Dáil Éireann debate -
Tuesday, 29 Sep 2015

Vol. 890 No. 3

Priority Questions

Mortgage Interest Rates

Michael McGrath

Question:

118. Deputy Michael McGrath asked the Minister for Finance his views that reductions in fixed mortgage rates offered by the banks represent an inadequate response to the widespread public concern over high variable rates; that it is important that all domestic banks reduce their core variable rate product offerings; his plans to address high mortgage rates by the non-deposit taking, retail credit sub-prime sector; and if he will make a statement on the matter. [33182/15]

Deputy Michael McGrath

The Minister for Finance is very familiar with the topic of high variable interest rates being charged on up to 300,000 mortgage customers. The purpose of this question is to put it back on the political agenda. Some progress, albeit modest, has been made on this issue which has been firmly put on the political agenda. I believe the Minister is in the middle of a second round of, or has concluded, meetings with the banks which he promised to hold in September. It would be good if he could give the House an update on those talks. Is he still considering the two options he outlined earlier this year, namely, increasing the levy on the banks or the introduction of legislation to deal with this issue of excessive interest rates?

Minister for Finance (Deputy Michael Noonan)

As the Deputy knows, I have been aware of this issue for some time and have taken steps to ensure the banks provide real options for borrowers. To summarise actions taken to date, I requested a report from the Central Bank on the topic, which was published in May. I also met the six main mortgage lenders and outlined my view that the interest rates being charged to Irish customers were too high.

I have recently concluded a further series of meetings with these banks and the reality is that the majority have put options in place to allow borrowers to reduce their monthly repayments. Traditionally, borrowers focused on standard variable rates but borrowers should at least consider other options. While individual borrowers must decide what suits their particular circumstances, some of the fixed rates being offered are now substantially below what the standard variable rate, SVR, was in May. These rates offer substantial savings to borrowers and also offer security as to monthly repayments over a specific period of time. At the end of that term, borrowers can then revert to a standard variable rate if that is what they prefer. I would, therefore, encourage borrowers to contact their bank to see what is available to them in their particular circumstances or consider moving to another bank if the offer is not satisfactory.

I would also point out that lenders have not just reduced fixed rates. One lender significantly reduced its SVR, for example, while another has embarked on a new pricing strategy based on property valuation. I asked the banks to provide options by which customers might reduce their monthly repayments and I believe options have been put in place.

While I have not met all of the mortgage providers operating in Ireland, changes to interest rates by the main lenders should drive competition in the market and exert downward pressure on other lenders to reduce their rates in line with other providers. Sub-prime lenders operate in a particular niche and deal with customers who present a different risk profile to other customers, hence their rates will be higher other lenders.

Competition is the best long-term way of reducing interest rates paid by Irish borrowers and ensuring that Irish banks offer a sustainable product range. Higher than warranted mortgage interest rates will encourage new entrants to the Irish market over the long term. As the Deputy will be aware, the Government has undertaken a number of initiatives in order to promote competition in the market. For example, it introduced the changes to section 149 of the Consumer Credit Act 1995 in the Central Bank (Supervision and Enforcement) Act 2013 for new entrants. This section regulates fees and charges and the changes mean that it does not apply for the first three years of operation of new entrants to the Irish banking sector as new entrants to the mortgage market bring welcome competition to this sector.

Deputy Michael McGrath

I thank the Minister for his reply. Several banks have introduced new options, which are always a good thing, but these options are very selective. They are of most benefit to new customers in particular. Many existing customers continue to be discriminated against and the options simply are not for everyone.

The following are the actual standard variable rates still being charged by the banks today: Bank of Ireland, 4.5%; Permanent TSB, 4.3%; KBC 4.5%. or 4.3% if the customer opens a current account with it; Ulster Bank, 4.3%; AIB, 3.65%; ACC, 4.4%; and Danske Bank, 4.95%. I could go on and get into the vulture funds and the servicing companies now managing loan books that have been sold.

Greater fixed rate products have been offered but they come at a price, as the Minister well knows. Existing customers continue to be charged much higher rates than new customers. The Minister has concluded his second round of meetings with the banks. Is he satisfied that they have done enough? Have the banks satisfied the Minister, because I am not satisfied? Is the threat of a levy and-or legislation now off the table? Has the Minister concluded his assessment or is it still an open book on his file?

Deputy Michael Noonan

I thank the Deputy for his supplementary questions. He will recall that the Central Bank report published last May, to which I referred, stated that there was an excessive margin being charged in Ireland on variable interest rates but it disagreed that the margin was as big as has been cited in debates here on several occasions. The banks have moved to lower that particular margin. AIB has had made three reductions and it is the biggest mortgage provider in the country. It is down to 3.65% and it does not vary between new mortgages and existing ones. Permanent TSB has moved from its variable standard rate to what it describes as a managed variable rate and has introduced the concept of loan to value.

In the best loan-to-value situations they are offering money at 3.6%, I believe, and then it varies with loan-to-value rates, so there is significant movement. There are dozens of interest rates being offered now in different circumstances and I wish to see how the market operates and if competition will kick in. There is a reluctance among people to change. There is a type of inertia which is leading to individuals staying with their existing mortgage holders, but there is much better value if people shop around. It is not something one must fix for life - one will not get that option anyway. Normally, one fixes for one, two or three years and people can then revert to standard variable rates. At the conclusion of my meetings with the banks I said that if we are all around, we will talk again early in the new year and we will see how competition is operating.

On the question of the levy, there has been a levy in place over the last number of budgets. It will be a matter for the budget, and whether the levy will be maintained as it is, increased or reduced is a matter for announcement on budget day.

Deputy Michael McGrath

Reading between the lines, it sounds as if the Minister has made up his mind that the banks have gone far enough to satisfy him. I believe he is letting the banks off the hook, because they have not gone far enough. Yes, there have been improvements in the product offering, the fixed rates have come down and the managed variable rates are an innovation, but for many customers who are in negative equity or have very little equity and are really struggling there is little or no improvement. I have outlined all the variable rates still being charged by banks. Many of them are still up around the 4% to 4.5% rate and are even higher in some cases. That is excessive when one considers the very low cost of funds that the banks are facing at present, the price that consumers must pay by entering into a fixed rate, the loss of flexibility they encounter when they do so and the fact that existing customers are being discriminated against. When the Minister says that if he is still here he will meet the banks again in the new year, it sounds as if the threat of the levy being increased or of legislation being introduced to give more powers to the Central Bank appears to be off the table. The Minister has been bought off too easily by the banks on this matter.

Deputy Michael Noonan

The Deputy is jumping to conclusions. While the headline variable rates that the Deputy outlined in his initial contribution are correct, other much lower rates are available to mortgage holders-----

Deputy Michael McGrath

For some customers.

Deputy Michael Noonan

-----either from their own bank or mortgage provider or by switching.

Deputy Michael McGrath

It is very difficult to switch.

Deputy Michael Noonan

What puzzles me at present is why more people are not switching. There is demonstrably an amount of money to be saved if people change, yet there appears to be an inertia in the system and they are not changing.

Deputy Michael McGrath

It is not easy to do.

Deputy Michael Noonan

I wish to let it go for a few months and see if the new competitive situation will operate to the benefit of customers. We have made significant progress. The Deputy's Private Members' Bill, which I complimented as a good initiative, sought to provide that the Central Bank should intervene to fix interest rates if they went above 3%. We have the two biggest mortgage providers down to 3.65% now, so we are coming close to the position the Deputy outlined.

I am not sure what will happen with interest rates internationally but there are very strong indications that the cycle of rising interest rates could commence this autumn when the US authorities increase interest rates. People should look seriously at fixing now because we might be at the bottom of the cycle. If one fixes, one does not fix irretrievably. One can always revert to a variable rate subsequently.

NAMA Loan Book Value

Pearse Doherty

Question:

119. Deputy Pearse Doherty asked the Minister for Finance the date on which the National Asset Management Agency notified him of an unsolicited approach by representatives of the Pacific Investment Management Company related to the sale of the agency's Northern Ireland loan book; and the action that he took after this notification was received. [33184/15]

Deputy Pearse Doherty

This issue is being discussed on both sides of the Border. It relates to the sale of the Northern Ireland loan book by the National Asset Management Agency, NAMA, and the fact that it is alleged there were fixer fees in the sales process. On what date was the Minister informed by NAMA of the unsolicited approach by representatives of Pacific Investment Management Company, PIMCO, relating to the sale of the Northern Ireland loan book by NAMA and what action did he take on hearing that fixer fees were to be applied to this sale?

Deputy Michael Noonan

As the Deputy will be aware, it was I who initially received the unsolicited expression of interest for the NAMA Northern Ireland loan book, via the then Northern Ireland Minister for Finance, Mr. Sammy Wilson, from Brown Rudnick on behalf of its client, PIMCO, on 24 June 2013.

On 9 July 2015, I published on the Department of Finance website both the representation from the Minister, Mr. Wilson, the Brown Rudnick approach on behalf of PIMCO and my own response to the Minister, Mr. Wilson. My officials also provided these documents to the Committee of Public Accounts. The Brown Rudnick letter suggested a semi-exclusive sales process which considered a number of suggestions regarding the future management of the portfolio for the Minister, Mr. Wilson, to consider. This would not typically be a cause for concern. A buyer will often seek a closed or exclusive sales process because it is in their interest to remove competition and increase their chances of success. Therefore, while it may be somewhat naive to suggest such an approach to NAMA, it is not surprising and gave me no cause for concern, as I was aware NAMA would favour conducting an open market process for any sale process.

In my reply to the Minister, Mr. Wilson, on 25 July 2013, I advised that Brown Rudnick should approach NAMA directly with its expression of interest and clarified that NAMA would not run an exclusive process but would have to run a competitive and transparent sales process. At that time, I also referred the letter I had received to NAMA for its information. NAMA subsequently received a third party approach on behalf of PIMCO to sell the loan portfolio on an exclusive basis in September 2013. Following this expression of interest, NAMA, in line with its well-established policy on asset and loan sales, instigated a competitive market sales process in February 2014. NAMA appointed Lazard, a major international investment bank, in January 2014 to advise on and oversee the sales process for Project Eagle. Based on its assessment of the market, Lazard invited eight other major global investment groups, alongside PIMCO, to participate in the process.

An Leas-Cheann Comhairle

Thank you, Minister. The time is up.

Deputy Michael Noonan

Allegations have been made about this. If the House would allow me, I would like to put my reply on the record.

An Leas-Cheann Comhairle

Is that agreed? Agreed. I am only operating according to the Standing Orders.

Deputy Michael Noonan

I thank the Leas-Cheann Comhairle.

Regarding PIMCO's subsequent withdrawal from the sales process, I am advised that on 10 March 2014 PIMCO informed NAMA that PIMCO's compliance staff had discovered that PIMCO’s proposed fee arrangement with Brown Rudnick included a proposed payment of fees to Tughans and to a former external member of NAMA's Northern Ireland advisory committee, NIAC, who resigned in early November 2013. NAMA viewed this disclosure as a very serious development and I am advised that the NAMA board met on 11 March 2014 to consider the most appropriate course of action. The board decided that if PIMCO did not withdraw, NAMA could not permit it to remain in the sales process. NAMA advises that on 12 March 2014 it indicated serious concerns to PIMCO about the proposed fee arrangement and, in particular, the proposed fee payment to the former member of the NIAC. I am further advised that on the following day, 13 March 2014, PIMCO informed NAMA that it would withdraw as a potential bidder from the Project Eagle process.

We must credit PIMCO in coming forward to NAMA with this information when it was questioned by its compliance department. We must also credit NAMA for doing what was best for the integrity of the sales process.

Deputy Pearse Doherty

I thank the Minister for putting that on the record. Now, hopefully, he will answer the question I specifically asked him, namely, when was he informed, in regard to the call from representatives of PIMCO about the sale of the Northern loan book, that there was a £15 million fixer's fee? When was he informed by NAMA of that? What did he tell NAMA to do on receipt of information to the effect that one of the potential bidders had a fixer's fee with somebody who was advising NAMA in regard to its Northern loan book?

Deputy Michael Noonan

I have given the Deputy the information he requested in his initial question but I will reread it for him.

Deputy Pearse Doherty

No, that is not it.

Deputy Michael Noonan

Regarding PIMCO’s subsequent withdrawal from the sales process, I am advised that on 10 March 2014 PIMCO informed NAMA that its compliance staff had discovered that PIMCO’s proposed fee arrangement with Brown Rudnick included a proposed payment of fees to Tughans and to a former external member of NAMA’s Northern Ireland advisory committee who resigned in early November 2013. I was informed by the chairman of NAMA shortly afterwards - the following day or maybe two days later, but around that time. There was no delay.

Then PIMCO had discussions with NAMA. NAMA told PIMCO that if it did not withdraw, it would not proceed to deal with it, so PIMCO withdrew. That is the position.

Deputy Pearse Doherty

From what we believe from Frank Daly, the Minister was informed on 13 March that one of NAMA's biggest sales processes had a potential conflict of interest. I know from the Minister's briefing notes which we obtained under a freedom of information request that this potential conflict of interest would have shone negatively on NAMA. The Minister was informed of this fixer's fee, this three-way split between Brown Rudnick, Tughans and Frank Cushnahan, the adviser on the Northern Ireland board of NAMA. What did he do at that point? Was he not concerned that the sale process should be halted? What reassurances did he seek that Mr. Cushnahan would not continue to be involved in the sale process as it moved along, as the allegations today suggest that these same parties or some of them were involved in the sale by Cerberus.

Is the Minister concerned, as stated in his briefing document in regard to the potential conflict of interest, that there should at least be a commission of investigation here? At the very least should the Minister not call, as he did for example when the ECB was refusing to present itself before the banking inquiry, for NAMA to present itself before the investigation currently ongoing in the Northern Ireland Executive? Can the Minister give us some specific details as to why he was not concerned, knowing there was a €15 million fixer's fee involved here with these firms and one of the advisers? Was it because they would drop out and, hopefully, Mr. Cushnahan or Tughans would not get involved with the other buyers and we would settle for whatever words of reassurance they would give us, such as "sure it was only €4 billion worth of assets involved in the sale"?

Deputy Michael Noonan

As I said in my initial reply, it was the compliance section of PIMCO that informed NAMA there was a potential conflict of interest. As a result of that, NAMA took action. It let it be known to PIMCO that under the new circumstances brought to its attention, it would ask PIMCO to withdraw from the sales process or, alternatively, it would not continue to negotiate with PIMCO. Either way, PIMCO was out. The Deputy asked what I did. I listened to the advice of the NAMA Chairman, who communicated with me the views of the NAMA board, and I fully agreed it should not continue with PIMCO. Since there were eight investors in all involved, the process continued and the other investors were considered. However, the lead bidder was out because of the potential conflict of interest.

On whether it is worth investigating this, the NAMA Act shows that NAMA is accountable to the Houses of the Oireachtas, specifically through the Committee of Public Accounts. I understand a meeting has been arranged and NAMA is quite willing to explain everything. Also, it has submitted all documentation in connection with this and answered all the questions presented by the relevant Northern Ireland committee investigating this on the website. In my view, NAMA acted absolutely properly. If other people acted improperly, it was on the purchasing side, not on the selling side.

Mortgage Interest Rates

John Halligan

Question:

120. Deputy John Halligan asked the Minister for Finance if he has requested the banks to cut their high variable rates; the nature of their response; the reason his Department did not exert more pressure on the banks to introduce more variable rate reductions; his views that it is acceptable that some banks have reduced their fixed rates, but have left variable rates unchanged; his plans to amend regulations to stop banks overcharging for variable rate mortgages; and if he will make a statement on the matter. [33090/15]

Deputy John Halligan

My question is in a similar vein to that asked by Deputy Michael McGrath. However, is the Minister comfortable in the belief that he has exerted enough pressure on the banks to introduce more variable rate reductions? Does he accept that some banks have reduced their fixed rates but have left variable rates unchanged? Is the Minister prepared to change the law, as suggested by many Members? As recently as last week, the Tánaiste, Deputy Joan Burton, spoke about something being done in the upcoming budget that would force banks which are overcharging to reduce their interest rates down in line with Europe.

Deputy Michael Noonan

As the Deputy is aware, I have taken steps to ensure that the banks provide options for mortgage holders to reduce their monthly repayments. Last May, I requested a report from the Central Bank on the topic, which I subsequently published. I also met the six main mortgage lenders in May and outlined my view that the standard variable rate being charged to Irish customers was too high. The banks agreed to review their rates and products and, by the beginning of July, to have simple options to reduce monthly mortgage payments for standard variable rate customers.

Last week, I concluded a series of follow-up meetings with these banks and the reality is that the majority have put options in place to allow borrowers reduce their repayments. As the Deputy will be aware, these options range from lower variable rates to new suites of variable rates based on loan to value, and reductions in fixed rates.

It is a matter for each individual borrower to decide what suits his or her circumstances. Borrowers should carefully consider that some fixed rates on offer are now substantially lower than the standard variable rate, SVR, and would result in savings for some customers. I therefore encourage borrowers to contact their bank to see what is available to them in their circumstances or consider moving to another bank if the offer is not satisfactory.

I also point out that lenders have not just reduced fixed rates. One lender reduced its SVR, for example, while another has embarked on a new pricing strategy based on property valuation. Banks have also put measures in place to attract new customers who might switch from existing borrowers. I asked the banks to provide options by which mortgage customers might reduce their monthly repayments and I believe options have been put in place.

The issue of regulating interest rates was the subject of two Private Members' Bills before the recess. Discussions on the Bills illustrated the unintended consequences which can arise when a Government intervenes in the market. As the Governor of the Central Bank said, in most advanced economies, including Ireland, it has long been understood that tight administrative control over the rates charged by banks would be counterproductive to ensuring a sufficient flow of properly priced credit on a lasting basis. Such control would strongly discourage new entrants. The Central Bank has not sought any power to regulate interest rates and I have made it clear that I would be willing to consider such regulation if the Central Bank requested it.

Additional information not given on the floor of the House

My Department and I exerted pressure on lenders by calling them in to discuss the issue twice and by reviewing the possibility of regulating interest rates or imposing a levy on the banks. Our opinion is that regulation would have negative consequences for customers in the long run and this position is supported by Central Bank and ESRI research. Competition represents the best long term solution to the problem. The Government made a commitment in the statement of Government priorities 2014 to 2016 to applying downward pressure on mortgage rates by increasing and supporting competition in the market and it will continue to work to fulfil that commitment.

Deputy John Halligan

Aside from unemployment, would the Minister accept that mortgage arrears are the single biggest issue facing Irish homes today? He will be all too aware of the many people in long-term arrears on their homes. At the end of June, it was estimated that there were 38,000 mortgage accounts over two years behind in payments. This figure continues to grow as, I believe, will the number of evictions.

The high costs being paid by those on variable mortgages is a huge factor. There is no question about that. While some borrowers on tracker loans are paying less than 1%, from what I can gather, others on variable rates are paying 4.5%, which is significantly higher than the equivalent Euro rate which, while I am open to discussion on that point, I reckon is about 2.2%.

For some families, the extra cost will determine whether they can heat their homes this winter. Others are being forced into further arrears, bringing them closer to the limit at which they will not be able to keep their homes. The Minister made the point that they should consider moving to a different lender. That should not have to be an option. We should be able to bring in legislation to force the banks to reduce their variable interest rates, as has been said in this House on numerous occasions by Deputies from all parties.

Deputy Michael Noonan

While I will consider the option which the Deputy has outlined for me, I rely on the Central Bank to advise me on these matters. It has advised very strongly not to introduce legislation along the lines of the very good Bill which Deputy Michael McGrath produced. While we might have short-term gains for persons on variable mortgage rates, the availability of mortgage funding could dry up. There would be another tranche of people who would not be able to get mortgages on the market if there was a strict fixing of rates applied by the Central Bank or some other agency.

Deputy John Halligan

Despite the significantly lower cost of wholesale funding, not to mention the €20.8 billion we used to bail out the banks, there is no question in ordinary people's minds that the banks have been underwhelming, to say the least, in their response to this crisis. Of all the institutions I deal with, such as State institutions, the health service, credit unions or whatever, some of the banks have been the most inhuman. They have very little compassion for people. It is no wonder that people are furious. The Minister cannot blame them for looking to Europe and the variable rate there. There is now a fear that we seem to have no control over the banks.

I have gone out of my way not to criticise the Minister personally but the point remains that I am dubious about the reasons he has given for the Central Bank saying it would mean very little to bring in legislation. That matter should be put to the banks. I would like to have debated in the House the effects the Central Bank says the introduction of legislation would have on future lending. I am not too sure that what is being said is the case. However, the case remains that there are 30,000 people who cannot pay the rates as they stand today.

Deputy Michael Noonan

I agree with some of the views expressed by the Deputy. When I entered office in March 2011, the banks were insolvent. Anglo Irish Bank was gone out of business completely and Allied Irish Banks, Bank of Ireland and Permanent TSB were insolvent. After three weeks in office, in order to try to make them solvent, I had to recapitalise them. That was on the last day of March 2011. The banks were severely damaged institutions and had great difficulties with their customers. We have been working our way through this ever since. We are now in a position in which we have viable banks trading again and providing the kinds of credit lines we need to keep an economy growing at a rate of 5%. Mortgage interest and mortgage provision are part of that. People need houses and have to have mortgages to purchase them. The interest rates are higher than in the rest of Europe. It is arguable what the margin actually is, but much of the additional margin is due to the first statement of the Deputy, the fact that there are so many mortgages in arrears. The banks have to cover the mortgage book. However, we are working our way through it and circumstances are improving on a monthly basis. I hope they continue to improve.

Budget 2016

Michael McGrath

Question:

121. Deputy Michael McGrath asked the Minister for Finance his views on the constraints on budget 2016 tax decisions arising from European Union and domestic rules; the impact of the carrying forward of previous taxation measures on the scope for tax changes in 2016; and if he will make a statement on the matter. [33183/15]

Deputy Michael McGrath

Budget day is just two weeks away, as the Minister well knows. The fiscal space of €1.2 billion to €1.5 billion was announced by the Government back in April. The purpose of my question is to bring that announcement up to date and focus, in particular, on the taxation side. The Minister has said it is his intention to split the expenditure and tax sides broadly evenly, so that amounts to €750 million on the tax side. Can the Minister clarify the impact of carry-forward measures, for example, and the first-year effect versus the effect for subsequent years? Can he confirm the capacity he has to announce new taxation measures in the budget in two weeks' time?

Deputy Michael Noonan

Again, I thank the Deputy for his questions. The budget will be on this day in two weeks so we are getting close.

Budget 2016 will be the first budget framed under the reformed and strengthened preventive arm of the Stability and Growth Pact. As published in the spring economic statement, fiscal space of €1.2 billion to €1.5 billion will be available for new expenditure or revenue measures in budget 2016. This estimate of fiscal space was designed to ensure compliance with the fiscal rules, particularly the expenditure benchmark pillar. This quantum of fiscal space and the breakdown agreed by the Government is already well known, namely a 50:50 split between revenue and expenditure. This formed the basis for discussion at the national economic dialogue, held in July, at which there was broad consensus that budgetary demands would have to be met from this package.

The exact size of the fiscal space will be finalised in the coming weeks, taking into account various inputs, such as the projected inflation rate - the GDP deflator - any discretionary tax measures and other elements of general Government expenditure outside central government.

With regard to the carryover effect of measures previously introduced or due to expire in 2016, this estimated cost of just over €0.3 billion was taken fully into account in the calculation of the estimated fiscal space of €1.2 billion to €1.5 billion.

A budgetary package of €1.2 billion to €1.5 billion will provide for increases in key expenditure areas and lower the high tax burden on the squeezed middle. I reiterate the importance of delivering a budget that is consistent with the pre-announced fiscal space. The quantum is appropriate from an economic and fiscal policy perspective, a view which is shared by the Irish Fiscal Advisory Council, as stated in its recent pre-budget statement. This will give further confidence to the markets that the Government remains committed to sensible and prudent fiscal policy.

Deputy Michael McGrath

I thank the Minister for his reply. Can he clarify that, in terms of taxation, he has a potential envelope of up to €750 million? Is that the quantum of net new measures on the taxation side? Obviously it is open to the Minister to increase taxation in certain areas and he has made some comments in that direction. Therefore, is he talking about net new tax measures of up to €750 million? Will that then be reduced by the €300 million to €340 million of carry-forward measures or is this already taken into account in the context of the €750 million? I think the Minister confirmed in reply to a parliamentary question that the figure of 1.2% to 1.5% - so, in effect, the €750 million on the tax side - is the first-year effect. Of course, the subsequent year effect is greater. Perhaps €750 million in the first year could be a tax package of €1 billion in terms of a full tax year.

If the Minister could clarify those matters, it would be really helpful. We all recall that, last year, questions to the Minister for Finance were taken less than two weeks prior to the introduction of the budget and that the latter was expected to be neutral. Then, however, an expansionary budget of €1 billion was brought forward. Can the Minister please tell us, therefore, what exactly are the answers to those questions?

Deputy Michael Noonan

I thank the Deputy again. First of all, the carryover is in the base as published in the spring statement, so the €750 million is net of that. The €750 million is available for tax reductions amounting to that value in 2016 and the full-year effect is higher. All those announcements will be made on budget day, but this is not a new departure. Every time a budget is introduced here there is a first-year effect and a full-year effect, and that is not going to change. Deputies will be given full information in two weeks' time, either in the budget statement or in the documents accompanying the budget.

Deputy Michael McGrath

I have a supplementary question on that. Given that the economic data are changing constantly and, thankfully, are moving in a positive direction in terms of employment and Exchequer figures - I presume that in the next two or three days the Minister will receive the Exchequer figures for September - is there scope to go beyond that overall envelope if the updated information is more positive than he has anticipated or is he constrained by EU and domestic rules to remain within the 1.2% to 1.5%, irrespective of the resources actually available?

An Leas-Cheann Comhairle

I call on the Minister to conclude.

Deputy Michael Noonan

The Deputy is correct that Exchequer returns will be available to me late on Wednesday evening. They will be announced on Friday in the normal way. Not only do those returns reflect the monthly position, they are also a reflection of the end-of-quarter position at the end of September. With the information available as of yesterday evening, they will either be on profile or slightly ahead. They may, in fact, be a little bit more ahead. One never knows what is going to happen in the final days of a tax returns period, especially in a VAT month. That is the position. Any additional resources that come in can be used, for example, to fund Supplementary Estimates for 2015 but they cannot be carried over in terms of 2016. In calculating the base for 2016 and tax flows for 2016, stronger flows on individual heads coming into the fourth quarter of the year could influence the estimation. We have already sent our forecasts to the Irish Fiscal Advisory Council, however, so there is little or no scope for moving beyond the parameters of 1.2% to 1.5%. In any event, it is my policy, as Minister for Finance - that policy is endorsed by the Government - that we remain within that particular scope for the budget.

Budget 2016

Pearse Doherty

Question:

122. Deputy Pearse Doherty asked the Minister for Finance if he will confirm the permissible fiscal space under the expenditure benchmark available to him in budget 2016, and for the remainder of 2015, as part of the Government's budget 2016 announcements; if these figures take into account the need for increased spending due to demographic changes and inflation in 2016; and if he will make a statement on the matter. [33185/15]

Deputy Pearse Doherty

My question follows on from Deputy Michael McGrath's and amplifies the need for a better process for having more information available in respect of the budget. The Minister referred to staying within the fiscal space of 1.5%, which applies to the expenditure benchmark in budget 2016. However, he has strongly indicated that there is scope to introduce Supplementary Estimates to deal with the buoyancy in taxation and the additional receipts that have come in. Because expenditure in the next three months does not count as part of the expenditure benchmark rule, we could spend a couple of hundred million euro on education, health and social welfare - for example, restoring the Christmas bonus or putting child benefit back in place - and it would not count in relation to the fiscal space.

Can the Minister confirm this and does he have any intention of following that line, which would be a way of avoiding the constraints the expenditure benchmark has placed on the Government?

Deputy Michael Noonan

I thank the Deputy for his question and his elaboration on it. As indicated in the spring economic statement, fiscal space of €1.2 million to €1.5 billion will be available for new expenditure or revenue measures in budget 2016. This estimate of fiscal space was designed to ensure compliance with the fiscal rules that Ireland is now subject to under the preventive arm of the Stability and Growth Pact, in particular the expenditure benchmark pillar. This quantum of fiscal space formed the basis for discussion at the national economic dialogue held in July at which there was a broad consensus that budgetary demands would have to be met from this package. The exact size of the fiscal space will be finalised in the coming weeks taking into account various inputs, such as the projected inflation rate - GDP deflator - any discretionary tax measures and other elements of general government expenditure outside of central Government. Inflation is taken into account in the calculation of fiscal space through the incorporation of the GDP deflator in the expenditure benchmark. It should also be noted that the fiscal space will have to accommodate all Government priorities, including additional expenditure arising from demographic pressures.

A budgetary package of between €1.2 million and €1.5 billion will provide for increases in key expenditure areas and reduce the high tax burden on the squeezed middle. I reiterate the importance of delivering a budget which is consistent with the pre-announced fiscal space. The quantum is appropriate from an economic and fiscal policy perspective, a view which is shared by the Irish Fiscal Advisory Council, as stated in its recent pre-budget statement. This will give further confidence to the markets that the Government remains committed to sensible and prudent fiscal policy.

With regard to 2015, the stability programme update published in April forecast a deficit of 2.3% of GDP. Notwithstanding emerging pressures on expenditure, given the performance of revenue through the first eight months of the year, I am confident that we will at least achieve, if not better, this target. Importantly, it is now increasingly likely that the debt ratio will fall below 100% of GDP at the end of the year.

In response to the issues raised by the Deputy when he introduced his question, the figure of 2.3% is one that I will achieve. It was in the spring statement. If a lot of extra tax accrues up to the end of September, I am still bound by the figure of 2.3%. Of course, if Government Departments overspend - and we know that the Department of Health is already ahead of budget allocation - that must be met. The point I was making to Deputy Michael McGrath is that I believe there will be sufficient taxes above profile to meet issues that arise on the expenditure side. Some Departments are below their level of expenditure so there is a possibility of diverting expenditure budget funds to the areas in which overruns have occurred from those where there has been an underspend.

Deputy Pearse Doherty

I want to dig a bit deeper into this. I hear the Minister loud and clear in terms of the 2.3% deficit target. The issue arises as to whether there might be space for additional expenditure to be made in 2015 in circumstances where that target could still be met. Is there any space to spend or have supplementary welfare budgets beyond the overruns in the Department at this point that would allow the Minister to reach the 2.3% target and spend money on social welfare? It is a way of circumventing the expenditure benchmark rules. Otherwise, it would not be done and it would be announced in the budget and would take effect in 2016. It has been signalled by Government that the intention is to introduce a number of supplementary budgets that would allow for measures such as restoring the Christmas bonus or increasing child benefit but that would not be included in the fiscal space in terms of expenditure of €750 million.

Is there space in that regard?

I have a question on the White Paper on expenditure and receipts. It comes out at midnight the Friday before the budget. I do not believe that it could not be brought forward or that information like that could not be provided with all the caveats closer to budget day to have a better informed debate, particularly from the Opposition parties and other interested parties outside the House.

An Leas-Cheann Comhairle

I thank the Deputy.

Deputy Pearse Doherty

If we are talking about genuine reform, we should not repeat that in future years.

Deputy Michael Noonan

The additional tax above profile at the end of eight months, at the end of August, was €1.4 billion but a big chunk of that is needed to get the deficit down to 2.3%. Our requirement under the rules was to get the deficit below 3% and we budgeted for 2.7%. As it is well below that, it consumes much of the extra tax. I will know better on Friday and I will make a full statement then on where we are at the end of nine months. The trend of additional tax over profile coming in seems to be continuing in September. Based on the final figures that we will have on Wednesday, we can guesstimate our forecast, if one wants to use that word, of how it might end up at the end.

If there is a decision in government, obviously one has to cover overruns in Departments and that is through the Supplementary Estimate process with which the Deputy is familiar. If anything new is proposed, it would have to be in 2015 and it would have to be once-off because if there is a carryover into the following year - it affects the figures.

An Leas-Cheann Comhairle

I thank the Minister.

Deputy Michael Noonan

The White Paper comes out at the end because the figures keep changing. If I were to commit to the Deputy to publish the White Paper this week, he would have inaccurate information. People need to have it down to the very end before they have full accurate information. However, there are many other sources of information and the Deputy can have a fairly good estimate of where it is. I will give him as much information as I can in my statement on Friday.

Deputy Pearse Doherty

I appreciate that.

I wish to discuss the once-off expenditure measures. Let us consider the hypothetical example of restoring the Christmas bonus. Am I not correct in saying the expenditure benchmark will be measured against the expenditure of 2015? If there is an expenditure increase in the Department of Social Protection, that would be the baseline against which one will be measured in 2016 and it would allow the Minister to circumvent the expenditure benchmark rules.

The Minister told Deputy Michael McGrath that the carry-forward in taxation is not included in the €750 million of taxation measures he will propose. On expenditure and how we comply with the rules, given the demographic pressures and the €300 million that is needed just to stand still in terms of policy, is that part of the €750 million that is earmarked for expenditure and in relation to the restoration of pay coming from the unwinding of the financial emergency measures in the public interest legislation or does that all need to be accommodated within that budget to meet the rules by which we must abide?

Deputy Michael Noonan

The demographic pressures for 2016 are included in the base. The pay agreement and unwinding the financial emergency measures in the public interest legislation are included, but will have to be taken out of the expenditure side, the €750 million.

Deputy Pearse Doherty

Both.

Deputy Michael Noonan

However, projecting forward to subsequent years, I cannot vouch for the accuracy of the forecasting of demographic pressures in 2017, 2018 and 2019. Money is included but its accuracy is a matter of best judgment on that basis.