As there are no amendments on Report Stage we proceed to Fifth Stage.
Securitisation (Proceeds of Certain Mortgages) Bill, 1995: Report and Final Stages.
Can I seek your guidance on procedures? I understand I have one contribution to make and I am not expected to reply, or does the House wish me to reply in respect of Fifth Stage?
The Minister may avail of his opportunity on the Fifth Stage.
I thank all Deputies for their help in passing this Bill expediously. It is important from a budgetary perspective that the Bill should be enacted and the scheme be operational to allow for the money to be raised for the payment of the equal treatment arrears.
As I outlined when I introduced this Bill to the House I had several aims in mind in bringing forward this legislation. First there was a need to raise the finance to pay the equal treatment arrears without adversely affecting the budgetary targets we had set ourselves this year. As Deputies know the cost of the payments this year will be of the order of £200 million. Of this, £60 million was provided in the budget. However, after the budget the ruling of the High Court was delivered and it was necessary to raise money to meet the payments. It was necessary to raise the money other than through extra borrowing which would have upset our budget targets and this presented me with an opportunity to help develop the financial markets by means of this new instrument.
The second aim therefore was to raise the money in such a way as to influence positively the Irish financial markets and their development. Securitisation is a feature of the markets in the US and the UK and in some other European countries. I asked the National Treasury Management Agency to develop a proposal to allow securitisation of certain flows of funds based on the local authority mortgages.
The scheme proposed by the agency was designed to receive a lump sum up-front as a consideration for the benefit of the flow of income from local authority mortgagors to some of the local authorities. I stipulated however that the scheme should have no effect on the mortgagors nor any adverse effect on the local authorities.
The Bill now before the House provides the necessary legal framework to enable the scheme to proceed. The agency has identified the stream of income needed with the help of the local authorities. In addition, it has developed the bond structure.
The Bill has been considered by this House and I have sought to answer any questions raised because of the complex nature of the area. I have been open and transparent about all the issues in the Bill. I assure the House that there will be no change in the rights or obligations of local authority mortgagors or any extra burden on the local authorities.
The Bill will allow us to meet the equal treatment arrears payments and also help, I hope, to develop the Irish capital markets generally. I acknowledge the help and assistance I received from all sides of the House in this matter.
On Second Stage I spoke at some length and outlined a brief history of equal treatment as it affected me in a previous Department. I welcome the fact that the Government has brought the saga of equal treatment arrears for married women to an end. However, this matter has been through so many court cases here and in Europe that one would be loath to predict that there will not be another case or two in future.
On Second Stage and Committee Stage I pointed out that I would have nothing against the principle of the Government setting off the mortgage book. Under this Bill the Government has taken unto itself powers to do a number of things. It is not intended, as the Minister has pointed out, to securitise the whole mortgage book, but about £200 million of the total sum which now stands at about £140 million. We discussed this at some length on Second Stage when I made it quite clear that I had no objections in principle to the idea of securitisation. Nor do I disagree that it is the Government's right to pay off the whole equal treatment arrears in one year if it so wishes. I would, however, quibble with its decision to pay the arrears in one year because it was unnecessary, but it is certainly within the right of the Government to bring the whole saga to a conclusion in one go. Since the announcement of this matter, I have disagreed with the way it was put before the people. I do not want to stand up for one Minister against another but the Minister, Deputy Quinn, has been reasonably open about this matter. However, when the decision was announced, by another Minister, as to how it was to be done, there was not the same type of openness one would expect from certain Members of the Government. It endeavoured to create the impression that this would not affect the Exchequer borrowing requirement for 1995 or any other year. As I stated on Second Stage the Exchequer borrowing requirement, current budget deficit or whatever one likes to call it, amounts to selling off future income to pay a current debt. One cannot say that the payment of social welfare arrears to married women on foot of the equal treatment directive is anything other than current expenditure. It is not capital expenditure. I gave vent to my thoughts on the issue and I upset some Democratic Left Deputies.
I disagree with the Government selling off a future income stream to pay off current expenditure. Securitisation of the local loans book was considered by a previous Government. I am speaking of the period prior to the general election in 1992 when my party stated in its manifesto——
I intervene to seek to dissuade the Deputy from making a Second Stage speech. This is Fifth Stage and at this time brief reference is made to what is contained in the Bill.
If under section 3 the Government securitises more of the local loans fund a positive resolution must be put before the House. I welcome that. I have heard that in 1996 there will be another effort made to securitise more of the fund to pay for current expenditure. I counsel against that as it would be a negative step.
The Minister spoke about the development of capital markets and I welcome that. I do not agree with securitisation if it raises money on foot of capital assets or a future income stream which is not used for capital and long-term expenditure.
I agree with both Deputy McCreevy and the Minister. I was not present for the Second Stage debate but Deputy O'Malley, in a colourful contribution, ranged far and wide.
We thought the Deputy wrote his speech.
There is nothing wrong with the Bill, rather it is the purpose to which the proceeds are being applied that raises some questions. The Equality Payments Bill must be defrayed but it is not a happy situation to sell off capital assets to defray accumulated current non-payments over the past number of years. It is similar to a building society securitising some of its loan book if it did not pay equality payments to its female employees and had a huge bill slapped on it by the Labour Court. It would be the disposal of a capital asset to pay for something which few accountants would categorise as a capital liability.
I do not know when arrears crystallise into a capital liability. If your bank account is overdrawn it is slightly academic whether it is a capital sum or arrears of current expenditure. You pay interest anyway.
You have the punitive option of a term loan.
I agree with Deputy McCreevy that it should have been possible to defray these repayments over a longer period and deal with them by way of current expenditure.
The original proposal was to borrow through the NTMA or the HFA and purchase the loan book from the Government. To pretend that while this might be public sector borrowing it was not Exchequer borrowing was a transparent device that would not fool anyone. I am happier with the proposed course of action as it has greater fiscal integrity. There is something objectionable in principle in using discounted future cash flows, which effectively is the disposal of a capital asset, to defray accumulated non-payment of current expenditure liabilities. From that point of view I echo what Deputy McCreevy said. This is not good financial management.
I do not oppose securitisation in principle because I do not see why the Government of the day should retain future cash flows of this kind if it can liquidate them. The only issue, as Deputy McCreevy stated, is the use to which the proceeds of a sell-off of this kind are put. If it has been used to reduce national borrowing the money would have been put to proper use. While my party supports the Bill it is not sure that the motive behind it is quite as pure as the wording of the Bill might suggest.
I agree with Deputies McCreevy and McDowell on the method used to make these payments but I am pleased that the matter is being dealt with. Like other issues in recent times, it is good to have it out of the way.
An Irish solution to an Irish problem.
It is unfair to heap the blame on any individual or Government. The matter dragged on for some time over several Administrations. It will be a lesson for future Members of this House on how not to deal with a European Community directive. The sooner difficult items are dealt with the better. This issue has cost taxpayers a lot of money.
I hope the same priority will be given to social welfare and taxation measures as they are closely linked. I have tabled a question for written reply today relating to the severity of the taxation system, particularly as it affects the low paid. It is, unfortunately, true that it does not pay many people to get out of bed in the morning because it is not worth their while. There is a substantial disincentive to do so. We then wonder why the number on the live register is increasing. We say that there is another register, the labour force register, which we are much happier to look at as the number is about 76,000 lower——
I stand corrected. The problem is that each of them has to be paid every week and the unfortunate taxpayer has to foot the bill. I ask the Minister for Finance and the Minister for Social Welfare to attach the same priority to the task of eliminating the many poverty traps within the system because of the taxation policies followed. There has been a lack of determination to do so. Fiddling around with different registers is not the answer.
The nub of the problem is that the Minister for Social Welfare decided to play hardball in his first year in office and demanded that a couple of hundred million pounds be spent in the first budget of the rainbow Government. More's the pity as the economy was in good shape due to belt tightening which caused grief for certain sectors. It will be a pity if there is continued slippage.
When in Opposition the Minister for Social Welfare regularly lectured the Government on the importance of publishing the Estimates early in the year. It has been reported in the news columns that while he would agree to a figure of 2 per cent plus inflation he would prefer a figure of 5 per cent. That is no way to run a Government and it is very selfish of any individual Minister to attempt to do that. I have great sympathy for the Minister for Finance but for the sake of the economy and future generations this is not the way to resolve the problem, although it is welcome that it is out of the way. The Estimates should be agreed and published so that they can be the subject of a rational debate. That is the way to handle the matter, as the Minister for Finance well knows. I say good riddance to this matter, but this method should never again be used.
I thank Deputies McDowell and McCreevy for their support in relation to the method of securitisation used. The NTMA route is a more stand alone and self-contained one which meets the obligation and requirement to separate it from additional Government guaranteed borrowing on the one hand and provide a new instrument in the capital markets on the other. There is a shortage of adequate secure investments and instruments in the capital markets to attract the substantial investment funds within the economy which, by reason of not having an adequate range of secure investments, properly and understandably find investment opportunties elsewhere as they are perfectly entitled to do.
On the question of paying all the money at once, the budget provision was for £60 million in anticipation of a liability in 1995. The High Court judgment was handed down within days of the announcement of the budget. The legal advice was that while an appeal was technically feasible the prospects of winning were negligible. The probability was that had we appealed the decision — we were not of the mind to so do — we would have been obliged immediately to pay out all the money, estimated at the time to be of the order of £260 million, in a lump sum with some interest. This could have led to additional costs of the order of £80 million, giving a total cost of the order of £340 million. The Government, therefore, decided to pay out all the money in one go.
There were constraints in calculating how this could be done. A sum of £200 million has been paid out this year with the balance to be paid in 1996. It is expected that some small residual payments will remain to be paid in 1997. All the money will be drawn from the proceeds to be raised on foot of this securitisation. We did this knowingly because — Deputy McDowell made this point — a series of current account payment liabilities had accumulated over time to the point where, whether they were a current or capital liability, the volume of money involved required recourse to a capital sum. We did so in the manner described.
I have answered the points raised by Deputies McDowell and McCreevy and also the points raised by Deputy Walsh who expressed concern with regard to social welfare. As he correctly said, we have resolved this matter once and for all in such a way that all future potential office holders will ignore European Union directives at their peril.