There has been a long series of interventions. Senator Twomey, who moved the amendment, inquired into the nature of the business plan. The interim business plan that was discussed is simply an interim draft plan. The final plan, which will be a ten-year plan, will have to be approved by the board of the agency when it is appointed.
The interim business plan is a draft and an indication of the character of the final business plan. The final one will be prepared and submitted to the board of NAMA for approval. This is the position on the business plan of NAMA and its strategic direction.
Very little was said about the amendment. I will deal with the various points raised. Quite a number of the amendments proposed are already encompassed by various objectives or functions of the legislation or else they are surplus to legal requirements. A proposed purpose of the legislation that caught Senator Harris's eye is, "to take all necessary steps to prevent a recurrence of the conditions that brought about the financial crisis". While it is not appropriate to include this in legislation, it is entirely appropriate that this should be an objective, not just through NAMA but through the reform of the regulatory system and public financial system and the restructuring of the banking system. There is a wide range of action points.
The mandate of NAMA is very clear. I do not want to reiterate the argument on estimating and fixing the long-term economic value based on appreciation of 10% or 15% if one takes the subordinated bonds into account. We will not agree on this but, on any view, it is fair to say modest assumptions are being made. What is envisaged through NAMA is a sustainable construction industry rather than the bubble-driven one we witnessed in recent years. We can agree on that.
The objective of national economic and social development is written in as a compelling need that NAMA must address. This accommodates the Senators. This matter was raised by the Labour Party in the Dáil and it is covered by the legislation. It is important that it is stipulated within the legislation that the board of NAMA should have regard to the social and economic development of the country.
The amendment deals with the question of lending. We have included in the Bill specific powers to give guidelines on lending and to police them. The compelling need NAMA must address is the need to facilitate lending. Clearly, NAMA is not a lender. Reference is made in the amendment to an orderly property management strategy. The business plan will address this.
The debate covered more than the amendment. Senator Harris stated he was discussing the current economic position with a number of public sector workers who are engaged in front-line operations and a day of action today. It is important to record, because it has not been part of the debate, that public servants have been subject to a substantial reduction or adjustment in their salaries already. I have been very struck by this since the supplementary budget in April. The average reduction is approximately 6.9%. It was a little over that in the initial measure announced in March but it was adjusted in the supplementary budget in April. The average deduction among all public servants has been 6.9%. It is higher for those further up the income scale and a little lower for those further down. That is a substantial adjustment. The argument will be made that many in the private sector have been subject to similar adjustments. This is true but not all have.
I deeply appreciate the services provided by public servants. It is important to note this in the debate but this does not absolve us from the need to ensure our public services are delivered in an efficient way that is cost-effective for the taxpayer. While the costs of many goods and services have been falling during the crisis, the cost of public goods and services has not. This has become an increasing burden on the rest of the community. There is a responsibility, not just on the central Government but also on all parties concerned with local government, to address the excessive cost structure in the public sector. The economy cannot sustain it. This is all I want to say in reply to Senator Harris. I agree with him on the importance of and the work done by gardaí, nurses, firemen and many others in the emergency services. I am glad he was able to report to the House that the debate was conducted in a civilised way. There is growing public awareness that we must make a very substantial adjustment. We will be debating this in the weeks and months ahead.
Senator Paddy Burke was concerned with the question of equity and the builder who has equity left in a property and who may find it difficult to obtain a loan. If the builder has equity remaining, he should be able to obtain facilities from the banks. If the builder wishes to obtain facilities from NAMA, there is provision under the legislation for €5 billion which will be concentrated on incomplete developments.
That a loan will be transferred to NAMA does not mean a bank will not be able to extend credit to a reliable borrower in that context. It is important to make that point. Again, this relates to the working out of the loan and this operation. Let us be clear: the current financial model for construction and development in Ireland is broken. One of the reasons for this — this is not the fault of builders or developers — is that it is built on the enterprise and industry of the individuals or the companies they incorporated as private companies and dependent upon one development to fund the next. That is not a structured financial model that will ensure the construction industry will revive to a sustainable level. The reason for the drop in asset prices is this is an unsustainable financial model to restart the construction sector. It is worth noting that in other jurisdictions there are available a far wider range of financial models to fund the construction sector. In many countries the sector does not depend on one development to fund the next. Many construction companies in the United Kingdom, for example, have gone to the market and raised the funds which form their capital base. This allows for a more structured investment in a company over time.
Senator Burke referred to a particular company. I do not wish to go into the difficulties of an individual company but that company is organised as a public limited company, PLC. Many of the UK building companies are organised as public liability companies. What has happened in the course of this crisis is that the banks have taken their shares and taken on responsibility for working out the management of companies. It is not possible to do that in this jurisdiction because the bulk of the building and construction activity here covering two third of the NAMA loans located in Ireland was undertaken by private individuals or private individuals who incorporated small companies in which the corporate equity contribution is uncertain.
We need more flexible models. NAMA, in amassing this land bank and the amount of loans it will amass, will, when it enforces securities, undoubtedly, be in a position to attract funding into the sector. I have heard many CIF representatives and individual builders and developers make the point made by Senator Burke, namely, that they are concerned they will not receive credit under this system. However, the reality is that they are not receiving any credit under the current system which for funding the construction sector in Ireland is a broken model. It is entirely dependent on the equity of the last development. This will not fund a return to sustainability in the building sector. We are all aware the number of houses that will be constructed here this year and next could be as low as 10,000. The vast majority of these houses will be accounted for by once-off developments rather than systematic estate-type developments.
I have been at pains throughout this debate to make it clear that I am not advocating a return to the conditions where we were constructing approximately 70,000 or 80,000 houses a year. Most of the data on this subject in the Department of the Environment, Heritage and Local Government suggest we have an ongoing need for 30,000 to 40,000 house units a year, which we will have to meet. This will require a sustainable construction industry. The current financial condition of the sector and its financial model will not secure this objective, which is a separate argument for the agency, on which I have not yet embarked upon much in public debate, although I mentioned it at a committee meeting in August. Naturally, there were other topics of greater interest to members, in particular, protection of the taxpayer which should be a legitimate and proper concern for public representatives. I thank Senator Burke for raising the issue, as it raises many important points on this legislation.
Senator Norris echoed the views of Senator Harris on the economic crisis. While I have commented on the matter, I would make the point that we have three distinct problems: we have our difficulties with the public finances — our receipts are far lower than what we spend; we have a problem generally with our cost structures which allowed us to become uncompetitive — by 2007 our unit labour costs were the highest in the eurozone, while our third problem is that we have a banking crisis. Unfortunately, each of these problems, although distinct, is related and must be tackled to put this country on the road to economic recovery.
