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Tuesday, 2 Jul 2013

Other Questions

Strategic Investment Fund Management

Questions (67)

Dara Calleary


67. Deputy Dara Calleary asked the Minister for Finance the process that will be in place to maximise the economic and employment return from the Ireland Strategic Investment Fund; the investment horizon that will be taken by the fund; and if he will make a statement on the matter. [31901/13]

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Oral answers (7 contributions) (Question to Finance)

As recently announced, the Government has decided to establish the Ireland strategic investment fund, ISIF, which will absorb National Pensions Reserve Fund, NPRF. The discretionary fund of the NPRF of approximately €6.4 billion will be channelled towards productive investment on commercial terms in the Irish economy. Officials of my Department are currently preparing the necessary legislation, which I hope to see enacted this year.

Using the Ireland strategic investment fund, we will maximise our resources to enhance growth in the economy and improve key infrastructure to maintain Ireland's attractiveness as a place to do business and to create jobs. My Department is working alongside the National Treasury Management Agency, NTMA, to develop the broad parameters for the investment strategy for the ISIF in parallel with developing the legislation, and it is envisaged that the work will align with that being done by my Department and the Department of Public Expenditure and Reform on a medium-term economic plan.

It is envisaged that the ISIF will seek to leverage and maximise its resources by attracting private sector co-investment. I am conscious that it is important that a level of independence is maintained to attract that private sector co-investment. To do this, the fund will need to demonstrate clearly that it acts on a commercial basis in order that the very fact that it is prepared to finance a proposal will reassure other potential investors that the project is sound. Any income, capital or other benefit received in respect of ISIF investments will be repaid into the fund and held or reinvested for the benefit of the fund. Whereas the need for the State to provide for social welfare and public service pensions obligations has not abated, fostering economic activity and employment is currently a greater priority and this will in turn put the State in a better position to meet its pension obligations in the longer term.

This is potentially a very positive development and I have a few questions on it. I assume the principle of retaining the NPRF remains and the Government will continue to have non-discretionary portfolios consisting of shareholdings in banks, for example. When the Minister refers to any returns from these commercial investments going back into the fund, is he talking about the strategic investment fund or the NPRF? It would be helpful to clarify that.

Will the Minister give us a sense of the governance arrangements that will apply to the Ireland strategic investment fund? Who will make the investment decisions? Will the Minister or the Government have a role in that or will it be adjudicated upon by an independent board under the aegis of the NTMA? For example, if the Government was convinced of the merits of a motorway between Cork and Limerick, and there was co-investment by the private sector, could it be ensured that it would happen? Will the decisions be political or will they come from the NTMA?

If we were to build a road between Cork and Limerick, the Department of Public Expenditure and Reform would have to put it down as a proposal. The NPRF would assess it on commercial grounds and if it were commercially viable, it could make the cut. If it were not, it would not make the cut. The initiation might be on the political policy side but the decision would be on commercial grounds, and the project would have to stand up to commercial analysis.

Within the existing statutory investment policy and in line with the ISIF announcement, the NPRF has undertaken a number of investments and initiatives under which NPRF capital would be invested on a commercial basis. There is a commitment to invest approximately €250 million in infrastructure, €118 million in public private partnership projects and finance of €500 million will be provided for the small and medium enterprise sector. It has entered into a collaborative relationship with Silicon Valley Bank on small and medium enterprise equity start-ups for the information technology industry. Additionally, the fund has been working closely with NewERA in respect of investment opportunities related to the commercial semi-State sector, and the NPRF is also in discussion with Irish Water with regard to the provision of a financing facility. This provides a flavour of the lead-in work, and when it is put on the statutory basis, the process will be more secure in its capacity to fund and leverage.

Will the Minister clarify my first question? Will the NPRF be retained into the future and is the principle of providing for the long-term pension liabilities of the State still being subscribed to? Are returns from commercial investments drawn from the NPRF money to be returned to the NPRF?

The Minister says that the ISIF will decide on which projects can proceed on a commercial basis but, in practice, who will that be? Will there be a separate board of the ISIF sitting within the NTMA? At what point does the Minister expect that the first commercial investments of the fund can proceed? He hopes to have the legislation enacted by the end of this year so I presume it would the first half of next year before investments could begin.

Will the new fund have ethical guidelines along the lines of the ethical investment Bill I introduced in the House that would prevent the fund from investing in companies that participate in certain activities, for example, nuclear weapon development, cluster munitions development and other types of weapons?

We have been on record as arguing for the NPRF to be used as a stimulus so I welcome the fact that the Minister is finally moving in this direction. Next month, it will be two years since the Minister announced this legislation. He says he is hopeful it can be enacted by the end of the year. Deputy Michael McGrath raised other issues in respect of governance. We know there is a commitment in terms of the water metering project, with which I disagree. There is €6.4 billion in this discretionary portfolio fund. When will we see a sizeable amount of that money invested in the economy? Tens of thousands of people who left these shores in the two years or so since the Minister announced this fund have given up. How much longer can we tell them to hang on, that this money will be made available, that it will be injected and that they will see at least half of it invested? Will it be next year or the year after? When will we see real investment and can directional orders still be given? The Minister gave directional orders to the NPRF to invest in AIB and Bank of Ireland. Is that still an option or will it be completely commercial?

The NPRF is already investing so there is no question of it being delayed along the lines suggested by the Deputy. However, it is investing on the basis of a kind of letter of comfort that I issued to it to allow it to get ahead of the legislation. That must be a temporary arrangement and it needs to be put on a statutory basis. The legislation has gone through the Government at heads stage but it is being drafted in the normal way so it is not possible to give the exact details of what may end up in it. The existing legislation has such a section so I do not see why it should be dropped in the new legislation.

It is proposed that an ISIF investment committee will be established to decide on the investment of the strategic investment fund and within the parameters of the strategy, which will be set by the new board of the NTMA. The NTMA does not have a board at present. It has an advisory board so the whole family of companies within the NTMA will be, from a governance point of view, subject to a new overarching board that will be a statutory board under the new Act. It is proposed that the NTMA will be responsible for the management of the ISIF and will establish an investment committee that will have discretion to make investment and disposal decisions. As with the NPRF commission, the members of the investment committee will have discretion to make investment decisions in line with the ISIF's investment strategy. There is no question of the thing being some kind of political slush fund. The fund's investment strategy will be consistent with the Government's policy objective. The NTMA will be responsible for the management and the investment and disposal decisions will be made on a commercial basis.

Economic Growth Initiatives

Questions (68)

Michael Moynihan


68. Deputy Michael Moynihan asked the Minister for Finance the actions he believes ECOFIN Ministers can take to provide a Europe economic stimulus; the reason this has not happened to date; and if he will make a statement on the matter. [31920/13]

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Oral answers (6 contributions) (Question to Finance)

A number of initiatives are being implemented at EU level to boost growth. The cumulative impact of all these measures will be positive in terms of supporting economic activity in the EU at this difficult juncture. For instance, Heads of State or Government in the EU agreed on a compact for growth and jobs in June last year. This involves action by both member states themselves and at EU level to boost growth, investment and employment.

Measures to be implemented at national level include the full implementation of the country-specific recommendations from the European semester for those member states included in the process, including the pursuit of differentiated and growth-friendly fiscal consolidation, the restoration of normal lending to the economy and the promotion of competitiveness. At EU level, policies to promote growth include a renewed emphasis on deepening the Single Market and reducing the regulatory burden. In addition, an important measure is the mobilisation of funding to boost European growth. Funds will be made available inter alia via EU Structural Funds and European Investment Bank lending. Considerable progress has been made at euro area level to put the single currency on a more solid footing. For instance, the establishment of the European Stability Mechanism and the ECB's announcement of outright monetary transactions have helped restore confidence, while the enhanced system of governance will have a positive impact on economic activity.

I now turn to my role as President of the ECOFIN council. As the Deputy will be aware, Ireland has just completed its Presidency of the Council of the European Union. The theme for the Irish Presidency was stability, jobs and growth. In my role as President of the ECOFIN Council for the Irish Presidency I have overseen a number of actions aimed at improving the European economic environment.

Significant progress was made on the financial services agenda including agreement in Council or with the Parliament on a range of dossiers. Significant progress was made on the banking union agenda with agreement on the single supervisory mechanism and the capital requirements directive, and political agreement at ECOFIN on banking recovery and resolution. There was also significant achievement in other aspects of financial sector regulation including political agreement in the Council on the markets in financial instruments directive and regulation, the market abuse regulation and the transparency directive and agreement on the mortgage credit directive. Agreement was also secured on an amending budget for the European Union. This was a key element in the overall delivery of a political agreement on the multi-annual financial framework between Council and Parliament. There was major progress in the area of taxation with a particular focus on addressing transparency and fraud. The EU economic governance process, the European semester, was successfully managed and agreement achieved on the remaining legislative element of the economic governance process, the two pack.

Additional information not given on the floor of the House

In addition to six formal Councils, a very successful informal ECOFIN was held in Dublin which had a focus on growth and SME funding. At the informal ECOFIN Ministers discussed financing options for long-term economic growth on the basis of the Commission's Green Paper on long-term financing which was presented by Commissioner Michel Barnier. A Presidency issues note was also used to guide ministerial discussion on the topic of non-bank financing for growth and jobs. This has led to further work at European level with a report expected in late 2013. There was also an expert-led discussion between Ministers at lunch on the topic of future growth in Europe.

In February the European Council agreed a budgetary package for the period from 2014 to 2020 for policies focusing on competitiveness, jobs and growth across a broad range of sectors. Recently the Irish Presidency reached political agreement with the European Parliament and the European Commission on a new multi-annual financial framework which unlocks €960 billion in investment across the entire European Union.

As the Minister indicated there were successes during the six-month Presidency, in particular with regard to his stewardship of ECOFIN and he is to be commended on this. Although there are issues with regard to some of the details, it would be remiss of me not to acknowledge this.

The question I tabled is particularly relevant in the context of the very weak economic data we had last week. Unfortunately the country is back in recession, ostensibly because of weakening external demand and the situation in the eurozone and other developed economies. Much of what we hear from European summits and ECOFIN meetings in terms of growth-friendly statements and policies is impenetrable to people and it is very difficult to translate what has been decided to what is actually happening on the ground.

The Minister referred to the country-specific recommendations from the European semester and gave some examples of issues relating to Ireland such as credit, regulation and the role of the European Investment Bank, and there has been some progress on this. There is a crisis in the eurozone in particular, with more than 12% unemployment as confirmed yesterday, 26 million people out of work and record levels of youth unemployment. It seems the triple A-rated countries which have been fiscally very prudent are all engaged in fiscal consolidation as well as countries such as us which must do so.

The lack of co-ordination of fiscal and economic policy throughout Europe has resulted in the scenario we are dealing with now whereby external economic demand, in particular among our main trading partners, is weakening at a time when we depend on an export-led recovery. It is more threatened than it has been previously. Will the Minister give practical examples on the ground of the knock-on effects and the implementation of decisions in Europe and ECOFIN and how they translate to Ireland and how they can help our economic growth?

Among the practical examples which would help Ireland is first of all the commitment to complete the single market. It is approximately 80% complete and for the remaining 20% the financial services sector particularly is inhibited by different rules and regulations in different member states. The fact that Ireland in this Presidency cleared 11 finance folios, most of them in the financial services area, frees up the possibility of the Internal Market working better in financial services. We have a very strong financial services industry in Ireland not only in Dublin, but now moving into other parts of the country too. That is one specific measure that will help.

A decision approximately a year ago in which €10 billion extra in capital was put into the European Investment Bank, EIB, will help too because that €10 billion can leverage approximately €180 billion and the EIB is gearing up to lend far more extensively than it did in the past. We hope to get our share of that. Already the commitments to Ireland for 2013 are approximately twice what we got in 2012. It is concentrating specifically on lending to SMEs and co-financing PPPs, which will match what we talked about previously. In the multi-financial budget there are dedicated funds for youth unemployment and there is a commitment that if a young person is out of work for four months, he or she gets training or education. That is a very advanced scheme and I hope it can be applied quickly in Ireland.

I thank the Minister for his reply. There is a job of work to be done in marketing the potential role of the European Investment Bank in Ireland, particularly with SMEs. In my experience, SMEs' level of awareness of the EIB is quite weak. When I come across them and point out the various initiatives and sources of funding available, many of them are not aware of them, despite the efforts of various business representative bodies. If the potential of the EIB is now being leveraged in Ireland at a time when the banks are under continued financial stress in respect of their own lending capacity, we need increasingly to look to sources such as the EIB. Will the Government consider building up the level of awareness and the marketing of those potential sources?

There has been much talk and one would be forgiven for thinking that Europe is going to come to our rescue with a huge stimulus package. It is being presented that way. The Minister mentioned the MFF, the budget agreed in Europe last week, and while the figures for the billions that will be invested over that seven year period are great, if one peels off the layers one finds that the budget is reduced. It is an austerity budget. It is a budget that has been cut. If one looks more closely, one sees a 25% cut in the research and innovation fund, an 11% cut to rural development programmes, a 14% cut in health and consumer protection funding and a 9% cut in the Cohesion Fund. Germany is honest. It does not want to stimulate Europe. We need to be honest as well because many myths are being peddled. The budget the Minister said is part of a stimulus is actually a reduction in terms of the money that will be available with inflation added. Some individual measures are to be welcomed no doubt, but an austerity budget was signed off last week.

On Deputy Michael McGrath's point, the European Investment Bank is engaged in quite a lot of activity, for example, a bundle of schools is being completed, co-financed with the EIB. European Investment Bank money is also funding the separation of traffic at Newlands Cross and the continuation of the road to Wexford. It is assessing the project for the health centres at the moment. That will also be co-financed. In addition, both AIB and Bank of Ireland have received EIB funds for re-lending purposes to SMEs, approximately €200 million or €250 million in respect of each bank. It is beginning to become very significant.

On the issues raised by Deputy Pearse Doherty, we will get assistance from Europe but we will have to do most of the heavy lifting ourselves. Our future is in our own hands. I do not believe in stimulus packages in Germany along the lines of investing in infrastructure. What we really want is for it to loosen its budgetary targets a little and the German workers at this stage, like those elsewhere, would appreciate a pay increase.

It is this kind of stimulation that the large creditor countries could pursue to benefit the euro. They could ease up on their budgetary controls and put more spending power into their economies. However, this is not at one remove through infrastructural investment. It is directly.

Banking Sector Remuneration

Questions (69, 102)

Seán Fleming


69. Deputy Sean Fleming asked the Minister for Finance when the banks will commence implementation of measures relating to the Mercer report; if he has received an indication of the nature of the measures to be implemented; and if he will make a statement on the matter. [31908/13]

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Brian Stanley


102. Deputy Brian Stanley asked the Minister for Finance the proposed actual reduction in salaries to those earning above €200,000 in the AIB’s proposal to the Minister following the Mercer report. [31885/13]

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Oral answers (4 contributions) (Question to Finance)

I propose to take Questions Nos. 69 and 102 together.

As I have explained in previous responses to questions on this matter, discussions are ongoing at three banks - AIB, Band of Ireland and Permanent TSB - in response to the Government's decision that they were to come up with plans on how they intended to achieve savings of 6% to 10% of total remuneration costs. It was an inescapable conclusion arising from the review of remuneration practices and frameworks at the covered institutions, a report commissioned by the Government in response to a programme for Government commitment that the cost base of the institutions needed to be reduced further. This is essential if they are to return to profitability, be in a position to support the economy and repay the State's investment through a return to private ownership.

In requesting this, I was not prescriptive in how the target was to be achieved, respecting the banks' differing levels of State ownership and paths to profitability. I am not neutral on the method they may use to achieve the savings and must be satisfied that the terms of the Government decision will be honoured. However, there is a wide tolerance as to how the required reductions will be achieved.

Each of the banks submitted its outline plans to me by the due date requested. As a consequence of the ongoing negotiations, some of which are quite far advanced, it is not possible at this stage to reveal precise individual details bar what has been put into the public domain. In that vein, I can confirm that all three institutions have put forward pension changes to varying degrees as part of their overall responses.

My abiding mantra in dealing with these matters has been to insist that the normal industrial relations protocols and consultation procedures need to be observed by all participants. I am anxious, therefore, that all parties to these discussions are afforded the necessary space and time to conduct and conclude these critical negotiations.

I have put on the record that the Government readily acknowledges the sacrifices and changes made by bank employees to date at all levels and recognises that this has been achieved without major industrial unrest in what is a critically important sector. However, there can be no doubt that whatever emerges from the respective talks will present some unpalatable measures for those concerned and will require reflection from them and their representatives.

The cost bases of the banks must be reduced and remuneration costs must come down. While it would not be appropriate or realistic to specify a timeframe for the savings to be delivered, it is clear that the timely delivery of such savings is critical.

I thank the Minister for his reply. We had an exchange on this matter during our last session of finance questions. I am not naive enough to believe that there would not be pain for all bank employees. Clearly, there has already been pain and there will be more. In particular, difficult decisions about pension schemes have been made. In the case of Permanent TSB, for example, these decisions are pending the outcome of Labour Court negotiations. People acknowledge that the banks need to reduce their cost bases but they want a key principle to be observed, namely, those at the top should lead by example and the impact of the reduction should be graduated accordingly.

I sought this commitment from the Minister previously. He has used some of the terms that arose during our previous exchange. For example, he stated that he was neither neutral nor prescriptive. I respect that a process is ongoing, although I would take issue with the manner in which some of the banks have proceeded, namely, making unilateral decisions in the absence of agreement and pending the outcome of the industrial relations machinery.

Will the Minister insist that middle and senior ranking executives lead by example - the Taoiseach gave this commitment in the House some months ago - and that the impact of the reduction in the cost base be graduated accordingly? Can we take it that this will be the abiding principle used in the implementation of the Mercer report?

The taxpayer spent €120,000 on the Mercer report and the public expected that senior bankers would see reductions in salaries. My question was specific, in that it related to base salaries. At AIB and Bank of Ireland, 257 individuals are on remuneration packages of more than €200,000. Some 2,500 are on remuneration packages of more than €100,000.

I want the Minister to lay my fears to rest. My understanding is that the hundreds of senior bankers at AIB, for example, who are in receipt of more than €100,000 will not take a cut to their base salaries. Their pensions will change, but their pay will remain intact. The Minister knows the details and has been looking at the banks' proposals for a couple of months. Is there a proposal for high earners to take a reduction in their base salaries?

I have asked that payroll costs be reduced by between 6% and 10%. I am interested in reducing the cost base of the banks for all of the reasons of which everyone is aware. I am not as interested in retribution or vengeance as Deputy Pearse Doherty. That is a different objective.

We have received the first round of replies from the banks. These deal with a range of issues. The banks are negotiating internally. As they do so, they will keep me informed. I will inform the House of the result of the negotiations after they have concluded. The principle is one of a reduction in payroll costs of between 6% and 10%, as the banks that were kept alive by the taxpayer cannot be exempt from cutbacks that are being applied elsewhere while the taxpayer is taking pressure across a range of expenses.