Deputy Alan Farrell has the next question, but he is not present.
Other Questions
Question No. 6 replied to with Written Answers.
Personal Insolvency Act
Pearse Doherty
Question:7. Deputy Pearse Doherty asked the Minister for Finance the numbers of times State-backed banks have vetoed proposals in the personal insolvency process in cases in which they were the majority creditor. [45944/14]
In recent exchanges with the banks at the Joint Committee on Finance, Public Expenditure and Reform a very stubborn approach to struggling families has been taken, particularly by Bank of Ireland. Its approach has become clear once more. Mr. Boucher of Bank of Ireland has claimed he is not aware of a single case in which his bank wrote down mortgage debt. He has suggested the bank has voted in favour of personal insolvency arrangements in 45 cases. The committee asked him to supply information on whether any of these cases involved the write-down of mortgage debt. Two weeks later we are still awaiting the information. It is clear that Bank of Ireland has a policy of not supporting any personal insolvency arrangement that involves a write-down of mortgage debt. The Taoiseach said in the House two weeks ago that "there is, as yet, no definitive evidence of banks vetoing proposals." To what degree are the banks playing ball with the legislation introduced by these Houses?
The information I am giving the House has been provided by the particular institutions. So far this year, AIB has been the controlling voter in 78 cases of personal insolvency process proposals. It voted in favour of the proposal in 51 of the 62 personal insolvency arrangement cases and against it in the other 11. AIB voted in favour of the proposal in all 16 debt settlement arrangement cases. When representatives of AIB appeared before the Joint Committee on Finance, Public Expenditure and Reform in October, they noted that the bank exercised its veto only if too much of a dividend was going out to unsecured debt.
When representatives of Bank of Ireland appeared before the Joint Committee on Finance, Public Expenditure and Reform in October, they confirmed that the bank had voted in favour of personal insolvency arrangements in 45 cases, or 76% of all such cases, in which it was a participant in the 12 months since the launch of the insolvency service. When representatives of the bank appeared before the joint committee in April, they confirmed that the bank's policy was to veto proposals where secured debt was to be written down.
Permanent tsb has informed me that since inception of the insolvency service, seven personal insolvency proposals have been vetoed in cases in which it was the majority creditor. It has voted in favour of the proposal in 13 instances in which it was the majority creditor. With regards to debt settlement arrangements in which permanent tsb held the majority vote, it voted in favour of three and against one. Permanent tsb has noted that each case is assessed on the basis of its individual merit. I have been informed that the bank generally decides to use its veto because it can offer the customer a long-term sustainable and affordable treatment without the need for a personal insolvency arrangement, or because of financial reasons such as proposed fees or dividends.
I thank the Minister for giving that information. It is probably an understatement to say the personal insolvency system is clearly not functioning as it was intended to do. Representatives of the Insolvency Service of Ireland are travelling around the State to inform people and try to raise awareness, which is to be welcomed. I am aware that the Personal Insolvency Act 2012 is to be revised soon. I have not seen any indication from the Government that the major flaw in the system, which was identified by Sinn Féin and those who work at the coalface with people who are struggling to pay their mortgages when the personal insolvency legislation was debated here, will be addressed. I refer to the section of the 2012 Act which allows a bank that is a major creditor to veto any proposal made by a personal insolvency practitioner. The problem is that the Minister can bring the banks to water, but he cannot make them drink it. It is clear that Bank of Ireland, in particular, has set its face against the spirit of the legislation. The Minister who owns 15% of Bank of Ireland has confirmed in his reply that it is the policy of the bank to veto personal insolvency arrangements proposed by personal insolvency practitioners "where secured debt is to be written down." As a 15% shareholder in Bank of Ireland, can he say this policy is simply not acceptable and should be reconsidered by the bank? Will he emphasise that the personal insolvency system is intended to deal with both secured and unsecured debt? Will he make it clear that Bank of Ireland should co-operate fully with it?
While the initial take-up of insolvency solutions has been low, it should be noted that the number of cases in the system has increased to over 850. These cases will be worked through in the coming weeks and months. The fact that the Insolvency Service of Ireland is now in place has acted as a catalyst in encouraging debtors and creditors to reach bilateral deals to address insolvencies. In the absence of bilateral agreements, the new statutory framework mechanism will require all relevant creditors to engage with and respond to insolvency arrangements proposed by debtors. One of the features of the relationship between the Department of Finance and the banks in which we hold shares is that we do not interfere in commercial decisions. As the banks operate in accordance with law, they are entitled to do what they do. I will not interfere with their commercial decisions. There is some tweaking required in the legislation. The regulatory regime has already been changed somewhat in respect of fees, etc. and a review is being conducted. As the Deputy knows, the legislation was principally driven by the Department of Justice and Equality and the Minister for Justice and Equality will introduce proposals in this regard.
The take-up of the personal insolvency arrangements has been pathetic when measured against the expectations this Government had to deal with the mortgage crisis. The former Minister for Justice and Equality, Deputy Shatter, said that approximately 15,000 applications for debt settlement arrangements and personal insolvency arrangements would be applied for each year plus a further 3,000 to 4,000 applications for debt relief notices. As the Minister mentioned, there are 850 in the system and at the end of quarter three of this year there were only 1,200 applications in total since the very start. It is not working.
If other banks took the same approach as Bank of Ireland to veto every proposal that requires a debt write-down of secured mortgage debt it would be dead in the water. Some banks are engaging with the spirit of it but no personal insolvency practitioner, PIP, should put forward a proposal to write down debt with the Bank of Ireland because the bank will veto it.
The Minister mentioned the need for tweaking but is this core area of the legislation up for tweaking or will he allow the Bank of Ireland and other banks deal with it at their leisure?
The take-up was slow initially but there was an expectation that there would be a slow start to this new legislation in this jurisdiction. The recent Insolvency Service of Ireland, ISI, quarterly statistics were published in October and in summary, during quarter three, 61 debt relief notices, 22 debt settlement arrangements and 48 personal insolvency arrangements were approved. In addition, there were 137 bankruptcy adjudications in the third quarter of 2014 following the reduction in the duration of bankruptcy to three years. In the year to the end of the second quarter there were 301 bankruptcy adjudications compared to 58 in the whole of 2003. Steady progress is being made. As the new staff settle in the new legal framework is proving to be quite effective and helpful. Its very existence is giving an impetus to bilateral arrangements between banks and persons in mortgage difficulty. The Department of Justice and Equality is carrying out the review, which will consult with the Department of Finance but as yet I have no clear indication of that.
Budget 2015
Richard Boyd Barrett
Question:8. Deputy Richard Boyd Barrett asked the Minister for Finance the reason his proposed income tax and universal social charge budget measures disproportionately favour those on higher incomes; and if he will make a statement on the matter. [45994/14]
The Minister’s budget and particularly its changes in income tax and universal social charge, USC, disproportionately favoured those on a higher income. People on €70,000 or more gained between four and six times more than people on the lowest incomes. I have probably made this point since the budget was announced. How can the Minister possibly justify and stand over this unfair budget, given the staggering levels of child poverty, homelessness and the expressions of anger shown on the streets against water charges by those who cannot pay them?
I thank the Deputy for allowing me the opportunity to once again, answer this question which he also put to me at my previous appearance before the House to answer parliamentary questions. It is simply not true that the income tax and USC changes in the budget disproportionately favour those on higher incomes. However, I do not mind once again explaining our position as it is important that people realise what it is we are trying to achieve here.
A fair, efficient and competitive income tax system is essential for economic growth and job creation. I have long said that the burden of the income tax system in Ireland is too high and that I would seek to reduce it as soon as it was prudent to do so. The measures announced in the budget are the first stage of a reform plan, to be undertaken over a number of years, to address this issue, particularly for middle-income earners who have borne the greater share of the cost of the economic downturn.
In budget 2015 I announced a reduction in the top rate of income tax from 41% to 40%. I also extended the standard rate band on which income tax is chargeable at the lower 20% rate by €1,000. In addition, I have reduced the two lower rates of USC from 2% and 4% to 1.5% and 3.5%, respectively. Furthermore, I have also increased the threshold before which the 7% rate of USC becomes payable to €17,576, so that those on the minimum wage will now only be liable to a maximum 3.5% rate of USC.
The budget also provides for the retention of the exemption from the top rates of USC for medical card holders with incomes that do not exceed €60,000. These individuals will now only be liable to pay a USC rate of 3.5%, down from 4%. This reduced rate will also apply to the over 70s, with incomes that do not exceed €60,000, again down from 4%.
Ireland already has one of the most progressive income tax systems in the developed world. To preserve that progressivity, the budget also contains USC measures which have the effect of limiting the maximum benefit from this package of tax measures to approximately €14 per week for any individual taxpayer, which means that those with very high incomes will only benefit to the same extent as those with more modest incomes.
Additional information not given on the floor of the House
While the benefits from the changes introduced in budget 2015 are broadly proportionate to the level of income earned for those on low and middle incomes, the reality is that because of the highly progressive nature of the Irish tax system those on lower incomes pay very low levels of tax, particularly when compared to their counterparts in Europe.
Currently, a single individual employed on the standard minimum wage of €17,542 per annum pays income tax of €4.01 and USC of €10.51 per week. Furthermore, someone on the standard minimum wage is also exempt from paying pay related social insurance, PRSI. As a result of the changes introduced in budget 2015 the weekly USC charge of €10.51 per week will fall to €7.19 per week. This means the individual's tax bill will be reduced by just over 20%.
In contrast a single individual earning €70,000 per annum currently pays €25,531 per annum or €490.98 per week in income tax, USC and PRSI. After budget 2015, this individual's tax bill will be reduced by about 3%. Contrasting these two examples, I cannot agree that the income tax budget measures disproportionately favour those on higher incomes. In fact, the highest proportionate benefit as a percentage of net income from the budget tax changes occurs at an income level of just over €12,000. This is a result of my decision to extend the USC exemption threshold from €10,036 to €12,012, which also has the effect of removing 80,000 low earning individuals from the charge entirely.
The changes announced in the budget will ensure that all those currently paying income tax and-or USC will see a reduction in their tax bill in 2015. I propose to continue this reform in future budgets, subject to the required economic growth and the consequent fiscal space available to the Government.
According to Social Justice Ireland, an unemployed couple got €1.51 a week or €78.52 a year back in the budget while a couple with two earners on €125,000 will receive an extra €23.57 a week or €1,255 a year. A couple on €125,000 each, very wealthy and comfortable, got 12 times more in the budget than somebody on the lowest income. How can the Minister say that is fair? One can argue on some sort of technical grounds that we have a progressive tax system. Even the Minister’s budget examples showed that somebody on very low earnings was getting back a quarter of what somebody on €70,000 or more was getting. I do not know how the Minister can say that is a fair distribution of whatever extra resources he had for tax breaks or concessions in the budget.
I do not know the source of the Deputy’s statistics in respect of an unemployed couple.
It is Social Justice Ireland.
An unemployed couple does not pay tax or USC so I cannot understand how he is attributing a saving on income tax and USC for an unemployed couple and using it-----
I am saying the budget disproportionately favoured-----
-----as a comparison. Unemployed people do not pay tax. They do not pay USC. I do not understand the point the Deputy is making.
A single individual employed on the standard minimum wage of €17,542 per annum pays income tax of €4.01 and USC of €10.51 per week. Furthermore, someone on the standard minimum wage is also exempt from paying pay related social insurance, PRSI. As a result of the changes introduced in budget 2015 the weekly USC charge of €10.51 per week will fall to €7.19 per week. This means the individual's tax bill will be reduced by just over 20%.
In contrast a single individual earning €70,000 per annum currently pays €25,531 per annum or €490.98 per week and that individual's advantage is 3% whereas the advantage to the lower paid is 20%.
The Minister should not be disingenuous. The question is very clear. Why did the Minister’s proposals for income tax and USC, as they stood when the question was tabled, disproportionately favour those on higher incomes? With what moneys the Minister had available to give back to people, why did he disproportionately favour those on higher incomes over those on the lowest incomes? It is a very straightforward question and the figures come from Social Justice Ireland to suggest that the Government decided to give 12 times more per week to a couple, both earning €125,000 a year, than it gave to a couple struggling on the poverty line. The Minister’s examples in the budget document showed that the people on the lowest earnings who are paying tax got back one quarter of what somebody on €70,000 got. I do not see how the Minister can say that is fair when the people who for the most part are out on the street or expressing their outrage about their inability to pay water charges are saying they cannot pay these bills. That is the issue.
The relief is delivered through reductions in USC and reductions in income tax. A person on an income of up to €16,500 pays no income tax, so it is not possible to give him or her relief by reducing income tax.
The money can be allocated to social welfare.
The Deputy is challenging me on tax. I do not handle the social welfare budget. As people earn more, they pay more in tax. When one starts to unwind it and give relief, those that earn more will be advantaged when it comes to reducing the tax imposition, because they pay more tax. To avoid what the Deputy is challenging me with, I put a cap at €70,000. The maximum is €14 per week at €70,000, but the person on €120,000, €200,000 or €300,000 only gains €14 per week as well. For the first time we are targeting the low and middle incomes. The benefits to the low paid were delivered principally through universal social charge reductions and the benefits to the middle income earners were a combination of USC and, principally, income tax.
EU-IMF Programme of Support
Pearse Doherty
Question:9. Deputy Pearse Doherty asked the Minister for Finance if he will provide the main points of discussion he or his officials had with the troika on its most recent visit. [45945/14]
The Minister welcomed his old friends the troika back to the capital city in recent weeks. Obviously, the troika is still monitoring us and will do so for some time into the future. Members of the Opposition no longer have the opportunity to engage with the troika during its visits, but it is reported that mortgage debt, housing, water, issues in the wider economy and some of the delayed legislation on the reform of legal services and so forth were top of the agenda. Were water charges and the Government's climb-down in that regard discussed in detail with the troika? What other areas were discussed? What type of report, if any, will the troika submit as a result of its visit?
Following our successful exit from the EU-IMF programme of financial support on 15 December last, we are now subject to EU post-programme surveillance and IMF post-programme monitoring. Twice-yearly review missions are conducted by the European Commission, the ECB and the IMF as part of post-programme monitoring and surveillance. In this context, the second post-programme review mission took place between 17 and 21 November last.
Post-programme reviews have long been a feature of IMF programmes. In the European context, Regulation No. 472/2013, which is part of what is known as the two-pack, now provides for a similar arrangement for euro area member states in a post-programme situation. This regulation also provides for post-programme surveillance to be conducted by the Commission in liaison with the ECB. This is a different form of monitoring from that which applied during the programme. The objective of post-programme surveillance and monitoring is to assess Ireland's economic, fiscal and financial situation following the completion of the EU-IMF financial assistance programme. The focus of the assessment is on Ireland's ability to repay.
The meetings ranged from technical to policy discussions and were conducted by officials from my Department, the Department of Public Expenditure and Reform, the Central Bank and the National Treasury Management Agency, along with other relevant Departments and agencies. They covered the key areas of macroeconomic outlook and financial sector developments, with particular reference to the recently concluded European comprehensive assessment, the budgetary outlook, structural reform measures and the proposed early repayment of a portion of our IMF loans.
Following the mission, the IMF, the European Commission and the ECB issued statements setting out their preliminary conclusions. The IMF executive board will consider the final conclusions of the review mission in December, with EU consideration expected in January.
Did the troika leave on 21 or 30 November? What discussions did the Minister have with the representatives of the Commission, the IMF and the ECB about water charges? Was the new regime that the Government announced, which is unacceptable to the Irish people, discussed with the troika members? Did they raise any concerns about, for example, the water conservation grant that has nothing to do with water conservation? Did the Minister inform the representatives that since the troika left the Government's support has plummeted and the Irish people have taken to the streets to reject some of the proposals the Government is introducing? In particular, what was the troika's position in respect of water, or are the reports wrong and water charges were not discussed? Was the climb-down and change the Government has outlined regarding water charges discussed also?
Neither I, the Minister for Public Expenditure and Reform, Deputy Howlin, nor any other Minister met with the troika on this occasion. The post-programme surveillance is now conducted by civil servants of the Departments, as I outlined, and members of the troika. I am relating what was discussed at second hand, on the basis of briefing.
I understand the water issue arose and that the troika was briefed by officials on the new situation, but there was no contention about it. I do not know what supplementary questions the troika members asked, if any, but it was a question of briefing rather than an attempt by the troika to advance a policy position from its perspective. The main issues were the macroeconomic situation, growth in the economy, the budgetary position and the earlier repayment of IMF loans. In other words, they were the types of issue one would expect to be raised by people whose primary concern was to assess Ireland's ability to repay not only the IMF loans but also the loans from the European institutions.
I appreciate that the Minister was not in the room, but I expect he was well briefed. We sometimes learn more about these matters from the media than we do in this Chamber. It is suggested that the mortgage crisis is another area that was discussed. Obviously, the Minister has changed his tune on how to deal with those seeking mortgages and restrictions on lending. The Central Bank has intervened very clearly and undermined the efforts of the Government with regard to Construction 2020 with its decision to decrease the maximum loan-to-value ratio for those applying for mortgages to 80%, although it might roll back a little on that. The Minister indicated that measures would be brought forward in the Finance Bill relating to mortgage insurance and that an assessment would be carried out before that Bill was introduced. None of that has happened and, as a result, the Minister has asked the finance committee to deal with the issue. Did this issue arise with the troika? What was the troika's view on the Government's intention of increasing mortgage availability by increasing loan-to-value ratios through a mortgage insurance scheme?
The Central Bank is in charge of the prudential arrangements for lending by the banks, including mortgage lending. It has made announcements for the purpose of consultation and it has allocated a period for that consultation to take place. The 80% ceiling is a controversial announcement and people have different views on it. Different organisations are making submissions, including the Department of Finance. We will provide our submission in the next couple of days.
I do not know whether the troika raised this with the Central Bank. Its members had meetings with the Central Bank and might have raised it. There was a statement from the Commission, separately from the troika visit, saying it supported the actions being taken by the Central Bank so that Ireland would not again encounter the problems it had previously. This is unresolved, but the Central Bank is independent.
Mortgage Interest Rates
Pearse Doherty
Question:10. Deputy Pearse Doherty asked the Minister for Finance his views on whether mortgage holders in this State are paying a fair price for their mortgages in view of the record low levels of ECB interest rates. [45946/14]
It is clear that interest rates in this State are out of sync with what they should be. The Governor of the Central Bank, Professor Honohan, suggested that at the finance committee meeting last week, and also that he intends to do nothing about it. The Minister's response is that the Government is at arm's length from this and that it is due to commercial decisions by the banks. It is interesting that when the former Minister of State leaves these shores to take up residence in Brussels he has no problem returning here and telling us that the rates are a disgrace compared with the rates in other banks in continental Europe. He continues to lash out at the banks he oversaw up to a couple of months ago. Why can the Minister not have the courage of his convictions and state, as he did in the past, that variable interest rates are out of sync with what is happening across the water and that the variable interest rates in the State-controlled banks, at least, should come down? He should at least say that.
The Minister does not have to introduce legislation, as the Taoiseach threatened at one stage, to provide the Central Bank with this power. He should be able to stand up on behalf of the people who put him in this position and say the rates are out of sync.
The lending institutions in Ireland, including those in which the State has a shareholding, are independent commercial entities. I have no statutory role in whether regulated financial institutions pass on the ECB interest rate or in the mortgage rates they charge. They are commercial matters for each institution. The Central Bank has responsibility for the regulation and supervision of financial institutions in terms of consumer protection and prudential requirements and for ensuring ongoing compliance with applicable statutory obligations. The Central Bank has no statutory role in the setting of interest rates by financial institutions, apart from the interest rate cap imposed on the credit union sector in accordance with the provisions of the Credit Union Act 1997 and the requirement to be notified of penalty or surcharge interest imposed in respect of arrears. The mortgage interest rates that financial institutions operating in Ireland charge to customers are determined as a result of commercial decisions by the institutions concerned. This interest rate is determined taking into account a broad range of factors, including ECB base rates, deposit rates, market funding costs, the competitive environment and an institution's overall funding.
The Governor of the Central Bank, Mr. Patrick Honohan, in his opening statement to the Oireachtas Joint Committee on Finance, Public Expenditure and Reform last week, stated that the banks' drive to restore their profitability, combined with the lack of sufficient new competition, has meant that, far from lowering their standard variable rates over the past three years as ECB rates have fallen, they have increased their standard variable rates. He also acknowledged that, until very recently, bank competition has been too weak in Ireland to result in any substantial inroads on rates. The Governor also stated that in most advanced economies, including Ireland, it has long been understood that tight administrative control over the rates charged by banks would be counterproductive in ensuring a sufficient flow of properly priced credit on a lasting basis. Such control would strongly discourage new entrants. In this regard, ongoing competition in the banking sector will be crucial in ensuring that the economy is provided with efficient and cost-effective banking services. In this regard, there has been some movement on mortgage interest rates of late by a number of institutions, which suggests that the market may be entering a new and more competitive phase.
Additional information not given on the floor of the House
The Government has taken steps to ensure that the Irish financial market is accessible to any financial institution that is considering establishing itself in Ireland. In seeking to reduce the barriers to entry which are specific to the Irish banking market, section 149 of the Consumer Credit Act, as amended, which provides for the regulation of bank fees and charges, has been disapplied for the first three years in the case of new financial service providers setting up in Ireland. This arrangement was provided for in the Central Bank (Supervision and Enforcement) Act 2013. The imposition of regulation on the interest rates that commercial banks may charge will not assist in the development of competition in the banking sector and I have not seen any reasoned argument for such an imposition.
There is clearly a lack of competition in the banking sector, and a number of banks are bogged down by loss-making tracker mortgages. Despite what some may think, not all tracker loan books are loss-making. I welcome AIB's move to reduce its variable interest rate. In continental Europe the average variable mortgage interest rate is 2.64%, compared to 4.5% here. We must consider what will happen when the ECB rate begins to increase, as it inevitably will, and how it will affect those who are struggling to pay their mortgages. It is only a matter of time before the rate increases.
We are not living in normal banking times. The State owns 99% of AIB, 99% of Permanent tsb and 15% of Bank of Ireland, and this puts an onus on the Minister to stand up and say the rates are out of line. The Minister had no problem intervening in AIB's share price, which is a dodgy issue for a Minister for Finance who owns the bank. He had no problem warning people that AIB's shares were overvalued and that they should not buy them. At least he should stand up and say the rates applied by banks that we own or in which we have a substantial shareholding are out of line with those in continental Europe and ask them to reduce their rates if they can.
Three years ago, the banks were insolvent and an enormous amount of State funds had to be injected into them. Since then, the banking industry, particularly the banks the Deputy mentioned, have improved and secured their positions. However, the banking system is still in difficulty and is not operating like a mature banking system in a European country. The repair work continues, and they are doing well and providing much of the lending necessary. Competition is the best solution to the problems the Deputy has outlined. Now that there is banking union across the European Community, we encourage banks from abroad to establish branches here to increase competition in the banking sector. This is the only way to drive down interest rates.
The former Minister of State at the Department of Finance, Brian Hayes, said it was a disgrace. Either he was playing politics or he genuinely believes it. There are people in Fine Gael - maybe even the Minister, or the Minister of State, Deputy Harris, who is sitting beside him - who believe the variable interest rates are a disgrace and need to be reduced in line with the ECB reductions. Could they please find it in themselves to state that they agree with Mr. Hayes's statement that the interest rates are a disgrace? At least say something.
The Minister was correct when he said the banks were insolvent. They were rescued by the Irish people. The reason they are returning to profit is not some magical potion that is being concocted in the headquarters of AIB or Bank of Ireland but the exorbitant rates they are charging, the fact that they have not written off debt for struggling mortgage holders, the increased fees they charge and the fact that they have sacked thousands of workers and closed branches. Given that the banks have returned to profitability, they should be asked to consider reducing their variable interest rates, as the Government did when it first took office, when it was in tune with the Irish people. In the first year of the Government's term, it called the heads of the banks into Government Buildings and spoke to them about this matter, and they responded. Now, the Government has done a Pontius Pilate and washed its hands of it.
I will not comment on remarks made by Members of the European Parliament, including former Minister of State, Brian Hayes. There is no standard interest rate across the European Community from which we vary. There are variations in every country. There are different rates in different countries, depending on circumstances. In our circumstances, as a result of the impairment of the banks and the fact that they were insolvent, we are at the upper end of the spectrum. I hope that competition in the system will drive interest rates down and make the banks more competitive. It would suit the economy and job creation.
Written Answers follow Adjournment.