I will not delay the House talking about due diligence with regard to the banks. Obviously there is a degree of uncertainty in the projections for pension costs post-2025, which depend on demographic assumptions. The Department of Finance has published projections carried out by the long-term issues group, assisted by Alan Barrett at the ESRI. Such projections are kept under review and are inevitably changing. The major variables, of course, are net immigration and emigration over the next 20 years. Clearly, however, there is a degree of uncertainty in that regard. We are looking at a timeframe of 16 years if we set 2025 as the end year.
It is not accurate to speak about raiding the National Pensions Reserve Fund or selling the family silver because the returns from the investments in the banks will accrue to the fund. We hope to come through the current difficulties long before 2025. In the short term, the fund will earn 8%, which is an attractive rate of return in light of current market conditions. If the shares are not repaid within five years they will be valued at 125%. A balance must be found between the need to recapitalise the banks and preserving the integrity of the fund. We are maintaining the 1% contribution in addition to the 8% dividend. The warrants attached to the preference shares give the State the option to purchase 25% ordinary shares in five years' time at current prices. The Exchequer stands to gain, therefore.
In regard to drawing the Opposition into the decision making process, Opposition Members can at any time make suggestions or propose ideas. They are not under an obligation in this regard, however. The roles of Government and Opposition are equally honourable and the former has made it clear that, while it will take the necessary decisions, it would welcome the input of the latter. It has been the case since Dr. Garret FitzGerald was Taoiseach that the Department of Finance is available to Opposition Members to perform costings on a confidential basis.
Several Senators raised the question of bank salaries. A report by the covered institutions remuneration committee on the remuneration of bankers was handed to the Minister two days ago but he will need time to study it before bringing it before the Government. I am sure he will be making a statement on the matter shortly.
The issue of ministerial logistics was raised. It is not a simple matter to travel from A to B to C without losing an excessive amount of time. It is possible to travel using slow and cheap methods but much depends on the value attached to ministerial time. I am conscious of being as economical as possible in the fulfilment of my official functions.
Senator Twomey asked whether the differing amounts required in 2009 and 2010 implied a sharp regression in growth. The amount required for 2010 will be 1% of GNP, as forecast in the budget for that year, but we are front-loading €1.4 billion towards our requirements for that year. If, for example, €1.6 billion is required in 2010 a further contribution of €200 million will be necessary. There is no inherent implication in this of a worse than expected shortfall next year.
Senator Hanafin expressed his satisfaction that Irish investments are coming home. The investment mandate of the NPRF is to invest the assets of the fund with a view to achieving the optimal return, subject to a level of risk which is acceptable to the NPRF commission. This commercial investment mandate is similar to those of private sector pension funds. In seeking an optimal return, the commission is required to choose investments on the basis of what appears to offer the best prospect of return and it has absolute discretion in that regard. The commission has invested in Irish companies but in accordance with the mandate set out in legislation, the bulk of its investments are made abroad. It would not be possible to require that all investments be made in Ireland, any more than it would be proper to require Irish companies to invest exclusively at home. I take the Senator's point, however, and consider it a matter of finding a balance.
Senator Norris spoke about the activities of London-based hedge funds and commentary on the Irish economy. The Government is determined to do what is necessary to overcome the difficulties in the banking sector and the national finances. One cannot help but note that nearly every country, and certainly Britain, is grappling with the same problems.
Officials in the Department of Finance hold a broad range of qualifications, including economics and business-related degrees. Over the years, many civil servants have taken evening courses to gain such qualifications. Economics formed part of the studies for my degree but the vast bulk of my practical knowledge was learned over the past 34 years as a public servant in various capacities. The Department can draw on the practical experience of bodies such as the National Treasury Management Agency, which has strong experience in markets, the NPRF, which employs highly qualified staff with a broad range of experience, and the ESRI in respect of economic analysis.
The EU, the OECD and other bodies are taking a co-ordinated approach in responding to various aspects of the current crisis. On the ultimate consequence of the bank crisis, no more than other Members, I do not have a crystal ball. Several Senators asked if the current recapitalisation is enough. It is sufficient for now. Obviously, there is capacity in the Bill to take further action should it prove necessary. There is a limitation, in terms of bank confidentiality, to the degree to which one can open bank books to the general gaze of the public. While there are reports on the matter, one needs maximum transparency consistent with confidentiality in order to carry out bank activities.
The Minister has referred to Peter Bacon the question of whether it is a good idea to establish a toxic bank, an issue being examined by other Governments. Reference was made to the excesses of builders and banks. However, the vast majority of construction activity that took place in this country during the past ten or 15 years has been beneficial. Building firms should not be necessarily attacked in a blanket manner. Similarly the thousands of people, not on particularly high salaries and working in the banks, should be respected and not be held responsible for the banking crisis.
Senator Butler asked about a national bond. The National Treasury Management Agency is responsible for the management of debt. There are plenty of opportunities to support the Exchequer including, for institutions, normal bond insurance and for individuals, small savings products including savings bonds and certificates, prize bonds and so on. There is concern in regard to an excessive deflection of funds from banks to small savings products and as such there is some reluctance to encourage a national bond.
Senator Alex White questioned the use of the National Pensions Reserve Fund to address the recapitalisation issue. Despite the original purpose of the fund, the Oireachtas has the power to change legislation should it prove necessary. The clauses contained in the original Bill were to ensure the purpose could not be changed without reference to the Oireachtas. I must point out that the Labour Party was, for a number of years, pressing Government to use the National Pensions Reserve Fund to fund all sorts of domestic capital projects under the capital programme and the national development plan. Effectively, it wanted the Government to spend some of the money saved. It is a little ironic that Senator White is now calling on the Government to do due diligence in terms of the effect of recapitalisation on the National Pensions Reserve Fund. I do not recall the Labour Party's proposals requiring that the fund be accompanied by any due diligence on its effect on pensions from 2025.
Senator White also said this legislation is the ninth measure. In my speech in the Dáil last night, I stated that we have been engaged in crisis management since last July and in particular since the autumn, as have most other Governments. One of the features of crisis management is that crises take twists and turns requiring one to continue to address problems until matters are stabilised. In the case of AIG, the US Administration has had to revisit that issue three times.
I will not outline in detail the recapitalisation issue as that has been done many times. However, the recapitalisation package includes specific measures requiring the banks to support small and medium enterprises and relating to mortgages. Senator Buttimer referred to GUBU and 1982, a year I recall well, politically. The character of the current crisis has nothing in common with the events of that year.
Senators asked if I can give a guarantee there is no more bad news to come. It would be absurd for me or any Minister to give that type of guarantee. That is not a reasonable request. I take on board Senator Buttimer's point in regard to the anger and dismay of people, not least those people who invested in bank shares. Up to a couple of years ago bank shares, more than property — I am speaking in this regard of our main banks — were viewed as the ultimate in safe investment. I am aware of charitable trusts and so on that had their savings almost exclusively invested in bank shares as they had a good record of appreciation, supplied a good income and paid handsome dividends. It is unfortunate that that situation has changed.
It is partly out of regard for those shareholders, and for other reasons, that the Government has not nationalised banks without necessity. If the banks, which should in better conditions be inherently profitable and up until recently have been so, manage to get over the current problems then, presumably, bank shares will again eventually increase in value and all will not be lost. It would be bleak for those shareholders if shares not alone lost the vast majority of their value but the situation was irrecoverable, which is what nationalising the banks would do.
I thank the Cathaoirleach and Members of the House for their patience. I hope I have responded to the points raised.
