Joint Committee on Finance, Public Expenditure and Reform debate

Proceeds of Sale of Aer Lingus: Motion

Chairman

Apologies have been received from Senator Marc MacSharry.

The purpose of today's meeting is to consider the motion referred to the joint committee by the Dáil and Seanad concerning the transfer of proceeds from the sale of the State's assets in Aer Lingus. I ask members to note that a return date of not later than 15 October applies. I welcome the Minister of State at the Department of Finance, Deputy Simon Harris, and his officials, Mr. Tom O'Connell and Mr. Eoin Dorgan. I thank them for their attendance and for assisting our consideration of the motion. Briefings have been circulated to members. If we adhere to a reasonably strict schedule, the Minister of State will address the committee and then each of the Opposition spokespersons can respond. We can then have an open discussion. Is that agreed? Agreed. I invite the Minister of State to brief the committee on the motion. This will be followed by a question-and-answer session.

Minister of State at the Department of Finance (Deputy Simon Harris)

As members will be aware, the State has received some €335 million from the sale of its shareholding in Aer Lingus. It is proposed that these funds will be used to establish the connectivity fund which will be a sub-portfolio of the Ireland Strategic Investment Fund, ISIF, as it is commonly known. Given that the proceeds came from the sale of the State's stake in a transport asset, the fund will be dedicated to enhancing connectivity both within and for the State. The decision to use the proceeds from the sale of Aer Lingus for productive investment in connectivity related projects will provide an opportunity to enhance our regional connectivity, improve our attractiveness and competitiveness in the tourism sector and promote investment and enhanced opportunities for growth.

In recent years the Government has created an environment of certainty conducive to growth and investment. It has established certainty around the stability of our financial system. It has established certainty around our public finances and reaffirmed certainty that Ireland is a growth-friendly environment for both foreign direct investment and local business investment. The connectivity fund will operate on a commercial basis, providing support for commercial investment projects with a connectivity theme, such as the development of ports or airports, including access to these transport assets.

It will also be open to providing support for projects that involve a wider definition of connectivity, including data connectivity, such as broadband, fibre-optic cables and interconnectors, and energy connectivity, including energy interconnectors and other energy related projects. These wider connectivity requirements are becoming increasingly important elements of our core infrastructure and will be extremely important to a more balanced regional development.

It has not been a consistent policy of the Government that proceeds from the sale of assets should be used to support and sustain economic recovery and job creation. However, as members of the committee will be aware, under EUROSTAT rules, the proceeds arising from the sale of the State's share in Aer Lingus - representing the sale of a financial asset - will have no beneficial impact on Ireland's general Government balance and, therefore, will not provide any additional capacity for Government expenditure on a general Government balance neutral basis. This is why the Government has decided to bring forward the proposal to allocate the proceeds to a special fund that will operate on a commercial basis and will, therefore, not constitute Government expenditure. However, it will facilitate the reuse of the proceeds for productive purposes in the economy on a general Government balance neutral basis. The Government proposes to transfer the funds to the ISIF for investment given that it already has the appropriate governance arrangements in place to manage them.

The investment criteria used to assess investment opportunities for the connectivity fund will be entirely consistent with the ISIF’s existing mandate, which is to invest on a commercial basis in a manner designed to support economic activity and employment in the State. The success of the connectivity fund will be measured by both investment returns and economic impact achieved. The connectivity fund, like the ISIF, will be a long-term fund. Deployment will be on a phased basis and will be driven by investment opportunities identified. Returns are likely to accrue over the medium and longer term.

Following the commencement of the relevant section of the National Treasury Management Agency (Amendment) Act 2014 on 22 December 2014, the assets of the National Pensions Reserve Fund became the assets of the ISIF. The latter recently published its first baseline economic impact report. Key figures show that as of 30 September 2015, the ISIF has committed €1.8 billion to investments aligned with its mandate. As of the same date, the market value of the capital drawn down is €909 million. Some 79 Irish companies and projects with a combined annual turnover of €472 million are benefiting from ISIF investment. As of 31 December, approximately 8,362 jobs were supported directly and indirectly by ISIF investments. The funds in which the ISIF invested have had significant engagement throughout the Irish market with 3,573 engagements and 99 completed investments since its inception. This clearly demonstrates the impact the ISIF has already had and I look forward to learning about the performance of the fund as it progresses in the medium term. Using the proceeds of the sale of the State’s shareholding for investment in the connectivity fund will result in similar economic benefits.

Under section 46 of the National Treasury Management Agency (Amendment) Act 2014, I am empowered to bring a resolution before the Houses of the Oireachtas on behalf of the Minister for Finance setting out the proposed payment to the ISIF. I commend the motion to the committee.

Chairman

Given that a meeting of the select committee is due to take place at 5.15 p.m., I ask spokespersons to ask very short questions.

Deputy Sean Fleming

There is general agreement with regard to what is happening. The Government received €335 million from the sale of its shareholding in Aer Lingus. In the normal course of events - and in the absence of EUROSTAT rules - that money could go into Government coffers and be used for expenditure purposes. Although EUROSTAT rules do not allow this, the Government can put it into another fund and reuse it for investment. This is probably a way around EUROSTAT rules to get the money back into the economy. I have no issue with this. It is common sense that the funds should be used for productive investment purposes and not current expenditure. We agree with what is happening.

The Minister of State indicated that although at the end of September the fund had committed €1.8 billion, only €900 million had been drawn down. Many commitments have been made but the money has not been drawn down. I hope the fund will not sit in the top drawer under the heading "committed but not drawn down".

I am pleased that the Minister of State is interpreting "connectivity" in its broadest sense, namely, that it is not just a matter for transport and airports but includes broadband and related issues. We all welcome this. Will the Minister of State consider asking the ISIF to include mobile phone connectivity? The mobile phone signal is still inadequate. There are many hills and mountains in the Minister of State’s constituency. I cannot get a mobile phone signal in my constituency office or village. While we are all caught up in the broadband debate, we need to take a step back and ensure there is adequate mobile coverage in the country. I ask for it to be included in the remit of this investment.

Deputy Paul Murphy

I apologise for missing the presentation. I was in the middle of something else. I have a copy of the speech. I do not agree with it, given that I do not agree with the process by which we got the money in the first instance. If I were in government tomorrow, I would reinvest the money to try to buy back Aer Lingus shares. Accepting that we have the money, I have questions about the operation of the ISIF. Could the Minister of State provide more detail on what the connectivity fund will invest in? Will it be investment in private sector projects? Is there any scope for direct public investment of the money? This would be my preference for all the money if we are to spend it in this way. I am all for the wider definition of connectivity to include data and energy. The Minister of State is using the word "connectivity" due to the issues around Aer Lingus and the potential for the loss of the Heathrow slots. What kind of investments exist that could potentially deal with connectivity issues that relate to access to flight routes out of the country?

Deputy Simon Harris

I share Deputy Sean Fleming’s view on mobile phone signals. Our constituencies must have similar terrain. It is a matter for the ISIF. The Minister, Deputy Noonan, has said time and again that we encourage promoters to come forward if they have a commercial proposition, regardless of whether it relates to the public or private sector. The ISIF is open for business and we need promoters. In our constituencies and communities, let us encourage people to come forward with propositions that may be commercially viable to be considered by the ISIF. The Deputy correctly highlighted the difference between the amount to which the ISIF has committed and the amount that has been drawn down so far. We should not necessarily see it as a bad thing. The ISIF is telling promoters of projects they have the green light for a certain amount of money. The companies or investors may not require the full amounts. They may source funding elsewhere or need less than originally thought, or it may take a long time to draw funding down.

On Deputy Paul Murphy's points, I accept the significant ideological difference on the matter. While we have different positions on the European rules, they were ratified by the people through the fiscal stability treaty and this is how we find ourselves here. Even if we did not, the Ministers, Deputies Noonan and Howlin, and the Government have made the right judgment call in terms of ensuring sustainable economic growth. The fund will be open to private and public options. The ISIF will determine the areas in which the connectivity fund will be invested. Given that the proceeds came from the sale of a State asset in the transport sector, we thought it appropriate to dedicate these funds to enhancing connectivity within and for the State. While the ISIF will continue to develop and refine the definition, a working definition for the initial stage of deployment is "a connectivity or those that enhance, develop or sustain the physical and virtual connectivity of Ireland as an island nation". The fund will be used to support connectivity projects including domestic and international connectivity. Connectivity would be broadly defined and taken to include traditional transport projects such as ports and airports but would also take a wider definition of connectivity to include examples such as data and energy connectivity.

Deputy Pat Rabbitte

On one point, I welcome this imaginative use of the money from the minority stake. In European terms, connectivity has a definite and modern meaning, that is, a broadband connection. However, it would be a pity if this fund was to be constrained in its definition of connectivity. Where the commercial sector cannot provide a broadband service, the State must intervene, but DG Competition has required the State to map the country to show where the commercial sector is not able to provide a service. This has delayed everything by approximately 18 months, having been delayed by the recession before that. The result is that were it not for the joint venture between the ESB and Vodafone, which will provide industrial strength broadband in areas such as those to which Deputy Sean Fleming referred and will narrow the onus on the State in its intervention, we would have been obliged to live with the situation in which one wing of the European Union states one must rush ahead and ramp up connectivity, while DG Competition insists one may not do so until one proves to it there are no state aid implications and so on. Rather than this money lying in a drawer until ideal plans or projects are brought forward, I urge the Minister of State to give consideration to its use within the wider meaning of connectivity. For example, the absence of broadband in primary schools is a major issue. I cannot quite recall what was the total expenditure to ensure every second level school in the country would have quality connectivity, but certainly it is an issue in primary schools and I do not believe it would be wildly expensive.

Deputy Kieran O'Donnell

I welcome the Minister of State, Deputy Simon Harris, and seek clarification on a number of points.

I welcome this worthwhile fund of €335 million. On its timing, when will the fund be up and running? Over how long a period will the fund administer grants? Will there be a cap on the level of funding individual projects can receive? Will matching funding be required and will it be for capital or revenue purposes? Specifically, as a Deputy who represents the mid-west, Shannon Airport is dear to my heart. It has recently successfully achieved independence. During the years I have always advocated that airports should have access to a marketing fund. Shannon Airport is building an aircraft maintenance facility and other features. The Minister of State might provide members with an indication as to how the fund will be rolled out and its practical applications. However, it is a welcome measure and both the mid-west and Shannon Airport will take as much funding as will be given to them.

Deputy Simon Harris

I must begin with the last comment by reminding the Deputy that the ISIF wishes to hear about commercial propositions. I reiterate my comment to Deputy Sean Fleming that we are in agreement-----

Deputy Kieran O'Donnell

Shannon Airport is very much a commercial proposition.

Deputy Simon Harris

I hope it is doing well. We are in agreement that there is a need for people to promote the fact that the ISIF is in place and available to those with commercial propositions. It is open for business. As for when the money will be available, as the Deputy is aware, the sale has been concluded. Consequently, it is a matter for the Houses of the Oireachtas to pass a resolution, the first stage in the process being bringing the resolution coming before the joint committee today. I understand it will then go before the Dáil and the Seanad next week. Many of the issues raised by the Deputy are integral to the assessment the ISIF will make of a commercial proposition. While there is no definitive upper cap, obviously, it will be obliged to make a commercial decision. I do not wish to repeat myself, but the fund is a sub-portfolio of the ISIF. It will be managed and controlled by the ISIF in the same way as the main ISIF portfolio is managed and investment decisions will be a matter for the investment committee which has responsibility to make decisions within the terms of the ISIF investment strategy which was approved by the board of the National Treasury Management Agency. The investment criteria used in assessing investment opportunities will be entirely consistent with the mandate which is to invest on a commercial basis in a manner designed to support economic activity and employment in the State. The success of the fund will be measured both in terms of the investment returns and economic impact achieved. This connectivity fund will be long-term. Its deployment will be on a phased basis, but these are matters that will be assessed by the ISIF.

I will refer his comments to the Minister for Transport, Tourism and Sport, with whom I know he has spoken on the issue.

I am not in a position to discuss specific commercial decisions of the ISIF, which will make decisions on a commercial basis. The fund is in place to help improve connectivity nationwide, including in the regions. I again encourage anyone with concepts or commercial propositions to come forward and engage with the ISIF on the €335 million that is available.

Deputy Mary Lou McDonald

I apologise for my late arrival; I was discussing legislation in the Dáil. While the connectivity fund is very welcome, my first question relates to the pension scheme at Aer Lingus. I apologise if this issue has been raised, as I assume it has been in the course of the meeting.

Chairman

The Deputy should confine her remarks to the subject of the motion.

Deputy Mary Lou McDonald

Everyone is conversant with the difficulties that emerged in the Aer Lingus pension fund. The Government intervened in the matter with the objective, if one likes, of straightening out those difficulties. The sad reality, however, is that for one group of pensioners - those known as deferred pensioners - matters were not resolved. In the run-up to this meeting, every Member of the Oireachtas, including the Minister of State, received another communication on behalf of this group of pensioners, many of whom had their pensions cut by as much as 50%. There are political differences in this room as to whether the sale of the State's stake in Aer Lingus was a wise or prudent decision in the long-term. I do not believe it was wise, and my party and the Minister of State have set out their different stalls on the issue. To proceed with the sale while failing to address the issue of the deferred group within the pension scheme was an outrageous decision. To then come before the joint committee to have a conversation about a connectivity fund, as useful and necessary as such a fund may be, while failing to address this issue, is absolutely off the wall.

If I may, I will read an e-mail I received from one of the person affected, as it delivers a message to the joint committee and, by extension, the Oireachtas. It reads:

How dare you vote in favour of the sale of Aer Lingus at the cost of the Aer Lingus pensioners. How can you sit and debate what to do with the proceeds of sale of Aer Lingus when you have cut the pension of people with dementia, cancer and numerous other elderly associated illness. This is what you have done and just because so many of them are unable to protest because they do not even have the health, energy or strength you have swooped in and robbed them of their pension.

When I left the company I was assured and guaranteed a pension and through no fault of mine, my pension has been cut, the fund wound up and at my age I now have to go out looking for work to supplement my pension as it is no longer index linked.

The message continues in a similar tone. If he can - I do not believe he can - I ask the Minister of State to justify the Government's decision to leave this group of deferred pensioners out in the cold. Perhaps he has met some of the people who were affected by the decision. Many of these individuals had an expectation of a reasonable standard of living in their pension years and are now struggling simply to get by. As the Minister of State will be aware from his meetings with some of the individuals in question, many of them had long service. Aer Lingus, at various stages, encouraged and incentivised employees to leave the company and enter the category of deferred pensioners. The real sickener for those who did so was that they have also been locked out of the discussions and negotiations that went to and fro around the fund. They were, if one likes, nobody's child or nobody's pensioner.

Notwithstanding all that has happened, there is something obscene about the committee discussing the spoils of the sale, regardless of what our views were on the sale, because in the meantime, back at the ranch, deferred pensioners have been shafted. That is not a word I care for, but it is the only one that adequately describes what has been done to this group. It appears the Government is happy to motor on and talk up a connectivity fund, how it might work, and its limitations and commercial potential. Meanwhile, however, people with long service to a semi-state company have been left in the lurch. Their view - and it is hard to gainsay their position and experience - is that the first thing that needs to be done is to reinstate their pension entitlement. As the Minister of State is aware, these individuals were prepared to have their pension trimmed. However, 50% of the pension they expected to receive has gone down the Swanee. That is some kick in the teeth for the people concerned.

Deputy Simon Harris

I thank Deputy McDonald. Nobody has a monopoly on concern for this group. As the Deputy correctly noted, many Members of the Oireachtas have interacted with members of this group, who find themselves in an extraordinary position, one that nobody in the House wants them to be in, as a result of the failures of a pension scheme in a commercial company. However, we must also be honest in the debate on what we are doing today. The sale of Aer Lingus has concluded and the funds generated from it have been with the Exchequer since August. It is now 7 October and we are discussing how these funds can be expended in the interests of the country.

It is also important to state, as part of an honest debate about any of the challenges citizens face, including deferred pensioners, how one would solve the problem, because, as I indicated in my opening statement, the fiscal rules for which people voted mean we are limited to a fiscal space of a maximum of €1.5 billion in the budget. If we were to expend any of the €335 million that we are choosing to invest in the ISIF for investment, rather than creating further fiscal space, it would simply reduce the amount available to the Government, resulting in additional expenditure of €1.65 billion. It would not be new or additional money. It is not as if we have an option of spending the €335 million on any form of current expenditure. It must be spent in the manner we have proposed. That is the rationale behind this proposal.

We are reliving some of the issues that were debated during the sale of Aer Lingus. My colleague, the Minister for Transport, Tourism and Sport, Deputy Donohoe, had a number of significant interactions on this issue. My objective is to work out how we can put this sum of €335 million to work for the country.

Deputy Mary Lou McDonald

That is a wholly unacceptable response. I am not claiming any monopoly of concern on this issue but instead highlighting the absolute absence of concern on the part of the Government. This is a long-running saga which did not just emerge today.

Chairman

The Deputy may return to the issue after other members have spoken, as we are short on time and have another legislative issue on our agenda.

Senator Aideen Hayden

I agree with some of the comments made by the previous speaker. Not all of us wanted the State's shares in Aer Lingus to be sold. For example, Senator Barrett and I had a shared point of view on the issue. However, as the Minister of State pointed out, we are where we are.

I understand the National Pensions Reserve Fund has invested in the ISIF, which places certain pressures in terms of returns. I note the Minister of State's comments that applicants to the fund need to demonstrate an ability to deliver a return on investment and an economic return. I am concerned that, for the sake of argument, there is no concept of a social return. When we speak of connectivity, we are discussing connectivity between, for example, parts of rural Ireland.

As the Minister of State is aware, there is an issue with crime in rural Ireland and the effect it has on older people living alone in isolated communities. I would like some element of social return to form part of the criteria for this fund. For example, I would like money to be ring-fenced for the development of applications which would help to make it more possible for people to live in isolated communities and which would assist in the combating of rural crime.

We need to develop young entrepreneurs and young IT specialists who can come forward with apps, some of which may not necessarily fulfil the commercial investment criteria required by the fund. The Minister of State indicated that there was a significant engagement in the Irish market by 31 December 2014. Of those 3,573 engagements, however, only 99 were completed investments. I am a little concerned that the level of engagement with the fund and the number of competed investments is significantly mismatched. Has the Minister of State carried out any research in respect of this matter? Is he in a position to provide details - perhaps at a future date - as to why engagements do not result in completed investments? Perhaps the bar has been set too high. I would like to think that we are trying to use the fund to promote indigenous Irish investment - particularly in the IT sector - in a way that pushes connectivity to its widest possible parameters.

Deputy Simon Harris

Senator Hayden raises many important issues in respect of which I concur with her. I would argue that we have other structures in place to address some of the needs that exist. We need to continue to enhance those structures and ensure they are working. I refer, for example, to local enterprise offices and the Enterprise Ireland support for high-potential start-ups, which is helping many young people establish their own businesses.

I am very pleased to see the ISIF becoming involved in the provision of venture capital. In one of the areas for which I have responsibility, namely, the international financial services sector, I am encountering the kinds of people described by the Senator - young individuals who are developing new applications and innovative technologies and who require funding. It is not necessarily the traditional bank loan that the Strategic Banking Corporation of Ireland or some other entity can provide, it is actually venture capital that is needed by those to whom I refer. By way of illustration of asset location across industry sectors, the ISIF indicates that when it is fully deployed, it can look at the area of a very substantial investment in the whole area of venture capital. This is currently an area in which we are lagging behind other jurisdictions.

The Senator referred to lowering the bar. It is a view that many of us would instinctively share. We all want to see this money put to use to help as many people as possible. However in wanting this money to be additional to what Government can spend on-balance sheet, we must keep it off-balance sheet. This means the ISIF has the balancing job of constantly ensuring the fund will remain a commercial proposition that will not be included on the Government's balance sheet.

I know the Senator has a particular interest and expertise in area of social housing and social housing provision. The ISIF is already getting involved in this area. The Government's Social Housing Strategy 2020 sets out ambitious social housing delivery targets and references the ISIF as a potential source of capital for the sector. The ISIF has established the activate capital lending platform and is projecting the building of 11,000 additional houses in Ireland during the next decade, which would equate to the creation of an additional supply of 11,000 Part V social housing units. I would argue that there is social good that can be done and many would agree that the best way to ensure social good and social dignity is to ensure people have an opportunity to get a job. I am encouraged by the fact that we have already seen 8,362 jobs directly supported by ISIF investments.

The Senator is correct that many more people have engaged with the ISIF than have completed investments. I will inquire with the ISIF about this matter and the fund may revert to the committee about it in the future. The figures may relate to the fact that it is a new structure. There are a lot of new funding structures, such as local enterprise offices, the Ireland Strategic Investment Fund and the Strategic Banking Corporation of Ireland, in place. Many people are making contact initially to find out what is the best vehicle for them, but I will certainly probe that figure in more detail for Senator Hayden.

Senator Sean D. Barrett

I opposed this deal at all stages. I believe it was extremely misguided on the part of the Government to sell its airline to British Airways, one of the dinosaurs of European aviation. British Airways, Air France and Lufthansa have done nothing for European aviation. If we had wanted to sell it – and I would not agree with the sale – EasyJet would have been a better purchaser, but the Government chose to give it to British Airways.

There is no doubt that the airline will be run down. Scotland has no international services on the North Atlantic, we developed nine routes. Aer Lingus was worth something to this country. It had an image abroad, particularly in the United States of America, all of which has been thrown away. Parliament was treated with contempt. The Aer Lingus board - the members of which have all since resigned - came before this committee. The Secretary General at the Department of Transport refused to appear because he said he was bound by the Stock Exchange's takeover rules. Such behaviour would be an affront to any parliament. There was a media campaign which we won in the opinion polls. The Irish Times-Ipsos-MRBI polls showed a majority of more than two to one in favour of retaining Aer Lingus. With the Ryanair stake, the Government stake and the staff stake, an Irish airline could have been built that could have taken on British Airways in its home market and won. But this was a conservative decision and I do not know why it was taken. I received endorsement for Aer Lingus from the late Professor Alfred Khan, one of the leading US experts in this area, but I do not know what got into the Government.

I am not here to accept a consolation prize. It is deeply ironic that, having sold the airline, the Minister of State is now trying to devise another way to increase connectivity – an oxymoron if there ever was one. I am sorry the Minister of State has been given this inhospitable path to tread because mostly I support what he does when he comes into the Seanad. Allowing an offshore island to sell an airline for €300 million was crazy. British Airways now has a monopoly to Heathrow and must be laughing all the way to the bank every day at the foolishness of the Irish Government to have done that deal. So what will we do with the money? I do not see the point in investing it in airports or sea ports. The idea first run last week was a metro to the airport and, as the economist Colm McCarthy pointed out, it would be slower than the bus from Busáras, it would be slower than the bus from Sandymount-----

There is no cost-benefit analysis in respect of the proposed project and that is what we are seeking. It goes into the fund to succeed the pension fund. The National Pensions Reserve Fund was raided for over €500 million in order to install water meters. I would hate to-----

Chairman

Direct your comments towards me, Senator Barrett.

Senator Sean D. Barrett

Having landed ourselves in this situation, what do we do? I would have spent the money on primary schools, I would have repaired the pension fund, built nursing homes and funded hospitals. It is for these things that there is a real need. Calling it connectivity, with the kind of transport policy we have and the lack of expertise in the Department of Transport - which landed us in this situation - makes no sense at all. It has been a retrograde decision and against public opinion. Connectivity without an airline is a contradiction in terms. I will vote against it when it comes to the Seanad. I have voted against it in the Seanad at all times because I think it was an extremely short-sighted decision. The Government seemed to panic.

The committee asked - in the event the Department of Transport had anything to contribute at this stage - for the studies to be placed in the Oireachtas Library. A single-page document, with typing on both sides is all that appeared. So where was the expertise from Credit Suisse and the Investment Bank of Ireland that informed this sale? It did not face public scrutiny and that is wrong.

Chairman

I ask the Minister of State to be very brief because I want to allow Deputy Farrell to contribute. The committee must also go into private session before the meeting concludes.

Deputy Simon Harris

I will be very brief. I have a great deal of respect for Senator Barrett. This is one issue on which we profoundly disagree and I do not propose to relive the entire debate that took place in the context of whether the Government should have sold its minority stake in Aer Lingus. The Government gave careful consideration to all elements of the offer relating to the sale of the State's minority shareholding in the airline to IAG in the context of the terms put forward by the latter. The feeling was that this was the best means of securing and enhancing Ireland’s connectivity and maintaining a vibrant and competitive air transport industry in Ireland. The decision served the interest of the travelling public, Aer Lingus and its employees, the Irish tourism industry and the Irish economy as a whole. That was a judgment call this Government made, it is one that we obviously stand over.

In regard to what Senator Barrett would like the €335 million to be spent on, he, as an eminent economist, understands better than I the reality of the fiscal rules the Irish people ratified by way of referendum. If this money were to be used in respect of on-balance sheet Government spending, it would not add anything additional to the Government's spend in next week's budget or in any other. Therefore, we believe it best to put it through ISIF as a commercial vehicle to invest in connectivity. I respect our difference in this regard, and I am sure we will have an opportunity to debate it in the Seanad as well.

Deputy Alan Farrell

I thank the Minister of State for appearing before us. It is my understanding that the fiscal space available to Government is 3% and that the €1.5 billion proposed in next week's budget is 1% of that, which means there is still 60% plus available in terms of fiscal space. The Minister of State has referred to this a number of times. My understanding of it is that €1.5 billion is 1% but the Minister of State can correct me if I am wrong.

I am pleased that the fund is available for projects under the concept of connectivity. It was always my understanding that connectivity would be related to the transport area as opposed to a wide range of other issues. I listened with interest to Deputy Rabbitte's contribution on connectivity earlier in which he said the concept of connectivity is much broader at the European level. That is news to me. I am not dismissive of it, but it was my understanding that this fund would literally go into connectivity, that is, transport infrastructure, the possibility of upgrading certain State owned facilities and so on. ISIF's involvement in it is inevitable and I welcome it, although I have a slight concern in relation to the requirement that the projects that will receive funding over the coming years will be required to have a commercial element. That more or less rules out non-tolled roads and projects, such as infrastructure in and around the airports or ports, where I would have thought the money would have gone. It does not rule out investment in the likes of some of the other transport capital plan projects that were announced last week, such as Metro, which will have a commercial element and clearly the State will have an involvement in that and a payback over a period of years, or probably decades.

I welcome the use of the fund but I ask for clarity on the definition of connectivity and for the Government and the Minister to make a judgment call on what we should be investing in. While I am not adverse to broadband and so on, this fund should be invested in transport infrastructure and the whole concept of my interpretation of connectivity, that is, Irish citizens availing of our airport, ports, roads or railways, which I know will benefit from investment, and if not investment in rolling stock, certainly in expansion of lines and or additional service provision.

Deputy Simon Harris

I thank Deputy Farrell but I would not obviously agree with the concept that each road or any potential road would have to be tolled. There are obviously other ways of providing it, maybe through-----

Deputy Alan Farrell

I am sorry but that is not the point I was making. I was saying we could not invest in it because it is not a commercial entity.

Deputy Simon Harris

There would be other modalities that would be open, such as the PPP model and so on, where there would be an investment from the public sector and a commercial element in roads. I do not want to be restrictive in that regard. I take the Deputy's point in relation to the issue of the definition of connectivity. The definition is, as I have outlined, broader than transport projects but it will be up to ISIF to assess the commercial viability of any proposals. Again, the proposals have to be commercial because we have to keep it off-balance sheet. If we do not keep it off-balance sheet, it is of no additional benefit to the economy because it comes out of the limited fiscal space.

This is one sub-portfolio of a broader ISIF and the broader ISIF will be getting involved in sectors such as innovation, SMEs, infrastructure, energy, food and agriculture, venture capital, direct private equity.

In relation to the figure of €1.5 billion, that is in agreement with the European Commission. It is the upper limit of what the Government can do in the budget. It is based on the fact that we are entering the preventive arm of the growth and stability pact, where if one has a debt ratio in excess of 60%, one needs to move towards a 0% deficit. The €1.5 billion is the assessment of that fiscal space. Even if it was not, I would also argue it is prudent.

Joint Committee on Finance, Public Expenditure and Reform debate - Wednesday, 7 Oct 2015

Proceeds of Sale of Aer Lingus: Motion

Joint Committee on Finance, Public Expenditure and Reform debate -
Wednesday, 7 Oct 2015