Deputy Jonathan O'Brien was in possession but as he is not present, I call Deputy Catherine Murphy.
Government's Priorities for the Year Ahead: Statements (Resumed)
We are having a week of debate on this topic and, indeed, part of next week's schedule will be allocated to it as well, which appears to be excessive in the extreme. When we consider this week, next week, the week after St. Patrick's Day and the Easter break, and the fact that we have a big legislative programme, one can predict that by next July there will be late sittings and guillotines. That is not the way this Parliament should be run.
This debate is supposed to be about a pivotal moment, taking stock after the troika is gone and what the opportunities will be in the future. This Government will be defined two years hence not by the programme for Government but by the mandate it was given on the basis of the promises made before the general election matched against the outcome at the end of its term of office. Citizens put their faith in the ability of the new Government to achieve a debt write down; it was Frankfurt's way or the way of the Labour Party. It was tough talk and the expectation was that it would be followed by tough action. We were told that not a cent more would go to Anglo Irish Bank and that was expected to mean that the bondholders would not be paid. The relief we got was welcome but the extent of it was really crumbs from the table in terms of interest relief.
We are taking stock against the backdrop of a huge debt. This year, we will spend €8.54 billion servicing our national debt. That is just slightly less than the €8.8 billion education budget for first, second and third level education. Children born after the bank guarantee have already started primary school. They are in larger class sizes with reduced resources, which will impact on their educational outcomes. It will have an even greater impact on children with special needs. The cuts impact at several levels. The high-profile signing of the pledge not to impose third level fees was not worth the ink with which it was written. This is part of the reason people have lost faith in politicians and political parties.
There is a cost of €8.54 billion for servicing the debt, but most of it is not our debt but was imposed on us. I accept that much of it is legacy debt that this Government inherited. However, it is rising at the rate of €1,000 per second. If I speak for ten minutes, the debt will have increased by €600,000, and I know what the Minister of State, Deputy Jan O'Sullivan, could do in a flash with that amount of money. By 2016, the annual cost of servicing the debt will have risen to €9.1 billion. The debt is curbing the possibility of this country recovering. It is the elephant in the room which must be discussed if we are to discuss recovery. Our current debt is approximately €205 billion, of which 20% went straight to the banks. However, the banks are still not lending to the small and medium businesses that will be at the heart of job creation. The deal struck a year ago on the legacy Irish Bank Resolution Corporation, IBRC, promissory note knocked approximately €1 billion from that sum and while that is important, it is definitely not a game changer. I have drawn on Sinead Pentony's excellent article on debt domination in February's edition of "Village" magazine for updated figures.
The last main recessionary periods in Ireland in the 1980s and 1950s had the same patterns as the current recession - large-scale emigration, widespread unemployment, high levels of taxation and cutbacks in vital services. We see those cutbacks in all walks of life. Whenever we discuss something in the House, that is the dominant issue. We are highly dependent on the European Union and the most powerful countries within the Union to achieve a sustainable recovery. I agree with the influential German sociologist and philosopher Jürgen Habermas who said in a major paper last year:
If one wants to preserve the Monetary Union, it is no longer enough, given the structural imbalances between the national economies, to provide loans to over-indebted states so that each should improve its competitiveness by its own efforts. What is required is solidarity instead, a cooperative effort from a shared political perspective to promote growth and competitiveness in the euro zone as whole. Such an effort would require Germany and several other countries to accept short- and medium-term negative redistribution effects in its own longer-term self-interest - a classic example of solidarity ....
He went on to state, "The actual course of the crisis management is pushed and implemented in the first place by the large camp of pragmatic politicians who pursue an incremental agenda but lack a comprehensive perspective ... They are oriented towards More Europe because they want to avoid the far more dramatic and presumably costly alternative of abandoning the euro." He has also stated the German Government insists on priority being accorded to stabilising the budgets of individual states by national administrations, mainly at the expense of their social security systems, public services and collective good. We are pitting people against each other, almost blaming them for their predicament. We have become familiar with initiatives aimed at the unemployed. In the most recent budget there was a reduction in the rate for those under the age of 25 years; it was more or less positioned to suggest it was good for them and would get them off their couches and away from their big plasma screen televisions and out to work, as if their unemployment was of their own making. It is very dangerous to start blaming people in society for something in which they had no hand, act or part in causing. It is very destructive of society to go this way.
The big issue of mortgage arrears has not been grappled with in any serious way. The can kicked down the road is now in the ditch for many. We have run out of road and the people concerned are at the end game. I am sure every Deputy has met very stressed individuals beholden to organisations such as the Irish Mortgage Holders Organisation and New Beginning. We see families presenting as homeless. This is in the bailiwick of the Minister of State, Deputy Jan O'Sullivan, and I will keep raising the issue. Families are presenting as homeless or at risk of homelessness in increasing numbers. On Monday the homeless officer in Kildare County Council saw 16 families. I know this because I rang to make an appointment for others and could not do so. They are generally families with children. On Monday I spoke to a woman with five children and she and her husband are at their wits' end. They have been renting for nine years in the one location and on the local authority list all that time. Their children are settled in school. The Government has done good work in protecting children, but I see them becoming the new vulnerable. They are worried about their parents because they are in an absolute panic. Some of them have been searching for houses for three or four months. This happens every day of the week in my constituency and we must deal with this because it is a crisis. I do not know how to resolve it in the short term, other than through long leases or purchasing houses. It is self-evident that we cannot have ever-increasing rents. We are putting children and their families in a very vulnerable position and displacing those who traditionally have used homeless shelters. More and more people are on the street because they are being displaced in the shelters by others who should not have become homeless.
Nobody should be homeless and we need a plan of action. One reason for homelessness is that people cannot afford their rent. I have met people who work and who are unemployed and who cannot afford their rent. Some of this is for the good reason that recovery is taking place in some locations and I absolutely acknowledge that people in my area are gaining employment, but there is a downside in that those who are not gaining are suffering from a negative effect. It must be managed and seen as a crisis. In my area a family which is moved will be lucky to find a school place and the situation becomes impossible. It is also difficult for people to find work in such an environment as they spend the day traipsing between one school and another to collect their children. There is a serious crisis and I hope it will be acknowledged that we almost need a War Cabinet to deal with it in some locations. I cannot stress this point more strongly.
To date, the word "reform" with regard to public services has really been a code for cuts. Some services are at breaking point. I have no doubt there was room to tighten up and cut down on waste, but there is a point when one moves beyond this and it becomes counter-productive. We are very much at that point in some services. We have class sizes of between 32 and 35 children, including classes of tiny tots. In such cases teachers began to speak about crowd control. If education is to be one of the cornerstones of the future, we cannot be short-sighted. It all comes down not to what we can achieve ourselves but the extent of the debt which inhibits our ability to deal with very important social services. We signed up to the charter of fundamental rights under the Lisbon treaty, but we have very much become subservient to paying back bondholders and the ECB and being good Europeans. There is a point when the citizen of the country must come first, not second. That is my concern.
Our debt is 120% of GDP. If we use the more realistic GNP figure, it is 145%, which in anybody's terms is unsustainable. The noises we hear from the ECB and others contain very little about retrospective recapitalisation of the banks. Our debt does not seem to feature as an issue for debate in the half-term review or the remaining time the Government will be in office. A comparable situation is that in post-war Europe. Much is said about hyper-inflation in Germany. This happened before the Second World War because of the debt that arose after the First World War. Germany would not be the powerhouse it is today were it not for the generosity of the United States, France and Britain and their absolute act of solidarity. Half of its debt was written off and the remaining debt was scheduled to be repaid over a much longer period. This was a remarkable act of solidarity, given what had happened and the casualties the countries in question had endured. Just as we put job creation as a central feature for the future, we must put the debt issue and its resolution centre stage. The European Commission, the ECB and others can state Ireland is fine, but it is not fine and we will not be until we get to grips with this major debt. We will not be able to deliver the education system, housing, health care or incomes required.
I refer to the level of net income at which there would be opportunities to reduce taxation while at the same time providing a decent level of public services. I believe that if there is to be a real and sustainable recovery, it will depend greatly on how matters are run here but it is most certainly positioned elsewhere. It is positioned where that debt resides and this must be dealt with as an absolute priority each and every day, as our opportunities will be greatly limited unless this issue is dealt with in a comprehensive manner.
When the Government was formed in March 2011, Ireland was facing an unprecedented economic emergency. The parties received a mandate from the people and formed a Government that resolved to restore the country's finances, repair Ireland's broken financial system and rebuild Ireland's reputation on the international stage. The priorities for my Department are influenced by the progress that has been achieved on its previous priorities, which include the clean exit from the EU-IMF programme, the successful post-bailout return by the NTMA to the markets, the control of and stability in public finances, the fall in unemployment for seven consecutive quarters from 15.1% to 11.9% in February and the creation of 61,000 jobs by businesses across the country in 2013, representing the strongest rate of employment growth recorded in the past six years.
I can assure Members that the exit from the EU-IMF programme was by no means an end in itself. The Government was not elected simply to steer Ireland out of a bailout. Given the costs that have been incurred by the people, such as unemployment, emigration and reductions in quality of life, their demands rightly are much greater than that. The Government wishes to see an economy that is growing, creating more jobs and delivering real improvements in people's quality of life. The Medium-Term Economic Strategy 2014-2020, published in conjunction with Ireland's exit from the EU-IMF programme, is the Government's strategy for putting the economy on a path of long-term economic growth. The strategy has at its core the objective of returning the economy to full employment by 2020 and is based on three interconnected pillars. The first is to ensure debt sustainability by reducing the deficit to below 3% by 2015 and eliminating it by 2018. The second pillar is about financing growth and ensuring credit is available for investment, while the third pillar is about supporting employment and living standards and as I stated, the target is to have full employment by 2020.
This is the first year of the strategy and the priorities of the Department of Finance in 2014 are very much driven by the aforementioned three pillars. A central priority for the Government has been the return of the public finances to stability. Sustainable public finances mean a fair and progressive taxation system that supports economic growth while at the same time providing the resources for high quality public services. The spiral of debt that engulfed this country in the period leading up to 2011 resulted in Ireland's debt-to-GDP ratio hitting 104% from a low of 25% just four years previously. This accumulation of debt was brought about by the biggest public finance and banking crisis the country had ever seen and led to a severe contraction in economic activity. Confidence in the sustainability of the public finances is a precondition for a strong and lasting economic recovery. The Department of Finance is responsible for the implementation of rigorous new national and European debt, deficit and spending rules and institutional reforms. The fiscal targets are a 4.8% deficit in 2014, a 3% deficit by 2015 and the elimination of the deficit entirely by 2018. The Government has demonstrated its steadfast commitment to stick to its fiscal objectives by outperforming its deficit targets in 2011, 2012 and 2013. This has been vital for fostering market confidence in Ireland's recovery. By continuing to reduce the deficit in line with the strategy, the Government will stop adding to the debt. Ireland's gross debt levels, while very high at over 120% of GDP, will peak this year and the net debt position is just below 100%. When the equity stakes in the banks are taken into account, this figure is much closer to the EU average of 75% net debt to GDP.
Confidence in the Irish banks is beginning to return and has helped to reduce their reliance on Eurosystem funding and to bring to an end the bank guarantee. Since April 2012, there has been no emergency lending to the main Irish banks and their reliance on monetary authority funding had fallen to €27 billion at end of January, a level last seen in 2008. Reflecting this, AIB, Bank of Ireland and Permanent TSB all have accessed funding on capital markets at reasonable rates. A priority for the Department of Finance this year is to explore and develop opportunities to reduce further the gross and net debt levels. Sustainable public finances are one element and the State's shareholding in the financial system is another major part of this. The Government already has shown how the State can make a profitable return on an investment in the banks. Since 2009, the State invested €4.8 billion in Bank of Ireland, which has returned €6 billion to the State through sales and guarantee fees. In addition, the State retains a 14% shareholding in Bank of Ireland that currently is valued at €1.5 billion. It is the Government's stated policy position to continue to dispose of its holding in the Irish banking system and to use the proceeds to further reduce debt levels. It will do this through carefully adding value to its banking assets.
The gathering momentum of positive sentiment in the Irish economy is also reflected in the performance of NAMA. It generated approximately €5.8 billion in cash in 2013, including €3.8 billion from asset disposals with the total cash generated in the period of 45 months since its inception to the end of 2013 reaching €16.5 billion. The chairman of NAMA, Mr. Frank Daly, announced last week the agency's intention to repay a further €3 billion in NAMA bonds by the end of March this year and to have repaid half of the NAMA bonds by the end of this year. It is likely that the increase in NAMA asset sales to fund these redemptions will support construction activity in the economy, as purchasers of these assets will want to create income-generating assets as quickly as possible. A strategic review of the agency is under way in the Department. The sales processes for the remaining portfolios in IBRC are ongoing and the vast majority are expected to be concluded by mid-year. The IBRC liquidation is progressing in a satisfactory manner. The sale of the Rock and Salt portfolios on top of the success of the Project Evergreen sale late last year will reduce considerably the number of assets that now are expected to transfer to NAMA. This bodes well for the ultimate success of the liquidation.
As set out in the medium-term economic strategy, in tandem with potential private sector disposals, the Eurogroup has agreed that retroactive recapitalisation may be decided on a case-by-case basis in line with the commitment from the Heads of State and Government on 29 June 2012. The European Stability Mechanism direct bank recapitalisation instrument, known as the DBR, is the technical mechanism that provides for this. There is still a lot of negotiation to be done on the finer details of this instrument but the agreement now in place gives the Government the option of applying to the ESM for a retrospective direct recapitalisation of the Irish banks. There is significant time for consideration of this option, as retroactive recapitalisation can only occur after the single supervisory mechanism is operational, most likely towards the end of 2014. Any application for retroactive recapitalisation will be considered in light of the potential returns to the State from alternative options for realising the value of the State's bank holdings.
Ensuring an adequate flow of credit availability to SMEs is a key objective for my Department this year. As the economy grows and demand for credit increases, it is essential that competitively-priced financing is available to support business to trade, to grow and create jobs. In the medium-term economic strategy, the Government set out its ambition of developing a more diversified, competitive and responsive financial infrastructure that can finance this growth across the economy. A range of actions were included in the Action Plan for Jobs 2014 to deliver this ambition. In 2014, the Department of Finance will continue to prioritise measures to ensure adequate flows of domestic and international credit to fund households and enterprises.
This is essential for job creation and infrastructure development. My Department is specifically focusing on the establishment of the Ireland Strategic Investment Fund as part of the forthcoming NTMA amendment legislation, which will also establish NewERA to accelerate investment in strategic infrastructure; the conclusion of an agreement with KfW to increase the supply of credit to SMEs and to consider the potential for the creation of a State investment bank; and the expanded use of the National Pensions Reserve Fund for SME funding, which includes the funds already established for the purpose of turnaround, SME equity, SME corporate and the partnership with the Silicon Valley Bank and the Chinese Investment Corporation.
Following on from the turnaround of the banking system over the past three years, my Department will continue to work to repair and restore trust in the banks. This is vital to ensure that businesses are sufficiently confident to seek out credit to fund expansion opportunities.
Tackling mortgage arrears is an essential element of this repair job and it is vital that the banks continue to agree solutions with customers who are in arrears. This Government has put in place a comprehensive programme of actions to assist householders struggling to pay their mortgages. Consumers and lenders are agreeing permanent restructures for those in arrears or those who think they will fall into arrears. This is the priority for this year. The Central Bank has set mortgage arrears resolution targets for the six main mortgage lenders. By the end of June, lenders will have to put in place solutions for 75% of customers in arrears of more than 90 days. Some 35% of the over 90 days in arrears category will have to be in a concluded solution. This is the minimum expected from the banks this year and my Department will actively manage the banks' progress.
As I outlined earlier, the core objective of the medium-term economic strategy is full employment by 2020. This can only be achieved by delivering on the other objectives of the strategy, returning sustainability to the public finances and ensuring adequate supply of credit to business.
My Department's key direct policy area that influences economic growth is taxation, which is primarily set out in the annual budget. My Department will continue to prioritise taxation measures that ensure the recovery is jobs rich. In the past three budgets, we have shown how we can, through targeted measures, make our tax system more competitive and thus support a high quality of life and strong economic growth. I mention a €500 million tax package for businesses in budget 2014; support for the tourism sector through the zero air travel tax and the reduced VAT rate to 9%; tax policies to encourage the transfer of land to the younger generation in the agrifood sector; and re-establishing a fit-for-purpose construction sector through the introduction of real estate investment trust legislation, the home renovation tax incentive and an exemption from capital gains tax so that the overhang of commercial property in Dublin will be bought.
In line with the medium-term economic strategy, we will continue to explore opportunities to use tax as an economic tool to drive job creation and to build strong sectors across the economy. For example, as announced in budget 2014, a review of the agri-taxation reliefs is under way. The purpose of this review will be to assess the costs and benefits of the various agricultural tax expenditures with a view to ensuring that the maximum benefit to the sector and the wider economy is obtained. Ensuring the recovery is jobs rich also requires a medium to long-term focus and continually improving productivity as it is the key component of long-term Irish growth levels. This means we will focus on investment in people, building strong sectors and boosting competition and innovation to drive growth.
My Department plays a very significant role in representing Ireland at European and international institutions and we intend to use all of our interactions to ensure these institutions are focused on increasing global economic growth. Higher levels of global growth will be to our benefit as a small open economy, where our relations within Europe and across the world are crucial to our economic prosperity.
Building on the widely acknowledged success of the 2013 Presidency, my Department will continue to intensify its strategic engagement with Europe and international institutions to focus them on action that will lead to higher levels of global economic growth. My Department's immediate international and EU priorities are engaging in the European semester process to ensure that all member states act in the best interests of strong European economic growth; completing the banking union so as to support the creation of a single banking market in the EU. This will reduce the disparity of credit costs between banks in different member states; focusing European investment on innovation and greater competition that will increase the EU's long-term growth levels; earlier and continued involvement in a range of wider European policies and developments; and setting out the benefits of increased international trade for global economic growth.
The implementation of the strategies outlined in the programme for Government has resulted in Ireland's reputation improving dramatically in recent years. As well as the successful programme exit, Ireland's stewardship of the EU Presidency was recognised on an international stage as being well run and very productive. All rating agencies now recognise Ireland as investment grade and Forbes magazine recognises Ireland as being the best country in the world to do business.
We have achieved a great deal over the past three years but we must not become complacent. We will continue to place job creation at the heart of all our economic policies. The medium-term economic strategy 2014-2020 is the new blueprint to sustain a competitive economy that can pay its own way, serve society and that can survive and thrive in a reformed eurozone and an increasingly globalised international economy. Full employment by 2020 is the target and I am confident that the steps that we are taking this year will move us closer to achieving this objective.
Three years ago my colleagues and I in the Labour Party sought a mandate from the people. The core themes we put before the people were jobs, reform and fairness. In February 2011, we were entrusted with an historic mandate by the Irish electorate. Every citizen of this country knows the perilous condition of Ireland’s economy, public finances and international standing which we inherited after nearly a decade and a half of Fianna Fáil rule. Since then, together with our coalition partners in Fine Gael, we have worked day and night to bring stability, growth and hope back to our citizens. We are now witnessing very tangible progress – more people are at work, economic growth has returned and a more confident Ireland is emerging.
Key to this turnaround has been the fortitude and resilience of the Irish people. I know Irish citizens have made very significant sacrifices and we owe it to these people to follow through on our programme for Government commitments and to work to ensure that improvements in the quality of life go hand in hand with a revitalised economy. This is especially true in the area of housing.
The programme for Government outlines a number of commitments on key issues such as ghost estates, social housing, urban regeneration and homelessness. These commitments have been, or are well on the way to being, implemented. However, as Members of this House know and as Deputy Catherine Murphy just outlined, the housing situation is rapidly changing. Over the next two years, the Government is determined to take bold steps to respond to emerging demand in the social and private housing sector. These measures go beyond the reforms outlined in the programme for Government.
Before I address these issues, I want to outline to the House the progress achieved on programme for Government commitments. In regard to unfinished housing developments, we committed to bringing forward a coherent plan to give hope to the families and communities whose quality of life was blighted by unfinished housing estates – a very potent example of the destructive dalliance the previous Government had with the property market. Since then we have reduced the number of unfinished estates by 56%. We have brought hope back to thousands of families who previously thought they were stranded for God knows how long in appalling living conditions. I acknowledge the role NAMA, the local authorities, financial institutions and local communities have played in working with Government to resolve this issue – partnership has proved to be the crucial element achieving progress.
Progress to date has improved the lives of thousands of families and yet there is still a significant amount of work to be done. Approximately 1,200 unfinished estates remain and many of these are the most difficult cohort to resolve. Last Friday, my Department received applications from local authorities under the new €10 million fund established in budget 2014, with the support of the Minister for Public Expenditure and Reform, Deputy Howlin, and I hope to allocate funding under this measure in the coming weeks.
The programme for Government focused attention on regeneration and despite very significant downward pressure on the housing capital budget, the Government has maintained a significant regeneration programme. Projects are under way in Tralee, Cork, Sligo and Dundalk, as well as larger projects in Limerick and Ballymun. I am also pleased to say progress is being achieved for communities in inner city Dublin who were cruelly abandoned by the failed PPP model advanced by the previous Government. Work on St. Michael's Estate in Inchicore is in its final stages, while plans have been agreed and work will begin this year on Dolphin House and St. Teresa's Gardens. I am in regular contact with Dublin City Council regarding other projects and hope to be in a position to report further progress on same later this year.
The programme for Government highlighted specific actions on social housing and homelessness. The Government is committed to ending long-term homelessness and the need to sleep rough. In the past two years in Dublin 1,500 people have moved from homeless services to independent living, with necessary supports. This is the type of housing-led policy that I want to see at the heart of homeless services throughout the country. However, despite the significant achievement in assisting 1,500 people to move from homeless services, there is an increase in the numbers presenting as homeless and, most worryingly, an increase in the number of families presenting. This is an urgent issue, particularly in the greater Dublin region. In the past few weeks we have formed the implementation structures recommended in the first report of the independent oversight group. The most important issue in terms of both short and medium-term responses to homelessness is the supply of appropriate long-term accommodation. In the coming weeks I will be examining all sources of supply, whether held publicly, privately or by NAMA, that can be utilised to provide adequate emergency accommodation and, more importantly, stable long-term accommodation. Securing supply will reduce our reliance on expensive and often inappropriate emergency accommodation and give people security and stability. The family referred to by Deputy Catherine Murphy is in need of such stable, long-term accommodation. I do not underestimate the challenge in sourcing supply, given the lack of new building in Dublin in the past five to six years, but I am determined to examine every available option to tackle the scandal of homelessness.
Increasing both public and private housing supply is a critical issue for the Government, as both the Taoiseach and the Tánaiste outlined in the House yesterday. In the coming weeks the Government will agree and publish its construction strategy which will facilitate an uptake in development and has the potential to create thousands of jobs. As part of the public capital investment in housing, the coming 18 months will see in excess of €200 million being invested to expand and enhance housing stock. Investment in regeneration and unfinished estates will total some €80 million this year and additional measures include a new €65 million local authority mainstream building programme that I will allocate in the coming weeks; an additional €15 million investment that will bring more than 300 long-term vacant local authority housing units back into use; new two year capital investment in housing for people with a disability, the elderly and people who are without a home that will see some €35 million invested this year and next; investment in partnership with the not-for-profit housing sector that will expand the number of social units available; and a €30 million investment in improving the energy efficiency of local authority homes which will reduce energy bills for thousands of families and support green energy jobs. There are two important strands to this investment programme – first, to increase the supply of new social homes and, second, to ensure every available appropriate unit is transformed into a home. With supply at record low levels, the second strand, that is, turning empty units into family homes, is important in addressing the immediate problem of supply, particularly of social housing. I am concerned that many social houses are left vacant for long periods after tenants move out.
This is an opportune time to review where we stand as a country and plan for the future. This is nowhere more important than in the housing sector. The Government is determined to increase construction activity and the supply of social homes, deal with the legacy issues we inherited, end long-term homelessness and oversee a stable housing sector that works for families, rather than being a cash machine for developers and financiers. The programme for Government provides us with a solid base for that reform agenda. Much of that work has largely been achieved or is substantially under way, but, as the economy recovers, we need to respond to emerging challenges in the housing sector and I am aware that these challenges are acute in many parts of the country.
Innovative public investment, partnership with the not-for-profit sector and a coherent strategy for construction and home building are just some of the issues where policy is now focused in my Department. I do not have a monopoly of wisdom and constructive suggestions from both within and outside the House will be given full consideration. The country is changing. The despair and sense of betrayal that marked the public mood four or five years ago are being replaced. We can once again face the future knowing that the decisions we take are of our own making, not appendages to a troika deal. Much work still needs to be undertaken, but the country has changed for the better. In the next two years the Government will continue to work to improve the lives of families across the country, creating jobs, promoting reform and ensuring fairness.
I welcome the opportunity to make a statement on the Government's priorities for the year ahead. It would be absurd not to say there has been a degree of stabilisation across areas of national endeavour. However, that stabilisation is based on a plan agreed with and imposed by the troika and the previous Government that found itself in a panic crisis. There are no great marks for taking a stabilising approach to what was a survival plan. We relied on troika loans and bilateral loans from the United Kingdom and Sweden to bridge the gap between the excesses of expenditure and income for a period of three years. It has been sold and spun in so many ways that people are confused and exhausted. The reality we are living with is one of hurt across households, among young people and the elderly. It is very palpable and we are hearing it every day. It is truthfully a cry of pain and hurt.
It is not good enough, in the context of the strong numerical mandate given on 26 February 2011, leading to the formation of a coalition Government on 9 March 2011 with the largest ever majority in our history, that the old ways of doing business continue. The unthinking, donkey-like behaviour continues today and that is just not on. There is no imaginative, free, challenging, creative, honest or fair thinking on the part of backbenchers of the two Government parties. It is embarrassing. They come into the House, debate in one way but vote in the way they are told. The debate on the abolition of the Seanad was a case in point. Many Labour Party and Fine Gael Senators and Deputies voiced their deep concerns that the proposal to abolish the Seanad was not safe or sound and they were right. However, the leadership of both parties told them that they were not supposed to think but to vote and they did so. That is shameful.
We are here to discuss the priorities for the year ahead, but the big challenge, the gaping priority, the beached whale, is completely ignored - the debt of the country. It is a sad inevitability that unless we achieve a write-down on the debt and an overhaul of the banker, auditor and political culture which drove the country into economic Armageddon, in a few years time we will still be in a toxic swamp and the distress will not be alleviated.
The pain is only in remission. On “Morning Ireland” recently, one of our most experienced and esteemed journalists described the news of the sale by Wilbur Ross and Prem Watsa of Fairfax Financial Holdings of their stakes in Bank of Ireland as “finally a bit of good news for Irish banks.” It was weird and unreal to hear that. How on earth could the sale by vulture investors of a shareholding in Bank of Ireland be greeted as good news? If only people paused for a moment and did the simple Corn Flakes box sums. These two firms sold 6.4% of the bank for €690 million, yielding a profit of €90 million on their entire shareholding. They now still hold 12.8% of the bank, worth €1.3 billion. There is nothing good for the Irish people about that.
The journalist’s statement alone demonstrates that we have come full circle when it comes to our understanding of finance and property in this economy. We simply have not got a clue. For years, the media and politics were cheerleaders for endless economic growth and rising property prices as the hallmarks of a sophisticated economy whose model could be replicated all over the world. They and the banks’ boards did not understand banking or the financial engineering of bank balance sheets. This will come out in the banking inquiry. When the chickens came home to roost, it will be seen that there was at least a degree of scrutiny in the role finance and banking played in our economic demise. It took €64 billion of taxpayers' money, representing almost half of the entire economy, for the media and politicians alike to stand back and confront the insidious nature of credit and its oversupply to one area of the economy. Property developers cannot do anything without credit and credit cannot arrive unless there are bank boards. The auditors were meant to arrive at a conclusion as to whether the balance sheets and statements represented a true and fair view of the banks’ affairs. Six years later, nothing has happened. It is pathetic.
The deafening silence from the entire Government, which represents two thirds of the seats in the Dáil, as well as the silence from the two major Opposition parties, Fianna Fáil and Sinn Féin, to the announcement of Wilbur Ross's disposal of his shareholding in Bank of Ireland demonstrates that, after five years, Irish politics, the establishment and the media have gone back to business as usual. On Leaders’ Questions yesterday, Deputy Healy hit the bull’s-eye. He did the sums and showed that all those Members who stood by lauding this development as a great event were in fact showing collectively how we are idiots and are not looking out for the people. Bank of Ireland has done nothing about restructuring its customers’ loans. It claims it has but I know it has not as I have done several pro bono help-outs for people with the bank. The way they are treating those individual loans is pathetic.
The politicians will look after politics while the bankers look after the banks. Our national broadcaster will report increasing share prices in banks as gospel evidence that a corner has been turned. In January 2007, the market capitalisation of Anglo Irish Bank was about €10 billion, lauded as the best banking model in the world by consultancy firm Oliver Wyman, which will do the eurozone bank stress tests soon. Of course, Anglo collapsed with the same balance sheet a year later with losses of between €35 billion and €40 billion. That is how clever the markets are.
Do we believe that if the vulture investors are now departing our seas, it means our banking system and culture are improving? We need to wake up and smell the coffee. There are too many families hurting. That is why I get annoyed, justifiably. I get angry when I see the Government standing back and not doing anything about this. It is too easy to go to events such as today’s European People's Party convention and congratulate each other.
The debate is over. We are not getting a write-down, separating bank debt and sovereign debt. Why should the Irish people be loaded with all the losses of a private banking system? Will there be a recognition that we need a retrospective separation of bank debt and sovereign debt? The bank debt is losses.
The Minister of State, Deputy Jan O'Sullivan, used to believe that.
It is not over yet.
It does not matter because our bond yields are cheap and the focus now is on getting people to spend more money, as well as getting property prices to rise again.
When Wilbur Ross, Fairfax and Kennedy Wilson came to these shores, the type of green that filled their hearts was not the shamrock we will all be proudly wearing in a few days' time. It was the green with George Washington's face, the dollar. Does anyone believe that Wilbur Ross or Kennedy Wilson give a damn about this country or its economic recovery? These are not Chuck Feeney philanthropists but cold, hard, calculating capitalists in search of high yields, high returns and high risk. However, they did not even take a high risk with their Bank of Ireland undertakings, as the Government basically presented them with candy floss. They took a gamble on Ireland and have tripled - in some cases quadrupled - their money on the country. They took this gamble because at every step of the way the Government reduced their risk and gave them sweetheart deals to cement their investments.
A gargantuan area of economic life that, until very recently with the sale of Irish Nationwide residential mortgages, has been completely ignored is the sale of bank loans from Bank of Ireland, AIB, NAMA, Permanent TSB and Anglo Irish Bank, not to mention the other non-domestic banks such as Bank of Scotland Ireland and Ulster Bank. The loan sales that have been undertaken in this country and the transfer of wealth from domestic Irish owners to foreign vulture capitalists have been of the magnitude of two thirds of the entire economy. We spent weeks in this House debating the sale of State assets such as the ESB, the national lottery and Coillte. These asset sales collectively amount to a small fraction of the State-owned bank assets the Government has sold at enormous discounts and losses to the taxpayer who owns these banks. The Wilbur Ross fairy tale is a central component of these sales which has all but been ignored by this House and the media alike.
In the summer of 2011, Kennedy Wilson bought a business from Bank of Ireland that was responsible for managing borrowers’ property loans, much of which were UK commercial property loans. One month later this same company was part of the private consortium that bought shares in Bank of Ireland. This private investment was fronted by Wilbur Ross and was widely regarded at the time as a sign that investor confidence was returning to Ireland and our banking system. Behind the scenes, however, there was a much bigger play being fronted by Kennedy Wilson which concerned the main part of its own business, which is buying up bank loans. A few months after the Bank of Ireland private consortium investment, Kennedy Wilson bought €1.3 billion of UK commercial property loans from the same bank in what Ernst & Young later described as the single largest European commercial property loan sale in 2011. When the Government sold its State assets, it appointed an independent broker to sell the lottery and Bord Gáis businesses. Why were the bankers allowed do sweetheart deals with impunity? There was no open, transparent market process for these loan sales.
This is in spite of the fact that Bank of Ireland was in receipt of almost €5 billion of taxpayers' money and subject to European Commission state aid rules. Since the sale of those loans to Kennedy Wilson, the former head of the non-core division for Bank of Ireland - the division which was responsible for selling the loans - was appointed managing director of Kennedy Wilson. The head of the unit in the Department of Finance responsible for overseeing the private investment into Bank of Ireland and the bank's loan sales left at the beginning of 2013 and was given a job as head of group treasury in Bank of Ireland. Both Wilbur Ross and Fairfax are either co-investors, or direct investors in Kennedy Wilson in a vulture triumvirate that has made billions of euro from the carcass of the Irish banking system. These profits were facilitated by weak politicians looking for a quick win and what appear to be civil servants and bankers looking for a new job.
Is it any wonder that Wilbur Ross, Fairfax, Prem Watsa and Kennedy Wilson regularly hail Richie Boucher as a hero of the Irish banking system when he has been instrumental in making these investors billions of euro in profit? This vulture triumvirate has made billions of euro from the collapse of the domestic financial system, which was overseen and led by the same man they now herald as their financial hero. There is no question that the profits these people have made are the stuff of Wall Street legend; "heroic" is a good a description. However, I find it hard to believe that when the cameras are off and the journalists have gone home, Wilbur Ross, Fairfax and Kennedy Wilson think of Richie Boucher and the Government as anything other than amateurs in a game in which the big boys always win.
The same neoliberal or establishment philosophy exists in Europe where the boys in Frankfurt have scant regard for bullying a country that represents just 1% of the entire eurozone into bailing out unguaranteed, unsecured senior bondholders. Three years after bullying one tiny nation's taxpayers into bailing out bank bondholders, the ECB imposed the exact same financial bullying tactics on Cyprus to make ordinary depositors and taxpayers pay the price for the lending mistakes of their banks. For the educated financiers in Frankfurt, sovereign countries such as Ireland or Cyprus, rich in history, culture and independent spirit, represent a dot in the financial ocean that is the eurozone. They are an irrelevant distraction whose peoples can be squeezed for every euro they earn to preserve the integrity of the eurozone financial system and, as they see it, the greater common good.
In the summer of 2012 when Spain and Italy faced the financial abyss that Ireland faced, Frankfurt did not tell them to get in line or that a bomb would go off in Madrid or Milan if they did not. The ECB board members panicked. They saw their own personal credibility on the line and they saw the financial implosion of the euro system as their legacy. Instead of threatening proverbial bombs like our Minister faced, Spain, Italy and the entire eurozone economy was given the Draghi pledge, which has fundamentally altered the eurozone crisis. The ECB will buy whatever it takes. Ireland could have done with the Draghi pledge four years ago when we piled €64 billion of taxpayers' money into a financial drain of bondholders, bankers and pension funds across the world.
The international investors and foreign newspaper writers who backslap the Government for restoring the international credibility of the country, are the same people captured by the financiers who profited in the billions from the taxes of Irish workers.
This country will sink as quickly as it has risen from the ashes unless we achieve a write-down on our debt generated by bank losses. I listened carefully to the Minister for Finance recently explain that he was having a hard time pleading for a bank debt deal from his European colleagues. The reason he explained he was having a hard time was our bond yields are lower than those of many of the countries that would have to contribute to such a write-down; this is pathetic. The Irish people and media, by and large, trust the Minister when he speaks; they trust his words and admire his Limerick wit. The Irish people also, by and large, trusted Bertie Ahern when he spoke; they admired his words and were dazzled by his political acumen.
As long as the economy grows and the population's spending power improves, statistics relating to our national debt which we cannot afford will be a distant mirage for most people in their day-to-day lives. I refer to medical cards, carer's allowance, young people abroad, hollow JobBridge placements and all the factors that make for a tough life at the moment. We should get real with Europe. The false dawn being celebrated this week by the Government parties will not last forever. Eventually the large economies of Italy and Spain will be insulated to an extent that the ECB will no longer be required to step in and bail them out. Why does anyone believe that at the next time of crisis, the ECB members will look more kindly on this nation? Of course they will not. All the hard earned economic gains that taxpayers will have made and the suffering will be in vain and we will be thrown to the wolves again, as we were in the past.
Starry eyed diplomacy where we seek the love and adoration of our partners in Europe or our financiers in Frankfurt has not served this nation well. The lowering of our interest rates on our official sector bonds, the restructuring of the promissory note - which was a given but I do not have time to show how that occurred - and the extension of the maturity on our loans are all welcome events, which have improved the overall debt profile of this country but they are by no means even close to sufficient. How can it be that the Taoiseach, Tánaiste or any Minister has not told the House or the Irish people during the debate that they will fight with every ounce of their being for a write-down on Irish bank losses debt? Even the Minister of State at the Department of Finance, Deputy Brian Hayes, who is a declared candidate for the European Parliament elections, is silent on the issue. He recently publicly confirmed: "I just think now is the time where we continue to negotiate and it's better that these are done, effectively, behind closed doors." We have heard that for three years.
Amazingly, other candidates running for Europe include Eamon Ryan, the former Minister, who has openly acknowledged some of his ministerial colleagues were asleep in bed when the Cabinet secretary phoned them to ask whether they supported the guarantee of €400 billion of bank debt on the backs of the Irish taxpayer. The same former Minister described Morgan Kelly, who made a calculated assessment in May 2010, as a "prophet of doom" for claiming the country would become insolvent unless it abandoned its policies to bail out the banks. Four months later, the Merrion Hotel was booked out and teams of economists from Frankfurt, Brussels and Washington launched their economic takeover of the State. That was 28 November 2010. It was a snowy and cold night and I was in RTE, as was Myles Dungan. The six Irish banks owed the ECB €135 billion at the time and that is why these people were here. It was shocking. Mr. Ashoka Mody, chef d'équipe of the IMF element of the troika has said Ireland should get a debt write-down. Six weeks ago in Davos, Ken Rogoff said we should get a debt write-down and it is the right thing for Europe to do.
It is not over yet.
Yet, yet, yet. We have not heard the voices of the Government. Let us get real here. The people had a decade of platitudes and false dawns, which resulted in what the IMF has called the single largest financial crisis in human history. That is quite an accolade of failure that the previous Government oversaw. This Government has stabilised the economy using the plans of others. It has cut public spending, increased taxes and reduced the gap between taxation and expenditure but this was planned anyway. Our debt mountain is such that not even Hilary and Tenzing would be able to climb it. Household debt is €172 billion and represents 105% of our GDP; non-financial corporate debt is €330 billion or 202% of our GDP; and government debt is €193 billion or 118% of our GDP. This represents a total combined debt of €695 billion or 425% of GDP, the highest in the OECD.
Ireland has a massive insurmountable debt problem that the Minister for Finance tells us is sustainable and that his junior Minister, Deputy Brian Hayes, says should be quietly negotiated behind closed doors. The bonds that the Government was forced to issue by the ECB to repay the debt it had provided to Anglo Irish Bank should be written off. Patrick Honohan should be told to cancel them because they are odious. The taxpayer did not incur these loses and does not owe this debt. We cannot afford this. Writing off this debt from the balance sheet of the ECB would be a dot on the financial ocean that is the eurozone but it would be important to ignite a sustainable economic recovery on this island.
Second, the ESM must be used as a vehicle to recapitalise retroactively the Irish taxpayer for the investments it has put into Bank of Ireland, AIB and Permanent TSB. Again, these investments of billions of euro were largely made with the aim of maintaining stability in the European financial system. We paid our price, and now taxpayers should be given relief for the sacrifice they have made. The Government has fallen completely short on its pre-election promises. I am very conscious of this, as someone who ran for Fine Gael in the last election. Since then, I have been expelled. During that campaign, the Minister for Transport, Tourism and Sport, Deputy Varadkar, promised the Irish people with much gusto that "not another cent" would be given to Anglo Irish Bank. Fine Gael subsequently published a banking policy document promising the Irish electorate that, if elected, Fine Gael would unilaterally impose losses on senior bondholders in Anglo Irish Bank and Irish Nationwide if our European partners did not agree. Most famous of all was the great rhetoric from the Tánaiste, who told the Irish people they had two stark choices, "Labour's way or Frankfurt's way." I question how a Minister of State at the Department of Finance who believes we should adopt the same tactics that have failed to get us a bank debt deal is in any way equipped or sufficiently fired up for the Irish people to send him to Europe to get us a deal. We have entered the realms of the twilight zone for the Irish people even to contemplate sending Eamon Ryan, the former Cabinet Minister who sunk Ireland into the economic abyss, out to Europe to negotiate for us a deal on our bank debt. He would be laughed out of the European Parliament trying to convince the larger countries that even though he was the Minister who sealed our fate with the bank guarantee, he was asking them to forgive him his €400 billion mistake and compensate the error.
Could Deputy Mathews move that the debate be adjourned?
I have only one more sentence. What kind of message would the Irish people be sending to Europe if we sent such representatives to do our bidding? Here is my last sentence.
The failure of this Government to include a debt write-down of approximately €50 billion from Europe as the overriding priority underpinning all our engagements with our European counterparts is a failure that will cost the Irish taxpayer dearly. We need to get our money back from Europe because if we do not, my children, the Minister's children and our children's children will face the same catastrophic financial cost that this generation has already faced. We were led to trust in the kindness of strangers. Have we been left out on a limb to be disappointed by the strangers to kindness?