Priority Questions.

National Asset Management Agency.

Richard Bruton

Question:

1 Deputy Richard Bruton asked the Minister for Finance if his attention has been drawn to the comments made by senior bankers to the Joint Committee on Finance and the Public Service that the transfer of loans under the National Asset Management Agency would neither reduce the cost of credit nor increase the availability of credit to businesses and persons; and if he will make a statement on the matter. [45160/09]

I am aware of the discussions that took place at the Joint Committee on Finance and the Public Service last week. My understanding is that the bankers in question expressed the view that there is not a shortage of credit available to business but that the risks taken by financial institutions must be compatible with the amount of capital they hold. Banks can currently access funds but the cost is higher than was previously the case. The banks' balance sheets will be stronger once NAMA has taken over the riskiest loans and replaced them with Government-guaranteed bonds; this will give the banks greater access to liquidity and make long-term funding cheaper.

I must point out that the value of the NAMA bonds will far exceed the incremental borrowing requirements of business and it would not be realistic to expect all of this money to be lent on. However, it is fair to assume the banks will be in a better position to lend once the riskiest loans have been removed from their balance sheets and that viable businesses should expect a fair hearing when seeking funding. I intend to issue guidelines to participating institutions to ensure this is the case and to devise appropriate appeal mechanisms.

A core Government objective is to free up lending on a commercial basis to support economic growth, and a number of actions have been taken to achieve this objective. In the context of the bank guarantee scheme and recapitalisation, the banks have made important commitments to support business lending. An independent review of credit availability was agreed in the context of the recapitalisation of AIB and Bank of Ireland. The report made a series of recommendations, including the further development of a framework for monitoring credit availability and measures to improve communications between the banks and SMEs. The report also suggests consideration of specific supports to ease the working capital requirements of SMEs and measures to help investment levels. A follow-up independent review of credit availability is currently under way and I expect it to be published shortly.

In addition, a code of conduct for business lending to small and medium-size enterprises took effect last March. As part of the recapitalisation package, AIB and Bank of Ireland confirmed their commitment to increase lending capacity to SMEs by 10% and provide an additional 30% capacity for lending to first-time buyers in 2009.

The latest statistics for credit availability, covering the period to October 2009, were published by the Central Bank on 30 November. They show that non-mortgage credit, which excludes lending to non-bank IFSC companies, was unchanged over the previous year. Headline private sector credit declined by €2.3 billion in October but this was mostly as a result of bad debt provisions for the month. Repayments were in fact marginally lower than drawdowns for the month. There was a 9% annual decline in credit outstanding to non-financial corporations in October, but three quarters of this was as a result of valuation effects.

I thank the Minister for his reply. Does he agree with the statement he read out, that there is no shortage of credit in the economy?

I did not read that out to the Deputy.

He read that out as the inference that he drew from the discussions by the banks. I am asking the Minister for his opinion. Does he believe that there is no shortage of credit in the economy? That is what the banks stated and he is now repeating that. Does he agree with them when they stated that NAMA will not improve in any way the availability of credit and will not reduce in any way the cost of credit? If he agrees with those statements from the banks, what is the point of NAMA if we do not get the flow of credit? Those were the reasons the Minister advanced and the reasons we were assured this was worth doing.

Having received this appalling shock from the banks, has the Minister initiated discussions immediately with them about the availability of credit and the guidelines that he will issue, and can he give us details of the guidelines that will be put in place so that this significant undertaking by the taxpayer will not result, as the banks stated, in no improvement in credit availability and no reduction in the cost of credit?

First, as I stated in my reply, my understanding is that the bankers in question expressed this view. I certainly did not make myself a party to their view. I do not agree with their view, as stated to the committee, and that is why the legislation confers power in the Minister for Finance to issue guidelines and to devise appropriate appeal mechanisms on the giving of credit.

The banks, as I indicated clearly in the course of the NAMA, and I reiterate here today, must ensure that there is an adequate flow of credit to the economy. There are very difficult questions to determine on whether a particular business may be viable for credit purposes or not, but I am concerned about the total volume of credit in the banking system and it is my intention to ensure that the powers conferred upon me under the legislation are exercised to that end.

The guidelines have been the subject of discussions between my officials and the relevant financial institutions. I understand the particular banker to whom Deputy Bruton is referring is the retiring chief executive of the Allied Irish Bank.

Specifically,——

There is a limited time for each question.

The Minister absorbed virtually all of the time and the Ceann Comhairle should have called a halt when he overran his time.

The Deputy asked many questions.

I am not objecting but I do not want to be squeezed out by the Minister's long answers.

As a result of the Minister's guidelines, will we see cheaper credit coming from the banks? That is a specific question. Will we see guidelines that will increase the flow of credit? Can the Minister give categorical commitments to the small businesses which will be listening to what he has to say? Will we have cheaper credit and more availability?

Certainly, the purpose of the operation, as I understood it and as discussed in this House, was to ensure greater availability of credit. As to the cost of credit, that, of course, is a matter determined by financial markets. Deputy Bruton knows that perfectly well.

Why did the Minister tell us and all his spokesmen that this new ECB money at 1.5% rate would dramatically reduce the costs of borrowing and we would see a reduction in credit costs?

Deputy Bruton will await the answer.

It is quite clear that the question of availability and the price of credit are distinct questions, but if credit is more available, credit is thereby cheaper as well.

So the Minister will issue guidelines to——

Yes. However, I will not specify rates of interests that should be applied by financial institutions——

That is not the question.

——and that would not be my function under the relevant legislation.

The Minister can understand——

That is the reason I would be very careful about banking.

I do not want to hold up the time, but the Minister can understand Deputies were lining up to tell us that access to 1.5% money from the ECB would see a dramatic reduction in the cost of credit. Now that is evaporating, the banks will not deliver it and the Minister will not insist upon it.

I do not accept the premises in Deputy Bruton's question at all. The purpose of NAMA, as I made clear at the time, is to clean up the balance sheets of the banks in accordance with the best international guidance on that subject. The President has now signed the necessary legislation, consultations will take place about the appointment of the board with the Opposition leaders and it is my intention, on my legislative powers, to issue appropriate directions to the banks on credit supply in the economy.

Live horse and one will get grass.

Fiscal Policy.

Joan Burton

Question:

2 Deputy Joan Burton asked the Minister for Finance his views on the latest Exchequer figures; their implications on the fiscal position here moving into 2010; and if he will make a statement on the matter. [45078/09]

The Exchequer returns for the period to the end of November, which were published yesterday, showed an Exchequer deficit of €22.1 billion. This compared to a deficit of €7.9 billion for the same period last year. The deterioration reflects an €8.1 billion decline in tax receipts along with a €4 billion capital injection for Anglo Irish Bank and the bringing forward of next year's contribution to the NPRF to facilitate the recapitalisation of AIB and Bank of Ireland. Total voted expenditure was 1.6% below profile at end-November, but it is expected that this shortfall on target will be reduced by the year end.

As Deputy Burton will be aware, November is a crucial month for tax revenue and while still below my Department's forecasts, receipts were not as weak as had been feared in some quarters. By the end of November, approximately €30.8 billion in tax revenue had been collected, which was €1.4 billion or 4.2% lower than profiled. This represented a 21% decline on what was collected in the same period last year.

In particular, November is a significant month for income tax, as returns from the self-employed are received. These returns were broadly on target, leaving income tax €50 million above profile for the month of November. However, it should be noted that revenues were still substantially below the level collected last year, with receipts from the self-employed being down by approximately €379 million or 32% and overall income tax is showing a €1.3 billion or 10% decline in the year to date. The bulk of the remaining shortfall is accounted for by VAT which was €749 million below profile at the end of November, reflecting the continued weakness in consumer spending. Overall, tax receipts are now €1.4 billion behind target.

While the slightly better than anticipated tax performance in November is welcome, it does not in any way lessen the need for action on the Government's part. Taxes are still weaker than was forecast at the time of the supplementary budget and will likely finish the year approximately €1.8 billion below target. Deputies will appreciate that my officials are engaged in an intensive analysis of this issue this week in preparation for the budget and that figure should not be taken as final for that purpose.

This small improvement on the tax shortfall from that anticipated in the Pre-Budget Outlook must be kept in context. Taxes are still down by almost €14 billion on the same point in 2007 and will finish the year at a level that has not been lower since 2003. As the Deputy will be aware, in that time current expenditure has risen by 70%, and that is not sustainable.

We are borrowing to fill the gap between revenue and expenditure and failing to take action now means that our debt levels will increase further and consequently, the cost of servicing that debt will rise. The objective of the forthcoming budget is to stabilise the deficit in 2010. Taking the necessary action now will ensure that confidence is maintained in the Irish economy and that Ireland is favourably placed to benefit from a global recovery as it takes hold.

As is customary, I do not propose to comment in advance of the budget on any matters that might be the subject of budgetary decisions. However, the White Paper on Receipts and Expenditure, which sets out the likely end-year position for 2009 and the no-policy change opening position for 2010, will be published at midnight tomorrow. Full economic and fiscal forecasts on a post-budget basis will be published on budget day, 9 December.

The Pre-Budget Outlook the Minister mentioned forecast that a further 75,000 jobs will be lost in 2010. In the context of the figures, has the Minister any plans to address the personal tragedies for many of those 75,000 persons?

In particular, the Minister noted that income taxes are down significantly. Does he have any plans to get people back to work and thereby increase the income tax take? As he will be aware, with every person who loses a job the loss to the Exchequer is approximately €10,000 in terms of various tax contributions and PRSI whereas the cost of social welfare is likely to be at least €10,000, and the net cost-loss to the Exchequer is at least €20,000. In the context of the Pre-Budget Outlook and the Exchequer figures, is that still the Minister's forecast? What does he expect net emigration to be?

The Minister mentioned specifically VAT. VAT is down approximately €800 million, according to yesterday's figures. Does he now accept that his decision to put a half-point last year in the first budget for 2009 on the VAT rate bringing it to 21.5% was one of the most disastrous decisions he made and that it drove people north of the Border in droves to shop and look for better value? Has the Minister given any consideration to measures that might attract shoppers back? The Minister is strong on appealing to patriotic duty, but that does not butter too many parsnips when prices in the North can be 60% cheaper. I would like the Minister to address those issues.

All of the matters referred to by Deputy Burton are being taken into account in the context of preparing the budget. First, as regards the statistics and the projection for those who will be out of work next year, in light of the general economic data available to my Department, a final forecast in that regard will be made on budget day. Conditions in the labour market remain poor, as labour intensive areas, such as construction and the retail sector, have been worst affected by the recession. Employment is expected to fall by 7.75% this year. In recent months, the pace of increase in unemployment has slowed significantly with the underlying unemployment trend falling for the first time in two and a half years. Nevertheless, the rate of unemployment has doubled over the past year. This is a very serious problem and, clearly, measures have to be taken by the Government to ensure that people go back to work. People will go back to work when this country is placed on the road to economic recovery. It will be placed on this road by making the necessary adjustments that must be made in this budget to secure the viability of the economy.

The Deputy referred to shopping in Northern Ireland and the 0.5% VAT rate, but I do not accept her suggestion in that regard. It is interesting to note that the general consensus among United Kingdom commentators is that the decision of the UK authorities to reduce VAT has been an economic failure. I do not believe that the sum of 0.5% in the context of an underlying rate of 21% — which remained constant for many years, with one notable exception in the earlier part of this decade — had much of an impact on shopping in Northern Ireland. This is borne out by the Revenue Commissioners' own investigation of this matter. As I have pointed out many times in this House, the single biggest attraction in Northern Ireland has been the relative price of alcohol compared to the price that obtains in this State. That is as far as I can help the Deputy at this stage.

Will the Minister set out the facts again? The deficit is €22 billion. There was almost €4 billion for Anglo Irish Bank and €1.5 billion concerning the National Pensions Reserve Fund. That would bring the total deficit for the year to €27.5 billion. Is the Minister not shocked at the sheer scale of the collapse that Fianna Fáil has reduced this country to? When Fianna Fáil came into power, Deputy Ruairí Quinn was the Minister for Finance.

It is Question Time now, Deputy, not an occasion for Second Stage speeches.

He bequeathed a modest surplus to the incoming Fianna Fáil Minister for Finance, Mr. McCreevy. In 12 years, Fianna Fáil have managed to turn that modest surplus — when the country was doing well, employment was growing and manufacturing and competitiveness were never stronger — into a catastrophic deficit.

Does the Deputy have a question?

The Minister takes an interest in history, but does he not have some regrets? He is defending his decision last year to raise VAT by 0.5%. I only wish that the intelligence of what he was saying was borne out in any way.

Can we have a question please?

If one talks to traders in the Border counties, one will find that not only are people shopping for alcohol, but they are also shopping for Pampers and almost anything else where mark-ups in the North are 60% or 70% below mark-ups in the Republic. Why is the Government so utterly powerless to do anything to help traders in the Republic?

It is difficult to reply to a statement. I have always made it clear that, in hindsight, I would prefer not to have introduced the rate, given what the UK authorities did in their budget, which was a competitive, aggressive VAT reduction. It was criticised in all the other European states at the time. I did not defend the increase. I made it clear to Deputy Burton, however, that I did not believe the increase of 0.5% on a standard rate of VAT that had obtained for many years, apart from a particular period earlier this decade, had a material bearing on the issue about which she was concerned. I stand over that view.

As regards the wider questions about the grave fiscal position the State faces, it is a very serious position. It is worth noting, however, that the Commission predicted our deficit this year would be about 12.5%. It is clear from the returns we have to the end of November, on an actual basis, that the deficit will be less than 12%. That is lower than the United Kingdom's deficit this year. I take it, therefore, that the Deputy will be raising similar concerns with her comrades who have been running the United Kingdom in recent years.

I did not realise the Minister was a supporter of the Tories.

He always wants to have it both ways.

We are allied to the Liberals now.

He is a green Tory.

No, we are allied to the Liberals. The Deputy was not listening.

We are getting into extraneous matters. We are on Question Time now.

We used to have three socialists, but now we have three Tories.

Our allies in the United Kingdom are the Liberal Party. That is where our allegiance lies in the UK. They have a great record in relation to this country.

Tax Code.

Kieran O'Donnell

Question:

3 Deputy Kieran O’Donnell asked the Minister for Finance the price difference in euros between Northern Ireland and the Republic of Ireland in respect of a standard bottle of wine, a half litre can of beer and a standard bottle of spirits; the percentage of the difference in each case made up by a differential in tax; the latest estimate of the loss of revenue in excise and VAT as a result of North- South shopping; and if he will make a statement on the matter. [45165/09]

I am informed by the Revenue Commissioners that a periodic informal survey, which provides a snapshot of retail prices for the main excisable commodities observed in market outlets in Dublin and Newry, was most recently carried out on 14 October 2009. A summary of the results of that survey and a number of other surveys since February 2007 are published on the Revenue's website: www.revenue.ie/en/about/publications/index-cross-border-price-comparisons.html.

For good health reasons, Ireland and the United Kingdom have applied high rates of excise to alcohol products over the years compared to many other EU member states. The detailed information requested is outlined in the table set out in the Official Report.

In summary, on 14 October, using an exchange rate of €1 being equal to 0.9302 sterling, a bottle of wine cost €9.24 here and €6.74 in Northern Ireland, with tax being €1.49 higher here and representing some 60% of the overall cost differential. A 500 ml can of beer cost €2.04 here and €1.52 in Northern Ireland, with tax being 21% higher here and representing some 40% of the overall cost differential. A bottle of whiskey cost €25.99 here and €17.17 in Northern Ireland, with tax being €6.53 higher here and representing some 74% of the overall cost differential.

As the Deputy may be aware, the Revenue Commissioners and the Central Statistics Office, CSO, prepared a report, at my request, on the implications of cross-Border shopping for the Irish Exchequer. The report was published on my Department's website on 20 March 2009. The report estimated the likely value of cross-Border shopping in 2009 to be in the range of €450 million to €700 million, with a potential loss in Exchequer revenues arising from reduced VAT and excise yields of between €72 million and €112 million. In addition, a possible corporation tax loss in the range of €20 million to €31 million is tentatively estimated. It should, however, be noted that any estimate for corporation tax is provisional and should only be considered as indicative of the potential loss.

The report noted that the main causes of price differentials between goods in Northern Ireland and the Republic are operating costs, profit margin or mark-up, taxes, and the rapid depreciation of sterling against the euro. While changes in the standard VAT rates widened some price differentials, their impact remains small compared to the size of the change in the exchange rate. For example, sterling has fallen in value relative to the euro by around a third since mid-2007.

The report also noted that there is rather limited availability of quantifiable data on cross-Border shopping. With a view to improving the data available, Revenue and the CSO have worked on questions for inclusion in the quarterly national household survey, QNHS, that should facilitate a more detailed assessment of cross-Border shopping in future. I understand that the results of the CSO's QNHS cross-Border shopping module are due to be published tomorrow.

It is a long-standing practice for the Minister for Finance not to comment in advance of the budget on any tax or expenditure matters that might be the subject of budget decisions and I do not propose to deviate from that practice.

Cross-Border Differentials

Product

Price in this State

Price in N.I.

Diff.

Total Tax/Duty in this State

Total Tax/Duty N.I.

Difference Total Tax/Duty

% Diff. made up of Differential in Tax

Bottle of Wine

9.24

6.74

2.50

4.10

2.60

1.49

60.0%

Beer (500ml can)

2.04

1.52

0.52

0.78

0.57

0.21

40.4%

Bottle of Whiskey

25.99

17.17

8.82

15.59

9.05

6.53

74.10%

The Euro exchange rate used on the survey date was 0.9302 sterling. Small differences in calculation are due to the rounding of figures.

In the report prepared by the Revenue Commissioners which the Minister provided on foot of a request I made to him at a meeting of the Joint Committee on Finance and the Public Service, reference was made to the household survey to be done in the second quarter. That did not actually happen and I welcome the fact that it is to be published tomorrow. It was a major weakness in the initial report.

I believe the Minister has got the whole issue of VAT wrong in terms of his analysis and as regards the increases in VAT. If one's business is going badly one does not increase the prices, but that is exactly what the Minister did in the last budget. The economy was going badly and instead of effectively looking at a possible reduction, he decided to increase the VAT rate. Not only did he increase the VAT rate but he also increased the bi-monthly VAT period for business in the month before Christmas. It made no sense. There are certain areas we have no control over, particularly as regards the exchange rate and if one looks at the whole issue of VAT throughout the country——

Can we have a question, Deputy?

Does the Minister not accept he must reduce the VAT rate, particularly in terms of cross-Border activity? In the report he has just mentioned operating costs only account for 6% of the price differential between Northern Ireland and here. The Government has admitted its mistake in this regard, and this being so, the best way to remedy that is to change it. Will the Minister now give an assurance that he will at least restore the VAT rate to its former level to help people in cross-Border areas in particular, although this has affected business throughout the country?

It is not my practice to comment on the budget in advance. Clearly, any budgetary decisions will have to be made in the context of a coherent framework of taxation and expenditure. However, I reiterate that with the notable exception of the United Kingdom, EU member states have generally not opted for VAT rate cuts as a way to boost consumer spending.

They certainly have not got the VAT rate increases we have.

In contrast, some member states have increased VAT rates, curtailed the scope of exemptions and reduced rates to help cover the budgetary shortfall generated by the slump. Indeed, it is understood that some other member states are considering increasing their VAT rates as part of the ongoing response to the general fiscal crisis. The United Kingdom standard VAT rate is due to revert from 15% to 17.5% on 1 January next year, so the position in relation to VAT is far from consistent throughout the EU. Although the UK cut its standard rate of VAT from 17.5% to 15% on a temporary basis, from 1 December 2008 to the end of this year, at the same time it increased excise duties on alcohol, cigarettes, petrol and diesel, to offset the 2.5% reduction in VAT on these items. Consequently, there was no reduction in the price of these products in Northern Ireland as a result of the reduction of the UK VAT.

The VAT rate, as I pointed out earlier, is only one factor in the price differential between North and South. The considerable weakening of sterling has had a far more significant impact on relative prices than any VAT changes. Past experience has shown that fluctuations in the relative exchange rates can have a direct effect in terms of the level and balance of cross-Border trade with Northern Ireland.

The Minister seems to be taking both sides of the argument. He was quite critical of the Labour Government in the UK in his response to Deputy Burton. We cannot tax our way out of a recession and he is quoting here about increasing tax rates. Are we to take it, therefore, that he might be increasing rather than reducing VAT rates?

It is critical that the Minister deals with the matter in hand. We are competing with Northern Ireland and we have no control over the exchange rate. The one thing the Minister has control over is VAT rates. An estimated 400 jobs are involved as against €143 million in lost revenue. I am concerned here with jobs. The only way we can come out of this recession is to ensure people retain their jobs. Can the Minister say whether he agrees with the Labour Party in the UK?

The Deputy can take nothing from my answer as regards what will appear in next week's budget. I have simply being drawing his attention to certain general considerations in these areas. In mentioning the fact that other member states increased VAT, I was not in any way suggesting that this should be a precedent or a model for our own practice in this area.

Flood Relief.

Kieran O'Donnell

Question:

4 Deputy Kieran O’Donnell asked the Minister for Finance the range of measures he plans for immediate relief of those affected by flooding and for longer-term prevention; the funding he intends to put in place; if EU support has been obtained; and if he will make a statement on the matter. [45166/09]

A number of Government Departments and agencies have responsibility for emergency planning functions. In the current flooding situation, the Department of the Environment, Heritage and Local Government chairs an emergency response co-ordination committee which meets on a daily basis to handle the current emergency situation. I am informed that his Department will shortly ask the local authorities for reports on the impact of the flooding and an assessment of the remedial works required.

While actual funding requirements will not be known until the assessments are completed, the Minister for the Environment, Heritage and Local Government has provided supplementary funding of €10 million to assist local authorities in meeting the exceptional costs associated with the current flooding crisis. In addition, the Government has announced the provision of an initial sum of €10 million for humanitarian aid to be administered by the community welfare division of the Health Service Executive on behalf of the Department of Social and Family Affairs. This supplements existing schemes administered by the community welfare service. A further €2 million has been provided for the agricultural sector.

When more complete information on the scale and cost of the damage arising becomes available, full consideration will be given to ways of meeting these costs, including if appropriate, making application to the EU for financial support. In the course of attending ECOFIN in Brussels, yesterday, I raised this issue with the Commission. My Department has been in contact with the Commission to establish eligibility criteria already and the scale of funding that might be available. I am also informed that the Joint Committee on European Affairs is travelling to Brussels tomorrow, 4 December to meet with the Commissioner for Regional Policy, Mr. Pawel Samecki to discuss the flooding situation and opportunities for assistance from the EU under the EU Solidarity Fund.

Last Monday the Minister for the Environment, Heritage and Local Government, Deputy John Gormley, and my colleague, the Minister of State at the Department of Finance, Deputy Martin Mansergh, jointly published statutory planning guidelines on the planning system and flood risk management, which are aimed at ensuring a more consistent, rigorous and systematic approach to the avoidance and minimisation of potential future flood risk and to fully incorporate flood risk assessment and management into the planning system.

Is the Minister not aware of the turbulent situation throughout the country? The Minister of State, Deputy Martin Mansergh is, because he has visited many of these areas. We have high tides in Limerick right now as we will tomorrow morning. In terms of the impact of the floods, I hope matters will be all right. However, does the Minister not accept that the €10 million being provided is grossly inadequate and that there is a need for extra funding? In that context he might elaborate in terms of his initial discussions yesterday at the ECOFIN meeting with his counterparts, in terms of the general reception he received on this matter, the level of funding to be made available, when it will be forthcoming and the type of purpose it is to be used for. A practical issue that needs to be examined, too, in terms of humanitarian aid is the fact that people who have insurance in their own right might have to wait months before receiving payments from their insurance companies.

It will be important for the Minister to meet the Irish Insurance Federation and come up with a formula whereby the Government can advance money to people who will receive insurance awards to enable them to get works under way. Many people throughout the country have been forced from their homes.

The Minister should elaborate on the ECOFIN meeting, the level of funding he envisages, when it will be made available and the purposes for which it can be used. Does he agree the €10 million in funding he intends to provide is grossly inadequate?

No Minister for Finance will ever accept that a sum allocated is grossly inadequate.

In the current circumstances.

No. However, it must be understood that this is an initial sum. In a matter of this type, what is required is an assessment of the loss and of where insurance cover is available. It would be irresponsible of any Minister for Finance to provide an open-ended commitment at the beginning of such a process. This is an initial sum to deal with the immediate position that has arisen. The Minister for the Environment, Heritage and Local Government, Deputy Gormley, the Minister of State at the Department of Finance, Deputy Mansergh, as well as the Minister for Social and Family Affairs, Deputy Hanafin, will draw to my attention to the need to allocate additional funds, where the case for that need is made. Such requests will be considered sympathetically and expeditiously.

As for discussions with the European Union, aside from the European Union Solidarity Fund, no additional European Union funds are available to Ireland for flood relief. Ireland has been allocated €901 million in Structural Funds for the period from 2007 to 2013. As this funding is allocated fully to other projects under the various relevant programmes, it is not possible to reallocate from within those programmes. As for the Solidarity Fund, the ambassador raised the matter with the Commission yesterday. I also raised with a Commission official the question of the criteria for the Solidarity Fund and the Government is exploring ways in which to bring Ireland within those criteria.

Deputy O'Donnell, briefly, as we need to move on.

Does the Minister expect that Ireland will qualify for funding on foot of the scale of the crisis? This has been Ireland's tsunami and people's homes have been destroyed throughout the country. I also refer to the funding that will be made available to local authorities. They have carried out considerable work at considerable cost in recent weeks and funding to them should not be reduced.

First, as a result of introducing the second home levy there has been a substantial increase in the funds available to local authorities last year. Local authorities must take their share in the adjustment and I hope that members of the Deputy's party, which has a rather commanding position in local authorities, will concentrate their minds and energies on making the necessary economies in the areas for which they have responsibility and will play their parts in the united national effort that is required. As for the question on the funding criteria, they are community criteria and the evaluation takes place at community level. The Government will do everything in its power to ensure that Ireland falls within those criteria on the basis of the submission it will make. I am well aware that flooding has done great damage, not just to households——

To businesses and farms.

——but also to agricultural stocks, businesses and in some cases, to individuals' motor cars.

We will move to Question No. 5.

Did the Minister swim or walk?

How is the Minister's car?

It is a write-off.

Was the Minister insured?

We will move to Question No. 5. We can revisit that matter later.

It is a legal requirement to insure one's car. The Deputy meant comprehensive insurance.

Was the Minister comprehensively insured?

Question No. 5.

The Minister should rest assured that unlike his party, the Fine Gael Party is committed to freezing rates throughout the country.

I discovered that as it was a Sunday, I will not be getting any days off, irrespective of what happens at these negotiations.

I heard the helicopter rescued the Minister.

Tax Yield.

Richard Bruton

Question:

5 Deputy Richard Bruton asked the Minister for Finance the latest estimate of the revenue to be earned from the air travel tax; his assessment of its impact on foreign visitors; and if he will make a statement on the matter. [45481/09]

I am informed by the Revenue Commissioners that the air travel tax arising from travel undertaken in any month is payable by airline operators by the 23rd of the following month. The yield from the air travel tax received in the period from May to November 2009, in respect of travel undertaken during the months April to October 2009 is €76.9 million. It is estimated that the air travel tax will yield approximately €125 million in a full year.

The Finance (No. 2) Act 2008 confirmed the introduction of an air travel tax from 30 March 2009. However, I took account of concerns raised by the regional airports, particularly those on the western seaboard. The lower rate of €2 applies to departures from any Irish airport where the destination is 300 km or less from Dublin airport. This means that all Irish departures to locations such as Manchester, Liverpool and Glasgow are subject to the €2 rate.

Ireland is not unique in regard in applying a tax on air travel. Other countries within the EU, such as the United Kingdom and France, apply similar taxes, as do Australia and New Zealand. The rates for the Irish air travel tax are not unreasonable, both for shorter and longer journeys, when compared with rates in other countries. It should be recognised that tourists are only subject to the tax on their return journey. The additional €10 or €2 in the context of a much larger purchasing decision involving travel, hotel expenditures and so on should have only a limited effect on tourism numbers. The Government appreciates the airline industry continues to go through a difficult period. However, this difficult trading period arises primarily from weak world economic activity.

It should be noted that at present, the decline in air travel is an international phenomenon and as a result aviation services are contracting on a global basis. In the case of Ireland, the decline in passenger numbers through our airports is broadly in line with our international counterparts. This downward trend is evident for periods prior to the introduction of the air travel tax. Furthermore, passenger numbers for other modes of transport also have experienced broadly similar declines. While this is not a desirable position, it is clear that the air travel tax is not the substantive cause for the decline in passenger numbers.

We currently face significant financial challenges and the air travel tax is an important revenue-raising measure. The Government has tried to be as fair as possible in considering areas for additional tax revenues. It is worth noting that as fuel used by commercial airlines is completely exempt from tax, this is a sector that already has considerable preferential treatment.

Is the Minister aware that the number of visitors to Ireland has fallen by approximately 700,000 since the introduction of the air travel tax? Contrary to what the Minister suggests, the information I have seen demonstrates that Ireland has moved from being one of the fastest growing destinations to now being among those worst hit by the reversal. Has the Minister had sight of the study that was carried out, admittedly by a vested interest? This analysis suggested that the impact of this tax on the tourism sector has been €500 million, compared with the hoped-for revenue of €125 million. For a country like Ireland, which seeks to trade its way out of this recession, does the Minister not agree that handicapping the tourism sector is particularly short sighted?

I do not accept the premise that led the Deputy to the conclusion that the air travel tax led to the decline in Irish visitor numbers. I do not accept it because it is not in accordance with the international data. What is happening in Ireland is happening in every other country. There is a decline in passenger numbers but it is not caused by the air travel tax. Many other countries have such taxes and there is no correlation between the presence of an air travel tax and the number of passengers in a given country.

Is the Minister aware the Belgian, Dutch, Greek and Spanish Governments all have removed such taxes in an effort to try to stimulate their respective tourism sectors? Furthermore, is he aware that many Irish airlines are moving their aircraft out of Ireland to other destinations to achieve cheaper onward movement? As the Minister is aware, even Aer Lingus is doing this and effectively is offshoring its aircraft. Does it not constitute a serious development for a country that seeks to make its living from tourism to find its own aircraft being offshored to avail of better conditions in other markets? Surely this matter deserves some attention from the Government.

It is not my practice to divulge details of budgetary decisions in advance of the budget and I drew attention in my reply to various general considerations that apply to this area. I reiterate that I do not accept that the various different considerations to which Deputy Bruton referred do not stem from the travel tax, but from other commercial considerations that obtain in airlines, as well as from the general decline in world passenger numbers.