A total of 24 amendments have been tabled for consideration. Six have been disallowed on the basis that they are in conflict with the principle of the Bill and out of order in accordance with Standing Order 154(1). Does the Minister of State wish to comment before we proceed?
National Surplus (Reserve Fund for Exceptional Contingencies) Bill 2018: Committee Stage
No, I am happy to move straight on.
I move amendment No. 1:
In page 4, between lines 10 and 11, to insert the following:
"(2) Dáil Éireann may, on a proposal by the Minister brought before that House, pass a resolution authorising the amount of assets referred to in subsection (1) to be altered.".
Amendment No. 1 relates to the overall cap, which is set at €8 billion. Could the Minister of State explain the rationale underpinning the cap? How was the figure of €8 billion arrived at? The amendment provides that the Minister shall have the option of bringing a proposal to the Dáil and that it may authorise a change in the amount. What I have in mind is that it could be increased or reduced. Giving the House a say in some degree of flexibility regarding the quantum and the cap relating to that fund would be very useful. Could the Minister of State indicate why he arrived at the figure of €8 billion? I hope he will accept the amendment.
Section 3 places an €8 billion cap on the value of assets and the money that may be held in the fund but allows any return on the fund to be held in the fund. In our current interest rate environment, we can expect a near zero rate return or a small carry cost for holding the fund as near cash as is practicable. However, the fund is unlikely to reach the €8 billion cap for some years and it is to be expected that the interest rate environment will normalise over that period. While the current interest rate is zero or almost zero, we think it prudent to make an €8 billion amount cap available toward some external shock that is unanticipated.
We do not want to go beyond that. A sum of €8 billion is large. It is not earning money and is not working on behalf of taxpayers. We think that is a sufficient amount and we do not want to go beyond that. There is also a capital surplus. I refer to a cash amount of approximately €15 billion. If the fund gets to €8 billion, in addition to that current €15 billion, that will be a large amount not working and not earning. We are satisfied to accept the amendment.
Amendments Nos. 2 to 4, inclusive, are related and will be discussed together. There are a number of amendments in the name of Deputies Pearse Doherty and Jonathan O'Brien, who has just arrived.
I shall speak first to give Deputy Jonathan O'Brien a chance to catch his breath. I ask the Minister of State to set out the amount being transferred in from the Ireland Strategic Investment Fund, ISIF. It was stated that it can be up to €2 billion. As set out on Second Stage, however, it is €1.5 billion. What is the procedural position? When is that due to happen? It has been stated that each year from 2019 to 2023, €500 million will be set aside. That has been given statutory affect. When will that happen in 2019? I would also like the Minster of State to comment on the "what if" situation of Brexit going badly wrong. I refer to making a decision not to proceed with the rainy day fund at this time if it is deemed to be not prudent because we need the money to support the agriculture sector, etc. Can such a decision be made? What flexibility is there in regarding the execution of this fund in the context of the current challenges?
The Deputy is correct that €1.5 billion is to be transferred from ISIF. I do not have a date for when that transfer will be made during the year. That will depend on the legislation being passed and signed by the President, and when that happens. The objective, initially, is to transfer a single tranche of €1.5 billion. There will be subsequent annual transfers of €500 million from 2019 to 2023, which will be put on a statutory footing. It is then a matter for the Oireachtas to continue the process to bring the fund up to the maximum of €8 billion, as we just discussed. There is flexibility to go beyond that figure or reduce it, depending on circumstances. As will be seen in later sections, there is also flexibility to not put in all of the €500 million. We recognise there are potential headwinds and not all may be related to Brexit. There is sufficient flexibility on that basis.
Regarding the statutory provision, what is being set out is a framework to bring the fund up to €4 billion. The initial sum will be €1.5 billion through ISIF. That will be followed by €500 million for five consecutive years.
That is correct.
That would bring the fund to a potential €4 billion. To grow beyond that amount and move towards the €8 billion cap will require further legislative change.
That is correct. We think that is appropriate. It will take us to 2023. We hope there will not be any of these exceptional circumstances and the €4 billion will be there in 2023, with the opportunity to grow it further. That is our hope and expectation.
I call Deputy O'Brien.
We have a number of amendments.
That is correct. We are taking amendments Nos. 2 to 4, inclusive, and they will be discussed together.
I move amendment No. 2:
In page 4, to delete lines 25 to 29.
These amendments are reasonably self-explanatory. One concerns the reasons why money could be put into the fund and another is to remove the provision that would see the €500 million transferred annually from 2019 to 2023. We are doing this because later in the legislation, there are certain limitations on how money can be withdrawn from the fund. We tabled a number of amendments to expand the reasons money could be withdrawn. They have been ruled out of order by the Chair or the Bills Office, or at least someone has ruled them out of order. On that basis, we have some concerns on the money going into the fund and what the fund can be used for. The Minister of State mentioned "exceptional circumstances". My reading of the legislation is that it is only possible to withdraw the funding in three scenarios. One is to recapitalise banks and another is in these "exceptional circumstances". Will he define what that means?
I will deal with what the Deputy said about one of the circumstances being recapitalisation of the banks. That is not what this pot of money is for. This was stated to the Deputy and his colleagues on Second Stage. It is clear they are not, however, accepting that. The Deputy said that, effectively, the only use for this pot of money is to recapitalise the banks.
It is one of the uses.
That is fine but that is not what it is for. I cannot state that any more frankly than that. We have done much in the past decade. As a nation, we have recapitalised the Irish banks. A core objective of the EU banking union is to separate the sovereign fund from the banks and prevent the use of State funds to bail out banks. The EU banking union provides for a single prudential supervisor through the Single Supervisory Mechanism, SSM, a single rule book and a Single Resolution Mechanism. This aims to improve coordination and militate against negative spillover in the future.
The bank recovery and resolution directive is designed to impose the cost of bank failures on the banks, their shareholders and the holders of their eligible liabilities for bailing in. Based on these and wider banking union changes, and the more intrusive and assertive regulatory regime, I do not ever expect the contingency reserve fund to be required to bail out banks. That is because the structures have been designed for the past decade so that the shareholders and those who have eligible liabilities are designed to bail in. That is the correct procedure to recapitalise banks. The regulatory landscape has also been overhauled at national level since the financial crisis with the Central Bank Reform Act 2010 and the Central Bank (Supervision and Enforcement) Act 2013. In addition, the Central Bank is now acknowledged as being one of the most robust and challenging institutions in Europe. The era of light-touch regulation is over.
Under the Fiscal Responsibility Act 2012, "exceptional circumstances" are defined as either a "period of severe economic downturn" or "a period during which an unusual event outside of the control of the State has a major impact on the financial position of the Government". This fund is not, therefore, for what the Deputy is suggesting it is for. I can only state that so many times and in so many ways. It is not to bail out banks. Other structures have been designed in recent years for that purpose. Deputies Michael McGrath and Jonathan O'Brien were involved in that process, as were the Chairman and other Deputies. It was to ensure that bailing out no longer occurs and the structures are designed so that shareholders and other eligible liabilities are there to bail in.
We submitted to the Department a number of freedom of information requests for the briefing documents provided to the Minister. In one of those documents, a question was posed as to whether any situation was envisaged in which the rainy day fund would be used to bail out a bank or other financial institution. The answer was that, while the Minister did not expect the rainy day fund to be required to bail out banks, he would caution against closing off future uses of the rainy day fund at that time. While the Government does not expect the fund to be used to bail out banks, it can be. Does the Minister of State accept that?
It is important, Deputy-----
It is a simple question.
Excuse me, but it is not.
It is a very simple question. Does the Minister of State accept that this fund can be used to bail out banks? The Government does not expect it to be used so, but can it be used to bail out banks? It is a simple "Yes" or "No" question.
It is not a simple question. It is important that we move beyond the Deputy's narrative, which is to say that a pot of money is being made available to bail out banks.
There is a pot of money that "can be" used.
That "can be" used. I am not trying to misquote the Deputy. It is important that the rainy day fund be available for a severe economic negative shock. That is why we have it. This is in line with a number of other jurisdictions, albeit theirs are not designed in the exact same way as ours. I am not having a go at the Deputy,-----
That is fair enough.
-----but it does him a disservice to say that it can be used. It can be used for a number of things depending on what the Oireachtas decides at some point in the future. There is a pot of money that, by the end of 2023, should amount to €4 billion. It will then be a matter for the Oireachtas, if the Houses see fit, to add to that pot of money to a maximum of €8 billion. If external shocks occur, the pot of money will be available to help out and ensure that we have a buffer.
Can it be used?
That is a matter for the Oireachtas to decide.
So it can be used to bail out banks if the Oireachtas decides.
That is a matter for the Oireachtas to decide in 2023-----
The Oireachtas can decide that it can be used to bail out banks. Is that correct?
It can be used for a number of matters. That is for the Oireachtas to decide.
Including bailing out banks.
The Deputy may be on this side of the House then. The choice is for the Oireachtas.
It cannot be used for Brexit purposes.
It cannot be used to invest in capital projects or a social housing programme, but it may be used to bail out banks. That is the reality. I am not having a go at the Minister of State, but let us be clear about what was in the briefing notes given to the Minister, which we obtained under a freedom of information request. According to the note in question, the fund cannot be used for Brexit or capital projects under the national development plan even though the latter would be the sensible thing to do in an economic downturn, given that it would create employment. Nor can it be used to deal with the greatest crisis facing the State, that being, the housing crisis. However, it may be used, if the Oireachtas decides so, to bail out banks. Is that factual or not?
No. The Deputy is misrepresenting the position. We are spending a large amount of money on capital projects and housing and hundreds of millions of euro are being made available for Brexit.
The Minister of State does not know how much of that there is.
This is State money that we want to have available in an exceptional circumstance. We had these moneys available through the National Pensions Reserve Fund, NPRF, and they were used in a certain manner. We want to ensure that they do not get used for bailing out others. There are other tools available.
The note that the Deputy mentioned was made available before the Bill was drafted. We want to have a pot of money available for a wild, unforeseen circumstance. None of us wants to use it for that purpose, but we want it to be available.
How stands the amendment?
I will be pressing it. We know what "exceptional circumstance" means, given that this must all be done within the Stability and Growth Pact and the EU defines what an exceptional circumstance is. When we have asked what an exceptional circumstance is exactly, we have only been given two examples - terrorist threats and the migration issue. We have been given no other examples of what could be defined as an exceptional circumstance.
I will read the note again. We have decided what an exceptional circumstance is.
The Government needs permission from the EU to decide that.
No, we do not. We have legislation in the form of the Fiscal Responsibility Act 2012, under which an "exceptional circumstance" is defined as either a period of severe economic downturn or during which an unusual event outside the control of the State has a major impact on the financial "position of the general government". The moneys in the pot will then be transferred to the Exchequer and be allocated as the Oireachtas sees fit.
Deputy O'Brien was dogged in pursuing the truth that this money can be used for a bank bailout. Eventually, the Deputy has got an admission, albeit more by nodding than by words. The Minister of State made the point that it could only be done with the agreement of the Oireachtas, but that is not quite true. Were an emergency to happen while the Oireachtas was not sitting and it involved, in the Government's opinion, the need to bail out a bank with this money, it could happen without the agreement of the Oireachtas. Is that not the case?
I will deal that amendment when we come to it.
The Minister of State just said that it could only happen with the agreement of the Oireachtas, but that is not the case.
I will deal with that issue in a moment.
The Minister of State said that by way of justifying it.
My next point, which will mostly repeat Deputy O'Brien's, is that the fiscal rules mean that it cannot be used for any of the real rainy days that we have. For example, it cannot be invested in public services, be used to build houses, etc. It requires an external shock, which will in reality look like another wave of global economic crises. There are some indications that a new financial crisis is on the way. There will then be another bank bailout. In whatever number of years' time, people will look back at the video and transcripts of this meeting and the debates in the Dáil and say that the Government tried to suggest that this fund would not be used for a bank bailout. It would be wiped out by a bank bailout, as the requirement would be multiples of what will be in the rainy day fund. The fund's moneys will not be substantial compared with what would be involved in a bailout. That is the reality of what is happening, although I presume the Minister of State will not agree.
I do not agree with the Deputy. The domestic banking crisis that Deputy McGrath and I had the pleasure of sitting through cost everyone - the Irish Exchequer, the UK Exchequer and other governments with institutions based in Ireland that were regulated by other entities - €140 billion. It cost the Irish Exchequer in the territory of €33 billion or €34 billion. The entire architecture of banking has been changed, evolved, moved or whatever term the Deputy wants to use. This fund is not intended for that purpose. The structures under the bank recovery and resolution directive, BRRD, and the Single Supervisory Mechanism, SSM, are Europe-wide and regulate the 200 largest banks within the eurozone. This small pot of money is for an external shock, something that we have not considered and for which we are not prepared. We are putting something aside to be in a position to have money available to deal with a shock if required, for example, an enormous and unanticipated weather storm, something that would only be seen in a Hollywood movie. The objective-----
But the Government would have to get the EU's permission.
No. It is for the Oireachtas to decide in all circumstances.
We would be in breach of the excessive deficit procedure if we-----
We are debating hypotheticals and what-ifs.
That is the most unlike-----
One can go on all day here.
If we increased expenditure, because of a weather event whatever, above the underlying rate of structural increase in the economy, we will be in breach of the fiscal rules.
Fiscal Responsibility Act, to which this go back to, is in line with European law. It is a matter for the Oireachtas to trigger this if it is required and if the Minister presents it to the Oireachtas. That is what it is for. It is not to bail out banks. It is a disservice to say that it is to bail out banks. There is a structure there for the banks to be bailed-in, via depositors, investors and the new structures that are in place. I cannot keep saying this.
Does Deputy McGrath wish to speak on the amendment?
The EU supports the principle of having a fiscal buffer. It supports a rainy day fund. The context of Brexit has been raised, understandably. It is pretty clear under section 6 of the Bill that if Brexit goes badly wrong over the coming weeks, then the money is not going to be paid into the fund. That is the reality. The Minister, Deputy Donohoe, has made that clear. If we are in an emergency situation, then there is provision under section 6 of the Bill not to pay the money into any the rainy day fund. Any public money can be used for a bank bailout. Any tax one pays, be it corporation tax, VAT or income tax, or any money can be potentially used for a bailout to support a financial system, whatever way one wants to phrase it. The circumstances in which these funds can be used are clearly set out in section 7 of the Bill, which we will come to in a moment, one of which is set out in section 1(a) of the Fiscal Responsibility Act 2012, which reads "a period during which an unusual event outside of the control of the State, has a major impact on the financial position of the general government or a period of severe economic downturn."
The suggestion that Ireland will suffer infringement proceedings from the European Union for drawing down the resources in the fund is not realistic. The EU, the OECD and all the major international organisations support having a fund of this nature to cater for the potential of things that could go wrong.
- Murphy, Paul.
- O'Brien, Jonathan.
- Burke, Peter.
- D'Arcy, Michael.
- Deasy, John.
- McGrath, Michael.
- McGuinness, John.
I move amendment No. 3:
In page 4, lines 32 and 33, to delete “, in addition to any assets referred to in subsection (1) and, as the case may be, sums referred to in subsection (2),”.
The outcome of the vote was obvious, but I reserve the right to table further amendments on Report Stage.
I move amendment No. 4:
In page 4, to delete lines 35 to 38, and in page 5, to delete lines 1 to 9.
I understand section 6 will be opposed by Deputy Pearse Doherty.
We withdraw our opposition to the section. We had hoped the Minister of State would see sense and accept our amendments to section 5. Given that he has not done so, section 6 will provide some safety by allowing the Oireachtas to vote on the matter. We will withdraw our opposition because we not successful in having our amendments accepted.
This brings us back to our earlier conversation. The section relates to the transfer of assets. We tabled a number of amendments on the use of the money. It is clear that we cannot use the money to deal with the crises we face today. In one of our amendments we sought to provide for increased levels of capital investment, which would have a direct, long-term, positive effect on society and the economy, to increase capital investment in social and affordable housing and to remedy or mitigate the impact of climate change and Brexit. However, all of our amendments been ruled out of order, presumably because either the Government does not want to use the fund for these purposes or it cannot be used for these purposes, something the Minister of State might clarify. We speak about exceptional circumstances, but surely Brexit, if it goes ahead, will be an exceptional circumstance. Surely the fact that the number of homeless persons has exceeded 10,000 is an exceptional circumstance. While it might not be an exceptional circumstance as defined by the Stability and Growth Pact, as a national crisis, it must be an exceptional circumstance, yet the Government will not allow us to use the fund for these purposes.
We are dealing with the exceptional circumstance of housing provision in the 2019 Estimates, with an investment of €2.4 billion. A higher sum on housing provision has never been spent previously in the State. We do not yet know what form Brexit will take, but we hope and expect the withdrawal agreement to be agreed to, as it has been by 27 Governments in the Council, as well as by the European Parliament. We expect it to be passed by the British Parliament, too, which will bring to 30 the number of bodies that will haved passed it. The only body which has not yet passed it is the House of Commons, but that is a matter for it to conclude, which we hope it will do within the next few days or weeks. We do not yet know that Brexit will be an exceptional circumstance and do not hope or anticipate there will be a no-deal Brexit, but it remains to be seen.
The largest part of the Rebuilding Ireland 2040 plan relates to climate change. We are dealing with circumstances as they arise on the basis of the voted amount in budget 2019 which was published in October 2018. The Deputy stated it was not enough, but I do not want the level of investment to spiral upwards either, as happened before the recession, when we spent more than we had, thus creating a situation where we had to bring in workers to build houses and then had to house those workers. That was a mistake. If we spend more capital in the construction sector, we will have to bring in more workers because currently we do not have enough. Nevertheless, I acknowledge the Deputy's points. Nobody and no political party is not moved by the fact that there are more than 10,000 people in the country who are homeless.
Amendment No. 8 laid out three ways by which the money could be used. I do not understand the Minister of State's objection. We can argue about whether we are investing enough in housing provision. The Minister of State says we are, but I say we are not. By refusing to include in legislation that the money could be used to deal with a housing crisis, we are cutting off that option next year, the following year and the year after that. It is not just a matter of the here and now. The Minister of State is of the opinion that enough is being invested. I disagree, but by not allowing the amendments to be included in the Bill, we are cutting off the option forever and restricting ourselves to the three circumstances outlined, which is not prudent.
I disagree. The benefit of having a representative democracy is that a future Oireachtas will have the opportunity to decide on the course it wishes to take in respect of this matter. If Sinn Féin forms part of the next Government and if the latter has a majority in both Houses and decides to change this legislation, that will be a matter for it. The Government believes that the correct and prudent thing to do is to allocate funding of €1.5 billion from the Irish Strategic Investment Fund. We are not currently spending that on housing. I do not hear the Deputy calling for that money to be spent on housing. If Sinn Féin goes into government in the future, it will be able to change the legislation if it has a majority in the Dáil and the Seanad. That would be a matter for it to decide. The Government believes this is the right and prudent thing to do and is in line with what is happening other jurisdictions.
I do not agree with the section because it provides the potential for a bailout of banks.
- Burke, Peter.
- D'Arcy, Michael.
- Deasy, John.
- McGrath, Michael.
- McGuinness, John.
- Murphy, Paul.
- O'Brien, Jonathan.
Amendments Nos. 9 to 17 are related and will be discussed together.
I move amendment No. 9:
In page 6, lines 6 to 8, to delete all words from and including “short-term” in line 6 down to and including “State” in line 8 and substitute “fixed income financial instruments or products, which may include Irish sovereign debt,”.
The amendments seek to alter section 8 of the Bill to ensure flexibility of the day-to-day management and control of the fund. During drafting, it was intended that there would be freedom to invest in Irish sovereign debt and other financial instruments and products such as short-term bonds. However, the current wording does not adequately provide for this. The proposed amendment also ensures consistency of language between provisions.
I move amendment No. 10:
In page 6, lines 11 and 12, to delete “short-term financial products,” and substitute “fixed income financial instruments or products,”.
I move amendment No. 11:
In page 6, line 15, to delete “deposit institution” and substitute “financial institution”.
I move amendment No. 12:
In page 6, to delete line 16 and substitute “the issuer of the fixed income financial instruments or products,”.
I move amendment No. 13:
In page 6, line 20, to delete “short-term financial products” and substitute “fixed income financial instruments or products”.
I move amendment No. 14:
In page 6, line 22, to delete “short-term financial products” and substitute “fixed income financial instruments or products”.
I move amendment No. 15:
In page 6, lines 24 and 25, to delete “short-term State debt” and substitute “Irish sovereign debt”.
I move amendment No. 16:
In page 6, line 28, to delete “short-term State debt” and substitute “Irish sovereign debt”.
I move amendment No. 17:
In page 6, between lines 28 and 29, to insert the following:
“(4) In this section “Irish sovereign debt” means debt instruments issued by the State.”.
I move amendment No. 18:
In page 6, line 30, to delete “Except as provided for in subsection (4),”.
Amendments Nos. 18, 21 and 22 are related and will be discussed together.
I will just speak once because these amendments are grouped. This relates to the drawdown of funds. Three of Sinn Féin's amendments were ruled out of order and we have gone over that argument so I will not repeat it. It is a proviso for a drawdown that the Minister must get the permission of the Oireachtas to do so. That is not the case, as Deputy Paul Murphy outlined earlier. There is a clause to the effect that, if the Oireachtas is not sitting, the Minister can withdraw the money if he believes it is necessary to do so and then lay a report before the Oireachtas. We do not agree with that and think that any money being withdrawn from the fund should be a matter for the Oireachtas and if that means recalling the Dáil and doing it overnight there should not be an issue with that. We oppose that provision.
Responsible Governments must address a multitude of challenges. A responsible Government cannot focus all of its resources on one challenge as that would only exacerbate the other challenges. The establishment of the rainy day fund is a longer term decision which represents part of a wider policy commitment to ensure sound public finances and, in this context, should not be seen as an either-or choice with other policy issues. Sinn Féin's approach in amendment Nos. 18 and 21 is incorrect in seeking to delete sections 4 and 5, which the Government sees as necessary to provide for a situation where the funds need to be accessed while the Dáil is in recess, or is effectively prevented from sitting because of an extreme crisis. Section 9 contains a modification to the procedure set out in subsection (4) for cases of serious urgency. The Government's approach is that if the Minister believes, based upon reasonable grounds, that a payment into the Exchequer is urgently necessary before the next sitting of the Dáil, and the Government approves it, he or she may make the payment into the Exchequer. He or she must then report to the Dáil on the payment and reasons for it at its next sitting.
Sinn Féin's amendment to section 7 has deleted the reference to the financial system and maintaining financial stability as the party is opposed to the fund being used for a future bank bailout. I am happy to clarify that, where the fund is drawn down, it will be to the Exchequer only and where it goes thereafter will be determined by the Dáil or by the Minister in an unforeseen circumstance. Direct payment to any person or organisation is neither contemplated nor permitted.
It will be drawn down into the central fund and then the Minister can direct it wherever he or she wants to from there without a vote of the Oireachtas. The Minister of State referred to cases in which the Dáil may not be able to sit. What is an example of that? We have spoken about weather events.
Yes, weather events is the best example and an extreme storm is the best example I foresee. This fund is for unforeseen circumstances so I do not know what that circumstance would be but this gives the flexibility for it to happen if it is required but it must be based upon reasonable grounds which will not be flippant or glib.
It should then be provided for in the legislation that, in those extreme circumstances whereby the Dáil cannot sit, that power would be given to the Minister. Being in recess is not an extreme circumstance. The Dáil can be recalled within 24 hours.
That is the point. This covers times when the Dáil is in recess and there is no opportunity to recall the Dáil. That may be a requirement. That is not expected but there should be flexibility.
I rule amendments Nos. 19 and 20 out of order.
I move amendment No. 21:
In page 7, to delete lines 9 to 23.
- Burke, Peter.
- D'Arcy, Michael.
- Deasy, John.
- McGrath, Michael.
- McGuinness, John.
- Murphy, Paul.
- O'Brien, Jonathan.
I move amendment No. 22:
In page 7, lines 27 to 29, to delete all words from and including “or the Government” in line 27 down to and including “section 9(4)” in line 29.