Shane McEntee
Ceist:6 Deputy Shane McEntee asked the Minister for Finance his projections for the growth of interest payments on Government debt as a proportion of taxes collected by 2011 and by 2013. [24747/10]
Other Questions
National Debt
Based on the projections for the Exchequer borrowing requirement for the years to 2014 set out in budget 2010, the estimated cost of interest on the national debt will be approximately €5.75 billion in 2011 and €7.5 billion in 2013. The National Treasury Management Agency has advised that, as is usual, these estimates were prepared on the basis of the prevailing market conditions for Irish Government bonds. Based on these estimates and the projections for tax revenue for the years to 2014 as set out in budget 2010, it is forecast that the proportion of tax revenue that will be accounted for by interest payments on the national debt will amount to 17.5% in 2011 and 20% in 2013.
Borrowing at current levels is not a sustainable long-term option. As debt servicing costs have first call on resources, an increasing debt interest burden will lead to higher interest costs, thereby reducing the resources available for the provision of public services in the future. This underlines the importance of continuing to take the necessary action to restore stability to the public finances. That is why, since mid-2008, the Government has been taking the decisive action that will help restore sustainability to the budgetary position.
The Government is committed to restoring order to the public finances through reducing the deficit to below 3% of GDP by the end of 2014. Recent market developments highlight the importance of continuing to take firm and decisive action in this regard. The Government's plan to reduce its general deficit to less than 3% of GDP by the end of 2014 has met with the approval of many, including the European Commission, the ECB, the OECD and the IMF. Considerable progress has already been made towards achieving this target. Fiscal adjustments designed to yield 5% of GDP in 2009 were implemented between July 2008 and April 2009. Budget 2010 implemented a further set of adjustments — mainly on the expenditure side — amounting to 2.5% of GDP. The most recent Exchequer returns to the end of May show that the Government's actions are having a positive effect and that we are on track to meet our budgetary targets for 2010.
The Government's focus now is on securing the necessary adjustments for budget 2011 and work is under way in that regard. In terms of the amount involved, €3 billion was set out in budget 2010 as the necessary adjustment for 2011 and, contrary to much recent speculation, the European Commission has agreed that this is the correct amount. Some €1 billion of this sum will come from the capital expenditure side and the balance of €2 billion will come from the current side of the budget and involve a mix of expenditure and taxation measures. The precise breakdown of this adjustment is a matter for ongoing determination in the context of the formulation of budget 2011. At this stage, I cannot comment on the specifics of the budget.
Perhaps the Minister will, in respect of the €3 billion mentioned, provide the House with a broad breakdown between expenditure and taxation. Perhaps also he will comment on the fact that relative to other countries our bond spreads are and have been consistently high. Does he agree with the view that we continue to have a credibility issue with which to deal in terms of the budget measures introduced in 2007 and 2008 which were a little too late and how does he intend to address the bonds crisis in terms of borrowing on the international markets?
On the broad breakdown of the figure, I have already outlined the position in respect of the €1 billion on the capital side. On the other €2 billion and the breakdown as between day-to-day expenditure and taxation, I am not in a position at this stage to give a definitive figure in that regard. I cannot give a definitive figure because at end June we will have the mid-year returns in respect of taxation and expenditure at which stage the Government will begin its consideration of the broad thrust of budgetary policy. I am not in a position at this stage in advance of that Government deliberation to give a precise figure in respect of the breakdown between taxation and expenditure. Even after the Government commences its consideration of that issue, it will be considerably later in the year, in the context of the budgetary figures, before a final determination of those figures can be given.
I want at this stage to allow a supplementary question from Deputy Burton.
Did I hear the Minister say that he expects interests costs this year to be above €5 billion and perhaps to increase to approximately €7.5 billion owing to the amounts and bond spreads involved?
No, I was referring to next year to 2014.
They will be €75 billion.
Yes.
If the interest costs estimated by the Department of Finance for next year are €7.5 billion and last year we collected approximately €32 billion—-
The figure for next year is €5.75 billion.
And €7.5 billion the next year.
No, for 2013.
Last year, we collected €32 billion in taxes. The Minister is saying that commencing next year at least €5 billion will be spent on paying down interest. This means that one in every six euro collected in taxes will be used to pay off interest on the debt, including the bailout of Anglo Irish Bank. As the Minister stated, the Government is hoping the European Union will allow it to write off the promissory note. It is a shocking indictment of the Government's approach that one in every six euro of all taxes will go to pay down the debt. That is what the Minister is effectively saying.
The bulk of that debt has accumulated as a result of the gap between Government receipts and expenditure, current and capital. The total overall cost of the bank rescue package in relation to Anglo Irish Bank and Irish Nationwide Building Society will be, as Deputy Bruton knows, spread over a long period and will be offset by gains which the State has made in respect of payments on foot of the guarantee, payments from Bank of Ireland, prospective payments from Allied Irish Banks and other results of the State's investments in the banking sector. The core crucial central issue which must be addressed, which the Labour Party has singularly abstained from addressing in the past two years, is the gap that exists between the current and capital expenditures by State and the receipts and revenues available to it. That is the central issue that must be addressed by any occupant of this office.
Departmental Appointments
P. J. Sheehan
Ceist:7 Deputy P. J. Sheehan asked the Minister for Finance if he is satisfied that the top level appointments committee gives reasonable scope for appointments from outside the public service and outside the appointing Departments. [24775/10]
The Top Level Appointments Committee, TLAC, holds competitions for and advises Ministers and the Government on appointments to Civil Service posts at Secretary General, Deputy Secretary, Assistant Secretary and equivalent levels. Since early 2007 the policy has been that open competitions are held for Assistant Secretary, Deputy Secretary and equivalent posts. This policy has been recently extended to Secretary General posts, with the exception of a limited number of Secretary General posts which are filled by the Government without a TLAC competition. Where open competitions are held the normal practice is that the Public Appointments Service holds a preliminary competition and selects a shortlist of candidates for interview by the Top Level Appoints Committee, TLAC.
I am satisfied that the committee and the preliminary interview boards under the Public Appointments Service carry out their functions in a fair and objective manner. In any industry or business where posts are filled by an open recruitment process, one would expect candidates with experience of the business or industry to have an advantage and there is no reason the Civil Service should be any different. Some very credible external candidates, successful and unsuccessful, have come forward in competitions held to date but overall the proportion of external candidates with the levels of management experience and competencies that would make them suitable for appointment has been lower than one might have hoped for.
I will shortly be bringing proposals to the Government to restructure the Top Level Appointments Committee as provided for in the renewed programme for Government. However, I would stress that I do not consider that the composition of the committee is the main reason so few external candidates have been successful. I will also be proposing that the committee needs to consider new approaches to attract stronger external fields, including in appropriate cases an element of "head-hunting", while recognising that even where suitable candidates are identified in this way they would still have too undergo a competitive process.
I thank the Minister for his reply. By way of clarification, I have not been given any new appointment in the past few minutes. I am merely here to assist my colleague who had to go to vote in a different room.
Perhaps the Minister will inform the House of what percentage of appointments to the type of jobs outlined by him have in the past two years come from outside of the public service. The Minister stated that there has been a disappointing lack of management skills from some of the applicants outside the public sector. I find that difficult to believe in the current environment when there are many people out of work who have significant management skills. Perhaps the Minister will assure the House he will ensure that when we are filling high level posts through a process of competition and selection that it will be a meritocracy and that people from the private sector will have as good a chance of securing those posts as have people coming from within the public sector.
I do not have exact figures in that regard. However, as I understand it, the number of outside appointments has been limited. I do not have the figures before me but will arrange to have them sent to the Deputy. The Government has decided that Secretary General posts must be filled by open competition with the exception of those posts to which appointments are made by the Government without competition, including Secretary General to the Government and the Department of the Taoiseach, Secretary General to the Department of Finance, Secretary General for public service management and development, Department of Finance, Secretary General to the Department of Foreign Affairs, the chairman of the Revenue Commissioners and Secretary General at the Office of the President.
Ten posts were circulated in 2009, seven of which were at Assistant Secretary level, of which four were open to applicants from outside the public sector; three were at Secretary General, of which one was open to applicants outside the public sector. Taking 2010 statistics for the Civil Service as a whole, 16 posts have been posted so far, 11 of which were at Assistant Secretary level, all of which were open to applicants from outside the public sector; two were at Secretary General level, one of which at the Department of Social Protection, was open to applicants from outside the public sector, the other at the Office of the Attorney General being open only to applicants from within the public sector given it is specialised in character; one was at Second Secretary General level and was open to applicants outside the public sector; two were at Deputy Secretary level, one of which was open to applicants from outside the public sector, the other being open only to applicants from within the Civil Service.
I will allow a supplementary question from Deputy Burton.
The Regling and Watson and Honohan reports identify an appalling lack of expertise in the Department of Finance. Maybe the Department has accountants and I believe it has economists, but they did not seem to be in a position to contribute to warding off the collapse, particularly the collapse in Irish Nationwide and Anglo Irish Bank. I recall civil servants from the Department of Finance advising me that the senior management of those institutions were extraordinarily knowledgeable and well placed to command the affairs of the institutions and were, pretty much, irreplaceable. I found that notion extraordinary and still find it so. The Department of Finance needs people with specific professional skill sets, which they have practised in areas such as accountancy.
We are all aware of the one person who came into the Minister's Department as an assistant secretary and was referred to in The Sunday Business Post last weekend. That person was at a senior level in the Department, left to go to a consulting position and then returned. Someone who goes out, gets experience and comes back is valuable but that is hardly a revolution.
The Deputy's more general point is correct. Much of the focus in the question has been on senior positions. It is quite difficult to obtain private interest in those senior positions. Some of this is bound up with the question of pension provision and there are wider remuneration questions. It is not simply a matter of an administrative culture refusing to accept outsiders although, in the context of the review of the top level appointments committee arrangements, I am conscious of the need to ensure there are adequate safeguards against that. There is a wider pension provision issue, which militates against outside applications.
Deputy Burton's point is of particular importance. I agree with her and I am examining this matter with my officials at present. It is extremely important that the necessary skills sets exist in the Department of Finance. That is not a question that relates to top level appointments. It arises at middle range qualifications and appointments. We have arranged for the appointment of a banking analyst in the Department and the necessary procedures to recruit this individual had to take place outside the normal Civil Service recruitment procedures. There is, clearly, a need to complement that approach in the fields of accountancy and other areas, although there is a wealth of economic expertise in my Department.
The Regling and Watson and Honohan reports both express amazement at the failure to identify the level of risk at an earlier period in the banks. It appears that the risk was in front of their faces but they could not see it. Furthermore, the issue of solvency was never addressed. The focus was all on liquidity. Was that due to a lack of expertise or a lack of procedures in the Financial Regulator's office and the Department of Finance?
The question is answered in the reports and in Professor Honohan's comments the other day to the joint committee. They make it clear that the primary responsibility for the domestic contribution to the economic crisis rests with the banks. That means their internal management——
The Minister is in the bronze medal position now.
We are a long way ahead of the bronze medal. Let us stick to the gold medal.
He is bordering on silver.
Primary responsibility, according to all these gentlemen, rests with the banks.
What about the brass medal?
Deputy Burton can decide, for her next sound-bite, to whom she wants to allocate that.
When it is discoloured it becomes brass. It is discoloured, obviously.
Within the banks, primary responsibility lies with management and with their boards. Professor Honohan goes on to say the regulatory and supervisory systems did not identify the risks within sufficient time. That is clearly painted in the report.
It, clearly, broke down.
Clearly, the Government's more modest role has been acknowledged in the report.
That is the silver medal.
It was the bronze medal yesterday and it remains that.
It is silver today. He will get gold tomorrow.
Tax Returns
Kathleen Lynch
Ceist:8 Deputy Kathleen Lynch asked the Minister for Finance his views on the end of May Exchequer returns which showed a tax revenue shortfall of more than €1.4 billion compared to the same period in 2009; and if he will make a statement on the matter. [25608/10]
At the end of May, €12.1 billion in tax revenue receipts had been collected. As Deputy Lynch points out in her question, this is a drop of approximately €1.4 billion on the amount collected in the first five months of 2009, which represents a year-on-year decline of 10.4%. However, the monthly profiles for tax revenue published in early February, anticipated a significant year-on-year decline in the initial months of 2010, with receipts expected to recover during the course of the year to finish the year 6% down on 2009 in overall terms. This would represent a fall of just under €2 billion for the year as a whole.
In terms of the Government's budgetary targets, it is more appropriate to look at the performance of tax revenues against the monthly profiles. Overall, tax receipts in the first five months of the year were just €148 million below the target of €12.3 billion. This represents a shortfall of just 1%. While this is a slight worsening of the position at end-April, when receipts were on target, it should be noted that the amount scheduled for collection in May was large, representing the second highest monthly target for 2010.
On the individual taxheads, receipts from VAT, corporation tax, capital gains tax, capital acquisitions tax and customs were all above target at the end of May, while income tax, excise duties and stamp duties were all below profile. The overall shortfall was largely driven by income tax receipts, which were €219 million below target for the first five months of the year. While the weakness evident in income tax receipts may be seen as a cause for some concern, it is too early to draw any conclusions for the outcome for the year as a whole. There has been considerable movement in the months to date, with income tax receipts hitting target in the months of March and April but falling short in the month of May. This performance has been echoed in other tax heads, most notably VAT and corporation tax, where shortfalls in some months have been offset by surpluses in other months. While there are significant targets to meet in the months ahead, and no clear trend has emerged as yet, the budget 2010 forecast for tax revenues of just over €31 billion remains valid. We will assess the position further in light of the end of June Exchequer returns.
Additional information not given on the floor of the House.
On the expenditure side, the end-May Exchequer returns also showed that the expenditure control decisions taken by Government are having an effect. Total net voted expenditure was down by €1.7 billion or 9% on the same period in 2009.
The overall Exchequer deficit at end-May was €7.9 billion, down from the €10.6 billion recorded in the same period last year.
As the Deputy is aware, the Government has long acknowledged that the gap between revenues and expenditure is unsustainable. A multi-annual framework to restore stability to the public finances and to reduce the general Government deficit to below 3% of GDP by 2014 has been set out. The European Commission, the ECB, the IMF, the OECD and respected international economic commentators are among those who have welcomed the plan.
Is the Minister concerned that the structural deficit and the huge loss in revenue from the construction industry are gone forever? They will now be down at a very modest level. Has the Minister identified the ongoing loss from that deficit?
Does the Minister accept that if he can get people back to work — including work experience, graduate interneeship and apprenticeships, which the Labour Party has proposed — a couple of things can happen relatively quickly? When someone returns to work there is a saving in social welfare payments and, slowly but surely, the person's spending increases and they become a contributor to the income tax receipts. In addition, every time someone loses his or her job the cost to the State is about €10,000 per year in social welfare benefits. The debt spiral of deflation, as Ben Bernanke has described it in the United States, is not a good idea. More severe cutting causes job losses. The Minister's preference for cutting capital causes the deflationary spiral to get worse.
How does the Minister think EUROSTAT will treat the extra billions going to Anglo Irish Bank? Last year, the Minister disagreed with me when I said the €4 billion would count in our deficit, and it did. It now looks as though the €10 billion extra will not be €1 billion per year but rather €10 billion in one year. Can the Minister give a view on that?
Of course I am concerned. I have been concerned for a considerable period about the structural loss in our tax base occasioned by the property bust. The effect of it has been a substantial depletion in the amount the State received in capital gains tax and stamp duty receipts. I agree that has been a very serious problem. Any Government would be concerned about it, naturally. That is why the Commission on Taxation has made proposals for broadening the tax base and ensuring it is less elastic in the future. Clearly, one of the lessons highlighted in the reports is that a tax base which is subject to rapid upward and downward changes in tax receipts, because of the elastic character of certain receipts, is not structurally viable for the future. The Government is examining the proposals in that regard. I will bring proposals to the Cabinet in the context of this year's budget to ensure our tax base is more reliable in the years ahead. I agree that both factors — employment measures and general confidence in the economy — have to be attended to if we are to generate a viable revenue base.
Initiatives of the type mentioned by the Deputy — graduate internships and back to work arrangements, etc. — can be brought into operation now that final agreement has been reached on the Croke Park deal. It is disappointing that it took so long for that to happen. Now that agreement has been arrived at, we have an opportunity to make progress with these issues. Proposals that would generate confidence, in terms of income tax and employment numbers, can be pursued. I place considerable emphasis on the importance of sustaining general confidence in the economy so that individuals spend money and make investment decisions. Fiscal correction is necessary as part of the climate of sustaining confidence. Many people have called for a stimulus package. Our level of borrowing is such that it amounts, in itself, to the only stimulus package — and a substantial one at that — in which the Government can engage, with the exception of supply side stimulus measures that can be considered in specific sectors.
Having agreed with the first two points made by Deputy Burton, I would like to take issue with her third point. I do not have a preference for cutting the public capital programme. We have maintained capital investment at a very high level. Many of the reductions in the total volume of capital expenditure can be justified in terms of the cheaper tendering prices for elements of physical infrastructure that now exist. The question of how EUROSTAT will treat the capital sums that are required in connection with Anglo Irish Bank and Irish Nationwide, with which the Deputy concluded, is a matter for EUROSTAT. Clearly, the Department of Finance will liaise with EUROSTAT on the appropriate treatment of these matters. It is fair to indicate, as the Deputy did in her question, that a precedent that may have to be followed in relation to further payments has been set.
I would like to ask the Minister about the mechanism for forecasting the tax revenue shortfall. Will he make available to me his current estimates in relation to the interest costs for this year? It seems to me that we are not getting the full picture when it comes to the costs that apply to Anglo Irish Bank and the treatment of that bank. I was surprised to hear of the amounts of money the Minister has committed to the smaller institutions, such the as the EBS and the Irish Nationwide Building Society. I do not know whether the Minister was surprised to have to do so. We all know the Irish Nationwide Building Society would be another dead duck if it was not for its deposit book. Can the Minister give us an updated figure for the total amounts involved in the Government bank recapitalisation programme and the interests costs arising therefrom?
The interest costs arise from Exchequer borrowing, which is arranged by the NTMA. I can arrange for the NTMA to make an estimate. That estimate would be subject to revision at the end of the year. That is normally done before the budget. A final definitive figure——
Our bond spreads are not good.
They are very poor.
That has a very limited impact this year. The figure for this year will be drawn up by the NTMA towards the close of the year. On the separate question of bank capitalisation, I will arrange for Deputy Burton to be given the information she has sought on the institutions as a whole. The State now owns a controlling share in the EBS. The Oireachtas committee may well wish to make investigations with regard to the Irish Nationwide Building Society. The figure for the amount of the loss is far more definitive in the case of a smaller society like that than in the case of Anglo Irish Bank.
We share the Minister's hope.
This does not rest on hope. It rests on a considerable amount of archaeology which has already been carried out.
Written Answers follow Adjournment Debate.