Other Questions

NAMA Code of Conduct

Pearse Doherty

Question:

5. Deputy Pearse Doherty asked the Minister for Finance his views on whether there is an appropriate period of time allocated for notice of leave and cooling-off periods for senior staff in the National Asset Management Agency in view of the new approach of accelerated disposals. [28492/14]

For some time now, and the past couple of months in particular, high profile members of NAMA staff and executives have been leaving their positions in NAMA to take up occupations in the private sector. While that in itself is not a key issue, what is at issue is that because some of those staff have taken up employment in companies that are involved in property development there could be a conflict in terms of the information and knowledge they take with them from NAMA. Is there a need for more appropriate terms of notice of leave, cooling-off periods and conditions in contracts not only for new employees but existing employees of NAMA, in light, in particular, of the decision of Mr. John Mulcahy, an executive of NAMA, to depart for IPUT and to advise Mr. Denis O'Brien in regard to his property portfolio?

In early 2013, the NTMA chief executive committed to a review of NTMA policy in respect of notice periods and post-termination restrictions on employment. Accordingly, the law firm Matheson was engaged by the NTMA to: advise on market norms in the private sector in terms of notice periods and post-termination restrictions; assess the adequacy of the protections in the current NTMA employment contracts-codes of conduct where employees leave the NTMA to join a commercial entity in the private sector that might gain an unfair advantage by employing them; and recommend changes that could be made in this area by the NTMA.

This review applied across all the NTMA's business areas, including NAMA. All NAMA staff are employees of the NTMA and under section 42 of the National Asset Management Agency Act 2009 the NTMA assigns staff to NAMA. Other than a small number of staff reassigned from other functions within the NTMA, NAMA staff are employed on the basis of specified purpose contracts and their employment is for as long as NAMA requires their particular skills.

Matheson's principal recommendations include longer notice periods - three to six months - to be introduced for middle and senior NTMA management employees; garden leave provisions to be included in all NTMA employment contracts; post-termination of employment restrictions, including cooling-off periods and non-solicitation of employees, to be considered on a case-by-case basis in respect of senior NTMA management employees in particular. However, Matheson stressed that the imposition of such restrictions would need to be balanced against the NTMA's need to recruit good candidates for whom such restrictions may act as a significant disincentive to taking up employment with the NTMA. Furthermore, to maximise the prospects of enforceability, Matheson advised that any such restrictions would need to be drafted as narrowly as possible.

Additional Information not given on the floor of the House

It was proposed by Matheson that any required changes resulting from these recommendations would be introduced for new NTMA employees and existing NTMA employees on promotion. The NTMA has accepted the Matheson proposals and is implementing them on this basis.

With regard to staff assigned to NAMA, it should be noted that the three month notice period and garden leave provision were already in operation since the first persons were assigned at the start of 2010.  A provision prohibiting certain activities in an employee's subsequent employment for a defined period of time has also been introduced on a case-by-case basis for new employees, in cases where employees have moved from fixed to specified purpose contracts, and on promotion.

The Deputy will also be aware 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 their duties as employees of the 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 rather apply indefinitely and extend to former employees. 

In the context of the above, I am fully satisfied that there is an appropriate period of time allotted for notice of leave for senior staff in NAMA having regard to the importance of NAMA being able to attract and retain appropriately qualified and skilled employees from the private sector to enable it do its work on behalf of Irish taxpayers.  Mobility with the private sector is a critical component of the wider NTMA model and we have to accept that if it is to be successful mobility is a two-way street.

I thank the Minister his response, which is the same as that given by him in the House on 4 March in response to another parliamentary question. My question is whether, in light of the asset disposal within NAMA and the decision of one of its executives to take up a position in the private sector, there are adequate cooling-off periods in place. I am well aware of what Matheson's advised and the additional protections in place in terms of NAMA and the NTMA since publication of the Matheson report. I discussed these issues with the Minister prior to the commissioning of that report, which I welcomed.

I believe there is a flaw or a weakness in this area. The weakness is that this only applies to new contracts and to people who have been promoted within the agency. For example, these rules did not apply to the executive in question, on whom I am not casting any aspersions, who has left NAMA and taken up employment in INPUT, which is a private sector company dealing in property. Many others also do not come under those rules. Should consideration be given to these rules being applied even on a voluntary basis to people already in binding contracts or is there something else that needs to be done to ensure staff are not poached by the private sector as NAMA begins to wind down?

There is an issue here. It is an issue in general terms of a level of principle, which is an issue of concern although I have no practical example of where that concern was manifested by a person doing anything untoward. It is also true, as the Deputy remarked, that contracts are not retrospectively applied, unless by agreement. A person's contract of employment is just that and the rules cannot be changed by an employer half way through that person's period of employment. There is an issue, although so far there is no situation to which one can point in terms of difficulties having arisen. Obviously, we would wish to forestall any difficulties arising. I will discuss the issue again with the Chairman of NAMA. As I understand it, the Deputy is more concerned about NAMA than the NTMA because of the NAMA property transactions.

Perhaps the issue could be raised with NAMA when it next appears before the finance committee. A great deal of progress has been made on finding a solution but I would welcome further discussion on the issue.

I believe there is need for further discussion on this issue. My real concern is that because NAMA has already disposed of many of its assets and will, in my view, wind up before its anticipated timeframe - whether that should happen is a different debate - the private sector is at this point in time poaching our best NAMA staff. Staff currently employed by NAMA who will perhaps be out of a job in a year or two will want to consider offers coming their way. The problem is that the cooling off periods are not adequate. This has been recognised already in terms of the stricter conditions that now apply to new employees and staff promoted within NAMA, including prohibition of certain activities of an employee's subsequent employment. If that had applied to other employees then the executive who recently left NAMA would not have been in a position to take up his current position, in respect of which there appears to be a conflict. I am not suggesting he will do anything, because he is still bound by secrecy and cannot use the information he has, but there is a huge concern that we have allowed that system to develop. I am not sure what can be done but something has to be done. NAMA needs to not only break even but to make a profit because the haircut it took was then forced on the Irish people in terms of recapitalisation of the banks.

While I will raise the matter with NAMA when it next appears before the Committee of Public Accounts or the finance committee, I would encourage the Minister's officials to look into whether anything can be done in this regard in respect of current employees, even on a voluntary basis.

We will revisit the issue. We know from practice elsewhere that there are not unlimited options. One proposal is to provide that a person cannot do anything for six or 12 months. However, the person is then entitled to full salary for that period. All of this is covered under the gardening leave provision. Another proposal is that in respect of companies whose end is foreseeable, such as NAMA, a golden handcuff arrangement be put in place. This means an incentive to remain with the company would be built into the person's remuneration and if he or she remains beyond a certain point he or she receives an additional bonus. I am not too sure if public opinion on the markets would wear that kind of an arrangement. It is possible to put things in place. I do not wish there to be hue and cry about individuals' terms of employment and remuneration. We are trying to do the best for the organisation and the best for the country and I do not want to be ambushed on this. However, I am open to discussion on it.

Tax Code

Seán Kyne

Question:

6. Deputy Seán Kyne asked the Minister for Finance the progress of the review of the law concerning inheritance taxation treatment of foster children, in particular the five year requirement before a foster child can be viewed the same as a blood relative for inheritance taxation purposes; and if he will make a statement on the matter. [28500/14]

What progress has been made in regard to the review of the law concerning inheritance taxation treatment of foster children, in particular the five-year rule?

In my reply to a previous question from the Deputy in April last, I said that the conditions which must be met for the higher tax-free threshold of €225,000 to apply in the case gifts or inheritances taken by a foster child are set out in legislation. I understand the Deputy is referring to the requirement that, in the case of gifts to formally fostered children and gifts and inheritances to informally fostered children, the child must reside with the foster parent for at least five years before reaching 18 years of age for the higher threshold to apply, otherwise the threshold of €15,075 applies.

I said I would examine, without prejudice and in conjunction with the Revenue Commissioners, any tenable case that may be made for a change in the five year requirement. I went on to say, however, that it is only reasonable that the system demands that appropriate tests be met to justify the provision of the relief and to guard against any possible abuse. Since then, I have not received any correspondence setting out a tenable case that the requirements governing qualification for the higher group A threshold by a foster child need to be examined. If a tenable case is made, setting out the full circumstances in which it is considered that the existing provisions under which foster children qualify for the same group A threshold as natural children require to be revisited, the matter will be examined subject to the considerations set out in my earlier reply. If we can move this from theory to a practical example, I will examine the details of the practical example and, if it appears to be unfair, I will consider bringing forward an appropriate amendment.

I welcome the possibility that the Minister could examine a practical example. I am sure some cases can be brought to his attention. There is a slight amount of unrest because, whether a blood relative or not, a parent wants to provide for his or her children. Would the Minister consider a practical example in a case in which a child was resident for four years, nine months and 22 days, or four years and 11 months, and missed out on the benefit of the higher threshold? I welcome the children and family relationships Bill that is going through the Department of Justice and Equality in that it would recognise families in all their forms. This anomaly could be examined in individual cases.

If I get a tenable example, I will examine it with a view to amendment.

Banks Recapitalisation

Dara Calleary

Question:

7. Deputy Dara Calleary asked the Minister for Finance if he will submit a technical paper to the European Stability Mechanism, ESM, and the European Commission on the subject of bank debt relief for Ireland; and if he will make a statement on the matter. [28543/14]

It has been two years since we had the so called "game changer". How is the game going?

As the Deputy is aware, the euro area Heads of State or Government, HoSG, agreed in June 2012 that "it is imperative to break the vicious circle between banks and sovereigns", and that when a single supervisory mechanism, involving the European Central Bank, ECB, is in place and operational, the ESM, could recapitalise banks directly. On 10 June 2014, the euro area member states reached a preliminary agreement on the operational framework for the ESM's direct recapitalisation instrument, DRI. This includes a specific provision regarding the retroactive application of the instrument. Therefore, the agreement, that we were active in negotiating, keeps open the possibility of applying to the ESM for a retrospective direct recapitalisation of the Irish banks, should we wish to avail of it.

We now require a decision by mutual agreement of the ESM board of governors to create a new ESM instrument in accordance with Article 19 of the ESM treaty and the aim is to have this process completed by November this year, subject to completion of national approval procedures. This would allow the ESM DRI to come into effect once the single supervisory mechanism is in place and operational, which is expected to be in November of this year.

Regarding retrospective recapitalisation, the preliminary agreement states that the potential retroactive application of the instrument should be decided on a case-by-case basis and by mutual agreement. However, it will not be possible to make a formal application to the ESM for retrospective recapitalisation before the instrument is in place. It would, therefore, be premature to make any submission, be it a technical paper or otherwise, in advance of the instrument being in place. My Government colleagues and I ensure that Ireland's case for retrospective direct recapitalisation is made at all levels as appropriate.

The talk of a technical paper regarding recapitalisation came from the Minister and the Government. I take it from the response that there is not, and never was, a technical paper. It is ironic that the man who dubbed this decision a game changer is about to leave the pitch before anything substantial has been achieved. We have moved very little in the two years, specifically relating to Ireland and our banks as opposed to setting up a general financial instrument within the ESM.

The Deputy and his Fianna Fáil colleagues are like the arsonist who set fire to the building and blames the fire brigade for not putting it out fast enough. That is the position into which they have argued themselves. We would not have to address these issues were it not for decisions taken by a Government in which the Deputy participated. I do not want to recite the history. While the technical instrument should be in place by November, it is subject to ratification by member states. If it is in position by November, it leads us to the next step of deciding when to time an application for retrospective recapitalisation. There is no way of advancing the timeline beyond that because it is subject to the international agreement of all the member states.

The Minister has had three years to put out the fire, and while he has been talking about putting it out, he has not put any water on it. The talk about putting out the fire and these great, grand actions comes not from this side of the House but from the Minister's retiring colleagues. We were told it was a game changer and a big deal. The Minister had said a technical paper was being prepared and I understood the Minister for Social Protection, Deputy Burton, was examining a paper submitted by Professor Karl Whelan on the issue. Although we were told there was a strategy in place, it seems it is a wait and see situation. Does the Minister anticipate that next year, on the third anniversary of the deal with the European Council, we will be any further down the road or have any further idea of when we will be recapitalised?

I am not in the fortune telling business. I laid out for the Deputy what the agreement was in Europe. While there is an agreement that the particular instrument required will be put in place by November, it is qualified because it is subject to ratification by the member states. Some of them can ratify it by a Minister signing an order while others must go through a parliamentary process. On the assumption that it is completed by November, which is the commitment, we will see then what is our next move.

I appreciate the Minister is not in the game changing, I mean, the fortune telling business. That was probably a Freudian slip. However, when he was announcing all this game changing stuff on the radio programme "Today with Seán O'Rourke", he said he expected it to be concluded by November 2012. While the Minister cannot make an application until November at the earliest, and possibly later, is any work going on in the Department, such as a technical paper being prepared or options being examined? Has the Minister commissioned experts in the Department or the Central Bank to examine the issue and prepare for an application the Minister has said he will make?

Within the Department of Finance we have a finance unit which looks after the State's assets across the system, which are in the control of the Department of Finance, particularly the State's holdings in the different banks. When one thinks through the recapitalisation retroactive option, it was always envisaged that there would be some form of exchange of shares in the banks for capital upfront, and that this capital would be used to reduce the debt. While the technical work has been done on it, there is a question of value, price and judgment in all these matters.

I certainly do not wish to talk ourselves into a position where just as the banks are becoming valuable, we give them away for the second time.

Mortgage Schemes

Pearse Doherty

Question:

8. Deputy Pearse Doherty asked the Minister for Finance if his attention has been drawn to the criticism by the IMF and others of his suggestion for a scheme for first-time buyers that would include a mortgage deposit scheme; and his plans regarding same. [28491/14]

A number of weeks ago the Minister gave a commitment to introduce a scheme for first-time house buyers in the Finance Bill. There was not much detail about the scheme, but it was reported at the time that officials in the Minister's Department did not think much of the plan. The plan has also been subject to criticism from quarters outside this country. The IMF referred to it and the European Commission has not welcomed it, saying it is crucial to prevent potential effects on house prices and possible contingent liabilities for the State. Will the Minister outline the plan for this deposit insurance scheme? Does he still intend to proceed with it, given the criticism levelled at it?

The Government recently launched "Construction 2020: A strategy for a renewed construction sector". The strategy includes the Government's desire for a return to sustainable levels of mortgage lending as part of a healthy housing market. This involves the consideration of measures to stimulate the development of housing. For developers to be supported, they need confidence that customers will be capable of accessing finance to purchase new builds. This means mortgage products being available to potential purchasers with an ability to support repayments. In Ireland's recent abnormal housing market, lending volumes have declined dramatically. The banks are highlighting the lack of supply of houses, in particular in urban areas, as a contributing factor for the lack of drawdown of approved mortgage facilities.  I look upon the development of this initiative as being an aid to encouraging and facilitating the supply of new homes, particularly for young families.

In other jurisdictions, such as the UK and Canada, mortgage insurance markets have been developed to support bank mortgage lending, particularly to first-time buyers. Mortgage insurance allows banks to share the risk of mortgage lending, either with the public sector or with private sector insurance companies, with the aim of increasing bank lending in general or to target groups.

I know that there has been criticism that such proposed schemes could cause house price inflation. In particular, I am aware of the criticisms that the UK scheme has received from some quarters.  As part of an economic impact assessment, my Department is undertaking research on initiatives operated not only in the UK but also in Canada, Australia and other jurisdictions, where mortgage insurance enables credit-worthy purchasers to access higher loan to value finance. My Department will consider how appropriate these schemes are in the Irish context. Any scheme introduced here will be contextualised for our current market conditions and designed to mitigate any threat of a housing bubble. As the Deputy is aware, the IMF has indicated that it would suggest significant caution in adopting a guarantee framework, especially one that would involve guarantees of a very large share of the mortgage principal. In the context of the deliberations under way in my Department, these and other views, positive and negative, will form part of the considerations.

Additional information not given on the floor of the House

As the economy recovers, any scheme I may introduce should ensure adequate availability of mortgage finance on affordable terms, particularly for first-time buyers or for people purchasing new houses. In setting up a scheme we would aim to provide the certainty needed to support greater levels of investment in new housing, with the associated benefits for the economy, for employment in the sector but also ultimately for the consumer in terms of choice and availability.

I take it from the Minister's reply that he is not as hot about the idea as he was when Construction 2020 was announced, when he said that this would definitely be included in the Finance Bill. I welcome that. The Government must proceed with extreme caution on this. I do not like the idea. It smacks of the type of ideas that got us into this problem in the first place. I am not saying that it would create a massive housing bubble overnight, but this, along with a number of other initiatives, could be among the ingredients that causes another housing bubble. Indeed, aside from a housing bubble, the problem is allowing people to avail of mortgages which they simply cannot sustain. It is obviously the banks' job to lend and make as much profit as possible, and if the State is going to take on some of those liabilities it makes it easier for the banks to lend. The banks' culture is already creeping back in. We have seen the advertisements from AIB telling people not to wait to get paid before they buy their tickets for Electric Picnic and other banks are saying they will pay people's stamp duty on the purchase of their house. This is already happening. Loan to value ratios are a crucial element in mortgage lending and the State moving in to increase the loan to value ratios is wrong. I urge the Minister to proceed with caution.

My position has not changed since the policy document on the construction industry was published. There were 72 proposals in that document and this was one of them. It was criticised by some people who had not even read the proposal and did not understand it. They had no idea what I had in mind. However, there is nothing new about that. I heard a debate between two so-called experts on the radio last week. In respect of proposals for solving the housing crisis, one fellow wanted to put a €1,000 tax on every empty bedroom, to incentivise people to occupy them. These are crazy people who want to go out and knock on doors and find out what people are doing. The other guy wanted to apply capital gains tax to the sale of the primary home, saying this is the type of incentive the markets need. These are daft proposals. Not alone were those proposals daft, but as the interviewer was cheering them along the proposals got even dafter.

We are evaluating this. I know the risks, but I am also aware of the upside. In the United Kingdom it did not work in London because it overcooked a market that was already very hot, but outside London it added 30% to the supply of family homes. It was badly needed in the regional areas outside of London. It is not a demand-side initiative, but a supply-side one. One should think of it in that context. All we are talking about anyway is the State covering 10% or 15% of a mortgage for a limited period, to get somebody over the hump and into a house. Then they might get promoted at work after the five years or whatever is the time period we decide. It would be for first-time buyers and there would be a capital cap on it. We will return to the issue again. If I proceed, it will be announced in the Finance Bill.

That 10% or 15% of mortgages is a massive liability. While it will have an effect on the supply side, it could also have an effect with regard to unsustainable mortgages. It could have an additional effect when accompanied by a culture in the banks that lends to people who should not take out a mortgage in the first place. The problem is that this will be announced in the Finance Bill, when it will be done and dusted. The Minister should produce a discussion document on this issue. He talked about crazy proposals and so forth. I do not believe that language helps the debate.

I think it does. Some of these people think they are gurus.

I do not know the two commentators the Minister referred to so I cannot judge it. We must judge things on their merits. Given the criticism of this proposal by the IMF, the European Commission and others, including political parties on this side of the House, the Minister should produce a discussion paper. In Construction 2020 there are no details about the Minister's scheme. He has given more details on the floor of the House now than were available previously. Can he produce a discussion paper, as he has done on many other issues? He did it with regard to the BEP proposal and taxation measures. Can he produce a discussion paper outlining the Government's thinking on a mortgage insurance deposit scheme and ask for expert and, indeed, crazy opinions, should people wish to give them? At least there would be feedback from the public and from other people who might be able to test it, rather than simply announcing on the day that this is what the Government is going to do, so take it or leave it.

Experts are experts, but many experts are not experts at all. They are experts in one area of activity which they have studied, and they think that gives them the right to pronounce on other areas of activity about which they know very little. Many experts in Ireland are like that. I am prepared to discuss it, perhaps at the finance committee. It is a simple idea and it either works or does not work. I will not put resources into developing a big White Paper type of arrangement as if it was a major new initiative.

If the Deputy wishes to discuss it at a meeting of the finance committee I will participate.

Tax Code

Richard Boyd Barrett

Question:

9. Deputy Richard Boyd Barrett asked the Minister for Finance in the interests of fairness and economic sustainability in his budget deliberations, his views on increasing taxes on higher earners over €100,000; his further views on introducing wealth taxes and seeking a larger tax contribution from the corporate and financial sector as an alternative to further public spending cuts and as a means of financing financial and tax relief for low and middle income earners; and if he will make a statement on the matter. [28540/14]

I strongly agree with the Minister's sentiments about so-called experts in the media. They drive me bonkers.

When we oppose measures such as a property tax, the universal social charge and water charges the Minister states we do not have alternatives to propose. When we call for big programmes of investment in social housing, which would deal with the threat of a property bubble, the Minister asks where we will get the money. Our view is that imposing higher income taxes on those earning more than €100,000 would yield a great deal of revenue, put money back into the economy and not really damage the economy because it would be taken off high earners who have enough to manage anyway. Will the Minister respond to this, particularly in light of the written question to which I received a response yesterday, which was based on a draft proposal. It showed that, according to the Department, if we had a 50% band rate on earnings between €100,000 and €140,000; a 55% rate on earnings between €140,000 and €180,000; a 60% rate on earnings between €180,000 and €250,000; and a 65% rate on earnings over €250,000 it could yield €922 million a year. These are akin to income tax rates in places such as Scandinavia, and what existed in much of the world in the 1960s and 1970s. I do not see any reason we cannot do this as an alternative to hitting low and middle income earners again and again.

I should point out that it is standard practice for the Minister for Finance to review all taxation policy in the run-up to the annual budget. It is also a long-standing practice of the Minister for Finance not to comment, in advance of the budget, on any tax matters that could be the subject of budget decisions. With regard to budgetary matters, when focusing on the primary objectives of reducing the deficit and returning sustainability to the public finances, it has been of vital importance to the Government to spread the burden of the adjustments made in as fair and equitable a manner as possible, while also seeking to minimise their negative impact on economic growth.

To respond to some of the more specific points made by the Deputy, as I have stated many times in the House, the programme for Government states that as part of the Government's fiscal strategy we will maintain the current rates of income tax, together with bands and credits, and not increase the top marginal tax rates. To do so would negatively influence individual decisions to work and harm our competitiveness. It should be acknowledged that Ireland has one of the most progressive tax systems in the world, ensuring that those on higher incomes pay proportionately higher rates of tax on their income than those on lower incomes. In addition, it should be noted that the Government has no current plans to introduce a wealth tax.

As the Deputy is aware, in budget 2014, I introduced a stamp duty levy on certain financial institutions. The levy is 35% of the DIRT paid by the relevant financial institutions in 2011. It will operate for a period of three years, from 2014 to 2016. The expected yield is €150 million per annum.

The high earner's restriction for individuals on high incomes who make significant use of certain specified tax reliefs was introduced in budget 2006 and came into effect from 1 January 2007.

Additional information not given on the floor of the House

The restriction works by limiting the total amount of specified reliefs that a high income individual can use to reduce his or her tax liability in any one tax year. Prior to the introduction of this restriction, such individuals, by means of the cumulative use of various tax incentive reliefs, had been able to reduce their tax liability to very low levels or to zero. The programme for Government included a commitment to ensure a minimum effective tax rate of 30% for very high earners. The changes already made in budget 2010 ensure that this is achieved.

Furthermore, I assure the Deputy that the need to balance the competitiveness of our corporation tax offering for mobile foreign direct investment while ensuring the maximum benefits to the State is a matter that is considered by the Department and others on an on-going basis. The importance of maintaining the standard 12.5% rate of corporation tax to Ireland's international competitive position in the current climate must be borne in mind. Ireland, like other smaller member states, is geographically and historically a peripheral country in Europe. A competitive corporate tax rate is a tool to address the economic limitations that come with being a peripheral country, as compared to larger core countries. Ireland's corporation tax rate plays an important role in attracting foreign direct investment to Ireland and thereby increasing employment here.

As to how successful we are at getting this balance right, I highlight to the Deputy that the revenue generated by corporation tax in Ireland is broadly in line with the EU average. In 2013 we collected just over €4.2 billion, which is 11.3% of overall Exchequer tax revenue and equivalent to 2.6% of gross domestic product. As I stated previously, the 12.5% rate is settled policy and the Government remains fully committed to this rate.

That is a fairly standard answer and is fairly non-illuminating. Preparations are being made for the budget and already very harsh measures have been imposed on low and middle income earners among whom there is growing poverty. There is also the growing phenomenon of the working poor and huge numbers of people at the low and middle end have no incentive to work. What incentive do low and middle income workers have to work at present? Their take-home pay has been hammered. They will be hammered with increasing water charges, property taxes and bills. Faced with this and as demonstrated in the response to the written parliamentary question I tabled, if we had a series of bands of taxation to be imposed on earnings of more than €100,000 it could yield €922 million. Imagine the relief that could give to low and middle income earners and the investment we could make in social housing. Why will the Minister not consider it given the very cruel choices he may have to make in the budget?

We are following a taxation policy which we clearly stated during the election campaign and reaffirmed in the programme for Government. We think income tax is a tax on jobs, and if we were to identify one of the big problems in the country it is the level of employment. If one taxes something one gets less of it and if one relieves tax on something one gets more of it. We are not loading income tax. In any of the three budgets I introduced I did not increase the rates, bands or credits on income tax. This is our position on taxation. The Deputy seems to think anybody with an income of more than €100,000 is wealthy. It seems to be his definition of wealthy. He misunderstands what it is like in normal households. When the two incomes are taken together in a household with a teacher married to a garda, or a nurse married to a garda or teacher, the total is more than €100,000 but these people are not well off. They are struggling. They barely make ends meet. They barely get the children up in the morning and out to school, pay the bills, pay the mortgage and keep the car on the road. This is the position in many parts of rural Ireland. If the Deputy thinks a gross income of €100,000 for a couple is wealth he is not meeting real people.

We need an honest debate. The bulk of the new burden we propose would be on the 10% or 15% of people on very high earnings. It would finance real relief for the vast majority of people who earn between €30,000 and €60,000. They have been hammered with the universal social charge, property tax and water charges, which are regressive and disproportionately hit people on low and middle incomes. These are the real people and the Minister knows it well as he talks to them on the doorstep. The idea the majority of people on the doorsteps to whom he or I speak earn in excess of €100,000, €150,000 or €200,000 is nonsense. I do not understand why the Minister is not willing to impose an extra burden on them rather than continually hitting low and middle income earners.

There is only one thing more mobile than labour is capital, which moves in and out of a small country like Ireland. Labour is also very mobile. Young people, particularly young college graduates, up and leave.

They are not earning €100,000.

If income tax is raised much more there will be a problem. I do not know whether the Deputy is following the debate in the newspapers on young doctors and the number of them leaving the country. Somebody I know personally is relocating to Perth, where she will earn double the money and pay half the tax. Why would one not go? We must look at international comparisons. We cannot act as if there is a wall around us and what we do here does not have any influence on how people behave. Deputy Boyd Barrett's tax rate would probably close down the IT industry in Dublin-----

-----because companies would not be able to get young electronic engineers. There are relativities which need to be examined.

National Debt

Dara Calleary

Question:

10. Deputy Dara Calleary asked the Minister for Finance the discussions he has had with the IMF and other troika parties regarding the early repayment of programme loans; and if he will make a statement on the matter. [28542/14]

This is with regard to paying off some of our IMF and other troika loans. The Minister spoke about this earlier. Perhaps we could take advantage of the very low bond rates at present to restructure our international obligations and allow us remove a little pressure from our domestic finances which may save having to make some very tough decisions in October.

The question of early repayment of any one lender cannot be treated in isolation from other lenders and market expectations for when programme loans are due to be repaid. The early repayment of IMF loans would trigger automatic mandatory proportionate early repayments of EFSF and EFSM loans, as well as the bilateral loans with the United Kingdom, Kingdom of Sweden and Kingdom of Denmark. This would also apply in respect of the early repayment of the loans from any of the other programme funding partners. The provisions in question are included in the loan agreements with the EFSF, EFSM and the UK, Sweden and Denmark.

There have been no discussions on early repayment of our programme loans with the troika. As part of an ongoing process of enhancing our debt sustainability, technical issues are considered as a matter of course. This review process can include contact with other authorities to assess that their understanding of the position on the loans is the same as ours. That is no more than a prudent checking of the factual position. It does not represent a decision or a proposal of any kind.

The impact of any early repayment of any of our loans, as set out in the question, on our bond yields would need to be carefully considered were such a possibility to arise. Should it become a possibility, I would take the advice of the NTMA on this matter and if it was to be pursued, the agreement of the other lenders would, of course, be required. I should also point out that, as the IMF loans have a shorter average maturity, they will be repaid considerably in advance of the EFSF and EFSM loans for which we negotiated maturity extensions.

I thank the Minister for his reply. Given the low bond yields and given that we are now moving into the ten-year period regarding the IMF loan, would the Minister consider some technical options that might be available for paying down the IMF loans early and then suggesting to our partners in Europe that it would be good for Ireland, our economy and Europe if we could restructure these things - we would not be running away from our obligations? It would be favourable if the sequential condition in terms of the repayment of loans to the UK, Denmark, etc., could be renegotiated in light of our ability to borrow at much lower rates on the bond markets than we are paying in interest rates to the IMF in particular.

It is something I am considering. I have asked the NTMA to do preliminary work and we will continue to explore it. The first obstacle I have come up against is the pari passu rule in law whereby one treats others equally to put it at its simplest. It is the obligation to pay everybody if we pay one and makes it not worth pursuing. However, there may be ways around that and it is still worth pursuing that aspect. At present rates in the market and with the rate we are paying on the IMF loan, it is worth about €20 million for every €1 billion we financed. We have about €18 billion of that type of loan from the IMF.

Seed Capital Scheme Payments

Peadar Tóibín

Question:

11. Deputy Peadar Tóibín asked the Minister for Finance the up-to-date drawdown of the seed capital scheme; the number of small and medium enterprises that have had their review to the CRO upheld; the financial value of these positive reviews; and the number of jobs that have been created by each of these initiatives. [23805/14]

The Minister is aware of the sharp reduction in the level of lending to businesses in recent years. Even three years into the term of the Government lending to businesses is flat at best. Lending, private investment and public investment are at an all-time low in the State, leading to major problems with regard to jobs. The CRO was meant to be the knight in shining armour to crack the whip to help resolve this issue. My question seeks to ascertain how successful that is.

For the period 2003 to 2012, some 601 companies availed of the seed capital scheme with a cost to the Exchequer of €19.6 million. Provisional figures for 2013 suggest that 65 companies availed of the seed capital scheme at a cost of €1.3 million to the Exchequer. It is not possible to provide both of these figures for all years since the inception of the scheme without a more detailed review of the Revenue Commissioners' records. I do not have data on the number of jobs created by this initiative. The Action Plan for Jobs 2014 contains a commitment for my Department and Revenue to review and consider further amendments to the seed capital scheme this year.

The Deputy should note I am aware that there remains an issue regarding an equity-funding gap for SMEs. My Department chairs a working group consisting of stakeholders from both the public and private sectors which is examining this issue with a view to producing recommendations which will assist in this regard.

I am informed by the Credit Review Office that the upheld appeals have resulted in €27.5 million in credit being made available to SMEs and farms, helping to protect or create 1,850 jobs. The CRO is currently overturning 55% of the refusal decisions referred to it. I encourage SMEs that have been refused credit by the banks to avail of the services of the office.

There are healthy functioning companies for which an element of their business would be toxic debt. That toxic debt is dragging down the functioning element of the business and is preventing the business from investing in the future if the business is lucky enough to survive and is stopping it from creating jobs. However, in other cases it is putting businesses out of business. Tomorrow I will visit a firm in County Carlow, Dan Morrissey Ireland Limited, a quarry with €8 million of business on its books but has had difficulties with AIB. AIB is calling in the debts which could possibly lead to the loss of 130 jobs in the area. That is one element of it.

We have a whole ecosystem of new finance tools the Government has introduced - I commend the Government on making an effort on that. However, they are not working and the percentage of the drawdown is still a very long way from meeting the objective. The central issue here is the Government's policy and telling the pillar banks to operate properly with businesses and to deliver in lending.

The only objective evidence we have, rather than simply relying on bank data, is from the RED-C polling company. It surveys SMEs to ascertain the availability of credit and the trend is towards improvement. The last survey showed that just over 80% of SME applications for loans resulted in the loans being granted. That still means one in five is being refused, which is high, but the trend is improving.

There are different demands in different companies. Many companies just need working capital on a 12-month rollover basis. Others need term loans of two years, three years or even up to five years, which they also get from the banks. However, increasingly, small companies want to expand and may need money for ten years. What we are putting in place now with the new strategic investment bank will fill that particular need.

We are fully aware of the problem which has not gone away, but the situation has improved significantly. One of the root causes of the problem was that many SMEs in boom times departed from their core business and got involved in property plays and it was the property play that dragged the core business down. The banks are now trying to restructure companies so that they are parking the property aspect and allowing them to have the capital necessary to continue with the core business which was viable all the way through but was being dragged down.

I agree with the Deputy's general point of view. We are working on it. We have not succeeded yet, but we have improved it significantly.

Written Answers follow Adjournment.