Patricia Ryan
Question:344. Deputy Patricia Ryan asked the Minister for Finance if it is open to local authorities to issue municipal bonds; and if he will make a statement on the matter. [42513/22]
View answerThursday, 8 September 2022
Questions (344)
Written answers
Any consideration of allowing local authorities to issue municipal bonds gives rise to the wider concern of the need for government to manage General Government deficits, expenditure and debt. All the financial transactions of local authorities feed into the calculation of the general government balance and general government debt. Thus, any expenditure and receipts of a local authority will impact on the general government deficit. Any debt liabilities to the private sector and/or International Financial Institutions (such as the European Investment Bank) will increase general government debt.
Local government is part of the wider government system and any additional borrowing by them adds to the overall stock of borrowing. The sustainability of this level of debt needs to be taken into account when considering whether to allow local authorities to issue municipal bonds. Public debt in Ireland now amounts to nearly a quarter of a trillion euros. My Department issued its annual publication on the sustainability of public debt in February 2022. The key message that flows from that analysis is that the increase in public debt is manageable but in order not to impinge on our living standards, it must be managed in a careful and prudent way.
If external borrowing by an entity, such as a local authority, cannot be repaid it is almost certain that the Exchequer will have to fund the cost of such borrowing. There is always the risk that local authorities could borrow to the extent that they did not have the capacity to repay such borrowing or that the repayment of the interest or principal related to such borrowing could undermine the provision of local services.
It is not obvious that there is the level of financial and operational controls at local or national level, the financial capability to manage such borrowing or indeed the existence of a market for borrowing by local authorities in which they could attract interest from external investors without some form of Government guarantee.
Without appropriate strategies, policy and indeed legal requirements to manage these processes there would also be concern as to the use of debt by local authorities. If local authorities are to borrow to fund investment then there is a need for that borrowing to be matched by a revenue stream in order to repay the cost of any such borrowing. Borrowing could not be used to run day to day services or to cover any deficits in existing funding arrangements.
The National Treasury Management Agency (NTMA) is solely responsible for borrowing on behalf of the Government and managing the National Debt in order to ensure liquidity for the Exchequer and to optimise the interest burden over the medium term. The primary source of Government borrowing is through the sale of Irish Government bonds. The proceeds of borrowing must be paid into the Central Fund unless there is specific statutory authority to do otherwise. It is not likely that local authorities in Ireland could borrow at the same rate; for the same level and on the same conditions as has been achieved by the NTMA.
Tax and other revenues, together with the proceeds of Exchequer borrowing are available to fund general Exchequer expenditure – including in the areas of housing, roads, and infrastructure. Local Authorities already have the capability to raise revenue in their local areas e.g. through Rates and the Local Property Tax (LPT) which links local expenditure with local accountability for such expenditure.