Written Answers Nos. 1 - 33
11. Deputy Michael McGrath asked the Minister for Finance if he is satisfied with the Central Bank’s response to a bank's (details supplied) placing of 2,141 SME customers into a bank; his views on whether a formal review is required by the Central Bank to assess whether SME customers here were inappropriately treated; and if he will make a statement on the matter. [23534/17]
Amharc ar fhreagraI am informed by the Central Bank that, while it cannot generally comment on interactions with regulated firms, Ulster Bank Ireland D.A.C. is engaging with the Bank in relation to this matter.
As the Deputy is aware, in November 2016, RBS announced a new complaints review process overseen by an independent third party and the automatic refund of complex fees to SME customers in the Global Restructuring Group (GRG) in the United Kingdom and the Republic of Ireland between 2008 and 2013. In the intervening period, Ulster Bank has been working on how it can provide the support to its customers in the Republic of Ireland. Ulster Bank have commenced sending letters to SME customers in GRG between 2008 and 2013 at the end of February 2017 to let them know about the new GRG complaints review process and if they are included in the automatic complex fee refund. Ulster Bank has indicated that a large proportion of their customers have now been contacted.
Ulster Bank has stated that answers to a wide range of frequently asked questions (FAQs) that should address many customer queries can be found on their website. A telephone contact number is also available for customers.
I am confident that legislative changes since the financial crisis have equipped the Central Bank with an array of investigative, regulatory and enforcement powers to ensure that regulated financial service providers adhere to the requirements of financial services legislation. These changes include significantly enhanced powers for the Central Bank to gather information under the Central Bank (Supervision and Enforcement) Act 2013 which broadened the Bank's information gathering and authorised officer powers.
It is evident that the Central Bank is properly undertaking its enforcement role by the recent sizeable settlements in enforcement cases.
In addition to this enforcement role, the Deputy may be aware that the Central Bank is proactively regulating the financial system and has issued regulations aimed at protecting SMEs when dealing with regulated and unregulated firms as set out below. These strengthened regulations include the Central Bank (Supervision and Enforcement) Act 2013 (Section 48) (Lending to Small and Medium-Sized Enterprises) Regulations 2015 which came into operation for regulated lenders (other than credit unions) on 1 July 2016 and, in the case of credit unions, on 1 January 2017. These revised SME Regulations introduce specific requirements for regulated lenders, including:
- Contacting SME borrowers who have been in arrears for 15 working days;
- Warning SME borrowers if they are in danger of being classified as not co-operating; and
- Expanding the grounds for appeal and setting up an internal appeals panel.
Under these SME Regulations, regulated financial services firms must have a complaints handling procedure in place. Any complaints against financial institutions should first be discussed with the institution concerned.
12. Deputy Pearse Doherty asked the Minister for Finance if he will review the favourable tax treatment for real estate investment trusts and Irish real estate funds in view of reports that they are a factor in increasing house prices (details supplied); and if he will make a statement on the matter. [23360/17]
Amharc ar fhreagraA Real Estate Investment Trust or REIT is a quoted company, used as a collective investment vehicle to hold rental property. A REIT is exempt from corporation tax on qualifying income and gains from rental property, subject to a high profit distribution requirement to. A REIT provides the same after-tax returns to investors as direct investment in rental property by eliminating the double layer of taxation at corporate and shareholder level which would otherwise apply.
In the 2016 Finance Act I introduced the Irish Real Estate Fund or IREF. The legislation was introduced to address concerns raised regarding the use of collective investment vehicles by non-resident investors to invest in Irish property. IREFs must deduct a 20% withholding tax on certain property distributions to non-resident investors.
I am of the view that the taxation regimes remain appropriate for these entities. As the REIT regime is designed to prevent a double layer of taxation and the IREF regime is designed to protect the State's taxing rights over property, neither of these are favourable tax regimes nor is there an evidential link between these tax regimes and house price increases.
My Department continues to monitor developments in the housing market, including residential property prices, on an ongoing basis. The current inflationary pressure in the residential market reflects an insufficient supply response to meet the current demographic demand for housing. To address this imbalance the outstanding bottlenecks in the housing market need to be tackled.
In order to restore the housing market to a sustainable equilibrium the Government, as part of Rebuilding Ireland: Action Plan for Housing and Homelessness, has set out a comprehensive package of 113 actionable measure across five key pillars namely Address Homelessness, Accelerate Social Housing, Build More Homes, Improve the Rental sector, and utilise Existing Housing. These measures should help to improve the viability of construction and encourage the development of affordable residential developments.
13. Deputy Bernard J. Durkan asked the Minister for Finance if the Central Bank will take steps to soften the manner in which original or secondary lenders treat home borrowers (details supplied); and if he will make a statement on the matter. [23571/17]
Amharc ar fhreagraWithin the remit of the Central Bank’s responsibilities for safeguarding stability and protecting consumers, its approach to mortgage arrears resolution is focused on ensuring the fair treatment of borrowers through a strong consumer protection framework and ensuring that lenders have appropriate arrears resolution strategies and operations in place.
The Code of Conduct on Mortgage Arrears is a key part of the Central Bank’s Consumer Protection Framework in this regard. Banks, retail credit firms and credit servicing firms servicing loans on behalf of unregulated loan owners are all required to comply with the CCMA. The overriding objective of the CCMA is to ensure the fair and transparent treatment of consumers in mortgage arrears or pre-arrears, and that due regard is had to the fact that each case of mortgage arrears is unique and needs to be considered on its own merits.
Last year I wrote to the Governor of the Central Bank to request that an assessment be undertaken of the range of available sustainable restructure solutions offered by banks and non-bank entities. The Central Bank completed its assessment and their report is published on the Department of Finance website. The assessment finds a comprehensive range of available restructuring solutions being offered and delivered by both bank and non-bank entities and notes considerable progress in addressing mortgage arrears since the peak. The Central Bank notes further that there is strong evidence that both banks and non-banks look to exhaust available restructure options before moving to the legal process. In addition, the Central Bank considers the range of restructures offered by banks to be broadly appropriate in balancing consumer protection imperatives, and maintaining a mortgage market for all borrowers, and a functioning banking system.
In referring to “secondary lenders”, the Deputy may be talking about funds to whom loans are sold. He will be aware that the Consumer Protection (Regulation of Credit Servicing Firms) Act, 2015 was enacted in July 2015. It was introduced by the previous Government to fill the consumer protection gap where loans were sold by the original lender to an unregulated firm. The Act introduced a regulatory regime for a new type of entity called a 'credit servicing firm'. Credit Servicing Firms are now subject to the provisions of Irish financial services law that apply to 'regulated financial service providers'.
Under the Act, purchasers of loan books must either be regulated by the Central Bank themselves or else the loans must be serviced by a credit servicing firm that is regulated by the Central Bank. Relevant borrowers, whose loans are sold to third parties, maintain the same regulatory protections they had prior to the sale, including under the various statutory codes (such as the Consumer Protection Code, and the Code of Conduct on Mortgage Arrears). It is also important to highlight that the transfer of a loan from one entity to another does not change the terms of the contract or the borrower's rights and obligations under the original contract.
My Department will continue to keep all relevant legislation under review in order to ensure that borrowers whose loans have been sold are properly protected and do not lose any protections that they previously enjoyed. In addition, I expect that the Central Bank, as regulator of credit servicing firms, will be vigilant in this area and raise any specific instances where they have found consumers have not had their protections upheld or that their positions have been disadvantaged.
14. Deputy Thomas P. Broughan asked the Minister for Finance if section 33AT (1) of Part IIIC of the Central Bank Act 1942 has been amended in subsequent finance legislation; if not, his plans to amend or remove that specific section which related to sanctions for criminal offences; and if he will make a statement on the matter. [23367/17]
Amharc ar fhreagraThe Central Bank’s Administrative Sanctions Procedure is governed by Part IIIC of the Central Bank Act 1942. Part IIIC was inserted into the Central Bank Act, 1942, by the Central Bank and Financial Services Authority of Ireland Act, 2004. It provides the Central Bank with the power to administer sanctions in respect of the commission of prescribed contraventions by regulated financial service providers and by persons presently or formerly concerned in their management.
Section 33AT (1) of Part IIIC provides that no criminal prosecution may be brought against a financial service provider or person concerned in the management of a financial service provider if the prescribed contravention in question has already been the subject of an Inquiry under the Administrative Sanctions Procedure which led to the imposition of a monetary penalty.
Section 33AT (2) provides that where a criminal prosecution has been brought in respect of an offence that also involves a prescribed contravention, and the regulated entity or person is found either guilty or not guilty, then no monetary penalty may be imposed pursuant to the Administrative Sanctions Procedure.
In circumstances where both the Administrative Sanctions Procedure and summary criminal prosecution are available, the Central Bank will consider the circumstances of each case on its merits before deciding which avenue to pursue. Furthermore, in deciding whether or not to pursue criminal proceedings, the Central Bank will have regard to the Director of Public Prosecution’s “Guidelines for Prosecutors”.
Section 33AT does not preclude the Central Bank from following other non-monetary avenues within the Administrative Sanctions Procedure, including issuing a caution or reprimand, a direction ordering the financial service provider or person to cease participating in the commission of the contravention, or the suspension or revocation of regulatory authorisation. Neither does it absolve the Bank from the obligation to refer the matter to the relevant authority, including An Garda Siochana, where appropriate.
Section 33AT upholds the principle of ne bis in idem, also known as double jeopardy, which is deemed a constitutional and procedural right, and which provides that a person cannot be prosecuted more than once for the same offence. Accordingly, I have no plans to amend or remove this specific provision.
15. Deputy Mick Wallace asked the Minister for Finance further to Parliamentary Question No. 138 of 3 May 2017, if Project Shift was discussed at NAMA Northern Ireland advisory committee meetings; if a person (details supplied) advised the debtor in question involved with Project Shift; if Project Shift was externally valued; when it was decided by NAMA to change it from an asset sale to a loan sale; and if he will make a statement on the matter. [23361/17]
Amharc ar fhreagra31. Deputy Mick Wallace asked the Minister for Finance further to Parliamentary Question No. 138 of 3 May 2015, the number of the 117 prospective investors approached by the loan sale adviser that had originally approached the debtor expressing an interest in the portfolio; if any of these investors were one of the 12 that submitted first round offers or one of the eight invited into the second round of bidding on Project Shift; and if he will make a statement on the matter. [23362/17]
Amharc ar fhreagraI propose to take Questions Nos. 31 and 15 together.
The Deputy will be aware that Section 9 of the NAMA Act provides that NAMA is independent in the performance of its functions and that, under Section 10 of the Act, its primary objective is to obtain the best achievable financial return for the State from its acquired loan portfolio. In this regard, I am advised that NAMA is confident it upheld its mandate in the Project Shift transaction.
The Project Shift sale comprised a portfolio of German property assets held by a Northern Ireland based debtor. I am advised that the marketing process for Project Shift began in June 2013 as an asset sale being conducted by the debtor with NAMA's consent. This was in advance of NAMA’s decision in January 2014 to place the Project Eagle loan portfolio on the market for sale. I am advised that updated valuations for the assets comprising the Project Shift portfolio were secured by NAMA as part of the due diligence process.
As I stated in my reply of 3 May 2017, NAMA, on the advice of Savills, the debtor's sales advisor, consented to the debtor entering into exclusive discussions with Cerberus which had submitted the highest bid after an open, transparent and competitive asset sale process. However, the Project Shift asset sale did not complete prior to Cerberus being selected as the preferred bidder for the Project Eagle loan portfolio sale. Given that Cerberus was the ultimate purchaser for both Project Shift and Project Eagle, it made sense to change the Project Shift asset sale to complete as a loan sale and thereby complete the disposal of all of the debtor’s loans to Cerberus. I am advised that Cerberus and NAMA agreed to convert Project Shift into a loan sale after the NAMA Board selected Cerberus in April 2014 as its preferred bidder for Project Eagle.
I am further advised that the debtor's sale advisor approached some 117 prospective investors and that 12 investors submitted first round offers within the relevant bid deadline. I am advised that NAMA, acting on the advice of the debtor's sales advisor, Savills, consented to them inviting eight investors into a second round of bidding. The eight investors were provided with access to a detailed electronic data room to carry out further due diligence. I am further advised by NAMA that seven of the eight shortlisted investors submitted second round offers by the bid date for this transaction.
The Deputy has sought information on the number of the 117 prospective investors who had originally approached the debtor to express an interest in the portfolio, if any of these investors were one of the 12 that submitted first round offers or one of the eight invited into the second round of bidding.
The information sought by the Deputy can only be confirmed by the debtor who may have been approached in the context of the Project Shift asset sale. Given that NAMA no longer has an active engagement with the debtor, NAMA is not in a position to provide the information requested.
In case there is any misunderstanding or apprehension that contact between potential purchasers and the NAMA debtor was inappropriate in this instance, given that Project Shift was initially marketed as an asset sale, there is no reason why investors should not have approached the debtor, who owned the assets, to indicate their interest in purchasing some or all of the assets.
Finally, I am advised that Project Shift was not discussed at meetings of the Northern Ireland Advisory Committee. NAMA is not in a position to establish whether the person to whom the Deputy refers advised the debtor in relation to Project Shift.
16. Deputy Michael McGrath asked the Minister for Finance if he has given consideration to the need to establish a code of conduct on mortgage switching, similar to the code of conduct on the switching of payment accounts with payment service providers, in view of the recent research undertaken by the Central Bank on mortgage switching; and if he will make a statement on the matter. [23531/17]
Amharc ar fhreagraThe Government considers that measures to encourage and promote a greater level of switching in the mortgage market would help boost the level of competition in the market for existing mortgages. In particular, the Programme for Partnership Government considers that the development of a code of conduct for switching mortgage provider would be a useful and practical initiative which would have the potential to deliver savings to many existing mortgage holders.
To that end, in 2016 the Central Bank commenced research in the area of mortgage switching which was completed by early 2017. The results of this research, which was published last month, will be used to consider the further particular measures to be advanced in this area. The Central Bank, in its Consumer Protection Outlook Report as published in February 2017, stated that it would bring forward any proposals for consultation based on these research findings. The Central Bank will, therefore, publish a consultation paper in Q3 2017 which will propose additional measures to facilitate mortgage switching for those consumers minded to switch.
This continues the Central Bank’s work to maintain a strong consumer protection framework for mortgage borrowers. It builds on new Consumer Protection Code measures which came into effect on 1 February and which are aimed at enhancing transparency and facilitating consumer choice for variable rate mortgage holders.
17. Deputy Catherine Connolly asked the Minister for Finance the reason for the under-performance of USC in the January to February period of 2017; the difference in the projected and actual intake; and if he will make a statement on the matter. [23363/17]
Amharc ar fhreagraAt the outset it is important to point out that income tax encompasses a broad range of elements, some of which are not directly impacted by employment or wage developments. These include Deposit Interest Retention Tax, Life Assurance Exit Tax, Dividend Withholding Tax, Professional Services Withholding Tax and Back Duty. These payments can be non-linear in nature and the timing of payments can vary from year to year.
Overall income tax receipts to the end of February were €123 million below profile. The Revenue Commissioners have indicated that lower than expected receipts from Life Assurance Exit Tax and Universal Social Charge (USC) account for over half of this shortfall and that PAYE, the main component of income tax, was broadly in-line with profile and up 7% year-on-year, which is consistent with the improving labour market.
Notwithstanding this, the performance of USC was lower than expected by just over €50 million according to the Revenue Commissioners. My Department is currently reviewing its performance in conjunction with the Revenue Commissioners and the initial indications are that the Revenue Commissioners are satisfied that the overall estimate of the Budget 2017 USC changes of €335 million in 2017 was costed accurately.
However, at the time of Budget 2017, the apportionment of the total USC package between PAYE and Schedule D was expected to be €263 million and €72 million respectively, in line with previous norms. However, subsequent analysis by Revenue indicates that the allocation of the USC package between PAYE and Schedule D should have been €311 million and €24 million respectively, due to the dynamics of the USC package. While, this helps to explain some of the current under-performance of USC against profile, it is important to point out that this reapportionment should have no adverse impact on the overall collection of USC receipts as this should equalize later in the year when self-employed returns are made.
In addition, as part of the continuous efforts to improve the Department’s tax forecasting performance, joint research conducted by the ESRI and Department examined the sensitivity of income tax and USC revenues to changes in income. As a result of this work published in March, my Department has revised the elasticities used in the forecasting of USC, which will affect these forecasts from 2018 onwards.
However, my Department along with the Revenue Commissioners will continue to examine this issue and consider all relevant developments. In this regard, the Deputy should note the USC from PAYE taxpayers came in much closer to profile in March and April, albeit still a little below expectations.
Since its introduction in 2011, USC has undergone many alterations including rate and threshold changes. As the public finances have improved in recent years, progress has been made in reducing the USC charge, particularly for low to middle income earners. Budget 2017 has, for the third year in succession, introduced reductions in the income tax burden for all those within the scope of USC. The three lowest rates of USC were reduced from 2%, 4% and 7% to 0.5%, 2.5% and 5% respectively. This is important progress in making work pay and supporting individuals returning to and remaining in employment. As the Deputy will appreciate, considering the magnitude of these recent changes, it has made the USC more difficult to forecast.
Finally, it should be noted that we were in a similar position at the end of the first quarter in 2016 when income tax was down 3.4% against profile. However, due to a pick-up in receipts throughout the remainder of last year, income tax finished 2016 ahead of target.
18. Deputy Thomas P. Broughan asked the Minister for Finance his plans to refinance a quarter of the State's national debt between October 2017 and October 2020; and the steps being taken by the NTMA to minimise the risks to the State in this period of great economic uncertainty. [18352/17]
Amharc ar fhreagraAs I have outlined in my previous responses to the Deputy’s recent questions on this topic – PQ 16418/17 and PQ 18095/17 – I am confident that the National Treasury Management Agency (NTMA) is pursuing the optimal strategy in its management of this debt.
The NTMA has already taken numerous steps to significantly reduce the refinancing requirement in the coming years.
It continues to pre-fund ahead of future obligations and to build up significant cash balances. These balances stood at over €15.5 billion at end-April meaning that in effect the October 2017 bond redemption has already been funded. It expects to enter 2018 with approximately €10 billion in cash balances.
It has executed bilateral bond switches – redeeming early short-term bonds in exchange for longer-term bonds – and reduced the bond refinancing requirement by over €2.5 billion.
It has taken advantage of the opportunities presented by lower borrowing costs and actively lengthened the maturity of Ireland’s debt. The result is that today Ireland has one of the longest average public debt maturities in Europe.
The NTMA has also accelerated the buy-back of the Floating Rate Notes. While this doesn’t reduce the refinancing requirement in the short-to-medium term, it is locking in the current low market interest rates. In effect, the NTMA is taking out insurance against rates rising into the future.
The net impact of all the actions by the NTMA, including the early repayment of over €18 billion of IMF loans, has been to reduce the size of the refinancing obligation over the period out to the end of 2020 from €70 billion to closer to €40 billion, when account is taken of cash balances.
I am satisfied that the steps taken by the NTMA leave the Exchequer in a healthy position to fund the refinancing requirement over the period October 2017 to October 2020.
20. Deputy Pearse Doherty asked the Minister for Finance if he will request flexibility with regard to the fiscal rules in view of the well-documented impact of Brexit on the economy; and if he will make a statement on the matter. [23358/17]
Amharc ar fhreagraAs the Deputy is no doubt aware and as I have previously outlined for the Deputy in Parliamentary Question Number 43 of 4 April this year, the fiscal rules to which Ireland is subject have direct application through a number of EU regulations. The European Commission has repeatedly emphasised that budgetary discipline is assessed against reference values that do not differentiate amongst different types of expenditure as any deficit-financed expenditure must be repaid through future taxes. Furthermore, granting special treatment to certain kinds of public expenditures could create incentives for creative accounting.
The Commission’s guidance on the implementation of the ‘unusual event clause’ in the preventative arm of the Stability and Growth Pact (SGP) allows for exceptional spending directly linked to unusual events outside of the control of Government, if this spending does not endanger fiscal sustainability in the medium term. This clause is granted on the basis of individual case-by-case assessments and, to date, has only been granted to six Member States in light of refugee-related costs and three Member States following submissions based upon security-related expenditure. It should also be noted that any Member State availing of this clause must still meet their SGP obligations when the additional spending on the unusual event provided for in the clause is excluded.
Accordingly, any application for leniency under this clause would require that Ireland demonstrate that the British exit from the EU has had a “major impact on the financial position of the general government”. Notwithstanding the fact that the sharp appreciation of the euro-sterling bilateral rate has been the most immediate impact from Brexit and is one of the principal factors behind the decline in the value of merchandise exports to the UK last year, no material impact on Ireland’s general government balance has been observed to date. This is not surprising given that the negotiation on the terms of the UK exit have yet to commence in substance and will not conclude until 2019.
Nonetheless Ireland is currently exploring existing and possible future EU measures that could potentially assist Ireland in mitigating the effects of the UK’s withdrawal on specific Irish businesses and economic sectors. Ireland will also, in light of developments, continue to make a strong case at EU level that the UK’s withdrawal represents a serious disturbance to the Irish economy overall and that we will require support.
22. Deputy Thomas P. Broughan asked the Minister for Finance when he and the Department of Arts, Heritage, Regional, Rural and Gaeltacht Affairs will bring forward firm proposals for community banking in view of the recent public consultation on such banking models; and if he will make a statement on the matter. [23366/17]
Amharc ar fhreagraThe Programme for Government contains a commitment to thoroughly investigate the Sparkassen model of local public banks that operate within well-defined regions. The Department of Arts, Heritage, Regional, Rural and Gaeltacht Affairs is the lead Department in respect of this commitment. The Government is also committed to consider a model of community banking that could provide a suite of banking services through the Post Office Network, similar to the Kiwibank model in New Zealand.
The Department of Arts, Heritage, Regional, Rural and Gaeltacht Affairs, with the assistance of my Department, undertook a consultation process, engaging with stakeholders and interested parties, that finished on 29th of March of this year. This consultation involved holding meetings with interested parties including Sparkassen, Irish Rural Link and the Public Banking Forum of Ireland who put forward proposals for community banking in Ireland.
Officials from both Departments are working to prepare a report for the Minister for Arts, Heritage, Regional, Rural and Gaeltacht Affairs and myself. It is anticipated that this report will be completed by the end of the first half of this year. This report will set out the findings and conclusions of the investigation of the Sparkassen model of local public banking.
23. Deputy Thomas P. Broughan asked the Minister for Finance if he will provide a report on the large levels of tax expenditures relating to research and development tax credits each year since 2010; if his Department carries out regular cost-benefit analyses on the level of expenditure and revenue foregone; and if he will make a statement on the matter. [18345/17]
Amharc ar fhreagraIn 2014 the Department of Finance published Tax Expenditure Guidelines to provide direction for evaluating large tax expenditures on a regular basis. The purpose of the guidelines is to ensure the evaluation of tax expenditures in the context of their continued relevance in respect of achieving their policy objective.
In line with these guidelines, an economic evaluation of the R&D Tax Credit was completed in October 2016. This report was published with Budget 2017 and is available on the Budget 2017 website.
The evaluation used a randomised control trial framework. This approach is considered to be more robust than simply asking firms to estimate the amount of R&D they conduct due to the tax credit. The evidence from the evaluation indicates that the R&D Tax Credit is responsible for 60% more R&D being conducted that would be the case if there was no R&D tax credit in place. This is considered to be a reasonable level of additionality.
Furthermore, from a cost perspective the R&D Tax Credit provides a ‘bang for buck’ ratio of 2.4. This means that for every one euro in foregone revenue to the state, €2.40 of additional R&D is being conducted. Again, this was considered to be a reasonable result.
Overall, the evaluation found that the R&D Tax Credit fares well on a comparative basis. For example, older studies of public business grants to firms found evidence of additionality as low as 20% and in a recent evaluation of the Norwegian R&D tax credit, additionality was found to be 60% or lower.
The Department had previously reviewed the R&D Tax Credit in 2014 and found that the credit also stood up well in international comparisons at this time.
While there has been an increase in the cost of the R&D tax credit since 2010, last year’s evaluation provides evidence that the tax credit is effective in achieving its policy objective of increased R&D expenditure among firms. Nevertheless, my Department and I are conscious of the need to evaluate large tax expenditures, including the R&D Tax Credit, on a regular basis and will continue to do so in line with the Tax Expenditure Guidelines and best practice.
24. Deputy Michael McGrath asked the Minister for Finance the amount of lending carried out by a company (details supplied) to date in 2017 to the construction sector; his views on whether the State can do more to ensure the construction sector has access to finance to build the required homes and office accommodation around the country; and if he will make a statement on the matter. [23533/17]
Amharc ar fhreagraThe Ireland Strategic Investment Fund (ISIF), in line with its double bottom line mandate, has to date invested in a number of significant financing platforms and projects in the construction sector, and is actively examining other investment opportunities.
ISIF invests on a risk-adjusted basis in the various housing financing platforms and these platforms, in turn, provide finance, also on a risk-adjusted basis, to developers, which can be equity or debt according to the business model of each platform. The interest rate applied to any individual debt financing arrangement therefore relates to the level of risk and other investment factors in the underlying housing development proposal.
ISIF has total investment commitments to housing investment vehicles of €404 million comprising €325 million in Activate Capital, €25 million in the Ardstone Residential Partnership and €54 million to student accommodation in DCU. In addition ISIF has committed €125 million in total to more general real estate investment vehicles, including €75 million to the Wilbur Ross Cardinal Commercial Real Estate Mezzanine Debt Fund and €50 million to Quadrant Real Estate Advisors, both of which to date have completed some investment in housing. Through these ISIF-supported projects, a total of 8,400 housing units is expected to be delivered in the near term (a small portion of which has already been delivered).
In addition, ISIF's current near term pipeline of potential housing projects including in the build-to-rent sector and off-campus student accommodation as well as a smaller project that may have the ability to deliver some affordable housing, indicates potential to deliver a further 8,700 units in total.
The principal residential development finance lending vehicle which ISIF has invested in to date is Activate Capital.
ISIF is also examining the feasibility of establishing, in conjunction with the private sector, a Housing Investment Fund which would be capable of funding the delivery of substantial new mixed-tenure residential developments, comprising social and private housing, in a way that is both off-balance sheet and commercially viable. Engagement with a wide array of key stakeholders in both the public and private sector, including with Eurostat, is ongoing and involves the input of relevant Government departments, the CSO and others.
In the area of financing infrastructure which enables residential development, ISIF is seeking to structure solutions for a number of opportunities with a focus on sites of scale and strategic importance. ISIF is seeking to work alongside other sources of funding including LIHAF (Local Infrastructure Housing Activation Fund), Local Authority resources and commercial investment. A private sector pilot project (totalling approximately 3,000 units) is actively being progressed by ISIF. Public sector projects (also totalling approximately 3,000 units) are currently being considered – the extent to which these projects can be progressed will in part depend on whether LIHAF or other forms of financing can be leveraged to complement ISIF financing.
These ISIF actions demonstrate the substantial State commitment to assisting the construction sector to access finance. I am fully conscious that these measures must be carefully balanced by monitoring their impact to ensure that State actions are not exposing the State's balance sheet to excessive risk.
25. Deputy Barry Cowen asked the Minister for Finance his views on whether the first time buyers grant is having a destructive impact on the private housing market and leading to massive inflationary pressures in the price of homes. [17418/17]
Amharc ar fhreagraAs the Deputy will be aware, the Help to Buy incentive was initially announced on 19 July 2016 as part of 'Rebuilding Ireland: Action Plan for Housing and Homelessness'. This plan contains a significant volume of responses to the current housing crisis, of which the HTB incentive is just one. The comprehensive Action Plan takes a holistic approach in addressing the many interacting structural constraints affecting the housing market in areas such as planning and land use, as well as regulation and skills deficits in the construction sector. While the primary focus of the Action Plan is to tackle structural constraints, fiscal supports can play a supporting and time-bound role in addressing the current problems in the housing sector.
It is in this context that the Help to Buy scheme should be considered. Its role is to complement the other measures in the Action Plan. The extent to which the scheme could lead to an increase in residential property prices will very much depend on the speed and efficiency with which structural supply constraints are eliminated and residential building activity increases. Therefore, the impact of the HTB incentive on property prices should not be considered in isolation from the impact of other measures contained in the Action Plan, which are primarily designed to increase supply. In this regard I note that a number of indicators point to a strengthening recovery in the housing market. The latest Ulster Bank construction PMI indicates a pickup in the rate of construction activity growth of approximately 1 per cent between March and April. The index suggests that housing activity has continued to expand each month since July 2013.
From a supply perspective, commencement notices in the 12 months to February 2017 (13,169), increased by approximately 27.4 per cent compared to the same period in 2016 while new house guarantee registrations (6,537) increased by approximately 53 per cent. ESB connections, a proxy for house completions rather than the level of construction activity (15,327), increased by 15.7 per cent in the 12 months to February 2017 compared to the same period in 2016. However, the growth in both starts and completions continues to emanate from a very low base and it will take some time for the level of new construction to meet the current demographic demand for housing.
In my view, it is the lack of supply that is primarily responsible for driving house prices higher and I would point out that increases in house prices prevailed long before the introduction of the Help to Buy incentive. I would also point out that the incentive is targeted towards new build homes only, and to first-time buyers only, and it would be simplistic to designate this incentive as being the sole or the major contributor to house price increases.
Furthermore, the incentive is designed to help first-time buyers obtain the deposit required to facilitate the purchase of a home. Therefore it helps first-time buyers to meet the loan to value requirements of the Central Bank's macro-prudential rules. However, the loan to income requirements of those rules must also be satisfied and the incentive plays no role in relation to that aspect.
I wish to assure the Deputy that my Department continues to monitor developments in the property market including movements in property prices. In this regard, the Deputy may be aware that following a competitive tender process I have commissioned Indecon Economic Consultants to undertake an independent impact assessment of the incentive. This will look at, among other issues, its potential impact on property prices, and the final report is due to be presented to me by 31 August 2017.
26. Deputy Catherine Connolly asked the Minister for Finance the details of all fines paid, including the monetary value and transgression for each individual fine, by a bank (details supplied) since the State acquired a majority stake in the bank; and if he will make a statement on the matter. [23364/17]
Amharc ar fhreagraAs the Deputy will be aware, I as Minister for Finance have no function in the relationship between the Irish banks and their regulator, the Central Bank of Ireland. The Central Bank is the statutory supervisory and enforcement authority for regulated financial services providers in Ireland, and it is also responsible for protecting the consumer of financial services. As such, it is the independent responsibility of the Central Bank to ensure that financial institutions and individuals are held accountable for failings where there is sufficient evidence to support such action.
The fines imposed by the bank's regulator in the period since the State acquired a majority shareholding in AIB are as follows:
|
Date |
Breach |
Fine |
|
2017 |
Criminal Justice (Money Laundering & Terrorist Financing) Act, 2010 |
€2,275,000 |
|
2013 |
Management of Liquidity Risk and the European Communities (Licensing and Supervision of Credit Institutions) Regulations 1992 |
€490,000 |
I will briefly comment on the most recent fine imposed.
It is the independent responsibility of the Central Bank to ensure that financial institutions and individuals are held accountable for their compliance with anti-money laundering ("AML") and the obligations set out in the Criminal Justice Act 2010 (CJA 2010) for countering the financing of terrorism ("CFT").
One of the relevant AML/CFT breaches for an ASP case can be a breach of section 42 of the CJA 2010, which requires designated persons to submit a suspicious transaction report ("STR") to An Garda Síochána and to the Revenue Commissioners "as soon as practicable". Designated persons are obliged to submit STRs where a suspicion or knowledge of money laundering or terrorist financing arises during the course of business.
For the purpose of clarification, an investigation under ASP is not a criminal investigation. The Central Bank's supervisory remit is to monitor credit and financial institutions for compliance with AML/CFT control measures. It has not a statutory remit to investigate or prosecute substantive money laundering or terrorist financing offences. Any fine that is imposed for AML/CFT breaches by the Central Bank under ASP relates to control breaches and not to actual money laundering or terrorist financing offences.
27. Deputy Eamon Ryan asked the Minister for Finance to provide details on the funds that have been drawn down from within the State from the Juncker investment fund since its inception. [23572/17]
Amharc ar fhreagraI take it that the Deputy is referring to the European Fund for Strategic Investments (EFSI), one pillar of the Investment Plan for Europe, at times referred to as the Juncker Plan.
As the Deputy may be aware, since EFSI's enactment in July 2015, it has been possible for any project promoter, either public or private, to engage with the EIB regarding the possibility of receiving loans or guarantees under EFSI for particular projects.
In this way, EFSI is providing an important additional funding possibility alongside other possibilities such as the EIB's normal lending, the State's borrowings through the NTMA and other mechanisms such as PPPs and off-balance sheet vehicles which are options for funding investment additional to the State’s capital investment programme. It should be remembered that each EFSI loan entered into by the State pre-commits funding for the repayment of such loans, and has to be considered in the context of the expenditure benchmark under the EU's fiscal rules.
In general, Government Departments have existing relationships with the EIB so it has been a matter for each Department to advance any projects, in coordination with the Government's Capital Plan as coordinated by the Department of Public Expenditure and Reform. My Department has no role in assessing projects either public or private which may be the subject of applications for EFSI loans/guarantees.
Since inception, Ireland has seen the main potential beneficiaries of EFSI as being in the private sector including entities such as PPP companies. I am pleased that the Department of Health's Primary Health Care Centres PPP has successfully drawn down EFSI funds. In addition, the Strategic Banking Corporation of Ireland (SBCI) has successfully engaged with European Financial Instruments such as the COSME and the InnovFin Guarantee Programme, both of which are made available under the EFSI SME Window. These support the financing needs of SMEs and ensure that there is an adequate supply of affordable and appropriate credit to meet their needs.
I can inform the Deputy that there is a publicly available list of projects which have been approved for EFSI support by the EIB in the State which is available on the EIB website. The list can be viewed according to each Member State and I would ask the Deputy to be aware that the Irish list contains both private and public sector projects, and it also includes cross-border projects between Irish entities and entities in other Member States.
28. Deputy Pearse Doherty asked the Minister for Finance if he will rule out further tax cuts in budget 2018 in view of recent disappointing Exchequer returns and to ensure all fiscal space is directed towards maintaining and improving public services and investment in capital infrastructure; and if he will make a statement on the matter. [23359/17]
Amharc ar fhreagraThe Programme for Partnership Government recognises the need to invest in public services and capital infrastructure, to meet increasing demographic demands, provide targeted expenditure increase for improvements focusing upon health, housing, education, disability, child care and development, and that capital investment in key physical and social infrastructure can support growth and continued job creation.
Hence the Programme for Partnership Government contains a commitment that budget measures will be introduced that will involve at least a 2:1 split between public spending and tax reductions. This commitment is also contained in the confidence and supply agreement with Fianna Fáil. However, the actual ratio of spending increases to tax reductions in Budget 2017 was over 3:1.
Furthermore, it is worth noting that gross voted expenditure in the year to date, while being managed within profile, has increased by 3% year-on-year and that gross voted capital expenditure has increased by 31% year-on-year to end April. This demonstrates the Governments on-going commitment to investing in public services and capital infrastructure.
The Programme for Partnership Government also contains a commitment to continue to phase out the USC as part of a wider medium-term income tax reform plan that keeps the tax base broad, reduces excessive tax rates for middle income earners, and limits the benefit for high earners. Reductions will be introduced on a fair basis with an emphasis on low and middle income earners and are designed to encourage and reward work. The commitment to introduce reductions in the USC on a fair basis with an emphasis on low and middle income earners is also referred to in the confidence and supply agreement.
The need to continually improve our competiveness and support continuing job creation is of utmost importance in the context of minimising any potential impact on the economy that may arise from the UK’s decision to leave the European Union.
Although tax revenue for the first four months of the year are slightly behind expectations, it will not impact on the fiscal space available for Budget 2018 as the fiscal rules provide for expenditure growth, net of discretionary revenue measures, to be based on the trend growth rate rather than revenue buoyancy, whether negative or positive.
Finally, I would remind the Deputy that decisions around Budget 2018 measures will not be made at this stage. The Summer Economic Statement, due to be published next month, represents the start of the 2018 budgetary process and it will set out the broad parameters and constraints over the medium term.
29. Deputy Maurice Quinlivan asked the Minister for Finance further to a survey by a company (details supplied) that showed a widespread lack of knowledge and understanding of customs regulations and practices, the steps he will take to ensure businesses are fully prepared for this outcome should the Government fail to secure a special status designation for Northern Ireland. [23030/17]
Amharc ar fhreagraIt is worth reiterating that the Government’s absolute preference is to maintain the closest possible trading relationship between the UK and the EU/Ireland. The EU negotiating guidelines include strong acknowledgement of the unique circumstances on the island of Ireland, including with the aim of avoiding a hard border. Like all Government agencies, the Revenue Commissioners are actively engaged in examining a range of scenarios in order to support Ireland's objectives. The precise trading arrangements that will apply after Brexit will depend on the outcome of negotiations between the EU and UK.
Those sectors of Irish business which do not trade outside the EU at present have had no reason to build up an expertise in customs procedures. On the other hand, very many Irish businesses are familiar with the requirements for trading with countries around the world, and their concerns have more to do with the precise arrangements that will apply after Brexit.
I am informed by Revenue that they are engaged in ongoing contacts with business to develop knowledge of the general implications of a customs regime, and have full information on customs available on their website www.revenue.ie/en/customs/index.html. As more information becomes available, Revenue plan to conduct an outreach programme to ensure that all businesses are fully equipped to make the necessary decisions in relation to customs to prepare for the future.
30. Deputy Michael McGrath asked the Minister for Finance the position regarding the Central Bank’s tracker mortgage review; the number of mortgages involved in the review; the number of persons who have received redress and compensation to date; if he is satisfied that the independent appeal systems put in place by the banks are sufficient for aggrieved customers; and if he will make a statement on the matter. [23535/17]
Amharc ar fhreagraAs the Deputy is aware, the Central Bank of Ireland published a report providing an update on the Tracker Examination on 23 March.
As the Central Bank has set out in the report:
- approximately 9,900 customer accounts had been identified as impacted by lenders, as part of the Examination, as at end February 2017;
- lenders had commenced contacting impacted customers identified as at end February 2017 and had rectified the interest rates applied to such impacted customers’ accounts, thus stopping further detriment; as at the date of the Report, interest rates had been rectified on more than 90% of the accounts that require such rectification;
- to end February 2017, as set out in the report, approximately €78m had been paid in redress and compensation to approximately 2,600 impacted customers identified as part of the Examination.
The framework of the Examination provides that lenders should establish an independent appeals process to deal with customers who are dissatisfied with any aspect of the redress and compensation offers that they receive from lenders in respect of these matters. As the Central Bank Principles for Redress provide that all redress and compensation payments are made to customers on an upfront basis, customers can accept the redress and compensation offered and still make an appeal. In addition, the impacted customer has the option of bringing a complaint to the Financial Services Ombudsman or initiating court proceedings.
The Central Bank has advised that a further update will be provided on the Examination in autumn 2017.
32. Deputy Thomas P. Broughan asked the Minister for Finance his views on excise duties on diesel vehicles in the context of budget 2018; and if he will make a statement on the matter. [21494/17]
Amharc ar fhreagraAs the Deputy will be aware, it is a longstanding practice of the Minister for Finance not to comment, in advance of the Budget, on any tax matters that might be the subject of Budget decisions.
33. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he remains satisfied regarding Ireland's growth potential for the future in comparison with all other EU states within the euro zone and notwithstanding Brexit or shifting geopolitical positions; if particular positional changes are required to maximise Ireland's potential ; the way in which Ireland now compares economically with its EU neighbours in terms of economic performance; and if he will make a statement on the matter. [23570/17]
Amharc ar fhreagraAccording to Eurostat, the statistical office of the European Union, Ireland was the fastest growing economy in the EU in 2016. Real GDP growth in Ireland was 5.2 per cent in 2016 compared with real GDP growth in the EU economy and euro area economy of 1.9 per cent and 1.8 per cent, respectively. Domestic demand made a strong positive contribution to growth in 2016 while on an underlying basis i.e. excluding contract manufacturing, both goods and service exports recorded very strong growth despite the weakness in sterling. While the 2016 outturn is based on preliminary quarterly data which is highly volatile and prone to revision, the numbers provide clear evidence of continued momentum in the economy and are consistent with strong employment growth.
According to the European Commission, Ireland is also expected to be among the fastest growing economies in Europe this year and next. The European Commission expects Ireland's economy to grow by 4.0 per cent this year and by 3.6 per cent next year. This compares with growth of 1.9 per cent this year and next for the EU and with growth of 1.7 per cent this year and 1.8 per cent next year for the euro area. From 2019 onwards, my Department expects GDP to grow by just under 3 per cent per annum on average which is broadly in line with the potential growth rate of the economy with positive contributions from both exports and domestic demand.
The Government’s priority is to ensure continued, sustainable economic growth in order to further increase living standards and reduce unemployment. With regard to Brexit and other external risks to the outlook, the best way to deal with such risks is through competitiveness oriented policies and prudent management of the public finances. That is what this Government will continue to do.
