Other Questions

Excise Duties

Seán Kyne


6. Deputy Seán Kyne asked the Minister for Finance in view of the pressure on businesses in the hospitality and drinks industry such as local public houses and other businesses such as independent wine sellers and the associated increases in excise duties and taxes on such products in 2012 and 2013, if he will consider reducing the level of excise; and if he will make a statement on the matter. [37051/14]

This question relates to concerns among the rural pub trade and independent wine sellers regarding the impact of increases in excise duties over the past number of years on job retention and future job creation and the Minister's plans in this regard in terms of the forthcoming budget.

As the Deputy will be aware, it is not my practice to comment in advance on what measures may or may not be introduced in the budget. I do not intend to have a budget debate in advance of its announcement. I cannot be more precise than that.

In general terms, the Deputy will be aware that the VAT rate was reduced from 13.5% to 9%, which would have helped the pub trade, particularly the portion of it that provides food. I have met with representatives of the trade, including the Vintners' Association representing the Dublin publicans and the Vintners' Association representing the rural publicans, and representatives of Diageo who accompanied the Vintners' Association representatives by way of delegation. I am familiar with their concerns and have discussed them with them. We will see what happens on budget day.

I appreciate that the Minister cannot engage now in a debate on the budget. Many of us have met with vintners and rural publicans in the context of the ongoing Support Your Local campaign. I acknowledge that the imposition of additional taxes and charges was necessary when the economy was in dire straits. I also welcome the many initiatives taken by the Government over the past number of years in relation to job creation. However, the additional taxes introduced over the past few years are a hindrance on job creation and retention. There has been huge growth in the tourism area over the past number of years, largely because of the many initiatives taken by Government, including the Wild Atlantic Way and the reduction in VAT to 9%. These measures have had a positive effect. While I am aware of the issues around irresponsible consumption, businesses such as those I am speaking about - namely, restaurateurs, independent wine retailers and family-run pubs - promote responsible consumption in a social setting. Future reductions in taxes aside, which I would support, I hope that no new additional burden by way of taxes will be imposed on this sector.

Our approach has been to stimulate the industry in general, which included a reduction in VAT, the initiatives of The Gathering and the Wild Atlantic Way and the abolition of the travel tax, which resulted in an enormous amount of additional tourists coming into the country. That has been the general approach.

In regard to excise rates and the percentage charged in this regard in terms of the price of a pint, excise duty is now lower in percentage terms than it was in the early 1990s. There were no excise duty increases for many years. If I remember correctly, excise duty was reduced in 2009 or 2010. The only increase was applied last year. As I said, the proportion of the cost attributable to excise duty is lower now than it was in the early 1990s.

The elephant in the room in relation to alcohol is the predatory practises being pursued by the multiples. That is an issue that the Minister's Department will have to address. I accept it is not possible to treat the on-trade, the independent off-trade and the multiples separately in respect of excise duty. However, below-cost selling of alcohol by multiples is damaging to the on-trade, independent off-licences and society. As the Minister will be aware, the licensing system in this area is archaic in that a large multiple in this country pays the same amount, €500 per annum, as a small Centra store for an alcohol licence. It is a crazy system. When shining a light on this area, there must be an examination of the role of the multiples in terms of their aggressive below-cost selling of alcohol, which is what is doing the most damage to the pubs and independent off-licences that are struggling.

I was going to make a similar point, but Deputy McGrath has made it well. I will focus instead on the issue of wine as it relates to the question posed by Deputy Kyne. The Minister referred in his reply to excise duty on beer products. Has the Department of Finance undertaken any analysis of wine products, which attract the highest excise duty across Europe? What wine lovers actually get for their €8 or €9 spent on a bottle of wine is very little wine, because a large proportion of that cost relates to excise duty. Has the Department undertaken any research or analysis of the impact of two concurrent increases in excise duty on that sector, which is the issue raised in the question?

Social practices have changed significantly. Members will be surprised to hear that of all the excise collected from the drink trade, 23% comes from wine, which is massive. This is derived not from wine consumed in restaurants or pubs but from bottles of wine purchased in supermarkets and so on.

Another curiosity about wine, which applies to all applications of excise, is the charge applies on the volume. The proportional excise charged on cheap wine is very high but the proportion charged on expensive wine is not. The excess goes on the volume, not on the price whereas VAT goes on the price. That is a curiosity. I am conscious of the position of the trade. Many of the problems in the pubs in rural Ireland are not related to price. The Deputy knows the story and knows what is the problem. Social practices are changing as well. In my city, young couples tend to go out for a meal to a restaurant on a Saturday night rather than to the pub. There is quite a change in social practice and that must be taken into account by representatives of the vintners as well.

Post Offices and Credit Unions Merger

Paul Connaughton


7. Deputy Paul J. Connaughton asked the Minister for Finance if consideration has been given to the proposed mergers between post offices and credit unions as an alternative to mainstream banking; the measures needed to make this happen; and if he will make a statement on the matter. [37053/14]

The Minister is aware of the talk in his county, Limerick, of mergers between credit unions and post offices offering a different range of financial services. The question is what consideration the Department has given to the merger and what the Department can do to help roll out the idea. Many of the mainstream banks have closed some of their branches. With the mainstream banks having closed branches, the question concerns rural communities that are left with no banking service. Within the communities, a number of credit unions are looking to work with An Post to offer a different range of services. Quite a number of regulations apply. I am interested in the Minister's opinion and the opinion of the Department on future progress of the mergers.

The credit union sector nationally plays an important role in providing financial services, but in doing so retains responsibility to ensure members' funds are not put at undue risk. While the Department receives many proposals on various issues, my Department recently received a proposal involving a group of six Limerick credit unions and An Post investigating potential business opportunities to co-operate with each other and I assume this is what the Deputy is referring to. The Department received this proposal on 12 August 2014, which outlines the promoters' plan to establish and operate joint initiatives between participating Limerick credit unions and An Post, on a pilot project basis.

The proposal looks at channelling some of An Post services through credit unions and also looks at the prospect of An Post providing some credit union services. I am always open to considering proposals in relation to credit unions that would see the development of the credit union business model and an increase in income for the sector. Having read this proposal, there may be some merit in it. However, it must be stressed that the proposal is at a very early stage of development and would require additional work, as identified by the proposers, before it could be considered further. 

While officials from my Department met one of the proposers of this plan to discuss its merits, such a proposal would require more development before it can be fully evaluated. The Registrar of Credit Unions at the Central Bank is responsible for the regulation of credit unions and as such, any proposal on credit unions would be subject to regulatory approval by the regulator.

I understand it is at an early stage in the process and a number of credit unions in County Galway have approached me. There is an issue with rural post offices and both bodies are looking to amalgamate and to provide different services to people in areas where the main banks have gone. Even though the discussion on setting this up is in its infancy, what does the Department of Finance or the Central Bank have to do to make such a proposal workable? Must something be changed within the Department of Finance, given that credit unions can only lend to members? Will legislation be required to allow them to go outside of that and to bring in more people? Without attracting new customers, the credit union cannot survive. The main banks have left many of these rural communities. What needs to happen to increase the chances of it happening in the near future?

To give a flavour of the proposal, the suggestion is that participating credit unions will be provided with post point terminals by An Post that will deliver a number of services, including Bill payment, mobile phone top-ups, one4all gift cards, refuse charges, electronic funds transfer payments, television licences, parking and toll top-ups, stamps and the local property tax. The credit union would earn various rates of commission depending on the services provided. For lodgments, each participating credit union can issue customers who wish to use the service with the lodgment card allowing them to lodge money into a post office nationwide. The money will, in turn, be lodged to the appropriate credit union account. There is a suggestion of developing a micro-loan product that will be processed between the post offices and the banks.

It is an interesting proposal and it will develop further through interaction with my Department. We must keep the Central Bank fully informed about this because, in the final analysis, the credit union division in the Central Bank is the regulator of the credit unions. We must communicate with the parent Department of An Post to ensure everything is lined up. It is an interesting proposal and, in principle, we would like to advance it further. It is at an early stage and was only introduced on 14 August. If something similar could be done in Galway, I can provide the Deputy with the data.

Credit Unions Restructuring

Michael McGrath


8. Deputy Michael McGrath asked the Minister for Finance the role the restructuring board has played to date in activities of the credit union sector; and if he will make a statement on the matter. [37057/14]

The question also relates to the credit union sector and questions the Minister about the role of the restructuring board in restructuring credit unions around the country. The board is playing an important role on a voluntary basis, trying to incentivise credit unions where consolidations and mergers are needed. However, a number of issues arise in respect of the future of the credit union movement.

The Credit Union and Co-operation with Overseas Regulators Act 2012 provides the statutory basis for the restructuring of credit unions and placed the credit union restructuring board - ReBo - on a statutory footing from 1 January 2013.  ReBo is currently in the process of overseeing and facilitating restructuring on a voluntary, incentivised and time-bound basis and is working towards the timetable set out in the Commission on Credit Unions report, with a view to completing the process by the end of 2015. The Government has made available €250 million to the credit union fund for the voluntary restructuring of credit unions.

ReBo has undertaken a high level assessment of all credit unions based on financial data from the Central Bank and engagement with each credit union. To date, ReBo has facilitated the merger of 17 credit unions throughout the country and provided advice and expertise to the credit unions involved in the mergers throughout the entire process. ReBo is currently working with over 140 credit unions who have decided to pursue actively a merger strategy, along with providing ongoing facilitation and advice throughout the various stages of the process.

Throughout the process to date, ReBo has engaged with all credit unions that have been willing to engage with them and have met approximately 300 credit unions as part of this process. It has developed a standardised merger process, with supporting templates to assist credit unions which are going through a merger process. In addition to the restructuring process ReBo has also communicated to the Central Bank in regard to distressed credit unions for which it has not been able to find a restructuring solution, published various guidance documents on credit union mergers, conducted ongoing analysis of financial issues, environmental challenges and trends within the movement and engaged regularly with multiple stakeholders within the movement to include the Irish League of Credit Unions, the Credit Union Development Authority, the Central Bank, the Credit Union Managers Association and the Department of Finance.

Many credit unions are feeling the heavy hand of regulation, particularly when it comes to lending. Lending is their core business and many credit unions have onerous lending restrictions. ReBo needs to incentivise credit unions to merge where that is the appropriate solution. We need weaker credit unions to join stronger credit unions and the regulator must allow that process to take place. In the case of Berehaven, the decision was taken to liquidate the credit union.

Bantry Credit Union has subsequently taken over the business in order that services can continue. However, other credit unions are in need of capital. Will the Minister advise the House of the €250 million fund to which ReBo has access for the restructuring of credit unions, the number of cases which have received funding and how much of the fund has been drawn down for the benefit of the credit union sector?

The credit union movement is terrific and we support it absolutely and fully. Credit unions did not escape free from the financial crisis. Significant damage was done to the movement, as it was to the banks. Legislation was passed and organisations such as ReBo were established to protect credit unions. The primary purpose of everything we did with regard to credit unions was, in the first instance, to protect the savings of depositors because we did not want to see any risk to savings. That has been done. I refer to a number of high profile examples of credit unions in trouble, but, by and large, depositors have been protected almost totally. This must continue to be case. The protection of depositors has been the primary purpose of many of the interventions we have made.

I agree with the Deputy that there are many credit unions in the country, some of which are too small. The way to reorganise them is to merge them with neighbouring credit unions in order that groups will form a bigger and more financially solid entity. That process is proceeding by way of discussion and agreement, rather than with a heavy hand.

I am hearing from credit unions that they are feeling the heavy hand of regulation. Legislation was passed to strengthen regulation of the sector because it needed to be strengthened. Credit unions have been damaged by the economic crisis, not just in their core business but also because many of them invested in expensive buildings which have had to be revalued. This is having a detrimental impact on their overall financial position. I refer to the parallel process of ongoing regulation by the registrar and ReBo which is trying the softly-softly approach as against the heavy hand of regulation. The feedback I receive is that many credit unions are prepared to change in that they recognise change is unavoidable. They recognise that because of the need to reach the necessary levels of compliance and achieve an improvement in systems and governance, the weaker credit unions will need to join stronger ones. However, there is a need for a carrot as well as a stick. The incentivisation of restructuring has to be to the fore. The money has to be made available and used because achieving this on a voluntary and co-operative basis is preferable to the regulator using the heavy stick and threatening to shut down a credit union immediately on a Monday morning.

The information passed on to Deputies on credit unions usually comes from the managements or board members of credit unions that have a particular perspective. However, there is another perspective, from the point of view of the regulator whose primary purpose is to protect depositors. I suggest the Deputy invite the section of the Central Bank dealing with credit unions and the regulator of the credit unions to come before the finance committee to hear the regulator's view. There is no gainsaying it, but there are limits on lending and the regulator will explain the reasons. The regulator has to adopt a prudential approach. There is frequently a difference of opinion between the managements of credit unions and the regulator, but that is the normal tension in the business.

Fiscal Policy

Bernard Durkan


9. Deputy Bernard J. Durkan asked the Minister for Finance the progress year on year in the past five years towards achieving a stabilised economy, reduced borrowings and debt reduction; the extent to which the consumer has benefited or may expect to benefit from the progress made to date; and if he will make a statement on the matter. [37050/14]

My question relates to the degree to which the various economic and fiscal targets, year-on-year, have been identified and achieved in the past five years and the extent, if any, to which the consumer might expect to benefit from the achievements made to date.

Following the crash of the credit-fuelled property bubble, together with the accompanying financial crisis, Ireland's economy experienced a sharp downturn, with a loss of almost 10% in real output between 2008 and 2012.  Immediately following the crash, a major gap in the public finances emerged. Through implementation of a substantial adjustment, significant progress has been made in restoring financial stability, fiscal stability and economic growth.  The economy and the public finances are now on a more stable footing.

Ireland's competitiveness has significantly improved in recent years.  Relatively low consumer price inflation in the past five years has meant that Irish price levels have fallen considerably, relative to the euro area. For instance, annual HICP inflation in Ireland has been below that of the euro area average for every year since 2008. This trend continued into the early part of this year, with inflation in the first six months of the year coming in below the comparable rate in the euro area.

Following a major restructuring and recapitalisation of the banking system, stability in the financial sector has been restored.  The Government recognises that the availability of finance is an essential prerequisite to supporting growth and employment in the economy. In this regard, it has taken a number of actions to assist in the financing of the economy through new and innovative products.

The underlying problems of the public finances are being addressed. The policy measures implemented by the Government have resulted in a decline in the deficit. This decline has been gradual and in a phased manner, consistent with the dual needs of supporting economic activity, as well as repairing the public finances. All of the interim deficit ceilings set have been met and Ireland is firmly on track to achieve a deficit of below 3% next year. This has been important in restoring Ireland's credibility. In addition, the debt-to-GDP ratio is estimated to have peaked and is now on a firm downward trajectory.

The immediate fiscal policy objective remains the achievement a deficit of less than 3% of GDP by next year, thereby correcting the excessive deficit. Thereafter, fiscal policy will be set in line with the requirement to move towards Ireland's medium-term budgetary objective, which is, a balanced budget in structural terms.

I thank the Minister for his comprehensive reply. To what extent may the consumer expect to benefit in the next five years as a result of the achieving of these targets and having regard to the performance in the past five years? Will the Minister give us his view on the extent to which the percentage of total debt will alter relative to GDP?

The consumer benefits from low inflation and also from competition in the market. I understand there is significant competition between the supermarket chains, which has brought down the cost of the weekly shopping basket. The consumer will also benefit if future Finance Ministers have the capacity to reduce tax impositions or levies. The principal benefit for the consumer is that, as the economy stabilises, pay increases will become part of the norm once again. Already, I note that between 40% and 50% of private companies have given pay increases in the past 12 months. This trend will probably continue as the economy grows very strongly. The one word to describe everything that is happening is "normalisation" of the process. This is returning to being a normal economy where the normal rules apply. The consumer will obviously benefit in that sense.

Written Answers follow Adjournment.