Mairéad Farrell
Question:198. Deputy Mairéad Farrell asked the Minister for Finance the reason he did not apply for the extension of Covid-19 payment breaks for borrowers by the deadline of 23 September 2020. [28277/20]
View answerCovid-19 Pandemic Supports
Questions (198)
Written answers
As the Deputy will be aware, on 18 March last the Banking and Payments Federation of Ireland (BPFI) announced a coordinated approach by banks and other lenders to help their customers who were economically impacted by the Covid-19 crisis. The measures included flexible loan repayment arrangements where needed, including loan payment breaks initially for a period up to three months and then subsequently extended for up to six months. This was a welcome voluntary initiative that allowed necessary relief to be quickly and efficiently provided to borrowers.
The European Banking Authority (EBA) also introduced COVID-19 guidelines in the spring with the objective of setting out the requirements for the public and private moratoria introduced across the European Union which, if fulfilled, would help avoid the classification of exposures as forborne or defaulted under distressed restructuring. One of the conditions for moratoria to be compliant with the EBA guidelines was that each individual payment break had to be approved before 30 September 2020, and on 21 September the EBA announced that it would not extend this deadline. I would like to clarify for the Deputy’s information that there was no requirement or deadline by which I, as Minister for Finance, had to apply for an extension of Covid-19 payment breaks.
The Deputy may nevertheless wish to note that, in its statement, the EBA indicated that banks can continue supporting their customers with extended payment moratoria after 30 September 2020, with such loans classified on a case-by-case basis according to the usual prudential framework.
It is recognised that many borrowers continue to be impacted by the economic consequences of Covid-19, and they may not be in a position to resume their loan repayment commitments when their payment break ends or may now be in difficulty for the first time. I am fully aware of the stress and uncertainty that these borrowers are facing, and they will continue to need assistance and support from their lenders. Borrowers have a suite of regulatory protections, such as the Central Bank's Code of Conduct on Mortgage Arrears, and lenders have specific obligations to support and work with borrowers who are continuing to experience mortgage or other loan difficulty because of Covid-19. These options could include additional flexibility, and this could be a short term arrangement such as additional periods without payments or interest-only repayments, or if appropriate more long term arrangements.
I will continue to work with the Central Bank, as regulator, to ensure that the Central Bank consumer protection framework will be fully available to mortgage and other borrowers that will still need support due to the economic impact of Covid-19. The Central Bank has also confirmed that there is no regulatory impediment to lenders offering payment breaks to borrowers, providing they are appropriate for the individual borrower circumstance. Indeed, the Deputy may wish to note that the Central Bank recently wrote to all lenders indicating that lenders are to ensure that they have sufficient expert resources to assess individual borrower circumstances, and to offer appropriate and sustainable solutions to affected borrowers in a timely manner in line with regulatory requirements and Central Bank expectations.
Question No. 199 answered with Question No. 121.
Question No. 200 answered with Question No. 108.
Question No. 201 answered with Question No. 83.
Eurozone Issues
Questions (202)
Neale Richmond
Question:202. Deputy Neale Richmond asked the Minister for Finance if he will report on the latest meeting of the Eurogroup; and if he will make a statement on the matter. [36652/20]
View answerWritten answers
The most recent Eurogroup meeting was held on Tuesday 3 November. Due to COVID19 related restrictions the decision was made once again to hold the Eurogroup meeting by videoconference.
The first agenda item featured a discussion on the latest health developments and their economic consequences, in view of the worrying surge in COVID-19 cases around Europe. Dr Andrea Ammon, Director of the European Centre for Disease Prevention and Control (ECDC) provided a valuable and insightful briefing to the Eurogroup.
We were reminded of the value of a coordinated European response to the pandemic and we reaffirmed our commitment to continue to provide unprecedented budgetary support. We also noted that the three safety nets agreed last April are now in place.
For information, the three safety nets are:
- The SURE instrument aims to protect jobs, and I am glad to report that support has already been granted to 17 member states. We all congratulated the Commission for its successful first issuance on the financial markets in relation to this instrument.
- The European Investment Bank (EIB) Guarantee Fund supports businesses and has been in effect since the summer; the first operations worth of €1 billion have already been approved by the EIB Board.
- The Pandemic Crisis Support instrument of the European Stability Mechanism (ESM).
The Eurogroup then moved on to a discussion on the ECB’s report on a Digital Euro. The report looks at different ways a digital euro could be designed. Ministers see this as a priority. We all agreed that a digital euro can bring benefits to European citizens, to businesses and to the European economy as a whole. But, at the same time, we are aware that the design and implementation of a digital euro pose challenges and deserve the most careful of consideration. I am therefore glad that we were able to have our first strategic discussion on the potential economic, social and political consequences that such an innovation could entail. I expect the Eurogroup to return to this topic on a regular basis.
We also had our first meeting in Banking Union format, this is a new grouping that is the consequence of Croatia and Bulgaria joining the Banking Union last July. In this composition, the Chair of Banking Supervision, Andrea Enria, and the Chair of the Single Resolution Board, Elke Koenig informed us about the latest activities of their institutions, with specific attention to their response to the pandemic. We welcomed that both institutions are applying the flexibility within their regulatory framework to soften the impact of the COVID-19 on the banking sector, with a view to supporting the recovery of the economy.
The Eurogroup in inclusive format included a debriefing on the implementation of the three safety nets and we took stock of ongoing work on liquidity in resolution.
The meeting concluded with the Eurogroup issuing a statement on COVID-19 developments. This statement can be accessed here:
https://www.consilium.europa.eu/en/press/press-releases/2020/11/03/eurogroup-statement-on-covid-19-developments-this-autumn/
Covid-19 Pandemic Supports
Questions (203)
Neale Richmond
Question:203. Deputy Neale Richmond asked the Minister for Finance if Ireland has availed of or applied to the SURE scheme to help support the economy through the Covid-19 crisis; and if he will make a statement on the matter. [36653/20]
View answerWritten answers
In the Budget 2021 speech, I announced the Irish Government’s decision to make a formal application to the European Commission for funding under the Support to mitigate Unemployment Risks in an Emergency (SURE) Instrument. The application was submitted on the 26th of October.
That application has now been assessed and accepted by the Commission. On foot of this assessment, the Commission published a proposal for Council Implementing Decision on 16th November. Once this draft Decision is adopted by the EU Council, the Commission will include Ireland’s loan amount in their bond issuance calendar. Draw down of the loan by Ireland is likely to happen in the first half of 2021.
The SURE instrument provides financial assistance by the European Commission to member states in the form of loans of up to €100 billion in total, and takes advantage of the Commission’s strong AAA credit rating. To date, 17 countries have applied for funding totalling €87.9 billion. Ireland is the 18th country applying, for a total amount of €2.474 billion. This brings the total amount committed under SURE to €90.3 billion. The scheme is now live and to date the Commission has issued social bonds under the scheme to a combined value of €31 billion to Poland, Spain, Italy, Croatia, Cyprus, Greece, Latvia, Lithuania, Malta, Slovenia.
The amount of the Irish application is based on costs already expended by the Government as part of the Covid-19 Temporary Wage Subsidy Scheme (TWSS), which satisfied the conditions for an application.
As the Deputy will be aware, the TWSS was introduced on 26 March to support firm viability and preserve the relationship between the employer and employee insofar as is possible by subsidising a portion of the employer wage bill in circumstances where the employer’s business has been negatively impacted by the restrictions introduced to stop the spread of COVID-19. Nearly 70,000 employers registered for the scheme. €2.7bn was spent supporting over 600,000 individual employees over the life of the scheme, which ended on 31 August 2020.
Value Added Tax
Questions (204)
Brendan Griffin
Question:204. Deputy Brendan Griffin asked the Minister for Finance if advice will be provided on a matter (details supplied); and if he will make a statement on the matter. [39256/20]
View answerWritten answers
The Retail Export Scheme enables visitors that are resident outside the EU benefit from VAT relief on goods purchased in Ireland and subsequently taken outside of the EU. Under existing rules, when the UK becomes a third country, visitors from Britain will be able to avail of the scheme. No minimum threshold currently applies in respect of expenditure on which VAT relief may be claimed.
The Brexit Bill as published provides that the value of qualifying goods must exceed €175 in order to be eligible for a refund under the scheme. This change is fully compatible with EU law and is in line with the EU VAT Directive. The Bill also introduces a requirement of proof of importation of the goods into the UK and the associated proof of payment, where applicable, of relevant UK VAT and duties, for the goods purchased under the scheme in order to qualify for a refund.
In recognition of the difficulties facing retailers, especially businesses in the tourism sector, I am bringing forward an amendment at committee stage to reduce the threshold to €75. This reduction retains protections for the exchequer while also acknowledging the potential impact that not making this change would have on retailers across the country at this difficult time.
Question No. 205 answered with Question No. 72.
Questions Nos. 206 to 208, inclusive, answered with Question No. 84.
Vehicle Registration
Questions (209)
Seán Sherlock
Question:209. Deputy Sean Sherlock asked the Minister for Finance if a 2020 registration plate will be allowed (details supplied). [39348/20]
View answerWritten answers
I am informed by Revenue that Regulation 9 of Statutory Instrument No. 318 of 1992, Vehicle Registration and Taxation Regulations, provides that the year assigned by Revenue for use on a registration plate is determined by the date the vehicle is first brought into use. From the information submitted on the German Registration Certificate, the vehicle in question was brought into use in Germany on 6 August 2019. Therefore, the year index mark of 192 was correctly assigned to the vehicle upon re-registration in the State.
Tax Collection
Questions (210)
John Brady
Question:210. Deputy John Brady asked the Minister for Finance if special provisions will be made by the Office of Revenue Commissioners for self-employed or sole traders who are not currently in a position to pay their full 2019 tax returns due to the impact of Covid-19 on their business; if a facility such as paying in instalments can be accommodated; and if he will make a statement on the matter. [39362/20]
View answerWritten answers
As part of the response to COVID-19, the Government introduced a range of support measures for impacted businesses, including the Debt Warehousing scheme and a reduced interest rate of 3% for phased payment arrangements under certain conditions.
The initial Debt Warehousing scheme, which was put on a statutory footing in the Financial Measures (Covid-19) (No. 2) Act 2020 , provides for the deferral of unpaid VAT and PAYE (Employers) liabilities that arose due to COVID-19 related restrictions. The deferral is for a period of 12 months after a business resumes trading and attracts a 0% rate of interest (during that period). The scheme also allows for an extended repayment period after the initial 12 months has passed with an interest rate of 3% rather than the 10% rate that normally applies in such circumstances.
The Debt Warehousing scheme was extended in Budget 2021 to include self-assessed income tax in respect of 2019 (balancing payment) and 2020 preliminary tax. Access to the ‘warehouse’ for these liabilities, including the 0% and 3% interest rates, requires self-assessed taxpayers to have a projected reduction in income of at least 25% in 2020 compared to 2019 and to have fully paid their 2019 preliminary tax. The extended scheme also provides for the ‘warehousing’ of overpayments of the Temporary Wage Subsidy Scheme (TWSS).
Where ‘warehousing’ is not an option for self-employed taxpayers in respect of their 2019 balancing income tax payment and 2020 preliminary income tax payment, for example where they do not meet the eligibility criteria, they can still avail of a phased payment arrangement at the reduced 3% rate. Any such arrangement must be agreed with Revenue by 10 December 2020 and requires all outstanding tax returns to be filed so that the overall tax liability can be quantified and included in the phased payment agreement. Full details on the Debt Warehousing scheme are available on the Revenue website at link https://www.revenue.ie/en/corporate/communications/documents/debt-warehousing-reduced-interest-measures.pdf
Property Tax
Questions (211)
Pearse Doherty
Question:211. Deputy Pearse Doherty asked the Minister for Finance the method through which a person (details supplied) in County Donegal can revalue a residential property for the purposes of the local property tax in circumstances in which the value of the property has potentially decreased since the date of initial valuation on 1 May 2013; and if he will make a statement on the matter. [39402/20]
View answerWritten answers
Section 13 of the Finance (Local Property Tax) Act 2012 (as amended) sets out how residential properties are to be valued for Local Property Tax purposes.
It is a matter for property owners to determine the valuation of their properties on the 'valuation date'. The current 'valuation date' is 1 May 2013 and any property valuation declared on that date remains valid until 31 October 2021. The 2013 valuation is not affected by any repairs or improvements made to a property or by any general increase or decrease in property prices that occur over the course of the ‘valuation period’ (2013 to 2021). Any reductions in the value of a property during a ‘valuation period’, including the impact of adjacent road upgrades, cannot be taken into consideration until the next ‘valuation period’.
Revenue has confirmed that it has already been in contact with the person in question to explain the position.
Property Tax
Questions (212)
Catherine Murphy
Question:212. Deputy Catherine Murphy asked the Minister for Finance the amount forgone and-or not collected by the Revenue Commissioners in local property tax by exempted property types in respect of properties purchased in 2013 to 2019 and to date in 2020. [39459/20]
View answerWritten answers
Local Property Tax (LPT) provides for certain properties to be exempt from the tax during a ‘valuation period’. For the current ‘valuation period’ (now extended to cover 2013 to 2021), these exemptions include properties purchased between 1 January 2013 and 31 December 2013 and trading stock of builders/developers unsold at 1 May 2013 or sold in the period 1 January 2013 to 31 October 2021. Exempt properties under all exemption categories have a cost (in terms of LPT receipts foregone) of c. €15 million per year.
Also, properties built after the current valuation date (1 May 2013) remain outside the charge of LPT until the next valuation date (1 November 2021). As the owners of such properties are not required to submit LPT returns or valuations to Revenue, their number is not recorded. However, for the report of the Interdepartmental Review Group on LPT, Revenue and my Department compiled estimates of the number such of properties.
The information was based on a combination of Revenue LPT and Stamp Duty data, Central Statistics Office data, forecasts of housing construction and other information. The estimates indicate that up to 80,000 such properties may currently not be liable to LPT. I am advised that these properties could potentially yield additional receipts in the region of €25 million per year if they were brought within the charge of LPT at current rates and applying 2013 valuations in line with the treatment of properties currently subject to LPT.
Revenue publishes a comprehensive range of quarterly and annual statistics relating to LPT on its website, including information regarding exemptions from the tax, at www.revenue.ie/en/corporate/information-about-revenue/statistics/local-property-tax/index.aspx .
Economic Growth
Questions (213)
Bernard Durkan
Question:213. Deputy Bernard J. Durkan asked the Minister for Finance the degree to which he foresees a return to good economic performance if and when the Covid-19 crisis is brought under control; and if he will make a statement on the matter. [39462/20]
View answerWritten answers
At the time of Budget 2021, my Department forecast a decline in GDP of 2 ½ per cent this year, with growth of 1 ¾ per cent in prospect next year. The projections assumed that trade with the UK would take place on WTO terms from next year and that a widespread vaccine for Covid-19 would not be available before the end of 2021. It was also assumed that targeted measures would be introduced in response to any increase in the Covid-19 incidence rate; crucially, that there would not be a second national lockdown.
However, in light of the rapidly deteriorating public health situation, the country moved to Level 5 of the Plan for Living with Covid-19 on October 22nd. A downside scenario analysis published in the Budget estimated that more stringent restrictions in the fourth quarter would see GDP contract by an additional percentage point this year and weaken the economic recovery next year. Although the fall-out from the latest restrictions will undoubtedly be significant, the economic impact is unlikely to be as severe as in this scenario or as that seen during the first lockdown earlier this year, as construction, education, childcare and most manufacturing activity remain open.
Looking beyond this year, as long as we continue to minimise any possible “scarring effects” through the provision of labour market supports, I am optimistic that the Irish economy will recover relatively quickly from the crisis. Indeed, assuming a vaccination can be rolled out over the short-term, the combination of policy supports, elevated household savings and pent-up demand should provide an environment for a sustainable economic recovery.
Moreover, it is possible that the pandemic may create opportunities as well as challenges. It is with this longer term perspective that the National Economic Plan, which will be published later this year, will set out the Government’s approach to bringing Ireland out of this economic downturn.
Economic Policy
Questions (214)
Bernard Durkan
Question:214. Deputy Bernard J. Durkan asked the Minister for Finance if specific economic interventions might be needed in the economy if and when Covid-19 is brought under control; and if he will make a statement on the matter. [39463/20]
View answerWritten answers
As the Deputy will be aware, the Government has acted decisively and on an unprecedented scale to support the economy through the effects of Covid-19 and stands ready to support the recovery as we emerge from this period. To date, the Government has provided support of almost €40 billion to households, our health sector and businesses.
In Budget 2021, I announced the establishment of a Recovery Fund of €3.4 billion to provide resources to Government next year to reinforce our economic recovery, stimulate demand and support employment. The Recovery Fund will be focussed on three key areas: infrastructure, reskilling and retraining, and supporting investment and jobs.
The Fund was designed to be flexible and is a deliberate effort by Government to allow, within the budgetary framework, for the unprecedented level of economic uncertainty that currently prevails. The uncertainty relates to both the trajectory of the virus and to the form that the post-transition trade with the UK takes.
Brexit Preparations
Questions (215, 216)
Bernard Durkan
Question:215. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he remains satisfied regarding the adequacy of actions to date to combat the economic impact of Brexit; and if he will make a statement on the matter. [39464/20]
View answerBernard Durkan
Question:216. Deputy Bernard J. Durkan asked the Minister for Finance his plans for further Brexit-related economic interventions; and if he will make a statement on the matter. [39465/20]
View answerWritten answers
I propose to take Questions Nos. 215 and 216 together.
My Department has been preparing for Brexit since before the UK referendum in 2016, and this work has intensified ahead of the end of the transition period on 31 December.
The central scenario underlying Budget 2021 assumes the transition period ends without agreement. The macroeconomic projections underpinning Budget 2021 have been developed with reference to several assessments of the macroeconomic impact of Brexit that my Department has funded and produced, including research into the inter-relationship between Covid-19 and Brexit on short-term economic prospects.
Brexit, in whatever form it takes, will have a negative economic impact on the Irish economy and living standards: there is no good Brexit. Regardless of the outcome of the Future Partnership negotiations, the UK will be outside the Single Market and Customs Union from 1 January 2021. This will have significant and lasting implications, particularly for businesses moving goods to, from or through Great Britain. Any future trading arrangement that is different to the existing arrangement will represent a permanent shock to the Irish economy.
What we can do, and what we have been doing, is take appropriate action to mitigate these negative effects. Overall, Budget 2021 provides €340 million for measures to prepare for Brexit through the continuation of existing measures as well as a number of new supports. This is on top of more than €700 million of measures in successive Budgets since 2017. Budget 2021 also includes a number of enhancements to existing tax-based measures in support of sectors and enterprises likely to be most affected by Brexit.
Further, Budget 2021 includes provision for a €3.4 billion Recovery Fund, the equivalent to c. 1.7 per cent of GNI*. The purpose of the Fund is to provide maximum flexibility to allow Government respond swiftly and decisively to the evolving public health and economic situation, including the fall-out from the ending of the transition period.
The Recovery Fund was designed to be flexible and is a deliberate effort by Government to allow, within the budgetary framework, for the unprecedented level of economic uncertainty that currently prevails. The uncertainty relates to both the trajectory of the Covid-19 pandemic and to the form that the post-transition trade with the UK takes.
Brexit Preparations
Questions (217)
Bernard Durkan
Question:217. Deputy Bernard J. Durkan asked the Minister for Finance if Ireland is adequately protected from the worst aspects of Brexit; and if he will make a statement on the matter. [39466/20]
View answerWritten answers
My Department has been participating in whole of Government preparations for Brexit since before the UK referendum in 2016 and, in line with the Government’s overall approach, has intensified work ahead of the end of the transition period on 31 December in order to minimise the impact of Brexit on Ireland.
Without prejudging the outcome of ongoing negotiations between the EU and the UK, the central scenario underlying Budget 2021 assumes the transition period ends without agreement and that a widespread vaccination for Covid-19 will not be available before the end of next year.
On this basis, Budget 2021 focussed on providing support to the economy through this challenging period, with regards to prioritising management of the Covid-19 crisis and the threat of a ‘no trade deal’ Brexit. Budget 2021 provides €340 million for measures to prepare for Brexit, through the continuation of existing measures and new supports for sectors and enterprises likely to be most affected. This comes on top of over €700 million in successive Budgets since 2017. In addition, the Recovery Fund of €3.4 billion will allow specific, targeted measures to be introduced when and where the need arises in response to both Brexit and Covid-19. Budget 2021 targets an improvement in the headline fiscal position while allowing deficit-financed spending to continue in the short term to ensure that our economy and the most affected sectors and households are adequately supported.
Regarding financial services, my Department is working closely with the Central Bank of Ireland and the NTMA to ensure the sector is adequately prepared to cope with the possible effects of Brexit, with as little disruption for consumers, investors and markets as possible. On the basis of its work and engagement across the sector, the Central Bank has been able to assure me that, while some level of market disruption is inevitable, the financial system as a whole should be resilient enough to withstand a hard Brexit and that the most material ‘cliff edge’ financial stability risks arising from Brexit have been largely mitigated.
Regarding preparation for the customs checks that will be necessary for goods travelling between Ireland and the UK, excluding Northern Ireland, at the end of the transition period, the Revenue Commissioners are undertaking an extensive body of work including stakeholder communications and training, staff recruitment and systems and infrastructure enhancements.
Finally, my Department is continuing to make Ireland’s position on the €5 billion Brexit Adjustment Reserve known to the European Commission. The publication of a proposal from the Commission is expected in the coming days and Ireland will then begin negotiating with other Member States to ensure we receive a significant share of the Reserve to support and enhance the steps which I have outlined above.
Brexit Preparations
Questions (218)
Bernard Durkan
Question:218. Deputy Bernard J. Durkan asked the Minister for Finance if, in the context of Brexit, the full extent of its negative impact on Ireland is fully recognised, appreciated and provided for in the short and medium terms; and if he will make a statement on the matter. [39467/20]
View answerWritten answers
My Department has been to the fore in producing and funding a number of assessments of the extent of the economic impact of Brexit, looking at both the short and medium term impact of Brexit in different scenarios.
For example, joint research with the ESRI, published in March 2019, broadly captured the range of possible future relationships between the EU and the UK. Under these scenarios, over the medium-term (i.e. 5 years) the level of GDP would be between 2 and 3 1/4 per cent lower, compared to a situation where the UK remained in the EU.
More recently, and in light of developments related to COVID-19, joint research was undertaken by my Department and the ESRI examining the impact and interrelationship of Brexit and the pandemic on the short-term economic prospects. The research found a limited overlap in the sectors exposed to the respective shocks.
Further to this, joint analysis my Department and the ESRI published in the ESRI’s Autumn 2020 Quarterly Economic Commentary incorporated these findings to examine the impact of Brexit on the recovery path of the economy post COVID-19. The results were broadly in line with previous Department of Finance/ESRI analysis in 2019.
This research, and earlier analysis carried out and published by my Department identifying Ireland’s trade exposure relative to our EU partners in both exports and imports terms, show that Ireland is an outlier among EU member States in terms of our trade exposure in both goods and services to the UK.
In the context of the research outlined, Budget 2021 was based on the prudent assumption of a disorderly end to the transition period between the EU and the UK at the end of this year and the projected impact of that scenario.
Under this scenario, a decline in GDP of -2 ½ per cent is projected for this year, and growth of 1 ¾ per cent is expected in 2021; this is around three percentage points below a counterfactual scenario, where a trade deal between the euro area and UK is reached.
I include a list of the published research and joint research on Brexit by my Department for reference:
- Department of Finance and ESRI 2016. Modelling the Medium to Long Term Potential Macroeconomic Impact of Brexit on Ireland
- Department of Finance. UK EU Exit: Trade Exposures of Sectors of the Irish Economy in a European Context
- Department of Finance. 2018. UK EU Exit – An Exposure Analysis of Sectors of the Irish Economy.
- Department of Finance. 2018 Brexit: Analysis of Import Exposures in an EU Context.
- Department of Finance and ESRI. 2019. Ireland and Brexit: modelling the impact of deal and no-deal scenarios
- Department of Finance and ESRI. 2020. Examination of the sectoral overlap of COVID-19 and Brexit shocks
- Department of Finance. 2020. Trade Costs and Irish Goods Exports
Economic Data
Questions (219)
Bernard Durkan
Question:219. Deputy Bernard J. Durkan asked the Minister for Finance the degree to which he remains satisfied regarding the stability of the economy in the face of the twin challenges of Brexit and Covid-19; and if he will make a statement on the matter. [39468/20]
View answerWritten answers
COVID-19 and Brexit represent key challenges facing the Irish economy at present. As a result, the Budget 2021 projections were prudently based on a disorderly end to the transition period between the UK and the EU while it was also assumed that a widespread vaccine for COVID-19 would not be available before the end of 2021. Given these assumptions, the relationship between the two shocks is important for understanding short term economic developments.
To inform the Budget 2021 economic projections my Department and the ESRI conducted an analysis of the sectoral overlap of the COVID-19 and no deal Brexit shocks. The key finding of the analysis is that there is limited overlap of the sectors exposed to the different shocks. No sector was found to be severely affected by both shocks. The analysis finds that while a dual shock from a no deal Brexit and COVID-19 increases the number of sectors at risk, the impacts of each individual shock are not exacerbated by the other shock.
As the COVID-19 and Brexit are likely to affect different sectors of the economy the Budget 2021 projections effectively treated the two shocks as ‘additive’. As a result, my Department is projecting that the economy will record a modest recovery next year with GDP growth of 1¾ per cent in prospect reflecting the continued impact of COVID-19 on the economy as well as a no deal Brexit. The impact of Brexit is estimated to reduce growth by 2½ to 3 percentage points next year, while over the medium term the level of GDP is expected to be approximately 3½ percent lower relative to a hypothetical status quo scenario.
We face these twin challenges of Brexit and Covid-19 from a position of strength. Our well educated work force and pro-enterprise culture mean that the fundamentals of our economy are strong and will facilitate a return to growth when conditions allow. Indeed, against this challenging economic background, the main focus of Budget 2021 was on meeting these twin challenges.
Budget 2021 includes provision for a €3.4 billion Recovery Fund - equivalent to c. 1.7 per cent of GNI*. The purpose of the Fund is to provide maximum flexibility to allow Government respond swiftly and decisively to the evolving public health and economic situation, including the fall-out from the ending of the transition period (that governs bilateral trade with the UK) at end-December. Prudent economic management in recent years has allowed us to direct an unprecedented level of resources to addressing these challenges. Careful management of the public finances is needed in order to chart our way forward through the uncertain times ahead.
Brexit Supports
Questions (220)
Bernard Durkan
Question:220. Deputy Bernard J. Durkan asked the Minister for Finance if he is satisfied that all countries throughout the European Union realise the degree to which Ireland’s economy is likely to be more affected than most others by Brexit; if extra supportive measures might be forthcoming in the event of a greater than expected negative impact; and if he will make a statement on the matter. [39469/20]
View answerWritten answers
In line with the Government’s overall approach, officials in my Department have been raising Ireland’s position as the Member State most impacted by Brexit with the European Commission, and within relevant European Union fora, since before the UK referendum in 2016.
In July 2020, as part of the 2021-2027 Multiannual Financial Framework (MFF) negotiations, leaders agreed on a new €5 billion Brexit Adjustment Reserve, which will be established outside the MFF ceilings to counter adverse consequences in Member States and sectors that are worst affected by Brexit.
The Commission has been invited by the European Council to present a proposal on the instrument by November 2020. We now expect this proposal to be published in the coming days. At this point in time, I have no indication in relation to potential allocations for Ireland or any Member State. Once the proposal has been published, my Department will begin analysis of the proposal and negotiations at Council level will then begin between the Member States. My Department will work to ensure that Ireland receives a share of the reserve that reflects the impact on Ireland as the worst affected Member State.
The Brexit Adjustment Reserve allocation will complement and enhance the comprehensive supports put in place by Budget 2021, which assumes the transition period ends without agreement and that a widespread vaccination for Covid-19 will not be available before the end of next year. Budget 2021 provides €340 million for measures to prepare for Brexit, through the continuation of existing measures and new supports for sectors and enterprises likely to be most affected. This comes on top of over €700 million in successive Budgets since 2017. In addition, the Recovery Fund of €3.4 billion will allow specific, targeted measures to be introduced when and where the need arises in response to both Brexit and Covid-19.
Brexit Issues
Questions (221)
Bernard Durkan
Question:221. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he expects the financial services sector here to benefit from Brexit; and if he will make a statement on the matter. [39470/20]
View answerWritten answers
I can reiterate that Ireland regrets the UK’s decision to leave the EU, although we respect it. While the Government remains committed to protecting and strengthening the Ireland-UK relationship following the end of the transition period, I can advise the Deputy that the net impact of Brexit on the policy areas within my remit is anticipated to be strongly negative.
A number of government strategies have sought to grow the international financial services sector over the last number of decades. In terms of jobs targets, the most ambitious target of a 30% increase in jobs was set out in 2015 in the five-year strategy for the sector to 2020, which was named ‘IFS2020’ and which had been devised long before Brexit.
The nature, scale and complexity of Ireland’s international financial services sector will change in a number of ways as a result of the financial services investments won in recent years, including firms relocating from the UK as a result of Brexit and those looking to set up operations in the EU for the first time. The industry in Ireland has become broader and more diverse with more firms carrying out a greater range of regulated activities than at any time.
The Government and the state agencies, such as the IDA, continue to work to fully capture any opportunities for inward investment that emerge through promoting Ireland as a committed English-speaking member of the EU with unfettered access to the EU Single Market, our continued access to EU talent and that of the Common Travel Area, in addition to our pro-business environment underpinned by a strong, fully-independent financial services regulator in the Central Bank of Ireland. We continue to implement the latest iteration of the IFS strategies which is Ireland for Finance, a strategy to develop the sector to 2025. That strategy is included in the Programme for Government. The implementation is led by my colleague Minister of State Seán Fleming TD.
The full impact of Brexit for the industry in Ireland may not materialise for some years. At present, firms are establishing the foundations of a new or significantly expanded presence in Ireland, creating a platform for future growth opportunities in all sectors: insurance, banking, and investment management.
Since the Brexit referendum in UK, we can point to the success of Barclays and Bank of America in banking plus the many investment firms who have chosen Ireland as their European base such as Legal and General, and Aberdeen Standard. Three of the largest market infrastructure players in their respective markets have made Ireland their post Brexit location for their European business, namely Refinitiv, EquiLend, and DTCC. Marine insurers The Standard Club and North P&I Club are both establishing operations here. Kroll/KBRA became the first ratings agency to announce that its EU HQ location would be in Dublin and this was followed by S&P’s announcement in December 2017 that Dublin would become its EMEA HQ.
The IDA paused its marketing activities overseas in the second quarter of 2020 due to the Covid-19 pandemic but a new marketing campaign commenced in the third quarter of the year as part of a phased launch across key source markets for investment.
Mortgage Interest Rates
Questions (222)
Bernard Durkan
Question:222. Deputy Bernard J. Durkan asked the Minister for Finance when mortgage interest rates here are likely to come into line with those applicable in other EU economies having particular regard to the impact of changes in trade patterns in the future; and if he will make a statement on the matter. [39472/20]
View answerWritten answers
I am aware that the general level of lending interest rates in Ireland are higher than is the case in many other European countries, though it should also be noted that recent trends indicate that rates have been falling.
For example, interest rates on new fixed rate mortgages (excluding renegotiations) have fallen from 4.11% in December 2014 to 2.64% in September of this year.
However, Irish loans, particularly Irish mortgages, can have different characteristics from those offered by other EU banks making direct comparison of these rates inconsistent. For example, many Irish banks include incentives such as cash back offers, which reduce the effective Irish mortgage interest rate. Irish mortgages are also not subject to upfront fees typically charged by banks in other EU jurisdictions, and which can result in lower EU headline rates.
Nevertheless, there are a number of important factors determine the interest rates charged on Irish mortgages. These include operational costs, certain structural factors as referenced above (such as incentives offered), as well as the fact that pricing will reflect:
- credit risk and capital requirements which in Ireland are elevated due to historical loss experience;
- the level of non-performing loans which is higher in Ireland relative to other European banks (as provisioning and capital requirements are higher for these loans to reflect their higher risk and this in turn results in higher credit and capital costs for the Irish banks);
- there are lower levels of competition in the Irish banking market compared to other jurisdictions (however, it is noted that a new entrant has recently entered the residential mortgage market and that it is offering fixed rate mortgages at competitive interest rates).
However, the Central Bank has a range of measures to protect consumers who are taking out a mortgage. The consumer protection framework requires lenders to be transparent and fair in all their dealings with borrowers and that borrowers are protected from the beginning to the end of the mortgage life cycle; through protections at the initial marketing/advertising stage, in assessing the affordability and suitability of the mortgage and at a time when borrowers may find themselves in financial difficulties. In particular, the Central Bank introduced of a number of increased protections for variable rate mortgage holders which came into effect in February 2017. The enhanced measures, which are provided for in an Addendum to the Consumer Protection Code 2012, require lenders to explain to borrowers how their variable interest rates have been set, including in the event of an increase. The measures also improve the level of information required to be provided to borrowers on variable rates about other mortgage products their lender provides which could provide savings for the borrower and signpost the borrower to the CCPC’s mortgage switching tool.
The Central Bank also introduced additional changes to the Consumer Protection Code in January 2019 to help consumers make savings on their mortgage repayments, provide additional protections to consumers who are eligible to switch, and facilitate mortgage switching through enhancing the transparency of the mortgage framework.
Ultimately, however, the price lenders charge for their loans is a commercial matter for individual lenders. Nevertheless, I will continue to work with the Central Bank and also engage with lenders to encourage, within a framework which seeks to maintain overall financial stability, greater price and other competition in the mortgage market, both for new and existing borrowers. It is, therefore, a welcome development that a new residential mortgage lender has recently entered the market and it will be of benefit to new mortgage borrowers and also to borrowers, in particular to borrowers who may still on a standard variable rate with the lender, who may wish to consider switching to a new lender.
Inflation Rate
Questions (223)
Bernard Durkan
Question:223. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which inflationary tendencies have been identified in the economy that might ultimately pose a threat, such as inflation in house prices; and if he will make a statement on the matter. [39473/20]
View answerWritten answers
To date, the net impact of the Covid-19 shock has been deflationary. On an annual basis, the Harmonised Index of Consumer Prices (HICP) has been negative since April. This phenomenon is not unique to Ireland, with many advanced economies, including the euro area, experiencing weaker inflation as a result of the pandemic.
In October, headline HICP declined by -1.5 per cent on an annual basis - the lowest rate since 2010. This implies a headline inflation rate of -0.4 per cent for the year to date. Core inflation, which excludes the volatile components of energy and unprocessed food, was flat over the first ten months of the year. While low goods prices and declining air fares continue to act as a drag on inflation, declining rent prices, a key driver of overall services inflation, have put further downward pressure on both the headline and core index in recent months. Subdued price pressures are also evident in the housing market. The residential property price index declined for the third month in a row in September, with prices falling by 0.8 per cent on an annual basis.
These developments are broadly in line with the outlook for inflation set out in the Budget 2021 forecasts published in October. The Department is currently forecasting headline HICP of -0.3 per cent this year and 0.4 per cent in 2021, with core inflation of 0.1 and 0.2 per cent in prospect this year and next. The headline index is expected to grow in line with the assumed recovery in oil prices next year. Services prices are also forecast to grow throughout 2021, in line with an improvement in labour market developments, putting upward pressure on both headline and core inflation.
Insurance Industry
Questions (224)
Bernard Durkan
Question:224. Deputy Bernard J. Durkan asked the Minister for Finance if his Department continues to monitor developments in the insurance industry, with particular reference to the need to provide cover for all types of insurance at viable rates; and if he will make a statement on the matter. [39474/20]
View answerWritten answers
At the outset, it is important to note that neither I, nor the Central Bank of Ireland, can direct the pricing of insurance products, as this is a commercial matter, nor can we compel any insurer operating in the Irish market to provide cover. This position is reinforced by the EU Single Market framework for insurance (the Solvency II Directive) which expressly prohibits Member States from doing so.
The Programme for Government sets out a range of commitments to reform the insurance sector. Work has begun to implement these. In this regard, a Cabinet Committee Sub-Group has been established by Government to oversee insurance reform implementation. This is chaired by the Tánaiste, and also includes as standing members, Ministers McGrath, McEntee, O’Gorman and myself, together with Ministers of State Troy and Fleming. I strongly believe this cross-departmental approach provides the best opportunity to address the cost and availability of insurance and will build and expand upon previous commendable work done by the Cost of Insurance Working Group (CIWG), which published its Eleventh and Final Progress Update report on 30 October.
By way of update, a new insurance reform Action Plan is being developed which will outline a range of deliverables, including potential legislation, where required, in a number of Government Department policy areas, and will be published before the end of the year. Work is already underway in relation to a number of areas and it is anticipated that the Cabinet Committee Sub-Group should be able to report on progress in relation to the proposed Action Plan for insurance reform before the end of this year.
In addition to this work, there has been a fresh round of intensive engagement with key stakeholders. In this regard, Minister of State Fleming has held meetings with the Alliance for Insurance Reform; the State Claims Agency; Insurance Ireland; Irish Public Bodies Mutual Insurance; the Central Bank of Ireland; and Brokers Ireland. More recently, he has just concluded a series of meetings with the main insurers in the Irish market, the Law Society of Ireland, the Bar Council of Ireland, Home and Community Care Ireland, and the Motor Insurers’ Bureau of Ireland.
In conclusion, seeking to secure a more sustainable and competitive market through deepening and widening the supply of insurance in Ireland remains a key priority issue for this Government. Minister of State Fleming and my Department will continue to play a lead role in this policy area.