Léim ar aghaidh chuig an bpríomhábhar

Seanad Éireann díospóireacht -
Wednesday, 29 Nov 1995

Vol. 145 No. 8

Securitisation (Proceeds of Certain Mortgages) Bill, 1995: Second Stage.

Question proposed: "That the Bill be now read a Second Time."

The primary aim in introducing the Bill is to enable the scheme to go ahead for raising money to pay to women the arrears owed to them arising from a High Court ruling in relation to the EU directive on equality of treatment in social welfare payments. The method chosen, that of securitisation, will deepen and widen our capital markets. It provides a new instrument for secure investment and this will enhance the range of investment opportunities in the Irish capital market.

The Minister for Finance intended to come to the House but he is involved in Question Time in the Lower House. However, he will be available for Committee Stage.

The Minister of State is most welcome.

We are happy with him.

The Bill will provide the legislative backing to the securitisation scheme. We will securitise certain moneys due to local authorities from the repayment of mortgages financed originally from loans from the local loans fund. Securitisation is common in the United States of America and some countries in Europe. Essentially, in securitisation, a stream of future income is sold for an up front payment. This is what the Bill involves.

Senators will be aware of the background to the problem which has arisen from the need to fund payments to meet our equal treatment obligations. However, I will briefly review the background. An EC directive on equality of treatment for men and women in social security was adopted by the Council of Ministers on 19 December 1978 with a deadline for implementation of the directive on 23 December 1984.

Equality of treatment in accordance with the provisions of the directive was provided for in the Social Welfare (No. 2) Act, 1985, which was enacted in July 1985. The provisions of that Act were brought into force in two phases with effect from May and November 1986. Consequently, the provisions of the directive were not fully provided from December 1984, the implementation date for the directive, to November 1986.

There were four areas of the social welfare code which were discriminatory within the terms of the directive during the period of delay: first married women received a lower personal rate of benefit than men and single women in the schemes of disability benefit, unemployment benefit, invalidity pension and occupational injuries benefits; second, married women were entitled to unemployment benefit for a maximum duration of 12 months as against 15 months for claimants generally; third, they were precluded from qualifying for unemployment and, fourth, as a general rule, they did not qualify for increases in respect of adult or child dependants.

In November 1986 when the Social Welfare (No. 2) Act, 1985, became operational many married men lost entitlement to an increase in respect of their spouse as an adult dependant and in certain cases to half of the increases in respect of children. The Government decided to introduce transitional payments to avoid any sudden reduction in family income for those concerned. These payments, which were paid to men but not to women, were subsequently found by the courts to have been discriminatory. The payments were reduced from 1988 onwards on an annual basis and they were discontinued entirely in July 1992.

Arising from the delay in implementing the necessary measures in accordance with the requirements of the directive, court proceedings were initiated by a number of married women in which they sought to have their entitlements in the period of delay determined on the basis of the rules applied to married men. They also sought payment of the transitional payments to them on the same basis as applied to men.

In the High Court on 3 February 1995 in what was, effectively, a test case, Miss Justice Carroll found that the married women were entitled to be paid on the basis of the rules applied to married men in the period of delay and that they were also entitled to transitional payments paid to men in similar circumstances. The judgement also provided for the payment of compensatory interest at a rate equivalent to the consumer price index on the arrears of benefit up to the date of payment.

A commitment was given in A Government of Renewal to pay the legally determined entitlements of married women to social welfare equality payments. To fulfil this commitment the Government authorised the Minister for Social Welfare to implement the High Court decision. An estimated 70,000 women involved are now receiving payments. The total cost of implementing the judgment is estimated at some £260 million of which up to £200 million will have been paid by the end of 1995. The remaining £60 million will be paid in 1996 and 1997. This is in addition to the approximately £40 million paid prior to the court cases. The total cost of the arrears, therefore, is close to £300 million.

There was a need to make provision to meet these payments and in this year's budget £60 million was provided for the payment of these obligations. This, of course, was prior to the High Court decision. In the budget speech it was indicated that if it was necessary to pay more than £60 million this year we would consider disposing of certain State assets so as not to adversely affect our budgetary targets. It was in this context that the Minister for Finance asked for an examination of the means by which certain assets of the local loans fund could be realised as a cash payment to the Exchequer.

The National Treasury Management Agency suggested that certain assets associated with local loans funds could be realised. They suggested a sale of the proceeds of the mortgages to the private sector. This proposal was useful in two respects. First, it enabled the money to be raised without any effect on the budgetary position this year and, second, the proposal would encourage the financial markets in Ireland to look afresh at the idea of securitisation of mortgages.

The Government is anxious that the financial markets should develop in Ireland. In addition, we hope to continue improvements in the markets so that any short-term fluctuations in the financial markets do not adversely affect business. To this end the development of a new investment instrument in the form of fixed rate bonds to be issued in this scheme will provide an investment opportunity for investors. In particular, it is important to develop opportunities to attract investment from Irish institutions and to offer a substitute for foreign investments.

The local loans fund was established in 1935 under the control of the Minister for Finance and financed by the Exchequer to provide a system of capital funding for local authorities. Since then it has provided loan capital to local authorities at fixed rates of interest for various purposes, including on-lending to individual house purchasers who satisfied a means test.

Since 1988 lending by the fund has been very limited. Direct Exchequer grants have now replaced the local loans fund as a route for funds for local authority capital projects. In the case of the housing loans, the Housing Finance Agency has since 1986 provided the local authorities with the requisite funds at variable rates of interest. Total loans outstanding from the local loans fund to local authorities are of the order of £480 million. These include loans for harbour developments and other areas. Of these, about £440 million are Small Dwelling Acts loans.

I would like to outline the scheme for the House. The scheme was designed by the National Treasury Management Agency after consultation with the Department of Finance and the Department of the Environment as well as various financial institutions and the local authorities. Broadly, the proposed scheme is as follows. A special purpose vehicle, or SPV, will be established in the private sector but managed by the NTMA. This SPV will raise £140 million in the current year by a bond issue to investors and pay the proceeds to the Exchequer.

The local authorities, with the help of the National Treasury Management Agency, will agree a pool of mortgage repayments, the revenue from which will be assigned to the SPV. The SPV will fund payments to the bond holders from this assigned revenue. All payments by the local authorities to the SPV will be routed through the local loans funds which will act as agent for the SPV. As a local authority makes payments through the local loans fund to the SPV, it will be deemed to have made a repayment of its local loan fund debt. The local authorities will continue the existing practice of paying over the mortgage payments as they become due to them, even if not collected.

In the very unlikely event of a local authority defaulting on its payments, the Minister would pay to the SPV the amount due and pursue the local authority by way of the local loans fund's legal powers, which give it a charge on the local authorities' general revenue. In the event of early redemption of a mortgage in the pool, the sum can be passed to the SPV by the local authority and this would be invested by the SPV. Any surplus remaining in the SPV will be handed over the Exchequer on the winding up of the company.

Essentially, as a result of this scheme the Exchequer will receive a lump sum up front in exchange for a stream of income that would have been payable to it from local authority sources over the coming years. While the proposed scheme may appear complex, similar schemes are standard financial market practice for securities bonds and a special purpose vehicle is almost always a feature of such schemes.

The structure of the scheme is necessary because the Government wishes to ensure that the underlying mortgage asset is not affected in any way by the proposed securitisation scheme and also that the local authorities are in no different a position under this scheme than they are at present. I want to emphasise this point. There will be absolutely no change in the existing relationship between the individual mortgagor and the local authority and there will be no adverse effect whatever on the finances of the local authorities.

The local authorities will have their local loans fund debt reduced to the extent of the payments made to the special purpose vehicle. As each payment is made, it will be deemed to be a repayment off their local loans fund debt. In the event of non-payment, the Minister for Finance will pay the shortfall and pursue the local authority under powers existing in the local loans fund's governing legislation.

This is no different to the present position where the local loans fund can pursue a defaulting authority. In any event the possibility of a default by a local authority is largely theoretical; no local authority has ever defaulted on its debt to the fund and I do not anticipate that any ever will.

In the Dáil a number of Deputies raised the issue of the impact the scheme might have on Government finances. The Exchequer borrowing requirement will be unaffected as the £140 million to be raised under the scheme in 1995 represents the balance between an original £60 million provision for equal treatment on budget day and the £200 million being issued to the social insurance fund for this purpose. While the current budget deficit will be higher, the capital deficit will be correspondingly lower than anticipated, because issues to the social insurance fund are treated as current expenditures in the Estimates volume but the proceeds of the scheme are classified as an Exchequer capital inflow.

I take this opportunity to nail the myth that this is the sale of a capital sum to fund current expenditure. While the arrears payments are classified as current expenditure they are a once-off cost and not an on-going future liability. To that extent they are unlike the generality of current expenditure.

In terms of qualifying for the third stage of economic and monetary union we must meet certain criteria. These include the requirement that the annual general Government deficit should be held to 3 per cent or less of GDP. The general Government deficit will be unaffected by this scheme. Under the accounting conventions from which this deficit is derived — on a standardised basis — in each member state, loan and equity transactions are not counted as either receipts or expenditure. These international conventions view such transactions as "financial" or balance sheet transactions. It follows that the proceeds of the scheme will not appear on the revenue side of the general Government accounts.

The Bill gives the legislative framework within which the current securitisation scheme can take place. It also allows future securitisation of local authority mortgages should this be required. We must make provision for all eventualities and not be too restrictive but this should be balanced by a need to keep tight control of the operation of the scheme.

Section 1 of the Bill is a definition and interpretation section. Section 2 specifies the purposes for which the Bill can be used. The immediate proposal is for the financing of part of the social welfare equality arrears payments. As I do not wish to restrict freedom of action in the future we have also included provision that the Bill can be used for other purposes but only with the approval of the Dáil. As I said earlier, this will act as an assurance that the scheme will not be abused or lead to a weakening of the ongoing commitment to our budgetary targets.

Section 3 refers to the existing power under section 14 of the Housing (Miscellaneous Provisions) Act, 1992, whereby a local authority, at the direction of the Minister for the Environment, shall transfer, sell or assign mortgages. This power is now defined as including assignment of the debt secured by a mortgage and it is provided that such an assignment shall be deemed to be an equitable assignment. The special purpose vehicle will not have any right of enforcing the debt directly against the individual borrower. There will be no circumstance in which the SPV can give notice to, pursue or otherwise deal with the individual mortgagor — that is out of the question.

Section 4 gives the Minister for Finance the power to designate the body which will, in return for a lump sum, receive the assigned payments and to arrange for its management. The management of its designated body is a function which will be delegated to the National Treasury Management Agency under section 12. Provision is also made to allow the Minister to own a company as the designated body. This provision, while it will not be utilised for this securitisation, is included to ensure flexibility in the future should a Minister wish or need to establish a company for this purpose.

The existing local loans fund legislation provides that the fund will have a lien on the general revenues of local authorities in respect of borrowings by the authorities from the fund. Section 5 excludes the amounts assigned by local authorities to the SPV from the general revenues for the purpose of that lien. This provision ensures that these revenues are ring-fenced in favour of the SPV and that the Exchequer can have no call on them.

Section 6 provides that any payments made by a local authority for the purposes of the Bill to a designated body will have the same effect as a payment directly to the local loans fund. In this way there will be no change in the arrangement for making their biannual payments to the local loans fund. The local authorities will make their payments as at present to the local loans fund. It is only at that point that the allocation of payments due to the designated body will be made.

Section 7 provides for a guarantee by the Minister for Finance of the amounts assigned by a local authority to the designated body. The reason for this provision is that the SPV is barred from recourse to the mortgagor. In a straight commercial securitisation, this recourse is the ultimate security for the bond holder. In the absence of this recourse in the present case, the Bill provides for a Government guarantee as the ultimate security for the bond.

Other sections deal with related matters, such as the tax treatment of the designated body and securities issued by it; delegation of powers to the National Treasury Management Agency; management of the assets and liabilities of a delegated body and provision of information by local authorities and expenses incurred by the Minister in the administration of the Act. The accounts of the designated body will, under section 16, be audited by the Comptroller and Auditor General.

I want to reiterate that this innovative scheme is designed to raise the money needed for the equal treatment arrears payments, to help develop the Irish financial markets and, at the same time, to ensure there will be no change in the position of the mortgagor of the local authority. All Senators, I am sure, are conscious of the need to observe the budgetary parameters yet, at the same time, meet the once-off costs of the social welfare equality payment arrears. Without this scheme, there would be a need to meet the payments through extra borrowing or taxation; neither course is attractive or possible.

I commend this Bill to the House.

I welcome the Minister to the House and it is a great pleasure to be here with him. It is a pity that we are not discussing something other than this particular proposal, which I regard as an extraordinary, sleight of hand arrangement, where we have a backdoor through which we can boost borrowing.

I listened carefully to what the Minister said. Of course, the Minister's defence of the concept of securitisation is valid. There is nothing wrong with the concept of securitisation. It is used, particularly in banking circles and large private corporations in the United States, as a way to release funds which are effectively tied up with the future flow of capital in order to create new possibilities for capital investments in the short term.

Nobody can argue with the first seven pages of the Minister's speech. The payment of the social welfare equality arrears represents a payment of a debt which the State owed. The State owed that debt, incidentally, because it was imprudent when it first negotiated Ireland's entry into the European Communities. It took a rather extraordinarily cavalier view of Article 117 of the Treaty of Rome and, specifically, to the equality provisions of the that treaty. Senior public servants in the Department of Finance and the Department of Foreign Affairs at that time were warned that there were some difficulties here but they took the advice of officials in Brussels which, at the end of a series of court judgments, proved worthless.

It is proper and appropriate that the State should meet all its debts, particularly in this case where these debts were owed to a large group of women in the State. They should, of course, be paid in the shortest possible time. None of that is in contention on this side of the House. That is not at issue in the Bill. The question which arises is the approach which is being adopted by the Government to meet its bills and debts, the impact this will have of effectively privatising local authority mortgages and the alternative uses of a system of securitisation if that were the route we chose to take. The point I am making here is that I do not have an argument about the payment of the debt and I do not have a principled argument against the concept of securitisation. Contrary to what the Minister said, I take the view that we are effectively borrowing to pay current debts.

Securitisation, the device we are using and creating today, is being used as a sleight of hand device. It is a sophisticated piece of creative accounting which is being employed to disguise the fact that the Government is borrowing funds to meet a deferred revenue or current account debt. The Minister acknowledges that if the securitisation device could not be used in this particular case and the bills were all to be met this year — in fact, a portion of the bill was being made this year — it would have to be met from current revenue or from borrowing. The Minister said, and I agree, that neither method is a particularly attractive prospect.

In this Bill the Houses of the Oireachtas empower the Government to sell off the mortgage book of the local loans. There is nothing particularly startling about that. In effect, this amounts to the Government cashing in its future flow of income. It is borrowing today by selling tomorrow's income at a discounted price.

Since 1987, successive Governments have enforced a firm degree of economic discipline on our public accounts. This has had a positive impact both domestically and internationally. What we are engaged in here is a piece of economic self-delusion which does not augur well for the future. Borrowing, no matter how well it is dressed up by the spin doctors, is still borrowing. In principle, borrowed money should not be used for anything other than capital purposes. Again, I accept what the Minister said that the debt which has been accumulated here is likely to be a once-off. Hopefully, that is so. Nonetheless, it is still a debt on the current account and borrowing should never be used for current expenditure, or even for deferred current expenditure, which is what this amounts to.

When this Government took office, the economy was performing positively and the national finances were universally accepted as being in good order. Firm public financial controls had been accepted as the order of the day by a series of Administrations since 1987. That economic discipline has now been set aside in effect by this Government and we can see in this provision another incremental step to setting aside that firm discipline. It is clear, not only in this action but over a whole series of economic decisions, that this Administration is prepared to make a dangerous trade-off between short-term political advantage or expediency and the type of slipshod economic behaviour which caused this country so much hardship in the past and for which a whole series of Administrations of different political hues must bear some guilt.

All the danger signs of a slip back into the bad old days are there for us to see if we wish to see them. This year's OECD survey, for example, spoke of Ireland continuing to face high levels of public debt and of the need for tighter control of public expenditure. It would be criminal if we failed to take heed of these warnings.

There is a second reason for being critical of the Government's line. It can be argued with some conviction that cashing in the local loans mortgage book is not wrong in itself. I have said already that I have no principled argument about the concept of securitisation. As the Minister said, securitisation can create a new device for use in the financial markets, one which is relatively under-utilised in Europe but which is quite well established in the United States. The process is, as I said at the outset, fairly widely used in financial circles in the United States, particularly when they wish to raise capital for current capital purposes or for productive capital purposes. If the Government decides to use the funds yielded from securitisation for a purpose, few could argue against it. We all know, for example, that local authorities all over the country are stymied because of a lack of funds. There is money for major projects, by-passes, motorways and major sewerage plants; there is even additional and welcome money for housing. However, there is an abundance of smaller capital schemes at local authority level which could produce employment and would certainly have a beneficial impact. If we were going to raise funds through securitisation I suggest a more prudent utilisation of those funds would be the capital purposes found on every local authority's books.

A lack of capital funding means that many major and minor local authority works are permanently at a standstill. All over the country housing projects are awaiting funds in spite of the additional funding. These would represent a particularly appropriate investment for capital realised from the securitisation of the local loans fund. My own local authority area is starved of funds for a variety of public purposes, including small sewerage and water schemes. I remember from the Minister's by-election that there is also an abundance of such schemes in Cork. If we are going to release funds through the securitisation device, this would be a more appropriate use.

We all know the damage done to the Irish economy in the past by the invalid use of capital funds. We know the impact borrowing has had on public expenditure. Borrowing and the cost of servicing borrowing has hung like a millstone around the neck of the Irish taxpayer. The problem has been caused in the past and I regret that the Government seems to be turning a blind eye to the lessons of the recent past. This is an imprudent use of funds. If they are to be released, they should be released for capital purposes and not used to pay off debts which should have been met from current revenue.

I would contest in particular some of the views put forward by the Minister. He argued that the Exchequer borrowing requirement will be unaffected as the £140 million to be raised under the scheme in 1995 represents the balance between an original £60 million provision for equal treatment on budget day and the £200 million being issued to the social insurance fund for this purpose. This is nonsense because all this statement does is simply describe the arithmetic of the transaction. It does not obviate or avoid the suggestion that this is a means of borrowing under another name.

The Minister stated that he would like to take the opportunity to nail the myth that this is the sale of a capital sum to fund current expenditure, but it is precisely that. If we met our requirements under the Treaty of Rome from 1973 onwards, they would all have been met from current expenditure and not from quasi-capital funds. There is another point in the Minister's contribution with which I have a problem. He stated:

While the current budget deficit will be higher, the capital deficit will be correspondingly lower than anticipated, because issues to the social insurance fund are treated as current expenditures in the Estimates volume but the proceeds of the scheme are classified as an Exchequer capital inflow.

I am sure that is correct linguistically and I am certainly not challenging it. However, by whom are the proceeds classified? They are actually classified by the Department of Finance and we all know that classifications of certain items in the Estimates and the national income and expenditure tables have been subject to question over the years. This particular classification is being used at the behest of the political masters of the Department of Finance to produce this defence for this abuse of capital funds.

I see what the Minister is doing. If we are to start the process of securitisation and enact legislation it certainly would be arguable that one should allow the devices created in that Bill to have a continuing use. However, we are being distracted in this matter by the use being made of the funds, a use with which none of us disagrees. Nobody is arguing that we should not pay the social welfare debt. However, the fact that we all politically endorse this use is being used to distract us from certain dangers and from a wider discussion of the process of securitisation. The Minister said that section 4 of the Bill, while it would not be utilised for this securitisation, is included to ensure flexibility in the future should the Minister wish or need to establish a company for this purpose. We seem not just to be committing ourselves to securitisation in the short term for this one off payment but effectively deciding that this device will have a use in the future.

I am very unhappy with this arrangement. I agree with the principle that debts which have been incurred by successive Governments of all political hues must be paid as expeditiously as possible. The original arrangements announced in the budgetary arithmetic had no major critics, either in the public domain or in the body politic. We are, in effect, creating a new form of borrowing and engaging in accounting sleight of hand. Because of the way we classify our accounts or the way the Department of Finance chooses to classify certain items, we can delude ourselves into thinking that this is not borrowing. This is borrowing; these are capital funds and the Minister knows in his heart that they should be used for capital purposes and not to meet debts on current accounts. It is not an appropriate use of this device.

I have no argument with the principle of securitisation. The principle advanced by the Minister can be defended but I certainly have a problem about the way we are using the money. It is a retrograde step given the kind of financial and fiscal accounting criteria and disciplines we have tried to apply to ourselves since 1987. This is a step in the wrong direction and I hope we will not regret it.

This Bill is before the House because of the Government's obligation to pay women the arrears owed to them arising from a High Court ruling on the EU directive on equality of treatment in social security payments. The sum of £260 million, which the State is now liable to pay married women by reason of our failure to obey the laws of the European Union, is an enormous amount which should never have accumulated.

If the Department of Social Welfare had been properly administered and advised this huge bill would never have accumulated. These arrears could have and should have been paid over many years as current spending. We should have made provision for such payments in the Estimate of the Department of Social Welfare annually. Given that we have no option but to pay this money the question which arises is whether it is right for a Government to liquidate capital or borrow against future revenue to defray accumulated current expenditure liabilities.

As pointed out by the Minister, four areas of the social welfare code were discriminatory within the terms of the directive during the period of delay. Married women received a lower personal rate of benefit than men and single women in the schemes of disability benefit, unemployment benefit, invalidity pensions and occupational injuries benefit; they were entitled to unemployment benefit for a maximum duration of 12 months as against 15 months for claimants generally; they were precluded from qualifying for unemployment assistance and, as a general rule, they did not qualify for increases in respect of adult or child dependants.

There was a need to make provision to meet these payments and, in the budget, the Minister for Finance provided £60 million for the payment of these obligations prior to the High Court decision. In his budget speech, the Minister indicated that if it were necessary to pay more than £60 million this year, he would consider disposing of certain assets so as not to adversely affect the budgetary targets.

The existing loan fund legislation provides that the fund will have a lien on several revenues of local authorities in respect of borrowings by the authorities from the fund. Section 5 excludes the amounts assigned by local authorities to the SPV for the general revenues for the purpose of that lien. This provision ensures that these revenues are ring fenced in favour of the SPV and that the Exchequer can have no call on them. Does this mean that one local authority can, and will, pay more than other local authorities and when will the funding of this be finished? More such questions can be asked on Committee Stage. With regard to the payments the Minister put in place in the budget, the money is coming on stream to the people who reightly deserve it, which is one of the reasons there is not much interest in the Bill.

I can only agree with the sale of State assets if their effect is to reduce the national debt or to provide for capital expenditure. However, we must meet our obligation which was incurred as far back as the early 1980s. As this is a once-off payment, the Minister has rightly provided for it.

Senator Roche asked important questions as to the way this measure is funded. This SPV could raise approximately £440 million. Could this money be used to fund small sewerage schemes by local authorities as many sewerage and water schemes will not come under EU provisions for the period 1995 to 2000? If so, this would be one way of alleviating some of the local authorities' problems with regard to providing sewerage schemes over the next number of years.

The county councils notified all people who had received SDA loans and set out the criteria involved in this procedure, which were established by the Minister for Finance. I hope this will not adversely affect any members who have an SDA loan, whether they would be cashing in the loan or continuing it to full term. Since I am not in the same privileged position as Deputy McCreevy as regards receiving a SDA loan, I do not have a vested interest in the Bill.

The number of local authority loans that councils are handing out now, including my own local authority, is small in comparison with the numbers handed out in the 1980s. Will this have any effect on the amount that the National Treasury Management Agency will raise under this measure?

I will leave most of my questions for Committee Stage. I am against selling State assets for day to day expenditure, unless it is for the purposes of capital expenditure to reduce the national debt. On this occasion I agree with the principle of what the Minister has done; this is a once-off payment to the women who should have received such payments throughout the 1980s. There is an onus on us all as public representatives to provide the money for them. I must, therefore, agree with the measure on this occasion.

I thank Senator Roche and Senator Burke for their contributions. Senator Roche made a number of points to which I must respond, even though the Minister may wish to respond to him on Committee Stage. The Senator used the term "sleight of hand". If the Government was adopting a sleight of hand approach, the last thing it would do would be to bring a Bill through the Houses of the Oireachtas as that would be the most obvious forum to expose anything of this kind. This is a very open and transparent operation. It may be complex but I would not accept the comment that it was sleight of hand.

This Government, or any Government confronted with a court order for the immediate payment of £200 million in a scenario which the Senator rightly describes as the careful financial management of the economy, has few options to adopt. The Government and the Minister for Finance searched for an innovative way to deal with the problem, which would not impact in an adverse way on the national finances and it succeeds in the sense that it does have a level of innovation about it.

The measure constitutes the sale of an asset; it is not borrowing. It is true that, generally speaking, the proceeds of asset sales should best be used for capital projects or for the elimination or reduction of the national debt. However, confronted with the need to meet a payment of £200 million, only £60 million of which was provided for in the budget arithmetic, I believe this is a legitimate once off use of a scheme of this kind. There are no plans to adopt a similar scheme in the future for this or for any purpose. The legislation allows for securitisation in the future, but the Government has no plans to use securitisation for any purpose at present. The suggestion by both Senators that such a scheme might be used for the purpose of funding capital projects for local authorities is worth examining and I have noted this.

The comments made by Senator Roche with regard to the management of the economy are wide of the mark. It is correct to say that we inherited a well managed economy. It is the view of the Minister for Finance and I that this careful and prudent management of the economy is continuing and will continue for the lifetime of the Government. The best evidence for this will be when the Senator sees the published Estimates early next month. All the discussions around these Estimates are predicated by the fact that the Government has set down very rigorous targets for current expenditure and for borrowing, and we will maintain those targets.

The Senator also referred to the 1995 OECD report. It is true that the report commented on the need to be vigilant regarding borrowing and so on, but the Senator must agree that it was a predominately favourable report on the Irish economy. With regard to his other comments on the crying need for more capital expenditure and so on, the needs clearly exceed the capability of a prudently managed economy to pay for all of the things we would like to see.

In 1996 we will be able to increase our 1995 capital programme by between 9 and 10 per cent while maintaining the Maastricht criteria. We will borrow up to that level and invest the money as prudently as possible. There is no suggestion that we are cutting back on capital expenditure; the reverse is the case.

Senator Roche also referred to things being classified by the Department of Finance. I must say they are rigorous taskmasters. Any politician who has worked in the Department of Finance will know that they are the last people who would be involved in classifying things that would be seen by the markets as being sleight of hand. In fact, they are constantly warning their political masters to be cautious and careful about that. The markets have not reacted in an unfavourable way to this scheme; perhaps the reverse was the case. The Senator's comments about Department of Finance officials classifying things to suit themselves is wide of the mark.

The Minister forgets that I was a Department of Finance official for almost as many years as I have been a politician, so I know what goes on there.

I had forgotten that. The Senator also mentioned that there were provisions in the Bill which allow Ministers to do things in the future. When drafting legislation of this kind one wishes, on the one hand, to focus it specifically for the immediate purpose while, on the other, one does not wish to tie future Ministers into a straitjacket so that a perfectly good scheme could not be utilised in the future because it is so tightly drawn. It is clear in the legislation, however, that the approval of the Dáil must be sought for an expansion of the scheme in the way described. As of now the Government has no plans for further securitisation schemes although there is no reason one should not contemplate them in the future.

With regard to the contribution made by Senator Burke, this scheme has no effect on current or future loans or the ability of local authorities to make loans. It has no connection with that area. My assurance that it has no effect on any mortgage or on the finances of local authorities is equally true. Senator Burke also said he did not approve of selling State asset for any other purpose but reinvestment in capital projects. That would be the general approach of this Government as well. However, the Senator generously conceded that this was a special case. It certainly was. The possibility that a Government would be confronted with a bill for £200 million out of the blue as a result of a High Court decision and which was not provided for would, I hope, never occur again. The Government had to react in an innovative way and it has done so.

I thank the Senators for their comments.

Question put and agreed to.

An Leas-Chathaoirleach

When is it proposed to take Committee Stage?


Committee Stage ordered for Thursday, 30 November 1995.
Sitting suspended at 4.05 p.m. and resumed at 6 p.m.