I welcome the Minister of State, Deputy Brian Hayes, to the House.
Bretton Woods Agreements (Amendment) (No. 2) Bill 2011: Committee and Remaining Stages
Section 1 agreed to.
SECTION 2
Question proposed: "That section 2 stand part of the Bill."
Will the Minister of State make a contribution to the debate on the Bill at this Stage? What is he proposing to do?
That is a matter for the Minister of State.
I am just wondering.
No amendments have been tabled.
My understanding is that on Committee Stage, the Minister or Minister of State responds to any questions that are posed.
Question put and agreed to.
Section 3 agreed to.
I would like to call a quorum.
Notice taken that 12 Members were not present; House counted and 12 Members being present,
Schedule agreed to.
Title agreed to.
Bill reported without amendment and received for final consideration.
Question proposed: "That the Bill do now pass."
I thank the House for the co-operation I have received on this Bill which is essentially a technical Bill to introduce a new range of reforms with regard to the IMF. The Second Stage contributions were most informative and helpful. Now that the Bill has passed this House it will be signed by the President and the Government will now inform the IMF of the decision. This is significant because as a programme country we have a unique relationship with the IMF and it is important for it to know that this matter has been considered in both Houses of the Oireachtas and has been expedited in a professional way. Ireland is among one of the first group of countries to pass this important legislation. This sends a very positive message to the IMF about how this House and the other House does its business and how it regards its relationship with the IMF. These reforms will make a difference and there will be created a greater sense of participation for all countries in the IMF. It breaks up the old rules as regards the dominance of the larger countries and sets the IMF on a new path. When this measure is passed by 85% at the annual meeting later this year, it will allow a reduction of approximately 100 basis points in the interest rate being applied to this country and this will lead over a period of years to a not insignificant saving for this State on the total interest payable. As we are currently paying 20% of all taxes towards the interest on all these loans, this measure will make a small but helpful difference in the ongoing sustainability of debt.
I thank Members for their contributions, particularly on Second Stage.
I thank all sides of the House. The Bill was dealt with in a speedy and professional manner which is how all legislation and also the Order of Business should be dealt with. This was not the case this morning. We have a unique relationship with the IMF at this moment. Perhaps it is not quite unique as there are three of us in the programme. The IMF is proving to be the more flexible of the troika, from what I am being told. This flexibility has been demonstrated with regard to the sale of State assets. While people refer to the case of Eircom as being a bad news story with regard to the sale of State assets, there is nothing new in the practice. In 2009, the previous Administration, via the ESB, sold four power stations to Indesa, bringing in €450 million and Indesa invested a further €450 million into the country in that period. I know this because I am based in Wexford where Great Island power station is in receipt of €300 million of those funds for an upgrade. The project is due to break ground in May this year. It is a 30 months project with 500 construction jobs. Councillor Larry O'Brien and the local authority have been ensuring that as many local people as possible can work on the site. If we do not embrace the new way of doing business, which is to sell non-strategic assets and use the money to create jobs, we will be in greater difficulty now and in the future. I am informed €1 billion worth of assets must be realised before we can put some funds towards job creation. In conjunction, County Wexford received its first portion of natural gas from the BGE pipeline which is also a benefit because it means construction jobs and €1 million per kilometre to construct the pipeline into the county. There is a new order with regard to the IMF and this measure is a part of this evolution.
I also welcome the Minister of State to the House and I thank my colleagues for the professional manner in which the debate on this legislation has been handled. This is an important technical piece of legislation which will help deliver significant reductions in interest rates and this bears to be repeated. We must remember we are dealing with the future cost to our children's generation and for the people who have no work. Over 400,000 people are unemployed and therefore every penny matters. Achieving this type of a reduction is significant for this and future generations. The reform of the IMF structures which is under way is also significant. There is no doubt that the IMF has been subject to significant criticism for its actions during the 1980s and the early 1990s in African countries in particular and in some parts of Asia. The reforms under way within the IMF recognise the importance of protecting the interests of poorer countries which require the assistance of the IMF on a more frequent basis. It also recognises the emerging BRIC nations and the new world order, which is also very significant.
I also welcome the recognition that Ireland will be entitled to use one third of the proceeds from the sale of State assets once we have achieved a certain element of asset sales, as a means of investment in new State ventures. I refer to the state of this country in the 1940s, 1950s and 1960s, and the importance of the State investments made in those years in areas such as rural electrification. There is now an opportunity to put money into emerging areas, for example, water conservation, wind energy and other alternative energy. We debated the subject of wind energy and the regulation of wind turbines in the House yesterday. We must be a nation that is capable of seizing opportunity and of reinvesting in ourselves rather than constantly seeking for others to invest in us. This Bill is an important step on the road. I congratulate the Minister of State and both Houses of the Oireachtas for the speedy manner in which this Bill has been dealt with. I hope we give the IMF the impression that we take its participation in and contribution to our economic history very seriously.
I welcome the speedy passage of this Bill. I agree wholeheartedly with Senator D'Arcy. I have met the troika on each occasion as a member of my party's finance team. In my view the IMF is the more accommodating and more flexible part of the troika. I caution the Minister of State with regard to the sale of our strategic State assets. There is some confusion in this House and elsewhere that the original memorandum of understanding did not include a figure or a firm commitment with regard to selling State assets. In my personal view I am not opposed to privatisation. In many instances — particularly in regard to former State utility companies — privatisation leads to rationalisation and significant job losses. We see significant job losses in the banking sector. The Government must be cognisant of that and I caution against the spin being put on this, that we will raise €2 billion and that a further €1 billion will be used towards job creation. The Minister of State does not have to answer this point but I caution him on it. Will the money be spent through the strategic investment bank?
Senator Darragh O'Brien is wandering from the subject.
I will not ask questions. This is an important Bill and I am glad it is being passed. Other contributors specifically mentioned the sale of State assets. We will debate that topic separately in this House and I look forward to the Minister of State, who has engaged very well in this House, participating in a constructive debate. I do not want scaremongering on this issue because every State should look at how its utilities and State agencies can be best used. We will do that on another day. Time is pressing and I look forward to that debate at an appropriate time.
I welcome the Minister of State. I endorse the comments of Senators Hayden, Darragh O'Brien and Michael D'Arcy. We had a very good debate the last day. We see the IMF as part of the post-war architecture that prevented the period since then being a rerun of the 1920s, 1930s and 1940s. The IMF is a much-reformed organisation, which helped it to get support from parts of the House it might not traditionally expect. It takes into account the social and political dimensions of countries it advises and does not go around seeking to devour countries, as per the demonisation of the organisation. It is brought in by Governments to help. The advice that one cannot borrow one's way into prosperity is useful and we are in a good position to give this advice. One must husband the nation's resources efficiently and frugally.
The IMF is the best of the troika elements in understanding what happened in Ireland and giving advice and assistance. The IMF has experience of the collapse of banking systems in other countries and we are not first country to get into difficulties with public finances.
Like Senator Hayden said, it is important that BRIC countries participate more. We must inquire in other fora whether the 85% rule gives the United States too much power. I am not running on an anti-American platform but as participation is extended to the emerging countries, perhaps the 85% rule should be examined. Canada still has solvent banks and it is useful advice for us to get. These contacts are useful because some of our difficulties were caused by design faults in the euro and the solution to that lies in building up more allies outside the eurozone. The no exit mechanism is causing so many problems in Greece and one size does not fit all. What can a country do when it gets massive capital flows such as those that flowed into the Irish banking system from France and Germany in particular?
The 100 basis points reduction in interest rates is very good news in a country where 20% of tax revenues are paying interest on the national debt. I echo the comments of Mr. Colm McCarthy on RTE radio this morning that running down the debt is useful and should not be perceived as a waste of money. If we can reduce the tax burden, industry can flourish here.
We already have €8 billion in the kitty from the sale of State assets. I would hate to be in the shoes of the Minister for Finance if he had to come in here and ask for €8 billion in extra tax. If we sold the telephone company for more than it was worth, I am glad the State was on the winning side of some transactions. According to Professor Kennelly's account of the Kerry Group, Mark Clinton saw that the dairy disposal company had a much better future as Kerry Group than it would in State ownership. It is now one of the three biggest companies in the Irish stock exchange and a major company in the international food business. Greencore is a similar story, as is the Irish Continental Group. The B&I Line was one of the nuisance companies in State ownership but it has become a highly sought-after share. The ownership of State companies by citizens was fictional because they had no power. At least those who own a share in a private company can turn up at the AGM and there is some illusion of power.
As well as limited dividends.
I agree. No one believes anymore in the model of the national airline owned by the State. Olympic Air might be the last one left. It is a purely commercial activity and we now have the biggest airline in Europe, Ryanair, with over 80 million passengers per year, which is two and a half times the size of British Airways, which has been privatised. The proposition in the Culleton review of industrial policy is that the State needs a dynamic portfolio of assets so that it can sell them and move to a more advantageous area of the economy without getting trapped.
I regret that we did not privatise the airports because we now have a company that is unsaleable and has debts of €800 million. Airports in the UK were successfully privatised and broken up by the Office of Fair Trading, which is presided over by the distinguished Irishmen, Mr. John Fingleton. It is easier to make industries competitive if the State does not own them. It is hard to own a team in a match and also to be the referee and retain credibility. We should be more open to programmes like NewERA and the State should not be stuck with a portfolio of assets that it is compelled to hold onto forever. We should keep it moving.
I regret the banks joined the portfolio because one of the ways firms got into the State sector in the past was by going broke in the private sector, which is not a good method of portfolio choice. The State must allow companies to go broke rather than nationalise them. The advice we get is based on the experience of so many senior Irish executives in the IMF and our record of service in the organisation represents good international links.
There should be some procedures whereby the IMF can link directly with parliamentarians. A criticism of some IMF reports is that they reproduce what the Government of the day thinks about the economy. When that collapsed in 2008, it showed the importance of the IMF reporting to parliamentary committees and seeking a wider range of views. Many people did not see the crisis coming but it would have been more obvious if international bodies reporting on the Irish economy met a wider range of people rather than just taking the view from the Department of Finance that everything was fine. That system led to an unpleasant surprise. The strengthening of parliamentary democracy, which must be part of the lessons from what happened in Ireland in 2008, should involve procedures whereby the OECD and the IMF meet Members.
I support the legislation proposed and it is a good sign that it enjoys such wide support in the House. I wish the Minister of State well. He mentioned a deadline of November, which we have met more than handsomely.
I did not mean to be disrespectful to Senator Darragh O'Brien. The topic is somewhat outside the scope of the Bill.
We will deal with it another time.
On the sale of State assets, the previous Government asked Mr McCarthy to produce a suite of options for what it could sell if it chose to do that. The Leader of the Opposition said at the time the question was about efficiencies rather than sales. That is technically correct, but this issue was always going to come on the agenda.
In circumstances where a state asks a lender of last resort to come into the country to effectively bail it out, the lender will ask it what assets it has. There is an inevitability about this. In our discussions with the troika we found its view initially was that if we have assets we should sell them and write off our debt. That was not a position with which we could agree. The formula which has now been arrived at is good because sales will be done on a case-by-case basis, we will be able to get up to one third of the total proceeds of the purposes of capital, infrastructure or job creation measures and we will not have fire sales. It may not be appropriate to sell certain assets at this point in time, given the market. That is something we have managed to negotiate over a long period of time. The process will take a while.
I was also encouraged to hear the Leader of the Opposition say on radio today he will assess this on a case-by-case basis, which is the right way to proceed. I made the point to Senator Barrett that for many years the amount of dividends we obtained from State companies were negligible. People were very well paid but the State was getting zero return. At a time of national peril is it not right that some companies could be used for productive purposes and to write down the debt?
Senator Barrett is absolutely correct. The real problem facing our country is the debt pile. Our current borrowings are putting extraordinary pressure on future generations. We are borrowing to maintain our lifestyles at a certain level, yet the people who will pay for this in the future are our children. There is a fundamental question of whether that is sustainable.
When I studied economics I was always told there are two fundamental problems that emerge, namely if a country goes over a 10% deficit because the markets will not take it seriously, and if the debt to GDP ratio goes over 90%. We have a debt to GDP ratio of approximately 112% which will maximise next year at 118%. It is too high and we have to reduce it in the next few years.
We are in a much better situation than Greece, which we saw over the past 48 hours hopes to achieve a debt to GDP ratio of 120.5% by 2020. It faces an extraordinary debt problem. If we have learned anything from the 1980s, when one third of all tax revenues went towards paying interest whereas it is now 20%, it is that we have to reduce the debt for our own sake as a the country. We will not be seen in a positive light by international investors if we have a massive debt pile which is not being dealt with. It is something we have to address and the Government is committed to that, not only on the current budget deficit side which will be 3% by 2015 but also to reducing, on a deliberative basis, the debt to GDP ratio over the course of the next few years.
Parliamentary engagement is crucial in all these matters. This also arose recently at a eurozone meeting in regard to Greece. Different observers and people with technical expertise will go into Greece. Some people see that as a type of occupation but we need to learn from each other and from international best practice. The day of individual countries being able to say they do not need to take advice from an international organisation are gone.
The world is a very small place and the kind of expertise, knowledge and lessons we can learn from the IMF and others will work to our mutual advantage. In that context, this Bill will play a small part. It is important for us, as a small country with a relationship with the troika, that the Bill has been passed by both Houses and is now a matter for the President to determine. It means we are part of the first phase of countries, well in advance of the November or December meeting this year, and have taken our job seriously. I thank colleagues for their observations.
Question put and agreed to.