Dáil Éireann Debate, Tuesday - 30 January 2018
76. Deputy Michael McGrath asked the Minister for Finance if progress has been made with the European Commission in securing some flexibility on the way in which one-off proceeds such as a NAMA surplus and the sale of bank shares may be used; and if he will make a statement on the matter. [4283/18]
Amharc ar fhreagraThis question relates to the application of the fiscal rules to one-off receipts, whether it be the sale of a stake in banks that the State might hold or a NAMA surplus which will materialise in the coming years. Has the Minister for Finance raised or made any progress with the Commission on getting additional flexibility on how such proceeds can be used as opposed to being bound by the rules, certainly when it comes to a financial transaction, that the Government must use the proceeds to pay down debt?
NAMA was established in December 2009 and its debts of nearly €32 billion represented a substantial contingent liability to the State.
The State recapitalised the domestic banking system at a gross cost of €64 billion, adding around 40% of national income to national debt. As a result of this, as well as the mismanagement of the public finances, total Government debt now stands at over €200 billion, which is the equivalent of €40,000 for every man, woman and child in the State.
My priority, therefore, has been to use one-off revenue gains to reduce the debt incurred by public support for the banking system.
Moreover, I am also very conscious that the economy is approaching full employment and it is important that it reflects this at this stage of budgetary policy. I do not want to put in place pro-cyclical policies that could endanger our recovery.
NAMA's role in the funding of residential development is a key priority for Government. In this regard, NAMA is expected to fund the completion of 20,000 units over the period from 2016 to 2020.
I have said on the record a number of times that there is nothing wrong with paying down debt. Many of our citizens, who could afford to do so, did it throughout the economic crisis. Many businesses have also taken the opportunity to deleverage. This issue came up last year when the State sold a stake in AIB. The Minister for Finance should at least have some flexibility such that the Government of the day could decide that a better use of the proceeds, or some of the proceeds, would be to put them towards investment in the economy. A new ten-year investment plan will be published shortly. If a Government were to make that decision and wished to use at least some of the proceeds, would it have the discretion and flexibility to do so without being in breach of the fiscal rules? That is my central question. I am looking to establish whether the Government has opened up any channel with the European Commission on how one-off proceeds may be used without breaching the fiscal rules.
We are in constant engagement with the European Commission on how we define a structural reform. To date it has been my view that such gains should be used to reduce our debt. However, if we look at where we are in the economic cycle, our national debt is now far higher than it was before we entered the last crisis, which means that were we to find ourselves facing similar difficulties again - God forbid - we would be approaching that crisis point with a far higher level of debt than we had in the past.
The Deputy asked about the definition of the structural reform. We are engaging with the European Commission on that. Up to this point a structural reform has been defined as what would happen within a market or, indeed, a labour reform. We are looking at what is under way, for example, in Latvia where a structural reform now potentially could form a part of how it would respond to a country-specific recommendation on health care reform.
I acknowledge the level of the national debt. I also acknowledge the most important measure is its size relative to the size of the economy. Thankfully the national debt is falling relative to the size of the economy. I also acknowledge that we are at a time of very low interest rates which certainly will not continue indefinitely. Therefore the cost of servicing the national debt could well rise over time.
When it comes to how we measure capital investment relative to the fiscal rules, the smoothing effect under the European Union rules, spreading it out over four years, is not adequate. Companies that make investments do not account for it just over a four-year period. If we make an investment in infrastructure we derive the benefits from that investment over a longer period of time. The Government should raise that issue with the European Commission to account more properly for capital investment and to match how we account for it with how the economy benefits from that investment.
I call Deputy Pearse Doherty on the same issue.
The issue of the treatment of one-off proceeds is crucial, particularly with the decision to wind down NAMA. As the Government in recent years has scrambled for off-balance vehicles, NAMA can create some of the solutions. A social clause was built into the NAMA legislation but never really utilised. The idea that any NAMA surplus would be used to pay down debt at a time of severe crisis, particularly in housing, is just not acceptable. There are other imaginative ways. Instead of looking at a cash surplus, we should be looking at a housing stock surplus. There should be a bit of imagination within the Department of Finance to look at using the expected surplus from NAMA and ensure it delivers a social benefit to the people. I ask the Minister to come with proposed solutions to ensure that the expected surplus can be used in that form.
There is ample imagination in the Department of Finance when it comes to dealing with these kinds of matters. That is why this morning the Cabinet agreed to move forward with the concept of House Building Finance Ireland, which will have personnel from NAMA but will not be of NAMA because we have to avoid any potential conflicts of interest. We will fund that through money that is currently residing in ISIF. We will look to ways in which we can provide good loans in good investments to underpin in turn the release of more homes in the country.
Deputy McGrath asked about the smoothing effect. We will make full use of that smoothing effect in the capital plan. I want to see us increase capital expenditure to deal with the issues we are facing. To put into context what we are doing, last year we increased capital expenditure by 9%, which is a really significant increase compared with the previous year. Over the coming years, I plan to continue with strong rates of increase to deal with all the pressures we have in our homes, schools and universities and to do that in an affordable way and without setting off a further reaction of price levels within the economy.
