Dara Calleary
Ceist:6. Deputy Dara Calleary asked the Minister for Finance his views on recent increases in bank charges and the consequent impact on personal and business customers; and if he will make a statement on the matter. [4675/15]
Other Questions
Bank Charges
I would like to discuss with the Minister the impact of recent increases in bank fees for SMEs. In some cases maintenance fees have been increased by 300%. The banks say it is a direct consequence of the Government's wish to expand online banking. This is having a significant impact on SMEs along with the general lack of choice in business banking in the market.
All credit institutions in Ireland are independent commercial entities. I have no statutory in respect of the charges applied by them. Section 149 of the Consumer Credit Act 1995 requires that credit institutions, prescribed credit institutions and bureaux de change must make a submission to the Central Bank if they wish to introduce new customer charges or increase existing customer charges in respect of certain services. Section 149 does not cover interest rates; it applies to fee and commissions only. The Central Bank may direct the institution not to impose the new or increased charge or it may approve the charge or approve at a lower level than requested by the institution. Once approved, the bank is entitled to impose the charge.
My Department published a report on the review of the regulation of bank fees and charges in December 2013. This contained a detailed description of the process by which the Central Bank makes decisions on whether to approve proposed charges. It is available on my Department's website, www.finance.gov.ie. Among the key findings of the review was that while fee and commission income has become a more important source of income to the banks in recent years, net fee and commission income in Irish banks was well below the average of their European peers.
The review also found that competition in the banking sector has reduced significantly since the onset of the economic crisis. This lack of competition means that the removal of section 149 would give unfettered price setting power to the incumbent and, therefore, it was recommended that it not be repealed. The Central Bank Supervision and Enforcement Act 2013 introduced changes to section 149 to attract new entrants to the banking sector. There is some evidence of improvements in the sector with a number of institutions introducing new products and adapting their business model.
The website of the Competition and Consumer Protection Commission lists the various charges imposed by the various financial institutions for different transactions - www.consumerhelp.ie. Institutions have varying models for charges and have different regimes and conditions under which they are willing to grant transaction free banking.
Even since the report's publication, Bank of Ireland has increased the quarterly maintenance fee for business customers from €5.25 to €15. Cheque lodgement charges have increased from 20 cent to 60 cent, while a book of 50 cheques now costs €15, as opposed to €4. Equally, AIB increased its fee for an e-banking product by 25% overnight after directing approximately 46,000 businesses into it. These charges have a direct impact on the bottom line of small and medium enterprises that are struggling. Many banks now dictate the days on which coins can be lodged, for example; therefore, if a person works in a service industry, there are days when he or she may be forced to keep cash on the premises because the banks will only take coins on specific days and sometimes only two or three days a week. That happens in a town not far from where the Minister lives and in which there is a big dependence on the service industry. One arm of the Central Bank does not know what the other is doing. Its representatives have lectured us about costs in the economy moving out of the stream, but, on the other hand, they seem content to stand by and allow this level of increase. I note the Minister's comment on the charges being listed on the website, but he knows that businesses find it difficult to shop around for banking facilities because of security concerns and the problems which come in moving from one bank to another. They do not tend to do it and it seems the banks are exploiting this inability to move.
There is no connection between the report published by the Department of Finance in 2013 and the subsequent increases in charges by the banks. The Central Bank has a role in authorising charges and may alter them, but the Minister for Finance has no such role. I presume the banks were waiting to see if section 149 of the Consumer Credit Act 1995 would be repealed or if there would be a proposal to do so. We indicated that there would be no repeal, as if that were to happen, there would be carte blanche for the banks to do as they wished independent of the Central Bank. There is still control.
It is true that, on a comparative basis, the range of fees in Ireland is much lower than in comparable institutions across the European Union. If we are to attract competition, a range of fees more closely allied to what is happening in Europe would be appropriate. It is up to institutions and the Central Bank to decide on fees. There is some evidence that new institutions are coming to Ireland, of which the Minister of State, Deputy Simon Harris, who is in charge of financial services would have significant knowledge.
I did not want to make a connection between the report and the increases, but the reality is that the increases have happened. The Minister has a role because he is the main shareholder in one of the banks and a minority shareholder in the other. He is the Minister whose Department regularly publishes targets for small and medium enterprise, SME, lending and the condition of that sector's finances. I quoted the charges of Bank of Ireland, which has indicated that they are being introduced in line with the Government's national payments plan. I do not accept this and it is a cop-out by Bank of Ireland. As somebody who is in charge of SME lending and pushing the banks into such lending, the Minister has a role. This is particularly relevant, as we are about to establish the strategic banking corporation which could have been another player in the market if it had been approached differently as an independent bank in its own right. We are going to give these guys more money to lend to the same businesses on which they are piling pressure.
As the Deputy is aware, when my predecessor, the late Brian Lenihan, brought the banks into public ownership, there were arrangements, agreements and legal contracts signed to the effect that the Department of Finance and the Minister would not interfere in the commercial affairs of the banks. He was absolutely right to do so and I have followed these rules. We do not interfere in what are considered to be the commercial considerations of banks. The new strategic investment bank will operate and develop products independently. Retail banks will be used as gateways to deliver money to businesses, but the bank will be independent in the exercise of its functions. There will be announcements in that regard very shortly and Deputies will be happy with the details.
Budget Measures
Terence Flanagan
Ceist:7. Deputy Terence Flanagan asked the Minister for Finance his plans to help the squeezed middle in future budgets; and if he will make a statement on the matter. [4702/15]
Will the Minister outline his plan, as recently reported in the media, to help the coping classes or those middle-income earners between €32,800 and €70,000? Does the definition include households or does it refer only to individuals earning that income?
I thank the Deputy for his question. As he may be aware, I am of the view that a fair, efficient and competitive income tax system is essential for economic growth and job creation. I have long said the burden of the income tax system in Ireland is too high. I also said I would seek to reduce it as soon as it was prudent to do so. The identification of the squeezed middle as those earning between €30,000 and €70,000 was an important step.
In the 2015 budget I reduced the top rate of income tax from 41% to 40%. I also extended the standard rate band in which income tax is chargeable at the lower 20% rate by €1,000. These measures ensure all those earning in excess of €32,800 per annum will benefit from the income tax changes in the budget. In addition, I reduced the two lower rates at which the universal social charge, USC, was payable from 2% and 4% to 1.5% and 3.5%, respectively. This ensures people on lower incomes who do not pay income tax also benefit from the budget. Furthermore, I also increased the threshold before which the 7% rate of USC becomes payable to €17,576; as a result, those on the minimum wage will now only be liable to a maximum 3.5% rate of USC. I also retained the exemption from the top rates of USC for medical card holders and those over 70 years with incomes that did not exceed €60,000. These individuals will now only be liable to pay a USC rate of 3.5%, down from 4%.
Ireland already has one of the most progressive income tax systems in the developed world. To preserve that progressivity, the budget also contained measures to limit the maximum benefit of the tax package to approximately €14 per week for any individual taxpayer, which means that those with very high incomes will only benefit to the same extent as those with more modest incomes. The changes announced in the budget took effect last month and have resulted in a reduced tax bill for all those paying income tax and USC.
Additional information not given on the floor of the House
The tax package announced in the budget is the first stage of a tax reform plan to be undertaken over a number of years to reduce the tax burden, particularly for low and middle-income earners. My Department estimates that a reform plan along these lines over three years will create up to 15,000 jobs when the full effects of the changes have taken hold in the economy. I propose to continue to reform the income tax system in this manner in future budgets, subject to the required economic growth and the consequent fiscal space being available to the Government.
I thank the Minister for his response. What steps are he and the Minister for Public Expenditure and Reform taking to keep costs down for all households, particularly State-controlled costs? Households and, in particular, employed persons are paying major taxes, including new taxes in recent years such as the property tax and water charges, as well as the dreaded USC. The most expensive outgoings for households are child care costs and mortgage debt payments. What measures will the Minister take to specifically help those with high child care costs? Recently, the OECD indicated that a family in Ireland with two children would spend 40% of its average wage on child care costs. This amounts to over €2,000 per month to keep a baby and a toddler in child care facilities. What is the Minister doing to target this issue?
A series of supplementary questions have been put by the Deputy. The Government's target for procurement costs is to save €150 million this year, a very significant saving. The Deputy is aware that the cost of energy has come down dramatically. The budget was built on a Brent oil figure of €105 per barrel, but it is now at €43 or €44. The Government's policy is to ensure these savings are passed to the consumer. The same would apply to heating oil.
Child care is one issue that is putting a structural obstacle in place of full participation by women in the workforce.
It is an issue currently being examined by my Department. Primary responsibility for this matter lies with the Minister for Children and Youth Affairs, with whom I have already had discussions on the issue. It is easy to identify the problem but difficult to arrive at a solution. However, we are working on it.
The Minister will be aware that Ireland is the most expensive country in the world in terms of child care costs. This is an area that requires targeted action. This Government and previous governments have failed ordinary working people in not taking targeted action to address child care costs.
On mortgage debt and variable interest rates, some banks are charging new customers a lower variable interest rate than that which they are charging their existing customers. Perhaps the Minister will say if there is anything further he can do in regard to this matter which would provide people with hope, particularly those people who have had to pay high taxes in recent years and are badly squeezed.
The policy instrument available to me to assist the so-called squeezed middle is the taxation system. I have outlined for the Deputy what I have done in terms of income tax and USC reductions through the budget. I also said in my Budget Statement that I would follow the same line of policy in the next budget, subject to the availability of resources to do so.
The Deputy has raised many issues which are not in the same space. While very important, many of them are the responsibility of other Ministers. The Deputy has material for a series of parliamentary questions.
Budget Consultation Process
Pearse Doherty
Ceist:8. Deputy Pearse Doherty asked the Minister for Finance his views on whether the budgetary process would benefit from the creation of a specific body to provide independent costings of alternative budgets from Opposition parties and if he sees an existing body such as the Irish Fiscal Advisory Council taking on such a role. [4654/15]
This question seeks the Minister's view on whether the budgetary process would be enhanced by the creation of a specific body to provide independent costings of alternative budgets from Opposition parties, whether an existing body such as the Irish Fiscal Advisory Council could take on this role and whether this process would enhance the type of debate we have on proposals from the Opposition in regard to policy matters and alternative budget formulation.
The proposal raised by the Deputy is one that surfaces from time to time and its consideration has already led to steps in this direction. For instance, my Department provides costings in regard to taxation proposals on a confidential basis to assist parties in advance of general elections or budgets. However, it is fair to say that these costings are limited by being provided on a static, individual basis without analysis of the general government implications or potential economic effects.
A further factor is that Ireland is entering the preventive arm of the Stability and Growth Pact and this will have major implications for fiscal policy in the coming years. Initiatives that improve the quality of debate around budgetary priorities and the best allocation of resources should be encouraged. Accordingly, I am coming to the view that the proposal should be considered in depth. This is a complicated matter and the work undertaken by such a body would have to be subject to strict terms of reference. Care must be taken to ensure that such a body does not supplant the role of Government and the Oireachtas through gaining, for instance, an effective veto power over proposals that it dislikes in purely economic terms.
Various models of this type of service and body already exist. These include independent bodies or offices under the aegis of parliaments. An important factor must be the need to bear in mind the resource implications, both in terms of expenditure and staff. Too much duplication must be avoided.
The Deputy asks if the Irish Fiscal Advisory Council could take on such a role. While this could be one of the options, my first reaction is that it would be difficult to combine its current functions with such a role. We need the council as a fully independent voice to assess the fiscal stance and to assess compliance with the fiscal rules Ireland signed up to in the Stability and Growth Pact and the Fiscal Compact. It also endorses the macro-economic forecasts. Even if the differing roles could be made fully compatible, I think it is safe to say that the current part-time role of the council members would not be feasible.
I welcome the Minister's response to this proposal, which I have been making for some time. I note from the Official Report of the Dáil that this matter was also raised with the late Minister for Finance, Brian Lenihan, by the Tánaiste when Labour Party Opposition spokesperson on finance and by other Deputies. The provision of this type of process would allow for a proper, realistic and wholesome debate on alternative budgets. However, I ask that the Minister ensure that the process is not only the preserve of Government and that in coming to a decision on the best way to proceed there is engagement with Opposition Deputies, particularly those who hold finance portfolios and those who take these issues seriously in terms of their parliamentary work. The finance committee might also have a role to play in regard to what is proposed. I would encourage that this proposal be proceeded with.
I suggest that to complete the circle we also need to deal with the constitutional amendment. I have tabled legislation on this issue but it was not accepted. That Opposition Deputies cannot table particular amendments to a Finance Bill is archaic. There is a need for reflection on how to ensure proper debate on finance legislation. That Opposition Deputies cannot table particular amendments for discussion on Committee Stage does not allow for full debate.
I have not fully developed my views on this yet but I agree in principle that we should move in the direction signalled by the Deputy. I agree also that the Opposition should be involved in developing the ideas. When my own thoughts have developed a little further I will meet with Deputy Doherty, Deputy Michael McGrath and the representative on finance from the Technical Group to see how we can move forward and have a meeting of minds on this matter. My thinking is that this should be done by a unit within the ambit of the Oireachtas Commission and that it should then be independent of the Government and the Department of Finance. We will also have to put in place some terms of reference of access because as well as having party access we need access by individual Deputies who want to bring forward proposals.
It might be appropriate to tie this in to the Friday sittings so that the proposals are not just arid and theoretic. We could have a first run at proposals by way of rehearsed debate on the Friday to get the views of colleagues on them. However, that is a matter for individuals. That is my current thinking on the matter. As soon as I have fleshed it out a little more I will be in contact with the Deputy. We can then meet over a cup of coffee or deal with the matter through the finance committee, whichever the Deputy wishes.
I appreciate that. This is long overdue. I welcome that the Government has agreed to it. While this issue has arisen as a result of the, in my view, nonsensical debate in regard to budgetary costings, budgets were never costed by the Opposition until 2011. This is something new that has crept into the debate, although it is somewhat welcome. The debate around whether all proposals or individual measures should be costed should be a thing of the past.
I also believe that not only budgetary costings but policy proposals should be addressed. For example, the issue of child care costs was raised earlier. If a proposal in terms of a policy for child care is put forward it is important we have the option of having an independent analysis of its implications, outside of general manifestos already provided. I welcome the Minister's comments on this matter and hope that the process moves along at a pace that is necessary to allow this to be put in place as quickly as possible, while ensuring the system is robust. I have concerns around whether the Irish Fiscal Advisory Council would be the best vehicle to do this. However, I and my party are open to engaging with the Minister on this matter.
Mortgage Lending
Michael McGrath
Ceist:9. Deputy Michael McGrath asked the Minister for Finance his views on whether the new rules introduced by the Central Bank of Ireland requiring a 20% deposit for non-first time buyers will result in many homeowners finding it impossible to move on to a new home; and if he will make a statement on the matter. [4670/15]
This question relates to the new mortgage rules introduced by the Central Bank recently and seeks the views of the Minister on their impact on, in particular, non-first time buyers who will now be subject to a 20% deposit requirement in, at least, 85% of cases.
What is the Minister's view of the impact of this onerous requirement on those seeking to trade up or move home by virtue of finding a job elsewhere or their family size growing? When will these rules take effect? Will they require the approval of the House or merely the laying of a statutory instrument before the House? Will the Minister clarify this procedural matter?
Following a public consultation process, the Central Bank of Ireland announced its new macro-prudential measures for residential mortgage lending. The regulations place certain limits on both loan-to-value, LTV, and loan-to-income, LTI, ratios for new mortgage lending. For non-first-time buyers, a mortgage will be limited to 80% of the value of a principal dwelling house. First-time buyers will be subject to a maximum mortgage LTV ratio of 90% on a property valued up to €220,000 and to an 80% LTV ratio on any excess value above that amount. Buy-to-let mortgages are subject to a limit of 70% LTV ratio. Principal dwelling loans will also be restricted to a maximum multiple of 3.5 times gross annual income.
It is important to note that there are several exemptions from these rules. For example, the principal home LTV ratio restriction will not apply to a borrower in negative equity who wishes to obtain a mortgage for a new home. Additionally, in the case of principal dwelling loans, lenders can exceed these thresholds in respect of up to 15% of loans advanced for such purposes. These regulations are a matter for the Central Bank, acting independently in its capacity as regulator of financial service providers and also in its lead role in ensuring overall banking and financial stability. It is considered these final measures adapted by the Central Bank will help to promote prudent and sustainable lending for housing purposes and contribute towards the achievement of the bank's overall macro-prudential objectives. They will take effect as soon as the bank promulgates the regulations. My responsibility is to bring the promulgated regulations to the House by way of placing them in the Oireachtas Library. The House does not have any function in enacting them, either through primary or secondary legislation.
I thank the Minister for clarifying the matter. I do not have any difficulty with the loan-to-income ratios. It is a better measure of the affordability of a mortgage because it measures someone's capacity to service a mortgage on a monthly basis. The Central Bank has got that one right.
On the issue of the 15% wriggle room the banks have, what they have told me privately is that they will use it to look after their own customers. For a new mortgage customer or someone seeking to switch a mortgage, that wriggle room is unlikely to be available. The Central Bank has gone a long way towards addressing the concerns of first-time buyers. However, there will still be problems, particularly in Dublin where there is no property available for a first-time buyer for €220,000. There will be problems in other urban centres such as Cork, too.
The biggest issue thrown up by the new rules is for non-first-time buyers. For example, a home owner who wants to trade up or move home will require a deposit of €70,000 for a new mortgage on a property worth €350,000. If he or she has little or no equity in his or her existing property, I am sure the Minister will agree that is a tall order. These rules are very onerous for non-first-time buyers and they will ultimately have an impact on first-time buyers, too. If people are not in a position to trade up, the properties that should be available for first-time buyers may not come on the market. Does the Minister support the Central Bank’s rules in their entirety?
First, the Central Bank is independent. It brought forward these macro-prudential rules on lending for house purchases because it was aware of how the property bubble had crashed the economy previously. It was also aware of the inadequacy of Central Bank and Financial Regulator action at the time, which is well recited. One can see why the bank was anxious that there would be no repeat.
My views were reflected in the submission made by the Department of Finance during the consultative process, the outcome of which has been published. I hope they were influential in providing a little more space for first-time buyers. The LTV scale does not jump from 80% to 90% in one go. The figure of €220,000 applies at the 90% rate and the scale then begins to slide for properties above that threshold. Up to a house worth €1 million, one would not be down to an 80% LTV ratio. It would work out at a maximum mortgage of 82%. There is a long sliding scale before one arrives at the 80% LTV level. I hope it will work.
It must be remembered that issue this is subject to ongoing review by the Central Bank. It is the bank's announcement and fully within its rights to make it. Its job involves the macroprudential care of the economy.
I welcome regulation as some rules are absolutely needed. I welcome their introduction. The debate is really about the detail.
The Central Bank has got it right largely for first-time buyers. On the sliding scale a first-time buyer buying a house worth €400,000 will be required to come up with a 15% deposit, which is a lot. In Dublin many properties for first-time buyers will be in that region. However, there is a real issue for non-first-time buyers. It will have an impact on the market and, more importantly, a negative impact on the families affected. They may not be in negative equity but have modest positive equity in their properties. In such cases, the full rules apply concerning a 20% deposit. A couple with young children, for example, living in a duplex apartment or a small home may need to trade up to a house worth €350,000. They may be able to service the larger mortgage on this property but may not have the 20% mortgage deposit, namely, €70,000 cash, after they have sold their existing property. To me, that is very onerous and will result in many people being trapped, but we will see how it works out. I hope I am wrong. It is welcome that the issue will be kept under review because the Central Bank has gone too far on the deposit requirement for non-first-time buyers. I do not have a difficulty with the loan-to-income ratio, as it is a good measure of affordability, which is a more important benchmark to test somebody's capacity to service a mortgage.
I am familiar with the arguments the Deputy has made, arguments that he has put very well. On the issue of how it will affect the market, it is designed to have an effect on it. There would be no point to it if it did not have an effect on it.
The Central Bank has claimed it has nothing to do with it.
The overall purpose of the rules is to prevent another housing bubble from emerging, if one believes that is a risk. We hope they will have an effect on the market.
Written Answers follow Adjournment.