We are now moving to No. 7, which is engagement with the Minister for Finance and for Public Expenditure and Reform on EU budget 2021 negotiations, EU 2018 country-specific recommendations and on finance and banking union.
I welcome the Minister and his officials to this meeting. I understand we are to conclude the meeting at 5 p.m. so members should use their time wisely. I invite the Minister to make his opening statement.
I thank the Chairman for the opportunity to speak here today on the Government approach to the future EU budget and the next multi-annual financial framework for 2021-27; the country-specific recommendations for Ireland as related to my Department; developments on banking union and the recently published EU legislative proposals for whistleblower legislation.
Turning to the first item, the European project has helped to transform Ireland from being one of the least developed member states when we joined, to one of the most prosperous today. We all recognise how we have benefitted from the European Union and it is important to use that experience to help shape the debate on the future of Europe and on what our priorities should be. The post-2020 multi-annual financial framework, MFF, comes at a time of change and adjustment for the EU. Longer-term challenges such as economic competitiveness, youth unemployment and climate change, emerging challenges to international trade and access to the Single Market, as well as international challenges, such as migration, security and terrorism have become more pronounced. In addition, the departure of the UK will cause both short and long-term practical challenges for the MFF.
It is worth recalling how Ireland's relationship with the EU budget has evolved. As the committee will be aware, Ireland has traditionally been a significant net beneficiary of the EU budget. From accession in 1973 to 2016, we paid in approximately €34 billion but received €76 billion, €42 billion more than we contributed.
On foot of our growing prosperity, however, we have moved from being a net beneficiary to a net contributor. Member state contributions to the EU budget are calculated by the European Commission in line with the provisions outlined in the own resource decision, which was ratified by all member states in 2016. There are three sources of EU revenue or own resources, namely, customs duties, contributions based on VAT and contributions based on gross national income, GNI. When taken together, the traditional own resources and VAT elements account for approximately 30% of member state contributions. The remainder comes from GNI. This is an important element, as it links the contributions of member states to the size of their economies.
Given the high levels of economic growth in Ireland in recent years, combined with a lack of such growth among other member states until recently, our overall share of contributions to the EU budget has grown and Ireland became a net contributor to the EU budget – on a cashflow basis - for the first time in 2014.
Ireland's current contribution is set out in the stability programme update and is forecast to be approximately €2.7 billion in 2018 moving towards €2.9 billion in 2019. It is worth noting that while these forecasts are volatile and contingent on a number of variables, the trend in Ireland's growing contributions is continuing.
Under the current MFF, it is forecast that Ireland will receive just over €12 billion over the course of the seven years, of which 80% comes through the Common Agricultural Policy, CAP, and is spent on areas such as direct income and market support to the agricultural sector. Further moneys are received for rural development programmes. There is broad awareness in both urban and rural areas of Ireland of the role which these funds play. While Ireland has benefited enormously from structural and cohesion funding, which continues to play an important role for many other member states in fostering economic development and prosperity, receipts in this area have been declining in recent years because of our economic growth. I welcome especially the Commission's proposal for a new PEACE PLUS programme to continue and build on previous PEACE and INTERREG programmes. The Government has been consistent about its commitment to the implementation of the current programmes and to successor programmes beyond 2020.
Ireland has also benefited from, and is supportive of, programmes for competitiveness for growth and jobs, including Horizon 2020, Connecting Europe Facility, and Erasmus+. For example, the Horizon 2020 programme to support research and development is an important driver of research excellence, and Ireland is on track to achieve €1.2 billion in competitive funding under the current MFF in this area. Ireland welcomes the European Commission's publication of proposals on the post-2020 MFF programme. While many parts of the proposal have been published, a number of others have yet to be released. A key point in the proposal is €1.135 trillion in commitments in 2018 prices, or €1.279.4 trillion in current prices, covering the period 2021 to 2027. This is equivalent to 1.11% of the EU 27's gross national income. Further key points in the proposal include more funding for priority areas, including research and innovation, young people, the digital economy, border management, security and defence, CAP, Cohesion Policy funding being reduced by approximately 5% and Erasmus+ being doubled.
The Commission has made a number of proposals on own resources, including an increase in the own-resources ceiling from 1.2% to 1.29%; a reduction from 20% to 10% in the amount member states can retain when collecting customs revenues; a more simplified approach for calculating VAT payments to the EU; the retention of gross national income, GNI, and the elimination of rebates. In addition, the Commission proposes a number of measures to increase own resources, including, for example, 20% of the revenues from the emissions trading system; 3% of the proposed common consolidated corporate tax base, and a national contribution calculated on the amount of non-recycled plastic packaging waste in each member state, set at 80 cent per kilo.
The Government has begun to develop a national position on these matters. We believe that the MFF post 2020 should continue to adapt to evolving priorities. We also believe that we should not lose sight of the value and contribution of traditional policies, including agriculture and cohesion. CAP is a key national interest and will continue to be so. We want the EU to continue to fund programmes that work and work well. Expenditure in the area of agriculture helps to support 44 million jobs across the EU while contributing to food security and safety, rural sustainability and environmental standards. Cohesion is another important policy tool of the Union. Structural Funds for less developed member states of the Union will enable them to unlock their economic potential, which will benefit all of us in the long run. We will need to consider carefully the implications of any amendments in these areas. We welcome the emphasis on other policies that function well, including Erasmus+, the framework programme for research and innovation and the EU's global instruments. It is vital also that there be a continuation of the PEACE and INTERREG programmes post Brexit as foreseen in the Commission's progress report from last December.
Ireland believes that the amount of expenditure at EU level will need to be proportionate and appropriate to the overall levels of available funding and that the discussions on the post-2020 MFF priorities and objectives will need to be framed in this context. That accepted, the Taoiseach has indicated that Ireland is open to contributing more provided that it meets European added value objectives. As the committee will appreciate, the Commission's proposals are complex and will require careful analysis and study. They are underpinned by legislative proposals in each of the sectoral areas. All relevant Departments are examining these carefully and will prepare to engage in the detailed discussions which will begin at official level. We will engage in a positive and constructive way.
As members will be aware of what the country-specific process entails, I will skip to comments on the recommendations. Similar to last year, Ireland received three recommendations in the areas of fiscal policy, Government expenditure and investment, and the management of long-term non-performing loans, respectively. CSR 1 deals with the effectiveness of public finances and expenditure. In particular, it focuses on the reduction of Government debt and broadening the tax base, as it did last year. Our stronger than expected headline growth in 2017 has allowed us to make good progress towards achieving our medium-term objective and reducing Government debt, which has also benefited from the use of windfall gains from the sale of part of AIB.
CSR 2 addresses the implementation of the national development plan. This recommendation reflects the Government's investment priorities and dovetails with our stated priorities, including child care, housing and water services. For the first time, CSR 3 focuses on productivity growth, with particular regard for small and medium enterprises. This is welcome as the Department has collaborated with the OECD on firm level productivity research, which was published in March and on which a presentation was given at the March ECOFIN. CSR 3 also emphasises resolution of long-term loan arrears, building on initiatives for vulnerable households.
These recommendations have been examined by my Department and are not surprising given the emphasis placed on these areas in the country report. Such recommendations are to be expected for a growing economy and I agree with their overall substance. The country specific recommendations will be on the agenda for discussion and agreement at the ECOFIN Council on 22 June and, following that, they are expected to be endorsed by the European Council at the end of June. They will finally be adopted at ECOFIN on 13 July. Member states will then be able to reflect them in their budgetary and policy plans for 2019.
I turn now to the issue of banking union. As members will know, in response to the financial crisis, a number of initiatives were introduced at EU level to create a safer financial sector. These initiatives form a single rule book for all financial actors in the EU member states and consist of a set of legislative texts that are applied to all financial institutions across the EU. Specifically, the rules include capital requirements for banks, rules for managing failing banks and improved deposit guarantee schemes. The most significant elements are the capital requirements regulation, the bank recovery and resolution directive and the deposit guarantee schemes. The Commission has also proposed a European deposit insurance scheme, or EDIS. In addition to this single rule book, which is the foundation of banking union, there was a commitment to shift supervision to the European level with the introduction of the Single Supervisory Mechanism at the end of November 2014 and later with the establishment of the Single Resolution Mechanism. A roadmap for the creation of banking union set out the main steps to be undertaken. The three pillars to be set up comprise the Single Supervisory Mechanism, the Single Resolution Mechanism and EDIS, the European deposit insurance scheme.
At the ECOFIN meeting in May, Ministers agreed the latest measures in banking union, known as the risk reduction measures. These measures were proposed by the European Commission in November and are aimed at implementing reforms agreed at international level. The package comprised two regulations and two directives and is aimed at updating and amending the capital requirements regulation, the capital requirements directive and the bank recovery and resolution directive, which are the aspects of the single rule book which underpin the first two pillars of banking union. These proposals are simply aimed to ensure that banks have sufficient loss absorption and recapitalisation capacity in the case of a bank resolution.
The aim is to enable banks to continue critical functions without endangering financial stability or requiring taxpayer support. One of the key amendments introduced at EU level was the total loss absorbing capacity standard, which had been agreed at international level for global systemically important banks. The total loss absorbing capacity standard was integrated into EU law as part of the package that was agreed in May. The amendments to the capital requirements regulation and the capital requirements directive introduced stronger prudential requirements for banks to ensure they are adequately capitalised and less susceptible to liquidity issues. For the most part, these amendments aim to implement additional international standards that have been agreed since the implementation in 2013 of the original capital requirements regulation and the capital requirements directive. They also include measures which aim to reduce the regulatory burden on smaller and less complex banks. I believe that the package agreed at ECOFIN is a good one. I hope the European Parliament will be able to start negotiations shortly, thereby allowing us to agree these proposals and enact them as soon as possible.
The final item the joint committee has asked me to address is the proposed EU directive on the protection of whistleblowers. As members may be aware, Ireland is one of just ten EU member states to have enacted a comprehensive package of protections for whistleblowers. We did this when we introduced the Protected Disclosures Act 2014. While I welcome the EU initiative in this area, careful consideration of how the EU proposals will interact with the operation of the 2014 Act is needed. I do not want the protections offered by our legislation to be diluted. I am pleased that the approach taken by the EU mirrors many of the provisions of our legislation. For example, it applies to broad categories of workers. The protections from retaliation provided for in the draft directive are broadly similar to those provided for in our legislation. They include protection from dismissal and other forms of detriment such as reduction in pay, suspension, demotion or withholding of promotion.
There are a number of important differences between the proposed directive and the 2014 Act. The directive applies to a wider cohort of persons and a wider range of matters. It specifically obliges businesses with more than 50 employees or a turnover of €10 million or more to establish formal channels and procedures for receiving disclosures. Companies in financial services or other areas at high risk of being vulnerable to money laundering or terrorist financing will be required to establish internal channels irrespective of size. The practical implications will require careful consideration and clarification. The transposition of the directive, if it is adopted, may require some amendments to the 2014 Act to reflect the provisions of the directive and ensure harmonisation of the procedures for making a disclosure under the directive and 2014 Act. As the committee may be aware, a statutory review of the operation of the 2014 Act is being finalised. The potential impact of the directive will be taken into consideration in the review, which I aim to publish by the deadline of 8 July. I hope I have given the committee an outline of the various issues it asked me to address. I will be happy to take any questions that members may have.
I welcome the Minister. I would like to ask him about the assurances he gave to me and to this committee in respect of money messages the last time he was here, which was some months ago. He assured me that he would liaise with me the following week in respect of my Bill. He informed the committee that he would provide the criteria for the decisions he has made and would respond to various issues raised by the committee in relation to money messages. A number of months have passed. I understand the committee secretariat has been in contact with the Department. That information should have been provided out of respect to the secretariat and to the public commitment the Minister gave this committee. I ask him to ensure it is provided today, at the latest.
I apologise to the Deputy. It will be provided. I have had to liaise with a number of Departments on this matter. I will ensure the material that I committed to provide is supplied this week.
I thank the Minister. I appreciate that. There is some interesting detail in the specific recommendations that are coming forward. It has been stated that access to affordable full-time quality childcare remains a challenge. According to the OECD, in 2015, childcare costs in Ireland relative to wages for single parents were the highest in the EU and for couples were the second highest in the EU. The OECD has also referred to the link between the rate of risk of poverty or social exclusion and the high proportion of people who are living in households with low work intensity. Under the heading of aggressive tax planning, it is suggested that between 2010 and 2015, some 23% of Irish GDP was made up of royalty payments. It is staggering that we have a figure of 23%, given that the European average is 0.34%. It has been suggested that this is a clear indicator that our tax code is being used for aggressive tax planning. Our figure is completely out of line with the European average. Given that so much of our GDP over that period was made up of royalty payments, and bearing in mind the challenges that exist - as I have mentioned, child care costs for single parents are the highest in Europe and for couples are the second highest in Europe, and high levels of people are at risk of poverty and social exclusion - does the Minister think the Government has got the balance right in its budgetary measures of recent years? Is it not the case that our tax code has facilitated aggressive tax planning to the detriment of this country being able to take a leadership role in Europe? The cost of child care is preventing certain families from entering into the workplace and is creating a scenario in which they are at risk of poverty.
I believe I have got the balance right. The Deputy made a point about the level of royalty payments that exist within our national income. I do not accept that this is a feature of aggressive tax planning. Instead, it demonstrates that we have a highly open economy which is deeply integrated into global supply chains. As the Deputy is aware, this country has had an ongoing focus on attracting foreign direct investment. The Deputy has said that loyalty payments account for a high share of our national income, but the other side of the coin is that the economic policies which have been pursued by me and my predecessor have contributed to the fact that in the coming weeks and months, we expect to have more people at work in this country than we have ever had before. As a feature of our open economy, we collect approximately €8 billion in corporation tax. In the coming weeks, I intend to outline the roadmap for ensuring our corporate tax code moves in a way that continues to meet the requirements laid down for us by the OECD.
I do not differ from the Deputy on one point. I am aware of the issue of childcare costs, which absorb a high share of the after-tax income of many citizens of our State, particularly families in which just one partner is working. I understand the pressure that places on many of our citizens. For that reason, we began the steady implementation of an affordable childcare scheme in October 2016. The objective of that scheme is to provide targeted subsidies to families that need support in getting childcare and to ensure that childcare is of the quality that Deputy Doherty and I would want.
We do not disagree with what the Minister has said about our highly open economy. The figures I have mentioned are staggering. They are indicative of something more than a highly open economy. Between 2010 and 2015, some 23% of our GDP was made up of royalty payments. Alarm bells should be ringing. It is serious. This is not just a question of having a highly open economy. The European average is 0.34%. Successive Finance Bills have designed our tax policy in a deliberate way. The Minister is happy. He is guilty of that.
He is continuing a policy of onshoring assets that has been argued against by the chair of the Irish Fiscal Advisory Council, IFAC. He has only moved in respect of those that will be brought onshore in the aftermath of last year's Finance Act. This measure could bring in €850 million, which could go a long way towards dealing with the issues that have been identified in the Commission's report, for example, people at risk of poverty or the fact that we have the highest cost of childcare for single parents and the second highest in Europe for couples. Notwithstanding the small effort that has been made by the Government to address these problems, does the Minister not see that he is facilitating them? There is a major imbalance.
I reject entirely the Deputy's language of guilt. I am responsible for tax policy and broad economic policy. I have explained to the Deputy why that level of loyalty payment is high. I also accept that it is high when compared with the European average. However, ours is also an economy that has a higher level of foreign direct investment and intellectual property located in it than many other parts of the EU. Within the mix of economic policies that I have pursued, I would hope for acknowledgement from the Deputy that this approach has also delivered the level of job creation that he, in our darkest moments, would have thought impossible. We will have more people at work than we had before the crisis. That is an achievement that the Deputy and his party said would not happen, but it will.
As to what we will do to address issues of concern with the operation of our tax code, the measures that my predecessor and I implemented to introduce country-by-country reporting and mandatory disclosure of tax planning led to us getting the highest possible transparency rating from the OECD. The measures that we have taken to ensure BEPS compliance, including the elimination of stateless companies and the phased elimination of the so-called double Irish, are not small. Rather, they are significant changes in our tax code.
I will soon outline the roadmap to increased compliance with international standards, but I will do so while conscious of the fact that I also need to deliver on job retention and creation. If I do not do that, the Deputy will be one of the first to criticise me.
The senior adviser in the then Department of Jobs, Enterprise and Innovation warned against the Government changing the figure in respect of the onshoring of assets and intellectual property from 80% to 100%. He said it would cause reputational damage and reduce the effective tax rate to 1.25%. Instead, the Minister's predecessor moved from 90%, the figure that was under discussion in the paper in question, to 100% despite that advice. The Department still will not release the minutes of the four meetings it had with Apple, which was the largest beneficiary of this tax move. We know that Apple discussed this issue with departmental officials during the passage of the Finance Bill because that has already been acknowledged.
The Minister mentioned that he would not use the word "guilty". Obviously, he is proud of his record, but it is one that has benefitted multinationals - actually, only a small number of them, as to say otherwise would be unfair to the majority of multinationals - with aggressive tax planning. It has ensured that their shareholders reap the benefits of money that should be reaped by Irish taxpayers and invested in our economy to deal with our issues.
The Minister stated that I would not acknowledge employment levels, but of course I will acknowledge that we have the most people working ever. We have the largest number of people in the State since the Famine, so that would have been the case in any event, but there have been major advances. I also recognise that the Minister's policy has resulted in 100,000 workers being at risk of poverty. Many workers have if-and-when contracts and so on. If they happened to be working in Donegal, they would have the least disposable income in the State because of the type of policy being advanced. The Minister might respond to these points.
An issue mentioned in the CSRs report relates to the Government's new venture of the so-called rainy day fund, an idea that was first floated by Fianna Fáil during its election campaign in order to shed its image of being financially reckless. Let us forget that it drove the economy off the cliff and so forth. Under the policy, the deposit was originally supposed to be €1 billion but is now €500 million, and the policy was only meant to be introduced when we achieved the medium-term objective but it will now happen in advance of that. According to the CSRs report, it is unclear how the design of the rainy day fund could ensure that it is truly countercyclical. How will the Minister ensure it is countercyclical?
I said that I was responsible for the conduct of tax and economic policy. I am very much aware of the struggles and challenges that many people face. I am doing all I can to address those. The Deputy outlined difficulties but, on the other side of the coin, living standards are being rebuilt and we now have levels of investment in public services and capital spending that would have looked impossible a number of years ago. It is incumbent on me to point that out while also pointing to the difficulties that we still face.
Before addressing the Deputy's question on the operation of the rainy day fund, I should make a final point about the future operation of corporate tax policy. The changes that have happened in the US, as well as its proposed changes, will make a significant change to the corporate tax environment that we are in. I expect to see the levels of corporate tax paid increase because of some of the changes in the US tax package.
Regarding the question on how I can ensure that moneys allocated within the rainy day fund can only be spent at times of economic difficulty as opposed to when things are going okay, I am aiming to put a triple lock in place in the legislation that is being drafted. A decision to release moneys from the rainy day fund would have to come from a recommendation of my Department, which would then have to be endorsed by the Cabinet and accepted by the Dáil. This will create the mechanisms to ensure that such funding is spent when it is needed.
That decision does not have to be countercyclical. It could happen at any time.
That is unlikely. I believe-----
Whether it is likely or not-----
The Deputy asked me a question.
Okay.
I do not believe that will happen. The fiscal rules of the European Commission, of which, I note, the Deputy has become fond of late, make reference to exceptional circumstances. If we were going to spend that money in circumstances that were anything less than exceptional, my Department would not support such a proposal and the challenge to us doing so would be immediate.
As a result, a normal downturn in the economy would not allow for the exceptional circumstances criterion to be met.
That is one of the reasons it is important that we improve our fiscal position beyond where it is because-----
Yes, but the point here-----
Let me finish answering the question.
Go on.
It is important because, if our situation becomes difficult without there being exceptional circumstances, which is the issue the Deputy is teasing out, our budgetary position will be improved enough to allow us to respond and provide some stimulus to the economy.
The point is that a downturn in the economy does not allow the Minister to dip into the rainy day fund. Under the European fiscal rules, which the Minister has championed, it has to be an unforeseen event. It has to be a financial disaster or an issue such as an outbreak of foot and mouth disease, which the Minister's speaking notes referred to. Is the Minister designing the rules so that if there is a dip in economic activity, we will be able to dip into the so-called rainy day fund to use those resources?
My intention has always been that the rainy day fund would be for use in exceptional circumstances. By an exceptional circumstance I mean, for example, an external shock hitting the economy. If we are facing a more normal economic difficulty, the automatic stabilisers within the economy and an improved budgetary position should allow the Government of the day to spend more.
Does the Minister not believe the best way to build an economy's resilience is by boosting its potential supply and also through public capital investment? That is the best way to mitigate the risks of any external shock, including Brexit.
I agree with the Deputy on that. I believe one of the biggest contributions we can make, alongside having stable national finances, to making the economy more secure in the future is to better invest in public capital and public infrastructure. That is the reason I flagged before last year's budget a proposal to reduce the contribution to the rainy day fund from €1 billion to €500 million per year. I introduced that measure because it created additional resources to allow us to invest in public capital and infrastructure. Where the Deputy and I differ is that I believe the existence of a well funded rainy day fund sends out an important signal about our economy which will, in turn, allow us to borrow at sustainably low rates. In addition, if we get into exceptional difficulty, as we did in the recent past, we have something we can use beyond the normal automatic stabilisers. The Deputy and I differ on that point but where we agree is that investment in public capital is the best lever available to us to make the economy secure. That is why we are increasing capital investment next year by nearly a quarter compared with this year.
It is being increased from an historically low level. It is not just a case of starting to reach the European average or being a leader in terms of expenditure in capital in Europe. Over the past ten years we have had the lowest level of capital investment in Europe. When I was at school there was a sign with the seanfhocal, "Ní hé lá na gaoithe lá na scolb", which means the day of the storm is not a day for thatching. What the Minister is doing is trying to put €3 billion away, which is a tiny amount if we have to deal with a major unforeseen event, instead of dealing with the leaks we have at this point in time. While I do not want to rehearse the point, we have a crisis in housing. The increase in capital proposed for this year is not ambitious enough to deal with the 10,000 people in emergency accommodation, not to speak of the 100,000 people on the waiting list. Our universities are slipping down the international rankings. Look at the presentations being made to the Minister's Department seeking €3 billion in capital investment for physical education. That is without addressing the need for additional investment in current spending on education.
We spoke about the barriers in the area of childcare. Ireland tops the league for childcare costs for single parents and is placed second for childcare costs for couples. There are many other challenges. The Government has normalised the crisis in health. Every day, 400 people wait on hospital trolleys and the Government does not view it as a crisis. The fiscal rules were designed to ensure we do not return to the policies of the Fianna Fáil era and the "if we have it, we will spend it" attitude. They curtail the level of spending by member states in any one year. If the Minister had any sense of patriotism, he would use the resources and flexibility available to us within the fiscal rules to deal with the real human crises we are facing every day. There are hundreds of thousands of people waiting for operations and hundreds of people on hospital trolleys. There are 10,000 people homeless. We have no broadband in rural areas. We have creaking infrastructure and massive underinvestment in health and education. This is the time to fix the leaks and make sure that when the storm comes we are not facing a housing or other crisis. If the Minister does not act now and an unforeseen event occurs, we will be unable to cope.
In Deputy Doherty's efforts to repeat his soundbites as many times as he can, he has veered into-----
I am speaking of real people. There are real people lying on trolleys today.
He has veered into the territory of making charges against me that are absolutely ridiculous-----
I am pleading with the Minister to do the right thing.
-----and which do him and his party a disservice.
What charge did I make against the Minister?
Deputy Doherty-----
What charge did I make against the Minister? I asked him to invest.
What I find very interesting about Sinn Féin at the moment is that despite Deputy Doherty's feigned anger, he and his party leader cannot do enough to get into government. If they ever find themselves in a position that they are in government and if Deputy Doherty ever finds himself in the position of being Minister for Finance or Minister for Public Expenditure and Reform, I will have to introduce him to the reality that he will have to make choices and take decisions. He came in here a moment ago - the record will prove me right or wrong - and accused me of not being patriotic or he at least implied it. He also implied that I did not care about people who are lying in a hospital bed and those who are homeless. How dare he walk in here believing he is the only person in the room-----
The Minister's policies created the crisis in health. It was a man-made disaster.
-----who cares about the difficulties that people face.
The Minister's policies created the circumstances in which 10,000 people are without homes.
I can understand-----
That is the reality.
Deputy Doherty, please.
It is fine.
I want to move on to Deputy Paul Murphy.
The Minister wants to dehumanise all of this.
I can understand-----
Deputy Doherty and the Minister have said their piece. We will move on.
I have not even responded to the one or two questions that were included in the diatribe Deputy Doherty ignited.
The Minister should try to do so without exciting Deputy Doherty.
The problem the Deputy has is that when I call him out on his behaviour he cannot handle it. He is not the only person in the room who cares about people who are on hospital beds or without a home. He is not the only person who cares about the need for children to have access to special needs assistants. I feel the same way about it, as do Deputies Michael McGrath and Paul Murphy. If the best Deputy Doherty can do to compensate for his lack of real ideas or policies that will make a difference is to come in here and feign anger without showing the decency to recognise that I also have feelings about these issues and want to make a difference, he does his party and, more important, the people who are suffering a grave disservice. I am here to make a difference and until recently I thought Deputy Doherty was here to do the same.
I will finish on this.
No.
It is only one line. I am here to try to convince the Minister to use the resources available to us to deal with the crises we have. These crises are man-made. They are the result of Government policies. If the Minister is not hearing that and if it offends him that I name what is happening - that there are individuals in the circumstances I described - I am sorry he is offended but it is my duty, as a public representative, to speak truth. I am trying to encourage the Minister to change direction.
We are moving on.
The Deputy put a point to me. Will I be placed in the position where a point is put to me and I am not allowed to respond?
The Minister has answered.
If a point is put to me, can I respond?
Yes. The Minister can have the last say but he should not provoke Deputy Doherty.
I thank the Chairman.
This discussion does not bode well for future negotiations on Government formation. That is what concerns me.
There is a very cosy consensus on this matter.
Deputy Doherty might feel sore that the true motives of his party are becoming apparent.
In my comments, I was at pains to acknowledge, as I always do publicly, the suffering that people feel and the difficulties we have. My understanding of these matters is as real as the Deputy's. I will not allow my empathy or understanding of those matters to be challenged by anybody. The Deputy should not think I will allow him shift the goalposts in the way he just tried to.
I will continue to challenge the Minister's policy which results in those activities.
I will continue to respond accordingly.
The Minister will continue to cause some of these crises.
I will continue to point to the fact that we have seen a growth in living standards, more people back at work and we are making progress in tackling the issues to which the Deputy referred.
I call Deputy Paul Murphy.
What is Deputy Paul Murphy's intention regarding government?
The point is not about personal empathy or so on. That is not what is crucial and is not the reason the Government makes bad decisions. The point is that the policies flow from a certain understanding of how society is to be run. That understanding is then codified, unfortunately, in the fiscal rules. That is the choice Sinn Féin has. Will it sign up to a coalition government which agrees to stick with the fiscal rules? If it does, it will end up implementing the same policies with maybe a more human and empathic face. It will not, however, make a fundamental difference.
Does the Minister agree the Commission's proposal for a substantial increase in defence spending in the MFF represents a significant further tilt towards the militarisation of the EU? Does he further agree that this money will come from cuts to beneficial programmes like the European Regional Development Fund and the Cohesion Fund? Is that a fair and objective assessment?
I do not believe that it is. It is the case that the Commission is proposing a budget for European defence co-operation. That budget comes to €13 billion but this is across the lifetime of the MFF programme which will cost in excess of €1 trillion. There is a budget line for initiatives which might stimulate co-operation and research in European defence. It is a tiny fraction, however, of the overall MFF proposal put forward by the Commission.
If we do not have agreement on what is happening, we will go into the figures. Does the Minister agree, when all the strands are taken in, that the Commission's proposals in total represent close to a doubling of defence spending? According to the Commission's figures, it represents an increase of 1.8 times.
If the Deputy has figures from the Commission which show the budget is doubling, I am sure they are correct. However, I put it in the context that it is an exceptionally low share of a budget of more than €1 trillion over a seven-year period.
The €13 billion funding in question will end up in the hands of armaments companies. It represents a 22-fold increase in EU investment in defence spending, directly as opposed to indirectly. On 2 May in a communique, the Commission stated in the area of defence:
Europe will need to take greater responsibility for protecting its interests, values and the European way of life, in complementarity with the North Atlantic Treaty Organisation. While the Union cannot substitute member states' efforts in defence, it can complement and leverage their collaboration in developing the defence capabilities needed to address our common security challenges.
The Commission proposed a strengthened European Defence Fund that will aim to "foster the competitiveness and innovation capacity of the defence industry". In addition, the Commission proposed the Union enhances its strategic transport infrastructures so as to make them fit for military mobility through the Connecting Europe Facility. A dedicated budget of €6.5 billion will be earmarked for this.
Does the Minister accept there will be a substantial increase in spending and the Commission sees this MFF as representing a further tilt towards defence spending? It places an emphasis, even in the title of its speeches, in this regard.
I accept there is an increase in the Commission's proposals. In the interests of completeness, the Deputy acknowledged what I did not in my opening statement, namely the Connecting Europe Facility which is in addition to the European Defence Fund. I will go back to my earlier point, however, about the share this occupies of the total MFF budget.
Does the Minister agree with the significant increase, even in proportionate terms, in defence spending proposed?
It is not where I would put the increase. There are many different elements of the proposal about which I would have a different view. Although there will be increases in programmes such as ERASMUS+, I would prefer larger increases in these areas. I have to accept, however, that for many of my EU colleagues their defence status and efforts to ensure greater efficiency in investing in defence and defence research is a priority.
Will the Government at Council level seek to have the increase in defence spending reduced or eliminated entirely?
We will only outline our position on individual lines of funding as the negotiations advance and we are a long way away from getting to a critical point on that. In the interest of clarity, though, it is unlikely we will propose the elimination of those lines from the MFF because I know how important those areas of activity are to other member states.
I take it then the Minister is happy enough for public funds from Ireland and across Europe to end up funding a European military industrial complex and major corporations which make significant money as a result of making instruments of death and weapons.
I never interjected the language of happiness into this matter. There are other priorities that the Government and I will be expected to achieve in the overall MFF such as on the Cohesion Funding and the CAP. As part of us making progress on that, I accept it is likely there will be a stream of the future MFF that will be set aside for the European Defence Fund and the Connecting Europe Facility.
How does the Minister feel about European public moneys, including Irish moneys, ending up in the hands of Israeli armaments companies such as Elbit Systems and Israel Aerospace Industries, which has happened with EU moneys in the past? Under Horizon 2020, hundreds of millions of euro ended up in these companies. Does the Minister agree that should continue to happen?
I do not have enough information on that matter to offer an informed comment. I am sure this is an issue that has been raised with the Minister of State at the Department of Defence and the Minister for Foreign Affairs and Trade. It is a matter for them more than me.
A new and concerning area of the MFF is the reform support programme, which is a €25 billion line over seven years. This is clearly an attempt to establish a permanent ministry of austerity in the EU, which will take the worst elements of the troika approach to Ireland, Greece, Spain, etc, and enshrine them for the future, as was done with the fiscal rules. Will the Minister explain how that programme will operate and the Government's attitude to it?
I do not see this as being part of the so-called austerity agenda to which the Deputy refers. A criticism that was correctly made of the eurozone during the crisis was that it did not have the instruments or policy tools available to help individual member states to respond to the economic shocks or difficulties they were facing. The Commission is now bringing forward two different tools to allow member states to do that but if that money is going to be made available to countries to help them to deal with particular shocks, there must be a degree of conditionality attached. If we find ourselves in a position in a number of years where Irish taxpayers' money is going into these funds and is being used in countries other than our own, then the Oireachtas will expect that funding to be used in a way that meets certain criteria. That is what is at the heart of this matter. Far from seeing this as compounding the worst of the architecture of the past, for me this is about trying to create new tools that were not available in the past but which we may need in the future.
Does the Minister not accept that money is being shifted from lines and programmes that were non-conditional, like cohesion funds and rural development funds, into lines and programmes that are conditional? I accept that rural development funds are conditional in terms of rural development criteria but they are non-conditional in terms of austerity or reform measures. Under the reform delivery tool, €22 billion will be available for member states in direct exchange for doing what the Commission tells them under the national surveillance of budgets process. It is like generalising from the model of the troika, whereby the money is given to member states only if they do X, Y and Z. The X,Y and Z conditions never include spending more on social welfare or investing more in health or education but always include investing less, privatising and bringing down unit labour costs. This is a mechanism to tie the hands of governments because in order to be able to access funds, they have to implement what are invariably neoliberal measures.
The first point to make is that many of the other funding streams to which the Deputy refers also have conditionality.
Yes, but not of this sort.
Cohesion funding has conditionality attached.
Yes, but only since the crisis. That is new.
Does Deputy Murphy accept that it has conditionality?
Yes, but only since the time I was a member of the European Parliament, which is five years ago.
Okay, we have made progress on that. Let us say Irish taxpayers' money is going into the reform support programme or the European investment stabilisation tool. Would the Deputy support the spending of that money in other countries with no conditionality?
I would absolutely demand that Irish taxpayers' funds, or funds from any European taxpayers, are not linked to demanding so-called structural reforms which will make life worse for ordinary people. Cohesion funds should be going to areas that need them from the point of view of cohesion and regional development and so forth. That is what the funds should be used for and not as a tool to apply and enforce a certain set of policy measures.
Okay, but in many cases what we would be talking about are reforms that have already happened in Ireland. Changes have happened in Ireland and our money is being used to create these tools. In that context, if change has happened in our country then in return for the Irish taxpayer making funding available for these tools, is it not reasonable to ask other countries to go through the same kind of change?
I am not in favour of us asking other countries to reduce their minimum wage, to privatise their public services, to introduce water charges and so on. I am not supportive of the idea that just because we got beaten on some of those issues, but not on them all, we should be seeking to be a part of that and would use our experience to expedite a race to the bottom in terms of economic policies.
What we have here is an ideological difference on this issue. There is a difference of ideology. The Deputy accepts the fact that if Irish taxpayers' funding is to be made available, certain conditions must be laid down for accessing that funding. I think the Deputy accepts that point-----
No because that has not been the case with most EU funding until recently, in terms of it being tied to neoliberal economic policies.
Deputy Murphy acknowledged a moment ago that in the context of a lot of EU funding streams, certain things have to be done in order to access the funding. Is that the case or not?
I may accept it but that does not mean I support it, which is what the Minister is implying.
We are going to go around in circles on this because lots of, if not most, funding streams have criteria attached to them. These new tools are based on the principle that if money is going to be released - this is our money which will no longer be available to us to be used at home - then criteria will have to be met to access it. Deputy Murphy differs from me on that overall principle. I think it is reasonable that if we have gone through a degree of change that is generating the resources that are going into these funds then certain criteria must be met so that we can justify this money being made available and ultimately, so that we can hope to get it back in the future.
We will not agree, ideologically, on whether this is a good thing but let us try to have a common assessment of what is happening here. I think a majority would agree with me that the models of conditionality used, for example, in Greece and Cyprus, were not a good idea. The so-called structural reform support programme will be rebranded as a technical support instrument and effectively, the model of troika engagement with countries and the conditionality of neoliberal reforms in exchange for money will, as a result of the MFF proposed by the Commission, be widespread across the European Union. Does the Minister accept that this is what is happening?
The Minister just said it was a good thing a minute ago.
The Deputy asked if I accept that an IMF approach is being brought to the release of European Union funding. The answer to that-----
The model of the troika or the model of conditionality-----
Okay, the model of the troika but the question the Deputy put to me was whether I believe the troika approach to the release of funding is being institutionalised in the future in the context of the MFF. I do not believe it is being institutionalised. As the Deputy has already acknowledged and I have said repeatedly, there are other funding streams for which criteria have to be met in order to access that funding. That already exists within the architecture of European programmes and the same approach is being used with these two new tools.
I thank Deputy Paul Murphy. Deputy Michael McGrath is next.
I welcome the Minister and his officials to the meeting. In the context of the banking union, when does the Minister envisage that Irish consumers, including mortgage holders, SMEs, corporate customers, will be able to avail of a single European market for financial services? When will they be able to acquire loans, for example, from European banks? What elements of the banking union have yet to be put in place for that Single Market in financial services to operate freely across the Union?
The availability of more financial services within our State is probably separate to many of the elements to which we are referring and which form part of banking union. What is more likely to lead to more services being provided or to services being provided at a more competitive price is first, fintech and new financial services coming into our country and second, the balance sheets of our banks improving so that they are able to offer better rates of interest and more services to customers. The focus of banking union overall is to deal with the stability of the banking union rather than the issues to which Deputy Michael McGrath refers.
I hear the Minister's answer but the issues are very much related. The European Union operates to the fundamental principle of the freedom of movement of goods and services. I am free to buy any product from Germany, France, or Spain, for example, except for financial products or services such as mortgages. I raise this issue in light of the retail interest rate statistics for the eurozone published by the Irish Central Bank last week.
Chart 2 of the statistics document shows that the average interest rate across the euro area on all new mortgages agreed in April was 1.8%. It shows significant variations across the eurozone. The lowest rate was in Finland, where it was 0.8%. The highest rate was in Ireland, at 3.15%. Therefore, it is a fact that Ireland is the most expensive country in the eurozone for mortgage holders. The Minister can rationalise that and give his view as to why it is the case. He has an obligation not only to deal with the issue domestically but also to lead the charge at European level to ensure we have a properly-functioning Single Market for financial services. We do not.
I want to see that happen. The banking union measures that were referred to are dealing with a different issue entirely, namely, the stability of our banking system. It is not acceptable to me that Irish mortgage interest rates are so far above the European Union average in the way I know and in the way the Deputy has described. It is worth making the point that a factor contributing to the difficulty that exists on the balance sheets of banks and, in turn, regarding the interest rates they can offer to customers is the level of non-performing loans that we have. The proportion of non-performing loans in Ireland is 14%. The European Union average is 4%. As continued efforts are made to reduce responsibly the proportion of non-performing loans, banks will be enabled to offer more attractive lending rates to new and existing customers. That will be an essential element of the next wave of resilience in our economy because what the Deputy has described is the case.
When I look at the figures, I see that the only other eurozone countries that have rates above 3% are Malta, Estonia, Latvia and Greece. To the best of my knowledge, the non-performing loan rates in Greece are not exactly healthy. There is no question but that we need to bring down our level of non-performing loan exposure as a country; it is a question of how to do so, which is another debate. Is the Minister saying to me and to Irish consumers that this is the main reason the rates here are so out of line and that Ireland is the most expensive of 19 states in the eurozone? The Central Bank of Ireland seems to be doing nothing about this. I am asking the Minister, as head of the Department of Finance in the Government, what he is doing to bring down interest rates for consumers.
First, I never said it is the main reason. I said it is a contributory factor.
Yes, but the Minister did cite it.
The record will show that I said it is a contributory factor. I now use this opportunity to talk about the other contributory factors. As one compares our interest rate with those of some of the economies to which the Deputy has referred, one finds that some have levels of non-performing loans that are also very high. They are not as high as in the Irish economy by any stretch but I am simply making the point that this is a contributory factor.
On the Deputy's question about what I believe are the other contributory factors, the first is the fact that we still have a quite concentrated banking sector. We have four main banks that are competing with one another. Clearly, anything that brings more competition into the banking sector offers the ability for interest rates to come down. I am considering what kind of policy environment will attract the new FinTech players that are coming into Ireland and establishing across Europe but that do not lend through the banks we have. I meet representatives of the banks every three to four months. At each of the meetings I have with them, I review our position and talk to them about the current interest rates and what we can do to encourage more competition.
Will the Minister revert to the committee in writing with his own assessment as to where we are on the full application of a single European market in financial services?
Sure.
This issue is on the agenda of the Eurogroup and ECOFIN. I would like the Minister to come back to us with his assessment as to where we are at and when he expects Irish consumers will be in a position to go directly to a bank based in another European country to buy a financial product from it. If we are to have a proper single European market, that is not too much to ask. That is where we should be at on that issue.
I will do that.
May I move on to the MFF? In the context of the Irish contribution and the implications of the proposals made by the European Commission, could the Minister give us his sense of where he sees the Irish contribution going? He pointed out that the figure set out in the SPU is forecast to be approximately €2.7 billion in 2018, moving to €2.9 billion next year. Does the Minister have an estimate of where Ireland's contribution is moving to? I know it will be based on certain assumptions but, after 2020, in the MFF-----
On where it is going to move to, the figures the Commission has published point to an increase. The Taoiseach has already said we are willing to contribute more than at present. I do have a figure in mind regarding what we would be able to afford and what that level of contribution would be but we are at a very early stage of negotiation and it would be wise for me to point to where our eventual contribution could be given all the policy priorities I am expected to deliver in a really complex negotiation.
Is the Minister's figure what we can afford or what it is likely we will be required to pay? I am not asking him to reveal the figure.
I have a figure in mind regarding what we can afford.
On the impact on the MFF owing to the withdrawal from the European Union of the United Kingdom, what is the Department's assessment of what the Brexit gap is likely to be and the position of the Irish Government on how it should be filled, be it through additional contributions to member states, cuts to programme funding or funding from other sources?
Depending on how it is calculated, we estimate the UK contribution is in the region of €10 billion to €12 billion per annum, which is 7% to 8% of the total EU budget. There are only three ways in which that shortfall could be dealt with. Either the level of expenditure goes down, the level of contribution goes up, or there is a mixture of the two. How the Brexit shortfall will be dealt with is a big area of the early phase of negotiations that have now begun.
Regarding the Commission's proposals, I understand it is assuming that the common consolidated corporate tax base, CCCTB, will come into effect and that it is factoring in certain resources or revenue from the introduction of the CCCTB, which the Government continues to oppose. Could the Minister give us the Government's position on that? Why would the Commission be bringing forward proposals that include revenue that is the subject of unanimous decision-making within the European Union where there are clear indications that such unanimity does not exist?
The Deputy is correct about the own-resources model that the Commission has put forward. One of the sources it has put forward is the introduction of a CCCTB. The Irish position on the matter is unchanged. We will not support the introduction of such a fundamental change to corporate tax policy. It is doing so because the approach has been used in the past. It is one that the Commission supports. An opportunity like this is being used to raise the matter again and to argue how such funding could be used in other member states but it will not change our position on the matter.
What is the quantum of money the Commission has included from that potential source in the draft proposals?
It is €12 billion.
The Commission has included €12 billion.
Yes, it has.
Is that over the lifetime of the MFF?
Yes, that is correct.
If the CCCTB does not come in then that is another €12 billion of a gap, though it is over the lifetime rather than in the case of the Brexit one, which is an annual gap.
Indeed. It would be over the lifetime of the entire budget plan, and while €12 billion is a gigantic and vast amount, it is in the context of the more than €1 trillion the Commission is looking to raise in this budget.
The first country specific recommendation includes a reference to using windfall gains to accelerate the reduction of the general government debt ratio. Could the Minister give his view on Ireland's current general government debt ratio? What is the appropriate measure of it? Does he believe it to be on a sustainable path? Apart from improvements in our annual budgetary position, does the Minister have plans to offset further windfall gains to reduce the general government debt at this point?
At the end of 2017 the debt-to-GDP ratio stood at 68%. That is a reduction of 2.1 percentage points on where I estimated it would be last year.
Is that debt-to-GDP?
Yes. By the end of this year the debt-to-GDP ratio is projected to reach 66% and, therefore, the 60% target as mandated by the Stability and Growth Pact should be reached before the end of 2021.
My position on windfall gains is unchanged. The approach I used, for example, on the proceeds from the sale of AIB in the past will continue to be my approach in the future. What we do all of the time is review such opportunities if they are available to us.
While the debt-to-GDP figures are stable and reducing, as a percentage of our GNI*, the same figure for 2017 is 100%.
There have been media reports speculating that the Minister is considering a further share sale in AIB, which is relevant to the question of windfall gains and reducing the general government debt ratio. Is that under consideration?
It is under consideration all the time. Such stories and analysis have regularly been written about my views over the past year. We keep it under review all of the time and look at where market conditions stand, but, as the Deputy will be aware, we also have a programme for Government commitment in relation to this matter.
Demographic-related costs are an important issue for the Committee on Budgetary Oversight in respect of expenditure profiles. Is the Minister satisfied that the estimates he is working with or commitments in the area of old age pension provision and health and education provisions, taking into account the demographic profile and projections that we are working to, are comprehensive and have fully factored into the medium and long-term fiscal position and spending plans of the State?
Yes, I am. The Department of Public Expenditure and Reform has published papers reviewing where we stand on the issue. We think we are doing okay on it. One issue I am aware of, which I fed into the process, is that sometimes we think of demographics in terms of what happens within social protection and we let that guide our thinking, principally about people getting older, but we have to deal with the consequences of having a young population and how we cater for it in the future. The Department of Education and Skills has done a good job on that in school buildings programme and the way we have been able to factor in the hiring of new teachers at primary level.
I thank the Minister.
I thank the Minister for his opening statement, which was interesting, especially the reference to net monetary benefit being €42 billion between 1973 and 2016. What was the cost of the banking crisis in terms of the bailout?
Approximately €64 billion. I refer to the banking end of it. We are making good progress to ensure that we will recoup approximately €30 billion of that in time through the State gradually unwinding its ownership of the banking system. However, that will take time and is subject to all the conditions I outlined in response to Deputy Michael McGrath.
I suppose the figure is interesting in the context of the lack of instruments that were available to us at the time to prevent the crash and to deal with it, including the overheating of the German economy, which did not allow us do what we needed to do at the time. The question is what we have in place that is different now. I ask the Minister in the context of his concerns about the double whammy of the instability in Italy combined with the uncertainty of the impact of Brexit.
First, I will deal with some of the assumptions underpinning the Senator's question. There is no doubt at all that Ireland paid dearly for design flaws in the single currency zone and banking union. The architecture was incomplete and the cost for Ireland was high in dealing with that, but many other decisions were made domestically that had nothing to do with that, which created the environment in which this perfect storm wreaked havoc throughout the country.
Regarding how we are different now, there are probably three factors-----
Does the Minister feel secure?
-----in how we are different now compared with the past, each of which is important.
First, the level of capital our banks and European banks, in particular, hold, is significantly higher than in the past. The regulatory framework for banks, particularly systemically risky banks, has been transformed.
Second, the fiscal rules are better scoped and better implemented than they were in the past. Third, our budgetary position and our budgetary strength is also better than in the past, although we can never take that for granted.
Is the Minister not concerned about the impact of what is happening in Italy in terms of the instability, combined with Brexit and our over-dependence on royalties? Does he not have any concern about an external shock?
I do not know how the Senator deduced that from the answer I gave, given that on a number of occasions publicly and before this committee I have said that external instability is a big concern. With regard to Italy, I will never comment on a decision people make in another country and the government they choose. That is their business. I would not want a politician in another country commenting on the electoral outcomes here, but what I do believe, which is an insight of which we cannot lose sight in the future, is that economic decisions made in other countries can have a big impact on us.
What people are looking for is reassurance that the same will not happen again and that we are prepared. It is not about sticking our nose into another country's business but about being prepared here to prevent that happening again.
There are two big sources of preparedness. I touched on the first one in the answer I gave to the Senator about a strengthened European architecture.
Of course, we have the European Stability Mechanism that has €500 billion. That did not exist when we went through our darkest nights. It was created during these crises. We have a €500 billion fund and the Single Supervisory Mechanism that has played a role recently in terms of the difficulties within Italian banks. None of that support was there the last time that we went through all of this. Those two factors will be a big part of how the Irish and European economies might respond to difficulties that could develop elsewhere.
In terms of our preparedness, we are better positioned than we have been in the past. A number of years ago I was in front of this committee when our deficit was nearly 10%. Our deficit this year is 0.2%. That vast journey is a key part of how we prepare ourselves. It is important to note that the change in bond yields for Italy that occurred over the past fortnight - we saw a very significant surge in a single day - did not happen to Ireland. That is an indicator of where we are. However, we can never take any of this for granted. I can say to the Senator that I believe we are well placed but we will always have to work to maintain that position.
People are mindful of being repeatedly told about a soft landing the last time so I am sure that the Minister will forgive me for asking my question. People need continual reassurance that the same thing will not happen again.
The Minister referred to the possibility that corporation tax would be increased due to the politics in America. Please explain how that might happen and when it might happen.
I was referring to America. I believe we will see American corporate tax receipts begin to increase and there are three reasons that this will happen. First, as members will have seen, the American political system has taken the decision to put in place a fiscal stimulus for its economy that is at or approaching full employment. Second, America has made a decision on the minimum global effective tax rates that American companies need to pay. Third, America has put in place very specific mechanisms to incentivise American companies to move back to America their cash reserves of earnings which have not been repatriated. I believe it is very likely, as a result of this, that we will see an increase in American corporate tax collection. As a consequence, we will see more companies pay more corporate tax.
What impact will that change have on the Irish economy?
I deal with this matter daily and nearly every day I meet investors and potential investors in Ireland at CEO level. As things stand, my latest assessment is that the package that we have will enable Ireland to be competitive versus that change. The implementation of the policies of the Senator's party would significantly affect and worsen the situation.
I am not surprised that the Minister holds that view.
The competitiveness that Ireland has in that area stands protected, but we must always keep it under very careful review.
Let us take a look at regional imbalance, particularly in terms of the Common Agricultural Policy, CAP. Does the Minister plan to oppose the proposed cuts to the CAP budget? The farming communities in the west and north west and anyone farming on marginal lands are very concerned about the reduced budget and about what the Government will do to ensure the CAP budget is fairly distributed.
It is not just the case of what I want to do, and I will do much. I point to the efforts made by the Minister for Agriculture, Food and the Marine, Deputy Creed. As recently as last Thursday, he met the Ministers for agriculture from France, Spain and Portugal. They issued a statement on the issue which laid out their grave concerns about the current proposal for CAP. The Minister said after the meeting:
Notwithstanding these very real pressures, I am convinced that we have to protect the CAP budget, if we are serious about preserving the family farm model that is central to the European project.
The Common Agricultural Policy is the most successful policy of the European project, and we have emerged from this meeting with a strong coalition of member states ... who are prepared to defend the CAP Budget, as we enter into what will be extremely difficult negotiations.
I understand that since the Minister led the way in assembling this coalition, the number of countries that are willing to support that position has grown. First, we are articulating Irish national interests on the matter. Second, and most important, we are assembling other countries that feel the same.
Will the Government ensure the CAP budget is fairly distributed throughout the country, in particular the single farm payment? We do not want farmers in the east who have better land and who bought entitlements receiving hundreds of thousands of euro in single farm payments while farmers in the west and elsewhere try to survive on an average income of between €3,000 and €4,000 a year.
I am well aware of the issues mentioned by the Senator. I am especially aware of the issues in the west in terms of the policy proposal that the Commission has put forward. That being said, how funds are managed and allocated is a matter for the Minister for Agriculture, Food and the Marine. I provide the funding for where Ireland might end up and agree the total Government position. The Minister for Agriculture, Food and the Marine is pivotal to all of that. As can be seen, he is doing an exceptional job in fighting the cause for Ireland in that matter.
Time will tell. I refer to the western rail corridor project and the other projects that have been removed from the list of TEN-T projects, where up to 50% of funding is available. Does the Minister have definite plans to get those projects back on the table?
That is a matter for the Minister for Transport, Tourism and Sport, Deputy Ross.
The north west, all of rural France and half of Italy have been designated as regions in transition for the next round of the Cohesion Fund. Is the Minister satisfied that all of the EU funding opportunities have been availed of in order that rural Ireland can fulfil its true potential?
Yes, I am. I know that the Minister for Rural and Community Development, Deputy Ring, is working very hard to ensure that we take advantage of what is available to us. He ensures that his Department draws down all of the funds that are available and at the correct time. He also has had a lot of engagement with local authorities on this matter to ensure that the available funding is drawn down. It is a priority for him and I support him in his efforts through my Department of Public Expenditure and Reform.
Has the Minister ever analysed any given year or period to see how much available funding has not been drawn down?
I do not have the figures but I am aware of our track record.
Will the Minister give the figures to this committee?
I cannot do so now because I do not have the figures available to me.
I do not mean now. I ask him to supply the figures to the committee.
The Department for Rural and Community Development should have the figures. My Department can get them, if they are available, and we will send them to the committee.
I will finish by outlining a major concern. One may look at the economy in terms of pursuing full employment and charging ahead, but the regions have been left behind. The main focus of these funds, therefore, should be on rural Ireland and the regions in terms of the development of infrastructure and investment in same whether that is in broadband, Knock Airport and other infrastructure. The Minister knows that such focus makes economic sense because there is a multiplier effect.
I firmly believe that the best way to combat any external shock is to have investment in the regions in our telecommunications and other infrastructure. That will see us through the next storm.
I agree with the Senator that public capital investment is an essential part of what a resilient economy looks like. I agreed with Deputy Doherty on the point as well. A core part of that aim is ensuring that capital investment is allocated efficiently, effectively and fairly throughout the entire country.
I will address the various points referred to by Senator Conway-Walsh, including the point about Knock Airport. In recent weeks Knock Airport has received additional funding. In recent days I have seen the Minister for Rural and Community Development, Deputy Ring, make several decisions on the allocation of funding for towns throughout Ireland. Only the week before last we put in place a €1 billion fund, the main purpose of which is to support towns with fewer than 10,000 people. I agree with Senator Conway-Walsh that these are areas where we want to make more progress than we have been able to make in the past, when the country was in such difficulty. I differ with the Senator in that we are putting in place the instruments and tools now and I see them being used and drawn down.
I know what the Minister is saying but it begs the question because there are areas within the county I come from that do not have proper drinking water or broadband. There are areas where a person cannot make a mobile telephone call. Other areas lack investment in the roads and people there have been waiting for investment for decades. I have in mind roads like the R312, but I have no wish to get into the specifics. The moving around of money and announcement after announcement are neither delivering investment in the way we need it delivered nor with the urgency required. People in rural Ireland need to know that every opportunity to draw down EU funding will be matched by Government funds. It is not only a matter of announcements about the future. The Government must draw down funding to provide the connectivity that we need. We are worth it. The decisions should not be population-led.
Senator Conway-Walsh represents County Mayo. Is that right?
I am aware of the difficulties the Senator is referring to. If the Senator's party had not been so irresponsible in respect of water policy, maybe we might be a little better advanced than we are now on the matter. I am also aware-----
Look at-----
I am finishing the point. Senator Conway-Walsh put a question to me.
A Chathaoirligh, I will finish the question.
I want to answer the question.
Those condescending answers do not serve the people of the west. It is too bad the Minister is so smug about it.
I am not looking to be condescending at all. I am well aware of the difficulties the Senator is referring to and I have said as much. In the early part of my answer I pointed to the progress that we have made with the challenges that exist. I am making the point, however, that I find the Senator's position ironic.
This is something we have to think about. We are making funds available for Mayo and many parts of Ireland. That is happening. That is on the way. We need to do more. All I am asking Senator Conway-Walsh to take account of is the fact that funds have been announced and progress has been made. More needs to be done but the work the Minister for Rural and Community Development, Deputy Ring, is doing in this area is immense. When I put forward my side of the argument, it is not a question of me being smug any more than it is when Deputy Doherty accuses me of not caring about what is happening. There is another side to the story and I have a duty to put it forward, just as the Senator has a duty to put forward her side of the story.
Indeed. I am living in the story. Let us consider the Leader funding. We know that in Mayo alone, Leader funding is between €9 million and €12 million less than it was in the previous programme. I will finish it at that. If people in rural Ireland cannot send emails because of lack of broadband or cannot make telephone calls, then they do not have the services they need. Perhaps even more than the Minister and me, they are the best judges of all of this.
On that point I agree with the Senator. Everyone should have access to the kind of services to which she has referred, including access to decent roads. I know the pressures our rural road network has been under. I hope that with the improved weather, local authorities will now be in a position to spend all the additional money made available to them. Everyone should have access to the ability to make a telephone call. That goes without saying. Senator Conway-Walsh has the right to put forward her case on the story with regard to the deficiencies that exist. I am simply asking her not to deny me the same right.
I will not.
I wish to ask about financial services. Deputy McGrath raised the issue of banking and mortgages and so on. Recently, the Minister of State at the Department of Finance, Deputy D'Arcy, was before the committee to discuss the insurance business. I am simply bringing to the Minister's attention the fact that we have had submissions from taxi drivers, musicians and representatives from the small and medium-sized enterprise sector, the communities sector, marts and co-operatives and so on. All those groups have reported vast increases in their insurance premiums, some up to 300%. One mart operator told us that he had a no-claims bonus for 15 years and still has it, but his insurance premium went up 200% or 300% without any explanation. The community groups that came before us told us they are now losing national and international events because they cannot get the level of insurance required. They maintain it is affecting the economy. I know this myself from the SME sector. We have heard from Dublin publicans as well as taxi drivers and others. These sectors are being badly harmed by the level of insurance costs. The statistics may allow people to interpret it in a different way but the reality is that they are suffering badly. I would not be doing my duty as Chairman if I did not bring these matters to the Minister's attention. The insurance sector seems to do as it pleases. Does the Minister want to comment on that?
I am aware of what the Chairman is referring to. I know about the hearings the committee has had on the matter. I also know that the Minister of State, Deputy D'Arcy, has been attending numerous meetings throughout the country on this issue. He is meeting people on a regional basis and looking to meet stakeholders who are affected. I gather he is trying to reconcile what the Chairman is referring to - I think he is aware of it too - with the statistics and figures that we see. I am not in a position to update the committee at this meeting regarding further actions that he and I will take, but I will be happy to do so at another point.
I will finish on this item. It would seem that a big issue arises concerning information being made available to others as they view the Irish market and the information available to them in making any decision on coming into the marketplace. Government has to pick some of these hard items and deal with them.
The Minister made a comment earlier about perhaps looking at policy in the context of attracting new players in the banking sector. In line with that question, what is he focusing on in terms of policy on attracting new players into the market? Where stands the report on community banking? The Department of Finance had a report which went to the Department of Rural and Community Affairs, which is headed by the Minister, Deputy Ring. Where stands that report? When will it be published?
We will have the report on community banking published in a couple of weeks. I and the Minister, Deputy Ring, are nearly concluded on it.
Are you in disagreement on it?
The Minister, Deputy Ring, I and do not disagree on anything.
Has the Minister a different point of view? I am serious. Is there a problem within it?
I was not being flippant with the Chairman. Generally, the Minister, Deputy Ring, and I do not disagree and we do not disagree on this report either. However, the report has consequences for another Department. I am working with the Minister for Communications, Climate Action and Environment, Deputy Naughten, at the moment on the report. The Minister, Deputy Ring, and I are reasonably happy with where it stands. Generally, we agree, but on this report in particular we agree too.
We will have a release soon on the second question the Chairman put to me regarding what we are doing to attract new entrants.
On that issue and on the question of traditional banks generally, it is unlikely in the short term that we will see any new significant retail banks entering Ireland in light of the increased nationalisation of international banking chains. However, a sector is developing within the financial technology sector, with many newly-formed companies examining ways to lend directly to consumers. None of those are active in Ireland and, in truth, only a few are active in Europe, but my Department and I are considering whether we can do anything to stimulate growth in that sector.
Regarding the recent fund of €700 million that the credit unions were given permission to put in place in respect of the provision of housing, did an SPC have to be set up? Does the Minister's Department or the Department of Housing, Planning and Local Government have responsibility?
When the Chairman says "SPC", what does he mean?
A special arrangement was to be reached in respect of that fund and how it was to be spent and managed.
Does the Chairman mean a special purpose vehicle, SPV?
Yes. What did I say?
SPC, is the acronym for strategic policy committee.
I am at county council level it seems.
I am not aware of an SPV having to be set up, but I will check that. He is aware that we had engagement with the credit union movement regarding its ability to fund housing. We have made some progress on that. I will have to check to see whether that necessitates an SPV.
It seems that the fund is there but the SPV is not. I just want to find out.
Okay.
Regarding funds buying Government bonds, is a spreadsheet available which shows where all of that money comes from and who is buying the bonds? What value has the ECB given to those transactions?
The only information that is available to us comes from the ECB and it is only broken down into resident and non-resident entities. We do not have a layer below that.
Can we get that information? Is it published regularly?
Yes, we can get that for the committee.
Does the ECB buy Irish bonds?
Yes. There is a programme under which the ECB can buy Irish Government bonds. That is the quantitative easing, QE, programme. The ECB holds some debt.
What is the value of those bonds?
I will ask Mr. McCarthy to answer.
The ECB owned just under €28 billion in Irish Government bonds at the end of May. That is under the QE programme. It has also purchased bonds under the securities markets programme, SMP, but it does not provide details as to how much. There are also the ordinary purchases of Irish Government bonds, which are of the order of €15 billion to €20 billion. We do not have an exact figure. The ECB owns somewhere between €40 billion and €50 billion of Irish Government debt and the total outstanding stock of debt is approximately €200 billion.
Regarding vulture funds and this European regulation, our regulatory system is being examined. I wish to express my concern about the loan protections that travel from the main lender to any of these funds. The evidence is that there is poor protection if one's loan is sold to a vulture fund. Depending on the fund to which it is sold, the level of protection can go from bad to worse. There is little protection for the consumer. I am just bringing this to the Minister's attention. We have the same problem in terms of the funds' attendance at our meetings. We have issued a further round of invitations, but none of the funds is interested in appearing before us to explain generally their activities in this country. Even the regulated agents will not appear before us in spite of the Central Bank writing to them. The public has a right to know exactly how the funds conduct themselves in Ireland and how the agents act. The receivers leave much to be desired. Is there any way of tying the receivers down in terms of their interaction with the consumer?
The Chairman put a number of points to me. The issue he referred to is one of the reasons I have asked the Central Bank to oversee an assessment of the implementation of the code of conduct on mortgage arrears. The Chairman has raised this matter with me every time I have appeared before the committee. Even though I have a set of statistics showing that the performance of funds that buy loans is no different than traditional banks owing those loans, individual issues have been raised with me at a frequency that has led me to decide to ask for the code of conduct to be reviewed. That is how I am trying to identify the scale of the issue and whether it merits a response.
Regarding the appearance of funds before the committee, anyone to whom it writes should appear before it. The Central Bank has done what the committee asked it to do.
As the Chairman knows, I am working with Deputy Michael McGrath on implementing legislation that he has drafted on the regulation of funds that operate loans within our jurisdiction.
I wish to ask about the EU's whistleblower protection proposals. It views us as being a reasonably good example of how such legislation should operate. If the EU is going to mirror many aspects of our legislation, I would prefer it to do so after the review, which will be published on 8 July. Have I the date right?
On 7 July. The EU will examine it afterwards.
Under our legislation, there is protection against pay reductions, suspensions, demotions and withholding of promotions as well as intimidation and harassment. A number of whistleblowers - it is not just one - in our system are still waiting to be dealt with. They would point to all of these headings and say that the entities with which they were dealing were in breach of all of them. They find it very difficult to get the protection that they first believed they had in legislation. Similar to the vulture funds, the reality in dealing with a protected disclosure is vastly different than what the dry print of legislation suggests. Some of these entities are agents of the State. It is shocking when one reads the disclosures. I do not want to go into it, but I gave the Minister a disclosure after our previous meeting.
The Chairman did.
Everything that is claimed in a disclosure has to be examined and proven, but I am not talking about the content, only the process. I would not like to see the EU taking it for granted that our legislation was working perfectly. It is not.
The answer to the Chairman's question is that the Commission has expressed an interest in looking at our report. When it gets to review how this directive might be implemented, it will do so on the basis not only of our Bill but on a review of it. It is my intention to publish the review of that Bill in order that it is in the public domain and people who have different views on it can comment.
Is the Minister aware of disclosures and the attitude of Departments and agencies, as would have been reported to him? I have dealt with a number of them, for example, from the Irish Prison Service, the Department of Education and Skills and so on, and they all carry the same story of how badly they have been treated and the ongoing treatment. Has that been brought to the attention of any of the Minister's officials?
No. I would not be aware of the status of individual disclosures.
Will the Minister comment on it generally in the context of receiving information, how the system has worked, satisfaction in terms of the system and where it needs to be improved?
I guess there are a few different aspects. The Chairman used an interesting phrase, "satisfaction in terms of the system". The satisfaction with the so-called system and the satisfaction of the person making the protected disclosure are two different aspects. That is the reason we will publish whatever review we do in order that people are aware of how we think it is going.
In terms of my general assessment of how I think it is going, from dealing with colleagues in government on it, I believe, overall, it is working quite well. We have had a number of issues related to protected disclosures, however, and how they are managed which I want to have a look at in his review, and we will cover that in it. I have not signed off on it yet. Therefore, I do not want to say any more than that.
The Minister might come back and talk to us about the review at some stage in the future.
I found something intriguing about which I have to ask the Minister. On the rainy day fund, in terms of the exceptional circumstances, it is stated that the Minister shall, before making a proposal referred to above, consult the Minister for Public Expenditure and Reform. How will the Minister do that?
In many cases our legislation refers to the Minister for Public Expenditure and the need for the Minister for Finance to consult him. The consultations over the past year have been rocky and difficult with frequent disagreement but I have managed to reach agreement in the end.
Was that in front of a large mirror in the Department overseen by the Secretary General?
Secretaries General tend to stay well away from me when that kind of consultation is under way.
I welcome the Minister to the meeting and apologise for not being here earlier. Interspersed with what we are discussing is the issue of our competitiveness. I heard an economist say recently that the biggest challenge facing Ireland is its competitiveness. What is the Minister's perspective on our competitiveness in a European and a world context and on the way in which Brexit will impact on that? I want to link that in with a comment the Minister made in his opening statement, namely: "In addition, the departure of the UK will cause both short and long-term practical challenges for the MFF." What is the Minister's overall perspective on where he see us in terms of our competitiveness? It tends to get lost in the ether, yet it is very important.
Our competitiveness will require renewed focus across the coming period. While the league tables published recently still show our competitiveness is in a good place, they also show that in a number of particular areas our competitiveness had declined. We have moved down in some of the leagues tables. That is a concern. The Minister, Deputy Humphreys, updated the Cabinet on this. As to what we will do about it, we have a national competitiveness board and its mandate has been changed also to take account of productivity. We will have to work harder to maintain and improve our competitiveness in the future. Some of the competitiveness we achieved in recent years was yielded by where we were in our economic cycle and how sharply a number of things fell. Now as we move into a different place in the economic cycle, we will have to find ways in which we renew our focus on our economy being competitive.
One of the key elements I can influence, for example, is where we are at on wage levels through agreements I make, for instance, through the public service. That was a big factor for me in the recent public service stability agreement, namely, to come up with wage levels that make sense in the context of the overall economy.
I am pleased the Deputy raised that matter because our competitiveness needs to given more focus across the coming period. If we consider the sharp shift in exchange rates during the past year due to the devaluation of sterling, our competitiveness must be uppermost in our mind now in the context of decisions we make in the future.
The Minister may have touched on the issue of Brexit. It appears to have dragged on and on and people realise it could have enormous implications. How does the Minister see Brexit evolving relative to Ireland over the next six months to a year? I am not asking the Minister about the long-term impact but to encapsulate where he sees it evolving over the next 12 months.
That is a big question as to how I think it will evolve. There are events taking place in the House of Commons this afternoon of which the Deputy will be more aware than I am. In terms of my best judgement as to what will happen-----
The Minister is in the cockpit.
Yes. It continues to be my judgment that it is more likely than not that a transitionary agreement will be reached that will begin next year. There is a need for the British economy to achieve that. There will also be the effects European-wide if such an agreement is not reached. At this time, I still believe it is far more likely than not that a transitionary agreement will be reached. If and when that transitionary agreement is reached, it will simply allow a longer period to manage all the other risks that could develop across many different policy areas, which incidentally is another reason I believe a transitionary agreement will begin early next year.
Has the Minister a view on how long that transitional period would be?
It is laid down. I have double-checked when exactly it is due to come to an end. The text currently agreed between the British Government and the EU indicates that it will come to an end at the end of 2020. It is in play but I believe it is more likely than not that this will happen.
It is in play. Is there a mechanism in place to extend that transitionary period if the EU countries and the UK agree? I would favour a move in that direction. There is a need for a significant transitionary period.
That would be a political decision but the participant who will have to call for that first is the United Kingdom. It is more likely than not that there will be an agreement on a transitionary period for all the reasons we outlined, but it is up to the United Kingdom and its Government to decide if a longer one could be merited.
I thank the Minister and his officials for attending today.
I thank the Chairman.
