Michael McGrath
Question:52. Deputy Michael McGrath asked the Minister for Finance when he expects eurozone banking union to be completed; the way this will benefit Ireland; and if he will make a statement on the matter. [24383/13]
Priority Questions
European Banking Union
The European Council meeting of 29 June 2012 considered a report from the President of the European Council, in co-operation with the Presidents of the Commission, the Eurogroup and the ECB, which set out building blocks for future Economic and Monetary Union. One of these building blocks is an integrated financial framework, or banking union, which comprises three elements: an integrated system for the supervision of cross-border banks in the form of the single supervisor mechanism; a recasting of the deposit insurance scheme directive - the DGS directive - to further harmonise national DGSs; and a European harmonised bank recovery and resolution scheme, commonly referred to as the BRRD.
Significantly, the statement of the euro area summit clearly stated that when a single supervisory mechanism was in place for banks in the euro area, the ESM would, following a regular decision, have the possibility to recapitalise banks directly. Furthermore, to complete the banking union initiative, the European Commission will this summer bring forward proposals for a single resolution mechanism to co-ordinate the application of resolution tools to banks.
The European Council of December 2012 noted the Commission's intention to submit a proposal for a single resolution mechanism for member states participating in the single supervisory mechanism to be examined as a matter of urgency during the current parliamentary cycle of the European Parliament, that is, before May 2014. The stated position of the ECOFIN is that the building blocks for banking union should be put in place as soon as possible. This is a sensible approach and our work as EU President is helping to advance banking union in as speedy a manner as possible. As we move into the final weeks of our Presidency, we will continue to afford top priority to the legislative files relating to banking union in line with the conclusions of the European Council which set out a timeframe and a series of steps to achieving this.
The Irish Presidency is giving absolute priority to all the files relating to the promotion of banking union in line with the ambitious agenda for banking union. We have achieved agreement on the single supervisory mechanism, a very significant step forward towards ensuring financial stability and thus facilitating growth.
Additional information not given on the floor of the House
We have also achieved agreement on the capital requirements directive IV, which aims to strengthen the capital requirements for banks and the overall effectiveness of regulation for the sector and enhance financial stability. We have made good progress towards agreement on the bank recovery and resolution directive as the essential next step, with a view to agreement by June of this year, as envisaged by the European Council. Once this has been agreed, the European Commission is expected to submit a proposal for a single resolution authority, which will build on the work now under way. The remaining work on the DGS can commence once the financing elements of the BRRD have been agreed.
An important complement to the banking union package is the development of an operational framework for the direct recapitalisation of banks by the European stability mechanism, ESM which should include the definition of legacy assets. It is expected that the ESM guidelines on the direct banking recapitalisation instrument will be completed by end June.
I remind the House that there is one minute for a question and one minute for a reply.
I hope the Leas-Cheann Comhairle will allow me some discretion to wish the Minister a very happy birthday tomorrow. I hope he gets some time with his family to enjoy the occasion.
I wish to raise the issue of banking union with the Minister and in particular its relevance to Ireland. We had some discussion on this issue at the recent Oireachtas Committee on Finance, Public Expenditure and Reform prior to ECOFIN. The objectives that were laid out in June 2012 - the separation of bank debt from sovereign states and the possibility of the ESM directly recapitalising banks once banking union was up and running - seem to becoming remote. I know it was Olli Rehn who made October 2012 the target for the achievement of one of those milestones. It is now May 2013 and by the Minister's own admission, it will be well into next year before we have any prospect of the ESM being in a position to recapitalise banks.
This is relevant to Ireland for two key reasons. They are the legacy issue - the €30 billion or so that went into the pillar banks and Permanent TSB - and the possibility, albeit perhaps remote, that the stress tests on the Irish banks later this year will identify the need for additional capital. When does the Minister expect that Ireland will be in a position to avail of this new structure and when will the structure be in place and ready to begin to implement the June 2012 decision so we can have a proper separation of banking debt from sovereign states?
We have made significant progress in the Irish Presidency on the single supervisory mechanism which was the first major step that has now been agreed. We have also got agreement on the capital requirements directive, CRD IV, which the Deputy will recall was the directive which decided on the capital requirements of banks and introduces the new Basel rules with which banks must comply. The file now under discussion is the resolution directive and is the next essential step. It is not only the eurozone countries that are involved in the banking union. The other ten "outs", as they call them, are also involved and there must be agreement among the 27 but, so far, progress is in accordance with the timetable. We had a very good political discussion on banking resolution at the last ECOFIN and the Irish Presidency is bringing forward the bank resolution file again to the June meeting of ECOFIN, which I think is on 21 June in Luxembourg.
I am not quite sure whether we will agree it there. That will be a matter for the colleagues around the table but we will be coming close. The ground has narrowed quite a lot. When the single supervisory mechanism is in place and when there is agreement on the resolution file, the work which is progressing in parallel on the functions of the ESM and its ability to recapitalise banks will come into place. There is not much change in the timetable. There is a slight variation on when the single supervisory mechanism comes in but it was always intended that the ability of the fund to recapitalise the banks would be at the end of the process.
Has there been any discussion - even a preliminary one - of the question of whether the ESM would have any interest in acquiring equity stakes in existing banks. It is a legacy issue in the case of Ireland? There have been interventions by Finance Ministers of powerful triple A-rated countries in recent months who have poured cold water on the possibility of the ESM dealing with legacy issues. Has there been any discussion of the likelihood of the ESM having any interest in taking stakes in Irish banks? Clearly, the ESM is the only way the State will be able to recoup any of the money it has put into these banks.
The stability mechanism is not just an Irish institution; it is in place for all 27 member states. I have explained previously to the Deputy that three Eurogroup meetings included a political discussion to give guidance to the small group drafting the guidelines for the ESM. In that context, there were discussions on both legacy issues and retrospective application in recapitalisation. However, the process has not concluded. It was a political discussion to guide those drawing up the full regulation in order that they would not devise something that was totally politically unacceptable. We are keeping in place the distinction between legacy issues and retrospection. We know that the arrangements for our legacy bank, IBRC-Anglo Irish Bank, are done and dusted with the arrangements on the promissory notes. However, in the case of our trading banks, we want to keep the issue of retrospection and the possibility of retrospective recapitalisation on the table. So far, it is still on it.
Bank Charges
Pearse Doherty
Question:53. Deputy Pearse Doherty asked the Minister for Finance his views on the need for banks to pass on European Central Bank interest rate changes; and the action he will take to compel them to do so. [24350/13]
I must confirm for the Deputy that the lending institutions in Ireland, including those in which the State has a significant shareholding, are independent commercial entities. I have no statutory role in relation to regulated financial institutions passing on the European Central Bank interest rate change. It is a commercial matter for each institution concerned. Neither have I responsibility for the interest rate paid to depositors by the financial institutions.
The Central Bank has responsibility for the regulation and supervision of financial institutions in terms of consumer protection and prudential requirements and for ensuring ongoing compliance with applicable statutory obligations. However, it has no statutory role in the setting of interest rates by financial institutions, apart from the interest rate cap imposed on the credit union sector in accordance with the provisions of the Credit Union Act 1997.
The mortgage interest rates that financial institutions operating in Ireland charge to customers are determined as a result of a commercial decision by the institutions concerned. This interest rate is determined, taking into account a broad range of factors, including European Central Bank base rates, deposit rates, market funding costs, the competitive environment and an institution's overall funding arrangements.
I remind the Deputy that in late 2011 the Taoiseach asked for the Central Bank's opinion on developments regarding mortgage interest rates and possible action by the bank in this regard. In a letter to the Taoiseach, dated 11 November 2011, the Deputy Governor stated the Central Bank would not be seeking the power to have regulatory control over the setting of retail interest rates. He indicated that the experience of such controls in the past and in other countries did not encourage the Central Bank to believe such a regime would be advantageous in net terms as the banking system recovered its normal functioning. Binding controls tend to reduce the availability of credit and channel it to the most creditworthy customers, starving smaller and less secure customers of credit. Binding controls would have a chilling effect on the entry of sound competitors into the market. By absolving banks of their responsibility to price risk accurately, binding interest rate controls would, especially during the recovery phase, impede progress towards the re-establishment of bank management practices that can ensure a healthy and free-standing banking system no longer dependent on the Government for a bailout.
The Deputy Governor also mentioned that within its existing powers and through the use of persuasion, the Central Bank would continue to engage with specific lenders which appear to have standard variable rates which are disproportionate to their costs of funds. This is a course of action I expect the Central Bank to appraise continually.
In November 2011, when the ECB cut its interest rate, the Minister, the Taoiseach and the Minister for Public Expenditure and Reform, Deputy Brendan Howlin, brought the banks in and told them clearly that they must cut their rates. Initially, they refused, but as a result of the pressure the Government brought to bear, eventually, they did so. The Taoiseach said at the time that, if necessary, the Government would legislate to make the banks cut their rates. In the intervening period, we have seen mortgage arrears spiral out of control while bankers have been taking excessive pay. The banks have only responded on those two issues when appropriate pressure has been placed on them.
In the past, the Government showed some desire to fight the banks on these issues, but that desire has clearly waned among Ministers. Recent figures from the Central Bank show that while the ECB's main re-finance rate stood steady at 0.75%, the applicable Irish rate increased by 14 basis points. Those figures are from the period before the recent ECB cut of 25 basis points. In 2013, the same banks that refused to cut rates in 2011 are now refusing to pass on the ECB's interest rate cut yet there is not a whimper from the Minister, his party, Fine Gael, or the Labour Party. I note that while the Minister says he has no statutory powers in this area, he did not have them in November 2011 either when the Minister of State at the Department of Finance, Deputy Brian Hayes, said he was very disappointed and that it was pathetic that banks bailed out by the taxpayer should decide not to pass on the rate cut. In the aftermath of the meeting to which the Government summoned the bankers, the Minister said that the ECB had lowered interest rates to avoid recession and it was difficult to see why Irish banks should not follow suit.
The Minister is well aware that in the next two weeks tens of thousands of customers of AIB will see an increase in their variable mortgage rates. Will he repeat his 2011 comments and say that it is unacceptable and, as his Minister of State stated, pathetic that banks bailed out by the State are refusing to pass on interest rate cuts and, instead, are increasing their variable rates?
The Deputy refers to November 2011, which was when the Taoiseach wrote to the Central Bank to ask if it was seeking regulatory powers to control interest rates. The Deputy Governor replied to the effect that the Central Bank was not seeking such powers and provided good and sufficient reasons for not doing so. The difference between the situation in November 2011 and now is that at that time, there was a high reliance by commercial banks on ELG funding from the Central Bank. The commercial banks are not dependent on ELG funds any longer and must be cognisant of the deposit base on the one hand and the cost of funding in general. We must protect the generality of Irish taxpayers who own two of the banks almost completely. The business we are in is always about choices. Why would 2.1 million taxpayers be penalised to protect a smaller group of people who have loans from the banks?
It is not true to say that interest rates have not been passed on in respect of mortgages. Of all Irish mortgages, 50% are trackers and those have seen reductions in the rate of interest applying. However, people with variable mortgage rates have experienced some increases in the past 12 months, particularly where they have loans with AIB, which is bringing its interest rates up to average that prevails in the market. The bank must go to the market to raise funds on deposits as well as to meet the cost of funding. I note that the rates being charged by the Irish banks are comparable to the rates being charged elsewhere in Europe.
Can the Minister confirm that there is nothing to prevent him, the Taoiseach and the Minister for Public Expenditure and Reform from doing exactly what they did in November 2011, which was to call the heads of the banks in and ask why none of them has passed on the ECB rate reduction?
Is there anything to prevent them doing that or does the Minister support AIB fleecing its variable rate mortgage customers by absorbing the reduction in the rate and increasing the rate by 0.4% for over 70,000 customers in the next 14 days?
We have very good formal relationships with the banks now. Contacts can be make quite adequately through officials in the Department of Finance, who are in constant contact with the banks. An interest rate is the price at which money is lent and the price contains a pricing in of risk. The banks must be in a position to arrange these matters commercially when they are no longer relying principally on funds supplied by the Central Bank but are in the market raising funds and where they get a large proportion of their funds from depositors. In that context, we want them to act commercially and we want the banks to be restored to full commercial health. The taxpayer owns two of the banks completely and owns 15% of the third and we want the banks to be profitable again to protect the investment of taxpayers. In due course I hope I, or one of my successors, will be able to recover the money from the banks by selling the shares in the banks and taking back what the taxpayer was forced to invest after the collapse in the banking system on the watch of the previous Fianna Fáil-Green Party Government.
Credit Unions
Tom Fleming
Question:54. Deputy Tom Fleming asked the Minister for Finance if he will ensure that whatever regime is brought into place that the credit unions are in no way detrimentally affected vis-à-vis the other lending banks and, in the event of the debt management, that Money Advice and Budgeting Service, with persons for years that have had a geographical and sociological knowledge of borrowers on the ground, is given responsibility for assisting borrowers with creditors; and if he will intervene with the Central Bank of Ireland to ensure that this work will not be given out to any organisation outside the country. [24437/13]
Many distressed borrowers have multiple debts with different lenders and have to deal with each lender on each debt. This makes it difficult for a borrower and his or her lenders to address the personal debt difficulties on a whole of debt basis. In view of this, at the start of March the Central Bank commenced a process to facilitate the development of a co-ordinated approach among lenders to the resolution of multiple debts owed by distressed borrowers. The aim of the pilot scheme is to achieve sustainable and fair outcomes without the need for the borrower to enter the statutory insolvency process. It is focused on enhancing co-operation between lenders of secured and unsecured debt at an early stage.
The Central Bank has advised that this framework will help those borrowers because the lenders are agreeing to a co-ordinated approach for resolution of all of the borrowers' debts. In addition, many distressed borrowers are not insolvent and therefore will not be eligible for an arrangement under the personal insolvency regime but need to have an appropriate solution in place to deal with their debts. This framework aims to test the feasibility and costs of implementing such solutions for borrowers. The Central Bank has also informed me that the framework has the potential to reduce the costs and time it will take lenders operating on an individual basis to deal with distressed borrowers while also potentially resulting in only the more challenging cases proceeding to the new established personal insolvency regime.
The Central Bank has advised that it has been agreed among the lender participants to use an independent third party service provider as the most appropriate way to engage with borrowers, whose consent to participate will be sought and required to take part in the pilot. I am informed by the Central Bank that discussions are under way to determine the most appropriate provider and that no decision has been made. However, I also understand that an important consideration for the Central Bank in this matter, due to the short timelines involved, is the ability of the provider to provide an effective and efficient service at short notice.
The Central Bank is actively encouraging the involvement of all lenders in the process to ensure maximum effectiveness of this learning and information gathering pilot stage and it is encouraged that a number of lenders have agreed to become engaged. The Central Bank advises that it has written to all credit unions individually to invite them to participate in the pilot framework and it is confident the pilot framework will offer outcomes which support borrowers and will also allow the Central Bank to test and learn from this approach.
It must be borne in mind that a key issue in a decision to opt out by some lenders is that borrowers from these institutions cannot be part of the pilot framework to restructure their debt. For example, if a distressed borrower has multiple debts and one of their lenders is not involved in the pilot scheme, then such borrowers cannot be part of the pilot scheme and cannot avail of the benefits that can accrue from the operation of the framework.
Is the Minister aware that his Department, with the Central Bank, is engaged in a deliberate and sustained act of vandalism against the credit union movement across Ireland? In the recent past a number of banks, acting as a type of cartel, announced that they were putting in place a new protocol to deal collectively with unsecured debt, that is, debts that are not mortgages. In doing so, they were effectively giving the two fingers to our new personal debt laws which were designed for debt in general, not just bank debt. It is also important to point out that it was not the credit unions that almost caused the collapse of the State. It is a known fact and will go down in history as such that the banks were the main instigators. It is equally important to point out that it was not the credit unions that cut off credit to tens of thousands of citizens in the State. Again, the banks were the culprits.
While there is a deliberate act of sabotage in play against the credit union movement, there is very little effort to rein in the banks. It appears that the Central Bank is taking the side of the commercial banks. Why does it allow Allied Irish Banks and other banks to raise standard variable interest rates? Permanent TSB is also engaged in this. The increase in the variable rate for mortgages about three weeks ago could probably put mortgage holders further into arrears. Credit unions are being blocked from providing small loans. The Minister should intervene and remove these barriers. I ask him to act immediately. It is a complicated issue, but given his portfolio, he should make a stronger effort on behalf of the people who receive small loans from the credit unions.
The Department of Finance and I have a very good relationship with the credit union movement, both at national level and with individual credit unions around the country. The Deputy will recall that when the legislation to restructure the credit union movement was brought before the House, many amendments were suggested by Deputies on behalf of the movement. All issues were resolved by dialogue. Uniquely, the Credit Union Bill passed all Stages in the Dáil and the Seanad without a division. That shows the very good relationship that not only I but also Deputies Michael McGrath, Pearse Doherty and others have with the credit union movement.
In addition, the Government has committed to spend €500 million in restructuring the credit union movement. Where there is impairment, funds will be provided to repair, where necessary. The Central Bank, of which the credit union director is an employee, has decided to carry out a pilot scheme to see if arrangements for the debts of persons with borrowings from a number of sources, including credit unions, can be made informally. To examine how this might best work, the Central Bank is bringing in outside expertise in running the pilot scheme which, of course, like all pilot schemes, will not be set in concrete. Different approaches will be tried and we hope there will be a permanent scheme drawing on the experience of what does and does not work.
There is a particular problem where people are indebted to a number of creditors, especially when somebody has a mortgage with a bank or a building society where the debt is secured and a loan from the credit union where the debt is not secured. How to deal with secured and unsecured debt is the essential ingredient in terms of why the pilot scheme was advanced. I understand discussions are ongoing. I hope the Central Bank in its talks with the credit union movement will secure full participation in the pilot scheme in order that there can be an informal system in parallel with the systems in place under the insolvency legislation.
Surely the Minister and Governor of the Central Bank can see the games that banks have been playing. This is not about debt and mortgage arrears but about market shares. The Minister is really rewarding the banks with a bigger share of the market at the expense of the credit union movement. That is the reality.
It is shameful that MABS is being bypassed. There appears to be ongoing negotiations with the UK company with a view to its coming here to engage on behalf of the consumer in respect of the pilot scheme for 750 mortgage holders. Allowing this to happen represents a complete dereliction of duty by the Government. The Central Bank should certainly be taken aside. We must recognise that MABS is a wonderful organisation with experience. It is dealing with mortgage holders. The British company deals mainly with unsecured debt. I ask that the Minister give us a very positive reply on behalf of the people who have given wonderful service to this State and the public. MABS is a State body and it should be given recognition.
I have been urged by all sides of the House to come up with solutions to the problem of personal debt. We have spent a lot of time on it and we are now at the point where the system is beginning to work properly. The primary legislation is the insolvency Act. It is just ready to come online but there are circumstances where problems could be resolved better informally. The Central Bank is about putting in place a pilot scheme to determine whether it can resolve informally the debt circumstances of individuals who have borrowed from the banks and other lending institutions, but who also have unsecured borrowings from the credit union movement. It is in the interest of the credit union movement to get back as much as it can of what it has lent. The pilot scheme is intended to work out a fair system in which different lenders will get a proportion of what they have lent returned to them and in which the borrower will be put in a position in which his or her personal debt is sustainable. That is all that is occurring. It is another method of resolving the problem that everyone in the House is aware of.
Banking Sector Remuneration
Michael McGrath
Question:55. Deputy Michael McGrath asked the Minister for Finance the actions he expects and the timetable for implementation following the completion of the Mercer report on bank pay and pensions; and if he will make a statement on the matter. [24384/13]
The Deputy will be aware that when publishing the review of remuneration practices and frameworks at the covered institutions on 12 March 2013, I indicated that the Government had formed the view that with the remaining State-supported banks still incurring losses it was an inescapable conclusion that the cost base of the institutions needed to be reduced further. This is essential if they are to return to profitability and be in a position to support the economy and repay the State's investment through a return to private ownership. On behalf of the Government, I directed the banks to come up with plans as to how they intend to address this issue in a manner that can help meet the State's objectives, and I expect the value of those plans to mean a saving of 6% to 10% of total remuneration costs. I was not prescriptive in how this was to be achieved, respecting their differing State ownership and investment arrangements and paths to profitability. I can confirm that the three State-supported banks responded with their individual strategies designed to achieve the required savings by the due date of 30 April, as requested by the Government. Those plans are being evaluated by my Department currently. It is not possible at this stage to reveal precise individual details bar what has been put into the public domain. I can confirm that all three institutions have put forward pension changes to varying degrees as part of their respective overall responses.
I am constrained as to what I can say at the current time due to commercial sensitivities and, perhaps more critical at this stage, industrial relations concerns as the normal protocols continue and need to be respected and observed by all parties. This is something I have advocated throughout the process. I am anxious, therefore, that all the participants in these discussions are given space and time to conduct these critical negotiations.
Accordingly, I would encourage all sides to engage in these discussions proactively, through the appropriate forums, in view of the serious and critical consequences for all concerned. In this context, the Government readily acknowledges the sacrifices and changes made by bank employees to date at all levels, and recognises that this has been achieved without major industrial unrest in what is a critically important sector.
It follows that, at this stage, it would not be appropriate or realistic to specify a timeframe for the savings to be delivered. However, in view of the fact that the three institutions continue to be loss-making, the timely delivery of such savings is critical to their viability and to the future employment prospects of their employees.
I thank the Minister for his reply. He is right to acknowledge that many bank employees have taken some pain and made sacrifices, and are concerned about what will be imposed on them by way of the cuts required as a result of the Mercer report. As he stated, the Government has decided that cuts of between 6% and 10% in total remuneration costs are required across the State-supported banks. I have some questions on that.
The Minister said he was not prescriptive in what he was asking the banks to do once they brought in savings within the band of 6% to 10%. Does that mean he is completely neutral as to how the banks achieve those savings? For example, if they proposed a flat rate cut from the CEO down to an ordinary bank official, would that be acceptable to him and the Department? Has he given the banks an indication that he would at least expect a sliding scale, whereby the greater impact of the reductions will be felt by those on the highest pay? Is he completely indifferent as to how they achieve the cuts?
What will become of the savings that will be achieved as a result of these decisions? He mentioned the need for banks to return to profitability, with which we all concur. It is essential. As the Minister knows, a commitment was given that the banks would be required to reduce their costs in order to forgo a 0.25% interest rate increase. Will the cost savings be used to accelerate the return to profitability? Will customers, in particular those on variable interest rates, enjoy a rate cut as a result?
I am not neutral on the method the banks may use to achieve payroll savings. We are talking about a reduction of between 6% and 10% in the cost base of each institution. The Deputy will recall that Mercer did an evaluation of the three institutions concerned, which we published. Arising from that, the Government decided that the cost bases of the banks were still too high. They are all suffering losses and they need to reduce their cost bases.
They have submitted an initial response to my letter, laying out in primary colours what their plans are. I have to be satisfied with the work out of that. We are all living in the real world; there is an industrial relations process. The banks are unionised and represented, and we have to respect the negotiation process. Some things that are being proposed will, I presume, be acceptable and others will not. They will work their way through the process. In the final analysis, my officials will advise me as to whether what is happening is adequate. The arrangement will not be put in place unless I sign off on the agreement on behalf of the taxpayer.
My weight in respect of AIB and PTSB is more than that in respect of Bank of Ireland, in which the State is a 15% shareholder. The purpose of the savings is to cut the cost bases of the banks in order that they become profitable again. Profitable banks are a great advantage to people who do business with them, in terms of the availability of credit, the service they can give and the cost of what happens.
It is within all this range of activity that I would see customers of the banks benefiting in due course. One point on which we can be absolutely certain, however, is that banks which continue to lose money in present circumstances are not doing any favours to their customers.
Ordinary bank employees would be quick to point out that they have not had much say thus far in the cuts to their pay and the changes to the terms and conditions of their employment. There may have been some consultation, but when it comes to pension changes, for example, unilateral decisions were made by the management of the banks. I acknowledge that a parallel industrial relations initiative is under way between the banks and employees' representatives. The Minister, however, is more than a passive bystander in this.
My question in this regard was very straightforward. The Minister said he is not neutral but that the savings have to come from remuneration. I am asking whether he will insist that those who are earning the most in the banks - the highest-paid executives - rather than ordinary employees, will bear the brunt of the pain. I accept what he is saying about profitability; it is a given that the banks must return to profitability. Nevertheless, a commitment was given regarding an interest rate reduction of 0.25%, to be facilitated by a reduction in costs. Costs are being reduced, but the promise to reduce the interest rate seems to have disappeared.
Surely nobody in this House is advocating that the banks should continue trading unprofitably and that taxpayers should be asked to put more money in to keep salaries up and pensions high. That is a ridiculous proposition. Banks must cut their cloth according to their measure, but I will not dictate the specific terms of how they cut it. I have said that I want to see reductions of between 6% and 10% in the cost base. That is a fairly wide tolerance. I have said that management must negotiate with employees and include the representatives of those employees in the negotiations, before coming back to me with a proposal which achieves that level of saving. Then we will talk about it. It is not the job of the Minister to blunder into delicate negotiations seeking to lay down the arrangements. That simply does not work. The banks must be run on a commercial basis, they must be run by the management and board of directors, and they must negotiate arrangements with their employees in the normal way.
Doing nothing is not an answer. My colleague, the Minister for Public Expenditure and Reform, Deputy Brendan Howlin, will today announce the result of the negotiations on a successor to the Croke Park agreement. We are very pleased that he has again reached a satisfactory arrangement with the unions. We are aware, however, that this will cause a great deal of pain for large numbers of civil and public servants, including teachers, nurses and gardaí. It is incredible that anybody would propose that the banks which are being kept going with taxpayers' money should not cut their cost base in order to make them commercial.
Nobody is saying that.
Small and Medium Enterprises Supports
Finian McGrath
Question:56. Deputy Finian McGrath asked the Minister for Finance if he will outline the tax and PRSI supports for small and medium enterprises on the north side of Dublin. [24480/13]
In the November 2012 medium-term fiscal statement, my Department published a paper on the importance of small business to the economy. The paper highlighted that small and medium-sized businesses, SMEs, make up more than 99% of businesses in Ireland and account for almost 70% of people employed. To that end, as part of budget 2013, I included a ten-point tax reform plan containing measures to assist small business in a number of ways, including in regard to their cash flow position, access to funding, reducing the costs associated with the administrative burden of tax compliance, boosting demand for their products in new markets, and incentivising them to create jobs.
The ten measures are not subject to any geographic restrictions and will be applicable on the north side of Dublin or anywhere else where the SMEs concerned meet the relevant criteria. The first measure involves reforming the three-year corporation tax relief for start-up companies to allow unused credits to be carried forward, thus helping to create jobs and improve cash flow. The second measure is to amend the close company surcharge by increasing the de minimis level to €2,000 in order to reduce the administrative burden and assist cash flow.
Measure 3 involves increasing the amount of expenditure eligible for the research and development tax credit on a full volume basis, without reference to the 2003 base year, to €200,000 to encourage innovation and help cash flow. Measure 4 is to increase the VAT cash receipts basis accounting threshold from €l million to €1.25 million to help cash flow. Measure 5 extends the foreign earnings deduction for work related travel to Algeria, the Democratic Republic of Congo, Egypt, Ghana, Kenya, Nigeria, Senegal and Tanzania to help boost demand for Irish goods and services abroad, while measure 6 extends the employment and investment incentive scheme to 2020 to help companies access funding. Measures 7 and 8 would not perhaps be relevant to the Deputy's specific question, but I will include them for the sake of completeness. They concern extending the general rate and young trained farmers' rate of stock relief, amendments to the definition of registered partnerships for stock relief to give targeted assistance to the farming sector and introducing a capital gains tax relief for farmers for land restructuring to give targeted assistance to the farming sector. Measure 9 involves reviewing the "carried interest" provision in the tax code to help small businesses to access funding. Measure 10 involves the announcing of a joint Revenue and Department of Finance public consultation, Taxation of Micro Enterprises: Reduction in Compliance Costs, to identify ways to ease the administrative burden.
Additional information not given on the floor of the House
The Finance Act 2013 added two further provisions to this plan: amendment of the "key employee" provision of the research and development tax credit regime by reducing, from 75% to 50%, the proportion of time such an employee must spend solely on research and development activities in order to qualify for the credit - this should assist small and medium enterprises to avail of the provision; and amendment of the EII scheme to permit the operating or managing of hotels, guesthouses, self-catering accommodation or comparable establishments to qualify for the incentives.
These measures are in addition to existing taxation-based measures which are aimed at SMEs. These include the seed capital scheme, SCS, which is available to certain individuals who start a new business venture - income tax paid over the previous six years can be refunded, subject to certain conditions; the Revenue job assist scheme, RJA, which continues to be available to employers who employ an individual who has been unemployed for the previous 12 months. Employers may claim a double deduction when computing the profits of the trade or profession in respect of the first three years wages paid to qualifying employees. This double deduction may also be claimed in respect of the employers' PRSI contribution on such wages. Qualifying employees, in addition to their normal tax credits, can claim certain income deductions, including additional deductions for qualifying children for the three year period after taking up employment.
Other incentives focused on PRSI would primarily be the responsibility of my colleague, the Minister for Social Protection.
I welcome some of the measures the Minister has announced. He has said 70% of people are employed in the small business sector. That is very important and many are not aware of this fact. Despite some of the improvements and offers in respect of tax and PRSI and supports for small business, does the Minister accept that there are still huge problems in the small business sector, particularly in my constituency, Dublin Bay North? We see small businesses that are struggling with job losses, high rents, high rates and access to credit. All of these issues cause them major grief. Does the Minister have any other new creative idea to assist these businesses? Will he have a strong word with the Minister for Jobs, Enterprise and Innovation, Deputy Richard Bruton, on the issue? I feel very strongly that he needs to up his game on job creation and in supporting small businesses on the northside of Dublin. In the run-up to the budget will he consider retaining the VAT rate at 9% for restaurants because there is potential in the next 18 months to create in the region of 2,000 jobs? That is a practical measure to help small businesses.
Accessing credit is a problem for small businesses. We have strengthened both the banks and the credit union movement to enable them to provide credit, but, in addition, we have introduced the seed capital scheme and the bank guarantee scheme. We have also set up the Credit Control Office to enable small businesses whose banks have refused loans to appeal to the Director of Credit Control who is overturning the decision made in approximately 50% of the cases referred to him. We have also got the European Investment Bank to increase the amount of funds made available to Ireland from €250 million to over €600 million, much of which is being channelled through AIB and Bank of Ireland to the SME sector. There is approximately €200 million for each bank, specifically dedicated to providing funds for SMEs. We are doing a great deal, but it takes a long time to repair the damage caused by the disastrous collapse under the Fianna Fáil-Green Party Government. When GDP falls by almost 20%, one can see the damaging effect on business. I understand that around the country small businesses are picking up slowly and we hope we can sustain this. It is beginning to turn and I hope for the sake of all those who hung in and worked so hard that it will turn quickly for them and that their businesses will strengthen in the course of the summer.
Will the Minister consider retaining the 9% VAT rate for restaurants and the catering industry, as it will create another 1,800 jobs? I know from people working in that sector that they were delighted over the past year with the rate as it held them in there. There is potential to develop that aspect for further job creation.
That is an issue that we will consider in the context of the budget. It is far too early in the year to be talking about taxes.