Brendan Smith
Ceist:39. Deputy Brendan Smith asked the Minister for Finance his plans to safeguard the State’s investment in Irish Life; and if he will make a statement on the matter. [42319/12]
Amharc ar fhreagraBank Debt Restructuring
Ceisteanna (39)
Freagraí scríofa
I will oversee Irish Life in a manner similar to the Covered Banks with a relationship framework detailing the roles and responsibilities of the board which will operate on an independent commercial basis and with certain matters requiring approval or consultation with me. Operational decisions will remain the responsibility of the board and management.
Insurance Industry
Ceisteanna (40)
Michael Moynihan
Ceist:40. Deputy Michael Moynihan asked the Minister for Finance if he is satisfied that all possible efforts, particularly in terms of claims management are being undertaken in order to mitigate the cost of the winding down of Quinn Insurance; and if he will make a statement on the matter. [42312/12]
Amharc ar fhreagraFreagraí scríofa
Management of the wind down of Quinn Insurance, including claims management, is the responsibility of the Joint Administrators, under the supervision of the High Court. However the State is required to advance funds to meet the cost of the wind down. While these funds are ultimately recovered through the industry levy, it is a matter of concern to ensure in as much as is possible that the cost of the wind down is kept to a minimum. The position is that under a Transaction Services Agreement (TSA) entered into as part of the QIL sale agreement, Liberty is obliged to provide a number of services to QIL until November 2014, including the settlement of claims in the part of the business under administration.
The Joint Administrators have advised me that they have recruited a new CEO who has extensive experience in the insurance industry to oversee the operation of the TSA and in particular the settlement of claims. In addition, as part of a new enhanced governance structure a claims advisory committee (CAC) has been set up to guide and advise the Joint Administrators and QIL management on future claims strategy and policy. You should note that Ciaran Breen Director of the State Claims Agency has been appointed as Chair of this Group at my request. I have been advised by the Joint Administrators that the CAC is currently devising a robust and distinct strategy for managing the settlement of their outstanding claims going forward with a view to settling them as quickly as possible and at the lowest possible cost.
The Joint Administrators have also indicated to me that in light of the historic volatility in claims reserves, they have spent considerable time reviewing and improving claims controls. Based on independent reviews carried out to date they are much more confident in the underlying controls and processes governing file estimation. The Joint Administrators advise me that taken together, these arrangements will allow them to manage claims in a more cost effective way. In the circumstances outlined above, I am satisfied that all reasonable efforts, particularly in terms of claims management are being undertaken by the Joint Administrators in order to mitigate the cost of the winding down of Quinn Insurance. I can assure the Deputy that my officials will continue to work closely with the Joint Administrators on this matter in order to achieve this objective of minimising costs.
Universal Social Charge Payments
Ceisteanna (41)
Sandra McLellan
Ceist:41. Deputy Sandra McLellan asked the Minister for Finance the amount of money that would be raised in a full year by extension of the Universal Social Charge to all capital gains, whether liable to Capital Gains Tax or not; and if he will make a statement on the matter. [42280/12]
Amharc ar fhreagraFreagraí scríofa
I am informed by the Revenue Commissioners that sufficient basic data are not available on which to base a reliable estimate of the yield to the Exchequer from this proposal, as information is not required on tax returns in relation to all capital gains. Accordingly, it is not possible to provide the specific information requested by the Deputy.
Tax Code
Ceisteanna (42)
Mick Wallace
Ceist:42. Deputy Mick Wallace asked the Minister for Finance his views on the use of aggressive tax structures by multinational corporations such as Microsoft in order to save itself billions in taxes; and if he will make a statement on the matter. [42322/12]
Amharc ar fhreagraFreagraí scríofa
I am precluded from discussing the tax affairs of any particular individual or company nor can I discuss the tax administration regimes established in other jurisdictions. However, in general terms I would like to advise the Deputy that a recently published report of the United States Senate Permanent Sub-Committee on Investigations of their hearing on Offshore Profit Shifting and the U.S. Tax Code gave prominence to the tax arrangements of two U.S. multinational corporations, both of which have operations in Ireland. The Report finds that U.S. multinational corporations are able to significantly reduce their tax liabilities by legal international tax planning arrangements - there was no allegation of fraud or evasion - and makes recommendations on how U.S. tax law could be improved.
Ireland is not mentioned as a tax haven in the Report - and rightly so. The international community does not regard Ireland as a tax haven. Ireland has a comprehensive taxation system covering income, capital and indirect taxes. Tax Treaties with the United States and many other countries confirm our international standing. The January 2011 Global Forum Peer Review Report on Ireland’s legal and regulatory framework for transparency and exchange of information found that Ireland has an effective system for the exchange of information in tax matters and is fully compliant with OECD standards.
Ireland is bound by the same rules on State Aid, the Code of Conduct on Business Taxation, and rulings of the Court of Justice as all EU Member States. Ireland does not support harmful tax competition. Ireland continues to participate fully in the EU Code of Conduct Group, which addresses harmful tax competition, and in the OECD Forum on Harmful Tax Practices.
Tax Collection Forecasts
Ceisteanna (43)
Robert Troy
Ceist:43. Deputy Robert Troy asked the Minister for Finance his views regarding the trend in the Exchequer returns in recent months, particularly in relation to tax receipts when compared with the same period last year; and if he will make a statement on the matter. [42316/12]
Amharc ar fhreagraFreagraí scríofa
The deputy should be aware that I issued a joint press release with my colleague, the Minister for Public Expenditure and Reform on Tuesday 02 October to coincide with the release of the end-September returns. As outlined, the Exchequer Returns for the period to end-September provide further evidence that the Government is restoring the public finances to a more sustainable position. The tax base is growing; the majority of Departments are managing expenditure within allocations and where there are overruns action is being taken to bring these under control. September 2012 is the third month this year in which Exchequer revenues exceeded expenditure. As regards tax receipts, specifically while there was some minor weakening in the third quarter taxes are significantly ahead of the same period last year and €385 million (1.5%) ahead of profile as a cumulative basis at end-September. Three of the ‘big four’ tax heads - income tax, corporation tax and VAT - continue to perform ahead of profile with three quarters of the year already passed. This is a positive development as we strive to reduce the deficit in our public finances further.
We cannot lose sight of the fact that, despite the significant progress made, the deficit, at €11 billion for the first nine months of the year, remains too high and the Government is committed to reducing it further in the coming years.
National Pensions Reserve Fund Administration
Ceisteanna (44)
Willie O'Dea
Ceist:44. Deputy Willie O'Dea asked the Minister for Finance the procedures that have been put in place to prevent a recurrence of the overcharging of the National Pension Reserve Fund in respect of a portfolio liquidation as highlighted by the recent report of the Comptroller and Auditor General. [42318/12]
Amharc ar fhreagraFreagraí scríofa
I am informed by the National Treasury Management Agency (NTMA), as Manager of the National Pensions Reserve Fund (NPRF), that the recommendations of the Comptroller and Auditor General on the issues that have arisen in respect of the portfolio liquidation of the National Pensions Reserve Fund are set out in section 4.60 of the Report of the Comptroller and Auditor General for 2011. The NTMA and the NPRF Commission accept those recommendations. The NTMA is in addition proposing to take a number of other steps to mitigate risks specifically associated with activities such as those encountered in the case of overcharging in question, as set out in paragraph 4.48 of the Report. In relation to the specific cases of overcharging, it should be noted that:
- The NTMA suspended State Street Bank Europe Ltd (SSBE) from its panel of transition managers when questions arose about the application of commissions by SSBE after NTMA queried the departure of two senior executives;
- SSBE is authorized and regulated by the UK Financial Services Authority and the NTMA has informed the Authority about the charging issues with SSBE at the request of the NPRF Commission;
- the overcharging involved the application of unauthorised commissions to NPRF trades in a manner that was never visible to the NPRF or its global custodian and had the effect of reducing the sale proceeds obtained by the NPRF by 0.07%, and
- it would appear that the unauthorised commissions were not identified either by SSBE’s internal controls and procedures or by its internal audit or compliance functions.
The measures identified by the NTMA relate to, where possible, assessing settlement arrangements for trades, engaging the NPRF’s internal auditor where it is cost-effective to audit the books of the transition manager relating to the NPRF transactions and seeking to promote the development of improved market standards and practices.
The recommendations of the Comptroller and Auditor General include a recommendation that the NTMA should consider referring trade data for review by a third-party firm, reviewing if penalty terms should be included in contracts and reporting matters of this nature to the relevant regulatory authorities even though there may be no legal obligation to make such a report.
Bank Debt Restructuring
Ceisteanna (45)
Willie O'Dea
Ceist:45. Deputy Willie O'Dea asked the Minister for Finance if he is satisfied that adequate oversight exists in terms of the asset disposal programme being undertaken by the covered banks in order to protect the interests of the taxpayer; and if he will make a statement on the matter. [42314/12]
Amharc ar fhreagraFreagraí scríofa
As you will be aware, the three PLAR banks are required to deleverage their balance sheets, including inter alia by disposal of loan portfolios as outlined in the Central Bank’s Financial Measures Programme 2011. IBRC is subject to an EC Restructuring Plan which requires it to work out its balance sheet over time, including where possible via disposal of loan books. To this end, each of the banks have established dedicated Non-core units focused on managing sales processes and are required to report quarterly to the Central Bank which monitors their progress in achieving their deleveraging programmes. Each bank has a deleveraging committee to govern, monitor and oversee its deleveraging plans. Representatives from my department and the Central Bank attend the meetings of those committees, as non-voting observers. My department has established a Deleveraging Review Committee to oversee and monitor the operation of the institutions’ deleveraging committees and to refer transactions that give rise to actual or financial stability considerations to the Central Bank for joint consideration. Additionally, each quarter, the banks and the Authorities meet with and update the External Partners (IMF/EU/ECB) as to the progress of the plans including asset sales.
In most instances the Banks have also employed expert professional sales advisors to assist in ensuring that the sales process undertaken maximises sales proceeds. These processes are conducted under strict confidentiality rules to ensure the economic position of the bank’s and by extension the taxpayer as majority or part owner is fully protected. As referred to above the Deleveraging Committees and the Main Boards of the Banks must approve all material sales conducted by the banks. To date significant progress has been made. Total deleveraging achieved across government supported banks was €53bn as at 30 April 2012. Deleveraging has been achieved within planned assumed discounts. From a capital perspective, the loss incurred on the divestment of these assets is broadly offset by a reduction in the level of risk weighted assets. The layers of Governance described above, give me sufficient comfort that adequate oversight is in place to protect the interests of the taxpayer.
Job Creation
Ceisteanna (46)
Seán Fleming
Ceist:46. Deputy Sean Fleming asked the Minister for Finance his views on the success to date of plans announced in July 2011 to create an additional net 10,000 new jobs in the Irish Financial Service Centre; the progress made on promoting Islamic Finance products and the Green IFSC; and if he will make a statement on the matter. [42300/12]
Amharc ar fhreagraFreagraí scríofa
I should say at the outset that ultimately it is the industry itself that creates employment by growing existing business and developing new initiatives such as the Green IFSC and Islamic Finance which the Deputy refers to in his question. The Government's new strategy for the development of the International Financial Services sector was issued approximately 14 months ago. Over this period, both the public and private sectors have been working together through the Clearing House Group, which is organised through Department of An Taoiseach to execute the strategy across a broad front.
There have been notable investment wins by IDA Ireland including Northern Trust, Mastercard, Paypal, HedgeServ, ICBC Leasing and CIMB Principal Islamic. Clearly, the Strategy is a 5 year one and we should have reasonable expectations about what will be achieved so early in its implementation and in view of the ongoing challenges facing the sector internationally. That said, progress and business delivery to date has been has very positive. In relation to Islamic Finance - we are now seeing a gathering momentum in this area.
The IDA, accompanied by the Department of Finance, have recently completed a five-day promotional programme in Singapore and Kuala Lumpar with a special focus on Islamic Finance. The programme included meetings with several key prospective investors at the Global Islamic Finance Forum (GIFF). In August 2012 the Irish Funds Industry Association welcomed the CIMB-Principal Islamic Asset Management Irish UCITS funds range, the first Malaysian fund promoter to establish funds in Ireland. In relation to the Green IFSC, I would firstly highlight that a number of measures were introduced in Finance Acts 2011 and 2012 to support this initiative.
Finance Act 2011 introduced the Employment and Investment Incentive (EII) to replace the Business Expansion Scheme (BES). The changes introduced in EII now allow for an increased lifetime limit that can be raised by a company to €10 million (up from €2 million). They also provide for an increase in the amount that can be raised within a twelve-month period of €2.5 million (up from €1.5 million). The new scheme also allows for green energy companies to be deemed to have commenced trading when they have made an application for a grid connection agreement. Under the previous BES, such companies were not considered to have commenced trading until they had begun to produce energy.
In addition, under Section 110 of the tax code which deals with securitisation transactions, Finance Act 2011 broadened the scope of the ‘qualifying assets’ which can be held by a Section 110 company to include a broader range of ‘carbon offsets’. Most recently, Finance Act 2012 extended tax relief for corporate investment in renewable energy projects and expanded the scope of Section 110 to explicitly include forest carbon offsets.
In relation to other developments, I am informed that Summit Finuas and Green IFSC, in partnership with Government’s Skillnets, has invested €700,000 in sustainable finance education. Ireland is leading the way in green finance education and over 70 professionals in the finance and enterprise sectors will have a MsC, Diploma or Postgraduate Certificate in the area of sustainable energy finance by mid 2013. An Taoiseach, Enda Kenny with Green IFSC launched the Global Green Asset Management Network in March 2012 at the New York Stock Exchange in order to accelerate the growth in green assets managed, domiciled or serviced from Ireland, setting the target of US $200 billion by 2017. With some $16 billion already managed, serviced or domiciled from Ireland, Green IFSC will shortly begin a global road show, lead by former Taoiseach of Ireland & current IFSC President, John Bruton, to highlight why Ireland is the prime jurisdiction of choice for green asset management. The first international event takes place in New York 28th / 29th November.
Debt Relief
Ceisteanna (47, 88)
Bernard Durkan
Ceist:47. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which this country has benefitted from interest rate or other reductions affecting debt and repayment levels arising from the banking collapse and downturn in the economy in respect of interest, conditions and terms regarding repayments in the short, medium and long term; the total benefits achieved on behalf of the Irish taxpayers in relation to modification and improvement of the arrangements entered into arising from EU and IMF rescue bailout, banking and other debt provision; if he can yet identify how further savings on behalf of the Exchequer and taxpayers here can be achieved in the future; and if he will make a statement on the matter. [42282/12]
Amharc ar fhreagraBernard Durkan
Ceist:88. Deputy Bernard J. Durkan asked the Minister for Finance the progress made to date in achieving improvements by way of terms and or interest rates in respect of this country’s borrowings arising from the EU debt rescue provisions entered into by his predecessors; the actual monetary value of such improvements to date; and if he will make a statement on the matter. [42526/12]
Amharc ar fhreagraFreagraí scríofa
I propose to take Questions Nos. 47 and 88 together.
When the Programme of Financial Support was initially agreed in late 2010, the average interest rate on the €67.5 billion available to drawdown from the external sources was estimated by the EU Commission to be 5.82% on the basis of market rates at the time of the agreement. The average life of the borrowings, which involve a combination of longer and shorter dated maturities, was initially set at 7.5 years. The Euro Area Heads of State or Government (HOSG) agreed on 21 July 2011 to reduce the cost of the European Financial Stability Facility (EFSF), which will disburse €17.7 billion, to interest rates equivalent to those of the EU Balance of Payments facility i.e. close to, without going below, the EFSF’s cost of funding.
The amendments to the EFSF framework have removed the interest rate margin on EFSF funds and these were incorporated into a new legal agreement on the 27th October 2011 in which the interest rate margin, which was 2.47%, is now defined as zero. The agreement incorporates a guarantee commitment fee of 0.1% per annum and a service fee to cover the cost of operations of the EFSF. It also provides that EFSF lending done after that point will be done on a floating rate basis. It is estimated that the overall reduction in the interest rate margin which Ireland pays to the EFSF is estimated to be in the region of 2.7 to 2.8 percentage points which includes the margin and other structural changes. The original weighted average maturity of Ireland’s EFSF loans has been increased to 15 years.
In October 2011, the EU Council of Ministers approved an EU Commission proposal to eliminate the margin of 2.925% on the EFSM facility which, when fully drawn, will amount to €22.5 billion. This applied to EFSM disbursements back to the date upon which they were issued. The actual cost of funding depends on the prevailing market rates at the time of each drawdown. The original weighted average maturity of EFSM was extended from 7.5 years to 12.5 years. Lengthening of maturities provides benefits in terms of phasing of loans and ensuring that the profile of redemptions is more orderly – avoiding as far as possible exceptionally large amounts in particular years. By contrast, money borrowed at longer maturities is generally more expensive. However, on balance, savings arising from maturity extension are significant though complex to calculate. Given these changes, the total savings on the original EU facilities with an average life of 7.5 years is some €9 billion, or approximately 5.7% of 2011 GDP. This reduces the annual repayment on these loans by an average of €1.2 billion per year over 7.5 years.
In addition, the cost of Ireland’s IMF loans is falling as a result of an increase in our IMF quota effective from March 2011 and a further quota increase when the quota changes agreed in 2010 come into effect. This further quota increase is expected to become effective in the near future and to result in an overall improvement of the order of 100 basis points on the interest rate on our IMF loans. The overall benefit of these interest rate reductions is estimated to be some €1.9 billion. These expected savings may change either upwards or downwards in the light of future quota revisions.
The United Kingdom bilateral loan of GBP3.3 billion has been re-negotiated to remove the interest rate margin of GBP 2.29% although the base interest rate has been changed from a GBP interest rate swap level to the UK Debt Management Office cost of funds plus a service fee of 0.18%. The bilateral loans with Sweden and Denmark, which will amount to total disbursements of €1 billion by the end of the programme, were negotiated after the interest rate margin reductions on both the EFSF and EFSM facilities and their interest rate is floating three month EURIBOR plus a margin 1.00%. For 2012, the interest rate margin reductions in the EU and bilateral loans amount to some €929 million. When the impact of the IMF changes are taken into account, the savings amount to some €960 million on a General Government basis or a reduction of our interest repayment in 2012 of 0.60% of the current 2012 GDP estimate.
As noted above, our EU programme funding is being provided at, or close to, the cost of funds for the lenders. The scope for on our programme interest payments is therefore limited.
However, we are also seeking ways to alleviate the cost burden of assisting the banking sector. Arising out of the 29th June 2012 statement by the Euro Area Heads of State or Government that “… it is imperative to break the vicious circle between banks and sovereigns” work is continuing at a technical level to put in place both the single supervisory mechanism, and the European Stability Mechanism’s direct banking recapitalisation facility, at the earliest possible date.
State Savings Schemes
Ceisteanna (48)
Peadar Tóibín
Ceist:48. Deputy Peadar Tóibín asked the Minister for Finance the amount that could be rasied for the State if interest from savings bonds was not exempt from tax. [42266/12]
Amharc ar fhreagraFreagraí scríofa
The interest paid on Savings Bonds has always been tax-free to Irish residents. Interest is applied on maturity, which is after 3 years, or on encashment, which could be at any stage during the life of the Savings Bond. Based on the estimated interest payout on Savings Bonds in 2012 of €146 million, if this was subject to the higher DIRT (Deposit Interest Retention Tax) rate of 33% it would lead to an estimated tax yield in 2012 of some €48 million. The higher 33% rate of DIRT applies when interest is paid less frequently than annually, as is the case with Savings Bonds. The standard DIRT rate of 30% applies to interest paid annually or more frequently than annually and therefore is not appropriate to Savings Bonds which have no annual interest payments and all interest is paid on maturity or encashment.
Mortgage Arrears Proposals
Ceisteanna (49)
Charlie McConalogue
Ceist:49. Deputy Charlie McConalogue asked the Minister for Finance his views on reports that 50,000 buy to let mortgages are in arrears; the way this is impacting on the overall housing market; his plans to address same; and if he will make a statement on the matter. [42307/12]
Amharc ar fhreagraFreagraí scríofa
The Central Bank of Ireland is engaging with all regulated mortgage lenders to ensure they have a robust strategy in place, incorporating a range of short and long term arrangements, to deal with mortgage arrears, both in respect of private residential mortgages and buy to let properties. To date there has been no official statistics on arrears in the buy to let market. However the Central Bank has informed me that its quarterly arrears statistics has recently been enhanced and that it will include this data in its publication for the quarter ending September 2012 which is scheduled for release in December.
My Department is closely monitoring developments in the property market. Officials in my Department have already held meetings with the banks and relevant stakeholders in the industry to assess best policy approaches. However intervention in the property market is fraught with unintended consequences as the Deputy will be aware and I will continue to take account of the Central Bank’s quarterly statistics in developing strategy.