Richard Bruton
Ceist:25 Deputy Richard Bruton asked the Minister for Finance the changes he plans to make to the proposals for the National Asset Management Agency as originally outlined. [28106/09]
Priority Questions.
National Asset Management Agency.
The initial preparations for the establishment and operation of NAMA are being managed by a steering group. The group is tasked with overseeing the preparation of the legislation in parallel to the practical preparations for the establishment of NAMA and is made up of representatives of the Department of Finance, the Office of the Attorney General and the National Treasury Management Agency, NTMA. The Government's approach to the unprecedented crisis in global financial markets has been structured and considered at all times.
There have been no significant changes to the proposals for NAMA that I announced on 7 April. At that stage I was quite clear that the details would be complex and would take time to work through, not least because of the potential difficulties that had to be dealt with from the operational, legal and constitutional perspectives. These details are still being worked through by the steering group I established for the purpose of overseeing the preparation of the legislation in parallel to the practical preparations for the establishment of NAMA.
Substantial progress has been made in the practical preparations for the establishment of NAMA in tandem with the drafting of legislation to establish the agency on a statutory basis and it is my intention to publish the legislation towards the end of this month.
I want to ask questions to shed more light on what is happening. At the initial stages, we heard that every development loan, totalling €90 billion, was to be taken on by NAMA. More recently, it was indicated that it will be based on screening. Will the taxpayer take on the worst loans after this screening? What is the screening that will narrow it down?
What will be the role of the political process in approving and scrutinising the decisions of NAMA? Yesterday we heard that political consensus and buy-in across the spectrum was an important factor in gaining confidence in Sweden. Will the political process have a role in overseeing price setting and the markdowns? Will there be a system where there can be transparency and political accountability for this body, which looks as if it will be divorced from the political area?
The IMF suggested that if the write-downs are likely to have the banks below the waterline it would be preferable to adopt a model of nationalisation to avoid some of the extreme difficulties in valuation. The IMF presented figures that showed that the banks are potentially below water. What is the view of the advice tendered to the Minister?
There has been no change in policy on development loans. I am not sure about Deputy Bruton's reference to screening. The position on the transfer of loan assets remains as stated in the budget speech. The land and development loans of each bank involved will be transferred. This includes loans secured on development land and property under development, whether performing or non-performing. The book value referred to by the Deputy is not accurate in respect of the total value of the performing or non-performing loans. In addition to landbank loans, the associated exposures in commercial loans where there is a common link between the commercial and development loan are also included in the total book value figure.
Regarding political participation, the legislation will be published later this month. The legislation will contain legal formulae and the House will want much more information on the strategy of the Government and NAMA prior to the enactment of the legislation. It is a start to have the legal framework available to Deputies over the summer because it will give them an opportunity to evaluate a basic framework. I am interested in hearing the opinions of Deputies in that regard.
I am not involved in price setting and I do not know how anyone would want to be involved in it. Criteria must be laid down in legislation and must be worked out in detail. The NTMA has retained the services of the HSBC and Jones Lang LaSalle for the valuation of the loans. They are valuing the loans on a commercial, market basis. The EU is laying down guidelines on how loans should be valued and we must follow them.
Regarding nationalisation, there is nothing new in what the IMF said. I said it in the supplementary budget speech. If the result of the NAMA exercise and the scale of the losses occasioned by NAMA is such that the bank requires fresh capitalisation, I indicated in the budget speech that the State would capitalise by ordinary equity investment in the relevant institution.
Can I take it from the reply that there will be no political oversight of this process of valuation and execution against the criteria? Can I also take it that NAMA will decide if we nationalise? If it gives a haircut that is more than shareholders' funds, we will nationalise and if it gives a haircut less than shareholders' funds we will not nationalise. That decision has been devolved to NAMA.
There must be political oversight, first by me as the responsible Minister and by accountability to the House.
How will that happen?
The principles of valuation will be laid out in legislation and will be subject to political debate. No valuation can take place until the principles are approved by the House. Each asset must be valued individually under EU rules.
If shareholders are wiped out, are we not into nationalisation?
I will not interfere in the valuation of individual assets. Regarding the question of whether there should be cross-party participation in the oversight of the NAMA structure, I am open to constructive suggestions in that regard.
Fiscal Policy.
Joan Burton
Ceist:26 Deputy Joan Burton asked the Minister for Finance if he will publish, in full and in a timely manner, the reports of the Commission on Taxation and the special group on public service numbers and expenditure programmes; if he will publish the working papers and supporting documentation relevant to the preparation of these reports; and if he will make a statement on the matter. [28104/09]
The Commission on Taxation, under the chairmanship of Mr. Frank Daly, is an independent group charged with providing an assessment of how our tax system can be reformed. It is expected to complete its work shortly. When I receive the report I will bring it to the Government in advance of publication. The publication of individual documents, reports and submissions made to the commission, or internal papers or records emanating from the work of the commission, are matters for the commission. However, I understand that certain submissions may be made available on the commission's website. I will speak to the chairman on this matter.
The special group on public service numbers and expenditure programmes, under the chairmanship of Mr. Colm McCarthy, has completed its deliberations and I expect to receive its report imminently. I have not yet received the report. After I have considered the special group's report, I intend to bring it to Government and the groups analysis and recommendations will assist me and my Government colleagues to identify economies that can be made on the scale necessary to ensure the public finances are restored to a more sustainable path. The group's conclusions will be considered on an ongoing basis in the context of preparing the Estimates of expenditure for 2010 and later years. Publication of the report is a matter for the Government and I will discuss it with my colleagues in Government.
Three significant events for the economy will happen over the course of the summer as preparations are under way for the budget. These are NAMA, the report of an bord snip nua and the report of the Commission on Taxation. The Minister suggested he wants participation by parties in the House in this process. I do not know how the Minister envisages a genuine debate on the content of both reports unless the information is published.
As the Minister knows, the bord snip nua report is supposed to suggest a range of retrenchments; for example, I understand that some members of the board are not overly impressed with Seanad Éireann and have suggested that there might be retrenchment there and other members have suggested that in these straitened times certain Departments do not contribute as much as they otherwise might. Is there an intention to publish the information so that a genuine debate can take place?
As I understand it, the bord snip nua report involves senior public servants in each Department offering up areas of potential retrenchment and cutback; that is how it has been described by the Chairman. It copies the previous bord snip. What does that mean? Will the Minister confirm that this means, as has been suggested, that every item of expenditure in each Department, capital and current, has been broadly examined by the board which has made observations on where savings and efficiencies might be made. Will the Minister confirm that this could account for approximately 400 items of public expenditure throughout all Departments and agencies?
I cannot confirm the opinions of particular members of the special group. It is not the opinions of members that matter, it is the conclusions upon which they have agreed in the report. I understand the report will be submitted to me this evening; I have not seen it so I cannot comment on suggestions made by Deputy Burton on particular recommendations in it. I can understand why there has been speculation about them as in the course of the finalisation of the report in recent weeks contact was made with various Departments to finalise details on the accuracy of figures, programmes and the like. This has led to a degree of speculation about some of the recommendations but to date I have not seen them.
A point I would like to make clear because it stems from the terms of reference of the special group is on the matter of capital expenditure. Capital expenditure was not within the terms of reference of the special expenditure group; the focus is on current expenditure. I understand some recommendations are made on capital expenditure but they arose incidentally from an examination of current expenditure. The report does not purport to be a detailed analysis of or a set of recommendations on our capital programmes.
I thank the Minister for his reply. Does it mean the members of the committee have met the Secretaries General of Departments and chief executives of large spending organisations and have asked for their response on how savings might be made under various headings? Have those Secretaries General and chief executives communicated with the Minister's in charge of the various Departments? In other words, is an bord snip nua getting Secretaries General in various Departments to offer up the cuts they would find more palatable and have the line Ministers been consulted? I know they will be consulted at Government level but this is very important.
With regard to capital expenditure, will the Minister state what is incidental? Does it mean that if the HSE must offer up savings it has implications for building a children's hospital and if so what type of capital implications does it have?
No, I do not think the capital expenditures reviewed involved major projects but I must await sight of the report to confirm that. Incidentally, with regard to publication I should have stated to the Deputy that I will bring her views to the attention of my Government colleagues when we discuss the report. I take it the view of Fine Gael is also that it would be desirable to have publication.
With regard to the interaction between Secretaries General and Ministers and the process, members of the group were assisted by staff at my Department and they had many meetings with senior public servants. I know that in some cases Secretaries General briefed Ministers about the process. There is no question of Departments, agencies or bodies offering up expenditure. It is an independent critical evaluation of day to day expenditure across the board. In no sense was it like a routine Estimates process where Departments were set figures and told to offer up sums. Rather, it was an exercise of an independent evaluation of expenditure.
The Government is not necessarily committed to the report. It offers the Government and the political system realistic options on expenditure which will require to be evaluated.
Budgetary Process.
Kieran O'Donnell
Ceist:27 Deputy Kieran O’Donnell asked the Minister for Finance the changes planned for the preparation of the budget and Estimates for 2010; and the role he envisages for the Houses of the Oireachtas in evaluating choices presented by review groups. [28107/09]
The broad parameters for the budget for 2010 were set out in the supplementary budget which for the first time set out a multi-annual plan to achieve a general Government deficit of 3% of GDP by the middle of 2013. In terms of the next two years, the supplementary budget set out the indicative split between the necessary further expenditure and tax revenue adjustments required, amounting to up to €4 billion in 2010 and 2011. At the time, I indicated that the expenditure targets were a minimum and the taxation targets were a maximum and I have since elaborated on this to indicate that the scope for further income tax increases is limited. This will mean that other measures that broaden the tax base and further improve the expenditure position are central to the ongoing fiscal consolidation process. It is not clear that further broadening of the tax base will add in a significant way to the amount of revenue that can be raised to meet the necessary targets.
The commission on taxation, which is expected to complete its work shortly, and the special group on public service numbers and expenditure, which is due to report to me imminently, will have an important role to play in identifying measures that will achieve the required adjustments for 2010 and subsequent years, as set out in the supplementary budget.
The report of the special group will assist the Government to identify economies which can be made on the scale necessary to ensure that the public finances are returned to a sustainable path as soon as possible. The special group's conclusions will accordingly be considered on an ongoing basis in the context of preparing the allocation of expenditure this year and for next year.
In relation to the commission on taxation, its terms of reference are far reaching and broadly defined and as Deputies know they allow for consideration of all aspects of the Irish taxation system. The work of the commission will help establish the framework within which tax policy will be set for the next decade at least. I expect to receive the report of the commission shortly and I will bring it to Government for consideration at that stage.
It is intended that the pre-budget outlook will be published in mid to late October, setting out the pre-budget position in more detail based on the latest available data. In this context, my Department will produce updated macro-economic projections which will inform the decision-making process for the December budget. The pre-budget outlook will assist the House by informing the debate in the run-up to the presentation of the budget. I will then set out the details of the budget for 2010 in my address on budget day in early December and the budget will also contain updates to the medium-term economic and fiscal projections.
As the Deputy is aware there is ongoing engagement with both Houses as well as the various committees, in relation to economic and fiscal matters. I have no reason to believe the situation will be any different in the lead-up to the presentation of the budget for 2010.
As we have an economic crisis, will the Minister agree that it is time to change the budgetary process to allow the Estimates and annual output statements to be debated well in advance of the pre-budget outlook? Will the Minister allow the Opposition to have an input into the Estimates whereby they can be changed by moving figures from one area to another to bring about efficiencies? Standing Orders can be amended to allow this to happen. At present, the Opposition has not seen the Estimates on budget day and there is no proper discourse. Perhaps these changes could take place. I would like the Minister to take that on board.
With regard to the McCarthy review report and the report of an bord snip nua, will the Minister recommend to the Cabinet that the report be published immediately? Will he call an emergency meeting of the Cabinet so that it can be published before the Dáil goes into recess? These are critical issues on which I would like to hear the Minister's view.
On the budgetary process, in recent years we have had a unified budgetary process in which the Estimates of expenditure are announced on the same day as the taxation proposals of the Minister for Finance. That is the new, unified budget proposal introduced by my predecessor, which was considered a milestone on the path to reform.
Not by the Fine Gael Party.
In effect, under our current system we have a unified budgetary announcement. I would be anxious, leading up to the budget, to give the maximum amount of information to the Opposition parties, as I did before the supplementary budget. I hope to repeat that facility, but I am not sure we can go much further than that. I thought that process was useful before the supplementary budget.
It should be a structured engagement.
Responsibility for devising the Estimates falls, under the Constitution, to the Government, which has highly structured engagement on the issue which often lasts many weeks before arriving at final decisions.
As Deputy O'Donnell is well aware I will express my opinions on the McCarthy process to my colleagues in Government, the appropriate place for me to express them. I do not see much scope for emergency Government meetings since our routine Government meeting on Tuesday morning, as the House is in almost continuous session every day this week. I will bring the report before my colleagues at the earliest opportunity available to me.
There is no constitutional reason the Minister should not make known the make-up and build-up to the Estimates in respect to the House. The Minister continually suggests the Opposition should be involved in the process. Therefore, he should let us have a structured approach on the Estimates.
It is critical the McCarthy report is published and debated in the House immediately. The Dáil session concludes on Friday. The report has been ready for some time and could have been presented to the Minister prior to last Tuesday and he could have brought it before the Cabinet meeting. What recommendation will the Minister make to the Cabinet on the issue? Will he recommend the McCarthy report be published?
The McCarthy report is only fresh from the printer today, following much textual work required during the past fortnight to finalise the content. There has been no undue delay although a deadline date of 30 June was set. The publication of the report has gone a few days beyond that, but there has not been substantial slippage.
What will the Minister recommend to the Cabinet?
Allow the Minister reply, without interruption.
I express my views on these matters to my colleagues in Government. That is the duty of a Minister and that is how a Minister operates.
Does the Minister not think the House is owed a level of respect?
I will show respect to the House by conveying the Deputy's views to the Government.
National Asset Management Agency.
Joan Burton
Ceist:28 Deputy Joan Burton asked the Minister for Finance the position with respect to the National Asset Management Agency legislation; if a valuation methodology for assets being transferred to NAMA has been agreed; if it has been approved by the EU; if the valuation methodology will imply a mark up on market price or a mark down on their book value; and if he will make a statement on the matter. [28105/09]
As the Deputy will be aware, the initial preparations for the establishment and operation of NAMA are being managed by a steering group. The group is tasked with overseeing the preparation of the legislation in parallel with the practical preparations for the establishment of NAMA and is made up of representatives of the Department of Finance, the Attorney General's Office and the National Treasury Management Agency, NTMA.
The valuation of loans is, of course, crucial for NAMA. Loans will be transferred to NAMA at an appropriate write down which will ensure value for money for the taxpayer and take into account the risk being transferred to the State on the basis of the European Commission guidelines. The valuation methodology will be based on a number of factors, primarily current market value and the underlying longer-term economic value of the assets.
The NTMA has engaged HSBC to assist in the development of an appropriate valuation methodology which will ensure the independence of the valuation process. The valuation methodology require to be agreed with the European Commission.
Will the Minister confirm that at this point in time NAMA is, as I understand it, talking about taking over the bad loans of some 20 to 50 big developers whose loans amount to between €20 billion and €45 billion? Will he confirm that the way this will work is that each loan will be valued separately and independently? The Minister did not address the question I asked. I asked whether he will use a mark to market method for the valuation? In other words, will he take the current market value and use that as the basis of valuation or will he take book values and take a markdown on the book values?
There is a significant variation between those two methods. The director general of the Swedish National Debt Office, Mr. Bo Lundgren, recommended yesterday that there should be a high relationship with market value or otherwise Irish taxpayers would end up bearing an enormous burden. Will the Minister confirm what method of valuation will be used? Will it be based primarily on market values or on the kind of manufactured valuation to which the Minister alluded, based on some long-term potential economic value?
Is it true that loans under €5 million held by developers will not be referred to NAMA but will be worked out separately by the banks?
I do not confirm and it is not the case that NAMA will simply select bad loans from 20 to 50 developers to deal with in the first instance. That is not envisaged. It has always been envisaged that both performing and non-performing loans will be taken over. On the Deputy's question about loans under €5 million, there is a question of degree in terms of the management of the loans. We are anxious to ensure we have as tight a staff and personnel as possible. Therefore, it is the case that some of the larger loans will be directly managed by NAMA, but some of the smaller loans will not.
On the question of the valuation methodology to be used, as I pointed out, the valuation methodology has not been finalised. However, the development of thinking on the valuation methodology to date is along the lines mentioned by the Deputy and by Mr. Bo Lundgren yesterday. I met him yesterday after his presentation to the Joint Committee on Finance and the Public Service and would like to thank him for the constructive contribution he made to our banking debate there.
With regard to the valuation methodology, as I indicated in my reply, we must value the assets on both a market and individual basis, but under the European directive there is the option of taking into account a longer-term economic value. There is no question of starting off with the book value and devising an appropriate discount. That is not the way to do the valuations. The valuations must be done on a mark to market basis, but scope is given in the EU rules for some element of additionality based on medium-term economic value. The precise scope of that must be determined by the Commissioner and it is a rule that will apply in all member states.
How would the Minister propose to assign a medium-term economic value to development land in a context where throughout the country we have large volumes of unsold property, both commercial and residential? It is obvious to anybody that a medium-term economic value for development land, which constitutes the largest element, is likely to have to face a very steep discount. Does the Minister understand that people working with and running businesses in this country are terrified of the charges the Government proposes to put on the backs of taxpayers for the NAMA process? Mr. Lundgren, the gentleman from Sweden, specifically told us that in Sweden the banks had to take the hit in terms of discounting the values.
The Minister said NAMA is not going for the big developers and he denied that there were 20 or 50 big developers. Did I get the number wrong? Are we talking about 100 big developers? Why would the Minister go after developers whose positions were positive? Surely the only people going into the NAMA structure are those who are impaired. They may have, as the Minister suggests, some good assets like rent rolls from, say, commercial property centres and so on. Can the Minister elaborate on that remark? I find it extremely difficult to understand why NAMA would acquire good assets from a developer in good standing. Surely NAMA is only for people who are so impaired they have to be bailed out. There is no other meaning to it.
Deputy Burton raised a number of matters and I will deal with each in turn. First, the agricultural or zoned land which has no construction on it is not in fact the majority of the book value, which is an important point where the Deputy is wrong.
I did not say it was the majority; I said it was some of it.
The Deputy seemed to suggest it was the great bulk of it. The key point in regard to the valuation of those assets is exactly as Deputy Burton stated, namely, that there has to be a very steep discount for such assets. In addition, in the case of land, the potential for any medium-term economic value has to be very carefully evaluated because in some cases there may be no medium-term economic value. I do not fundamentally disagree with the point of principle on which the Deputy asks, which is a matter the NTMA is factoring into its thinking in the evolution of a valuation methodology.
With regard to the number being 50 or 100 developers, the point I made was that the number of loans being directly managed at NAMA will not cover all of the loans as, otherwise, a huge administrative burden would be imposed on NAMA. Although that number has yet to be finalised, whether it is 50, 100 or 150, there will be a cut-off point in terms of the size of the loans being worked out directly by the new agency.
The Deputy raised another point.
Will the Minister expand on his suggestion concerning quality assets being included with impaired loans?
It has been made absolutely clear since the supplementary budget statement and it remains the case that performing loans — good assets — are being taken as well as bad assets in the land and development category. In other words, in terms of the construction cycle from the acquisition of land right through to the completed house which is not sold, and the various intervening stages at which developments may be, it is the intention that all of that segment of the banks' books will be taken over by NAMA.
But only impaired developers.
No, that is not correct. There is no requirement of impairment, as I have told the Deputy several times.
Why would NAMA acquire quality assets?
That is why NAMA is not as dangerous as the Deputy keeps representing it.
Capital Investment.
Richard Bruton
Ceist:29 Deputy Richard Bruton asked the Minister for Finance if he has reached a decision on the potential sources of new funding from a pension bond or otherwise for needed infrastructural investments. [27879/09]
The Government is continuing to invest substantial Exchequer resources in capital infrastructure, with €7.3 billion allocated for capital projects in 2009 and some €31 billion allocated for the period to the end of 2013. This investment supports a substantial level of employment, while the reductions in tender prices mean that we can do more with less. Nonetheless, as Deputy Bruton is aware, the Government is also exploring new ways to fund capital investment. The pension funds industry and other institutional investors represent one possible source of additional private sector funding for public private partnership projects.
My officials, together with the National Development Finance Agency and others, have been actively engaged with several interested private sector parties to work through the details of funding proposals that could potentially help to unlock additional sources of private capital for infrastructure funding. The discussions are encouraging, and I hope to make progress on a mutually satisfactory basis. Clearly, the key issue for the State is to ensure that the terms are right and in the taxpayer's favour, that value for money is secured and that the private sector shares the appropriate level of risk to minimise the State's exposure to additional borrowing.
I thank the Minister for his reply. I am sure the Minister is as acutely aware as I am that we have been losing 1,000 jobs every working day since the beginning of the year and approximately half of those are in the construction sector. Against this background, there is a great deal of urgency in the process the Minister announced on 7 April but today, 7 July, there is no progress to report. What urgency is the Minister giving to this matter? Does he agree that, against a background where he is cutting 40% from his own capital budgets, this process is seriously adding to the difficulties in the sector? Does he agree that we need to consider imaginative ways of funding necessary infrastructural investment? Would he consider the Fine Gael approach which is entirely commercial in respect of certain types of infrastructure?
In respect of PPPs, has he changed the model he uses to evaluate PPPs given that, to use the economics term, the shadow price of labour is much lower now, and the shadow price of capital is much changed for the State because there is an absolute limit on what we can borrow? This very significantly changes the attractiveness of opting for a PPP in this environment. Is the Minister moving the process on rapidly? Is he taking into account the new and horrendous realities in our economy that change the way we should look at these issues?
I am optimistic that the private financing options being examined will prove helpful. I would prefer to explore approaches that retain as much of a role as possible for the private sector in providing funding and avoid the setting up of an additional State body if at all possible. The Fine Gael proposal, as I understand it, involves the establishment of a number of additional State bodies.
I remind the Deputy that the Government has responded to the global financial uncertainty in a very decisive way, as our friend Bo Lundgren pointed out yesterday to the committee. My Department and the NDFA, National Development Finance Agency, are working closely together in exploring this area. The team working on this involves not only my Department and the NDFA but also the Central Statistics Office. The principle aim of the team is to devise an infrastructure financing arrangement that meets our requirements. As I have indicated, this means the terms have to be right and in the taxpayer's favour, the investment has to make economic sense, value for money must be secured and an appropriate level of risk must be shared by the private sector involved. Unfortunately, due to concerns about commercial sensitivity, I am not free at this point to discuss the details of any proposal.
The Minister did not answer the central question. Has he changed the evaluation in the light of the changed circumstances?
On the PPPs, the answer is no.
As a member of the Government which created 250 new agencies, to spot the speck in Fine Gael's eye in terms of setting up a holding company to invest €11 billion in State infrastructure that we will need to get out of this recession is biblical in the extreme. Can the Minister give us a deadline against which we will have a decision? An appalling human catastrophe is taking place and we are seeing the meltdown of skills of talented people. We need an injection of urgency both in the way this is done and the speed with which it is done. Three months on from the budget, I do not sense urgency anywhere in the system to make this happen.
I assure the Deputy there is great urgency attaching to this matter. Maintaining a volume of our investment in capital projects, howsoever financed, will ensure we sustain some level of activity in the construction sector and maintain much-needed skills there. I agree with the Deputy in that regard.
There has not been a change of the criteria in regard to PPPs. The question the Deputy tabled relates to an alternative funding mechanism which I had outlined in the budget and which is being actively explored and will be brought to a conclusion as quickly as possible.
The world has changed and the way of looking at PPPs needs to change. We are budget-constrained now.