Other Questions
6. Deputy Éamon Ó Cuív asked the Minister for Finance his views on the impact on Ireland's prospect for attaining ESM investment in the pillar banks of the proposals under consideration by eurozone finance ministers to limit the the amount of money the ESM can use for direct recapitalisations of banks. [10619/13]
View answer9. Deputy Gerry Adams asked the Minister for Finance if it his intention to sell his stake in AIB and Bank of Ireland to the private market or to recapitalise retrospectively through the ESM. [10563/13]
View answer14. Deputy Brian Stanley asked the Minister for Finance the progress that has been made at EU level in allowing the ESM to be used to recapitalise banks retrospectively. [10581/13]
View answerI propose to take Questions Nos. 6, 9 and 14 together.
As the Deputies will be aware, the European Council in October 2012 reaffirmed that the “the Eurogroup will draw up the exact operational criteria that will guide direct bank recapitalisations by the European Stability Mechanism, ESM, in full respect of the 29 June 2012 euro area Summit statement. It is imperative to break the vicious circle between banks and sovereigns.”
The Taoiseach and Chancellor Merkel spoke together following the October 2012 European Council and discussed the unique circumstances behind Ireland’s banking and sovereign debt crisis and Ireland’s plans for a full return to the markets. They reaffirmed the commitment from 29 June to task the Eurogroup to examine the situation of the Irish financial sector with a view to improving further the sustainability of the well-performing adjustment programme. They recognised, in this context, that Ireland is a special case and that the Eurogroup will take that into account.
While the State’s successful disposal of the Bank of Ireland contingent capital notes earlier this year is further evidence of investors’ confidence in Ireland and demonstrates that there is a market appetite for Irish assets, the Government is still heavily involved in drawing up the operational criteria that will guide direct bank recapitalisations by the European Stability Mechanism in full respect of the 29 June 2012 euro area summit statement.
In this regard, the European Council stated on 14 December 2012 that “once an effective Single Supervisory Mechanism (SSM) is established, the ESM will be able to recapitalise banks directly. An agreement on the operational framework supporting this possibility, including the definition of legacy assets, should be agreed as soon as possible in the first semester of 2013”.
Ireland continues to be fully engaged in this process within the Eurogroup and among Heads of State and Government. Furthermore, officials from my Department also attend technical meetings with the ESM and other member states. Discussions remain ongoing in regard to this issue and no conclusion has been reached. Notwithstanding these discussions, the Government will also continue to explore any market opportunities for our remaining banking assets to get a return of any of the sums used to bail out the banks.
In the round, this issue deals with approximately half of the money that went into the banks, approximately €30 billion between the two pillar banks and Permanent TSB. What is the Government's objective with regard to the negotiations that are under way? Obviously, the ESM does not have any track record in holding shares in banks. A key issue in this regard will be the basis for valuation. The National Pensions Reserve Fund puts a figure of approximately €9 billion on our holdings in the banks. What does the Minister seek to achieve in this regard? Does he seek to get back as much as possible of the €30 billion invested in those banks? Is he of a mind to dispose of our stakes in those banks at the right price to the ESM, if the opportunity arises?
The Government's objective is to try to have some of the money invested in the pillar banks when they were recapitalised in March 2011 credited once more to the taxpayer. The debate on the mechanism to be used for that purpose is still open.
While I appreciate the Minister's difficulty, he is trying to ride two horses and keep both options open. He seems to be rowing back on last June's commitment, or at least the commitment given to the people by certain Ministers on the public airwaves at the time. I refer to the idea that we would get back the money pumped into the pillar banks and that it would be fully retrospective. It now seems less likely that we will get back that money on the scale suggested. A clear question arises in this context. When the banks appeared before the committee, they stated they were looking for investors. Are we going to sell to the investors at the market rate which the NTMA has calculated to be approximately €9 billion? There is also some contingent capital which could increase the €9 billion figure. The value of the shares could increase. Alternatively, are we going to hold out on the basis of having the 29 June commitment met in full? In other words, are we going to proceed on the basis that the ESM will recapitalise the banks as they require retrospectively? It is a question of what the Government intends to do. If a proposal comes from the private sector and is identified by the Department and the Central Bank as genuinely meeting the current market value of AIB and Bank of Ireland, will the Government decide to sell or will it decide to hold out to see whether progress can be made with the ESM on getting a value for the recapitalisation based on historic or possibly future value?
The Deputy is falling into the same political trap he fell into during the various debates on the promissory note arrangement. His hope that the Government will fail in order that he can continue to build a political movement on a failed economy is clouding his judgment. He is making wild prophecies. He is being dictated to by his hope that the Government will fail. He has fallen before into the trap of hoping the economy will fail. He should be more positive about these things.
It was just a question.
The discussions that are ongoing have been well recorded in the media. We will continue to negotiate to achieve the best deal possible for Ireland. I am not going to put my negotiating position on the table when everybody could snipe at it internationally. We succeeded in one serious renegotiation and I believe we will succeed in this also, but it will take time. We need to remember the conditionality. There will be no recapitalisation through the ESM until the single supervisory mechanism is in place and functioning. That will take us into 2014. There is a long lead-in time. Every time I come here, I do not want the Deputies opposite to act like the kids in the back of the car who repeatedly ask, "are we there yet?" I do not want to get into that space.
The Minister has a job to do.
It upsets the negotiating process.
To tell the Minister the God's honest truth, he would want to drop some of the bull he is coming out with in response to every question I ask.
He is very tetchy today.
I asked a genuine question. I could have started to recite X, Y or Z, but I did not do so. I do not expect the Minister to reveal his negotiating strategy. If he is telling us it is a question of a negotiating strategy, he must intend to go down the road of ESM recapitalisation. If it is not a question of a negotiating strategy, he must be open to the idea of private investors buying shares in the banks at a fair value. That would involve giving up on the ESM idea. If the ESM approach works out, it will not happen before 2014. If private investors make an offer today on the basis of the fair market value of the banks, will the Minister be minded to dispose of the State's assets in these banks, or will he be minded to wait until the ESM proposals unfold in 2014? That is a fair and honest question. It does not suggest I am wishing disaster on the economy or failure on the Minister. I am not impressed by this nonsense.
It is a fair question, to which I will give a fair answer. In the first week of January we sold the contingent capital notes - the CoCos - in Bank of Ireland. We achieved fair value because we got back the €1 billion the taxpayer had put in and we got a little bit with it - €40 million or €50 million. That was good. If similar circumstances allowed me to sell either the other CoCos in AIB and PTSB or the preference shares, the sale of which is more problematic for other reasons, while getting back what the taxpayer had put in, I would sell them. I have made this publicly known in the markets and investors know it. They are available at a price but not below par value. I am not disposed to putting the equity in AIB and PTSB and the 15% stake in Bank of Ireland on the market now because I do not think we would achieve full value. As I said in reply to a separate question, I want to build up values in the banks. We are taking away the guarantee away and building up their values and cutting their cost bases. What the State holds is becoming more valuable. The primary purpose of the approach we are pursuing is to have normal and well performing banks that will provide credit lines for the economy. It is not essentially driven by a desire to enhance value. The enhancement of value is a consequence of the actions I am taking.
What is going on in Europe is the biggest project that has been undertaken since the currency was established. A single supervisory mechanism is being put in place. The resolution legislation will govern how Europe deals with banks that become insolvent. It will set out the interventions, bail-ins and bailouts which are appropriate and deal with whether shareholders and others should be burned. We have to consider how to protect depositors and provide for a pan-European insurance system. Three pieces of work have to be done initially. The ESM will be empowered to recapitalise banks directly, while at the same time fulfilling its primary function - to react as the only fund for intervention, like the funds used to bail out Ireland and Portugal. There is a huge piece of work to be done. We are moving it forward through the Irish Presidency as quickly as we can. I do not think we will have a fully functioning supervisory mechanism until 2014, after which this debate will harden. I do not want to get to a position so far away that I cannot predict the moves. I want to make sure I am positioned correctly to get the best possible deal for the taxpayer.
I seek clarification on one point. When the Minister spoke about the amount of money he would like to get back, he referred to the recapitalisation that took place in March 2011 that followed the prudential capital assessment review. I assume all of the money put in, even before March 2011, is in the pot and on the table for negotiation through the ESM. Perhaps the Minister might clarify this. I would also like to ask a question about the basis for valuation. If we take it that the banks are worth €8 billion or €9 billion now - the IMF has spoken about potentially getting €20 billion back - is the Minister's hope and the Government's objective essentially that the ESM will pay more than they are worth at market rates? If not, it might not be in our best interests to sell to the ESM.
If I lower the bar in any way by nominating a figure that is smaller than the amount we put in, regardless of my expectations, that will become the benchmark for negotiation. I have to work on the basis that we are in the game to negotiate as much as we can get out of it.
While some of the actions taken served to prevent contagion from spreading from Ireland to the European banks which was in the interests of the wider European banking industry, it is obvious that the contagion was in Ireland. There is an Irish issue and there is an Irish responsibility also. I do not think the European authorities are going to exonerate us from all responsibility. The pretence that all of this was imposed on us from the outside is nonsense. People in Anglo Irish Bank and Irish Nationwide Building Society borrowed money at a very low cost on the interbank market and gave it out to builders and developers who took extraordinary risks because they were motivated by greed for their own enrichment. Unfortunately, as they are our fellow citizens, we end up with all taxpayers of the country sharing because of what they did. There is culpability attaching to certain people in Ireland. That is the pushback I will be seeking in the negotiations.
7. Deputy Denis Naughten asked the Minister for Finance the steps being taken to address mortgage restructuring by the financial institutions; and if he will make a statement on the matter. [10492/13]
View answerAs the Deputy is aware, the Government is conscious of the significant difficulties some homeowners are facing in meeting their mortgage obligations. It is committed to advancing appropriate measures to assist those mortgage holders who are experiencing real and genuine difficulty. A special Government sub-committee is already in place since March of last year to address the mortgage arrears problem. This sub-committee, which is chaired by an Taoiseach and includes all other relevant Ministers, reflects the need for accelerated progress in this area. The Government’s strategy to assist those in mortgage difficulty is built around measures in four distinct areas - personal insolvency, a mortgage advisory service, the mortgage-to-rent scheme and engagement with the banks - and considerable progress has now been achieved across this agenda.
The Keane report indicated that, given the recourse nature of mortgages, personal insolvency reform and, in particular, the introduction of new and more accessible insolvency resolution frameworks were essential for resolution of the mortgage arrears problem. The Personal Insolvency Act is now law and the introduction of this Act should be a catalyst to incentivise banks to reach an agreed solution with individual borrowers in resolving mortgage arrears cases.
With regard to the mortgage advisory service, an extensive independent mortgage advice framework has been established by the Minister for Social Protection, comprising an enhanced website, a mortgage arrears information helpline and the provision of free, independent one-to-one professional advice to borrowers when considering a long-term forbearance or resolution offer from their lender.
In addition, the Minister of State with responsibility for housing and planning has put the mortgage-to-rent scheme on a nationwide basis. Protecting the homes of the most distressed mortgage holders through a mortgage-to-rent scheme, under which ownership of the house passes to an approved housing body, is a key housing support for those with distressed mortgages. The existing owner then becomes a social housing tenant. This option is now available in appropriate cases and will be of benefit to low-income families whose mortgage situations are unsustainable, allowing such families to remain in their homes.
Additional information not given on the floor of the House
The Central Bank, under its mortgage arrears resolution strategies project, MARS, has for some time been intensively working with lenders to ensure they can offer a range of longer-term options to their customers who are experiencing mortgage difficulty. These can include trade-down mortgages, split mortgages and sale by agreement, or other appropriate options as may be developed by lenders. It is important that banks have the capacity to implement these in an effective manner. While progress in this area has not been as rapid as desired, it is true to say that greater effort and resources are now being deployed across the banks on this issue and real engagement on resolution options should now be further enhanced. In this regard, the Governor of the Central Bank has very recently said that the Central Bank will shortly be setting out targets for effectiveness in achieving lasting solutions and is focusing in 2013 on the implementation of MARS by lenders.
In addition to the above measures, the Central Bank's code of conduct on mortgage arrears remains a key framework governing the relationship between mortgage holders experiencing difficulties and their banks, and it offers very worthwhile protections for distressed households. The code provides that each bank must establish a formal mortgage arrears resolution process to deal with its mortgage customers who are in arrears or pre-arrears and establish dedicated arrears support units and appeals processes to handle such cases. The Central Bank has commenced a review of the code of conduct on mortgage arrears, which will involve a public consultation process, to take account of recent developments such as the new personal insolvency legislation.
The Government is committed to building on the progress made and is further intensifying its efforts to address the mortgage arrears problem. In that context, we are proceeding on the basis of the recommendations of the Keane report. Ultimately, however, the Government is of the view that it is the regeneration of the economy, the restoration of employment levels and income growth that will provide the real social and economic improvements that will be required. That is why the Government is focused through its many new initiatives on fostering and generating economic growth. The successful achievement of this objective will restore consumer confidence and bring the tangible and sustainable recovery the country requires.
My experience of helping constituents - I deal with many individual cases, trying to help people to get mortgages restructured - is that it is fairly straightforward to get interest-only arrangements, arrears capitalisation and term extensions. Perhaps 99% of the restructuring arrangements that have been made use those traditional methods. However, to achieve more innovative solutions, such as split mortgages or mortgage-to-rent arrangements, is more difficult. Only 12 split mortgage arrangements have been established and two mortgage-to-rent transactions actually completed. To achieve such restructuring, including shared equity and so forth, is virtually impossible - it is like pulling teeth from the banks. I deal with a lot of cases and my experience has been that while people will obtain straightforward restructuring, they will not get the less traditional solutions over the line. The Minister will have to do something to ensure there is action on establishing proper long-term restructuring solutions so that people can try to work their way out of their difficulties.
I generally agree with what Deputy McGrath has said. The Central Bank is driving this through the deputy governor and the Financial Regulator, Mr. Matthew Elderfield. A schedule has been drawn up for each of the banks and the banks are co-operating. They have also trained many staff in the banks to deal specifically with this and to engage with customers.
I met the three main banks this morning. They seem to be making some progress, although I would like them to make more progress. There is no agreement about the statistics. One of the banks showed me statistics this morning that said it had made 46 restructuring arrangements of a certain type, rather than 12 - mind you, 46 does not make a lot of difference either. The banks are now talking about 1,500 a month - that kind of pace. They are moving it on.
It is one of the main priorities of the Government this year to make sure this is sorted out. I agree with the Deputy. More focused arrangements must be made by the banks and they have to be ready to make these arrangements.
Going back to what I said earlier, this is a serious, massive crisis. It was a crisis when the Minister came into office and the number of people in mortgage distress has doubled in the past two years. I want to focus on one bank in particular, AIB. The chief executive of AIB announced - I believe he is genuine - that it is writing to all 33,000 customers who are in mortgage arrears. This number does not refer to those who are in mortgage distress, because some of those people have had restructuring arrangements, although these are usually interest-only arrangements. I believe we can all agree that interest-only is not a long-term solution to the mortgage crisis; it is a short-term solution until something else changes - either the customers' circumstances change quite substantially or a more sustainable solution is found by the banks.
Perhaps the Minister can relieve my concern. Has AIB informed him what it intends to do with the 33,000 customers who are in arrears? Is it going to adopt the approach it has taken heretofore, which is basically to establish interest-only arrangements for the majority of those people, so they fall out of the group who are in arrears of 90 days and are into restructured mortgages, but paying interest only? If that is the solution from the banks five years into this crisis, it is not good enough. Hopefully, there will be a lot more. The backbone has to be more debt write-downs for people whose mortgages are unsustainable, including other options.
I am sure most people are agreed at this stage that the failure of the banks to deal with the mortgage arrears problem has hindered recovery. It now seems to be having a knock-on effect on the rental market because many people who would have bought property if the waters had been a bit clearer have not done so. Rental properties are now becoming scarce, as many people have refused to buy because they are not sure where the bottom of the market is going to be.
Does the Minister consider that much of the renegotiating the banks are doing is short-term work rather than long-term? Maybe we are just kicking the can down the road a little and the problems will crop up again further down the line.
There are huge differences among individuals with impaired mortgages. Many people simply want an interest-only arrangement while the main wage-earner is ill, while the second earner takes a year out to have a baby or while there is some crisis in the family. Many people are quite happy with an interest-only arrangement. Other people are happy if they get an interest-only arrangement and an extension of the mortgage. The standard mortgage in AIB is 20 years, and I am sure this is no different elsewhere. If we look at what is happening in other countries, extensions of maturity are viable because the average mortgage in Ireland is so short. A combination of an interest-only arrangement and moving out the maturity can help many people and is a viable option.
Although averages are always a bit misleading, the average arrears in AIB is €13,000, according to one of its directors, yet there are people who are spending €15,000 on their credit cards. When one looks at it that way, it is not huge. It might be huge for an individual couple but, overall, I cannot see any reason, if this is addressed systematically and in an organised way, the banks cannot work their way through this for the benefit of people with impaired mortgages. That is what is now being driven hard by both the Central Bank and my officials in the Department of Finance. Of course, there is a Cabinet sub-committee, chaired by the Taoiseach, that is overseeing all this work. I hope the situation improves rapidly.
Can I ask a further question?
To be fair to other Deputies, we must move on.
8. Deputy Robert Troy asked the Minister for Finance his views on whether it would help labour market mobility and the overall health of the economy if the covered banks were to allow borrowers who are moving home to be able to keep their tracker mortgage rate; and if he will make a statement on the matter. [10624/13]
View answerFirst, I must confirm to the Deputy that the lending institutions in Ireland, including those in which the State has a significant shareholding, are independent commercial entities. It is not appropriate for me, as Minister for Finance, to comment on or become involved in the detailed mortgage position of mortgage holders. In regard to the query posed by the Deputy, information is not readily available on the effect on the labour market and on the economy generally of allowing borrowers who are moving house to avail of job opportunities to retain the benefits of a tracker mortgage.
It is important to point out that addressing unemployment remains the main priority of the Government and budget 2013 contained several measures aimed at addressing this issue. In particular, the additional supports introduced for the SME sector are intended to complement the work undertaken by the Department of Jobs, Enterprise and Innovation in respect of the Action Plan for Jobs and to encourage job creation. The recently released Action Plan for Jobs 2013, building on the work of the 2012 plan, contains a number of measures aimed at supporting job creation and tackling the unacceptably high levels of unemployment. The JobsPlus initiative, for example, which targets long-term unemployment, will provide an incentive to businesses to hire those who have been on the live register for 12 months or more by providing a cash flow benefit to businesses based on the duration of unemployment.
As the Deputy may be aware, unemployment, while still at an elevated level, has shown some signs of stabilising in recent months, with the standardised unemployment rate static at 14.1% for the past three months, having fallen from 15% in February 2012. The number of individuals on the live register, seasonally adjusted, has been in decline since June of 2012.
The latest data from the Quarterly National Household Survey showed an annual increase in employment in the fourth quarter, the first such increase since the second quarter of 2008. Employment in the private sector seems to have stabilised, having increased by 0.6% in 2012. A modest increase in employment of 0.2% is forecast for this year, reflecting further employment growth in the exporting sectors, as well as the positive impact of various labour market initiatives. However, the unemployment rate is expected to remain elevated over the medium term, decreasing to 13.1% in 2015 as an increase in labour market supply mitigates the impact of a pick up in employment over the period.
This question relates to tracker mortgages. There is a real issue here. Having a tracker rate is enormously valuable to a mortgage holder. They could be paying 1.5% or 1.75% interest as opposed to somebody on a variable rate paying 4% or 4.5%. This makes a massive difference to the monthly mortgage payment they have to make. They are trapped where they are because even people with borrowing capacity will not move because they will lose their tracker which they simply cannot afford to lose. There should be a policy initiative that would allow people to keep their tracker on that portion of the mortgage so if they currently owe €100,000 to the bank and borrow an extra €100,000 to move to a bigger property, they will keep the tracker on the original portion. It would generate movement and activity. Young families are living in apartments on a tracker rate and are absolutely trapped. Even if they are on good incomes and want to move, they cannot afford to because they would lose the tracker. This is something that is not possible for most people.
The question related to doing what Deputy McGrath suggested for people who are moving quite a distance from their own locality to get a job so it was not just moving from an apartment to a house in the same locality. There are many considerations before people move, such as children in school and proximity to relatives. There is a case to be made but I suppose the Deputy knows why the banks are unwilling to concede to this. They are losing money on all trackers because the interest rate is so low and they would like to be rid of them. If somebody decides to move house and has to take out a new loan, they will take out one with a variable interest rate. It is very difficult to tell the banks they should not do this because trackers are loss makers. Perhaps there is some via media the banks should look at.
Under the proposal I am suggesting, the banks would be no worse off because the mortgage holder would just keep the tracker on that portion of the mortgage. Obviously, the balance of the new mortgage would move to a variable rate. That is the key issue. There is no doubt that it would be healthy for the economy and generate movement and activity. It is something that should be looked at. Obviously, trackers are a big problem for the banks but if what I am suggesting was implemented, they would be no worse off and the economy and the families would definitely be better off.
This issue needs to be looked at in the round. I appreciate that they are loss making but if an individual is willing to take out a bigger loan with a bank and a portion of that loan will have a variable interest rate, which is a financial gain for the bank, it makes sense for the bank to facilitate that move. It makes complete sense for the bank because it will be in a healthier position as a result.
Does the Minister have any information about the number of people whose mortgages have been restructured and who were on trackers but are no longer on them? There is a great fear that the banks have been encouraging people off trackers.
I do not have any information on that. I can see the point the Deputies are making. On some suitable occasion, I will feed their suggestions into the banking system but so far, I know the answer I will get unless there is a change of policy. If we could construct it as a labour market initiative, we might get further with it. I will pass on the Deputies' suggestions.
10. Deputy Clare Daly asked the Minister for Finance noting that NERI estimate that budget 2013 will reduce GDP by 2.1% and cost between 25,000 and 35,000 jobs, the way austerity can lead to job creation. [3191/13]
View answerThe economic policies of the Government are designed with the core objective of restoring balanced economic growth. This will, in turn, allow for the continued creation of jobs and for the improvement of living standards for the people of Ireland. The policies are paying dividends - yesterday's figures show that employment and unemployment are now moving in the right direction. An essential condition for the resumption of balanced economic growth is sustainable public finances. International research has shown that elevated levels of public debt are harmful for growth prospects and ultimately for employment. As such, the Government is committed to cutting the deficit, stabilising our debt level and putting it on a downward path. Considerable progress is being made in this regard.
I am conscious, however, that consolidation will have a short-term impact on the economy, although I do not accept that the impact is as large as some have suggested. Ireland is a small, open economy with imports accounting for over three quarters of GDP. As a result, a considerable amount of consolidation leaks out through a reduction in these imports. For this, and other reasons, the fiscal multiplier in Ireland tends to be somewhat lower than in many other European countries so economic and employment growth and fiscal consolidation are not mutually exclusive.
The Government has continually stressed that while further consolidation is imperative for this country's future, there is also a need to ensure that such measures seek to minimise the impact on the economy and the labour market. With this in mind, budget 2013 - like its predecessor - was framed in such a way as to make it as jobs-friendly as possible and a number of measures were introduced to assist in this regard, including several initiatives designed to lend support to Ireland's job-rich SMEs.
It should also be noted that Ireland's commitment to carrying out the necessary structural reforms has had clearly visible confidence effects in the financial markets - as evident in the decrease in bond yields in recent months.
The IMF has admitted at this stage that it seriously underestimated the effects of austerity, as did the Government. Surely there is a compelling case not only to accelerate investment in priority infrastructure but also to bring forward plans to reform banking and to establish a strategic investment bank, as promised in the programme for Government? Does the Government still plan on creating a strategic investment bank that it would control completely and which would be guaranteed to lend to small business? An analysis by the ESRI has shown that despite cuts and tax increases of €23 billion introduced by the Government, between 2009 and 2012, the deficit only narrowed by €8.8 billion, which is about one-third of the €23 billion. This shows that the Government's fiscal policy has been damaging not just in terms of jobs and growth but has not quite so efficient at narrowing the deficit. Does the Minister not think that an increase in public investment is likely to be more productive in the long term?
I do not believe that because it was tried not only in Ireland but elsewhere.
A strategy of piling deficit on deficit and debt on debt was tried not only in Ireland but elsewhere and it was supposed to make everyone rich. That is the reason we crashed out. It reached the point where it was unsustainable and had to be paid for and we are still paying for it. That is not a solution. On the other hand, every economy needs some stimulatory demand-led projects. My colleague, the Minister for Public Expenditure and Reform, Deputy Brendan Howlin, is using European Investment Bank funds to fund bundles of schools in various parts of the country and release 19 community health centres some time in the summer. This is very important. Completing roads programmes is also important. However, we should never forget the supply side of the economy, a case we have been arguing for a long time. We have included supply measures in every Finance Bill. If demand increases, supply normally increases to fulfil demand, but if supply increases, it can create its own demand. For example, I have observed Members using iPads and iPhones. They were not driven by demand but by supply. Smart people invented them and put them on the market. The fact that they were available meant everybody wanted to have them. An economy with supply side difficulties such as we have encountered can work. We cut the VAT rate for the tourism industry from 13.5% to 9%. That is on the supply side and it worked. Because prices are more competitive more people will come. It is a case of working on the supply side instead of the demand side. However, both are needed to balance an economy, but we do not have the resources for this big new deal initiative which works best in an enclosed economy.
The IMF paper is very controversial and has been severely criticised by equally eminent economists around the world. Even if it works in a country such as the United States, it does not work in Ireland because the multiplier is probably less than one. If one spends money, it has a knock-on effect. However, we import so many goods that the money goes out fast. As savings are high in Ireland, it goes out fast. The return on big infrastructural developments in Ireland is no longer great. A balance on both sides is needed.
I do not think sensible investment in sensible infrastructural projects was the cause of our problems. Good governance involves good investment which would be a creative initiative. The Minister knows that the domestic economy presents our biggest problem because it is struggling which impacts on people's lives. The lack of finance remains a serious problem. The Government promised a State strategic investment bank but two years have passed. Does it intend to establish it or is it dead in the water?
I welcome the Minister's reference to the iPhone. I presume this means he does not support his colleague's call for legislation to ban the full use of iPhones and iPads. Stimulus works, and so will austerity to get to a deficit reduction. There is no doubt about that. The big debate is which is the least painful and best path to choose. I have a very different view from that of the Government but mine is valid and is held and implemented by governments throughout the world. Stimulus does work. The Government has put all of its eggs in one basket. On average, 100 jobs were created every month last year. While any job created is to be welcomed because it presents an opportunity to remain in Ireland or move away from the deep depths of debt, the figure of 100 jobs every month means that it will take the Government 83 years to reach its target of 100,000 jobs, if things stay as they are. I hope nothing like that will ever happen, but we need a stimulus in the economy. There is no need to throw money at projects, as happened under the previous Government, but the National Pensions Reserve Fund has money that has to be mobilised to get people back to work and help to lift the level of economic activity in the State. I encourage the Minister to do this. However, many people have offered different opinions. I know that under the rules of politics, one's job is to ridicule or rubbish the proposals coming from the other side. However, political parties on this side of the House have offered genuine, serious proposals, as have people outside the House, which should be adapted to get the country moving again.
We intend to legislate to establish a strategic investment fund. We hope to introduce the legislation before the summer recess. As the fund strengthens, it can be transmogrified into a strategic investment bank. That is the policy.
