Vol. 783 No. 1
1. Deputy Michael McGrath asked the Minister for Finance in view of the latest fiscal and macro-economic projections available, if an adjustment of €3.5 billion in budget 2013 is still deemed the most appropriate and sufficient for the State to come within the deficit limits for 2013; and if he will make a statement on the matter. [50717/12]
The latest economic and fiscal projections from my Department were published yesterday, 14 November, in the updated medium-term fiscal statement, MTFS. Real GDP growth for 2013 is now estimated at 1.5%. This represents a one quarter of a percentage point downward revision on the previous forecast for 2013 as set out in the stability programme update in April. However, it is not simply a matter of suggesting that if growth forecasts are lowered, additional consolidation will be required to meet a deficit target; it is more complex than that. The achievement of fiscal targets is driven by a range of factors, including overall economic performance as well as specific developments that affect revenue and expenditure patterns in a given year. Positive base effects from a more positive outturn than was targeted for this year should also assist the position next year.
Broadly speaking, it is nominal rather than real GDP developments that drive revenue growth. Nominal GDP growth has been slightly above expectations this year. Although the nominal GDP growth estimate for 2013 has also been revised down by half a percentage point compared to the previous forecast from April, I believe the 7.5% of GDP deficit target for 2013 is still achievable based on the level of adjustment set out by the Government in late 2011 and reiterated in the MTFS yesterday.
The Government is firmly committed to meeting fiscal targets. We should remember that despite likely lower real GDP growth this year than was originally estimated in budget 2012 last December, we are on track to meet our fiscal targets this year. This is consistent with the outturn for last year when we also met fiscal targets despite GDP growth being somewhat lower than was originally estimated in budget 2011 in December 2010. It is worth bearing in mind that the European Commission's most recent forecasts, which were published last week, also predict our achieving the 7.5% of GDP deficit target next year. The Commission is forecasting real GDP growth of 1.1% for 2013.
I thank the Minister for his response. The announcement yesterday that the projected adjustment in the budget will be no greater than €3.5 billion despite the reduction in the growth forecasts for next year and 2014 was a small crumb of comfort to people. The most disappointing aspect of yesterday's document was the recognition or acceptance that we will have unemployment of approximately 14% in the coming years.
According to yesterday's document, the adjustment of €3.5 billion will bring us in at precisely the deficit limit of 7.5% of GDP next year. People want certainty and the budget will be announced in less than three weeks' time. Will the Minister indicate at this remove, in terms of the work ongoing in preparation of the budget, whether he will continue to base the budget on the three pillars of maintaining the Croke Park agreement, income tax and welfare rates? Is that the basis on which the Minister is building the budget at this point? Do those commitments still hold?
The closer we get to the budget, the less free I am to give out detailed information about either elements of the budget or the approach. However, in general terms the approach outlined in the medium-term projections published during the week holds. We will achieve a target of 7.6% of GDP if we do a correction of €3.5 billion. The Deputy may not have noticed it but in the revised forecast downward, the forecast for 2012 has actually increased and it is now 0.9%. I believe it will come in at 1% and this will change the base. That is the first thing we should remember. These things will continue to move within margins during the next three weeks as most of the data come in.
Deputy McGrath will have noticed this morning that the sale of the telephone spectrum achieved a far higher price than was pencilled in. It appears that more than €400 million will accrue to the 2012 accounts. It appears we will come in at lower than the €8.6 billion which is in the arithmetic for the year. That was the budget position but it will probably be lower than the €8.3 billion that was predicted in the forecast in the latter part of the year. It is moving within parameters but at this stage since we have done the first cut of the arithmetic on the budget we are confident that an adjustment of €3.5 billion will be sufficient to get us to a deficit of 7.6% of GDP.
It is to be welcomed overall that the deficit reduction programme is on target, but I imagine the Minister will accept that most people measure the strength of the economy by the number of jobs being created and the amount of disposable income in their pockets. I do not expect the Minister to reveal important elements of the budget today.
People will seek reassurance and it is reasonable for me to ask the Minister whether the fundamental commitments, that date to before the election and are enshrined in the programme for Government, on maintaining income tax, welfare rates and the preservation of the Croke Park agreement, form the basis of the preparation of the budget.
As Deputy Michael McGrath will be well aware, it is not customary to give details of the approach to the budget when we come this close because we would then be revealing provisions that may be in the budget. The Deputy should accept that. When one is farther away from the budget one can speculate about policy and one is freer, as a Minister, to give information.
On the basis that people measure the progress of the economy on any particular set of statistics, it depends on one's perspective. Unemployment is far too high and it is a priority of the lower it. The good news this week was not only that we are on target. Bank of Ireland was able to go back into the market and raised very significant funds. ESB went back into the market on Monday and raised very significant funds. Fitch, the rating agency, took us from negative to stable last night. The Deputy will appreciate that this is the first upgrade of any eurozone country since the European crisis began. One swallow does not make a summer but a great deal happened this week. Then there was the sale of the spectrum for which last year's budget pencilled in a much lower figure, and it is coming in at approximately €850 million. Some of that is money up-front and some of it is working right out to 2020. I am not sure how it will be reflected yet in the Government accounts, but it seems to me that it improves the year end deficit position and I would be confident now that the budget deficit will be significantly lower than 8.6% of GDP.
As Deputy Pearse Doherty is not here, we will go on to Question No. 3 in the name of Deputy Higgins.
3. Deputy Joe Higgins asked the Minister for Finance if he will report on the sustainability of the national debt in view of slower growth projections in the economy; and if he will provide the amount of the national debt and interest payments including projections for 2010 to 2014. [50701/12]
Officials in my Department have clarified with the Deputy that he is seeking information on general Government debt.
The State's debt burden has increased substantially over the last number of years as a result of the collapse in revenues and the significant increase in cyclical unemployment and debt servicing related expenditure arising from the sharp contraction in economic activity, the structurally high level of expenditure and the substantial level of State support to the banking sector.
One of the primary objectives of the Government is to stabilise the debt-to-GDP ratio and reduce it to a lower, safer level over time. This will be done through the implementation of further budgetary consolidation as well as policies which foster employment and economic growth. The updated medium-term fiscal statement, published yesterday, forecasts that the debt-to-GDP ratio will peak next year at 121% and will begin to decline in the following years. This is a result of a combination of factors, including the strengthening of nominal GDP as a result of the implementation of further growth-enhancing policy measures; the achievement of a general Government primary surplus, that is, an excess of revenue over expenditure excluding interest expenditure, by 2014; and a run-down of cash balances in future years, meaning part of the annual Exchequer borrowing requirement is funded without need for additional borrowing but is instead funded through resources to hand.
It is also worth taking into account the State’s net debt position when looking at debt sustainability. General Government debt is a gross measure that does not allow for the offsetting of cash balances and other related assets. Netting off the estimated €18.5 billion in cash and deposits held by the Exchequer at the end of 2012 would result in a net Government debt of the order of 106% of GDP at the end of 2012. This is still an elevated level but one which is significantly below the gross debt ratio.
Additional information not given on the floor of the House
One indicator of debt sustainability that is worth noting is the proportion of revenues that are directed to servicing the interest on the debt. Based on the MTFS projections, it is estimated that 11.4% of general Government revenue will be required to service the debt this year. This ratio is forecast to increase further next year before stabilising at around 16%. While this is clearly a significant level, it is worth bearing in mind that this is well below the ratio experienced during the mid-1980s, where interest expenditure accounted for over 20% of revenues.
My view is that our debt, though elevated, is sustainable. The Government is strongly committed to stabilising and reducing the debt ratio over time. An important part of that strategy is of course the banking related debt and technical work is ongoing in that regard. There is a widespread recognition of the impact banking debt has had on the sovereign, which has been acknowledged in the commitment that the situation of the Irish financial sector would be examined with the view of further improving the sustainability of the well performing adjustment Programme. I can assure the Deputy, as I have said many times, that the Government will continue to be ambitious in the negotiations and seek to agree the best possible outcome for the Irish taxpayer.
General Government debt was €144 billion in 2010 and €169 billion in 2011. In respect of the period 2012-14, my Department projects that the debt will be €192 billion, €204 billion and €210 billion, respectively. Interest expenditure in respect of this debt was €5 billion and €5.3 billion in 2010 and 2011, respectively. It is projected to be €6.4 billion this year before rising to €9.4 billion in 2013 and to €9.7 billion in 2014. The large increase next year reflects the expiry of the interest holiday on the promissory note.
I thank the officials of the Department of Finance for being very helpful. As the question was whether the general Government debt is sustainable, one definition of sustainable is that it would be capable of being continued with minimal long-term effect. Would the Minister agree that by this measure the debt certainly is not sustainable?
The medium-term fiscal statement the Minister mentioned identifies as being primarily responsible for the debt the collapse in revenues and significant increase in cyclical unemployment and debt servicing related expenditure arising from the sharp contraction in economic activities and the substantial level of State support provided to the banking sector. With growth in the economy next year revised downwards by the Department, with recession unfortunately beckoning in Europe and with unemployment continuing at inordinately high levels, is it the case that the devastating austerity that has been imposed on the Irish people with a gun to their head by the troika and the European Union establishment institutions militates against recovery and points to a scenario where the State simply cannot afford this debt?
What are the interest payments this year and next year? I have seen an estimate for next year ranging between €7 billion and €9 billion per annum, and perhaps the Minister could clarify that.
On debt sustainability, the word "sustainability" is often used in a colloquial way but in what we are talking about, it has a precise meaning. Debt sustainability means can we meet the repayments or do we have to default. The debt is entirely sustainable on that definition. If one means it will be tough going, it will be hard on people and it is not sustainable because of the pressure, or it is not politically sustainable, that is colloquial use of the language, but if one is talking the language of the market and of investors, our debt is entirely sustainable. A good example to prove it is sustainable is that in the 1980s, in the last debt crisis we had, 20% of our tax revenue was being spent on servicing the debt and at the peak now projected, that will be down to 16%. If we could sustain it in the 1980s and into the early 1990s when the serving costs were 20%, now that it is projected at a maximum of 16% we can see where that is going.
On the Deputy's question on the interest rate, the general Government debt was €144 billion in 2010 and €169 billion in 2011. In respect of the period 2012-14, we project that the debt will be €192 billion, €204 billion and €210 billion, respectively. Interest expenditure in respect of this debt was €5 billion and €5.3 billion in 2010 and 2011, respectively. It is projected to be €6.4 billion this year before rising to €9.4 billion in 2013 and to €9.7 billion in 2014. The large increase next year reflects the expiry of the interest holiday on the promissory note, which was negotiated by our predecessors in Government.
My point is that these are shocking interest figures that the Minister has just given us. He states we can make the repayments and that determines sustainability, but at what cost? Is the cost a massive diversion of funds that could, for example, be going into major investment programmes such as public infrastructure that could take tens of thousands of workers off the dole and have them creating wealth and regenerating, rebooting and remaking the economy? From that point of view, is this debt unsustainable and a considerable drain on the Irish people?
According to the Minister's report, part of the debt is €35.7 billion of EU-IMF programme borrowings and €28.3 billion in the promissory notes outstanding, all of which are related to the bank bailout. In view of this considerable waste of resources and drain on the Irish people, next year would the country be justified in saying we cannot afford to make any repayments on this debt, we should forgo it and the interest involved as well, and put it into investment?
Deputy Higgins has moved into a better position now where I can agree with him. It is not that the debt is not sustainable; it is that the debt puts a considerable burden on us and inhibits the growth in the economy.
As I have said previously, it is like trying to drive a car with the handbrake on. That is the effect of the debt. It is a drag factor and our growth rates would be higher if it were not for the servicing charges. Of course, if we had the freedom to use the servicing charges elsewhere, then spending in the economy would be a desirable thing to do.
The Deputy is short on solutions. The solution that comes from the opponents of the Government, generally speaking, is to pile deficit on deficit and debt on debt. That has been tried before and has failed. It will not work. The Deputy's other suggestion, if we cannot do that, is to default. I draw the Deputy's attention to the fact that this week the ESB was able to raise money on the markets, as was Bank of Ireland. Fitch upgraded us from negative to stable and other very positive things have been happening. If we default, I can guarantee the ESB would not get a penny on the market for the next 20 years.
We will now return to Question No. 2, in the name of Deputy Pearse Doherty.
2. Deputy Pearse Doherty asked the Minister for Finance if a common position has yet been agreed with the troika on the restructuring or refinancing of the Anglo Irish Bank promissory note; if in addition to the discussions of lower interest rates and longer maturities he is seeking an earlier winddown of IBRC than currently planned; if he will provide an update on the negotiations and a timescale for when the negotiations will be concluded; and if he will make a statement on the matter. [50716/12]
As the Deputy is aware, the Government has been working very hard to secure a deal on the Irish bank debt and detailed work will continue to ensure that the positive moves in Europe are harnessed to maximise the benefit to the Irish taxpayer. These discussions have intensified on the back of the euro area summit statement of 29 June of this year, and the ongoing work is one of the Government’s key priorities.
A significant item on the agenda in all current discussions is the issue of the promissory note. I am glad to say that we are meeting strong appreciation of our situation and are able to have very constructive dialogue on our approach to this question. These discussions are considering all options for the restructuring of the promissory notes and related considerations in terms of the source of funding, the duration of the notes, the interest rate applicable and so forth, as well as potential avenues for the wider bank debt deal and the impact of any agreed deal for the IBRC.
There are clear benefits at stake for the State in these discussions. A reduction in the interest rate associated with the promissory note, the maturity profile of the notes and the availability of long-term financing for the IBRC would have a direct impact in reducing the amount the State must borrow, either directly or indirectly, to meet future promissory note repayments and could result in considerable benefits to the State.
It would be inappropriate for me to provide a more specific update as I am in continuing dialogue with our partners on the issue and all matters remain under consideration at this time. I can assure the Deputy that the terms being sought by the Government are those which are most likely to achieve the best possible outcome on behalf of the Irish taxpayer.
On the question of timing, I have indicated that we have a strong desire to achieve a deal in advance of the next promissory note instalment due in March next year. However, it is not possible to give more specific guidance because to do so could impede our ability to achieve the best possible results for the Irish taxpayer. None the less, every effort is being made to expedite the ongoing process.
Go raibh maith agat. I thank the Leas-Cheann Comhairle for his indulgence and apologise for being late.
At the beginning of our discussions on the promissory note I want to make it clear, as I have done consistently, that Sinn Féin wishes the Minister and the Government well in their endeavours with the troika to negotiate a deal on the promissory note. Having said that, however, everything I have heard from the Minister to date and, indeed, what he has reiterated today leads me to believe that he is selling the country short. He is focusing on extending maturity, the interest and the source of the funding, which basically means that the taxpayer will continue to pay the full capital of this bad, toxic Anglo debt. Of course, what he has outlined may have benefits in the short to medium term to our current budgetary position and to the taxpayer, which would be welcome. We will judge that when we see the detail, but on the basis of what the Minister has said, even in the best case scenario the taxpayer will remain liable for every single last red cent of the capital of the Anglo Irish Bank promissory note. That deal was not created by the taxpayer, and in the view of Sinn Féin, it should not be paid by the taxpayer.
Sinn Féin has been saying this for a very long time and the Minister and his Government have ridiculed us for doing so. I draw the Minister's attention to an article, published in The Irish Times yesterday, by a former deputy director in the IMF's research department, Ashoka Mody. In it, he describes the Government's determination to make the taxpayer pay the debts of the banks as acquiescing to the "prevailing dogma", a dogma that he argues needs to be revisited. He argues that the default option on debts such as Anglo's could be economically efficient, fair and politically sensible. That is the view of Sinn Féin and is also the view of the deputy director in the IMF's research department. The consensus is changing so why does the Minister stubbornly adhere to the Government position that the taxpayer will have to pay every single last red cent of the capital of the Anglo Irish Bank promissory note?
Academics and retired luminaries from illustrious organisations such as the IMF have far more scope to get involved in speculation than a Minister of a Government who has to take the hard decisions. I draw Deputy Doherty's attention to the commitment made by the Government, along with all 27 member states at the European summit in October last:
As far as our general approach to private sector involvement in the euro area is concerned, we reiterate our decision taken on 21 July 2011 that Greece requires an exceptional and unique solution.
All other euro area Member States solemnly reaffirm their inflexible determination to honour fully their own individual sovereign signature and all their commitments to sustainable fiscal conditions and structural reforms. The euro area Heads of State or Government fully support this determination as the credibility of all their sovereign signatures is a decisive element for ensuring financial stability in the euro area as a whole.
It is not just that we in Ireland are ruling out default. It is the policy of the European Union and not just the Eurogroup. It is the policy of the 27 members, who were willing to make an exception for Greece because of the unique conditions in that country in respect of private sector involvement in debt restructuring. The policy, as laid out clearly at the October summit, is that Europe does not default. Ireland is a country whose economy is repairing quickly, and as we get stronger again and our ratings improve, we are certainly not going to throw in the towel at this stage of the game. Our debt is sustainable and we will not default.
The Minister threw in the towel a long time ago and that towel is smothering ordinary people across this State with the Government's policy of austerity. Last night was the opening night of "Anglo The Musical" and I am told there was a very funny scene at the end which struck a chord with the audience. Angela Merkel walked out and stood on stage to tell the Irish people that they must honour all of their debts. Beside her was Enda Kenny, on all fours, in leash and collar and he chirped up to say that while the Irish people did not cause the problem they will pay every last cent of the Anglo Irish Bank debt.
Can we have a question from the Deputy, please?
The Minister said earlier that it is his desire that a deal will be concluded by 31 March. The deal may not be concluded by then. None of us has a crystal ball and we do not know what that deal will look like. Is the Minister standing willing, ready and able, as Minister for Finance, on 31 March, in the absence of a deal, to put €3.1 billion of taxpayers' money into the IBRC, formerly known as Anglo Irish Bank?
I have not seen "Anglo The Musical" but I always think that satire, unless handled lightly, is just above pie throwing as theatrical entertainment. I do not think the Deputy should bring it forward as his principal witness in requesting the Government to default. On the other hand, I have made my position clear about the imminence, in March, of a repayment. I did not pay it last year and I have signalled to the Europeans and nationally that I am not disposed to pay it this year. I would like an agreement with the European authorities which allows for a different way of dealing with the promissory note as we go forward.
4. Deputy Michael McGrath asked the Minister for Finance the steps he will take to bring the pay and pension entitlements of current and retired senior bank executives at the covered institutions to more realistic levels in order to reflect the level of State support for those institutions and the state of the economy at the present time; and if he will make a statement on the matter. [50718/12]
At the outset, let me state that the outrage expressed by the Deputy in his question is not the sole preserve of the Opposition. It is shared in equal measure by the Government. However, the Deputy will readily appreciate from the time his party was in office that the Government’s scope for action to claw back or reduce such pre-existing contractual entitlements is limited due to constitutional and legal reasons. These issues are well known to all Members of the House. Indeed, some of the pay and pension entitlements he refers to were authorised by the Government which he supported. The Government shares the abhorrence of the public at these extravagant pensions but its scope for action to claw back or reduce such entitlements is limited due to constitutional and legal reasons. Pensions are generally taken to be deferred income and any action to reduce a pension in payment needs to be comprehensively founded lest it run the risk of being considered an unjust attack by the State on the property rights of individuals affected by the proposed legislation. The Government will seek to explore all avenues and options to address this issue subject to the necessary legal constraints.
The Deputy infers in his question that the Government has not taken steps to address this issue. This Government has introduced stringent controls on remuneration levels under the conditionality imposed arising from the round of State investment in the banks in summer 2011. We went much further than the previous Administration by including all elements of the pay package, bar pension contributions, under the €500,000 cap. This is being honoured, as proven in the case of new CEO appointments at AIB and Permanent TSB respectively. No breaches of the cap have been allowed by this Government, unlike the previous policy where exemptions were authorised and the Deputy is now asking me to repair the damage caused by breaches of those caps.
Additional information not given on the floor of the House
This Government has also committed to conducting a review of remuneration policies and practices at the covered institutions. The purpose of the exercise is to review thoroughly all remuneration practices at the covered institutions with the object of simplifying remuneration and compensation structures, discouraging excessive risk-taking and to better align pay and reward to long-term value creation.
I expect the consultant’s report to be delivered by year end whereupon consultations with the various stakeholders will commence. As I have said previously, I fully recognise that there is a real public interest in the levels of remuneration at the covered institutions and have committed to placing the details underpinning the review into the public domain.
I do not want to get into the blame game. The Minister is aware that some of the current arrangements were put in place before the State intervened. Other arrangements were approved by the previous Government but this Government has also approved arrangements-----
Always within the cap.
-----as was revealed last week in respect of the chief risk officer of IBRC-----
He is within the cap.
-----who has a package of over €500,000. People want to know what we are going to do collectively to deal with the issue. The Minister cited legal and constitutional impediments. People are rightly angry at the level of pay and pensions paid to retired and serving bank executives. He has not given an indication on what he intends to do about the issue, other than a general statement about exploring every avenue. Will he examine whether he can amend the Financial Emergency Measures in the Public Interest Acts or credit institution stability legislation to give himself powers to intervene on the ridiculous sums of money being paid out?
I know the Deputy does not like to be reminded of the past but by and large these extravagant pensions and payments are the result of agreements entered into by the Government which he supported. They are Fianna Fáil arrangements. I will wind them down if I can because I, too, am angry about what I inherited. He is like the boy who ran around the streets asking who will put out the fire when his own family burned the building. He should not point the finger of blame at his successors.
I am asking what he is going to do about it.
AIB has already reduced pay significantly. I can supply the Deputy with the details. It has been successful in introducing pay reduction schemes and it has written to those who are in receipt of extravagant pensions to request them to return voluntarily part of their payments. One individual has already made a significant contribution in terms of reducing his pension. IBRC's pay bill has decreased significantly. I wrote to its chairman to ask for board agreement on imposing a pay reduction of 15% but I received a reply stating the board did not think it wise to take that course of action and reciting reasons for this opinion. As far as I am concerned, that is only the first exchange of correspondence and we will pursue the issue further with IBRC.
Last June I appointed Mercer to conduct a complete review of all pay and emoluments in the covered institutions precisely because I share the emotions expressed by the Deputy. I had the information and, as far as I am concerned, the payments are far too high. They are ridiculous in light of what some families have to survive on. I will have a report on that review at the end of the year and I will act on it.
It is clear that the bankers have an entirely different expectation of the review. When IBRC appeared before the Committee on Finance, Public Expenditure and Reform, it expressed the hope that the review would lead to pay increases because it finds it difficult at present to attract and retain the right staff.
Will the Minister agree to taking legal advice on the aforementioned legislation to determine whether he can intervene in respect of pay and pensions? He started his review in April of last year and then he wrote to us on 18 October that he has now appointed Mercer. What happened to the review that was ongoing for 18 months?
I am quite aware of the implications of the legislation and I have set out for the Deputy my approach to the matter. In the first instance I will engage with the covered institutions to achieve the policy ends that have been set out. We will see how that proceeds. I do not know what the IBRC executives said before the committee but, as they say down my way, I hope it stays fine for them.
5. Deputy Mick Wallace asked the Minister for Finance in view of the difficulties that so many persons here are facing in dealing with mortgage arrears and negative equity on their homes, if he will consider raising the anticipated property tax revenue from an alternative source such as an increase in income tax for those who can afford to pay; and if he will make a statement on the matter. [50479/12]
The Government has decided, as part of our obligation under the EU-IMF programme of financial support to Ireland, to introduce an annual recurring property tax. In the latest memorandum of understanding between the Government and the troika, a commitment was given to introducing the tax in the forthcoming budget. The introduction of a property tax has been a condition of the programme since it was first negotiated in November 2010 under the previous Government and has remained a condition following subsequent reviews agreed by all programme partners. The memorandum provides for substitution of measures in certain circumstances. It states that "without prejudice to the minimum consolidation amount referred to in the previous paragraph and to the requirements to achieve the agreed fiscal targets, the Government may, in consultation with the staff of the European Commission, the IMF and the ECB, substitute one or more of the above measures with others of equally good quality based on the options identified in the Comprehensive Review of Expenditure." Therefore any proposal to alter the proposed composition of tax or expenditure measures would need to be substituted with measures of equal value.
It should be noted that the arguments in favour of a property tax go beyond the memorandum. The introduction of a property tax is part of a broader approach to the taxation of property. The aim is to replace some of the revenue from transaction based taxes, which have proven to be an unstable source of Government revenue, with an annual recurring property tax which international experience has shown to be a stable source of funding. The taxation of property through a recurring annual tax is less economically distortional than the imposition of tax on either income or capital. This is supported by economic literature and recent OECD analysis. The OECD has highlighted that annual taxes on land and buildings have a relatively small adverse impact on economic performance.
It is a longstanding practice of the Minister for Finance not to comment in advance of the budget on any tax matters that might be the subject of budget decisions. The property tax forms part of a long-term policy to broaden the tax base, provide a stable funding base for local government and assist the strengthening of democracy at local level. Due consideration will be given to a wide range of issues, including fairness, equity and ability to pay, in any measures that may be announced.
Additional information not given on the floor of the House
Regarding mortgage arrears and negative equity, the Government is conscious of the difficulty some home owners are experiencing in meeting their mortgage obligations. The main focus of attention is on those mortgage holders who are experiencing genuine difficulty in meeting commitments in respect of their home. A range of measures is being advanced in this area including personal insolvency reform, the implementation of the mortgage to rent initiative, engagement with mortgage lenders on the development and implementation by them of mortgage arrears resolution strategies and provision of a mortgage advisory function.
This is not a normal time in Ireland to try to introduce a property tax.
In principle, in a healthy climate I would not have a problem with the notion of a property tax. However, we are approaching a figure of 400,000 homes in negative equity, including those in mortgage arrears. In addition, there are approximately 450,000 people unemployed, meaning about 150,000 households are affected by unemployment. On top of this, a further 150,000 households are in the names of pensioners. This amounts to almost half of the property pot and one can see it will be very difficult to apply a property tax.
It was interesting to hear the comments of Dr. Peter Bacon when challenged and asked if introducing a property tax was a good idea. He said he did not think it was a good idea based on current economic circumstances and that he believed there was nothing a property tax could achieve that could not be achieved by adjusting income tax rates. The argument being made is that a property tax would broaden the tax base, but it would not. It is a residential property tax that would be paid from the incomes of home owners or occupiers; therefore, it would be paid for from their incomes and land on PAYE employees and the self-employed.
Also, the Minister should realise that Ireland is probably the only country in Europe where significant numbers have paid stamp duty on their primary residence, a practice unheard of throughout Europe. For example, anyone who paid €200,000 for a house, paid stamp duty at a rate of 6% or €12,000 on his or her property. This figure becomes €25,000 through a 25 year mortgage or €1,000 a year in stamp duty.
Previous housing policies, property and transaction taxes have been disastrous and placed significant impositions on people. The Government has decided that it will introduce a property tax and I do not see it as a solution to argue that it should increase income tax rates instead. Some of the people mentioned by the Deputy would have to pay increased income tax. The property tax approach would result in a broadening of the tax base and mean all tax revenue would not be taken from income. Therefore, property owners and householders would pay their share. We will try to introduce a fair system and the proposed measures will be announced on budget day.
Dr. Peter Bacon recommends that we do it through income tax. Imposing a tax rate of 50% on earned moneys above €100,000 would bring in €490 million annually, almost equal to what is expected to be raised by the property tax. Such a tax would be based on ability to pay, making it a fairer tax. I remind the Minister that in January 2011 Fine Gael stated it would raise revenue from property, but not by way of a household tax as proposed by Fianna Fáil, on the grounds that such a tax would be difficult to collect from asset rich but income poor households, particularly the elderly and the unemployed, and also that it would be deeply unfair for a young generation who had paid exorbitant amounts in stamp duty and VAT on the purchase of overvalued houses, many of whom now find themselves in negative equity. This is what the Minister's party stated one month before the general election. I am sure he would agree that we should be pursuing a form of taxation based on ability to pay.
We have a difference of opinion on policy. I do not believe imposing very high additional charges on income taxpayers is the way to collect additional taxes or lift the economy out of the position it has been in for some time. We will take the difficulties to which the Deputy points into account in designing the property tax. Approximately three weeks from the budget, I cannot give him the details, but we will provide them on budget day.
