Vol. 821 No. 3
6. Deputy Richard Boyd Barrett asked the Minister for Finance the position on Ireland's obligations under the fiscal treaty and other EU rules in terms of debt and deficit reduction, budgeting and monitoring following an exit from the troika programme; the implications of these obligations for future budgets; and if he will make a statement on the matter. [49253/13]
The Minister has been celebrating his plan to exit the troika programme. Some of us believe this is a complete mirage, particularly in the light of the various budgetary surveillance and monitoring and post-programme monitoring rules that will be applied by the European Union and the troika. Furthermore, we will also be obliged to meet requirements to reduce our deficit and pay down huge debts that are not ours. We must do this over a specified period and in line with the fiscal treaty, for which the Government encouraged the people to vote. Will the Minister spell out what precisely our obligations will be under the EU rules for reducing both our debt and the deficit, particularly in the context of the fiscal treaty? Will he also indicate what the position will be on the issue of budgetary surveillance?
Ireland is on track to exit the EU-IMF programme of financial support at the end of this year. Until the end of 2015, Ireland will remain subject to the requirements of the corrective arm of the Stability and Growth Pact. These requirements are for a general Government deficit that does not exceed 5.1% of GDP in 2014 and 2.9% of GDP in 2015. Budget 2014 targets a general Government deficit of 4.8% of GDP next year and we remain on track to correct our excessive deficit in 2015. These are legal requirements, but, even leaving them aside, it is imperative that we bring our deficit down to more sustainable levels. When the excessive deficit has been corrected, the public finances in Ireland will be subject to the preventive arm of the pact and the Treaty on Stability, Coordination and Governance, TSCG. The preventive arm of the pact requires member states to be at, or to be adjusting sufficiently rapidly towards, their country-specific medium-term objective, MTO. Ireland's MTO is a balanced budget in structural terms. From 2016 onwards, therefore, the general Government deficit, after adjusting for the impact of the cycle and other once-off factors, will be required to converge at a sufficiently rapid pace towards balance, at a minimum rate of 0.5% per annum. Revisions to the preventive arm under the six pack introduce the concept of the expenditure benchmark. The rationale for this is to ensure public expenditure is not permanently increased on foot of temporary tax or other revenues.
From 2016 onwards, the requirements of the debt correction rule, as laid out in both the pact and the TSCG, will also begin to apply. The debt correction rule states debt in excess of 60% of GDP must be reduced by an average of at least one twentieth of the difference between the actual debt ratio and 60% of the GDP threshold per year based on changes in the debt ratio over three years. In the context of the debt correction rule, there is a transition period for member states such as Ireland that were subject to an excessive deficit procedure as of November 2011. This means that the one twentieth rule will only fully apply from 2019 onwards. In the interim , satisfactory progress in reducing the debt-to-GDP ratio will be needed and this will be assessed by the European Commission and ECOFIN. My Department projects that having reached and maintained our MTO of a structural budget balance, the debt correction rule will, under reasonable growth assumptions, be achieved.
Ireland will be required to implement fiscal policy that keeps it on the adjustment path towards its MTO of a balanced budget, in structural terms, and sustains it thereafter. Ireland will also be required to comply with the expenditure benchmark in the Stability and Growth Pact. This will limit the growth in nominal expenditure to very modest levels. However, it should be noted that complying with our fiscal requirements in the post-2015 period will not necessarily require further tax increases or cuts in nominal expenditure because constraining spending growth to comply with the expenditure benchmark will help considerably towards this end.
The sheer length of the Minister's reply and the level of detail provided tell a story. On leaving the programme, Ireland will be subject to just as rigorous a regime of budgetary surveillance, monitoring and debt and deficit reduction as it endured under the programme. Behind all the jargon, technocratic language and interesting names for the various programmes lies the fact that we will have to pay off €100 billion of debt at a rate of 5% per annum after we exit the programme. The Minister should spell that out in clear language. He indicated there will be a lead-in time of three years. However, during that lead-in period, we must move towards a position of paying off one twentieth of €100 billion or €5 billion per annum. The growth the Minister had hoped would rescue us from this scenario has not materialised as all the Department's forecasts have been wrong. Does this not mean that we are faced with a decade of further austerity, even after our so-called exit from the programme?
Anything I communicated to the Deputy in my reply is not new information and arises from the arrangements that have been in Europe. All 18 Eurogroup members are subject to the new rules. The survival of the euro is a close run thing, which has resulted in agreements being made across the eurozone which, in their totality, effectively amount to a fiscal union as well as a currency union. What I spelled out were the elements of the fiscal union that will apply across the eurozone.
The next element to deal with the crisis is banking union. We are moving from a currency union to a fiscal union and we will subsequently move to a banking union. This is the way in which Europe has progressed. While Deputy Boyd Barrett probably does not agree with what has taken place, I am simply describing the factual position. The simplest way of putting it in ordinary language is that we cannot increase spending by more than the growth rate in the economy. If we increase expenditure by more than our growth rate, we will be in trouble as we will run foul of the new rules.
I understand that the information is not new but the issue is not being clarified for citizens. As the Minister correctly stated, if growth does not materialise, Ireland will be in deep trouble because, unlike every other country in Europe, we have a debt-to-GDP ratio of 120% and a debt-to-GNP ratio of 150%. The requirement to pay down €200 billion in debt that is not ours will be a noose around our necks. If the growth projections do not materialise - and there is little sign of them materialising - we are banjaxed. The reality of this needs to be spelled out to people and radical measures taken to address the failure of Government policies to generate economic growth because austerity is killing growth.
The budget projected the economy will grow by 2% next year. The OECD published growth projections for the eurozone yesterday, which indicated that the Irish economy will grow by 1.9% in 2014. This figure is very close to our budgetary figure and gives us a reasonable degree of optimism that our figures will come in on target.
7. Deputy Clare Daly asked the Minister for Finance the full costs of the implementation of the property tax to date, with particular reference to the cost of reissuing the latest letter seeking payment; the amount that has been paid to contractor providers; the number of staff of these providers that are working full-time for the Revenue Commissioners and the cost of same; and the cost of the operation of the website and any other payments. [49077/13]
The Minister may believe that, as a result of the draconian manner in which the property tax was implemented, the Government has secured acquiescence to the tax. That is not the case. I wonder what is the cost of the recent debacles in handling the tax which added insult to injury among home owners. I refer to the recent letters issued by the Revenue Commissioners and the cost of that operation, the mistake regarding first-time buyers and so forth.
I am advised by the Revenue Commissioners that the introduction of the local property tax amounts to the largest ever extension of the self-assessment system and represents a significant administrative challenge. The expenditure report for 2013, which was published by the Department of Public Expenditure and Reform in December last, makes a provision of €25.9 million in 2013 for the implementation of the local property tax. I am advised by the Revenue Commissioners that the total costs incurred in establishing the local property tax to the end of October 2013 is €24.29 million, of which €21.98 million was incurred in 2013. Also by the end of October, more than 1.6 million local property tax returns had been filed for 2013 and approximately €215 million had been transferred by Revenue to the Exchequer. I understand from Revenue that more than 500,000 returns have now been filed in respect of 2014.
The Deputy asked about the "cost of reissuing the latest letter seeking payment" but I am advised by the Revenue Commissioners that no letters were reissued. She may be referring to the fact that letters were issued in October to some 988,000 property owners who paid their 2013 local property tax by lump sum, that is, by debit or credit card, cash, cheque or postal order or single debit authority, or by way of regular cash payments through a service provider. These letters were not a reissue but are a normal annual feature of the pay and file season for the local property tax. As I have explained to the House previously in written replies, they ask property owners to decide how they want to pay their local property tax in respect of 2014 and to advise Revenue accordingly.
Of the 988,000 letters, I am informed that approximately 950,000 were issued by post and 37,000 were issued electronically. The specific costs associated with the issue of these letters were €694,136. The figure is broken down as follows:
|
_ |
COST |
|
Postage: |
€441,762 |
|
Advertising: |
€191,290 |
|
Paper: |
€30,669 |
|
Envelopes |
€19,495 |
|
Printing: |
€10,920 |
|
Total |
€694,136 |
Additional information not given on the floor of the House
Letters were not sent to property owners who paid their 2013 local property tax deduction at source from salary or occupational pension, from certain Government payments or direct debit, or to those who opted to defer their full local property tax liability or those who claimed an exemption, as all these options will continue to apply for 2014. This approach had the effect of reducing the cost by some €200,000. No action is required to be taken by these property owners, unless they wish to change to a different payment method for 2014.
On the cost and number of contractors, the Revenue Commissioners have advised me that in the context of the local property tax, external contractors have mainly been engaged in two different functional areas, namely information technology development and the provision of call centre services. The call centre costs are published on a quarterly basis on the Revenue website in accordance with Government policy that all payments exceeding €20,000 be published. A total of €2.712 million has been paid to date in 2013.
A key aspect of the service provided to Revenue is the capacity to scale resources up and down in response to demand. At the outset, in March 2013, 40 agents were engaged. To support the filing dates in May 2013, up to 200 agents were engaged. The numbers were reduced after the filing dates and the numbers engaged during the months of July, August and September were at maintenance levels only. With effect from mid-October, there was a requirement to increase capacity to handle the 2014 filing dates and the number of agents engaged is increasing incrementally to the same levels as May 2013. A total of €6.903 million has been paid to external IT systems developers in 2013 and the average number of whole-time equivalent staff working on IT developments was 38.
In addition to external resources, at the end of October 2013, 163 whole-time equivalent Revenue staff and 75 temporary clerical officers were assigned to full-time duties related to the administration of the local property tax.
The total costs incurred in setting up the local property tax to the end of October 2013 under the main headings are as follows. These are fully in line with the provisions made in the 2013 expenditure report.
|
2012 |
2013 (End-Oct) |
|
|
Total Salaries |
€757,000 |
€8,921,000 |
|
External IT Systems Development |
€1,552,000 |
€6,903,000 |
|
Postage |
€1,150,000 |
|
|
Call Centre (External) |
€2,712,000 |
|
|
Advertising |
€596,000 |
|
|
Accommodation, Fittings, etc. |
€492,000 |
|
|
Financial Transaction Charges |
€866,000 |
|
|
Printing |
€209,000 |
|
|
Valuation Fees |
€66,000 |
|
|
Training Travel Costs |
€37,000 |
|
|
Security |
€27,000 |
|
|
Consultancy Fees |
Nil |
|
|
Total |
€2,309,000 |
€21,979,000 |
I am also advised that the operation of the local property tax website, like Revenue’s other online services, is part of Revenue’s normal business and there are no outsourced elements. The local property tax website uses existing equipment and services and has little or no additional overhead cost.
I will study the reply as it was difficult to follow the detail on the costs of envelopes, stamps, etc., without having the written information to hand. As the Minister indicated, the introduction of the property tax is a major change to the taxation system. Does he accept that the manner in which the Government forced through the draconian property tax legislation last year caused great hardship and resulted in many errors in its implementation? The recent letters, which have been discussed at length, caused serious disquiet and will have to be clarified, which is not good enough. Tens of millions of euro have been spent on the administration of the local property charge. Against the background of our earlier discussion on the ongoing problem of mortgage arrears and the number of people in arrears, is it not time the Government conceded the tax is unsustainable and considered alternatives, rather than continuing with the mistakes the Minister has presided over?
As all Deputies are aware, the implementation of a property tax was always going to be difficult, especially when it was being resisted by many Deputies and groups in the House and many organised groups outside the House. Nobody ever made light of the task of implementing the tax. Notwithstanding the difficulty in introducing it, when one takes everything into account, the Revenue did a very good job and achieved a high level of compliance, more than 90%, last year. While a difficulty arose earlier in the year, the system is on track again and it seems it will operate reasonably well again from the point of view of compliance and revenue generation in 2014.
While the Government may have succeeded in securing majority compliance, resistance to the property tax continues. The draconian nature of the legislation compelled compliance but that does not mean people agree with the tax. How much did the error regarding first-time buyers cost? Is it anticipated that other mistakes will come to light?
We always intended, as a kind of incentive to the property market, that those who bought houses in 2013 would be exempt from property tax, but there was an error in the drafting of the Bill which was brought to my attention last spring. Rather than announce something that might adversely affect the property market, particularly in Dublin, which was just about to take off at the time, we said we would leave it go and correct it at the end of the year. The cost of it was somewhere just in excess of €3 million. If this error had not occurred in the draft, the Revenue would have collected slightly in excess of €3 million extra in the course of 2013.
8. Deputy Catherine Murphy asked the Minister for Finance if he has considered approaching the National Asset Management Agency to determine if it would be possible for that agency to provide start-up businesses with appropriate premises at discounted rental rates from the stock of properties held which would be suitable; if he considers such a proposal to have merit in terms of encouraging domestic growth; and if he will make a statement on the matter. [42701/13]
The question seeks to ascertain whether the Minister sees merit in approaching NAMA to do the same with small incubator units for business in the domestic economy as would be the case with, for example, housing units where they are suitable. In some locations, there would be a shortage of suitable properties. It may well be that the local authorities, which will have a business unit, could be the ones that could administer such a initiative if they had the available suitable spaces.
NAMA's mandate derives primarily from section 10 of the NAMA Act, which requires it to "obtain the best achievable return for the State" from its acquired loans and the properties securing those loans. As Minister for Finance, I do not intervene in the detail of NAMA's business and I would consider it inappropriate to do so.
I would point out that NAMA's remit does not extend to providing assistance to start-up businesses. The Government recognises that SMEs are the lifeblood of the economy and will play a vital role in the recovery of employment growth in the country. There are a number of other State agencies with a clearly-defined mandate in that area and I am satisfied that those agencies currently provide a comprehensive suite of incentives to encourage and support business start-ups.
NAMA continues to make a significant contribution to economic activity and job creation in Ireland, for example, through its deployment of working and development capital and vendor finance; through its work in identifying and facilitating the sale or lease of buildings to IDA Ireland clients; and through its provision of rent abatements to support struggling small and medium-sized businesses.
NAMA is working actively with IDA Ireland to identify suitable properties to meet the requirements of foreign direct investment. The recent announcement by Facebook that it is moving into a 120,000 sq. ft. office space in Grand Canal Square, giving it the potential to double its workforce in Ireland, is a direct result of NAMA's work with IDA Ireland. NAMA advanced funding to complete this building and worked closely with IDA Ireland to meet Facebook's requirements. Other recent examples include: the letting of a number of office blocks at Elm Park to the Swiss pharmaceutical firm, Novartis; the purchase by Scottish and Southern Energy of its new corporate headquarters at Leopardstown; and the investment of over €100 million by the Kerry Group at Millennium Park in Naas. In all of these examples, NAMA acted to facilitate the transactions by offering structured engagement between its debtors and receivers and the potential new investors and by providing funding to complete buildings where this was necessary.
It is important in this context to reiterate that NAMA's interest in property is that of a lender holding security for its loans rather than that of an owner. Through its email address, info@nama.ie, it helps businesses, individuals and groups to identify properties that may be suitable for their purposes. It acts as intermediary between interested parties and the debtors and receivers who control the properties by ensuring that debtors and receivers are aware of any potential purchaser or lessee interest in their properties and by facilitating engagement between the interested parties and debtors-receivers. I would encourage those interested in establishing premises for start-up businesses to engage with NAMA through this channel to identify properties that may be suitable.
I would also highlight that my officials are engaging with groups across the economy to better understand and facilitate the needs for enterprise space to support start-up businesses. We are working with city councils, business development agencies and interest groups to determine how we can be helpful in promoting business creation in Ireland, one key element of which is the creation of commercially viable enterprise space to facilitate co-working, hot-desking, incubation and acceleration of emerging businesses in Ireland such as that created by, among others, The Liffey Trust, The Digital Hub and Treehouse.
Quite a lot of the Minister's reply dealt with the higher-end area. I was specifically trying to focus on microenterprise. We all would accept that if there will be many jobs created, it will be in small to medium-sized businesses. Those smaller businesses are the ones that have the potential to employ one or two persons. Can I take if from the Minister's reply, because it will not be individuals at that level who will engage with NAMA, that there is the prospect of a direct engagement between the like of the county enterprise boards and NAMA for that purpose? It may well be that available space is in abundance in some parts of the country but it certainly is not in others, and it is at that level on which I really wanted to focus.
What I have given Deputy Catherine Murphy is the policy position at a level of principle. However, if there is a property, particularly in her constituency, which she thinks would be suitable for housing small businesses, NAMA will engage, either with the Deputy or with one of the agencies. NAMA is quite open to being constructive. It has a social mandate under the Act and the creating of jobs is a fulfilling of the social mandate.
When NAMA was set up originally, the idea was that it would hold many of these properties-----
Deputy Wallace should only put a question because we are out of time.
-----that were on the water for a period of time rather than flooding the market with fire-sale properties. Would that still be the plan or does NAMA intend selling them sooner rather than later?
NAMA makes commercial decisions. Its mandate specifically is to have the best return possible for the Irish taxpayer. That means selling at the cost of acquisition or, better, at a profit.
NAMA is selling a great deal of property. Its total indebtedness is €30 billion and there is a schedule of repayments. It is obliged to pay 25% of that back by Christmas and it will pay that back. It will be paying back the last instalment to bring the repayment to €7.5 billion in December.
9. Deputy Clare Daly asked the Minister for Finance if the effectiveness of the Irish Financial Services Appeals Tribunal has been impeded by the decision of the High Court to allow the Central Bank to convert Newbridge Credit Union as part of Permanent TSB in regard to case 010/2013 White v. Central Bank of Ireland; and his plans to change the system. [49076/13]
This question deals with the High Court handling of Newbridge Credit Union being handed over to Permanent TSB, which has important implications for the future of all credit unions but also gets to the heart of the area of accountability in relation to the financial institutions in that the Irish Financial Services Appeals Tribunal had commissioned a hearing into the operation of Newbridge Credit Union but the High Court overshot that opportunity. Does it expose the toothless nature of that appeals mechanism and has the Minister any plans to change it?
The Irish Financial Services Appeals Tribunal, the appeals tribunal, was established by the Central Bank and Financial Services Authority of Ireland Act 2003.
The appeals tribunal is an independent tribunal which will hear and determine appeals from aggrieved parties against certain decisions of the Central Bank of Ireland. The appeals tribunal aims to provide an accessible, efficient and effective method of appeal in an informal and expeditious manner. Decisions made by the Appeals Tribunal are published on its website www.ifsat.ie.
I understand that the case referred to came before IFSAT on 15 November 2013 and relates to certain matters at Newbridge Credit Union. I am informed by the Registrar of the Appeals Tribunal that its formal written decision is to issue shortly.
With regard to the transfer of the assets and liabilities of Newbridge Credit Union to Permanent TSB, my priority throughout this process has been to protect the savings of depositors and members of Newbridge Credit Union, which is achieved by the transfer. The transfer to Permanent TSB was necessary to safeguard members' savings as the only alternative option available to the Central Bank was liquidation, which would have seen the loss of unprotected savings, including the savings of charities, schools and individuals.
It was in the context of a possible liquidation that the Department of Finance, with the support of the Central Bank, requested that Permanent TSB undertake this transaction. The participation of Permanent TSB has brought stability and certainty to the situation, especially for the members and staff of Newbridge Credit Union, and has provided an alternative to liquidation. This transfer means Newbridge Credit Union members can be assured that their loan and deposit accounts will continue to operate as normal.
A Newbridge resident took a case to the Irish Financial Services Appeals Tribunal, IFSAT, in regard to the making of a special management order under section 58 of the Central Bank and Credit Institutions (Resolution) Act 2011. The appointment of the special manager has caused considerable disquiet among the members of Newbridge Credit Union. Millions of euro have been spent on the manager and the assessors who were brought in to investigate the books. The aforementioned resident went to the tribunal well in advance of the High Court decision and was told that the tribunal would be convened expeditiously to examine the matter. However, given that it has not yet issued its findings, the horse has well and truly bolted. Does this not make a mockery of the structures? There is not really an appeals tribunal or any other body that can demand accountability for the behaviour of our financial institutions. Should the Minister not change that arrangement? He spoke about securing the safety of the savers in Newbridge Credit Union but if he was prepared to invest €53 million in allowing a bank to take over the credit union, why could he not have invested the money in the credit union, given the implications for other credit unions in the months and years to come?
The case to which the Deputy referred is No. 010/2013, White v. the Central Bank of Ireland. IFSAT, which is responsible for processing the appeal, is independent in the exercise of its functions and it would not be proper for me to comment on a particular case. I understand, however, that the case is being processed and the written judgment will be available soon. The appeal has not been dropped. As the Deputy informed the House, the case pertains to the appointment of a special manager to Newbridge Credit Union.
On the other issue raised, it is Government policy to maintain a credit union presence in Newbridge. If we could have resolved the issue through the credit union movement, we would have done so. We tried every possible combination, including negotiations with Naas Credit Union which were made public. That would have been our preferred option, but it was only when the issue could not be resolved within the credit union movement that we asked Permanent TSB to get involved to avoid imminent liquidation and protect the savings of the deposit holders.
The problem is that the horse has bolted and the conclusions from the examination of the appointment of the special manager, which the Minister says will issue shortly, are somewhat irrelevant given that the credit union has now been handed over. However, people still want answers. They wanted the gag on the directors of the credit union to be lifted so they could examine the decisions made in a few isolated cases which created the problems in the first place. The idea that the solution is to hand the credit union over, lock, stock and barrel, to a bank does not make sense when an examination of the role of the directors and the decisions made in the past could have brought better clarity and secured the savings in the credit union, with the investment being made under the credit union banner rather than having the credit union handed over to the bank.
I await the report with interest, but the primary objective was to protect the savings of the members of Newbridge Credit Union. It was a close-run thing. We were within a week of the credit union's being forced into liquidation and there was no other option left. I am grateful to Permanent TSB. It had no commercial interest in the matter but it intervened because we asked it to save the credit union and people's savings. It is not ideal, but that is the way it happened. It is a pity the credit union movement was not able to come up with a solution.
11. Deputy Pearse Doherty asked the Minister for Finance his plans to promote diversity in the banking sector; and when a strategic investment bank will be created. [49200/13]
This question pertains to diversity in the banking sector in this State. There was a good discussion on this subject during a recent Private Members' debate. I ask the Minister to clarify whether the Government intends to establish a strategic investment bank in its lifetime, as committed to in the programme for Government, and when it is planned to establish one. I also ask the Minister his plans for diversity.
This Government has been working hard to create an environment conducive to new entrants through a number of initiatives and has been leading the debate at EU level on the mechanisms to promote alternatives to bank financing. While it is disappointing that ACC and Danske Bank have taken the decision to withdraw from the Irish market, one of the key features of banking strategy in the financial crisis has been the retrenchment to national borders. One of our expectations from the financial crisis is that market shares in traditional banking services will become more fluid during the recovery as the banking landscape continues to adjust to the withdrawal of foreign players, the restructuring of our incumbent banks and the increasing price transparency of financial services. The withdrawal of particular services and the closure of certain aspects of the business of some banks is a realisation of this expectation.
We expect that over time this will present opportunities for the entry of new market participants that are well positioned to be confident in the future profitability of an Irish branch or subsidiary. While the current market may not be attractive to a fully diversified bank challenger in the short term, I expect new financial services providers to enter the market on a more targeted basis - for example, as specialist lenders and non-bank finance providers.
The Government has decided to establish the Ireland strategic investment fund, ISIF, which will absorb the National Pensions Reserve Fund, NPRF. Using the ISIF, we will maximise our resources to enhance growth in the Irish economy and improve key infrastructure to maintain Ireland's attractiveness as a place to do business and to create employment. Officials of my Department are currently preparing the necessary legislation, which I anticipate will be enacted early next year. Already in the lifetime of this Government, the NPRF has established funds that support strategic projects and a number that support SME financing. Further assessment of the need to create a strategic investment bank over and above the contribution expected from the ISIF will be informed by the requirements of the economy once the Government’s key immediate objectives for the repair of the banking system have been completed.
The Taoiseach mentioned in this House last week that he had discussions with the German Chancellor, Angela Merkel. Germany is keen to help and, specifically, to find ways to reinforce Ireland’s economic recovery by improving funding mechanisms for the real economy, including access to finance for Irish SMEs. The German Government has asked KfW, the German development bank, to work with the German and Irish authorities to swiftly deliver on this initiative at the earliest possible date. Officials of my Department have already exchanged working papers on this subject with KfW and the German Ministry of Finance. We held a consultation with the German embassy in Dublin which helped pave the way for discussions with the German Ministry in Berlin yesterday, and further discussions will be held with KfW and other key stakeholders over the coming weeks both here and in Germany. I am keen to see the establishment of a healthy and balanced relationship. As we are trying to ensure that any initiative that comes out of this process is as effective as it can be, we will be discussing approaches that meet the strategic objectives of both States.
I thank the Minister for his comprehensive reply. What he said was quite interesting. I am aware that things move on, but prior to the election it was a major plank of the Labour Party's manifesto in particular that a strategic investment bank would be established, and this was negotiated into the programme for Government. The Minister is now telling us there is no guarantee that it will be established and that he will examine the issue when the fund is up and running.
There is a need for investment in the real economy. We can talk about the fund all we want, but it was promised more than two years ago and we still have not seen its establishment.
We have not seen any programme or direction to lead us towards a strategic investment bank. Has the Minister examined the role of the existing State banks in lending into the real economy, particularly Permanent TSB and AIB? What role do they have in the long term? Will the legislation committed to by the Government in terms of the bail-in and the burning of senior bondholders required before the stress tests take place next year have any impact in attracting foreign banks to the State? Could the confusion and lack of clarity as to what the legislation will contain have led to banks taking the decision to move back within their national borders?
The strategic investment fund which will be underpinned by statute early next year is operational under letters of comfort I have provided. The fund is providing moneys and supporting, on a joint partnership basis, various funds for SMEs. It is involved in investment in the economy. The big difference between a strategic investment fund and a strategic investment bank is that if it is formulated under licence as a bank, it will be able to raise money on the markets, whereas a strategic investment fund deals with funds available to it at present. We are not ruling it out by any means and will see how it works. The best known and most effective strategic investment bank is the German bank to which I referred.
The European Investment Bank has a good record of success. The second part of the question refers to the bail-in. The ECOFIN communiqué issued last week stated, "As the still to be adopted BRRD bail-in tool will not yet be applicable at the time of the conduct of the [...] stress test, burden sharing will apply, in full". It goes on to say state "Member States will ensure that the necessary tools are in place enabling them to proceed with such burden sharing, including changes to national legislation as appropriate". Is the Minister preparing legislation to allow for the bail-in tools which include the burning of senior bondholders and also the other steps entailed in it? When will we see the legislation before the House?
Two issues are running in parallel on the ECOFIN agenda. One is having a hierarchy of measures to resolve capital discrepancies that appear in banks across Europe as a result of the stress testing in the autumn. That is one distinct item of work and was agreed to. The papers are available and Members can see the agreement. The second piece is a more permanent bail-in resolution mechanism which will be a constituent part of banking union. It is separate and has not yet been agreed to, but the Lithuanian Presidency is ambitious that it will be agreed to before Christmas. What took place the last day was not a debate to reach agreement but a discussion to establish positions. We will be back in December and there are rumours of a special ECOFIN meeting in December, as well as a normal meeting. I will keep Members informed.
12. Deputy Richard Boyd Barrett asked the Minister for Finance if he will explain the unusual anomaly recently highlighted by his Department, where growth has failed to match forecasts but the employment-unemployment situation has apparently improved; and if he will make a statement on the matter. [49254/13]
We will do away with the 30 second introduction, if Deputy Richard Boyd Barrett does not mind.
Available data for the year to date to the end of quarter 2 show GDP has fallen by 1.1%, while employment has grown by 1.5% in the same period. This implies negative productivity growth relative to the same period last year. While quarterly data in Ireland are volatile, my Department is nonetheless projecting a fall in labour productivity this year. This is a somewhat unusual development. One of the main factors behind it is the composition of output this year. Output and exports are falling in the pharmaceutical sector, reflecting the impact of the patent expiry for a number of important products. The pharma-chem sector accounts for about one quarter of exports and about 12% of gross value added. In other words, the sector is very large relative to Ireland’s overall GDP. In contrast to its high share of output, the labour share of this sector is small, accounting for just 2% of overall employment in Ireland. As a result, employment at an aggregate level has been largely unaffected by the decline in activity in this sector.
For 2013 as a whole, my Department expects GDP to be supported by a positive contribution from domestic demand which, as it tends to be more labour intensive in nature, will assist continued employment growth. Next year and over the forecast horizon, my Department does not expect the divergence in growth of GDP and employment to continue, as expansion is forecast in both the domestic and externally driven components of the economy.
The Minister's officials pointed to this anomaly at a pre-budget briefing. We do not have growth, but the Minister is claiming an improved position in employment and unemployment. The ABC of economics says if we have more people working, it is contributing to GDP. How can the Minister claim there is an improvement in the employment position when we do not have the growth to match it? The explanation is not what the Minister has just told us about pharmaceuticals; it has more to do with the fact that many of the jobs it is claimed are being created are not real jobs. People are being counted as employed if they are not on the live register but on schemes and through the various ways the Minister has created to massage the employment figures. They are not real jobs; they are not properly paid and contribute nothing to GDP. That explains the anomaly.
The CSO produces the figures; I do not make them up. They are based on the statistics from labour force surveys and are real jobs. What was interesting over the summer was that a movement creating part-time jobs had led to a movement creating full-time jobs. More full-time jobs are now being created than part-time jobs. Extra jobs are being created. The anomaly is that normally employment creation follows growth, but last year the statistical economy showed a decline because of the movement off patent in the pharma industry for many key products. The statistical decline does not affect the level of employment much because the pharmaceutical industry which employs 25,000 people or 2% of the labour force did not let people go. The value of the product produced went down because there was competition from generic medicines once the key lead medicines had moved off patent. There is a statistical quirk in it that does not fully reflect what is happening in the economy. Other sectors grew and jobs were created, but the statistical drag back stems from what is called the patent cliff.
