14 Deputy Michael McGrath asked the Minister for Finance when the planned review of the universal social charge will be completed. [5420/11]
Vol. 728 No. 4
14 Deputy Michael McGrath asked the Minister for Finance when the planned review of the universal social charge will be completed. [5420/11]
18 Deputy Aengus Ó Snodaigh asked the Minister for Finance when he will review the universal social charge; the persons who will undertake the review; the terms of reference that will be used for the review; and if he will make a statement on the matter. [5404/11]
I propose to take Questions Nos. 14 and 18 together.
There is a commitment in the new programme for Government to review the universal social charge. The terms of reference and other matters relating to the review have yet to be finalised. I expect the terms of reference to be finalised shortly. I anticipate that the review will be completed in time for the 2012 budget.
I thank the Minister for his brief reply. Since the universal social charge was introduced in last December's budget, it has been the subject of very strong criticism from what were then Opposition parties and it formed an important part of the general election campaign, where it was made clear there would be changes to the charge. People were led to understand those changes would happen sooner rather than later. There will be much disappointment that any review would now be in the context of the 2012 budget.
What is the Minister's thinking at this stage with regard to changing the universal social charge? I know he commented in the past on the impact on people with low incomes and those who have become known as the working poor. Without pre-empting the process, can he given an indication of where changes are likely to be made? Given that changes must be fiscally neutral, where will savings be made to offset the reduction in income from the charge?
The incoming Government cannot do everything at once and certainly not in the first ten days in office. Our commitment to review does not equal immediate reductions. I indicated during the election campaign that options were given to the Department of Finance; those which were worth doing seemed to cost too much and those which cost little did not seem worth doing. We made it clear at the end of the election campaign that we would not bring forward policy proposals at that point but we committed to a review. The terms of reference of the review are being drafted and we will have them shortly. The review can then take place and we will see the options in the context of budgetary decisions for 2012.
The universal social charge breaks the basic fundamental principle of progressive taxation because it asks those who have the least to pay. It is a tax on the working poor and very low income earners, with those on as low as €77 per week paying the charge. The exemptions which previously existed for income levies — such as for those with medical cards, working lone parents, working widows and those over 70 — are all gone. They have been hit particularly hard. We know about the review but we also know people in our constituencies who are suffering as a result of this universal social charge. Reviews do not cut it for such people as it does not put bread on the table or food in the cupboards. We need early movement on this.
With regard to the terms of the review, when the universal social charge was debated in this House the Minister stated that the floor of the universal charge — at approximately €4,000 — represents a very low income and the Minister should have accepted an amendment to raise the threshold by €1,000. Is that still the view of the Minister? Would it be acceptable, in the Minister's own words, to increase the threshold to €5,000? That would, in effect, mean that those earning €97 per week would pay a universal social charge on all of their earnings. Is that the basis of the review? The Minister replied on the terms of the review and I hope they will be published and debated well in the House before the review takes place.
I am sure the Deputy, in his part of the country, would be familiar with a phrase common in my part of the country. It is that if somebody has a dog, that person should not bark. If we are to have a review, we will let that process formulate proposals. If I followed the Deputy's request and announced my views before the review, it would prevent a valid review. We will have a valid review of the issues and take up many of the points made. If any Deputy or party in the House wishes to make a submission to the review, it would be welcome and carefully considered. While we all know the charge impacts heavily on certain people, we also know the reasons the previous Government decided to introduce this imposition. Submissions to the review will be taken into account and carefully considered.
The country is in such a dire fiscal and economic state that all assistance from the parties opposite is welcome as are any progressive moves that will assist individual citizens or help to relieve the problem as a whole. The review will culminate in measures in the 2012 budget. In the meantime, I invite the Deputies and parties opposite to participate by submission.
The Minister stated that there will be a review of the universal social charge, that the charge must be examined and so forth, which is fair enough in as far as it goes. However, given the cruel injustice that the charge represents for low and middle income workers and families, the review must be undertaken urgently. The universal social charge is damaging people who are barely making ends meet. In some cases, people are in danger of going under in terms of meeting bills, paying mortgages and so forth.
The review must address the injustice of imposing the universal social charge on those who cannot afford to pay it. Instead of imposing it on people who cannot afford it, will the Minister examine or consider examining the case for taxing those with enormous wealth who have been untouched? Was he not as shocked as I and most of the country were to learn in the Sunday newspapers published the weekend before last that the 300 richest people in this country have €57 billion in personal wealth and that their wealth increased by €6.7 billion in the past year?
The Deputy should confine his remarks to the universal social charge.
This is the same as the amount the previous Government took from ordinary people in its final budget. The Government should tax those who are wealthy and have acquired more wealth in the past year and relieve the burden imposed on those who cannot afford to pay the universal social charge.
Considerable progress was made in the previous budget on the unification of the amount of PRSI at the employee level. Will the review examine whether PRSI should be consolidated with the universal social charge in the next budget?
Sinn Féin does not accept that there must be a review, although we may have to deal with it as ade facto consequence of Government policy. The universal social charge is an oppressive tax which the Minister stated he inherited from another Government. Does he agree it is bad economics to cut the incomes of people who cannot afford not to spend the money they have? By taking money from such people we stop cashflow in local communities. Not only do people become impoverished but they are driven further into depression, anxiety and distress. Another approach is available. As others have suggested and Sinn Féin has argued, a new tax band should be introduced for those who can afford to pay in order that we can proceed without the awful social consequences which have been created by this oppressive tax on the working poor.
In the current context if Deputies want to participate in a movement for change on this tax, they should participate in and submit proposals to the review. Proposals cannot be one sided. Everybody knows what people are against. I ask the parties and Deputies opposite to include with their proposals alternative suggestions for raising the tax foregone, possibly along the lines of the suggestion made by Deputy Boyd Barrett.
On Deputy Lenihan's question, the terms of reference of the review are being considered and have not yet been drafted. I will consider his comments on the consolidation of PRSI in the universal social charge and ascertain whether his suggestion is a runner.
15 Deputy Pearse Doherty asked the Minister for Finance his plans to renew the bank guarantee scheme when it runs out in June 2011; the consultation he has had with his European counterparts on the bank guarantee scheme and the possibility of its renewal; and if he will make a statement on the matter. [5392/11]
The issuance window under the eligible liabilities guarantee or ELG scheme runs in national law until 31 December 2011. This is subject to a renewal of the current European Union state aid approval for the continuance of the so-called issuance window for the scheme beyond 30 June to 31 December 2011. The issuance window is the period during which a guarantee can be applied to a new bank liability. The guarantee is then in place for the duration of the term of the liability.
The State authorities, in particular the Central Bank, monitor funding conditions for the guaranteed credit institutions on an ongoing basis. A formal assessment will be undertaken by my Department shortly which will be communicated to the European Commission for the continuation of state aid approval to the end of this year. In this regard, the views of the Governor of the Central Bank on how best to continue to maintain confidence in Irish banks, in particular that of depositors, will be a key part of this assessment.
It is also important to ensure there is no uncertainty regarding guarantee arrangements. In that context, I confirm that debt and term deposits issued during the relevant issuance windows continue to be guaranteed for the duration of the term of the debt or deposits regardless of what happens to the ELG issuance window in future.
The capital and liquidity assessments being carried out by the Central Bank together with the deleverage plans being developed by the banks are critical steps in restoring market confidence in the Irish banking sector. This is expected in due course to facilitate the return of the banks to broad based market funding. The necessity for State guarantees of bank liabilities will be reviewed by the authorities in light of the progress achieved in restoring the banks to conventional funding mechanisms. This is a key medium term objective for the Government — one that is fully in line with the programme agreement with the EU and IMF – to differentiate fully bank debt from that of the sovereign to underpin Ireland's overall fiscal sustainability.
In light of conversations in recent weeks and the Government's claims that it is arguing for burden sharing which would result in some senior bondholders taking a hit on their investments in private banks, does the Minister agree that it would be sensible and prudent for the Government not to guarantee new debt in private banks when the bank guarantee scheme is extended at the end of June? As he indicated, he, his Department and the Taoiseach do not know when this debt will become unsustainable. Given that is the case, why would the State guarantee future debt in private banks when such debt could become unsustainable and significant new debt is being added to the burden on the State?
Has the extension of the bank guarantee scheme been on the agenda in the ongoing dialogue on the pact for the euro? Has the Government, as part of this dialogue, signalled that it will extend the bank guarantee as part of the specific commitments Ireland must make over the 12 month period? I understand the objective of the meeting to be held this weekend is to lay out a 12 month programme. Is the extension of the bank guarantee scheme among the commitments the State will make in that regard?
There appears to be a misunderstanding that the guarantee only includes a guarantee for persons who bought bank bonds. It guarantees all creditors and the largest creditors in the banks are those who have money on deposit. If an individual opens a savings account and places his or her savings on deposit in a local bank, the bank owes the person in question the sum of money on deposit. One of the main features of the guarantee is that it guarantees deposits. It also guarantees certificates of deposits, commercial paper, senior unsecured bonds and notes and other senior debt specified by the Minister in accordance with EU state aid rules. At present, €117 billion of assets of creditors is covered by the guarantee. The Deputy should not forget when calling for the plug to be pulled on the guarantee that the people who will suffer are people like himself, his family, friends and neighbours whose deposits are guaranteed.
The Minister well knows that we are not calling for a lifting of the guarantee for depositors. A banking resolution Bill could be introduced, legislation Sinn Féin has been seeking for some time, to distinguish between creditors and bondholders. We are speaking here about the gamblers in Irish banks who have taken out investments or taken a punt which has come up wrong. The State is to guarantee new debt in those private institutions, thereby walking us down the road of a possible sovereign default rather than that for which Sinn Féin is arguing, namely, an orderly banking default in relation to the bank and private debt. It is disingenuous of the Minister to muddle the issue and to suggest we are asking that depositors in the banks take the hit. The Minister knows well that we are asking that bondholders not be guaranteed and that the guarantee not be extended. The Government has the option of bringing in a different guarantee that would distinguish between depositors and bondholders, senior debt and creditors and depositors and banks.
Only six minutes per question is allowed. The longer Members take asking their questions or replying, the less time there is available for supplementary questions. To ensure every Member gets a chance to speak, I intend to stick rigidly to the six minutes allowed per question.
On a point of order, may I, as a new Member, ask a question?
If the Deputy comes to my office following Question Time I will discuss the procedure with him.
16 Deputy Michael McGrath asked the Minister for Finance his estimate of economic growth here for each of the years 2011, 2012, 2013, 2014 and 2015. [5421/11]
Based on the domestic and international economic and financial data that was available last October, the Department of Finance prepared macroeconomic and fiscal forecasts which subsequently formed the basis of the budget forecasts published in early December. These forecasts, which at the time identified risks, positive and negative, remain the latest official forecasts.
These estimates are set out in the following table. A forecast for 2015 was not published at that time and is currently being developed.
As part of the new European semester, Ireland, along with all the other EU member states, is required to submit a revised stability programme update, SPU, to the EU Commission in April. The SPU will contain updated macroeconomic forecasts which will take on board the latest available data, domestic and international, and will also set out the Department's latest risk assessments.
I thank the Minister for confirming the Government's position that the official figures remain at 1.75% GDP for 2011 and a projected average growth of 2.75% for the period to 2014. The Government has committed in its programme for Government to a €6 billion correction this year, as provided for in the recently enacted Finance Bill 2011, and to a €3.6 billion correction for 2012. However, it has not gone further or provided details of how it proposes to correct the deficit in the subsequent years. For example, the EU-IMF deal contains a commitment to a €3.1 billion correction in 2013, on which point the programme for Government remains silent. I acknowledge the Government has indicated it will look at this by way of a review towards the end of 2012.
What is the Minister's current estimate of the deficit reduction that must be achieved between now and 2015 to achieve the 3% deficit? The Minister will be aware that in the programme for national recovery it was estimated that achieving 3% by 2014 would require a €15 billion correction, €6 billion of which is being achieved this year, with the remaining €9 billion to be achieved in subsequent years. What is the Minister's current estimate based on the level of deficit reduction that must be achieved by 2015 to achieve the 3% deficit?
The figures I read out were provided by the Department of Finance in advance of preparation of the budget introduced by the former Minister for Finance, Deputy Brian Lenihan. These figures will obviously vary. I am giving the current set of figures available in the Department, without saying whether I believe them to be correct. I am aware that the IMF and EU Commission figures, both of which are at 0.9% for 2011, differ from ours. Reuters run a consensus growth figure across ten economies. The consensus growth figure from Reuters last week was 1.2%. The latest figure from Davy's, published yesterday, is 1.6%. There are variations on growth figures. I am not suggesting the Department of Finance figures will not change, are absolute or were not correct. Depending on the assumptions used and the perspective various growth figures emerge. When one builds these into the model one gets various results.
As regards the Deputy's other question, we have stated in the programme for Government that the level of correction in 2011 and 2012 will be adhered to by the Government in the quantum envisaged and that after 2012 we will undertake a review of the position and will make the necessary adjustments in the budgets for 2013, 2014 and 2015 to bring the deficit below 3% of GDP by 2015. It is not possible to say at this stage what the quantum will be because of the variables, one of the principles being what will be the actual growth rate and the cost of the bailout as time goes by.
I would like to probe the Minister's view of economic growth versus the Department's forecasts. What is the Government view? Is it consistent with the figures last published by the Department of Finance? Surely, there must be a clear Government view in that regard. What level of growth is the Government expecting in 2011 and subsequent years?
I do not want any misunderstanding in regard to what I am saying, namely, that the figures I have given are those provided to my predecessor in advance of preparation of the budget. The 2011 budget is built on an estimated economic growth of 1.7%. I am pointing out there are variations between respected agencies in relation to the growth figure. I am also saying that I fully accept that the figures I have given are those which are acceptable across Departments, in particular the Department of Finance, as we speak. However, as the year goes on these figures will be revised. I am not resiling from the figures but am simply pointing out that the Government has not changed its position on some whim and continues to work on the Department of Finance figures. That is the only way we can work.
As of today, the Government stands over the budget.
17 Deputy Pádraig Mac Lochlainn asked the Minister for Finance if he has received any counsel or consultation on the pact for the euro; the measures that will be presented at the European Council meeting as those pledged to be implemented under the pact for the first year; and if he will make a statement on the matter. [5409/11]
The President of the European Council, Herman Van Rompuy, held bilateral consultations with member states, including Ireland, in relation to the pact for the euro in the run up to the meeting of Heads of State and Government on 11 March last. The proposed pact focuses primarily on improving growth and competitiveness in the euro area. It outlines objectives in the policy areas of competitiveness, employment, the sustainability of public finances and the reinforcement of financial stability.
The bilateral preparatory discussions were wide ranging and took place against the background of the comprehensive package of policy measures to strengthen EMU which is under preparation for this week's European Council. The pact for the euro is due to be formally adopted by the Council tomorrow. In the context of the new European semester, member states will outline plans for the next 12 months in their national reform and stability programmes which are to be submitted to the EU Commission by end-April. This new timetable is intended to assist member states to take better account of the EU dimension in the preparation of budgetary and economic policies.
Assuming the pact is agreed as planned, we will incorporate its overall objectives as appropriate in our national plans. As the Deputy will be aware, however, Ireland's budgetary and economic strategy must be viewed in the context of the EU-IMF programme. The Government has confirmed its commitment to returning order to the public finances and to achieve a deficit of less than 3% of GDP by end-2015 in line with the agreement with the ECOFIN Council. It is also the case that our recently agreed programme for Government differs in terms of the detail of the policies which this Government plans to adopt within the broad fiscal targets. I have committed to discussing any consequent proposed changes to the programme with the IMF, European Commission and ECB and in this context the forthcoming review of the programme provides such an opportunity. It is clearly understood that any changes to the EU-IMF programme that have cost implications will have to be compensated for with alternative measures.
As the Minister stated, the pact for the euro to which we will agree tomorrow commits the State to announce specific measures. These are concrete commitments to be achieved in the next 12 months. What commitments will the Government make on behalf of the people? What concrete commitments are laid down? The pact also refers to the need for these concrete commitments to be included in the national reform and stability programme to be submitted in April. There is a short window. Commitments must be given tomorrow and they must be in the new programme submitted by April. What are the concrete commitments that the Government will enter into on behalf of the people?
One of the points that has come out of the pact for the euro is the establishment of the European stability mechanism, ESM, a new fund to come into effect in 2013. This new fund alters the way money will be paid to the funds it will replace and capital will be required upfront. What is the timetable for the gradual payment of the capital to the ESM? What amount of money will this State have to pay to this fund? Over what period will this capital have to be paid? I understand it will be paid at a no-interest cost and then, when we want or need it back, we will be charged above the market value. What will the cost to the State be and over what period with the establishment of this new funding mechanism, the ESM?
The general approach on the pact for the euro is made up of measures to increase competitiveness, which are strongly endorsed by the German Government and have the support of all the AAA-rated countries in Europe, measures to promote greater economic growth and job creation and measures to have a sustainable public finance regime. There is nothing in place we cannot buy into immediately. The ways and means may be difficult but this is the way forward. The Deputy is correct about the new fund, the European stability mechanism, ESM. It will replace the European financial stability facility, EFSF, in due course but not until 2013. There were various discussions on how it would be funded. One can put in capital, there is callable capital and there are guarantees in the hierarchy. Of three options, the one which puts in the most capital upfront was the most acceptable because it gets a AAA-rating from the credit ratings agencies and is more likely to be sustainable.
I will send the Deputy a note on the cost to Ireland. I recall the figures represented to us were approximately €1.7 billion over four years, starting in 2013. However, if there is no drawdown from the fund — it is a contingency — Ireland will get dividends on the money. On the other hand if there is a drawdown, the equivalent will be paid back into the fund. Over the spread of the period involved it is not a heavy imposition from Ireland's point of view and it is important that the fund is in place.
The Deputy has a strong interest in these matters. Let us consider the issue overall. What happened was that Europe organised a common currency area but those involved did not put in place the architecture for protecting it at the time they initiated it. Effectively, they are retrofitting the architecture now. We have been unlucky because our crisis has occurred before the response mechanisms have been put in place. The new fund will be significant. As well as allocating money to euro countries in trouble, it will be able to buy sovereign bonds on the primary market. It also has a provision that received no coverage in the media, such that the Finance Ministers of the eurozone countries will be governors of the funds and they may alter the policy instruments of the fund as they see fit. It has the organic potential to put in place a great many tools or policy measures to protect the eurozone post-2013. This is one of the most significant developments that has taken place. If we had our crisis in 2015 or 2016, much of the architecture of the euro land would be in place. The crisis hit and when the architecture was tested it was insufficient and the policy instruments were not in place. They are now being retrofitted and Europe is chasing very hard to catch up. In this context, much progress has been made.
19 Deputy Michael Colreavy asked the Minister for Finance the position regarding negotiations on burden sharing; if there has been any serious consideration given to debt for equity swaps as a method of burden sharing; in the absence of burden sharing, his plans to ensure that the cost of the bank bailout does not fall on the taxpayer; and if he will make a statement on the matter. [5408/11]
27 Deputy Dara Calleary asked the Minister for Finance his position on burden sharing with bondholders in Irish Banks; and if he has decided not to make representations on this matter to the relevant authorities [5418/11]
28 Deputy Jonathan O’Brien asked the Minister for Finance the burden sharing arrangements being discussed; the discussions taking place at European level regarding burden sharing with bondholders; the extent to which his partners at European level are willing to allow for burden sharing; and if he will make a statement on the matter. [5406/11]
I propose to take Questions Nos. 19, 27 and 28 together.
Government consideration of the approach to burden sharing will be further informed by the outcome of the important capital assessment exercise currently being undertaken by the Central Bank as well as international developments on burden sharing.
As Deputies will be aware, the prudential capital assessment review, PCAR, exercise to determine the capital needs of the Irish banks is being carried out by the Central Bank and will be concluded by the end of this month. While the work is at an advanced stage it is not yet complete. Deputies will appreciate that it is essential that the results of this exercise are, and are seen to be, the outcome of a detailed and rigorous process undertaken on a wholly independent basis by the Central Bank. I have no information available to me which would allow me to speculate about the eventual outcome of the PCAR nor would it be appropriate for me to speculate on what it might be because there is a significant degree of market sensitivity in this area.
The Government has made clear that based on the results of the PCAR it will then assess how the capital needs of the banks should be met to ensure that international market confidence in the Irish banking system can begin to be restored. In this context, a key priority of Government in line with the programme for Government is to maintain the creditworthiness of the State. Therefore, the overarching objective must be to ensure that all appropriate options for supporting debt sustainability are factored into the Government's decision making process.
Deputies will appreciate that at this juncture while we await the results of the PCAR it is not possible, nor would it be prudent, to debate in detail the options open to Government. Naturally, it is the case that the issue of appropriate burden sharing comprises one of a range of important issues we are discussing with our European partners. These discussions are sharply focused on ensuring that the implementation of the EU-IMF programme agreement — the objectives of which we are strongly committed to achieving — is fully consistent with ensuring that a sustainable path for our debt in the future and our return to market funding for the State and for the banks in due course.
While the debate at EU level is, for now, focused on the issue of debt restructuring in the context of sovereign debt, from an Irish perspective, given that sovereign and bank debt are so closely linked, the wider debate at international level on burden sharing of bank debt is of equal importance.
On bank debt, several international organisations including the EU Commission, the Financial Stability Board and the Basel Committee on Banking Supervision are currently investigating the potential for various forms of burden sharing or "bail-in" tools such as debt write-downs, debt for equity swaps and contingent capital. There is not yet a clear international consensus as to the specifics of how such tools should work in practice. The Government is giving close attention to this issue to ensure that the cost to the taxpayer of supporting the banking sector can be kept to an absolute minimum.
We have only six minutes left before concluding so perhaps the Deputies will share time.
I listened to Fine Gael Deputy Peter Mathews commending debt for equity swaps and he referenced an economist who made the suggestion some weeks ago. He may not have been listening to what Sinn Féin has been stating for a long time but debt for equity swaps are among the proposals that we have put forward. I hope the issue will be considered.
We are dealing with burden sharing and I seek a clear answer on the matter. This is an important issue for all of us, especially taxpayers. The Minister has referenced the fact that the stress tests will be known to us in the next week or so. We are unsure what the figure will be but we all estimate it will be in excess of €10 billion. The Taoiseach has committed that no more than €10 billion will go into those banks until burden sharing is on the table. We will not get burden sharing from the European Union tomorrow or, at least, I do not imagine it will be agreed to. Am I mistaken or is it not the case that, as announced by the Taoiseach last week, no more than €10 billion will be invested in the banks regardless of whether the stress tests call for €12 billion, €25 billion or €35 billion until burden sharing has been achieved in some form, be it debt for equity swaps, the European Central Bank taking equity in some of our banks or a direct hit on senior bondholders?
Burden sharing is established in respect of subordinated instruments. When the Minister refers to burden sharing, I take it that he is discussing unguaranteed debt in the banks rather than guaranteed debt or sovereign debt. I would like clarification on this issue.
Regarding the rather undifferentiated language about burning bondholders, does the Minister accept that our banking system is significantly dependent on attracting funding from abroad and that the constant extension of this debate is not of assistance to the banks in attracting funding?
I will allow Deputy Boyd Barrett to ask a quick supplementary question.
I asked a question that related to this subject but to which I did not receive a response. Can we know the names of the bondholders, including those we have already paid? I do not believe we should be paying them. Can the names of the bondholders be made available to the House and the public?
Deputy Boyd Barrett's question was addressed in part of the answer, which was too lengthy to read out in full. However, he will receive it in written form. In general terms, the names of bondholders are not known to institutions issuing bonds because there is an active secondary market on which bonds are constantly bought and sold. If AIB issues a bond, it may know who buys it in the first instance, but it has no idea of who is holding it once it starts moving around. Unlike the case of a shareholding in a company, there is no requirement in law to have a share book disclosing who the bondholders are. My answer is "No", but it is expanded upon somewhat in the written answer provided.
Regarding Deputy Lenihan's question, sovereign debt is sacrosanct. Any country would be foolish not to honour a guarantee given under the signature of the sovereign state. When we discuss burden sharing, we are not discussing that category of debt. It must be excluded. We must pay our way.
Deputy Doherty is pressing me to give him information in advance of the results being published. I am not in a position to do so. I must wait for the results of the stress tests to become available before the Government can adopt a policy position on the issues the Deputy raised.
The Taoiseach has announced the policy position. Does the Minister for Finance agree with the Taoiseach's statement that the Government will not invest more in the banks than has already been committed to until burden sharing is on the table? The Taoiseach made this statement a number of times in the House in response to questions tabled by our party leader.
I am advising the Deputy to be patient. It is not long until the end of March.
Will the Minister tell the House whether he agrees with the Taoiseach then?
Written Answers follow Adjournment Debate.