Written Answers Nos. 91 - 102
91. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he remains satisfied that Ireland remains a competitive economy and is attractive to indigenous investors and foreign direct investors; and if he will make a statement on the matter. [28001/16]
View answerSignificant progress has been made in recent years in improving Ireland's competitiveness. The latest figures from the Central Bank of Ireland, show that Ireland's real harmonised competitiveness indicator (a widely used measure of competitiveness in Europe) has improved by over 20 per cent since 2008.
The gains in Irish competitiveness achieved since 2008 have been hard-won through productivity improvements and wage and price moderation. These gains, along with the stabilisation of the public finances, have helped ensure that Ireland remains an attractive location for investment. Indeed, rapid growth in both domestic and foreign direct investment in recent years is testament to investor confidence in the Irish economy.
As a small open economy it is essential that we remain a competitive, strategically important location for trade and investment as we work to expand our exports and continue to build the foundations for a solid and sustained recovery going forward. In this regard we must be cognisant that favourable exchange rate movements can reverse, as can be seen for example in the recent strengthening of the euro against sterling. Similarly gains from the fall in oil prices may unwind in the future. This highlights the importance of maintaining competitiveness-oriented policies to help weather emerging uncertainties.
92. Deputy Bernard J. Durkan asked the Minister for Finance his views on whether the banks here are justified in charging higher mortgage interest rates than is the case throughout the rest of Europe, given that taxpayers here are instrumental in bailing out the lending institutions; and if he will make a statement on the matter. [28002/16]
View answerA healthy and commercially sustainable banking system that is in a position to provide mortgage and other credit to customers while also being resilient to economic and financial market shocks is important for Ireland's economy.
In relation to the market for residential mortgage credit, it should also be borne in mind that this market has a number of diverse aspects and comprises, inter alia, fixed interest rate loans, loan to value managed variable rate mortgages, trackers and restructured mortgages of various types. Therefore, the residential mortgage market cannot be assessed solely by looking at standard variable rate mortgages and any overall assessment of mortgage rates would need to consider the large number of different factors that influence interest rate pricing for different aspects of the overall mortgage market. Nevertheless, as the Deputy is aware, the issue of standard variable mortgage rates is a significant one for this Government and it has made it clear that it is not acceptable for lenders to charge excessive rates on residential mortgages.
On my request the Central Bank produced a report on this issue entitled, 'Influences on Standard Variable Mortgage Pricing in Ireland'. You will find this report available at the following link: http://www.finance.gov.ie/sites/default/files/Influences%20on%20SVR%20Pricing%20in%20Ireland.pdf. This research identified three main reasons for higher mortgage interest rates in Ireland. Firstly, the pricing of loans needs to reflect credit risks. In Ireland these risks are elevated due to high levels of non-performing loans and the lengthy and uncertain process around collateral recovery. Second, competition is weak. This is not unrelated to credit risks since high credit risk deters new players from entering the market. Third, bank profitability is still constrained by legacy issues. As indicated, profitability is essential to ensure banks build up adequate capital buffers to meet increasing regulatory requirements and to withstand future adverse shocks and thereby make a positive contribution to the overall economy.
As the Deputy will be aware, I had a series of formal meetings with the main mortgage lenders last year where I outlined the Government's opinion that the standard variable rate being charged, to both existing and new Irish mortgage customers, was too high. The banks have since reviewed their rates and subsequently reduced them which has been evidenced in the latest Central Bank statistical release on retail interest rates for July 2016. Nevertheless, this is a policy area that the Government will keep under active review in our ongoing engagement with mortgage lenders and in implementing the Programme for Government.
The Government is of the opinion that real competition among lenders is the best way to ensure that retail lending rates are driven down in a sustainable way for the market as a whole without giving rise to potentially unforeseen and undesirable consequences for new mortgage lending. In line with this general approach, the Programme for a Partnership Government indicates that the Government will take all necessary action to tackle high variable interest rates including through establishing a new code of conduct for switching mortgage provider to be administered by the Central Bank of Ireland and also requesting the Competition and Consumer Protection Commission to work with the Central Bank to set out options for Government in terms of market structure, legislation and regulation to lower the cost of secured mortgage lending and improve the degree of competition and consumer protection. Therefore, the primary policy approach of this Government in this area is to develop an overall banking policy that encourages more entrants and a vibrant banking sector with real competition in order to provide more choice to mortgage holders. In this context, the Deputy will be aware that the Central Bank has carried out research which showed the scope for borrowers to save money by switching mortgages and the Competition and Consumer Protection Commission has launched a mortgage switching tool for consumers which itself notes the findings of the Central Bank research of cases were borrowers could make savings.
93. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he remains satisfied that all economic indicators remain stable and consistent with requirements; and if he will make a statement on the matter. [28004/16]
View answerRecent indicators have generally been positive, indicating that the economic recovery is continuing in a sustainable manner.
GDP grew by 4.1 per cent in the second quarter of this year on an annual basis. This follows on from annual growth of 3.9 per cent in the first quarter.
Importantly, economic activity is now more balanced between domestic and external sources of growth. While the recovery in economic performance was initially led by the export sector, domestic demand is now making a strong contribution with personal consumption up 3.5 per cent in the first half of this year on an annual basis.
The economic recovery is most clearly evident in the labour market. Employment grew by 2.9 per cent (+56,200) over the year to Q2 2016, the fifteenth successive quarter of employment growth. The increase in employment remains broad based with gains recorded in 12 of the 14 sectors reported by the CSO.
Recent data published indicate that the volume of retail sales increased by 5.2 per cent year-on-year in August 2016. Core sales (excluding motor trades) were up by 4.1 per cent over the same period. New cars licensed for the first time were up 20 per cent to end-August year-on-year. Expansion in the construction sector continued in August with the Purchasing Managers' Index for the sector recording its thirty-sixth successive month of expansion. The Consumer Sentiment Index recovered most of July's post-Brexit fall as it rose to 102.7 in August 2016, from 99.6 in July. The index remains well above its long run average. The seasonally-adjusted monthly unemployment rate for August was 8.3 per cent, down from 9.1 per cent in August 2015. As a result, the unemployment rate has fallen by almost 7 per cent since its peak of over 15 per cent in early-2012.
However, there are several sources of uncertainty including the UK's decision on EU membership to which the Irish economy is particularly exposed. In the short-term, the increased uncertainty and volatility in the financial markets could undermine confidence while the depreciation of sterling has led to a loss of competitiveness.
In addition, weaker than expected trading partner growth would negatively impact on Irish growth through reduced exports. Growth in Emerging Market Economies (EMEs) disappointed in 2015, and there are concerns regarding the growth transition in China. EMEs have been an important growth engine in recent years, and while Ireland's direct trade exposure remains relatively small, the Irish economy would be exposed to a more generalised slowdown in the world economy.
Domestically, the high level of private debt, while falling, remains a concern, and any deterioration in the external environment could prompt households and firms to raise the pace of deleveraging, with adverse implications for domestic demand.
This uncertainty highlights the importance of prudent management of the public finances and of competitiveness-oriented policies that would help the Irish economy to weather any global economic downturn that may emerge.
In summary, I am satisfied that the economic indicators remain stable although the full impact of the UK's decision is yet to be seen. In this regard it is critical that appropriate polices are implemented and that is what the Government intends to do.
94. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he can ensure compliance with full Irish and European banking regulations by the purchasers of distressed or other loan books from the banking sector; and if he will make a statement on the matter. [28005/16]
View answerAs Minister for Finance, I am responsible for the development of the legal framework governing financial regulation which includes transposing into Irish law certain European Directives and Regulations.
This legal framework provides for Irish and EU consumer protections when a consumer takes out a loan from a regulated lender ("the original lender"). If that loan is subsequently sold onto a regulated entity, the relevant Irish and EU consumer protections continue to apply.
In the past, if the original lender sold a loan to another person who was not regulated by the Central Bank ("an unregulated firm"), the consumer could lose the protections they previously had under the various Central Bank Statutory Codes of Conduct. In July 2015, the Consumer Protection (Regulation of Credit Servicing) Act 2015 ("the 2015 Act") was introduced to fill the consumer protection gap where loans are sold by the original lender to an unregulated firm.
Under the 2015 Act if the firm who bought the loans from the original lender is an unregulated firm, then the loans must be serviced by a 'credit servicing firm' (Credit Servicing Firms are typically firms that manage or administer credit agreements such as mortgages or other loans on behalf of unregulated entities). Credit Servicing Firms are required to obtain authorisation from the Central Bank in order to conduct credit servicing activities as defined in the 2015 Act. As a result, all firms who either currently operate in this area or intend to operate in this area (and meet the definition of a Credit Servicing Firm) require authorisation by the Central Bank.
Credit servicing firms must act in accordance with Irish financial services law that applies to 'regulated financial service providers'. This ensures that consumers, whose loans are sold to another firm, maintain the same regulatory protections that they had prior to the sale, including under the various statutory Codes of Conduct issued by the Central Bank, including the Consumer Protection Code 2012 ('the Code'); the Code of Conduct on Mortgage Arrears 2013 ('the CCMA'); the Central Bank (Supervision and Enforcement) Act 2013 (Section 48) (Lending to Small and Small and Medium-Sized Enterprises) Regulations 2015; the Minimum Competency Code 2011 ('the MCC'); Part V of the Central Bank Act 1997; and Fitness and Probity Regulations and Standards issued under Part 3 of the Central Bank Reform Act 2010.
I would note that if a firm is servicing a portfolio of loans on behalf of a regulated lender then they do not need to be separately authorised by the Central Bank as a credit servicing firm, as this arrangement is covered under existing rules covering outsourcing that apply to all regulated financial services firms.
In addition, where the purchasers of distressed or other loan books are a financial institution (either Irish or European) they are subject to Capital Requirements Directive IV (CRD IV) which was transposed into Irish law by S.I. 158/2014 - European Union (Capital Requirements) Regulations 2014. It is the responsibility of the relevant competent authority to ensure that any entity is meeting its obligations under CRD IV, including those related to loans held on the entity's balance sheet.
95. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which overdraft facilities continue to be restored to the business and farming sectors, with particular reference to the need to ensure the availability of adequate resources to facilitate ongoing economic performance; and if he will make a statement on the matter. [28006/16]
View answerThe Deputy will be aware that in my role as Minister for Finance I have no direct function in the relationship between the banks and their customers. I have no statutory function in relation to the banking decisions made by individual lending institutions at any particular time and these are taken by the board and management of the relevant institution. This includes decisions in relation to products as determined by the banks.
All viable businesses operating in Ireland should have the opportunity to access sufficient finance to meet their enterprise needs in a manner that supports growth and employment in the economy. As the Deputy will be aware, Chapter 7 (Finance for Growth) of this year's Action Plan for Jobs (APJ) sets out a range of commitments to ensure viable SME's can access appropriate finance at a reasonable cost from both bank and non-bank sources.
In line with Action 144 of the APJ, officials from my Department and the Credit Review Office continue to collate and examine data from AIB and Bank of Ireland on a monthly basis, including data pertaining to overdraft facilitates. Furthermore, my officials meet the banks on a quarterly basis to ensure an informed understanding of the wider SME bank lending environment which assists the development and implementation of policies aimed at ensuring availability of finance and increased competition in the SME lending sector.
In relation to the restoration of overdraft facilities, both AIB and Bank of Ireland saw an increase in overdraft sanctions in 2015 compared to 2014. It is noted, however, that overdraft utilisations have declined and this is in line with findings from the Department of Finance SME Credit Demand Survey and an indicator of increasing reliance on retained profits to meet working capital needs. Further results from the survey can be found at www.finance.gov.ie.
96. Deputy Bernard J. Durkan asked the Minister for Finance the degree to which he monitors house property prices, with particular reference to the need to ensure that such prices do not become a major governing economic influence as in the past; and if he will make a statement on the matter. [28007/16]
View answerAccording to the Central Statistics Office's Residential Property Price Index, national property prices increased by 2.5 per cent between June and July and by 6.7 per cent on an annual basis. This overall trend has been driven by price developments outside of Dublin, where residential property prices have increased by 3.5 per cent over the month and by 11.3 per cent on an annual basis. In Dublin, residential property price inflation has been more subdued, increasing by 1.6 in July and by 3.8 per cent on an annual basis. The growth in residential property prices in July follows several months of moderation in residential property price inflation, with house price inflation of just 0.7 per cent between January and June 2016, a pattern which is likely to have been influenced by the Central Bank's macro-prudential measures. The Deputy may wish to be aware that the IMF's latest Financial Sector Assessment Programme report published in July indicated that Irish property prices were around equilibrium levels.
I wish to assure the Deputy that my Department continues to monitor developments in the property market including house prices. The recently announced Rebuilding Ireland - Action Plan for Housing and Homelessness outlines the Government's commitment to restore the housing market to a sustainable equilibrium. The measures set out in the Action Plan should help to stimulate supply by streamlining the planning system, removing infrastructure blockages and supporting the delivery of affordable housing. These measures should help make new developments economically viable in areas where supply constraints (and price pressures) are particularly acute.
97. Deputy Richard Boyd Barrett asked the Minister for Finance the full cost in 2017 of abolishing the local property tax. [28024/16]
View answer98. Deputy Richard Boyd Barrett asked the Minister for Finance the projected yield in 2017 of introducing a second home tax of €600 per property for those who own two properties on their second property and €1,000 per year on each property for those who own three or more properties, assuming the second property is paid at the €600 rate. [28025/16]
View answer99. Deputy Richard Boyd Barrett asked the Minister for Finance the projected yield in 2017 of introducing a mansion tax on every home worth more than €1 million at the rate of €2,000 per property. [28026/16]
View answerI propose to take Questions Nos. 97 to 99, inclusive, together.
In relation to Question No. 97, 28024/16, I am advised by Revenue that the Local Property Tax (LPT) is forecast to collect €440 million in 2017.
In relation to Question No. 98, 28025/16, I am further advised by Revenue that the estimated additional yield from introducing an additional charge of €600 per property on second properties for those who own two properties and €1,000 per property for those who own three or more properties would be in the region of €454 million per annum. This estimate assumes that LPT is paid at the current rate on each property in addition to the proposed charges.
Regarding Question No. 99, 28026/16, I am advised that introducing a charge on every property worth more than €1 million at the rate of €2,000 per property would yield in the region of €7.5 million per annum.
100. Deputy Richard Boyd Barrett asked the Minister for Finance the cost in 2017 of abolishing the USC for all those earning less than €40,000 and reducing the USC by half for those earning less than €70,000. [28028/16]
View answer103. Deputy Richard Boyd Barrett asked the Minister for Finance the projected yield in 2017 of establishing new PAYE bands (details supplied). [28034/16]
View answerI propose to take Questions Nos. 100 and 103 together.
I am advised by the Revenue Commissioners that the estimated first and full year cost to the Exchequer of implementing the USC measures suggested by the Deputy is in the order of €2,035 million and €2,373 million respectively. In developing these estimates, it was assumed that no USC would be paid on the first €40,000 (effectively abolishing the 1% and 3% USC rates and bands), the next €30,000 up to €70,000 would be subject to a 2.75% USC rate (half the 5.5% USC rate) and the current rate of 8% would continue on income over €70,000 as well as the 3% surcharge on the portion of self-employed income over €100,000.
In relation to introducing a 50% income tax rate on income between €100,000 and €140,000, a 55% income tax rate on income between €140,000 and €180,000, a 60% rate on income between €180,000 and €250,000 and a 65% rate on all income over €250,000, I am advised by Revenue that the estimated first and full year yield to the Exchequer is in the order of €1,199 million and €1,580 million respectively.
These figures are estimates from the Revenue tax forecasting model using latest actual data for the year 2014, adjusted as necessary for income, self-employment and employment trends in the interim. They are estimated by reference to projected 2017 incomes. They are provisional and may be revised.
101. Deputy Richard Boyd Barrett asked the Minister for Finance the amount of fiscal space available for 2017. [28032/16]
View answerThe Summer Economic Statement (SES), published by my Department in June of this year projected, in Table A2, that the net fiscal space available for 2017 would be around €1 billion.
The reference rates and convergence margins used for this estimate were set by the European Commission in their Spring forecast in May and will not change. However the final GDP deflator to be used is an average of the Commission's Spring and Autumn deflators. As the Autumn deflator will not be set until November, a forecast produced by my Department was used in the SES. The final deflator used is not expected to significantly change this estimate of fiscal space.
102. Deputy Richard Boyd Barrett asked the Minister for Finance the amount ahead of forecast the total tax revenue is projected to be for 2016 and 2017. [28033/16]
View answerThe position is that an Exchequer tax revenue forecast of €47.2 billion was projected in Budget 2016. However, as the Deputy will be aware, this forecast was revised up to €48.1 billion, which represents a €900 million increase, in the Summer Economic Statement (SES). At end-August 2016, Exchequer tax revenues were €449 million above the Budget day forecast.
My Department's latest 2017 Exchequer tax revenue forecast in the SES was for €49.7 billion, which assumed using fiscal space of c. €330 million for tax reductions. As the Deputy will appreciate, my Department is currently reviewing the tax revenue forecasts for all years in the context of Budget 2017. The forecasts for 2017 and outer years will take account of the most up-to-date macroeconomic data and other specific tax developments.
