Thursday, 17 Jan 2013

Written Answers Nos. 40 - 49

Banking Operations

Questions (40, 55, 61)

Michael Colreavy

Question:

40. Deputy Michael Colreavy asked the Minister for Finance if, further to the announcement of his Department on 9 January 2013 that negotiations to sell €500m - €1bn of Bank of Ireland Contingent Capital Notes had concluded, he will confirm the amount of interest receivable by the State on the CCNs in respect of 2012 and to the date of sale in 2013; and the period to which that interest receivable relates; and when that interest will be received by the State. [1797/13]

Brian Stanley

Question:

55. Deputy Brian Stanley asked the Minister for Finance if, further to the announcement of his Department on 9 January 2013 that negotiations to sell €500m - €1bn of Bank of Ireland Contingent Capital Notes had concluded, he will set out the means by which the CCNs were sold; when and how were they offered to the market, and the information that was provided to the market. [1798/13]

Michael Colreavy

Question:

61. Deputy Michael Colreavy asked the Minister for Finance if, further to the announcement of his Department on 9 January 2013 that negotiations to sell €500m - €1bn of Bank of Ireland Contingent Capital Notes had concluded, he will confirm the nominal value of the CCNs sold and the book value of the CCNs sold. [1796/13]

Written answers

Minister for Finance

I propose to take Questions Nos. 40, 55 and 61 together.

As announced by my Department last week the State was successful in disposing of its entire €1 billion holding of Contingent Capital Notes (CCN’s) in Bank of Ireland. The transaction followed an initial approach by a number of investment banks to the Department late last year which indicated that there was sizeable investor interest in the State’s CCN instruments and particularly the holding in Bank of Ireland. The Sale was managed by officials in the Department’s Shareholder Management Unit, with many years’ experience working in financial markets and was not only timed to take advantage of the improving sentiment towards Ireland and its banks but the huge rally seen in international debt markets which has continued into 2013.

The transaction when announced saw the State presented with the opportunity to dispose of a minimum of €500 million of its position at a price of par. This stemmed from an underwriting commitment provided by the consortium of banks – UBS, Deutsche Bank and Davy – having done a preliminary assessment of market appetite for the notes. In the end the book build process generated significant excess demand to enable the State to dispose of its entire holding in the CCN’s at a price of 101% of their par value plus accrued interest. This generated a profit for the State of €10 million. Taking account of the coupon paid to the State last year, the taxpayer has earned a total return of over 15% in the space of 18 months.

My officials had full visibility during the book build and pricing phases and were also provided with some valuation advice from NCB Stockbrokers which helped inform their judgement. The transaction was well received in the market and indeed the CCN’s traded a few points higher in the after-market during their first few days of trading. This reflects a market recognition of a very successful transaction for Ireland, one in which we have exited this element of support to our banks with a profit. It points to a recognition that Ireland is successfully working to correct the very deep failings that have affected us in the past number of years. In recognising this, however, we must also acknowledge that this after market price is for a very small volume of stock compared with the €1billion size of the transaction.

The transaction settled on Tuesday the 15th of January and the State was paid proceeds of just over €1,056 million, comprising the nominal principal amount of €1,000 million, interest accrued of over €46 million covering the period 29th July 2012 to the disposal date, and a profit of €10 million.

Further details regarding the CCN’s can be found in Bank of Ireland’s 2011 Annual Report, including information relating to its’ accounting treatment. At the end of 2011, the bank recorded the CCN’s in its accounts at a fair (or book) value of €926m.

Fiscal Policy

Questions (41)

Pearse Doherty

Question:

41. Deputy Pearse Doherty asked the Minister for Finance his views on the initial assessment of Budget 2013 published by the ESRI in December 2012 and in particular on the ESRI's assessment that, like Budget 2012, Budget 2013 will take more from lower income groups than from higher income groups. [1773/13]

Written answers

Minister for Finance

The process of fiscal consolidation has seen approximately €28 billion of budgetary measures put in place between 2008 and 2013. Taken as a whole, these budgets have been progressive in nature over the period and this is reflected in the ESRI’s analysis. While the ESRI report states that the budget had a larger proportional impact on the lowest income group than the higher income groups it should be noted that the difference is quite small at half a per cent. Indeed the report states that for the budget to impose an equal burden on high and low income groups the adjustment on the higher group would have to be 5 times that of the lower income group. In addition, some of the measures which their methodology was unable to take into account would have had a progressive impact on incomes. Changes to the USC, DIRT and capital gains tax are considered by the ESRI to be of a progressive nature. In addition, increasing capital gains tax limits the benefit accruing to those who have the capacity to translate labour income into capital income and thereby contributes towards a fairer tax system. The ESRI have also regarded the property tax liability that can be deferred by low income individuals or couples as reducing their disposable income in 2013. I disagree with this approach and as such I believe that the outcome for individuals in the lower deciles is likely to be better than reported by the ESRI in its analysis.

Finally, the yearly budgetary adjustments must be seen in the context of the overall Irish taxation system. Using tax unit data from the Revenue Commissioners it should be noted that the top 23% of income earners paid 77% of the total income tax take for 2011. In addition, our entry point to income tax is €16,500, which at 51% of the average wage is the highest entry point in the OECD. The next closest is Italy at 28%. This shows that despite the fiscal consolidation that has taken place over the last five years Ireland has maintained a highly progressive system of taxation. In its 2012 report ‘Taxing Wages’, the OECD acknowledged that the Irish tax system is one of the most progressive in the OECD for both single and married couples (with two children). This is commented on extensively in a paper published as Annex F to the Budget to which I would refer the Deputy.

Banking Operations

Questions (42)

Niall Collins

Question:

42. Deputy Niall Collins asked the Minister for Finance the engagement his Department and National Treasury Management Agency officials have had with ratings agencies with a view to seeking an upgrade of Ireland’s sovereign debt rating; and if he will make a statement on the matter. [1999/13]

Written answers

Minister for Finance

The NTMA has responsibility for maintaining a relationship with each of the rating agencies, in connection with the sovereign credit rating. Each rating agency visits Ireland at least once a year as part of their formal rating review processes. Meetings are scheduled with all relevant authorities during these visits, including the Department of Finance, NTMA, Central Bank and other public and private sector bodies. The NTMA also makes a detailed presentation to the agencies during its overseas investor visits whenever possible and updates them monthly (through email) on developments in the public finances and the broader economy. Any important irregular information is also communicated to the agencies by the NTMA.

The authorities aim to be as transparent as possible with the agencies in order to ensure that all relevant information is provided to them and that Ireland’s positive steps towards improving its creditworthiness are highlighted.

As the Deputy may be aware Ireland’s rating has not been downgraded since mid-2011 and has recently been moved to stable outlook with Fitch and R&I.

For information, detailed below is a list of all Irelands current credit rating amongst all major rating agencies.

Current ratings:

Fitch: BBB+, stable outlook

Standard and Poor’s: BBB+, negative outlook

Moody’s: Ba1, negative outlook

DBRS: A (low), negative outlook

R&I: BBB+, stable outlook

Tax Code

Questions (43, 54)

Richard Boyd Barrett

Question:

43. Deputy Richard Boyd Barrett asked the Minister for Finance if he will explain the claim that the effective corporation tax rate is 11.9% when the total corporation tax paid suggests a far lower effective tax rate; and if he will make a statement on the matter. [1931/13]

Mary Lou McDonald

Question:

54. Deputy Mary Lou McDonald asked the Minister for Finance his views on the lack of data on the effective rate of business tax; if he will commit to increasing the rate of effective tax paid by companies in view of reports showing that several large companies pay as little as 2.5% in effective corporation tax; and if he will make a statement on the matter. [1789/13]

Written answers

Minister for Finance

I propose to take Questions Nos. 43 and 54 together.

In a number of answers to previous Parliamentary Questions on this issue I have repeatedly stated that there is no agreed international methodology for calculating the effective rate of corporation tax.

To illustrate the debate on the topic, I have referred to an estimate from a report produced by the World Bank and PriceWaterhouseCoopers (Paying Taxes, 2013) which put the effective rate in Ireland at 11.9%. This comparative report looked at 183 countries and calculated the effective rate based on the tax obligations of a standardised company operating in each country, using standard assumptions regarding exemptions, deductions and allowances. I also referred to a study by the European Commission (Taxation Trends in the EU 2011), which indicates Ireland has an effective corporate tax rate which is close to or indeed higher than the statutory 12.5% rate (this is likely because of the 25% rate that applies generally to non-trading income).

I have been clear that my Department does not take ownership of these figures, but rather I have quoted them to give an example of the differences that exist in comparative studies on effective tax rates, depending on how the rate is calculated or who carries out the calculation.

The issue relates to the absence of an international standard methodology of how to calculate the ‘effective rate’, not to the “lack of data” in relation to corporation tax paid. Detailed data is contained in the Statistical Reports which are published annually by the Revenue Commissioners on their website – www.revenue.ie. In addition I would refer the Deputies to the tables contained in the response to Parliamentary Question 1739, which will shortly be published in the 2011 report on the website of the Revenue Commissioners and which set out the corporation tax figures for 2010 in full.

I am aware of recent media reports which refer to the ways that some companies structure their international tax affairs to minimise their tax costs, and the fact that some of these reports make reference to Irish companies being part of these structures. I understand that some of these reports have suggested that some companies in multinational groups pay Irish corporation tax at rates that are significantly lower than 12.5%.

It is important to state clearly that such companies are not paying a low rate of Irish tax – all companies in Ireland pay the standard 12.5% rate on their profits which are generated in Ireland. The reports concerned appear to have incorrectly attributed to Ireland profits that represent the return due to assets in other jurisdictions, owned by group companies that are not resident in Ireland.

It is incorrect to relate the 12.5% corporation tax rate to both the profits of the Irish-resident group companies and the profits of foreign-resident group companies— which are not profits chargeable to Irish corporation tax. By mixing up the Irish profits and the foreign profits of multinational groups like this, these reports can produce an average tax rate for the companies concerned that is very significantly lower than 12.5% — and an incorrect inference that the full Irish profits are not being charged.

NAMA Property Construction

Questions (44)

Aengus Ó Snodaigh

Question:

44. Deputy Aengus Ó Snodaigh asked the Minister for Finance the reason the National Asset Management Agency no longer produces a comprehensive monthly list of foreclosed property in a manner which would allow potential customers to easily see the additions during the month. [1784/13]

Written answers

Minister for Finance

NAMA advises that, based on user feedback, the majority of users of its enforced properties website are interested in properties that are available within their own geographical areas for rent or purchase. NAMA has, in response to feedback from these users, significantly enhanced the functionality of the enforced properties website to enable interested parties to interrogate the listing of properties in a much more informative way. In particular, the enhanced functionality includes the facility to search for properties by property type and county/area and includes links, where applicable, to sales brochures. NAMA further advises that the enhanced website includes the option to search all properties that are subject to enforcement, including new properties which are added on a monthly basis. A user, therefore, interested in acquiring a property in a particular area is advised to revisit the site on a regular basis to ensure that he or she has access to the most up-to-date data.

NAMA Bonds

Questions (45, 48)

Joan Collins

Question:

45. Deputy Joan Collins asked the Minister for Finance if he will confirm that the recent bond sales by the National Treasury Management Agecny will, in fact, increase by a significant amount the annual debt interest payments required to be paid by the state on its borrowings; and if he will make a statement on the matter. [1990/13]

Clare Daly

Question:

48. Deputy Clare Daly asked the Minister for Finance his views on whether the recent bond sales by the National Treasury Management Agecny will, in fact, increase by a significant amount the annual debt interest payments required to be paid by the state on its borrowings; and if he will make a statement on the matter. [1988/13]

Written answers

Minister for Finance

I propose to take Questions Nos. 45 and 48 together.

Budget 2013 estimated that the cumulative Exchequer deficit over the years 2013-2015 would be close to €35 billion. In addition to these day-to-day costs, there are large debt redemptions that are scheduled from early 2013, including a €5.1 billion bond repayment in April 2013 and a €7.6 billion bond repayment in January 2014. The continuing budget deficits and debt redemptions must be adequately and prudently funded.

Budget 2013 provided for significant market issuance in 2013. The recent syndicated transaction raised €2.5 billion through the sale of the Treasury Bond which matures in October 2017 was part of this. A full year’s interest cost on this issuance would be some €137 million.

Question No. 46 answered with Question No. 29.

Banking Operations

Questions (47, 73, 74)

Bernard Durkan

Question:

47. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he has received confirmation from the lending institutions as to their ability and willingness to meet the credit requirements of the business and commercial sectors with particular reference to the small and medium sized enterprises; if he has had discussions with all the stakeholders with a view to a substantial improvement in the availability of credit and banking support for the sector at a time that output and economic recovery is vital; if he can expect a better response from such lenders in 2013 and thereby bring about a substantial economic improvement and job creation; and if he will make a statement on the matter. [1982/13]

Bernard Durkan

Question:

73. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he has had representations from the small and medium enterprise sector in regard to the availability of credit through the banking sector; if he is satisfied that the credit stream currently available is adequate to meet the requirements of the sector throughout the course of 2013; the extent to which the lending sector acknowledges any deficiencies in this area; the action or actions proposed to address such issues; and if he will make a statement on the matter. [2199/13]

Bernard Durkan

Question:

74. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he continues to monitor the banking requirements of the business sector with particular reference to small and medium sized enterprise and the need to ensure the availability of adequate working capital or overdraft facilities; the extent to which any particular lending institutions are deemed to be recalcitrant in this regard; and if he will make a statement on the matter. [2200/13]

Written answers

Minister for Finance

I propose to take Questions Nos. 47, 73 and 74 together.

The Government recognises that SMEs are the lifeblood of the economy and will play a vital role in the recovery of employment growth in our country. One of the key priorities of the Programme for Government is to ensure that an adequate pool of credit is available to fund SMEs in the real economy during the restructuring and downsizing programme. The Economic Management Council meets the banks on a regular basis and discusses the key issues pertaining to this priority. My officials also meet regularly with key stakeholders at the forum of the SME Funding Consultation Committee.

The Government has imposed SME lending targets on the two domestic pillar banks for the three calendar years, 2011 to 2013. Each bank was required to sanction lending of at least €3 billion in 2011, €3.5 billion this year and €4 billion in 2013 for new or increased credit facilities to SMEs. Both banks have reported that they achieved their 2011 and 2012 targets.

In addition to the lending targets imposed on the banks, the pillar banks are required to submit their lending plans to the Department and the Credit Review Office (CRO) at the beginning of each year, outlining how they intend to achieve their lending targets. The banks will shortly be submitting their lending plans for 2013 to my Department. My Department, in conjunction with the CRO, will analyse the plans and meet the banks to discuss any issues of note. The banks also meet with the Department of Finance and the CRO on a quarterly basis to discuss progress. The monthly management meetings with the pillar banks also provide a forum for the issue of SME lending to be raised by the Department.

The CRO can review decisions by the pillar banks to refuse, reduce or withdraw credit facilities, including applications for restructured credit facilities, from €1,000 up to €500,000. The CRO is currently overturning 55% of the refusal decisions referred to them and anyone who has been refused credit by the banks should avail of the services of the CRO. I have received a small number of representations from individual SMEs regarding the availability of credit. I have referred some of these SMEs to the Credit Review Office which has been able to provide assistance.

I recently sanctioned the appointment of six additional reviewers in the Credit Review Office to ensure that SMEs appealing the banks’ decisions to decline credit receive a considered and timely response to their application.

The credit stream available to SMEs now includes the Microenterprise Loan scheme which will facilitate up to €40million in additional lending to microenterprises over the next five years. In addition, the Temporary Partial Credit Guarantee Scheme can facilitate up to €150m per annum of additional credit. The Scheme is designed for SME’s who, because of lack of collateral or because of the specialised sector they operate in, face difficulties in accessing bank credit.

Last week, the National Pensions Reserve Fund (NPRF) announced investment commitments to a suite of three new long-term funds which will provide equity, credit and restructuring/recovery investment for Irish SMEs and mid-sized corporates. The NPRF is also currently reviewing additional SME fund opportunities that would complement these commitments, with the objective that the eventual suite of funds would have the capacity to invest across the full spectrum of SME financing needs.

Late last year, I published the latest independent report on the demand for credit by Small and Medium Enterprises (SMEs) on my Department’s website. This covered the period April to September 2012. This survey is the most comprehensive survey of SME Credit Demand in Ireland covering over 1,500 respondents. The contract for the survey contained an option to complete a further survey for the following six month period.

It is vital that the banks continue to make credit available to support economic recovery. However, it is not in the interest of the banks, businesses or the economy for finance to be provided unless the business is viable and has the capacity to meet the interest payments and repay the sum borrowed.

Question No. 48 answered with Question No. 45.

Question No. 49 answered with Question No. 34.