I wish to share time with Deputies Penrose and Morgan.
Private Members’ Business.
Strategic Investment Bank: Motion.
Is that agreed? Agreed.
I move:
"That Dáil Éireann:
noting that:
the Irish economy is experiencing one of the worst recessions of any developed country;
unemployment, which stood at less than 5% in 2008, is forecast to reach nearly 14% by the end of 2010, with the live register currently at more than 435,000;
some 100,000 people are expected to leave Ireland in a two year period;
there remains a significant infrastructure deficit which undermines competitiveness, constrains productivity, threatens recovery and puts at risk our ability to continue attracting high value-added inward investment; and
firms must have access to working capital and growth capital, but the banking crisis has seriously impaired the capacity of Irish banks to lend to the SME sector and to start-ups with high-growth potential;
deploring the failure of the Government to produce a coherent strategy for jobs and investment or to address the funding and infrastructure gaps;
calls for the establishment of a Strategic Investment Bank (SIB) with the primary objective of investing and lending for national economic development, including investment in infrastructure and the enterprise sector and which would be broadly modelled on the German Kreditanstalt für Wiederaufbau (KfW), and on the ICC/ACC (Industrial Credit Corporation/Agricultural Credit Corporation) models that previously operated in Ireland and which would be based on the following principles:
SIB will have full operational independence from the Government;
SIB would be capitalised by equity investment from the National Pensions Reserve Fund;
SIB would originate funding for infrastructure projects it deems to be appropriate;
SIB would be tasked with improving the funding environment for SMEs, particularly high-tech start-ups, addressing existing market failures; and
SIB would make no distribution of profits and all profits would be retained to increase the capital base of the bank."
This motion is basically about jobs. From the beginning of the economic crisis, the Labour Party has made the point, again and again, that jobs are the key to recovery. Every person who loses a job is another person claiming a social welfare entitlement, another person whose mortgage might be in difficulty. Every time a job is created the Exchequer gains tax income, more money is being spent in the shops. It is that simple. If we want to fix the banking crisis and the fiscal crisis, we must have a clear strategy on employment, but that is precisely what has not been forthcoming from this Fianna Fáil Government. At the time of the last budget, the Labour Party supported the objective of achieving a €4 billion adjustment in the public finances. But we argued then, as we have argued since, that unless that adjustment was accompanied by a jobs strategy, the danger was that the cure would kill the patient or certainly worsen its condition.
A major feature of the recession has been the huge increase in the savings ratio, as consumers lost confidence in the Government and in the future of the Irish economy. The ESRI is forecasting that this increase in savings will take approximately €7 billion out of the economy in 2010. That drainage is reinforcing the impact of the budget cuts. A coherent jobs strategy would help to restore consumer confidence, increase spending and create jobs. The Labour Party's strategic investment bank should be a key plank in Ireland's jobs strategy. Its structure and role would make a major contribution to the immediate task of promoting recovery, while also playing a central role in the transformation and restructuring of the economy and move away from the casino capitalism of Fianna Fáil, to restore this country to an export-led growth model where we pay our way in the world through the quality of what we produce and sell. To achieve that goal, we need investment finance. We need finance for investment in the infrastructure of a 21st century knowledge economy, and we need finance for investment in the firms that will grow up around that infrastructure.
What is clear is that this necessary finance will not be provided by a banking system that is hobbled by the legacy of greed and excess. Even with NAMA, and with the various recapitalisations, it is clear that Irish banks will not be in a position to support investment in innovative businesses and in key infrastructure. The primary focus of the Irish banks in the coming years will be on shrinking their balance sheets and increasing their profits. It will not be on supporting investment in the future of the economy nor do the banks have a strong record in this regard. As the Governor of the Central Bank has recently stated:
I think it's fair to say — and what data we have seem to bear this out — that banks in Ireland reacted to their own difficulties and to the downturn by greatly reducing their risk appetite. Some of this was a necessary adjustment, but the result has been limited availability of credit for start-up firms and SMEs. Indeed, I have the impression that, during the years of property-based lending, the banks have lost their edge in small business lending.
As banks repair and shrink their balance sheets, it is unlikely this position will be reversed. The Government has made all manner of promises about the flow of credit to business. It has made all kinds of noises about getting tough with the banks and demanding that they lend. It has put in place various bureaucratic measures to promote lending, but it made the same promises about bankers' pay, and then it systematically undermined its own guidelines. What we need now, therefore, is a new ‘greenfield' bank with a clear mission to support investment in SMEs and innovative firms, and to assist in the funding of infrastructural investment.
The Labour Party's proposal for a strategic investment bank has been set out in our policy paper, Investing in Our Future. Our proposal is that the strategic investment bank would be based on the twin models of the German investment bank, Kreditanstalt für Wiederaufbau, KfW, and on the Irish experience with ICC and ACC. Both of these are successful models that have proven track records. The bank would be capitalised with an initial €2 billion investment from the National Pensions Reserve Fund, allowing it to make loans of up to €20 billion over time. Despite the many problems that we face, we can and should be optimistic about the future of the economy. We live in a time of great economic change, driven by trade and by stunning technological advances, which present great economic opportunities for Ireland if we seize them.
In only a few decades, digital and biotechnology have revolutionised large parts of the economy. Normally, when we think about the knowledge economy we think of computers, pharmaceuticals, electronic communications, scientific instruments, chemicals, and finance, but the knowledge economy is not, and will not be, confined to a few sectors. Technological change will also drive growth across the rest of the economy. It has changed and will change retailing, the food industry, and creative industries such as media and newspapers. As technological change feeds though into other sectors, productivity across the economy can grow. In any workplace technology can be applied to other intangible assets such as research, design, development, creativity , science and branding. Putting the technology together with these knowledge assets will drive economic growth which will be assisted by globalisation, as hundreds of millions of people are brought into the global trading system.
The so-called BRIC economies — Brazil, Russia, India and China — account for 40% of the world's population and only 25% of its income, something that will change in the years ahead. The countries that succeed in the knowledge economy will be those that understand it best, that embrace it and adapt to it and understand how the knowledge economy changes the common sense way of doing things. The challenge we face as a country is to embrace that economy and to turn it to our advantage, even more than we have done up to now, and to do that we need investment.
A sustainable investment-driven, knowledge-based economy is one where innovation is promoted across all sectors, where there is an environment that promotes firm start-up and expansion, and where there is a commitment to the provision of world-class infrastructure. Those are closely linked. Investment in infrastructure such as renewable energy, next-generation fibre networks, smart grids and electric transport will create the environment for a new wave of indigenous companies focused on the huge opportunities that will arise as a result of the expansion of digital technologies and the transition to a low-carbon economy in the coming decades. Those companies must also have access to working capital and growth capital, and to a range of other supports.
The strategic investment bank is designed to meet that investment need. One of its main areas of investment will be in infrastructure, whether privately owned or publicly provided. In a footnote to budget 2010, the Government stated that it had approved a capital spending envelope of approximately €39 billion for the seven-year period 2010 to 2016. The Taoiseach has since restated that figure in various speeches. However, while the Department of Finance claims that a review of spending priorities has been undertaken, no new plan for capital spending has been published. That is extraordinary. The Government is effectively admitting that the national development plan has been abandoned, and a new plan put in place, but it will not tell anyone what is that plan. The profile for capital spending, set out in budget 2010, shows nominal spending of €6,466 million in 2010, or approximately 5% of GNP. This is projected to fall to €5,500 million in 2011 and for each year to 2014. In effect, the nominal amount of spending will stay the same, but it will fall as a share of GNP. On the basis of reasonable assumptions about growth in 2015 and 2016, capital spending will fall from approximately 5% of GNP in 2010, to approximately 3.1% in 2016, averaging approximately 3.8% of GNP for the period as a whole. While that is a substantial commitment on the part of the State, it falls well short of the 5% figure to which the Government was previously committed. It also falls short of the level of investment the ESRI identified as being necessary in its last major study in this area, which was completed in 2006. Although this report is now dated, the fact remains that Ireland needs a new programme of investment to reposition its economy and to create jobs. The investment economy cannot be realised unless we look to innovative solutions. We need a fresh approach to investing in innovation and to financing and developing infrastructure.
There have been a number of proposals made in this area that the Government has committed to examining but which have never produced any action. While the Government long ago committed itself to the principle of non-traditional financing through public-private partnerships, PPPs, its implementation of that approach has been fragmented and weak. The cost of PPPs has been the subject of some criticism. The banking crisis has dramatically reduced the level of interest in PPPs among potential investors. The availability of finance for PPP projects from both domestic and foreign banks has effectively dried up since the credit crisis began. Where finance is still available, it is for shorter periods than the life of the infrastructure project in question and at a much greater cost, mostly rendering the PPP funding model unviable. There is nothing to suggest the private banks have any appetite for continuing to finance such projects. Bidders for Metro North have explicitly stated the Government will have to underwrite the financing risks in order for the project to be completed.
What we need to put in place now is a fresh approach, led by a State-owned strategic investment bank. The Labour Party's proposal is that the strategic investment bank would assist in the financing of investment projects. The bank would prepare and issue bonds on the international capital markets and issue them to institutional and retail investors to fund these projects. The private consortium appointed to design, build and operate the project or projects in question would borrow the project funding from the strategic investment bank, and through that bank from other lenders, for a small margin over the coupon the bank would pay on the bond in order to cover its costs. Strategic investment bank lending would reduce the cost of funds for these projects, resulting in the provision of critical public infrastructure at a lower cost to the public purse and to users of services than the current PPP system, a system that is not functioning effectively.
The model of a State-owned, but commercially focused, investment bank has been successful in other countries, most notably in Germany, and is being examined in other countries, including the United Kingdom. Our proposal is to couple this role with an SME financing role, given both the urgent need for finance and the need for long-term investment. As was the case with the ICC, the cost base for such a bank can be very limited. We envisage an organisation with a handful of office locations around the country.
Successive CSO figures have painted a grim picture of the appalling jobs crisis that confronts us. One third of men aged between 20 and 24 and 40% of men under 20 in the workforce are unemployed. It is not morally or economically sustainable to have such large numbers of people out of work in a country. The Labour Party has put forward a comprehensive strategy for dealing with the crisis. It encompasses a jobs fund to support specific interventions, training and educational options of the unemployed and a strategic investment bank to lead the recovery. The bank would play a central role in the repositioning of the Irish economy for decades to come.
We have had many debates in this House on banking and the State committing large sums of money to banks that have participated in and in some cases have been a major cause of the economic crisis we are experiencing. The Labour Party is proposing the establishment of a strategic investment bank and the committal of funding, through the national pensions reserve fund, to capitalise such a bank. The bank would loan to SMEs and start-up companies and provide a vehicle to fund the infrastructure the country needs to get its economy moving again. I commend the motion to the House.
This is one of the most important motions to come before this House for a considerable period and one that we in the Labour Party genuinely hope will jolt this Government out of its complacency and lethargy in dealing with one of the most important issues it has not confronted to date, namely, unemployment. By the beginning of 2011, 14% of our working population could be registered as unemployed. Were it not for the 60,000 who have emigrated to date, we could well have reached that level by today.
Notwithstanding the cold winds of recession which are echoing across the world, Ireland did not arrive at its current position by chance; it arrived here by a devotion to unregulated speculative capitalism, as our party president, Deputy Michael D. Higgins, has described it. This has been at a great cost to our population and has been underpinned, with equal force and vigour, by a rejection of any market regulation. Where market regulation was effected, it was of such a minimalist, light-touch variety as to be largely ineffective. There has been, of course, a rigorous rejection of State intervention. The net result of this let-it-rip and spend-like-there-is-no-tomorrow economic philosophy is the number of people who are languishing on the unemployment register, devoid of hope and deserted by the uncaring Government.
Unemployment has negative effects that go beyond the loss of income on people of any age. Unemployment is associated with illness, mental stress, depression and a reduction in life expectancy, and it sometimes impacts negatively on relationships. Sustained unemployment has very negative long-term consequences for those who experience it when young. Young people who are unemployed at the beginning of their working lives tend to have lower productivity, lower incomes and poorer labour market experiences later in life. As the UK economist David Blanchflower, an authority on youth unemployment, has written, "Unemployment while young creates permanent scars rather than temporary blemishes."
The Labour Party strongly believes that research, development and innovation have a key or central role to play in the development of the Irish economy. Recently IDA Ireland launched Horizon 2020, its strategic blueprint and roadmap for attracting foreign direct investment into Ireland for the next decade. Under this strategy, the aim is to create 105,000 new jobs by the end of 2014. The plan is to attract 640 new foreign direct investments into the country, 50% of which would be targeted for location outside the major centres of Dublin and Cork. By 2014, IDA Ireland plans to spend in excess of €1.7 billion annually on research, development and innovation to transform the economy and to create high-quality jobs.
I acknowledge IDA Ireland's document is highly ambitious. The Labour Party acknowledges the important role that foreign direct investment will play in helping to turn around our economy and rejuvenate enterprise and business. Attracting and developing high-tech enterprise and investing in research and development will be the key to developing a strong economy and helping to pull Ireland out of the current recession because these measures will create sustainable jobs, increase competitiveness and boost exports.
I have no problem saluting the IDA and Enterprise Ireland for the work they are doing in their respective areas, but I must ask why the Government has not prepared a ten-year blueprint to ensure SMEs will prosper and develop. Up to the beginning of the recession, SMEs numbered about 250,000 in total and created 750,000 jobs.
There has been an abject failure on the part of the Government to recognise that these small businesses, many of which are family owned or operated, were the backbone of the economy and were resilient and adaptable. They provided from three to 12 jobs in many villages and towns across this country and were instrumental in maintaining the social fabric of rural communities. Instead of coming to the aid of some of these enterprises to help secure them against the cold winds of this recession, the Government has virtually abandoned them. They feel this and tell us so every day. The Labour Party is committed to supporting enterprise and supporting in every way possible the job creation capacity and potential of our indigenous small to medium firms.
The Government has concentrated its energy and resources on fixing the banking crisis and on attempting to address the fiscal circumstances but has failed to address the significant and fundamental problems of the real economy, such as the plight of the unemployed. We have witnessed an increase of 250,000 in the number of people who have been registered as unemployed in the past two years and there are forecasts that there could be another 60,000 to 70,000 on the live register before the end of the year. That is assuming a do-nothing approach, which seems to have the Government in a state of paralysis. It is a case of doing nothing to tackle this fundamental issue. Let us not forget that these figures would be significantly worse were it not for the fact that the emigration ships and aeroplanes have started up again and in the space of two short years they will take 100,000 of our people — who number among them those best educated and best equipped to help get us out of this recession — to foreign shores. That is the legacy of this failed Government's policies.
We know the banks have lost their edge in small business lending. They do not appear to have the capacity to lend to SMEs and to firms with high growth potential. Therefore, it is abundantly clear that we need a new investment bank to address the project capital and SME funding gaps that are glaringly apparent and which will play a crucial role in helping to reduce unemployment. Viable businesses are being forced out of business. I do not want the Minister of State to tell me that is an exaggeration because it is happening. Others are being prevented from expanding by the shortage of credit and new ones with potential are being denied an opportunity to get off the ground at all. This is why the Labour Party has launched a proposal for the establishment of a strategic investment bank, which we believe would play a central role in the recovery and transformation of the economy. We believe that Ireland must be weaned off its dependence on property and consumer credit, and be re-invented as an export-led sustainable investment economy.
The strategic investment bank, which we propose here again this evening and as alluded to in great detail by our party leader, Deputy Gilmore, would represent a new greenfield bank modelled on a mixture of the ICC-ACC concept, a model which was kernel to the KfW banking group in Germany. It would have a clear mission to support investment in SMEs and innovative firms and to assist in the funding of infrastructural investment. Labour has always argued that necessary action to deal with the banking crisis and the budget deficit must be accompanied by a strategy for jobs. The party's deputy leader and finance spokesperson, Deputy Joan Burton, has always indicated a tripod approach in this regard. One could never balance a tripod stool with only two legs and I am sure Deputy Calleary knows about milking a cow with a tripod — perhaps he did not do this, but some of us did. To this end, we know that the SIB would play a vital role in that jobs strategy, securing the existing jobs and creating new ones.
The SIB would have a mandate to lend directly to the enterprise sector, providing working capital and growth capital, including asset finance for fixtures and fittings or for capital equipment. Those are the lifeblood of sustaining businesses, replacing depreciated items with modern technology. If required, it could make venture capital investments on behalf of the State. That is no longer a poisoned term. Some people recoil at the thought of the State getting involved in anything, but we do not. We believe that, where strategically done, this is very worthwhile and would contribute to addressing the problems. This could be applied especially to innovative SMEs with high growth potential, especially in the digital economy and low carbon technologies.
Ireland needs investment in infrastructure such as renewable energy and next generation communication networks. This will create the environment for a new wave of indigenous companies focused on the significant opportunities that will arise as a result of the expansion of digital technologies and the transition to a low carbon economy over the coming decades. Providing finance for this new innovative economy will be one of the roles of the SIB.
Creating jobs is the key to getting Ireland moving again and the strategic investment bank is just one of a number of proposals that the Labour Party has advanced as part of our jobs strategy. I recoil at journalists who are too lazy to look at our policies and who say we have not made proposals to deal with particular areas. The party leader outlined more of them tonight and the spokesperson on finance is worn out doing this. However, there are journalists who just want to infer that the Labour Party is not doing anything and is being negative. We have many positive proposals and we will be happy to send copies to them in the post if they cannot access them on our website.
We remain autonomous and have sovereign competence, as the Lisbon treaty affirms, in respect of decisions we make on taxation. Why has a proposal we made in relation to a "PRSI holiday" for up to 18 months in respect of employers' PRSI for a firm which takes on a person who is unemployed for a set period to do a real full-time job, not a replacement job, not been taken on board by the Government as a constructive proposal?
We are aware that every person on the live register costs more that €20,000 each year in terms of social welfare payments and tax forgone. We have to be innovative and old solutions dressed up in new clothes are no longer appropriate. We also need to fund a major programme of further education, training and work experience for young unemployed people.
Small businesses and micro-entrepreneurs will play a pivotal role in ensuring that we recover quickly and give hope and confidence to our people, especially the 435,000 of our fellow citizens who are currently unemployed. The core objective of our policy is to replace Fianna Fail's casino economy with a sustainable investment economy, one where innovation is promoted across all sectors, there is an environment that promotes firm start ups and expansion and a real commitment to the provision of world class infrastructure. These objectives are all clearly linked and it is essential that companies in these sectors have access to working capital, growth capital and a range of other supports. Improved infrastructure is essential for enhancing Ireland's competitiveness and attractiveness as a location for foreign direct investment. The SIB will have a key role to play in promoting and sourcing funding for infrastructural investment in appropriate projects, such as in transport, energy, communications and innovation.
The Government's obsession to date was to sort out the banks and despite a lot of lip-service, promises of credit reviews, Mazars reports, etc, there has been a downright failure to provide a credit flow to small and medium-sized enterprises. NAMA represents an enormous transfer of public money into private hands. It is a grim example of what the Nobel Prize winning economist, Joseph Stiglitz, has called "socialism for the rich, markets for the poor". We used to be constantly told that markets were all about risk and that in a dynamic market economy, losses and businesses failures are inevitable. I recall some of the great economists for the banks giving us that particular beauty. However, they have disappeared into towers. I know not whether they are ivory, but we have not heard a squeak from them lately. However, the failure of the markets has to be addressed by socialist solutions so we are back in play, thanks be to God.
We are told that NAMA is essential in order that banks can begin to lend to job creating enterprise, but there is little evidence that they are doing this or that the Government is willing to compel them to do so, irrespective of the €3 billion provided to each of the main banks. I have not heard a squeak yet in this regard. Who is monitoring this and who will control it? In truth, the Government has very little capacity to ensure that any bank lends to the productive sector of the economy. Our proposal for the establishment of a strategic investment bank is to remedy this situation, and we are confident that the bank will help address these glaring and obvious market failures.
People might argue that banks are lending and that our argument here tonight is bogus, but it is not, and we are not alone in articulating this position. In the past few weeks, ISME, which carries out a bank watch survey on a quarterly basis, confirmed there was clear evidence of a deterioration in bank credit for SMEs, with more than half of loan and overdraft requests refused for the three months up to 1 March 2010, only seven weeks ago. Everybody is telling us that the sky is blue all the time and the banks are handing out money. Someone I know who sought a €2,000 addition to his overdraft was told he was lucky to be hanging on to the €5,000 facility he had already. This is Walter Mitty stuff from the Government. The survey concluded that 55% of businesses were refused lending, business closures and job losses were directly linked to lack of credit and Government intervention was urgently required to save thousands of businesses. This is not the Labour Party saying this, but rather an institution at the coalface dealing with those businesses.
ISME concluded the reality was that the banks were looking after their own interests and shoring up their balance sheets to the detriment of the rest of the economy. I believe everyone in the House knows that. ISME called for the introduction of a "third banking force to compete with the big two", with a particular emphasis on SME lending, and it said the Government must use the influence of its shareholding in the banks to force them to start supporting their SME customers. The Minister for Finance has announced that he is going to force the banks to lend €6 billion to the SME sector. Although this is welcome, it must be monitored. Who will monitor this and will they come back with the same report?
The recent Mazars report on SME lending, which was funded by the Irish Banking Federation, asserted that there was only a slight decrease in bank lending to SMEs and a higher approval rate by the banks between October to December 2009. ISME and all of us in the real world have rubbished the report findings and from our contact with individuals and businesses who have had contact with their banks, seeking new funding or trying to negotiate the retention of existing facilities, we are of the view that the findings of that report are questionable to say the least.
The time is right for the establishment of a new strategic investment bank — it is right for our national economic and infrastructural development. It is right for small and medium-sized businesses, entrepreneurs and individuals and it is right for our country at this critical juncture. Let us go and do this now.
I move amendment No. 1:
In paragraph 2, to delete all words after "funding and infrastructure gaps" and substitute the following:
"calls for the establishment of a Strategic Investment Bank (SIB) and a new residential lending bank under the remit of a fully nationalised AIB. The SIB section of this bank will have a primary function of investing in and loaning to viable business; providing the seed corn for start-ups; and extending credit to viable SMEs. All profits, outside the working capital required, made by the nationalised bank will be paid as dividends into the Exchequer."
I thank the Labour Party for sharing time with me. I do not know whether I am pleased to confirm what I always suspected, that is, that Deputy Penrose is a snob. Imagine having a three-legged stool; I used to have to put straw on the floor and kneel on it. Having a stool of any kind was high and mighty from where I came.
A three-legged stool is the new ticket in Longford-Westmeath.
It is a demonstration of where we came from, and I suppose that cannot be bad.
I am sure that will be balanced.
I endorse the concept of the Labour Party motion, and I will address the Sinn Féin amendment in detail in a few moments, after addressing the general issue of this evening's debate.
There is no doubt the banks are playing no role in funding SMEs and creating a flow of credit to businesses. I am sure other Members of the House are no different from me in that they are receiving representation after representation, in stories and anecdotes, about the difficulties faced by small businesses — in many cases, two or four person operations — in staying afloat. When we consider the mainstream banks we find they are constipated with corruption in the higher echelons of the senior executives, which is most unfortunate. Even when talking to the clerks and tellers who deal with the public, one finds they are embarrassed about what has been going on. I hope the public can distinguish between these two sets of people when considering what has happened in the banks. The people at the coalface cannot take abuse from the public, as was happening not too long ago.
It is critical that we find a mechanism for ensuring that businesses receive funding. Jobs are being lost and we must establish something quickly. I am not convinced for one moment that the Government's measures, token as they are, will do anything to prevent the haemorrhaging of these jobs. I was at an ISME conference in 2008 at which speaker after speaker described the near impossibility of obtaining funding. This was two years ago, and the situation certainly has not improved in all this time. What this demonstrates is that all through the period of the economic and banking crisis, the Government has sat there and recapitalised the banks without dealing with the core issue. The banks simply do not have finance to hand out.
I spoke to a constituent this morning — a person with a small manufacturing business — who had proposed to increase his workforce from the current eight to 16, but is enduring a nightmare in trying to obtain funding from the banks. Even though they accept that his business is viable and his profitability is solid — although, like everyone else's, it is down — they are still making it almost impossible for him to obtain money. Is it any wonder this is the case, when we consider that the banks have lost their capacity to evaluate customers coming in? The Government has authorised Enterprise Ireland officials to go into the banks and sit with their staff, because they have some skills in this regard from evaluating companies for grant purposes. They have experience in evaluating the viability of businesses and it was a good move on the part of the Government to send those officials to give the staff the benefit of their experience.
Let us think about this for a moment. Enterprise Ireland, a State agency, is sending in people to train bankers in banking. It beggars belief that we have come to this. A State agency which technically has nothing whatsoever to do with banking is sending in officials to try to retrain bankers in the core fundamentals of their work. This says much about the position we are in as a country. It is most unfortunate.
I agree with about 90% of the Labour Party motion. However, I do not think it is necessary for us to start from scratch to build a new strategic investment bank — bricks, mortar and all — and to acquire the whole business. The State has put considerable amounts of money into Allied Irish Banks up to this point and it is clear further recapitalisation will be required. It would be much simpler to nationalise the bank — it is almost there anyway. We should put it out of its misery and bring it over the threshold. AIB has a large infrastructure, with at least one branch in every medium-sized town in Ireland and two in many of the bigger towns, and very good coverage in the cities. It would be considerably more cost-effective to utilise that resource, given that we are to own it shortly anyhow — we virtually own it at the moment. It would represent a rescue of a bank that is on the brink and that everybody knows is in pain. If it were an animal one would do the decent thing and put it down. That would be a better approach. However, I entirely agree with the principle of the Labour Party motion.
My party has been saying for 20 years now that we need a State bank. If we had had a State bank in the past 20 years — particularly in the past four or five years — we would not be in the mess we are now, or at least not to the same extent, in terms of the banking system or the economy. One would expect, and we could ensure, that a State bank would not participate in the messing in which the other banks were engaged. There would be a standard of decency there. There would not be any need to retrain bankers in the basic fundamentals of banking, and they would have been able to conduct their business honestly and fairly. Of course, had there been a State bank it would have been criticised from on high for not performing efficiently, because it would not have been able to keep up with the Fingletons and the Fitzpatricks. However, there is no doubt they would have been able to run a steady ship through all of it. We had an example of this in the past in the form of the Industrial Credit Corporation, ICC.
Deputy Gilmore's opening this evening stated that the issue was that of jobs. This is something for which we in Sinn Féin have been preaching for a considerable time. Jobs are the bottom line. We need to get people back to work and to create a stream of income to the Exchequer in the form of taxes. We must give confidence to local economies — to people who run corner shops or garage industries such as engineering. The way the banks are structured currently and their lending policies do not provide confidence. Until now they simply have not had money to give, but that was their own fault because they were not coming clean with the figures. We learned at every turn that the situation was worse than they had been telling us. The result is that engineers and other educated young people — people in whom the State and its taxpayers have invested considerably — are heading for the planes and boats. It is unacceptable that we are sending people abroad when there is really no need for it.
I would appreciate if the Minister could address one issue. I agree with previous speakers that there is no evidence the Government is on top of the jobs situation. It has not found the corresponding piece in the jigsaw puzzle of the economic crisis. A policy must be introduced and adequately funded to stimulate job creation and to get people back to work. There are any amount of infrastructural projects out there. The Minister of State, coming from Mayo, will be more than aware of the infrastructural deficits, not just along the western seaboard but across the State.
The Government has been operating on the public private partnership method of funding major infrastructure for some time now. Yet examination after examination has demonstrated that it is an extremely expensive way to fund infrastructure.
None of us wants the National Pensions Reserve Fund to be depleted but we would like some of its funds to be used to stimulate jobs and give a boost to the Irish economy which would have the knock-on effect I described earlier. The PPP approach is a crazy Thatcherite system that could only be supported by the likes of the Progressive Democrats, which clearly remains influential given that the Government continues to pursue this approach. Of course, many people who possess that party's mentality——
They have joined the Labour Party.
——occupy ministerial offices and are members of Fianna Fáil. I hope the Government withdraws its amendment and allows the motion to pass, ideally as amended by Sinn Féin.
I thank the Labour Party for moving this motion. I did not expect to receive advice on milking cows but when Deputy Penrose stands up to speak, one never knows what he will say.
The difficult economic and financial situation that Ireland and much of the world faced in the past two years is often referred to as a banking crisis but of course it is much more than that. The interactions between housing, banking and financial markets, flows of credit, Government finances, consumer spending and the real economy have been complex and unprecedented in many ways. The situation facing the Government in the autumn of 2008 was quite unlike anything an Irish Government had faced previously.
Despite what some commentators would say, there are no quick, cheap or easy solutions. In dealing with this multifaceted crisis the Government has been careful to listen to advice and examine the actions taken by other countries in earlier crises. The Government's aim at all stages has been to minimise the harm to the economy and the cost to the taxpayer.
Without minimising what some people have suffered in this crisis through unemployment or reduced income, it is important to recognise that positive signs for the economy are appearing. Unemployment shows signs of stabilising, retail sales have picked up and there have been improvements in credit levels.
The first transfers of loans to NAMA have taken place and it is clear that the NAMA evaluation process has demonstrated a rigour and thoroughness that augur well for success in this vital task. We have seen the Financial Regulator's assessment of the balance sheets and capital requirements of the banks, and the clear targets he has set for them. The process of getting Ireland's banks back to where they ought to be and where they can make their proper contribution to the sustainable development of the economy is well on its way. The very positive news on Monday about Bank of Ireland's recapitalisation is further independent evidence that events are moving in the right direction.
There is no doubt that we are experiencing some of the most challenging economic circumstances, nationally and internationally, that we have had to face for many decades. We have had to meet these challenges by taking tough decisions to help stabilise our budgetary position, repair the banking system, regain Ireland's international competitiveness and invest in new jobs. Every aspect of Government spending has had to contribute to the adjustments necessary to restore order to the public finances. These changes have undoubtedly been difficult and I would not for one moment underestimate their impact. We have to recognise, however, these budgetary adjustments would have been necessary even if there had been no banking aspect to the economic developments of the last two years.
In spite of the difficulties, it is important to look to the future and how we can expect to fare as the crisis recedes. The Government is aware that it is vital for us to continue to invest in our key infrastructure so that we can best position ourselves for the recovery when it comes. We are identifying the capital projects and programmes that best contribute to economic recovery, including an ongoing assessment of what can be done to support both long-term and direct labour-intensive employment in the delivery of economically valuable infrastructure. For this reason our Exchequer capital allocation for 2010 amounts to €6.4 billion. At 5% of GNP, our investment programme remains proportionally high by international standards and in comparison to those of the EU-15 member states. Some of the highlights of our capital investment programme for 2010 include €1 billion for improving the national roads network; €414 million for local and regional roads improvement and maintenance; €615 million for investment in public transport; over €890 million for social housing; €507 million for the primary and second level school building programmes, which will be further augmented by €72 million in funds carried over from 2009; €444 million for HSE capital investment; €141 million investment in higher education capital, including €46 million for the promotion of science and innovation; and €160 million for investment through the enterprise development agencies. Over the period 2010 to 2016, Exchequer capital investment will amount to over €39 billion. This Exchequer capital programme will be supplemented by projects part-funded by private investment in the PPP programme and the investment programmes of the commercial State-sponsored bodies.
The core rationale for our capital investment programme is to ensure that we have the requisite public infrastructure to facilitate a return to growth, which will in turn assist sustainable job creation into the longer term. In addition, the physical construction activity will in itself help to maintain employment in this sector. The activity this level of investment can sustain is considerably higher than would have been the case two or three years ago. The downturn has led to a more competitive construction sector market and we have the opportunity to obtain greater value for money from our capital programme.
This Government places a high value on investment in science, technology and innovation, STI. Earlier today, I had the pleasure of attending the opening of a new laboratory for the centre for research on adaptive nanostructures and nanodevices at Trinity College Dublin. Nanoscience accounted for €15 billion worth of exports in 2008 and 48% of incoming investment sponsored by the IDA in 2009 was from companies specialising in research and development. The smart economy framework prioritises investment in STI. Science Foundation Ireland, which alongside the Higher Education Authority pioneers much of this work, will receive €274 million in 2010 for enterprise related elements of STI. This expenditure will be complemented by investment in research capacity under the programme for research in third level institutes, which has greatly improved our science infrastructure.
There will continue to be a high level of capital investment through the enterprise development agencies to facilitate a return to enterprise led growth driven by a vibrant exporting sector. Prioritised investments will help to develop the national skills base, put in place critical infrastructure for a return to growth, help to realise greater economic return from existing infrastructure and make Ireland an attractive location in which to do business.
The network of major interurban routes, which will be completed this year, is a significant achievement by this Government. While each of these routes contributes to improving transport efficiency, the impact of the network as a whole will enable us to make a step change in this regard, with decreases in travel times and costs benefiting industry, national competitiveness and quality of life for our citizens.
Water services investment has been identified as a core area for prioritisation and this year alone €508 million has been allocated for capital investment. Besides the public health and potential economic benefits, investment in this sector will improve environmental sustainability, assist in meeting various environmental compliance specifications and provide 4,000 jobs.
Complementing our Exchequer investment programme, the Government continues to seek investment through the public private partnership programme. A number of key infrastructural projects have been earmarked for public private partnerships including the N17-N18, Gort-Tuam scheme, the N11, Gorey-Enniscorthy scheme and the combined N11, Arklow-Newlands Cross junction project. PPPs have been used to deliver landmark projects such as the Cork School of Music, the new criminal courts complex and the new Dublin convention centre which is due to open later this year. The Government remains committed to PPPs as a procurement option for appropriate projects.
While economic circumstances have required us to curtail our allocation for infrastructural investment, we still retain proportionally one of the larger infrastructure investment programmes in the EU and this is augmented by PPP investment. By strategic prioritisation of capital investment, coupled with the fact that more can be achieved for our money than heretofore, we can focus on achieving the best results from our investment.
As I have outlined, substantial investment in infrastructure continues to take place. This is being funded through the normal mechanisms of direct Exchequer provision and PPPs. It is not clear how the proposed strategic investment bank, SIB, would make a significant difference in this area, unless it was conceived as a device to change how spending is presented in Government accounts. If the proposed SIB were to fund Exchequer investment, borrowing from a State-run bank would be no different from borrowing from a private sector bank, in terms of its impact on the Exchequer's overall position.
The Government already has a mechanism available through which infrastructural investment can be channelled in the National Pensions Reserve Fund. Infrastructure, as a long-term investment, is a natural asset class for the NPRF and the commission is keen to access PPP investments where the risk and return characteristics satisfy its statutory commercial investment mandate. Potential investment opportunities for the NPRF are expected to arise later this year. The question of NPRF participation in funding models is entirely a matter for the NPRF Commission in accordance with its statutory investment remit. The NPRF is committed to offering funding on competitive terms that will meet both its investment objectives and assist in providing the necessary capital to fund the country's infrastructural requirements.
There has been discussion in this debate about unemployment. The Government has a policy focused on unemployment. We have arranged a number of initiatives in the past number of months and we are particularly concerned, as referred to by Deputy Penrose and Deputy Morgan, about the rising levels of male youth unemployment and the growth in long-term unemployment. The refocusing of Departments such as in the Departments of Education and Skills, Social Protection and Enterprise, Trade and Innovation, will further co-ordinate Government strategy to ensure these vulnerable groups are equipped with the necessary skills for employment as the labour market recovers and grows. With the economy expected to return to growth later this year, the predictions are that employment will gradually recover in 2011.
The Government introduced the enterprise stabilisation fund in 2009. This fund aims to support viable but vulnerable companies experiencing difficulties and accounts for an investment of €100 million over two years. The employment subsidy scheme will invest €135 million, creating a subsidy of up to €9,100 for each subsidised job. The Government is also encouraging employers to create new jobs through reducing the costs associated with employment. The employer jobs PRSI incentive scheme, will allow an employer to create a new job by taking on a person who has been unemployed for six months or more. The employer will be fully exempted from the liability to pay PRSI for the first year of that employment. Between these schemes the Government is investing €265 million directly into enterprises and safeguarding thousands of jobs and securing our enterprise capability in the process. In addition the Government is also investing substantial resources in tackling our unemployment problem through the investment of over €1 billion in the provision of a range of labour force measures. This year, the total number of training and work experience places funded by the Government is expected to increase by around 26,000 to over 180,000 places in total.
Credit for viable businesses is vital to economic recovery and the Government has taken a range of measures to deal with the issue of access to credit for SMEs since the advent of the banking crisis. The Minister for Finance has recently announced a number of actions to assist the credit situation in relation to SMEs, including the requirement for €3 billion lending plans for each of the next two years for the two largest banks; the requirement that the two largest banks provide €20 million each for seed capital to Enterprise Ireland-supported projects; and the requirement that the two banks each set up a €100 million fund for environmental, clean energy and innovation projects. In addition, the requirements are that the banks commit to working with Enterprise Ireland and the Irish Banking Federation to develop sectoral expertise in the modern growth sectors and to explore with Enterprise Ireland and the IBF how best to develop the range of banking services so that Irish SMEs trading internationally can meet the new challenges. The banks will need to develop expertise and credit products in areas where cash flow rather than assets is the basis for lending. We hope that this will help develop a banking style that is more effective and more supportive of Irish business.
These measures build on earlier initiatives such as the 2009 commitment by AIB and Bank of Ireland to increase lending capacity to small and medium enterprises by 10%; the introduction of the code of conduct for business lending to small and medium enterprise; the establishment of the credit clearing group, including representatives from the main banks, business interests and State agencies, which in turn identifies specific patterns of events or cases where the flow of credit to viable businesses appears to be blocked and, in turn, to seek to identity credit supply solutions.
The NAMA Act has established the credit review process to ensure that SMEs, sole traders and farm enterprises will have recourse to an independent, external review of decisions of credit refusal by the NAMA participating banks. The review process is now available and the first requests for review are beginning to be submitted.
Mr. John Thrugold has been appointed to monitor this process. I would encourage Deputy Penrose as Chairman of the Joint Committee on Enterprise, Trade and Employment, to invite Mr. Thrugold to attend the committee and for that committee to take on the job.
I have outlined the unprecedented set of interlinked problems the country has faced and also outlined some of the actions the Government has taken to tackle these problems. I have shown there is evidence that the policies are working. I have given an account of how the Government has addressed the need for infrastructural spending and of the steps it has taken to help ensure credit for viable businesses. These measures meet Ireland's needs at the present time and the Government will keep them under review. I commend the Government motion to the House.
While I welcome the efforts of the Labour Party motion this evening on our economic situation, it is disappointing the party continues to produce solutions that are ill-advised and ill-thought out.
Our ongoing economic difficulties are the subject of much scrutiny and discussion by economic experts around the world. Some of them have been critical of our actions and many have been advocates of our actions to date. Much space in Irish daily newspapers has been taken up with our difficulties and it is difficult for ordinary citizens not to think of themselves as economic experts also. Economic analysis is being carried on everywhere. It is time for real debate and a united purpose by all concerned, both inside and outside this House. It is no longer a time for political point-scoring. We should all have a common purpose to see this country and indeed the world, out of this economic turmoil.
There has been much progress over the past 18 months with regard to the state of our banks. The guarantee scheme was successful, despite the will of the Labour Party. It it had its way we would now be like Greece but we are not like Greece. This was demonstrated this week by the Bank of Ireland as no bank in Greece could go to the markets and procure funds. The nationalisation of Anglo Irish Bank is still the subject of much debate. I believe it was the right thing to do. I agree it has cost our nation a lot of money but I believe it had to be done to stabilise the banking system. NAMA has come into being in more recent times and it too is the subject of much debate. I believe it was necessary and is the best solution on offer. We have seen some extremely tough budgets in the past two years and these were difficult for many people. We have not taken any joy out of any of these actions. We were simply faced with intolerable difficulties and based on the best advice available, we shaped solutions. That is what a Government is elected to do and that is what we will continue to do, even in the face of political point-scoring from across the floor of the House.
There have been a lot of underhand dealings carried out by a many people in the banking industry. I do not wish to target everyone in the banking sector but there has been wrongdoing which is difficult to tolerate. However, these people will face the full rigour of the law in due course and I look forward to that day. There has been much focus upon the pension payments of bankers and Oireachtas Members. Such individuals must consider their own situations and whether it is right to be in receipt of these payments in these current times. I commend those who are doing the right thing by forsaking their pension entitlements. While no laws are being broken by those in receipt of these payments, we must show unity of purpose. However, it is absolutely vital that we do not focus our energies on the negativity of our situation, a trap all too easy to fall into. We must focus ahead to better times, letting the law of the land deal with those who have done wrong.
Times are difficult for many individuals and families, many of whom I meet in north-east Donegal every week, who are trying to make ends meet, and businesses desperately trying to keep their doors open. I understand their plight, empathise with them and re-affirm our commitment to bring the country back to economic stability.
Public sector workers are currently pondering the Croke Park deal and what it means for them. I urge them to consider it carefully with an eye to the wider picture. It is a good deal and one which will provide long-term solutions to some of our current financial difficulties while also delivering on vital reform.
On a more positive note, it is not all doom and gloom. Figures released last week showed exports remain stable while the value of imports increased. Retail sales have increased by 3% since last year with motor sales increasing by 30% since this time last year thanks to the scrappage scheme introduced by the Minister for Finance.
While I do not like to quote unemployment figures because these people are real, not just statistics, the ESRI and the Central Bank have predicted unemployment figures will level off over the coming year. Levelling off may not be something to shout about but we aim to make progress in this regard before the year ends. We must level off before we can begin to reduce the dole queues.
The Government has introduced a series of initiatives for job creation and retention, including the employment subsidy scheme, the enterprise stabilisation fund and the PRSI jobs incentive scheme. Ireland continues to attract foreign direct investment with various jobs announcements in the past several weeks across the country. The president of Engineers Ireland, Mr. Chris Horn, said last week that the number of multinationals operating in Ireland is jealously viewed by competing jurisdictions.
Measures have been imposed upon the banks in return for the moneys that have been invested for their rescue and future. Investing our future in the banks was not a decision taken lightly but out of necessity. We are beginning to see the return and will continue to do so throughout this year and next whereby ordinary people and businesses will be able to access credit again.
We must inject some positivity back into society to show the world that Ireland intends to get back to business. We must do it together. I look forward to seeing these initiatives being positively productive in returning Ireland to economic growth.
Our banking strategy is working. Yesterday's announcement that Bank of Ireland would be able to meet its capital requirements through private investment shows the market has confidence in our strategy. The State will receive a significant return from the transaction with a higher rate of interest on its preference shares which will come to €180 million per annum. The State will also receive €550 million in cash and hold shares equivalent to 36.5% in the bank, which will return profits in the form of dividends and share sales. We are in the ultimate phase in the resolution of our banking crisis.
We cannot, however, get away from the costs involved in resolving the banking crisis. We have acknowledged the scale of our problems and taken the necessary actions to solve them. The National Asset Management Agency, NAMA, is up and running. It has determined the price for the first tranche of loans, after rigorous loan-by-loan analysis. An aggressive approach to the banks loans was taken with the discount averaging about 47%. NAMA has forced the banks, finally, to acknowledge reality and recognise their losses.
In addition, the Financial Regulator and the Central Bank have set prudent capital requirements for the banks comprising 8% of core tier 1 capital requirements, of which 7% must be equity. This is for the benefit of consumers so that banks will never again be able to engage in such reckless lending as in the past.
Banks need additional equity to meet their new capital standards. Bank of Ireland requires €2.7 billion, which will be raised through private capital and a State commitment to convert part of its preference shares into ordinary equity. AIB needs €7.4 billion, for which it must submit a detailed capital plan by the end of April. Due to the massive scale of its losses, Anglo Irish Bank requires capital of €8.7 billion, a figure which may increase. There is simply no alternative to meeting the bank's unavoidable obligations at a lower cost. This is necessary to maintain the hard-won stability of the banking system.
The Financial Regulator has determined that Irish Nationwide Building Society will need an injection of €2.6 billion to remain compliant with its current regulatory capital requirements. This is a very large bill for the taxpayer but, as in the case of Anglo Irish Bank, it is the least costly solution. The EBS will need €875 million to meet its capital requirements. It is exploring the availability of private market capital and has had an expression of interest from a private party.
At every turn, the Labour Party opposed the bank State guarantee in September 2008. If its strategy had been adopted then, the banks would have collapsed that night and with it our economy. The Labour Party has long since advocated a policy of temporary nationalisation for all our banks, an action that is estimated may cost more than €70 billion. The proposal would have made the taxpayer liable for all of Bank of Ireland's capital and funding requirements, as is the case with Anglo Irish Bank. We have seen with Anglo Irish Bank that nationalisation is not a panacea for all its ills.
Our strategy makes private sector capital possible. The private sector investment in Bank of Ireland is a significant vote of confidence in the bank and the wider economy. The Government's proposal will lead to an immediate cash return of €550 million and medium and long-term returns, whereas the Labour proposal would require years for a return to the taxpayer as this would only occur when the Bank was sold off through a complex reflotation on the Stock Exchange.
The burning question for all households and small and medium-sized enterprises is how NAMA will increase credit flow. NAMA has put the banks in a better position to access funding and provide credit to viable businesses and households because it will increase investor confidence in the banks through the removal of risky assets and will improve liquidity through the exchange of illiquid assets, loans, for more liquid assets, bonds. We all know the banks have curtailed lending because they are finding it a challenge to get funds. The providers of funds are reluctant to deposit their money in banks, the quality of whose balance sheets are questionable. That is why we are recapitalising the banks.
NAMA will remove this uncertainty, allowing the banks to attract sufficient funding again. Without NAMA, there would be no credit flow in our economy. Having set up NAMA to cleanse the banks, the Government is determined to ensure, through the guidelines provided for in the NAMA legislation and through the credit review system, that the banks will begin to perform their proper role in this economy, that of supporting viable and sustainable businesses and households. That is a role they have not fulfilled since they got carried away with their big dreams and left us all behind.
The guidelines will set out how credit should flow to sustainable businesses. I am delighted €2 billion of the €3 billion in funding for Bank of Ireland and AIB will be ring-fenced for SMEs as many banks are not even providing overdraft facilities for many companies. The successful implementation of NAMA is essential for the renewal of our economy as it will lead to smaller, cleaner and better funded banks that can focus their resources on lending to the real economy and play their part in our economic recovery. Business cannot flourish in an economy where cash is scarce. That is why the Government has taken such aggressive steps to fix our banking system.
I wish to share my time with Deputy Kieran O'Donnell.
Is that agreed? Agreed.
Deputy Blaney is leaving the Chamber but I agree with him that we must be positive against the background of this economic problem. That should be the watch call of this Government. It the reason this debate is so depressing. Economic recovery in the real economy is what matters now. It is crucial that we get real businesses back on their feet and employing people again.
There is a delusion among Ministers on the other side of the House, and on the part of Deputy Mattie McGrath also, that writing whatever cheques are necessary, as the Taoiseach put it, to solve the banking problem and fiscal retrenchment will in some way bring about a recovery in the real economy and that it will get businesses employing people again.
In his final comment Deputy McGrath expressed some scepticism about whether that is working to date. He expressed the hope that it will work but I would like to ask a question of him and other members of the Fianna Fáil Party. The Government is setting aside €32 billion for recapitalisation of the banks, 75% of which is going into either Anglo Irish Bank or the Irish Nationwide Building Society. Deputy McGrath must know in his heart, as does every Member in the House, that neither of those banks that are taking 75% of the taxpayers' money will provide any basis for real economic recovery among any business in his constituency or mine. That is the reality. There is no point in whistling by the graveyard and pretending the banking strategy is working swimmingly when the Deputy can see, as can Deputy Gilmore and me, that it is not happening on the ground. That is not happening to business.
The small business association Deputy Penrose quoted is sceptical of Mazars in terms of whether it is picking it up but Mazars is showing that lending to performing businesses has dropped by €7.5 billion, or 25%, since June 2008. What is growing on the lending front are the loans that are impaired or on the watch list. They are the only loans that are growing and they have exploded.
In terms of what is happening, the banks are perforce nursing small business loans that are non-performing but they are squeezing the life out of businesses that have a chance of surviving. That is what is happening on the ground and Mazars, for all the weakness in its analysis, is telling us that. It puts this debate into context.
The truth, as Mazars tell us, is that performing businesses or businesses with a chance of surviving this recession and building a trading economy on which we can hope to hold on to our young people are being squeezed. A bank using State capital to provide lending to those small businesses is crucial. We are not two or three months after the banking crisis. It is now 18 months since the crisis burst upon us. Deputy McGrath had to come into the House with the script that was provided for him and tell us that some measure for small business is around the corner and that if we wait a little longer we will see the magnificent fruits.
I heard the Minister of State, Deputy Calleary, read into the record all the commitments that have been extracted from AIB and Bank of Ireland but a check of the record reveals that in February 2009, more than 12 months ago, he said the same commitments had been exacted from the banks. The comments are virtually identical, even down to the reference to Enterprise Ireland, to which Deputy Morgan, who has left the Chamber, referred. Enterprise Ireland was to be in the thick of the great break-through but it did not happen and at some point the penny has to drop that it might not happen. Instead of pouring 75% or €25,000 million of scarce taxpayers' money into Anglo Irish Bank and the Irish Nationwide Building Society perhaps we should assign €2 billion, as Deputy Gilmore and Fine Gael have suggested, to develop a bank that can lend directly to the very businesses that have a chance of recovery and get money to bankable business projects. That is the challenge facing us.
Writing these cheques to keep Anglo Irish Bank on the go as part of a grand plan that will get us out of this mess is a question we must put under scrutiny. People like Deputy McGrath, who are critical at times of the adequacy of Government policy, need to put it under scrutiny. They should show me how this will work. They should explain how the cost of refloating Anglo Irish Bank or keeping it as a going concern rose from €4 billion to €6 billion to €10 billion to €18 billion and now to €22 billion and rising — we do not yet know the final figure — and the reason Government policy continues to be that the bank must be kept open. Does the cost that has escalated nearly six-fold since the policy was first enunciated not suggest, as normal cost benefit would suggest, that this policy might not be such a good one after all? Those are questions we need to be asking and the onus is on Ministers to come up with the answers. They should provide us with the evidence.
We got evidence from Anglo Irish Bank that was supposed to convince us. That was based on its analysis of the performance of its loans, and it said it was cheaper to keep the bank going but within weeks of it producing that analysis to the effect that its loans are worth 70% of their book value, we suddenly discovered that NAMA, which was appointed by the State to put a value on them, disagreed. It had written them down not at 70% but 52% and there are questions about the adequacy of that to accurately reflect the entire Anglo book.
The body that seemed to be providing the Government with the ammunition to back up its position, Anglo Irish Bank, suddenly had the carpet pulled out from under it. It was the one that had access to those loans. It had been nursing them for years. It should have known them better than anyone but it took NAMA to tell us the reality. Where is the independent Government analysis of the soundness of the strategy of keeping Anglo Irish Bank as a going concern?
We are facing a real problem. The private sector is stretched. It has huge debt burdens. It will not lift itself by its own boot-straps if the Government concentrates on fiscal retrenchment and writing cheques for the banks, particularly banks that will never lend another euro.
As Deputy Blaney said, the Government must now consider what this country needs to get us out of the position in which we find ourselves. Surely what it needs is some measure that gets money flowing to bankable businesses and that invests in arteries for the long-term economic future, namely, our broadband, electricity and water systems and our alternative energy sources. It must also examine how we can reform public service to ensure we can protect the front line as we inevitably must make do with less coming from a strained economy. Those are the challenges on which Government should be focusing, and we should be seeing strategies for those challenges. Ministers who come in here and say they are still spending on some of those programmes while not admitting that they are reduced by 40% from what they were supposed to be are codding us and codding the country.
We must be clever and imaginative about how we devise ways of driving those investments. I believe the national recovery bank or Deputy Gilmore's alternative strategic bank, is a contribution to that debate. Fine Gael's NewERA, which is about raising much of the money that has been saved furiously by people in the private sector and converting that into investment in infrastructures that will get us out of the current position, is another positive contribution.
This is a debate about the new versus the old and the future versus the past. The easy approach is to nurse the bad lending of the past, close down opportunities for young people, stop recruiting to the public service and retrench by slashing the investment programmes. That is the thinking of the past but it will not build a future that will employ the people we need to employ, namely, the young people coming out of our colleges. They are emigrating in droves and we will lose the basis of an economic recovery in this country if that continues to happen.
I appeal to the Government to get its head out of the sand and start to debate the choices to get this country moving again.
I am delighted to contribute to this debate tonight. Everyone agrees there is a problem with credit flow in the SME sector. In July 2008, I asked that the chief executive officers of the main banks, Bank of Ireland, Allied Irish Banks and Anglo Irish Bank be called to appear before the Joint Oireachtas Committee on Finance and the Public Service, one of whom, Mr. Richie Boucher, is now chief executive officer of Bank of Ireland, to discuss the flow of credit to the SME sector. At that time the CEOs stated there was no problem in terms of the provision of credit. This should have been a warning sign that the banking sector was under enormous pressure. A little less than three months later the bank guarantee scheme in respect of the covered institutions was introduced.
We must now consider what is being proposed by Government and the Opposition parties. The Government is effectively proposing to put €25 billion into the banks and €43 billion into NAMA, which amounts to €68 billion of taxpayers' money. The question that arises is whether this will get credit flowing to the SME sector. I recall, when the Government guarantee scheme was being put in place on the night of 29 September, the Minister for Finance, Deputy Brian Lenihan, stating this was about ensuring credit would flow to the real economy. Almost 18 months later this has not happened. The Government is hoping that NAMA will free up liquidity and deal with solvency in the banks. While it will deal with solvency, we do not know for how long because many loans are not being taken over by NAMA. It should free up liquidity. Former chief executive officer of Allied Irish Bank, Mr. Eugene Sheehy, is on record as stating before an Oireachtas committee in response to Deputy Burton and me that AIB could not give a guarantee it would be using the NAMA bonds to access credit. We are now putting approximately €25 billion into Anglo Irish Bank and Irish Nationwide Building Society, two institutions that will never lend. As Deputy Bruton asked earlier: "Is this good use of taxpayers' money?"
The question that must be asked is: "Is what the Government is doing good for the economy and the SME sector?" The Minister, Deputy Lenihan, stated in regard to Bank of Ireland yesterday that it was good for the economy, the taxpayer and the shareholders. However, is putting €25 billion into two dead banks, namely, Anglo Irish Bank and Irish Nationwide Building Society, good for the SME sector, the economy and the taxpayer? The answer in both cases is "No." What we need is a proper strategy in terms of getting credit flowing to the small business sector. Labour Party and Fine Gael Party policy seek to achieve the same result. Fine Gael's policy is the establishment of a national recovery bank which will effectively provide State equity of €2 billion thus allowing that bank to access credit from the European Central Bank and providing much needed liquidity to the SME sector through the vehicles of the existing banks. This would be a proper barometer and a proper risk-sharing mechanism. It would allow us to go to the banks to buy good loans and a risk-sharing mechanism could be put in place to ensure lending takes place.
The chief executive officer of ISME, Mr. Mark Fielding, appeared before the Joint Committee on Economic and Regulatory Affairs today. The Mazars report has been much quoted by the Irish Banking Federation. The Departments of Finance and Enterprise, Trade and Employment appear to have had no involvement in this report which was launched by the Irish Banking Federation and Mazars. The limitations in that report are astounding. Institutions of the sophistication of Allied Irish Banks and Bank of Ireland can give no breakdown of new and existing lending or between small and big business. I do not believe they cannot do that. Despite these limitations, the Mazars report states that lending to the SME sector is decreasing consistently. The Central Bank monthly statistics show that in the 12 months to end February there was a €12 billion decrease in private sector credit from the institutions. This is the same amount the Irish Government has invested, by way of €3.5 billion direct State investment in Bank of Ireland and €8 billion to €9 billion in NAMA through the National Pensions Reserve Fund.
The question that must be asked is, "Is Government policy working?" The answer, in respect of credit flow, is that it is not. The answer in regard to whether it is working in terms of the banks' insolvency is, "Yes, at the moment it is." The answer in regard to whether it is working in terms of getting the banks to lend is, "No." The banks will continue to shrink their balance sheets. They are responsible to their shareholders. The Government has committed €12 billion to Bank of Ireland. As regards the plan in terms of getting credit flowing to the SME sector, in respect of the €3 million to the two main banks, we will not know the result of this particular exercise until 14 May. Furthermore, the credit oversight review process will take time. Businesses need cash. Without cashflow businesses cannot survive. We have a banking crisis and we need a mechanism to get credit flowing to the SME sector. Businesses are going out of operation not because they are not profitable but because they do not have cash. There is an old saying in business that cash is king. If a business does not have access to credit it cannot survive. The Government has committed to paying the SME sector within 30 days. However, many Departments are not honouring that commitment which in turn is putting enormous pressure on the SME sector.
The second strand of the Labour Party motion, in terms of providing credit, is investment in strategic infrastructure. Fine Gael has put forward an alternative proposal through NewEra, which effectively amounts to accessing resources of the National Pensions Reserve Fund, a national recovery bond, funding from the European Investment Bank, commercial lending by the State institutions to ensure we have vital and necessary infrastructure in energy, telecommunications and water. We need to ensure our broadband penetration is among the top five countries of the OECD by 2013. Currently, we are the second worst among the EU 15. In regard to water, we are, outside of capital expenditure, spending €700 million per annum producing clean water. Some 43% of drinking water is lost through leakage. We need a strategic approach in this regard.
The Government has lost sight of the fact that credit flow equals jobs equals survival of business, which is a simple formula. The Government proposes to invest €3 million in the two main banks. It must also put in place a proper job strategy that ensures an avenue for lending to businesses that are struggling and need funding. My concern, in terms of the Mazars report, is that the figures provided by the banks relate in the main to rolled up interest. They are squeezing existing businesses to get repayments and allowing rolled up interest, which gives the impression they are providing credit. It is window dressing.
What is the Government going to do to ensure credit flow? The Labour Party proposal is a valid one. Fine Gael has put forward an alternative approach, namely, a national recovery bank, which seeks to achieve the same purpose. The Labour Party has proposed the establishment of a strategic investment bank. What will the Government do to ensure a proper jobs strategy? Mr. Mark Fielding, head of ISME, stated today that the Government has no such business proposal. What is required is a proper jobs business proposal to ensure the SME sector can get credit into viable businesses and to provide necessary infrastructure. The role of Government is to provide a way to allow enterprise to prosper.
Debate adjourned.