Vol. 661 No. 2
1 Deputy Richard Bruton asked the Minister for Finance his latest assessment of the 2008 year end level for the numbers out of work, the shortfall in tax revenue and the Exchequer deficit; and if he will make a statement on the matter. [31744/08]
2 Deputy Joan Burton asked the Minister for Finance his budget deficit forecast for the year to 31 December 2008; and if he will make a statement on the matter. [31748/08]
I propose to take Questions Nos. 1 and 2 together.
In early July my Department published a technical economic update which set out forecasts for 2008, based on the latest information available at that time. On this basis, unemployment was expected to average 5.8%, or in numerical terms some 132,000 during 2008. This compares to unemployment of 4.5% or 101,000 over the 2007 period.
At the end of this month, as is usual, my Department will make its six-monthly return to EUROSTAT setting out the overall fiscal position, including the general Government balance for the years up to 2007 and my Department's forecast for 2008. This forecast will take account of the latest fiscal information available at that time.
In announcing the bringing forward of budget 2009, I stated that my Department's latest assessment indicated a tax shortfall significantly in excess of that previously expected for 2008. September is a key month for tax revenue and while we do not have full month data yet, early indications suggest that the poor performance in tax receipts witnessed over the summer months is continuing. My Department is closely monitoring overall tax performance in the run-up to the budget.
My Department will publish an updated view on expected tax and Exchequer positions at the end of this quarter. A comprehensive assessment of the fiscal and economic position will be contained in the budget which will be published on 14 October 2008. As is normal, I will not comment on the contents of the budget in advance of that date.
In light of today's figures from the CSO, how does it feel to be the first Minister for Finance in 25 years to have to report a recession to the people? Does the Minister still maintain that the collapse we are experiencing in Ireland has to do with international events when the evidence from the CSO today categorically shows that the fall is far more acute in Ireland than in any other country? As recently as last week, every other country still forecast healthy growth in 2008, but we are now in recession and are heading towards very grim figures.
Does the Government accept responsibility for the fundamental change that has occurred in the model that underpinned the Celtic tiger? That model was based on high export growth, tight management of budget balances, high productivity and high competitiveness. Does the Minister accept responsibility in any shape or form for the horrendous decline in the key figures for all of those areas? They were the hallmarks of the Celtic tiger that brought so much success to the country, but they have been destroyed.
I do not accept they have been destroyed, but I accept responsibility as Minister for Finance for ensuring those fundamentals are improved and enhanced in the years ahead. With regard to the cause of our current position, Ireland is an exceptionally open economy and the deterioration in the global climate in the past year has had a major impact here. We are more exposed to global trends than many other economies. The pace of growth in our main trading partners has slowed and this has had an impact on our export performance. The application of the exchange rate also has an effect as a significant part of our trade is outside the euro area. Developments in the euro-sterling bilateral rate are of special importance given our proximity to the United Kingdom.
We are three weeks away from the budget and various leaks have suggested there will be a deficit of up to €5 billion. The Minister has just said the tax returns for September — I presume the Minister gets weekly or more frequent returns — are continuing. Does this suggest we are now looking at a deficit of up to €7 billion, 7% unemployment and 300,000 people unemployed by the end of the year? Does the Minister agree that now we have the "R" word or the tag "recession" officially added to the tag of the Irish economy? Is this where Cowenomics has brought us? This is what the slump coalition has delivered in 15 months and there are 46,000 more people unemployed since Deputy Brian Cowen became Taoiseach.
Does the Minister agree that it was the stoking of the property bubble by the former Minister for Finance, Deputy Brian Cowen, that caused the Cowen recession in Ireland? We know there is a generally difficult international economic climate, but the Irish recession is worse, steeper and will, possibly, last longer because this Minister's predecessor fed the property bubble with property-based tax breaks long after their sell-by date. Does the Minister agree that the bursting of the property bubble, caused by Fianna Fáil and Deputy Brian Cowen, is the cause of mayhem in our economy and has caused grave uncertainty for a number of our financial institutions?
I am glad Deputy Burton acknowledged a major contribution to the slowdown in our economy has been caused by global factors. She is correct that domestically a major adjustment to the house building sector is under way, with output likely to decline by at least one third this year. There are also strong indications of over supply and in these circumstances a further large reduction in output is in prospect next year. There is growing evidence that the effects of the slowdown in the house building sector has spilled over to other sectors of the economy. I accept that.
I do not accept the suggestion that the Taoiseach bears personal responsibility for the slowdown in the housing sector. The major causative factor for the overheating in the construction sector was the easy supply of credit in recent years here. That is no longer the case, but it was a major causative factor in that phenomenon. That factor has come to an end and we have conditions of over supply. We must deal with the economic challenges we face here and now and not dwell on the possible causative factors for them.
I agree with the Minister there are difficult external conditions. However, does he suggest that Ireland's falling share in export markets does not have anything to do with what is happening here? Is he trying to say our falling competitiveness does not have to do with what has happened here? Is he trying to say the fact inflation in Ireland was running at almost twice what it was running at in the rest of Europe does not have to do with internal factors? Was the Government not responsible for the management of those factors? Was it not very foolish to increase public spending at twice the rate of growth of the economy? Was it not very foolish to rely on the revenue coming from the property bubble to support those spending figures?
That is a long list of questions. This country has a solid export driven sector. Our export driven goods and services sector is the mainstay of our economy today and is thriving.
Did the Minister look at the CSO figures on exports today? They are not growing.
I did. There is some moderation in demand because of the position in other markets, not because of a position created by the fundamental factors here.
The CSO figures do not show that and no independent commentator would agree on that.
The fundamental factors regarding exports of our goods and services are soundly based. The difficulties that have arisen have arisen in the construction and banking sectors and have international causes. That situation is visible to all.
The Government has crowded out our exporters and crowded out people trying to make a living.
Why does the Minister refuse to publish the pre-budget outlook this year? Last year, when Deputy Brian Cowen was still Minister for Finance, he praised the publication of a pre-budget outlook as a major reform and improvement in transparency and accountability of the public finances. The Minister and his officials must have a very good idea of the spending plans by Department at this time or they do not deserve to be in their jobs. If they were in the private sector and in charge of a major corporation with €56 billion in revenues — falling — coming into the company and could not, four months before the end of the year and three weeks before their budget, tell us the expected figures, they would be sacked. Is the Minister working on a similar strategy to Charlie McCreevy's disastrous trick of introducing decentralisation like pulling a rabbit out of a hat? Nobody knew the figures and it took time to make an assessment of his plan, which turned out to be one of the worst of the many follies and vanities of the Celtic tiger. It caused gross confusion in the Civil Service and significant increases in the number of public servants employed when resources and head offices were duplicated. Is the Minister planning a similar trick for budget day? Will he just pull the figures out of a hat? We are going to hear them as he stands up and the capacity to make an assessment will only be delayed by a few hours. Is he going to waste several vital weeks in terms of setting a course for stability and recovery for our economy?
I assure Deputy Burton that I am not wasting vital weeks. The reason for bringing forward the budget to Tuesday, 14 October is the gravity of the situation in terms of our national finances and this year's deteriorating economic position. That deterioration has been reflected in a sharp reduction in forecast tax revenues. I appreciate that Deputy Burton and, I am sure, Deputy Bruton would wish to be better informed of the fundamental economic framework prior to budget day.
What about the taxpayers, the people who pay the money?
If I may complete my answer, for that reason I will arrange for my officials to fully brief the Deputies on the state of the economy upon the conclusion of the September quarterly analysis by my Department.
I have a brief supplementary question.
I am afraid we are running out of time.
I wrote to the Minister last week requesting such a briefing. He might have the courtesy to acknowledge that his offer, which I welcome, comes in response to my letter.
3 Deputy Kieran O’Donnell asked the Minister for Finance his intentions regarding funds held by the pension trustees of certain non-commercial State sponsored bodies in view of his letter proposing a full guarantee of pensions by the State and a transfer of funds; and the way the transfer will be accounted for in terms of general Government borrowing in 2009. [31745/08]
Discussions are in train with the trustees and administrators of the funded pension schemes of the five older universities and certain non-commercial semi-State bodies, SSBs, which have funded pension schemes with a view to providing consistency and clarity for the future in terms of meeting the liabilities of the schemes. This follows consideration some time ago of the pension difficulties facing those universities by a working group under the Higher Education Authority, which recommended such discussions. The background is that all funded schemes must now meet minimum funding standards under EU law unless they are covered by the State. This has presented problems for the universities and non-commercial SSBs with funded pension schemes where the State ultimately carries the liability but where this is not clear enough to warrant exemption under EU law. In that context, and provided all the schemes concerned agree, it is proposed that the assets of those schemes would be transferred to the State with the liabilities, which would then be effectively met effectively by the State on a pay-as-you-go basis in the future. The terms and conditions of the schemes would be neither better nor worse than what the members would be entitled to anyway. If agreement is reached, legislation to give effect to the proposal would be required.
I am informed that the estimated value of the assets of the funds in question at the end of 2007 was in the region of €2.3 billion but this will have changed in the interim and is subject to market fluctuations. As regards the impact on the public finances, under current EUROSTAT rules the transfer of the assets would impact positively on the general Government balance, GGB, when received. This initial revenue would be offset in the future by the payment of pension benefits which would be recorded as Government expenditure at the time of payment. The effect on the GGB when the assets are received is clearly identified as being once off in the national accounts and the underlying GGB is, therefore, still unaffected.
The Minister is proposing creative accounting. I want an assurance that he will not use the proposal as a mechanism to borrow further. Will he confirm that the transfer will have a positive impact on the general Government balance of €2.3 billion?
It will have a positive impact.
Does that mean the Government will borrow an additional €2.3 billion over what it would borrow if it was not able to transfer the funds?
Borrowing plans are not being formulated in light of the existence of this fund. The details of the borrowing in which we will have to engage next year are a matter for the Budget Statement but, as far as this matter is concerned, discussions with the relevant institutions are at a preliminary stage. I am sure Deputy O'Donnell has noted from my reply that a difficulty exists in EU law which must be addressed. The position of the Exchequer in regard to the payment of these pensions in the future is cost neutral. We may have to engage in an exercise involving the consolidation of the existing assets of the colleges with the Exchequer or other relevant designated parts of the public financial system under the direction of my Department.
I find it incredible that as the budget is less than two weeks away the Minister has not yet decided the level of borrowing. He speaks about instilling confidence in the economy but he cannot answer a straightforward question.
That is a complete misrepresentation.
It is not a misrepresentation. This runs contrary to his advice to the private sector in terms of properly funded pension schemes. He is taking over assets and unquantifiable liabilities. Will the pension liabilities he is taking from the semi-State non-commercial bodies be put under the management of the National Treasury Management Agency? Will he give us an assurance this is not being used as a mechanism to enable the Government to borrow recklessly while appearing to satisfy the EU's general borrowing requirements?
As I made clear to Deputy O'Donnell in my first supplementary reply to this question, discussions on this matter are at a preliminary stage. It is not my practice or, indeed, the practice of any previous Minister to disclose the borrowing plans that may be disclosed in the Budget Statement and I do not propose to do so at this stage. I have pointed out to the Deputy that plans in regard to this matter are at a preliminary stage and will involve discussions and legislation which will be distinct from the Finance Acts. I cannot comment on the matter in the context of the budget.
Is the Minister introducing it as part of the general Government plans for the 2009 budget?
I cannot comment on what will be in the budget. I have stated that the matter is at——
Is it your intention——
Allow the Minister to respond.
I will not disclose the budget this afternoon.
You are indulging in creative accounting.
I am saying that the matter is under discussion with the relevant parties and this will take time and will require separate legislation to advance.
The €2.3 billion will not be coming in this year.
May I finish my answer?
I ask the Deputy to allow the Minister to respond to the question.
In regard to the suggestion of unquantifiable liabilities on foot of any decision that may be taken on this matter, these will in any case accrue to the State because it assumes liability for these pensions in practice. The allocation of assets that may accrue as a result of any decision that may be made will be determined by the Government in due course.
4 Deputy Richard Bruton asked the Minister for Finance if he has had discussions with the banks or the Central Bank and the Irish Financial Services Regulatory Authority regarding the robustness of the Irish financial sector; and if he will make a statement on the matter. [31746/08]
Maintenance of the overall stability of the Irish financial system is a central priority of the Government. Since August 2007 the international financial system has been affected by unprecedented turmoil and dislocation. Credit markets, which are pivotal to meeting the medium-term funding needs of the financial system, have effectively closed since August 2007. Interbank lending rates for shorter maturities have increased significantly, raising the cost of finance to financial institutions. Difficulties created by impairments of sub-prime securities have adversely impacted on the European and US financial systems, as demonstrated by recent developments in the US. This has led to major uncertainty for the global financial system.
The prompt actions by international central banks, including the European Central Bank, to provide major injections of liquidity have contributed to greater stability in financial markets internationally, although they continue to remain subject to significant uncertainties. Agreement on the extensive and far-reaching plans announced recently by the US authorities should help to stabilise financial markets and rebuild confidence in the international financial system. Ireland, as a small, highly open economy with a significant financial sector closely integrated into the international financial system, cannot be immune from these developments. Therefore, the Government has been very active in supporting public confidence in the safety of deposits and the stability of the financial system overall. I welcome Deputy Bruton's support for my announcement on 20 September that the Government had decided to increase the statutory limit for the deposits guarantee scheme for banks and building societies from €20,000 to €100,000 per depositor per institution and that the cover will apply to 100% of each individual's deposit up to the €100,000 limit. This guarantee level, which will also apply to credit union savers, is now among the highest in the EU.
As I stated at the time, the Government is committed to the stability of our financial system, so that money placed with an Irish credit institution would not be at risk. The Irish Government wants to protect the whole financial system and secure its stability. As far as meetings with the parties referred to in the Deputy's question are concerned, this is a normal part of my role as Minister for Finance, given my responsibilities for the financial sector.
I accept the Minister's expression of thanks for my support. I asked his predecessor for this 11 months ago so it is a little tardy in arriving.
Is the Minister confident he has all the necessary legal means to deal with an emergency such as the need for consolidation, as has been required in other jurisdictions, and that there would be no legal impediments such as regulations relating to competition? Is he confident he and the regulators in the Central Bank have a firm handle on the banks which have loans under intensive scrutiny? We need reassurance that the banks are taking necessary steps to secure extra capital if that is what is needed to meet the challenges arising out of those loans. Would he consider asking the Central Bank and the Financial Services Authority of Ireland to publish a financial stability report now, so that there will be an analytic basis for the confidence we all express in our financial system?
Will the Government call in the banks, as has happened in other jurisdictions, to ensure the needs of business are not unduly hampered by credit restrictions? We need a partnership approach involving Government, regulator and banks to make sure we emerge from this crisis in a robust state and able to support enterprise.
I agree with Deputy Bruton. We must have a partnership approach with the banks, the Central Bank and the Financial Regulator, the last two of which have statutory responsibilities in this area. The Deputy asked about the timing of the announcement on deposits but I have kept this matter under review since my appointment as Minister for Finance. It is very difficult to determine an appropriate date to make such an announcement but the close of banking business last weekend gave me an adequate opportunity to do so.
The Deputy asked questions on the stability of the financial system and I can confirm that the relevant emergency and contingency planning has taken place within my Department. In the unlikely event of any contingency being necessary my Department and I will be in a position to advise the Government on the appropriate steps to be taken. Deputy Bruton will be aware that the Central Bank and the Financial Regulator have distinct statutory responsibilities and the Joint Committee on Finance and the Public Service questioned the Governor of the Central Bank on the banking system during the course of the summer. Both the Governor of the Central Bank and the Financial Regulator are in regular discussion with my Department about the stability of the financial sector and maintain close surveillance and constant monitoring of it.
Liquidity, the availability of funds in banks and the extent to which the absence of those funds can impact on the economy are important matters which are raised periodically by Ministers for Finance with the relevant financial institutions. I do not want to go into details of the discussions I have held with those institutions but I share Deputy Bruton's concern that such issues should be high on the list of priorities at those meetings.
Does the Minister agree it would be a good idea to publish a stability report to give us confidence? Does he agree it would be worthwhile to meet the banks to protect loan availability to vital areas of the economy in this period?
A stability report might form one element of a package of measures to generate ongoing confidence in the sector but I would not like to commit myself this afternoon to the publication of a particular report. Any measures to boost confidence in this sector must be carefully thought out in consultation with all parties with a view to commending universal acceptance.
5 Deputy Kieran O’Donnell asked the Minister for Finance the outcome of his discussions with EU officials at the recent ECOFIN meeting in respect of Ireland’s obligation under the stability pact; and the period within which he will bring Ireland back within the borrowing limits set out in the pact. [31747/08]
I had an opportunity on the margins of the recent informal ECOFIN meeting in France to exchange views with Commissioner Almunia, who is responsible for the economic and monetary affairs directorate. I outlined how domestic and international factors have impacted on the Irish economy, most notably in the rapidity of the downturn and its significant impact on tax revenues. I advised that my Department's formal estimate of the outturn for the general Government balance for 2008 would be provided in the fiscal notifications to be submitted by all member states at the end of this month and subsequently published by EUROSTAT in late October. The Department's estimates for 2008 and beyond will be set out in the budget on 14 October.
I also informed Commissioner Almunia of the actions taken to date by the Government, including the rationale for those actions and their intended effects. The Commissioner welcomed the informal briefing and confirmed that the Commission would, as is the norm, assess the position after it receives the fiscal notification from Ireland in due course.
Has the Minister submitted broad economic policy guidelines to ECOFIN? He said he would do so by the end of this month and we are virtually at the end of the month now.
No. They have not been submitted yet and would not have been submitted yet in the normal course of events.
In a recent EU Commission report on public finances in the EU Ireland was ranked a distant last in the area of public management of finances. It was also ranked last and received no score in the area of prudent economic assumptions, which judges how we create leeway for a slowdown and make forecasts. Does he agree that the assumptions in the budget were ludicrous? The budget forecast GDP growth at 3%, that there would be 24,000 new jobs and that there would be 1% more in employment. It also forecast that inflation would be below the EU average of 2.4% but it is now 3.2%. It was also stated that there would be 55,000 house completions. The Minister said house completions would be down by one third on last year but that would mean approximately 52,000 completions so the figures do not add up.
The Minister says he will not provide figures on the Government deficit until budget day. He will provide the figures to the EU by the end of this month but his primary responsibility is to the Dáil and the Houses of the Oireachtas. We have no pre-budget outlook so we should have some indication as to when and how he proposes to bring back the Government deficit below the 3% Maastricht guidelines.
The Deputy asked a wide range of questions. The report submitted to the EU is one that is submitted every year. I would be delighted to assist Deputy O'Donnell, as I offered to assist Deputies Bruton and Burton, in furnishing all relevant economic data and forecasts which will be in the possession of my Department in early October, so that we can all discuss an appropriate budget for Ireland. I appreciate that Members on the other side of the House want to be informed as comprehensively as possible about the forecasts my Department will make for 2009. I do not have a difficulty furnishing to the Deputy the maximum possible amount of information in my possession in regard to forecasting, subject to the constraint in respect of confidentiality of strictly budgetary matters.
I would like to hear the Minister's comment on the EU Commission report that Ireland ranked last in terms of public finances. Furthermore, he might also inform the House when he expects to bring the general Government deficit back within Maastricht guidelines. Perhaps the Minister will give us some indication of in what year that is likely to happen.
On the Commission report, I would like my attention to be drawn to the authorship, provenance and date of the report. It has not been brought to my attention. The Deputy will appreciate it is difficult for me to comment on an opinion of that character, taken as it may be out of context, although I am not criticising the Deputy for referring to it. I am not familiar with the contents of the report.
It is a report from the EU Commission.
I would like to see the report and the particular reference to which the Deputy refers before commenting on it.
The Minister's clippings are falling down.
This is a fundamental issue.
I am trying to answer the Deputy's questions.
Please allow the Minister to answer the questions.
On the framework we must establish in budget 2009 for the development of our finances into the future to ensure we bring our budgets within the framework of the Stability and Growth Pact, the plan in this regard will be announced in the budget.
The Minister is being evasive. He can do better than that.
It is called a budget.
