Vol. 815 No. 3
6. Deputy Pádraig Mac Lochlainn asked the Minister for Finance the budget adjustment necessary this year to reach the troika’s deficit target of 5.1%; and the level of taxes and expenditure cuts this deficit will require. [41519/13]
The deficit target of 5.1% of GDP to which the Deputy refers is the maximum general government deficit in 2014 that the Government is required to deliver under the excessive deficit procedure in the Stability and Growth Pact. This is part of an agreed consolidation path that Ireland will follow to restore the public finances to sustainability.
The European Commission, the International Monetary Fund, the European Central Bank and most economic commentators have acknowledged that Ireland has met all of its targets to date and that substantial progress has been made in setting the public finances and the economy back on the road to good health. However, while it is right to recognise progress, it should be remembered that, regardless of commitments we have made to our international partners, these deficits represent the annual shortfall between what the State collects in revenue and what it spends. Every year in which there is a deficit, the Government must borrow money, adding to the quantum of outstanding debt. This borrowing attracts additional interest and, in turn, this adds to the national debt. Interest payments divert scarce resources from areas where they are badly needed. It must be evident to everyone that this situation cannot persist in the longer term and that every effort must be made to alleviate this burden on the people. This is the primary reason the Government is taking action to close the deficit, but in a way that seeks to find a balance between the need to tackle the deficit and the need to promote growth in the economy.
Last April in the stability programme update, I set out, on a purely technical basis, that consolidation of €3.1 billion would result in a general government deficit of 4.3% of GDP in 2014. That estimate was based on the latest available data at the time. Since then, we have received more up-to-date information, most recently the quarterly national accounts from the Central Statistics Office and the end-of-September Exchequer returns, which were published yesterday. My officials are analysing these data for incorporation into the budgetary forecasts. This work is well under way and I will not be drawn into speculation on the composition of the budget at this time. However, the Deputy may rest assured that budget 2014 will include the required combination of revenue-raising and expenditure-reduction measures to ensure Ireland continues on the road to repairing its public finances while providing an environment suitable to allow economic recovery to continue. This will be done in such a way that the burden is spread as equitably as possible.
I had not imagined the Minister would divulge the budget’s details today. However, I am concerned about what he said about the 5.1% target and that he would target the high fours, trying to bring the deficit into the 4% area. Where is the sense behind that? He said there was a delicate balance between closing the deficit and achieving economic growth. When the Government came into office, the first projection it had for 2013 was 3% growth, but we have not seen that. The Tánaiste said we should just hit the target and not go beyond it. Is it Noonan’s way instead of Gilmore’s way on the 5.1% target?
It is a fine judgment. The main purpose of this budget is to position us to exit the bailout programme. We are being watched by the international community and the markets. If we just cut it to 5.1% and bring it in as a deficit, there is a risk of drift. These matters are never that precise. As the year goes on one could come out on the wrong side of any storm that blows up. Accordingly, it is prudent to build in a buffer, and that is why I aiming for the high fours, without being more precise than that.
Based on the figures published yesterday, we are on track to reach the 7.5% deficit target for 2013. Built into that figure are the up-front once-off costs of the promissory note. While we will have a deficit of 7.5% on 31 December 2013, on 1 January 2014 it will be about 6.8%, because those costs fall out. As one works one's way down through it, one makes the consolidation. It is prudent to get into the high fours and deliver a balance or primary surplus. That will convince the markets that they can lend money to us at reasonable interest rates. Accordingly, we would be out of the programme.
The buffer the Minister talks about is made up of real cuts affecting real people. It is millions of euro of cuts that will cause hardship and pain, as well as additional taxes. I am disappointed that the Minister is going beyond the troika target of 5.1%. We have been led to believe by the Government that the troika is making us go into the high 4% region. The Tánaiste is correct that we should not go beyond that target, because it is counterproductive. The Government’s projection of a growth rate of 3% for this year has not materialised. We are unlikely to see even a 1% growth rate by the end of the year. The levels of austerity are counterproductive. We should meet our targets but in a way that delivers growth. Going beyond the target is a sure recipe for dampening growth and domestic demand while inflicting pain on the people. We need to pay attention to the citizens, to whom we have a responsibility to deliver, not just the markets.
Some of us believe we should tell the markets to take a hike and not pay the €8 billion in interest on a debt that is mostly not ours. Will he confirm that the figure is €8 billion?
The Minister is hell-bent on going for the 5.1% target, which means either €2.8 billion or €2.9 billion in cuts. Most people do not care about the difference between the two figures because they are going to feel the pain regardless.
When he is framing his budget, will the Minister consider some redistribution of the pain he is planning to inflict by lifting the burden off low- and middle-income families and small and medium-sized enterprises and shifting it to those with wealth and large profits? Will he consider examining the corporate tax rate, wealth taxes or a higher tax rate for those earning over €100,000, measures that up to now he has refused to examine?
The Minister is considering the merits and demerits of changing the 9% VAT rate for the restaurant and hotel industry.
I have answered that question already.
My question might be different. The Minister is conscious of the fact that it has a cost of approximately €360 million. He has probably underestimated the benefits of it. Apart from the fact that the industry was on its knees, it has given much extra work to people, especially those from low-income backgrounds. On the question of where the Minister will get the money, up to €200 million could be picked up from a sugar tax that we still have not introduced here. Given that obesity costs the country more than €1 billion per year and rising, this would involve some joined-up thinking. I do not know how easily this could be done, but online gambling is a rapidly growing industry and I do not see why it should not be taxed.
This is almost like a budget discussion.
It is a pre-budget consultation.
I wish the Minister well in the next week or ten days because we are being told completely different things by senior members of the Government. The Tánaiste has been playing a very high-stakes game in recent months, saying there should not be a cent more than is required to get us to a deficit of 5.1%. The Minister has given a different opinion today. That is all in the nature of ongoing political negotiations but, clearly, there is a division within Government. I hope that issue can be resolved at the Economic Management Council, EMC, in the next few days. In principle it is sensible to have some level of a buffer but it depends on what the cash difference is and exactly the make up of those cuts and tax increases. That remains to be seen.
There are many targets in the programme. There are three relevant targets here: the 5.1% deficit, the consolidation target of 3.1%, and the issue of achieving a primary surplus in 2014. We must be conscious of these three targets. I have told the Members what I am prepared to do. We will try to bring in an equitable budget despite the constraints on us. We have done that, by and large, in the past.
Will the Minister examine sectors he has not examined before?
There is sugar in many food products, for example, wine.
We should tax the bad wine more and the good wine less. The good wine is good for one; the bad wine is very bad for one.
Is Deputy Wallace declaring an interest?
I am definitely declaring an interest. I hold my hands up.
I know how hard it is to reply to a budget when one has just seen the script. One decimal point on this is approximately €160 million, although Members should not tie me to that. The Deputies opposite can start running their numbers.
Is that a decimal point on the deficit?
Yes. If the 5.1% goes down one point that is approximately €160 million to €165 million. That might be a useful piece of information for the Deputies when they are attacking me on budget day.
It might also be useful information for the Tánaiste, Deputy Gilmore.
7. Deputy Willie O'Dea asked the Minister for Finance his views on the concerns expressed by the head of the National Asset Management Agency regarding the scale of staff turnover and the quality and experience of departing staff; and if he will make a statement on the matter. [41471/13]
I am aware from my discussions with NAMA, and with the NTMA which employs staff assigned to NAMA, of the difficulties being experienced by NAMA in terms of retaining and recruiting appropriately skilled and experienced staff. It is important that NAMA, on behalf of the taxpayer, has the expertise available to it to carry out its commercial mandate with the aim, at minimum, of eliminating the contingent liability of the State arising from its current portfolio and from the portfolio that it may acquire later in the year from the special liquidators to the Irish Bank Resolution Corporation, IBRC.
All NAMA staff are employees of the NTMA and are assigned to NAMA by the NTMA. NAMA advises that 59 staff assigned to NAMA by the NTMA have resigned from the agency since inception. Some 28 members of staff have resigned so far in 2013 and 22 members of staff resigned in 2012, representing a 10% turnover rate in that year. We have entrusted NAMA with the extremely important task of mitigating risks and recovering value for the taxpayer, and so would hope NAMA is able to attract and retain professionals best able to ensure NAMA's success.
The CEO and chairman of NAMA have recently expressed concern in this regard in light of public pay restrictions, and have highlighted the fact that with the departure of each employee there is a loss of business knowledge, continuity and momentum. Although a certain level of staff turnover is to be expected as the property market recovers, which is arguably positive for the development of asset management expertise across the Irish market, it will continue to prove a challenge to NAMA.
I am satisfied that there are extensive safeguards in place to protect the confidentiality of information held by NTMA employees, including those assigned to NAMA. Employees assigned to NAMA by the NTMA, as is the case with all other NTMA staff, are subject to section 14 of the National Treasury Management Agency Act 1990 which prohibits an employee from disclosing any information obtained while carrying out his or her duties as employees of NTMA. Employees assigned to NAMA are also subject to a prohibition on release of confidential data under sections 99 and 202 of the NAMA Act 2009. NTMA employees, including those assigned to NAMA, are subject to the Official Secrets Act. Contravention of these prohibitions is a criminal offence. These protections do not cease at the point of resignation but apply indefinitely and extend to former employees.
The notice period for NTMA employees assigned to NAMA is typically three months. NTMA contracts for employees assigned to NAMA have a provision entitling NTMA to place the employee on garden leave at any point during the notice period during which time the employee may not work for another employer. Following a review of its policy in respect of notice periods and post-termination restrictions on employment, which was conducted on NTMA’s behalf, as employer, by the law firm Matheson, NTMA is implementing a number of changes to its employment contracts, including the introduction of longer notice periods of three to six months, up from one to three months, for middle and senior management employees and garden leave provisions to be included in all new employment contracts.
In addition, a new provision is being added in new employment contracts, where relevant, that restricts departing staff from performing services for a new employer during the first six months following the termination of their employment with NTMA, relating to a transaction or other matter in respect of which they participated directly or substantially in the course of their employment with NTMA and were in possession of confidential information as a result. In respect of NTMA employees assigned to NAMA, this provision has been introduced for all new employees and existing employees as they are promoted. As I pointed out, the three-month notice period and garden leave provisions already apply to NTMA staff assigned to NAMA. Despite the concerns raised I have every confidence that NAMA will continue to meet its bond redemption targets and achieve its overall business plan objectives.
I thank the Minister for his response. We all have a vested interest in NAMA succeeding and performing its functions well. The staff turnover rates in NAMA are very high. I suspect they are disproportionately high at a senior level. Staff appear to feel they can, and they do, attract higher salaries when they leave the agency. I find that remarkable but it seems to be the case. It must be one of the explanations why so many senior people have left the agency in recent times, despite being very well paid. There might be a need for a cooling off period for people who leave senior positions in the agency. The Minister outlines some of the safeguards regarding confidentiality etc. However, many people who have left senior positions in NAMA have seamlessly moved into very senior positions in property investment firms and real estate firms, and property consultancy. I do not suggest any impropriety but there is potential for people to use relationships they have developed and knowledge, as opposed to information, they have built up during their time in NAMA. The Minister was to examine the issue. Could he update us on that?
The notice period for NTMA employees assigned to NAMA is typically three months. NTMA contracts for employees assigned to NAMA have a provision entitling NTMA to place the employee on garden leave at any point during the notice period during which time the employee may not work for another employer. Following a review of its policy in respect of notice periods and post-termination restrictions on employment, which was conducted on NTMA’s behalf by the law firm Matheson, NTMA is implementing a number of changes to its employment contracts, including the introduction of longer notice periods of three to six months, up from one to three months, for middle and senior management employees and garden leave provisions to be included in all new employment contracts.
In addition, a new provision is being added in new employment contracts, where relevant, that restricts departing staff from performing services for a new employer during the first six months following the termination of their employment with NTMA, relating to a transaction or other matter in respect of which they participated directly or substantially in the course of their employment with NTMA and were in possession of confidential information as a result. In respect of NTMA employees assigned to NAMA, this provision has been introduced for all new employees and existing employees as they are promoted. As I pointed out, the three-month notice period and garden leave provisions already apply to NTMA staff assigned to NAMA.
My concern is whether NAMA is being used as a training ground for people who then move to the other side of the fence. The Minister has outlined some of the changes that have been identified. Has NAMA implemented those changes and is the Minister satisfied that they are adequate to address the concerns that have been raised?
The Minister spoke about the NTMA reviewing the contracts and mentioned new employees and those seeking promotion. We are aware that this issue does not just affect NAMA, it also affects employees who have been seconded to the Department of Finance. There are concerns about banks poaching certain people who worked in the banking unit within the Department who may have information. A period of from one to three months is not acceptable, but six months also seems to be quite limited. I believe the Minister wanted to go beyond this in the commitment he gave. Can these provisions not apply to existing staff within the Department who could be seconded, as well as those in the NTMA or NAMA?
This is not cost free because we are effectively paying somebody after he or she has gone and also paying his or her replacement. Therefore, there is a cost issue - we are paying twice for the same set of functions to be carried out. We try to measure it by what is adequate and what provides protection, but I do not want to go beyond this. We have arrangements in place in the Department, but there is significant accrued leave in the Department of Finance because many of the senior people do not even get their holidays. We had an example in the public media of a senior official transferring from the Department of Finance to one of the banks. He went on holidays well before there was any announcement of his job and had worked out a kind of self-imposed gardening period before he made the transfer. He would be subject to the law and the Official Secrets Act also.
With regard to the reasons people are leaving and whether NAMA is a training ground for the property industry, when NAMA was set up, the property industry was banjaxed and many people were looking for jobs. Now that the industry is rising again and there are significant commercial transactions in Dublin, there are far more opportunities. Therefore, while jobs with NAMA were very attractive three years ago, there may be more attractive jobs in the private sector now.
One last point, one of the big problems for a young person looking for a career is that NAMA is supposed to finish up in 2020. Even if the job is well paid and better paid than jobs in the private sector, a person cannot plan a career in an organisation that is going to terminate. That is one of the big difficulties. As we move through the years towards 2020, we will see more people leaving.
8. Deputy Charlie McConalogue asked the Minister for Finance when he expects Permanent TSB to have completed its restructuring phase; the prospects he sees for it contributing to greater competition in the Irish banking sector; and if he will make a statement on the matter. [41463/13]
A way forward for Permanent TSB was agreed with the troika in April 2012 which envisaged it playing an important role in the future of Irish retail banking, being a more focused retail bank bringing an element of competition to the marketplace which has consolidated significantly since 2008. In this regard, Permanent TSB prepared a restructuring plan which the Department of Finance submitted to the European Commission in June 2012. As requested by the Commission, an updated version of the plan was submitted on 15 August 2013 which was broadly in line with the June 2012 plan. Discussions on the plan are ongoing at a technical level involving the Commission, the Department and Permanent TSB.
As I informed Deputy Michael McGrath in response to a parliamentary question, there is no formal deadline in place for the Commission to respond to the updated version of the plan. However, the Deputy may have noted that Permanent TSB, at its interim results presentation on 29 August, stated it was aiming for approval before year end and I have no reason at this point to believe otherwise. The Deputy may also be aware that AIB is in discussions with the Department and the Commission on its restructuring plan and currently expects approval of the plan during the second half of 2013.
While discussions on Permanent TSB’s restructuring plan are ongoing with the Commission, Permanent TSB has made significant progress in delivering key elements of the plan in the past year. It continues to work to enhance the value of investments through the continued delivery of the restructuring plan which will, if delivered, provide the State with more options regarding its future structure.
As the Deputy will be aware, the banking sector is extremely concentrated with AIB and Bank of Ireland controlling the vast majority, in particular key products such as mortgages and SME lending. Nevertheless, Permanent TSB has a significant presence in the Irish market, particularly in certain segments such as mortgages and deposits. The Deputy may have observed from Permanent TSB’s interim report, published on 29 August, that its gross Irish residential mortgages at the end of June totalled €24.2 billion and that it held €11.6 billion of retail deposits also at the end of June. Permanent TSB also holds UK mortgages via its CHL subsidiary. It holds other assets such as commercial real estate and consumer finance loans and has a sizeable corporate and institutional deposit base.
Additional information not provided on the floor of the House
The Deputy will note that Permanent TSB has returned to the new lending market in a meaningful way this year and has approved €170 million of mortgage loans in the year to date, almost three times the figure for the same period in 2012, thereby contributing to competition in the Irish banking market. I welcome this development which should be of assistance to the wider economy.
The Deputy may also be interested to note that as of 30 June, Permanent TSB’s total balance sheet exceeded €30 billion. It would, therefore, meet one of the criteria for entry into the Single Supervisory Mechanism.
Permanent TSB is an important bank and I hope it plays a significant role on the banking landscape in Ireland for a long time to come. I would like to see the European Commission finalise its consideration of the restructuring plan as quickly as possible. The bank is potentially a very good asset for the State. It has brand recognition, a branch network, a customer base and can provide badly needed competition. When we look at its initiative on current account fees, through which it has attracted 30,000 new customers in recent months, we see an example of what can be done. One of its main problems, as with other banks, is that tracker mortgages are acting as a drag on profitability. I have raised this issue previously, but is it still a live issue that is under consideration between the Minister and the European authorities? Are they trying to see whether some funding stream can be identified to ease the pressure on the banks carrying loss-making tracker mortgages?
Some work has been done on tracker mortgages across the banking system. However, as interest rates have reduced and are now at a very low level, the margin of advantage in doing something about tracker mortgages is quite small. With a high interest rate, the kind of initiative about which the Deputy is talking would be of big benefit, but when interest rates are so low, the margin is so narrow that there would be no huge benefit in giving assistance. We will see where that goes.
The Deputy is right in everything he says about Permanent TSB. It is back in the mortgage market and has offered €170 million in mortgages already this year. That is three times what it provided last year. Its balance sheet is now approximately €30 billion, which is one of the criteria required to be met for entry into the single supervisory mechanism. We hope Permanent TSB can continue with its consolidation and provide another competitive option for Irish consumers.
In terms of where Permanent TSB fits into the overall banking strategy, is it the intention of the Minister that Permanent TSB remain within State ownership in the long term or is it intended that the bank will return to profitability and private ownership once much of the work has been done? I am not sure he has stated a preference in that regard, but we know that AIB is readying itself for the disposal of some equity down the road and private investment, which would be good for the bank. What is the Minister's view on Permanent TSB for the long term?
I agree on the importance of Permanent TSB to the Irish banking market and we await eagerly the Commission's recommendations. I am aware that the bank itself expects a favourable response on the restructuring plan, but this is in the hands of the Commission. At this point there are questions about the restructuring. There are also questions hanging over Ulster Bank and about how the potential restructuring of that bank may affect its involvement in the market in the future. Is the Minister concerned that two non-pillar banks which are major players in the market have not received approval, one way or another, in terms of restructuring? The Minister mentioned the single supervisory mechanism and three banks will automatically come under it. Does he expect Permanent TSB rather than Ulster Bank to be the third bank?
Ulster Bank is regulated by the Bank of England. In Ireland there is a regulatory function to cover it, but its primary regulator is the Bank of England and we must see what regulatory proposals come through from Mr. Carney and the Chancellor of the Exchequer.
We hope it will continue trading and providing credit North and South of the Border because it fulfils a very important function. It has serious problems, as do the banks in this jurisdiction.
The policy of the Government is that the banks will revert to private ownership in due course. The Government has no ambition to hold State banks indefinitely. The question of when portions of, or all of, the banks will be restored to private ownership depends on a pragmatic decision. Obviously, Bank of Ireland seems to be somewhat stronger than the others and only 15% of the ordinary equity in it is held by the State. It is already in private control. We will see; the intention is that if a sale takes place of all or part of the equity in the future, it will be used to reduce the level of debt.
9. Deputy Billy Kelleher asked the Minister for Finance the prospects for a reduction in the insurance compensation fund levy; and if he will make a statement on the matter. [41458/13]
The Deputy should note that the insurance compensation fund, ICF, levy being applied to home, motor and commercial insurance operates under the Insurance Act 1964 and came into effect from 1 January 2012. The ICF levy should not be confused with the 3% stamp duty on non-life-insurance premiums introduced in 1982, which is often referred to as an insurance levy. This stamp duty forms a part of general stamp duty receipts and is paid into the Central Fund along with other tax receipts. The ICF operates under the Insurance Act 1964. Its purpose is to protect policy holders in the event of an insurer's becoming insolvent. It is an industry-financed fund. However, because the scheme is not pre-funded, the Act provides for the Exchequer to advance moneys on the recommendation of the Central Bank in circumstances in which insufficient funds have been generated by an industry levy to cover a large demand.
Under section 6 of the Insurance Act 1964, the responsibility for deciding whether the ICF has sufficient funds available to it to at any particular time is a matter for the Central Bank. Where, in the bank’s opinion, the state of the fund is such that financial support should be provided for it, it determines an appropriate contribution to be paid to it by each insurer, calculated as a percentage not exceeding 2% of the aggregate of the gross premiums paid to the insurer in respect of policies issued in respect of risks in the State.
In 2010 joint administrators were appointed by the High Court at the request of the Central Bank because of concerns about the solvency position of Quinn Insurance Limited under the Insurance (No. 2) Act 1983. On the basis of its assessment of the funds in the ICF in late 2011 the Central Bank concluded that a levy should be applied to the industry with effect from 1 January 2012 under section 6 of the Insurance Act 1964. This assessment takes place on an annual basis and the next review is in progress.
I have contacted the Central Bank and it has informed me that, given what is reflected in the report on the ICF, which is published by the Department of Finance on an annual basis, for the year ending 31 December 2012, and without any intention to prejudice pending and future annual reviews, it is not anticipated there will be a change in the levy of 2% in the short to medium term.
As the Minister indicated, every person with a home, motor or commercial insurance policy pays the 2% levy to make up for the losses incurred at Quinn Insurance, which at one stage the joint administrators stated in a worst-case scenario could be up to €1.6 billion. If the final figure comes anywhere close to this the Central Bank reviews will conclude for quite a number of years that the levy will have to be retained at the same rate or perhaps a greater one. I know it is difficult to estimate the final costs associated with Quinn Insurance, given that there is a significant tail effect when it comes to dealing with claims in the insurance business, but it is important that we get as much clarity as possible on what the bill will be. Does the Minister wish to comment on the case I understand is being taken by the joint administrators against the former auditors of Quinn Insurance? Depending on the outcome of the case, it could have an impact on the future levy, which might decrease for policyholders.
Will the Minister clarify that a sugar tax will apply only to products to which sugar is added? In wine it is produced naturally, and the Minister should seriously examine-----
This is very interesting, Deputy.
-----a sugar tax because of the problems it causes.
It is too late on a Thursday to have an argument with Deputy Wallace.
Without going into the legal case, if there was an outcome that resulted in the scrapping of the legal case and the auditors had to take on the liability of the losses incurred, what would be the intention of the Government with regard to the money generated from the levy heretofore, which would not then be required?
The moneys involved are quite large. To date, a total of €1.118 billion has been drawn down from the ICF by Quinn Insurance administrators. In 2012 €45.5 million was raised by the levy, and a total of €49 million has been raised in the first nine months of 2013. This gives a total shortfall of €1.0235 billion, which is an enormous amount of money. This was against much lower estimates at the beginning of the process.
