to move on.
The Minister has refused to answer the basic question I submitted.
I have not refused to answer it.
The Minister did refuse to answer it. He had two opportunities and he did not answer it on either occasion.
We are four minutes over time on the first question.
It is certainly not my fault.
It is nobody's fault.
Live Register.
Joan Burton
Question:37 Deputy Joan Burton asked the Minister for Finance his views on whether there could be 400,000 people or more on the live register by the end of 2009 and that living standards are set to fall by 10% to 12%; if he proposes fiscal incentives or other measures to get people back to work; and if he will make a statement on the matter. [6514/09]
The Taoiseach's statement regarding prospects for the live register and for living standards are consistent with the projections contained in the addendum to the stability programme update, published in early January.
In this document, projections for the public finances, and in particular for public expenditure, are based on the assumption that the numbers on the live register reach 400,000 by the end of this year. The January figures, which have become available since the addendum was published, show a seasonally-adjusted 326,000 persons on the live register. This figure points to a considerable worsening of labour market conditions and is of concern and my Department is monitoring the position closely.
In terms of the potential decline in economic activity, the addendum forecast that GNP would decline by a cumulative 8.5% over the period from 2008 to 2010. Taking into account likely population developments over this period, living standards — as measured by GNP per capita — could decline by between 10% and 12%. Ireland is clearly in a very difficult economic environment, but so is virtually every other country in the developed world. This is a global recession the like of which has not been seen for a very long time.
The Deputy will appreciate that the potential for substantial new fiscal incentives is severely limited by current budgetary circumstances and by the pressures on our existing delivery systems due to the surge in unemployment numbers. Notwithstanding these constraints, a range of measures have been taken to help the unemployed back to work. This is done through the expansion and re-orientation of training, education and employment programmes and by ensuring that the greatest possible number of the unemployed are facilitated and incentivised to engage in these programmes within existing resource constraints.
I understand that FÁS and the Department of Social and Family Affairs are working together so they can respond quickly to the rising live register numbers. In this context, I understand the following initiatives are being driven by FÁS: the establishment of a training fund to enable a speedy response to identified re-training needs for low skilled and redundant craft workers; gearing up its employment services further to provide increased capacity for expected increased referrals from the live register; providing a range of certified, short, flexible, modular programmes designed to upskill redundant workers so they can enhance their prospects of securing employment. A number of programmes are already in place and the frequency and range of these will be expanded in the coming months.
Additional information not given on the floor of the House.
Also, in response to the construction slowdown, I am informed that FÁS is focusing on providing retraining opportunities for redundant construction workers in emerging areas within the construction sector and that these include retraining in the following areas: the installation of sustainable technologies, environmental activity and compliance and regulatory work. I understand that FÁS will also assist individuals in seeking employment abroad in construction in other EU countries and that FÁS has held European construction jobs fairs for employers from other EU countries.
In addition, the Government is maintaining capital investment at very high levels, which in itself is a short-term stimulus to the economy and to employment. This investment will also help raise the future productive capacity of the economy. More generally, the priority being given by this Government to stabilising and bringing sustainability to the public finances is an essential part of its strategy to provide the basis for long-term investment and job creation in this country. The framework for sustainable economic renewal, which was published in December, also provides a context and strategy within which employment can be sustained in the medium term.
In light of what I have outlined, it is clear that despite severely constrained resources, the Government is giving the highest priority to ensuring that those losing their jobs are best placed to secure future employment as soon as possible, while supporting those in employment to the maximum extent possible.
I thank the Minister for his reply. Does he agree that the situation outlined by the Taoiseach in his speech of 400,000 people being unemployed later this year is a doomsday scenario for those 400,000 people and their families? I asked the Minister whether he has any proposals to incentivise businesses and individuals to get back to work and in particular whether the Minister has any proposals on job retention? Does the Minister agree with the Taoiseach's figures that every additional 100,000 people on the live register will cost approximately €2 billion? Is the Minister aware that in a more recent statement IBEC suggested that the figures could climb above 400,000 towards 500,000? In the event of these figures being reached do we require emergency measures to retain jobs such as job-sharing? Where people have lost jobs, does the Minister have full confidence in FÁS as the lead agency to get people back to work, to education and to training in view of the difficulties that have emerged in recent times in this agency?
Certainly I agree with Deputy Burton that this is a very serious position. With regard to the IBEC figures I know that recent forecasts in the Department predict a figure of 400,000 for the end of this year. In January, the seasonally adjusted number was 326,000 and while there was a large increase in the month, some of this was anticipated given sectoral developments in recent months. January's figure was disappointing. However, it must be borne in mind that this is just one month. If the January monthly rate of increase continued, the year end figure would be significantly higher. At this stage we do not expect this as the reactivation and retraining programmes begin to have their desired effects as we go through the year.
With regard to the question of protecting existing jobs, the Cabinet committee on economic recovery is examining this issue. FÁS has a vital role to play and the Government is working to ensure FÁS refocuses its energies from training those already in the workforce to training those who find themselves outside it.
In the retail sector and in business parks in our large cities and towns, many firms are literally hanging on by their fingernails. The January sales are over. Valentine's day, which showed a very small consumer upsurge, is also over. We have a long road to St. Patrick's day and then Easter. I fear for many firms because there has been no action — or perhaps there has — from the Government to address the difficulties caused by people going to shop in the North. The Minister spoke about a Cabinet sub-committee on a strategy to retain jobs. Is it addressing the issue of people marching with their feet and shopping in the North?
In his earlier reply, the Minister suggested that the Exchequer figures for tax receipts in the first two weeks of February are a little better than those for January. The overall figure he gave for the year was a profile of €37 billion. I have not seen a report from any analyst who expects this figure to be realised. Does the Minister have a revised figure for tax receipts? Is it €34 billion or €33 billion?
As I indicated in reply to Deputy Bruton, the final figures on the particular heads and monthly breakdown will be given later this month. With regard to the question of shopping in Northern Ireland, I never suggested it was unpatriotic to shop in Northern Ireland. However, I did suggest that it means a substantial loss to the taxpayer in this country and if people are concerned about reductions in services and other reductions which the Government must implement they should bear this in mind when they purchase goods and services in Northern Ireland. It is a free country and a free market within the European Union and I know Deputy Burton is well aware of this. The Government is examining methods of ensuring that the sterling differential, which should make products originating in the sterling zone cheaper in this jurisdiction, can be passed on to the consumer.
Banking Sector Regulation.
Richard Bruton
Question:38 Deputy Richard Bruton asked the Minister for Finance if he is satisfied that adequate arrangements are in place here to achieve the necessary turnaround in the banking system in a manner that does not expose the taxpayer to excessive risk. [6591/09]
In recent months, international markets have experienced turmoil and this has resulted in significant pressure on sources of funding for all banks globally. The Government has adopted a measured approach to this, pursuing a comprehensive strategy to ensure that funds are available for sound businesses and entrepreneurs to enable them to provide the employment and the output which will be the basis of our economic recovery.
The Government moved quickly last September to introduce the guarantee of Irish bank liabilities, which has provided certainty to depositors and investors alike in the Irish banks. The recapitalisation programme announced in December addresses both the expectations of international markets on the capital levels and the needs of our major financial institutions to cover potential loan losses in the years ahead.
In January, against a background of concerns about governance issues and market confidence in Anglo Irish Bank, the Government, following consultation with the Central Bank, the NTMA and the Financial Regulator, decided to take Anglo Irish Bank into public ownership. This decisive step was taken to safeguard the interest of the depositors of Anglo Irish Bank and the stability of the economy. I want to assure the House that this decisive step was taken to ensure the new nationalised bank will collect all debts due from persons who owe moneys to the institution.
Following the announcement of the recapitalisation programme the Government initiated further intensive discussions with Allied Irish Banks and Bank of Ireland with a view to securing the position of these, our two largest banks. As a result of these discussions, the Government decided on a comprehensive recapitalisation package which will reinforce the stability of these two banks as core elements in our financial system, increase confidence in the banking system here and facilitate the banks involved in lending to the economy.
I will continue to examine various proposals, including risk insurance, for the management and reduction of risks within financial institutions, having regard to international developments and to the best interest of taxpayers. Ongoing work at the level of the European Central Bank and in the European Union will inform the process.
In the context of the six month review of the guarantee scheme to be completed by the middle of April, the Government will examine how the scheme could be revised consistent with European Commission approval and EU State aid requirements in ways which include supporting longer-term bond issues by the covered institutions. This would be in line with international and EU trends where the average term of State cover for bond issues now extends well beyond 2010. Overall, the Government's approach is structured and incremental and designed to ensure the interests of the banks, their customers and the State are protected.
The Minister will understand that, on this side of the House, there is a great deal of scepticism over how the Anglo Irish Bank issue has been handled over a long period. People did not bother to ask the questions that ought to have been asked.
Is it not difficult to believe that confidence in our regulatory system will be restored when it is the regulator itself that is accused of being ineffective, at best, or, according to some accusations, complicit in some of the things that have gone wrong? Is it not hard to believe an investigation carried out primarily by the regulator will be sufficient to restore confidence?
What success can the Minister report from his announcement of recapitalisation last week? Are recovery and liquidity evident in the banks? Are there other indicators that the approach is accepted as sufficient to deal with the issue?
Will the Minister confirm whether payment by the banks in respect of the coupon on the preferential shares is to be optional or compulsory? A view now seems to be emerging that it is optional. Does the Minister believe there should be an entirely clean sweep of the regulatory authority and all banks' top executives and boards that receive State capital so we can start afresh?
I thank the Deputy for his questions. With regard to confidence in the regulatory system and his concern that it will be left to the system itself to address this matter, I can assure him it will not be left thereto. From the time of the departure of the chief executive of the regulatory authority, I made clear that I intended to bring proposals to the Government on the reform of the regulatory system. I will take responsibility for those proposals on the advice of my officials. I do not propose to subcontract responsibility to any consultancy or other group. I will hear the views of the regulatory authority and the Central Bank. Yesterday I received a detailed joint submission from those two bodies and it is now under consideration on the part of my officials. I intend to introduce definitive proposals on the reform of the regulatory system.
While I do not believe there should be any subcontracting of responsibility to a consultancy, I believe it would be in the interest of the country, in view of the damage caused to its international reputation by the activities at Anglo Irish Bank, to have some external validation of what we are proposing and of the interview process that must take place for the recruitment of a replacement regulator.
The Deputy asked a number of other important questions. On the question of the coupon attaching to the preference shares, the rate stands at 8%. Under the terms of the arrangement, were a bank not to pay the 8%, the value of the coupon would be translated into ordinary shares in the relevant State-owned institution, be it Bank of Ireland or Allied Irish Bank.
Would that happen immediately?
In accordance with the terms defined in the warrant, which the Deputy will appreciate I do not have to hand, the loss to the State caused by non-payment will be compensated for by the allocation to the State of an appropriate amount of ordinary shares from the institution, above and beyond the allocation already envisaged in the share warrant arrangement. As Deputy Bruton knows, this arrangement assures the State of a 25% stake in the institutions, exercisable at the option of the State after five years.
On the capitalisation announcement, the question of liquidity and the provision of funds to the Irish banks is still very difficult. As I stated in my reply, it is difficult for all institutions worldwide, as is the case with many of the measures that had to be taken to stabilise our banking system, including the guarantee, the nationalisation of Anglo Irish Bank and capitalisation. These are not options available to us but essential steps necessary if we are to secure the stability of our financial institutions. The share prices of Allied Irish Bank and Bank of Ireland have remained low and have been such for some time. To sustain international confidence in these institutions, it was essential that capitalisation take place, such that markets would be assured there was adequate capital and that the institutions would be in a position to meet potential losses. I do not refer to an adequate position but to a full position. Capitalisation has generated this confidence and this has been commented on by reputable commentators on banking matters.
On the question on the boards and executives of the two capitalised institutions, as Deputy Bruton is aware, the chief executive of the Bank of Ireland has announced his intentions. I understand from the governor and the board that it is intended to replace the executive in a matter of three weeks.
With regard to the chairman and the chief executive of Allied Irish Bank, the State will obtain not only four directors, appointed directly by the preferential shareholder, the Minister, but also 25% of the voting rights at the annual meeting. At that stage, the Minister can exercise voting rights and influence in regard to the composition of the boards——
What about the clean sweep?
The suggestion that the State should engage in direct interference in the management of the two major institutions would be dangerous in international markets.
Joan Burton
Question:39 Deputy Joan Burton asked the Minister for Finance the steps he will take to restore Ireland’s international reputation for sound banking; his views on whether the financial regulatory regime here is unfit for purpose, having failed to identify and deal with wrongdoing and irresponsible lending practices; and if he will make a statement on the matter. [6515/09]
The importance of having a regulatory system that provides financial stability and fosters probity has become all the more clear to us now in a time of severe financial dislocation, both nationally and internationally. A new and better co-ordinated approach to ensuring financial stability and regulation is now required, with greater focus on areas such as risk management, compliance, corporate governance and general control processes.
As the Deputy will appreciate, steps have been taken in that regard in the Credit Institutions (Financial Support) Scheme Act and, as a result, the oversight of the banks concerned has been intensified greatly. This new regime provides for heightened direct engagement with each of the covered institutions and new reporting arrangements, including the provision of scheme compliance certificates by the covered institutions themselves and by their external auditors.
The bank guarantee scheme requirements and conditions are the first step in a new system of financial regulation and supervision. The joint boards of the Central Bank and Irish Financial Services Regulatory Authority have written to me and have outlined their views on the reform of the system. This reply does not reflect that fact as I received their opinions only yesterday. They are under consideration in my Department.
Regulatory reviews, both domestic and international, are under way: The regulatory authority is reviewing its overall strategic regulatory approach; the Financial Regulator business process review is now close to finalisation; the Financial Regulator is processing a strategic plan for 2009; at EU level, new regulatory proposals, including improvements to the capital requirements directive, are due for adoption in early 2009; and, at ECOFIN, work is being done to incorporate, at wider international level, the role and mandates of national regulators.
I will take account of the various reviews under way on regulatory reform but I accept that, as Minister for Finance, I am responsible for the legislative framework within which the regulator operates. When I have considered the issues fully, I will bring my proposals for reform to Government.
I indicated I propose to have external international validation of any proposals I bring to the Government or of any process for the selection of a replacement regulator. At the time of the departure of the chief executive of the Financial Regulator, I made clear no replacement was to be appointed before the completion of the review. It is an urgent matter. I am not conducting a review — I am formulating proposals to bring to the Government.
Did it not cross the Minister's mind to sack the board of the Financial Regulator given its absolutely abject failure to deal properly with the regulation of Irish banks in that there has been a series of disastrous failures in Anglo Irish Bank, which in turn has impacted on the rest of the banking system? Does the Minister believe the board of the Financial Regulator and former regulator should apologise to the people over what the latter will have to pay for the regulatory failure? Will anybody on the regulatory board be brought to account for what has happened there?
The Minister is aware that the reputational damage caused by the affairs of Anglo Irish Bank to Ireland is immense. What inquiries are being made in the counterparty banks to the activities in Anglo Irish Bank, namely, Irish Life & Permanent and Irish Nationwide Building Society, given that on his announcement of recapitalisation before Christmas the Minister indicated that approximately €3 billion of taxpayers' money would be made available to those institutions?
What is the Minister's response to the bond markets given that Irish Nationwide Building Society has bonds coming due between May and July of more than €2 billion? That information is freely available. If we do not restore our reputation who, other than the Irish taxpayer, will replace those €2 billion of bonds? Does the Minister have any strategy to deal with that?
First, in regard to the position of the board of the Financial Regulator, one of the options under consideration by the Government is the fusion of that board with the board of the Central Bank. I am not saying the Government has decided to adopt that conclusion but it is a matter under consideration. In the circumstances the best course is to await the bringing of proposals to Government before addressing the question of the board of the Financial Regulator.
In regard to the reputational damage done to the good name of Ireland in banking circles, I am pleased Deputy Burton has acknowledged that that is the core issue in regard to what happened in Anglo Irish Bank. The various practices that have come to light, that are coming to light and that will come to light in the regulatory reports, have done serious damage to our reputation abroad. In the case of a small country financial institutions are not readily distinguished by overseas markets and investors.
Specifically in regard to the question on Irish Life & Permanent, the regulator is continuing to make inquiries in regard to the full circumstances of the back-to-back arrangement. Incidentally, I have checked the records in my Department and while there was a reference to the back-to-back arrangement in an early draft of the PricewaterhouseCoopers report, the formal summary submitted to me did not contain any reference to that back-to-back arrangement.
The regulator is making intensive inquiries about the circumstances of transactions in the Irish Nationwide Building Society. Deputy Burton also raised the status and position of the Irish Nationwide Building Society. I am arranging to meet the chairman who resigned and I will discuss those matters with him. I assure Deputy Burton that a close surveillance of this institution is being maintained by my officials and by the regulator and the Central Bank, as is the case with all six covered guaranteed institutions.
Does the Minister have an estimate of how much the taxpayer will have to put in to the two counterparty institutions, namely, Irish Life & Permanent and the Irish Nationwide Building Society, in order to prop them up?
Did it never cross the Minister's mind to sack the board of the regulator, given that those people who are industry insiders — I do not know if there are any outsiders — all worked in this, that and the other bank and financial institution? The Minister could then appoint people with a fresh vision who perhaps did not lunch in the same clubs, play golf in the same spot or go to the same yacht club.
These are not industry insiders.
Then can the Minister explain——
They include a former Revenue Commissioner.
Then they must have been asleep on the job. Did it not cross the Minister's mind to sack the lot of them? Will he also outline the amounts involved in rescuing the counterparty banks?
First, these are not industry insiders. For example, they include a former Revenue Commissioner and a number of individuals who have no connection with the world of finance. Deputy Burton should not throw around references to yacht clubs in this House if it does not apply to the individuals concerned.
What about golf?
Or golf clubs. I am neither a yachtsman nor a golfer but Deputy Burton seems to have an unwonted interest in them.
One matter I am pleased the Deputy asked me about is the question of an alleged promise of €3 billion to put money into the Irish Nationwide Building Society and Irish Life & Permanent. No such undertaking or statement was made by the Government. We said we would consider capitalisation of those institutions but we never indicated a precise figure.
Irish Life & Permanent is a well capitalised institution and any capital requirements it might have are marginal at best. As Deputy Burton is aware, the institution has a valuable life company as well as a banking business and all of the market information available about the company suggests that it is a well capitalised bank. There is no suggestion either that there is any exposure to excessive commercial lending at Irish Life & Permanent. That is far from the case as it is an institution that did not engage in such. I wish to make that clear on the record of the House.
I asked the Minister about the Irish Nationwide Building Society.
The Deputy asked specifically about both counterparty institutions, which includes Irish Life & Permanent.
I asked——
The Minister should be allowed to conclude without interruption.
——specifically about the Irish Nationwide Building Society.
I am now turning to the Irish Nationwide Building Society. I am about to deal with it. The position is that there have been no discussions about capitalisation between my Department and that society. I indicated that the retiring chairman will discuss his views with me later this week. To date there has been no investment of capital by the State in Anglo Irish Bank either.
Tax Code.
Kieran O'Donnell
Question:40 Deputy Kieran O’Donnell asked the Minister for Finance if he will make changes to the public service pension levy to correct unfair elements in its structure. [6590/09]
I do not accept that there are unfair elements in the structure of the public service pension-related deduction. The approach to this deduction is that it applies generally given the fact that all public servants enjoy the benefits of a public service pension, which provides for greater security and more favourable terms than the generality of private sector pensions. The graduated approach to the payment is to ameliorate somewhat the impact on lower paid public servants.
Owing to the availability of tax relief at the marginal rate for pension contributions, in certain circumstances an individual on a higher gross income may incur a lower net loss than an individual on a lower income as a result of the new pension-related deduction.
However, it is important to note that the income tax, PRSI and health levy system is highly progressive. Those on higher incomes pay higher rates of tax. Across the entire public service, on all grades and on all pay scales, the total deductions, which include income tax, PRSI, health levy and the new pension levy, will be higher as a percentage of gross pay as pay levels increase.
The Minister said there are no unfair elements to the pension levy but there are two. The first relates to the lower paid. Does the Minister consider it fair that a single person working in the public service earning €25,000 will only qualify for the contributory old age pension and will get no benefit from 5% of the contribution he or she is making to the public sector?
Does the Minister consider it fair that a married person who is the sole earner on approximately €45,000 a year who will qualify for the contributory old age pension will get no benefit from the 7.2% gross he or she is paying?
A single person earning €40,000 a year will make a net payment of 3.7% even though he or she pays 7% gross. Is it fair that a married person who is the sole earner will pay the same gross but he or she will pay 5.2%, which is a higher net payment?
All systems for the extraction of income from a taxpayer or levies paid on a pension involve graduation and progression. Inevitably, cases can be highlighted that distort the overall picture, which is that we need to make savings in the public service pay bill. The bands my Department circulated to the social partners represent a reasonable attempt to reconcile the need to achieve the necessary savings while seeking to ameliorate somewhat the impact on lower paid staff. The banding was the result of significant deliberation on the part of my officials.
Deputy O'Donnell will appreciate that given the scale of the savings required any banding arrangement must result in the great bulk of public servants paying the marginal rate on at least some of their earnings. I would not rule out consideration of other banding options that may be introduced once the savings are equivalent but the savings must be equivalent. That is fundamental to the operation of the levy. The new pension-related deduction will operate under what is known as a net pay arrangement, whereby pension contributions for PAYE employees, including those in the public sector, are deducted from gross pay before applying income tax, PRSI and the health levy.
This is about real people's lives and this is not a global equation. The State will only recoup €800 million rather than the €1.4 billion the Taoiseach stated when the measure was announced. It, therefore, will not work. The word "emergency" is used in the Title to the Bill. The term "emergency" normally indicates something short-term. Is this a long-term pension levy? The Minister needs to let public servants know. Section 8 gives the Minister powers to exempt people. Will he exempt low paid public servants who will only qualify for the contributory old age pension when they retire from the levy?
The Deputy will have to draw such a class of persons to my attention who have in excess of two years service before I am satisfied of their existence.
That is in the future
However, section 8 was inserted on the basis of legal advice to ensure the circumstances outlined by the Deputy will not apply to any public servant. In other words, if there is an issue about non-eligibility for a pension, the Minister can, by the appropriate order, deal with it.
Is the Minister giving a commitment?
It is not anticipated that will have significant financial implications for the savings to be effected by the legislation.
It will over time.
With regard to the Deputy's categorisation of the amount of the savings, he will be familiar, as is every accountant, with the system of public accounting in the State whereby the savings are on the expenditure side of the account and relate to the current day-to-day expenditure of the Government. The figures given by the Government are correct and accurate in that regard.
They are gross figures.
With regard to the description of the legislation as a financial emergency measure, the Deputy will appreciate the levy is not the only measure encompassed by the legislation but also the power the State is taking on itself to break existing contractual arrangements relating to the payment of professional fees to doctors and legal professionals.
Will the pension levy be a long-term measure?
To break such arrangements in those circumstances would require the existence of difficult economic circumstances, which are recited in the legislation.
Will the pension levy be a long-term measure?
Policy can be reviewed regarding the pension levy but any fair minded person examining our economic circumstances and the forecasts for this year and next year would see the levy as part of the landscape for public servants for some time to come.