Thursday, 21 Mar 2013

Written Answers Nos. 22-32

National Pensions Reserve Fund Plans

Questions (22)

Timmy Dooley

Question:

22. Deputy Timmy Dooley asked the Minister for Finance his plans for the assets held in the discretionary portfolio of the National Pensions Reserve Fund; and if he will make a statement on the matter. [14035/13]

Written answers

Minister for Finance

In announcing the Strategic Investment Fund initiative in September 2011, the Government indicated a refocusing of the discretionary portfolio of the National Pensions Reserve Fund (NPRF) towards productive investment in sectors of strategic importance to the Irish economy. A key principle of the Strategic Investment Fund is that the NPRF investment, which is to be solely on a commercial basis, will seek matching investment from third-party investors. In this way the Fund’s assets can be used as a catalyst to attract additional capital for investment in the Irish economy.

Officials of my Department are liaising with the National Treasury Management Agency in preparing proposals for legislation to reorient the NPRF into the Strategic Investment Fund. I expect to bring forward those proposals as soon as possible once that work is completed.

The NPRF continues to work on assembling and developing a pipeline of additional commercial opportunities for the Strategic Investment Fund, which is taking place in parallel with the legislative amendment process. An investment strategy is being developed which will address the sectors and range of assets to be considered for investment.

Within its existing statutory investment policy and in line with the SIF announcement, the NPRF has undertaken a number of investments and initiatives under which NPRF capital will be invested on a commercial basis in Ireland. The NPRF has committed to invest in: infrastructure (€250 million), PPP projects (€118 million) and finance for the SME sector (€500 million) and has entered into a collaborative relationship with Silicon Valley Bank. In addition, the Fund has been working closely with NewERA in respect of investment opportunities relating to the commercial semi-state sector.

Departmental Reports

Questions (23)

Gerry Adams

Question:

23. Deputy Gerry Adams asked the Minister for Finance the reason he spent €119,000 plus VAT of taxpayers’ money on a report on bankers’ pay. [14074/13]

Written answers

Minister for Finance

The purpose of the Review of Remuneration Practices and Frameworks at the Covered Institutions was to have the factual position on bankers’ remuneration over the period 2008 – 2012 placed in context that would enable an evidenced based policy to be developed and implemented in consultation with the various stakeholders. The review was undertaken to fulfil a commitment contained in the Programme for Government that "All remuneration schemes at banks subject to state support will undergo a fundamental review to ensure an alignment of interest between banks, their staff and the taxpayer". In addition there was evident public interest in the matter hence the reason to publish the Review in full.

The use of external consultants was necessary to supplement the resources and expertise available internally whilst also promoting the independence and integrity of the Review.

Property Taxation Application

Questions (24)

Pearse Doherty

Question:

24. Deputy Pearse Doherty asked the Minister for Finance if he will carry out an impact assessment of the property tax on social housing service providers. [14060/13]

Written answers

Minister for Finance

Section 7 of the Finance (Local Property Tax) Act 2012 (as amended) provides that local authorities and other providers of social housing will be liable to pay the LPT on their properties in the same way as any other residential property owner, unless the properties in question are used to accommodate people with special housing needs such as the elderly or people with disabilities. Special housing needs refers to the provision of housing and support for people who have a particular need in addition to a general housing need to enable them to live in the community. To avail of the exemption from LPT, the social housing provider must operate as a charity and must have a general tax exemption granted by the Revenue Commissioners. The Revenue Commissioners and officials from my Department have had extensive contacts regarding the LPT obligations of social housing providers either directly with the providers themselves (e.g. Focus Ireland) or indirectly through the Irish Council for Social Housing. Guidelines are being developed which clarify what constitutes special housing needs and support in order to assist local authorities and other social housing providers to determine whether their properties are exempt from the charge to LPT. Input was sought and received from representatives of social housing providers in connection with the development of the guidelines. The draft guidelines are currently being considered by the Department of the Environment, Community and Local Government and the Irish Council for Social Housing.

Where a property owned by a local authority or other provider of social housing is not exempt from the charge to LPT because it is not used to provide special needs accommodation, the Act provides that the market value of any such property will be deemed to fall into the lowest valuation band of zero to €100,000 up to and including 2016. This will result in an LPT charge of €45 per property for 2013 and €90 per year for 2014 to 2016. It will be a matter for local authorities and other social housing providers themselves to decide whether they will pass on the LPT liability to their tenants in the form of an increase in rent or whether they will absorb the liability without recourse to their tenants. In addition, the Act also gives local authorities and other social housing providers until 1 January 2014 to pay the 2013 tax.

I am advised by the Revenue Commissioners that they have liaised with the social housing sector to establish how local authorities and other social housing providers will provide them with information in relation to their LPT liability and the timing and manner of the payment of this liability. All local authorities and social housing providers affiliated to the Irish Council for Social Housing have been contacted in this regard. Revenue is anxious to ensure that any social housing providers who have not already done so should contact it as soon as possible.

Furthermore, the Commissioners have also confirmed that in order to minimise the administration burden on these bodies, it is Revenue’s intention to require each social housing provider to complete and submit a single LPT Return in respect of all the residential properties it owns, rather than seeking a separate Return for each individual property. In view of the engagement that has taken place with the Irish Council for Social Housing and the specific arrangements made for the sector both in the law and in the administration of the tax, I do not propose to carry out an impact assessment.

Budget 2013 Impact

Questions (25, 34)

Brian Stanley

Question:

25. Deputy Brian Stanley asked the Minister for Finance the consideration that was given to the effects on the Border region in the design of Budget 2013. [14072/13]

Jonathan O'Brien

Question:

34. Deputy Jonathan O'Brien asked the Minister for Finance the consideration that was given to rural proofing in the design of Budget 2013. [14071/13]

Written answers

Minister for Finance

I propose to take Questions Nos. 25 and 34 together.

With regard to budgetary matters, when focusing on the primary objectives of reducing the deficit and returning sustainability to the public finances, it has been of vital importance to the Government to spread the burden of the adjustments made in as fair and equitable a manner as possible, while also seeking to minimise their negative impact on economic growth.

While there was not a specific focus on rural-proofing or analysis on the effect on the border region in Budget 2013, the Deputies will be aware that, under cabinet procedures, all proposals put to Government indicate clearly whether there is any impact of the proposal on, amongst other things, rural communities, and North-South/ East-West Relations.

Issues related to public expenditure are a matter for my colleague, the Minister for Public Expenditure and Reform.

Quinn Insurance Limited

Questions (26)

John McGuinness

Question:

26. Deputy John McGuinness asked the Minister for Finance when he will be in a position to provide an update regarding the cost of the collapse of Quinn Insurance; if he is reviewing the operation of the insurance compensation fund; and if he will make a statement on the matter. [14047/13]

Written answers

Minister for Finance

At the outset the Deputy should note that the nature of insurance is such that it is not possible to provide a definitive update on the cost of the collapse of Quinn Insurance until the bulk of the claims have been paid, which is unlikely to be for several more years yet. However the Joint Administrators when presenting their 10th report to the High Court in July 2012 indicated that the potential call on the ICF could be up to 1.65bn euro. It should be noted that the Joint Administrators have recently indicated to my Department that this position remains broadly unchanged. The Joint Administrators pointed out in their report that the projected call on the ICF now includes accounting adjustments and considerable contingencies which it is hoped will not be called upon. They indicated that if they were to remove most of the accounting adjustments and use a "best estimate" calculation, then the call on the fund is likely to be in the range of 1.1bn euro to 1.3bn euro rather than the 1.65bn euro for which they have provided.

I have been advised that the Joint Administrators have undertaken a number of actions in relation to claims settlement which can reduce the ultimate claims cost. These include as part of a new enhanced governance structure the establishment of a Claims Advisory Committee (CAC) to guide and advise them and QIL management on future claims strategy and policy.

Furthermore, to protect the Exchequer interests I have ensured that the State Claims Agency is more involved in the administration process, particularly in the claims management area, which is critical to keeping the call on the ICF down to its lowest level possible. In this respect it should be noted that, at my request, Mr Ciaran Breen, Director of the State Claims Agency has been appointed as Chair of the Claims Advisory Committee.

The position in relation to the Insurance Compensation Fund (ICF) is that it operates under the Insurance Act 1964 which was amended by the Insurance (Amendment) Act in 2011. Its purpose is to protect policy holders in the event of their insurer becoming insolvent. It is an industry financed fund. However because the scheme is not pre-funded, the Act provides for the Exchequer to advance monies on the recommendation of the Central Bank in circumstances where insufficient funds have been generated by an industry levy to cover a large demand.

Under the Insurance Act 1964 the responsibility for deciding whether the ICF has sufficient funds available to it to at any particular time is a matter for the Central Bank. Where in the Bank’s opinion the state of the Fund is such that financial support should be provided for it, it determines an appropriate contribution to be paid to it by each insurer calculated as a percentage, not exceeding 2% of the aggregate of the gross premiums paid to that insurer in respect of policies issued in respect of risks in the State. On the basis of its assessment of the Fund the Central Bank concluded that a levy should be applied to industry with effect from 1 January 2012 under section 6 of the Insurance Act 1964. This matter is kept under review by the Central Bank.

State Banking Sector

Questions (27)

Dessie Ellis

Question:

27. Deputy Dessie Ellis asked the Minister for Finance the progress being made on the programme for Government commitment to seek to dispose of the public stakes in the banks as soon as possible at the best possible return to the taxpayer. [14064/13]

Written answers

Minister for Finance

As the Deputy will be aware, it is government policy to separate the State from its banks, a policy which I believe has shared support in this house. Significant progress in achieving this goal has already been made by this government, and this is particularly obvious since the beginning of the year. In January, the State successfully disposed of the €1bn Contingent Capital instruments in Bank of Ireland at a profit of €10m. It has also agreed a deal with Great-West Lifeco to purchase Irish Life for €1.3bn plus a €40m dividend. The deal is historic as it was the first disposal by the State of a company acquired during the financial crisis to private owners.

We have also replaced the annual burden of the IBRC Promissory Note with a portfolio of Irish Government bonds at a lower funding cost for the State, resulting in significant annual interest savings and we have removed the guarantee of bank deposits and liabilities which dates back to September 2008.

All of these steps have significantly improved investor’s perceptions of Ireland and its financial sector.

The State’s remaining investments consist of a 99.8% equity stake in AIB, a 15% equity stake in BOI, 99.2% of the shares in Permanent TSB, preference shares with a nominal value of €3.5bn in AIB and €1.8bn in BOI and Contingent Capital in AIB of €1.6bn and €0.4bn in Permanent TSB.

We will continue to examine opportunities to exit our remaining bank investments over time and when conditions allow.

NAMA Expenditure

Questions (28)

Brendan Smith

Question:

28. Deputy Brendan Smith asked the Minister for Finance his views on the best use of the cash reserves on hand with the National Asset Management Agency; and if he will make a statement on the matter. [14052/13]

Written answers

Minister for Finance

The Deputy will note that the Board of NAMA has primary responsibility for setting strategy in NAMA and for determining and implementing any proposed changes. It is, therefore, a matter for the Board to determine an appropriate strategy for the management of the cash reserves and assets of the Agency. NAMA’s cash reserves are deployed towards repaying its debt, funding capital advances to develop and complete projects, meeting its ongoing liquidity requirements, including its operating costs.

The Deputy is aware that NAMA’s ultimate objective is to repay over its lifetime, at a minimum, all of the Senior Bonds issued to fund the acquisition of loans. In this respect, NAMA’s strong cash performance since inception has enabled the Agency to repay €4.75 billion in senior bonds to date and I am advised that the Agency is firmly on course to meet the target of reducing its debt by a cumulative €7.5 billion by the end of 2013. NAMA’s ability to meet this target is important in terms of the perception of Ireland held by international investors and by the rating agencies in the context of the country’s return to the sovereign debt markets. The target is also monitored closely by the Troika and influences their view of Ireland’s progress. NAMA expects that its end-2013 debt repayment target and the full repayment of its Senior Bonds over its lifetime will be met from income generated by debtor assets and from the proceeds of asset disposals by its debtors and receivers.

In line with the overriding objective to repay its Senior Bonds, NAMA has also outlined plans to advance substantial funding over its lifetime to preserve and enhance the value of assets securing its loans, including significant funding for assets located in Ireland. As the Deputy may be aware, NAMA has announced that it will advance funding of up €2 billion in Ireland over the next four years for the completion of projects currently in progress and the development of new projects to meet prospective supply shortages in certain sectors. This funding will be advanced entirely from NAMA’s cash reserves. NAMA advises that it has already approved €700 million in new advances for the completion of commercial, retail and residential projects across Ireland and over €1.7 billion across the entire NAMA portfolio. NAMA’s objective in advancing this funding is to increase the long-term recoverable value of the assets securing its loans. In addition, NAMA has announced plans to lend at least €2 billion over the next four years in vendor finance to purchasers of commercial property securing its loans. NAMA advises that this is one of a number of measures being implemented to help monetise its portfolio in Ireland and is part of its commitment to contribute in a tangible way to sustainable recovery in the Irish property market. Through these plans, NAMA will inject €4 billion into the Irish economy over the next four years, representing a significant contribution to employment and economic recovery at a time when investment is otherwise curtailed.

In addition to repaying NAMA’s debts and advancing development capital to enhance its assets, NAMA will use its cash reserves to meet the agency’s on-going funding requirements and operational expenses. In this context I am advised the NAMA Board considers it will not require additional resources from the Exchequer over its lifetime. The Deputy will note that NAMA’s operating costs in 2012 as a percentage of cash generated were of the order of 3%, which is substantially lower than that of comparable entities.

The Deputy will also be aware that, in managing its liquidity needs, NAMA must ensure that it has available liquidity over the medium term to meet all of its contractual obligations as they fall due. Such obligations include coupon payments due on its bonds and derivative contract payments. It also, as outlined, includes its day-to-day operating costs and the advances to debtors for working capital and project funding which are often required at short notice. I am advised that updated liquidity projections, based on these various expected inflows and outflows, are reviewed on a monthly basis by the NAMA board.

The Deputy will also know that on the 7th February 2013, I issued a Direction (NAMA/3/12/IBRC Act) to NAMA pursuant to the IBRC Act 2013 to provide such credit facilities to the Special Liquidators appointed to IBRC on such terms and conditions as specified in the direction. This was done in order to protect and preserve the value of the IBRC assets during the liquidation process and ultimately to protect the interests of the taxpayer.

NAMA has complied with this Direction and made a €1 billion credit facility available to the Special Liquidators. NAMA has made this facility available in accordance with its approved liquidity policy and from its liquid assets. NAMA advises that the granting of this facility does not impact on the Agency’s ability to redeem its Senior Bonds in accordance with the previously indicated redemption targets or its ability to fund its operational and development capital costs.

Banking Operations

Questions (29)

Seán Crowe

Question:

29. Deputy Seán Crowe asked the Minister for Finance if his attention has been drawn to the non-disclosure confidential document that AIB is demanding buy to let debtors sign before the bank will engage with them in mortgage negotiation discussions. [14076/13]

Written answers

Minister for Finance

I have been informed by AIB that as part of normal commercial activities customers may be required to sign a confidentiality agreement. AIB’s correspondence / interactions with customers are confidential and all customers are encouraged in advance of signing any new documentation to get their own independent advice prior to signing. The bank has also informed me that in cases where a customer is in arrears on principal dwelling houses and/ or a small number of buy to let properties (i.e. not defined as a business customer in arrears) the bank does not currently request confidentiality agreements prior to entering discussions.

Deposit Guarantee Scheme

Questions (30)

Michael Moynihan

Question:

30. Deputy Michael Moynihan asked the Minister for Finance his plans to review the operation of the deposit guarantee scheme following the recent payments under the scheme to compensate deposit holders in the Irish Bank Resolution Corporation; and if he will make a statement on the matter. [14049/13]

Written answers

Minister for Finance

The Central Bank press release of 7 March 2013 confirmed that as of that date the Deposit Guarantee Scheme (DGS) made compensation payments totalling €9.03 million to 394 depositors of IBRC Limited, which was placed in liquidation on 7 February 2013. Eligible deposits in IBRC are covered by joint safeguards. Eligible deposits of up to €100,000 for an individual and €200,000 for individuals with a joint account in IBRC are protected by the DGS. Eligible deposits above this limit are guaranteed under the Eligible Liabilities Guarantee (ELG). There is no need for depositors to make a claim for compensation under the DGS. The Special Liquidators have provided details of eligible depositors and account balances to the Central Bank. Payments are then made by cheque within 20 working days of the appointment of the Special Liquidators and are sent to depositors at the address held by IBRC. In a limited number of circumstances, additional information may be required to confirm eligibility. In this instance, a formal claim is required. Depositors will be contacted but may also download relevant forms from the Central Bank website www.centralbank.ie. The Central Bank are keeping customers of IBRC informed by providing regular updates on its website.

The compensation payments have been made from the Deposit Protection Account (DPA), operated by the Central Bank of Ireland and funded by credit institutions covered by the scheme. Each deposit-holding institution is required to maintain a balance on their DPA account of 0.2% of their total deposits (with a minimum amount of €50,000 in the case of all institutions except credit unions). The balance in the DPA was €388 million prior to this compensation event.

There are no specific plans at national level to alter the operation of the DGS. However, the Deposit Guarantee Scheme (DGS) in Ireland was established under Irish and European legislation to protect depositors; it therefore will be impacted by European legislation on the operation of Deposit Guarantee Schemes across Europe, which is currently the subject of negotiations.

On 12 July 2010, the Commission adopted a legislative proposal for a thorough revision of the Directive on Deposit Guarantee Schemes. The main aim of the 2010 proposal is to significantly enhance depositors’ confidence by introducing a higher level of coverage, faster payout and more credible funding of the various Deposit Guarantee Schemes. This proposal will now travel as part of the Banking Union Proposals. It addresses issues including simplification and harmonisation of the provisions of the current Directive. In particular, it looks at the scope of the coverage and arrangements for payout; optional mutual borrowing among Deposit Guarantee Schemes in certain circumstances, the introduction of an information template and better access to information for depositors.

The European Parliament voted in Plenary on the Deposit Guarantee Schemes proposal on 16 February 2012. This vote took place in the absence of an agreement with the Council on a number of key issues. The file is now effectively at a second reading.

The last Council Working Party (attachés) took place on 23 July 2012 in an attempt to restart the negotiation of the proposals. However, Member States were unwilling to reopen the debate fully until the Banking Resolution package is near completion as it is heavily linked to this proposal, especially with respect to the funding of the schemes. It appears that the funding issues will now be discussed in the context of Bank Recovery and Resolution Proposals and therefore as Presidency Ireland will recommence discussions of the DGS proposal in the coming weeks with a view to agreeing with the European Parliament improvements to the operation of DGS schemes across Europe in the near future.

Mortgage Interest Rates

Questions (31)

Barry Cowen

Question:

31. Deputy Barry Cowen asked the Minister for Finance his views on whether reductions in the cost base at the covered banks should allow them to halt their on-going process of increasing its standard variable rate for residential mortgages; and if he will make a statement on the matter. [14057/13]

Written answers

Minister for Finance

While the Government is acutely aware of the increasing financial stress that some households are facing in the current environment, ultimately the pricing of financial products, including standard variable mortgage interest rates, is a commercial matter for the management and the Board of the relevant institutions. At the same time, the boards and management must ensure that the day to day running of the institutions has regard to competition, market conditions and the need to develop stable commercial enterprises to meet the long term credit needs of households and businesses. It is important that the banks in which the state has an ownership interest are run on a commercial, cost effective and independent basis to ensure their value as an asset to the State, as per the Memorandum on Economic and Financial Policies agreed with the EU Commission, the ECB and the IMF. It must be remembered that in order to fund mortgages the banks must borrow at current wholesale rates which are currently higher than the ECB base rate and must ensure that the rates at which they lend are economically sustainable and provide a return for the banks and ultimately the State as their shareholder.

IBRC Liquidation

Questions (32)

Timmy Dooley

Question:

32. Deputy Timmy Dooley asked the Minister for Finance the progress that has been made to date in the disposal of the Irish bank Resolution Corporation loans; the way the interests of the taxpayer are being protected in the process; and if he will make a statement on the matter. [14026/13]

Written answers

Minister for Finance

I am advised that the Special Liquidators are in the process of appointing independent valuers to independently value the IBRC loan assets. Independent sales advisors will be appointed to manage the sales process. The process will be overseen by the Special Liquidators to ensure that deadlines are being met and that the best value is achieved. Where no bid has been received from a bidder that qualifies for the criteria set by the Special Liquidators in respect of an asset of IBRC, or such bids that have been received are for a price lower than the independent valuation price of that asset, then the Special Liquidators shall sell the asset to NAMA at the independent valuation price.