Written Answers Nos. 1-43
12. Deputy Mick Barry asked the Minister for Finance his views on the latest European Commission forecast for economic growth and the implications for the fiscal position of the State; and if he will make a statement on the matter. [16229/20]
View answerThe European Commission’s summer economic forecasts signals a deep contraction in European economic activity this year, with a gradual recovery next year. EU GDP is projected to shrink by around 8¼ per cent, while global GDP (excluding the EU) is expected to contract by 3.9 per cent this year.
There is no doubt that we are in the midst of a deep global recession and the Commission's forecasts reflect this. In response, policy support has been scaled-up in most countries, on both the monetary and fiscal fronts. While very high frequency data suggest that the low-point has been passed and that a gradual recovery is setting in as restrictions ease, the level of uncertainty regarding the path for the global economy is exceptionally high, not least because of the uncertain path of the virus.
From an Irish perspective, the Commission expects real GDP to contract by 8½ per cent this year, with growth of 6¼ per cent next year. My Department set out its spring forecasts in the Stability Programme Update which was published in April. GDP is projected to contract by 10.5 per cent this year, with a partial recovery expected next year.
In response, the Government has allowed a large deficit to open - the operation of the so-called automatic stabilisers - and supplemented this with significant discretionary policies designed to boost healthcare capacity, support household incomes and maximise the firm survival rate.
A general government deficit of between €23 and €30 billion is in prospect for the year. The scale and scope of the Government's response has been in line with that of other European countries; indeed, the Government will bring forward additional measures shortly.
It is entirely appropriate that Government runs a deficit to support the economy in these unprecedented circumstances. However, borrowing at this scale cannot go on indefinitely and, once circumstances allow, we will need to bring public expenditure and revenue back into balance. This can be achieved through economic recovery (which automatically boosts tax receipts as people spend more, etc.) and re-normalising public expenditure.
13. Deputy Éamon Ó Cuív asked the Minister for Finance if an indication has been received from the EU based on the Stability and Growth pact report forwarded to the EU in April 2020 regarding the likely borrowing that will be permitted to Ireland in 2021 to reboot the economy after the Covid-19 crisis; if the EU has not given this indication, when it is likely to do so; and if he will make a statement on the matter. [15669/20]
View answerAs outlined in the Stability Programme Update, published by my Department in April, the so-called ‘general escape clause’ of the Stability and Growth Pact was activated for the first time in March of this year. The activation of the clause temporarily suspends the normal fiscal requirements applying to Member States under the preventive arm of the Pact in 2020. This decision was taken to allow Member States to take all necessary measures in response to COVID-19.
Along with suspending the fiscal adjustments recommended by the European Council for 2020, the general escape clause also underpinned the Country-Specific Recommendation issued in respect of budgetary policy for 2021. Specifically, in contrast to the regular procedures under the Stability and Growth Pact, no quantitative fiscal requirement or target was prescribed for Member States in relation to 2021. Instead, Member States are recommended to take all necessary measures to effectively address the pandemic, sustain the economy and support the ensuing recovery. Therefore, the EU's fiscal rules do not currently seek to place a limit on Ireland's borrowing in 2021.
More generally, it is important to stress that Ireland entered this crisis from a position of strength, with effective full employment conditions and improving debt dynamics. The composition of our debt also remains favourable with long maturities and strong credit ratings. The crisis has not constrained Ireland’s ability to borrow and the NTMA has been able to regularly tap bond markets at low rates. This was further evidenced last week when Ireland raised €1.5 billion on the market, with negative yields applying to a large proportion of this.
14. Deputy Bernard J. Durkan asked the Minister for Finance his views on the most effective measures that are likely to impact positively on the economy in view of Covid-19 in the shortest possible time in the context of economic recovery; and if he will make a statement on the matter. [16197/20]
View answer20. Deputy Bernard J. Durkan asked the Minister for Finance his views on whether financial supports to restart the economy in the aftermath of Brexit and Covid-19 are realisable and will be effective in the short to medium term; and if he will make a statement on the matter. [16198/20]
View answerI propose to take Questions Nos. 14 and 20 together.
The Government has committed to a series of immediate actions to support the economy following the Covid-19 pandemic. These measures will be set out in the forthcoming July stimulus. Building on the existing suite of supports introduced since the crisis began, these measures will help sustain incomes, boost business and help ‘kick-start’ the economy.
The Government has, furthermore, committed to bringing forward a National Economic Plan, to be published alongside the Budget in October, which will outline the Government’s plans to support the long-term sustainability of the economy. This plan will be centred on the principle of protecting our economy as much as possible from future shocks, such as another public health crisis, the impact of climate change, or the potential failure to achieve a trade agreement between the United Kingdom and the European Union at the end of this year.
As I have stated many times, it is entirely appropriate that the Government acts to support the economy in this unprecedented period. This is an option available to us because of the work done in recent years to place the public finances on a sustainable footing. It is essential that as we recover from the effects of the pandemic and look to safeguard against future challenges, we return to a sustainable fiscal path over the medium-term.
15. Deputy Paul Murphy asked the Minister for Finance if highly profitable companies will be excluded from the suspension of rates. [16310/20]
View answerMy colleague with responsibility for Housing, Planning and Local Government, Minister O'Brien has advised me of the following:
Local authorities are under a statutory obligation to levy rates on the occupiers of rateable property in accordance with the details entered in the valuation lists prepared by the independent Commissioner of Valuation under the Valuation Acts 2001 to 2015.
In order to support the local government sector, the Department of Housing, Planning and Local Government is keeping local authority income, expenditure and cash flow generally under review and working with local authorities on both collective and individual issues arising.
The Programme for Government - Our Shared Future, commits to reviewing the treatment of commercial rates for the remainder of the year, as a priority action. This process is underway in the context of the forthcoming July stimulus. The previously announced waiver forms part of this consideration, with a view to a single communication with local authorities and ratepayers in the near future.
17. Deputy James Browne asked the Minister for Finance the steps he plans to take to tackle high insurance premiums here; and if he will make a statement on the matter. [16105/20]
View answerAt the outset, it is important to note that I am very much aware of the problems faced by many consumers, businesses, community and voluntary organisations in relation to the cost and availability of insurance. This Government will prioritise reform of the insurance sector with particular emphasis on motor, public liability, and employer liability insurance. This is recognised in the Programme for Government’s cross-Departmental insurance reform agenda, which I believe builds and expands upon previous work done by the Cost of Insurance Working Group.
By way of further information, the Programme for Government lays out commitments that are aimed at addressing consumer and business concerns on the cost of insurance; increasing transparency; addressing legal reforms in certain areas of civil law; addressing fraud; enhancing and reforming the role of the Personal Injuries Assessment Board, and increasing competition.
In terms of reform, a necessary step is to bring the levels of personal injury damages awarded in this country more in line with those awarded in other jurisdictions. The establishment of the Judicial Council in December is very important in this regard, and it is expected that the Personal Injuries Guidelines Committee will submit draft Guidelines to the Judicial Council by 28 October. These guidelines have a role to play in the lowering of award levels and ensuring a more consistent application of making awards in courts.
However, it is also important to recognise that there is no single policy or legislative to remedy the cost and availability of insurance issue. There are also many constraints faced by the Government in trying to address it, in particular the fact that it cannot direct the courts as to the award levels that should be applied, or direct insurance companies as to their pricing levels.
In conclusion, I wish to emphasise that insurance reform remains a priority for the Government and as noted above this is reflected in the Programme for Government. This is an issue I, as Minister for Finance, along with my Departmental colleague, Minister of State Chambers, are already focusing on. In doing so we will be cooperating with our Ministerial colleagues that will be participating in the Cabinet Committee on Economic Recovery and Investment in terms of prioritising the commitments on insurance reform.
18. Deputy Pearse Doherty asked the Minister for Finance if an extension of the temporary wage subsidy scheme will be considered for sectors and employers that continue to be affected by public health measures; his plans to discontinue, modify or taper payments under the scheme; and if he will make a statement on the matter. [16299/20]
View answer19. Deputy Ged Nash asked the Minister for Finance his plans to reform the temporary wage subsidy scheme into a short-term work and training scheme akin to the German Kurzarbeit model; and if he will make a statement on the matter. [16292/20]
View answer62. Deputy James Browne asked the Minister for Finance if the operation of the temporary wage subsidy scheme will be examined in order that it is available to persons whose work is seasonal and increases in the summer months; and if he will make a statement on the matter. [16275/20]
View answer64. Deputy Pearse Doherty asked the Minister for Finance if the temporary wage subsidy scheme will be modified to allow employers to avail of same for seasonal workers moving from part-time to full-time hours during peak season (details supplied). [15815/20]
View answerI propose to take Questions Nos. 18, 19, 62 and 64 together.
The Temporary Wage Subsidy Scheme (TWSS) was introduced in March and was specifically designed to support firm viability and preserve the relationship between the employer and employee insofar as is possible through the lockdown period, in circumstances where the employer’s business had been negatively impacted by COVID-19.
It is acknowledged that this economy-wide scheme was developed in a very short period of time having regard to the overarching urgent Government objective of getting assistance to employers and employees as quickly as possible.
Since it was introduced, over 50,000 firms have availed of the scheme (which is almost a third of all employers from 2019). Over 500,000 jobs have been directly supported over the period and many more indirectly. This is considerable coverage and it is noted that the value of payments made to-date is over €2 billion.
As the public health restrictions are eased, the challenge for the economy and enterprises is evolving. Having regard to the novel circumstances surrounding the re-opening of the economy as well as the need to avoid the risk of forcing otherwise viable firms to close, it was announced early last month that the TWSS will remain until the end of August. Work is currently ongoing around how best to support employers into the more medium term, including consideration of support for seasonal workers and new hires. As per the commitment in the Programme for Government, it is planned that the July Jobs Initiative will set out a pathway for the future implementation of the TWSS.
21. Deputy Pearse Doherty asked the Minister for Finance when all sections of the Consumer Insurance Contracts Act 2019 will be commenced; and if he will make a statement on the matter. [16295/20]
View answerI intend to commence this Act shortly. This is in line with the commitment I had previously given that this matter would be determined by the Minister for Finance of the new Government. The Act will be commenced in the following manner-
(i) The bulk of the provisions of the Consumer Insurance Contracts Act will come into effect on the 1st September 2020. The commencing of the majority of the provisions of this Act will, amongst other things, place an onus on insurers to handle claims promptly and fairly, and reform other aspects of insurance law such as the practice of warranties and replacing the principle of insurable interest.
(ii) The remaining sections - (Sections 8, 9, 12, 14(1)-(5)) will come into effect on the 1st September 2021. These sections relate to the requirement of insurers to disclose pre-contractual information to the consumer, and the requirement of insurers to provide a schedule of the past five years of premiums and claims to the consumer at renewal. On the basis of my previous discussions with the insurance industry, I believe that a reasonable amount of time is required before these provisions are commenced as to do otherwise may not be in the best interest of the consumer and also allows the sector sufficient time to reasonably put in place the necessary new systems and processes.
Insurance Ireland has been advised that the commencement of this Act is now imminent, and I have repeatedly said that the necessary preparations need to be undertaken by the industry.
I believe this Act is an important part of insurance reform and its implementation will balance the contractual relationship between insurer and consumer.
22. Deputy Pearse Doherty asked the Minister for Finance if he has communicated with retail banks regarding the treatment of mortgage applications. including joint applications, whereby such applications are rejected or approvals in principle withdrawn in cases in which one or both applicants are in receipt of payments through the temporary wage subsidy scheme despite no reduction in pay or hours; and if he will make a statement on the matter. [16298/20]
View answerI fully appreciate the concerns many people are experiencing about mortgage applications and drawdowns at this difficult time, and my Department is maintaining close contact with the Central Bank and Banking and Payments Federation Ireland – the BPFI - as the lending industry works to address the difficulties the Covid-19 situation is causing for both borrowers and lenders. In this context, the Central Bank has advised that it expects all regulated firms to take a consumer-focused approach and to act in their customer's best interests at all times, including during the Covid-19 pandemic.
In the context of mortgage applications, lenders continue to process applications and have supports in place to assist customers impacted by COVID-19. The BPFI has published a Covid-19 support information document which customers can consult, or customers can contact their lender directly, if they have any queries or concerns about the impact of COVID-19 on their mortgage application. However, within the parameters of the regulatory framework governing the provision of mortgages, the decision to grant or refuse an individual application for mortgage credit, is a commercial and contractual decision to be made by the regulated entity and it is not appropriate or possible for me to instruct lenders in that regard.
Regarding the regulations governing mortgage credit, the European Union (Consumer Mortgage Credit Agreements) Regulations 2016, which transposed the Mortgage Credit Directive into Irish law, require lenders to make a thorough assessment of the consumer’s creditworthiness. The assessment must take appropriate account of factors relevant to verifying the prospect of the consumer being able to meet his or her obligations under the credit agreement and must be carried out on the basis of information on the consumer’s income and expenses and other financial and economic circumstances which is necessary, sufficient and proportionate. The Regulations further provide that a lender should only make credit available to a consumer where the result of the creditworthiness assessment indicates that the consumer’s obligations resulting from the credit agreement are likely to be met in the manner required under that agreement. In addition, the Central Bank’s Consumer Protection Code 2012 imposes ‘Knowing the Consumer and Suitability’ requirements on lenders. Under these requirements, lenders are required to assess affordability of credit and the suitability of a product or service based on the individual circumstances of each borrower and in this regard I welcome the recent statement from the pillar banks that they will assess mortgage applications from people in receipt of the temporary wage subsidy scheme on a case by case basis.
23. Deputy Paul Murphy asked the Minister for Finance his plans to introduce a tax on net wealth exceeding €1 million in order to fund public investment. [16312/20]
View answerAs there is currently no such wealth tax in operation in Ireland, the Department understands that the Revenue Commissioners have no basis or requirement to compile the data needed to produce estimates in relation to a potential wealth tax. Although an individual's assets and liabilities are declared to the Revenue in a number of specific circumstances (for example, after a death), this information is not a complete measure of assets and liabilities in the State, nor is it recorded in a manner that would allow analysis of the implications of an overarching wealth based tax.
In 2013 the Central Statistics Office conducted the first comprehensive survey of household wealth in Ireland (the Household Finance and Consumption Survey (HFCS)). The survey provides information on the ownership and values of different types of assets and liabilities along with more general information on income, employment and household composition.
During 2016, my Department, jointly with the Economic and Social Research Institute (ESRI), conducted a research project into the distribution of wealth in Ireland and the potential implications of a wealth tax using the HFCS. The research formed part of an on-going joint-research programme with the ESRI on the Macro-Economy and Taxation. The research paper, available on the ESRI website (https://www.esri.ie/news/scenarios-and-distributional-implications-of-a-household-wealth-tax-in-ireland), presented results on the composition of wealth across both the wealth and income distributions in Ireland. A number of wealth tax scenarios were then applied to the Irish data (wealth tax regimes from other jurisdictions and hypothetical scenarios). In each case, the associated tax bases and revenue yields, the number of liable households across the income distribution, and the characteristics of the households affected are outlined.
It should be noted that while Ireland does not have a specific ‘wealth tax’, the state already taxes wealth in a variety of ways, such as CAT, CGT, LPT and stamp duty. In 2019 CAT, CGT, stamp duty and LPT combined raised €3.6 billion. It should also be noted that, a significant portion of net household wealth is directly related to housing assets including family homes.
My Department will monitor and consider any additional information and data that comes to light and will continue to examine potential taxation sources. However, there are currently no plans to introduce a specific wealth tax.
24. Deputy Paul Murphy asked the Minister for Finance the amount that has been spent on a case (details supplied) to date. [16313/20]
View answerThe Deputy will be aware that the General Court of the European Union has annulled the European Commission's State Aid Decision of 30 August 2016 with respect to Apple.
Ireland has always been clear that, based on Irish law, the correct amount of Irish tax was charged to the company and that Ireland did not provide State aid to Apple.
This was the reason that Ireland appealed the Commission Decision and the judgment today from the General Court vindicates Ireland’s stance and its decision to appeal the Commission Decision.
In total, costs of approximately €8.6 million (including VAT) have been incurred across all State parties involved. This includes all legal costs, consultancy fees and other associated costs. These fees have been paid by the Department of Finance, Revenue Commissioners, NTMA, Central Bank of Ireland, Attorney General's Office and Chief State Solicitor's Office.
The Commission decision in 2016 placed a binding obligation on Ireland to recover the alleged aid. Approximately €4 million of the total costs incurred related to the complex and unprecedented recovery process.
The remaining costs, approximately €4.6 million, were incurred in respect of Ireland’s legal application seeking the annulment of the Commission’s decision, which has now been upheld by the General Court of the EU.
25. Deputy Peter Fitzpatrick asked the Minister for Finance if he will consider measures such as a VAT reduction for the hospitality sector to 5% and the inclusion of seasonal workers in the temporary wage subsidy scheme until at least April 2021. [15750/20]
View answer31. Deputy Brendan Griffin asked the Minister for Finance the position regarding his options for the reduction of the 13% rate of VAT currently applicable to the hospitality sector; if he cannot lower this rate below 5%, the reason therefor; if he has had contact with the European Commission regarding potential VAT reductions; and if he will make a statement on the matter. [16306/20]
View answer32. Deputy Brendan Griffin asked the Minister for Finance if he has considered reducing the VAT rate to stimulate business, particularly in the hospitality sector; and if he will make a statement on the matter. [16307/20]
View answer41. Deputy Éamon Ó Cuív asked the Minister for Finance if he plans to reduce the VAT rate on certain services in 2020 to stabilise vulnerable sectors due to the Covid-19 crisis; if so, when an announcement will be made in this regard; and if he will make a statement on the matter. [15668/20]
View answerI propose to take Questions Nos. 25, 31, 32 and 41 together.
The Government is fully aware of the unprecedented impact that the coronavirus is having on business and people’s livelihoods. In this regard a range of measures have been introduced to provide income support to those who need it while also giving confidence to employers to retain the link with employees so that when this crisis passes our people can get back to work as quickly and seamlessly as possible.
This Government is currently preparing the July stimulus package which will set out supportive measures for a wide range of sectors including the hospitality and tourism sectors to ensure that the economy is in a position to recover rapidly while maintaining a stable tax base. Details of the July stimulus package will be announced by Government shortly.
I am advised by Revenue that the VAT rating of goods and services is subject to the requirements of EU VAT law, with which Irish VAT law must comply. In general, the reduced rate of VAT (13.5%) currently applies to accommodation, certain recreational activities and supplies of food and drink in restaurants, excluding alcohol and soft drinks.
Under EU VAT law, Member States may only have two reduced rates which cannot be higher than 15% and no lower than 5%. These lower rates can only be applied to a prescribed list of services in Annex III of the VAT Directive 2006/112/EC. Ireland currently has two reduced rates, 9% and 13.5%. In order to introduce a new reduced rate, one of the current reduced rates would have to be removed. In general, the VAT rate on accommodation, certain recreational services, such as amusement parks, fairgrounds, cinemas, etc., can be reduced to a rate no lower than 5%. The provision of food and drink in restaurants can also be reduced to a rate no lower than 5%.
Ireland, in line with the VAT Directive, also maintains several standstill provisions and derogations that allows it to maintain reduced rates, zero rates and exemptions to certain supplies for historical reasons. These standstill provisions and derogations cannot be extended.
26. Deputy Pa Daly asked the Minister for Finance his views on the crisis many credit unions are facing in terms of increased regulation, levy charges, large restrictions on lending and onerous capital requirements; his plans for new legislation governing the sector; and if he will make a statement on the matter. [16245/20]
View answerThe Government recognises the key role that credit unions play in the delivery of financial services in local communities across Ireland, the need for which is heightened at this time. Credit unions account for approximately one third of the consumer credit market and are well positioned to provide credit to support the recovery.
Policy Review
The economic outlook arising by virtue of COVID-19, including reduced demand for new lending, has increased the challenges the sector is already facing. As a result it was agreed that the Credit Union Advisory Committee would report to me on challenges and opportunities for the sector, incorporating implications of COVID-19, and any relevant recommendations. I understand that this report is complete and will be submitted to me in the coming days.
There are several commitments in Programme for Government which relate to credit unions, which will be expanded upon in the coming weeks and months by the new Government, taking into account work already completed such as the CUAC report noted above and a separate CUAC report on directors which was finalised in February 2020. I will also take into consideration the views of key stakeholders.
Levies & Charges
The sector pays four material levies and charges. Three of these levies – Deposit Guarantee Scheme, Resolution and Stabilisation – are used to build up funds, that are available to protect members savings. The fourth levy is an Industry Funding Levy set by the Central Bank to offset the cost of regulation.
Industry Funding Levy
Since 2004, the amount of the Industry Funding Levy payable by a credit union has been capped at a rate of 0.01% of its total assets as at 30 September of the previous year. The balance of regulatory costs has been funded by the Central Bank in accordance with the provisions of the Central Bank Act, 1942 (as amended).
The cost of regulating the credit union sector has increased over recent years with the emergence of the necessity to increase the intensity of supervision of this sector. In 2018, the credit union sector contributed €1.7 million (circa 9% of the total costs incurred in regulating the sector).
During 2019, I approved the Central Bank request to recover 50% of credit union costs on a phased basis, starting with a 20% recovery rate for the 2019 levy (levied in 2020), moving to 35% in 2020 (levied in 2021) and to 50% in 2021 (levied in 2022).
In response to the Central Bank's request, I also recommended that credit union contributions should not increase beyond the 50% target until: 1) the levy trajectory has reached the planned 50% rate, at which time the impact on the viability of the sector will be better understood; and 2) a public consultation regarding increasing the levy rate for credit unions beyond 50% is undertaken, which would include a regulatory impact assessment of such a change on the sector.
Given that all other financial services sectors are at, or moving towards, 100% recovery, the move towards 50% in respect of credit unions, with further increases at that time being subject to consultation and Ministerial approval, is measured and takes account of the role that credit unions play in Irish society. Exemptions from levies result in a burden on the tax-payer through state subvention.
Resolution & Stabilisation Levy
It is also worth noting that the Department of Finance, in collaboration with the Central Bank, held a public consultation in 2019 on potential changes to the Resolution Fund Levy. Following this review, I announced on 1 October 2019 a reduction in the levy rate which will result in a reduction of €4 million per annum from €9 million in 2019 to €5 million from 2020, or 44% reduction.
Both the Resolution and Stabilisation levies for 2021 will be reviewed by me in advance of completion of the statutory instruments this autumn.
Lending
Credit unions already have the ability to improve their loan to asset ratio, including through additional consumer lending, mortgage and SME lending, either individually or through collaborative efforts.
The sector currently has capacity to lend an additional €1.1 billion for mortgage and SME lending collectively, with further additional lending capacity available to credit unions which can comply with certain conditions or on approval by the Central Bank. As at end 2019, credit unions had a mortgage and SME loan book of approximately €300 million.
Following a review and public consultation, the Central Bank issued revised regulations setting out new lending measures for credit unions which came into effect on 1 January 2020. These regulations removed the previous lending maturity limits which capped the percentage of credit union lending which could be outstanding for periods of greater than 5 and 10 years. The maturity limits have been replaced by new concentration limits, on a tiered basis, for house and business loans, expressed as a percentage of total assets. These changes have increased the ability of individual credit unions to manage the composition of their loan books and provide those credit unions with the financial strength, the competence and the capability, the flexibility to undertake increased longer term lending, including home mortgage and business lending.
As part of the Government's COVID-19 supports, it is proposed to revise the Credit Guarantee Scheme (CGS). The scheme is a Department of Business, Enterprise & Innovation (DBEI) scheme, operated by the Strategic Banking Corporation of Ireland (SBCI), and is already available for banks, non-banks and credit unions to participate in, subject to certain conditions. Officials from DBEI, SBCI and my Department have been and will be available to discuss the CGS and other State financing supports with banks, non-banks and credit unions.
Regulatory Reserves
Adequate reserves (capital) support a credit union’s operations, provide a base for future growth and protect against the risk of unforeseen losses. The minimum regulatory reserve to be maintained by all credit unions under Central Bank regulations is 10% of the assets of the credit union, a level which was set following the last financial crisis. Credit unions had average reserves of 16% as at December 2019.
The Central Bank informs me that the current reserve requirement for credit unions is a reflection of a number of factors including:
- available sources of reserves (retained earnings);
- the need for individual credit unions to have the capacity to absorb potential losses; and
- the business model currently operated by credit unions, which is predominantly focused on the provision of short-term personal lending.
In setting the minimum regulatory reserve requirement, the Central Bank are mindful of the financial resilience of the sector, members confidence and the protection of members' funds.
The Deputy may be interested to note, however, that one of the “Additional Observations” contained in a 2019 Peer Review Report of the Central Bank’s Performance of its regulatory functions in relation to credit unions - undertaken by the International Credit Union Regulators’ Network (ICURN) - suggests that the Registry of Credit Unions conduct additional stress-testing on regulatory reserves under the existing leverage ratio and risk-weighted reserve approach. The Registry of Credit Unions has advised me that it will consider this suggestion as it plans its work around implementation of the Peer Review Team’s recommendations.
However, the Central Bank also informs me that introducing a risk weighted approach could place a disproportionate burden on individual credit unions involving a requirement for system enhancements to calculate the required detail and a level of new/additional expertise with associated cost implications.
27. Deputy James Lawless asked the Minister for Finance his views on whether claims by banks here that they must charge interest on 80,000 mortgage loans during payment holidays has been undermined by new guidance from European regulators; and if he will make a statement on the matter. [16315/20]
View answer34. Deputy Ged Nash asked the Minister for Finance the action he plans to take to address the accrual of interest on mortgage payment breaks; his views on the Central Bank and European Banking Authority advice relating to the charging of interest on mortgage payment breaks; if he plans to pass legislation to prevent the charging of interest during mortgage payment breaks in line with other EU countries; and if he will make a statement on the matter. [16289/20]
View answerI propose to take Questions Nos. 27 and 34 together.
The Members of the Banking and Payments Federation of Ireland introduced the payment break for their customers on 18 March last. These payment breaks were agreed quickly to provide substantial and rapid relief to worried and anxious borrowers, including mortgage holders, in situations where income has been directly impacted by COVID-19, and during a fast moving and evolving public health crisis. At the end of June, almost 160,000 payment breaks have been approved for Irish borrowers, representing €20.1 billion of loans.
Given pre-existing EBA guidelines on the classification of default, the BPFI and its members sought to ensure that its payment break would not lead to the classification of loans as being non-performing.
Two weeks later, on 2 April, the EBA published Guidelines. These guidelines set out the criteria that payment moratoria must meet in order to benefit from supervisory flexibility and for them to not automatically lead to the loans being classified as forborne.
The key paragraph in relation to the charging of interest, paragraph 24, was interpreted in different ways across Europe. It states that:
"The moratorium changes only the schedule of payments. This condition is consistent with the objective of the moratorium to address the systemic short-term liquidity shortages. In order to achieve this objective, the moratoria suspend, postpone or reduce the payments (principal, interest or both) within a limited period of time. This clearly affects the whole schedule of payment and may lead to increased payments after the period of the moratorium or an extended duration of the loan. However, the moratorium should not affect other conditions of the loan, in particular the interest rate, unless such change only serves for compensation to avoid losses which an institution otherwise would have due to the delayed payment schedule under the moratorium, which would allow the impact on the net present value to be neutralised."
Banks across Europe interpreted the above paragraph in different ways with the results that different schemes were introduced. Some countries provided for the accrual and capitalisation of the interest. Others provided for the non-accrual and a number provided for accrual of the interest but not its capitalisation.
In its letter to Deputy Doherty on 22 June last, the Central Bank stated that the EBA was expected to provide further clarity on the specific issue of interest accrual and, I assume in light of the discussions then underway with the EBA, the Central Bank outlined that both the charging and non-charging of interest is acceptable under the guidelines.
The European Banking Authority duly provided clarifications in its implementation report on the 7th of July. It confirmed in relation to the net present value or NPV of a loan that:
" There may be a decline in the NPV if …. no interest is charged for the time covered by the moratorium. Alternatively, the moratorium may be NPV-neutral (i.e. no change in the NPV) if subsequently at least one of the instalments is adjusted upwards or added."
The EBA also confirmed that its guidelines on the classification of default did not apply to loans on a payment break under a general moratorium. The BPFI payment moratorium complies fully with the EBA's Guidelines because it is NPV-neutral.
Finally, the Government and the Central Bank of Ireland have stated that it is essential that lenders fully explain the implications, including any associated cost or other significant impacts, of the particular payment break measures being put in place. For instance, lenders should outline if the repayment term of the mortgage will be extended due to the payment break, if monthly payments will increase following the resumption of the mortgage repayments, if interest will continue to accrue during the payment break and the implications this will have for the total cost of the credit, and any other significant matter for the customer when availing of a Covid-19 payment break, or indeed for any other reason.
28. Deputy Mick Barry asked the Minister for Finance his views on the latest IMF World Economic Outlook forecasts and the implications for the fiscal position of the State; and if he will make a statement on the matter. [16228/20]
View answerThe IMF’s World Economic Outlook (WEO) update signals a synchronised and deep contraction in global economic activity this year, with a gradual recovery next year. The WEO projects global GDP to contract by 4.9 per cent and world trade to shrink by nearly 12 per cent this year. For advanced economies, the position is more negative – GDP in both the euro area and UK is forecast to contract by over 10 per cent this year, while that in the US is projected to fall by 8.0 per cent.
There is no doubt that we are in the midst of a deep global recession and the WEO reflects this. In response, policy support has been scaled-up in most countries, on both the monetary and fiscal fronts. While very high frequency data suggest that the low-point has been passed and that a gradual recovery is setting in as restrictions ease, the level of uncertainty regarding the path for the global economy is exceptionally high, not least because of the uncertain path of the virus.
From an Irish perspective, my Department set out its spring forecasts in the Stability Programme Update which was published in April. GDP is projected to contract by 10.5 per cent this year, with a partial recovery expected next year.
In response, the Government has allowed a large deficit to open - the operation of the so-called automatic stabilisers - and supplemented this with significant discretionary policies designed to boost healthcare capacity, support household incomes and maximise the firm survival rate. The scale and scope of the Government's response has been in line with that of other European countries; indeed, the Government will bring forward additional measures shortly.
This fiscal response is only possible because of the prudent policies implemented in recent years. This has allowed us to absorb the once-off increase in public indebtedness. Having said that, borrowing at this scale cannot go on indefinitely and, once circumstances allow, the debt-income ratio will have to be put on a credible downward path, most of which can be achieved through economic growth.
29. Deputy Ged Nash asked the Minister for Finance his views on the projected deficit figure of €23 billion to €30 billion for 2020 based on the stability programme update in April 2020 in view of recent positive corporation tax and income tax revenue receipts; the breakdown of the projected deficit figure for 2020 based on updated figures for general government expenditure and general government revenue; and if he will make a statement on the matter. [16293/20]
View answerThe Stability Programme Update, published in April, set out a central fiscal scenario of a general government deficit of 7.4 per cent of GDP in 2020, or €23.1 billion in nominal terms. Crucially, this was based on the assumption that economic activity bottoms out in the second quarter, with gradual recovery thereafter. My Department estimated at the time that if this gradual recovery did not materialise, a deficit of the order of €30 billion (around 10 per cent of GDP) was likely.
Since April, the situation has evolved on both the tax and expenditure side. In relation to taxation revenues, consumption taxes such as VAT and excise duties have fallen significantly, as was expected. On the other hand, corporation tax receipts and, to a lesser extent, income taxes have performed better than initially thought. However, it must be acknowledged that we are only four months into this crisis and there remains a significant amount of uncertainty around the economic and fiscal situation.
On the expenditure side, the Government has continued to invest in the health service as well as support incomes and businesses through a range of measures. The scale and scope of these measures is very much in line with international norms.
Taking developments on both the tax and expenditure side into account, the fiscal deficit in 2020 is likely to be in the upper end of the range set out in the SPU.
30. Deputy Cormac Devlin asked the Minister for Finance if measures are being taken to refinance the outstanding obligations into long-term debt of the State in view of the historically low borrowing costs; and if he will make a statement on the matter. [16279/20]
View answerThe National Treasury Management Agency (NTMA) has taken advantage of the favourable funding and interest rate environment of recent years to lengthen the maturity of the National Debt and lock-in the benefit of low interest rates.
Since the turn of 2015, the NTMA has issued over €90 billion of medium- to long-term debt. This was issued in the form of standard benchmark bonds, green bonds, inflation-linked bonds and ultra long-term (circa 50–100 year) private placements. This funding of over €90 billion had an average maturity of more than 14 years and an average rate of less than 1%. It included two new 30-year bonds, a new 20-year bond and two new 15-year bonds.
Debt refinancing “chimneys” over the four year period 2017–2020 that had, at one point, stood at some €70 billion have effectively been eliminated. By contrast, the refinancing requirement over the next four years 2021–2024 is far lower, at just over €27 billion.
Over €23bn of EU-IMF Programme debt in the form of loans from the IMF and the Danish and Swedish bilateral loans was repaid in full and ahead of schedule.
Large cash balances – presently around the €30 billion mark – have been built up and these can be used to part-fund the deficit and repay maturing debt.
Furthermore, the purchase of €17 billion of Floating Rate Notes from the Central Bank of Ireland since late 2014 and their replacement with medium- to long-term fixed rate bonds protects the State against future interest rate rises. This is ahead of the minimum schedule; a strategy driven by the low interest rate environment of recent years.
33. Deputy Denis Naughten asked the Minister for Finance if he will consider providing income tax relief for the long-term lease of residential homes to address security of tenure in view of the success of a similar measure in the agricultural sector under section 664 of the Taxes Consolidation Act 1997 as amended by the Finance Act 2014; and if he will make a statement on the matter. [16288/20]
View answerSection 664 of the Taxes Consolidation Act 1997 (‘relief for certain income from leasing of farm land ’) provides for the exemption of certain income from tax in connection with the leasing of farm land, where the land is let under a qualifying lease. This particular relief was designed to encourage longer term leases of farm land, with the targeted policy objective of assisting with the mobility and productive use of agricultural land.
Generally, rental income, after deduction of allowable letting expenses, is subject to tax as part of the total taxable income of a landlord. Individual landlords are subject to income tax on all their income combined, at the applicable rates, including USC and PRSI where appropriate.
Under the heading "Mission: Housing for All", the Programme for Government sets out the priorities of the Government in relation to housing and accommodation, including in relation to the issue of rental. It is my view that priority should be given to implementation of the various measures relating to rental of residential property as set out in the programme before examining other potential initiatives which might be pursued such as that suggested by the Deputy.
In addition, Ireland’s past experience with tax incentives in the housing sector strongly suggests the need for a cautionary stance when considering intervention in the rental sector. There are many competing priorities which must be considered when deciding which policy measures to introduce and the rental sector is just one of many other sectors that may require assistance and intervention. I must be mindful of the many demands on the Exchequer and the need to maintain a broad base of taxation.
35. Deputy Brendan Smith asked the Minister for Finance if measures will be implemented through an easing of the taxation burden on the tourism and hospitality sector in view of its importance as a provider of employment taking in to account the particular difficulties arising from the Covid-19 pandemic; and if he will make a statement on the matter. [16302/20]
View answerThe Government is fully aware of the unprecedented impact that the coronavirus is having on business and people’s livelihoods, including in the tourism and hospitality sectors. In this regard a range of measures have been introduced to provide income support to those who need it while also giving confidence to employers to retain the link with employees so that when this crisis passes our people can get back to work as quickly and seamlessly as possible.
A key focus of the Programme for Government “Our Shared Future” is to get people back to work as quickly as possible, in order to restore the public finances and enable the provision of better and more accessible public services on a sustainable and long-term basis. A stable and sustainable regulatory and tax environment and sound management of the public finances will allow investment in the infrastructure and skills required to enhance competitiveness.
Looking ahead, fiscal policy is based on a three-phased response:
- During the initial phase, phase one, swift action was taken to introduce emergency measures aimed at protecting individuals and businesses during the initial period of uncertainty.
- The focus of the next phase of the response is on ensuring that the economy returns to growth. The main concern in this recovery phase will be to get as many people back to work as quickly as possible and the State will have a role to play in that regard.
- Over the longer time, fiscal policy will be required to pursue a credible path towards budgetary sustainability; to provide confidence to businesses, the public and to demonstrate that Ireland is back on the right path again.
As a matter of policy, taxation measures are reviewed on a regular basis as part of the annual Budget and Finance Bill process. I should add that my Department has started to receive pre-Budget submissions from various stakeholders and the contents of these submissions will be considered in the context of the forthcoming Budget.
The immediate focus of Government is on a fiscal stimulus plan to introduce a package of measures that will build on existing measures in order to help kick-start the economy, safeguard jobs and protect people’s livelihoods. Therefore, the short-term focus is on supporting households and firms, to limit the medium term impacts on the economy and to lay the ground for recovery.
Work is currently ongoing around how best to support employers into the more medium term. The position of various sectors, including tourism and hospitality, will be taken into account in this process.
36. Deputy John Lahart asked the Minister for Finance his priorities following his election as chairperson of the Eurogroup of EU finance ministers; and if he will make a statement on the matter. [16284/20]
View answerThe Eurogroup is the body through which Finance Ministers of the 19 Euro Area Member States take decisions on policy issues relating to management of the Euro Area economy.
The role involves working closely with the European Commission; with the European Central Bank; with the European Stability Mechanism (ESM); and the European Investment Bank (EIB)
I set out my priorities when I submitted my application for the role of President of the Eurogroup. Briefly this centred on bridge building and an inclusive economic recovery. Full details of my letter is set out in:
www.gov.ie/en/press-release/f4665-minister-donohoe-elected-as-president-of-eurogroup/.
Following my election to the role on 12 July, I outlined that my immediate priority, as President, will be to chart a common way forward on building the European recovery, strengthening the Eurozone economy, and promoting sustainable and inclusive growth for Member States and their citizens. As President, I will seek to build bridges amongst all members of the Euro Area, and to engage actively with all Member States, to ensure we have a consensus-based approach to the recovery of our economies and our societies.
37. Deputy Brendan Smith asked the Minister for Finance if measures will be implemented as a matter of urgency from a VAT reduction and taxation perspective to assist the tourism and hospitality sector through the serious difficulties that have arisen due to the Covid-19 pandemic; and if he will make a statement on the matter. [16303/20]
View answerThe Government is fully aware of the unprecedented impact that the coronavirus is having on business and people’s livelihoods. In this regard a range of measures have been introduced to provide income support to those who need it while also giving confidence to employers to retain the link with employees so that when this crisis passes our people can get back to work as quickly and seamlessly as possible.
This Government is currently preparing a the July stimulus package which will set out supportive measures for a wide range of sectors including the hospitality and tourism sectors to ensure that the economy is in a position to recover rapidly while maintaining a stable tax base. Details of the July stimulus package will be announced by Government shortly.
38. Deputy Ged Nash asked the Minister for Finance his plans to use his new position as Eurogroup President to seek a mutualisation of debt and the creation of perpetual bonds to fund the post-Covid-19 EU recovery; if he will seek an expansion of the European recovery fund; the current EU funding streams available for draw down; the amount drawn down to date in tabular form; and if he will make a statement on the matter. [16290/20]
View answerThe Eurogroup is the body through which Finance Ministers of the 19 Euro Area Member States take decisions on policy issues relating to management of the Euro Area economy.
A key priority will be to build an inclusive and sustainable recovery that supports growth and job creation in all our Member States.
Subject to guidance from Leaders, as President of Eurogroup, I will be responsible for building consensus and charting a common way forward which has the support of all Member States.
The matters raised by the Deputy in his question will be the subject of further negotiations by European Leaders at a Special European Council to be held in Brussels on the 17/18 July 2020. An Taoiseach will represent Ireland at this Council. As such, a detailed response to his question is not appropriate at this moment.
What I can say, now, however is that Ireland agrees that an exceptional response to this unprecedented crisis is warranted, commensurate with the magnitude of the challenge.
To that end, we will be constructive in the negotiations.
39. Deputy Mairéad Farrell asked the Minister for Finance if his attention has been drawn to the recent OECD report on corporate tax statistics published 8 July 2020 (details supplied); his plans to enact measures to stop businesses registered here that are engaging in corporate tax abuse from availing of Covid-19 financial supports; and if he will make a statement on the matter. [16145/20]
View answer81. Deputy Mairéad Farrell asked the Minister for Finance if his attention has been drawn to the new OECD report on corporate tax statistics published on 8 July 2020 (details supplied); his plans to enact measures to stop businesses registered here engaging in corporate tax abuse from availing of Covid-19 financial supports; and if he will make a statement on the matter. [16347/20]
View answerI propose to take Questions Nos. 39 and 81 together.
I welcome the release of the OECD’s Corporate Tax Statistics publication which is an important source of information on corporation tax globally. I also welcome the release of the Country by Country Reporting database published for the first time with the report. Publishing this aggregate data strikes an appropriate balance between the need for tax transparency and respecting taxpayer confidentiality.
This data is useful for high-level analysis of the risks associated with Base Erosion and Profit Shifting. An appreciation of these risks is paramount in maintaining a stable international corporation tax framework, a policy priority to which Ireland remains fully committed.
It is my understanding that the detail supplied by the Deputy refers to some analysis carried out by an NGO on foot of the publication of the data although the figures indicated by the Deputy appear to confound two different concepts, namely volumes of multinational profit shifting and the estimated tax revenue losses arising from such activity. In this respect it is important to note that the OECD data itself is the subject of many caveats, as outlined extensively in the accompanying Disclaimer document released by the OECD. This points to a range of technical issues with the data and warns against making inferences. Furthermore, the available data was compiled from a limited set of country data.
Importantly, the data relate to 2016. As a result, they pre-date very significant 2017 US tax reform measures. They also fail to capture the range of anti-BEPS efforts taken by Ireland and other countries since 2016, including the introduction of controlled foreign corporation rules, anti-hybrid mismatch rules, and amended transfer pricing rules.
Nonetheless, this publication delivers on a key commitment under the OECD’s Base Erosion and Profit Shifting (BEPS) Action 13 Report.
In respect of the final part of the Deputy's question, Ireland, like all countries, has attached various conditions to the eligibility for COVID-19 supports. As the public health restrictions are eased, the challenge for the economy and enterprises is evolving. As set out in the Programme for Government, the July Jobs Initiative will address the future of the various key COVID-19 supports.
40. Deputy Catherine Connolly asked the Minister for Finance the current balance of the rainy day fund; the ways in which it is intended to use the fund to deal with the costs and consequences arising from Covid-19; the ways in which the fund has been used to deal with the consequences of Covid-19 to date in 2020; and if he will make a statement on the matter. [16305/20]
View answerThe current balance of the Rainy Day Fund stands at €1.5 billion.
Given the scale of the impact of Covid-19 on the economy, the previous Taoiseach had stated that the Rainy Day Fund will be accessed as part of the Government’s response to the pandemic.
As such, the projections in the Stability Programme Update, published in April, include the assumption that the €1.5 billion in the Fund is transferred to the Exchequer. Given the scale of the impact, it is envisaged that the drawdown will be for the total value of the Fund, i.e. €1.5 billion less the expenses incurred by the National Treasury Management Agency (NTMA) in managing the Fund.
The exact timing of this drawdown remains to be decided, as recent successful debt issuances by the NTMA means there is no immediate need for its drawdown. When the drawdown of the Rainy Day Fund occurs, it will be to mitigate the impact of the exceptional circumstances arising from Covid-19 and it will be in accordance with section 9 of the National Surplus (Exceptional Contingencies) Reserve Fund Act 2019.
The money will be used to offset funding requirements necessitated by the decline in taxes this year and the increase in Covid-19 related expenditure.
Drawdown of the Rainy Day Fund means that the Exchequer Borrowing Requirement for 2020 is approximately €1.5 billion less than would otherwise be the case. Thus, the rationale for having such a Fund – for use in exceptional circumstances such as these – has been strengthened by this crisis.
42. Deputy Bríd Smith asked the Minister for Finance if he will be introducing criteria for companies that avail of the temporary wage subsidy scheme and other State supports during the Covid-19 crisis such as clawback mechanisms in the event of them returning to profit, a bar on bonuses and dividends and so on for CEOs or shareholders and tax compliance criteria including restrictions on companies availing of tax avoidance measures; and if he will make a statement on the matter. [16301/20]
View answer43. Deputy Pearse Doherty asked the Minister for Finance if the temporary wage subsidy scheme will be amended to ensure that employers will not lose a portion or all of the wage subsidy in cases in which an employee works additional hours in comparison to those worked and reflected in January and February payroll submissions, particularly in terms of seasonal work; if he will consider allowing the calculation of subsidy based on payroll submissions in 2019 to reflect the seasonal variation in pay; and if he will make a statement on the matter. [16297/20]
View answerI propose to take Questions Nos. 42 and 43 together.
The Temporary Wage Subsidy Scheme (TWSS) was introduced in March and was specifically designed to support firm viability and preserve the relationship between the employer and employee insofar as is possible through the lockdown period, in circumstances where the employer’s business had been negatively impacted by COVID-19.
Since it was introduced, over 50,000 firms have availed of the scheme (which is almost a third of all employers from 2019). Over 500,000 jobs have been directly supported over the period and many more indirectly. This is considerable coverage and it is noted that the value of payments made to date is over €2 billion.
The key benchmark for employer eligibility, as set out in the legislation, is that turnover in Q2 2020 must be down by at least 25 per cent. Once the employer meets this requirement it remains eligible for the TWSS for the full period of the scheme.
The sum the employer receives is based on the employees who were on their payroll on 29 February 2020, the net salary such employees received in January and February 2020, as well as the extent to which the employer remains able to continue to discharge their legal obligation to pay their employees’ salaries. Unfortunately, the scheme cannot be tailored to meet every individual set of circumstances for either employers or employees. This is because it builds on data that has been returned to Revenue through its real-time PAYE system.
As the public health restrictions are eased, the challenge for the economy and enterprises is evolving. Having regard to the novel circumstances surrounding the re-opening of the economy as well as the need to avoid the risk of forcing otherwise viable firms to close, the former Government announced last month that, as matters then stood, the TWSS would remain in place until the end of August. I can confirm that this remains the position. Work is currently ongoing around how best to support employers into the more medium term, including consideration of support for seasonal workers and new hires. As per the commitment in the Programme for Government, it is planned that the July Jobs Initiative will set out a pathway for the future implementation of the TWSS.
