Written Answers Nos. 1-76
69. Deputy Bernard J. Durkan asked the Minister for Finance when he will introduce statutory rules appertaining to the code of conduct applicable to primary and secondary lenders or their agents (details supplied); and if he will make a statement on the matter. [13650/18]
Amharc ar fhreagraAs the Deputy will be aware, within 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 (CCMA) forms part of the Central Bank’s Consumer Protection Framework. It is a statutory Code, issued under Section 117 of the Central Bank Act, 1989.
The CCMA is a lengthy document which has evolved to reflect the changing times and situations which have arisen in the area of consumer protection. For example, an Addendum to the CCMA was published to take account of the Consumer Protection (Regulation of Credit Servicing Firms) Act 2015 which stated that with effect from 8 July 2015, credit servicing firms, as defined in the 2015 Act, must apply for authorisation to the Central Bank and that the CCMA 2013 would apply to these firms. The great benefit of the CCMA not being a piece of primary legislation is that it can be amended relatively quickly to respond to changing events, pursuant to Section 117 of the Central Bank Act, 1989, while still remaining statutory.
The CCMA is aimed specifically at the process to be followed by relevant firms, to ensure borrowers in arrears or pre-arrears in respect of a mortgage loan secured on a primary residence are treated in a timely, transparent and fair manner. A key element of the Central Bank’s role is ensuring that the consumer protection regulatory framework is fit for purpose so that consumers best interests are protected. To this end, I have also asked the Central Bank to carry out a review of the CCMA to ensure it remains as effective as possible and for the review to be completed as soon as possible.
70. Deputy Pearse Doherty asked the Minister for Finance if the Central Bank will review its principles for redress and compensation under the tracker examination to reflect the fact that many consumers have employed financial advisers and that this extra cost should be reflected in their awards. [13655/18]
Amharc ar fhreagraThe Central Bank’s Tracker Examination is focused on ensuring that lenders provide fair outcomes for all customers impacted by tracker related failings. As part of the Examination framework, where customer detriment has been identified, the Central Bank has clearly articulated its expectations of lenders to provide appropriate redress and compensation to impacted customers in line with its prescribed Principles for Redress. The provision of redress is intended to return impacted customers to the position that they would have been in had the relevant issue not arisen and the compensation, which is to be reasonable, must reflect the detriment involved arising from and/or associated with being on an incorrect rate. Such compensation is to reflect the specific circumstances of each impacted customer.
The Central Bank’s Principles for Redress also set out that the lender is to provide impacted customers with an additional payment to allow them to take independent legal or other professional advice regarding the redress and compensation offers made to them. This additional payment is to be commensurate with the complexity of the advice required by the impacted customer depending on the individual circumstances of the impacted customer’s case.
Another important part of the Examination Framework is the requirement for lenders to establish independent Appeals Panels, specifically to deal with customers who are not satisfied with any aspect of the redress and compensation offers that they receive from lenders. The appeals process is additional to the options of bringing a complaint to the Financial Services and Pensions Ombudsman or initiating court proceedings. Importantly customers can also accept the redress and compensation offered and still make an appeal to the independent appeals panels. Customers’ rights to make appeals to the Financial Services and Pensions Ombudsman and through the courts are also preserved.
71. Deputy Michael McGrath asked the Minister for Finance the steps he is taking or plans to take to create a new strategy for the growth and development of the credit unions; and if he will make a statement on the matter. [13646/18]
Amharc ar fhreagraThe Government has a clear policy to support the strategic growth and development of credit unions delivering the comprehensive recommendations set out in the Commission on Credit Unions Report and the Credit Union Advisory Committee (CUAC) report in 2016, both of which involved extensive stakeholder engagement. CUAC remains an important advisor to me on strategic issues facing the sector.
An Implementation Group which is working to implement the seven recommendations of the CUAC report has submitted papers on long-term lending and consultation and engagement to the Central Bank and is currently drafting a paper on Tiered Regulation.
While there are challenges to returns arising from the low yield environment and low loan to asset ratios, the sector continues to show signs of improvement reflected in growth in new lending, delivering c 35% of all unsecured consumer lending in 2017, a decrease in the level of reported arrears and an increase in reserves. Total assets have increased consistently for many years and currently stand at approximately €16.8 billion.
There are other areas where support has been provided including the establishment of the Credit Union Restructuring Board (ReBo) and the availability of €250 million for voluntary restructuring of credit unions facilitated by ReBo which oversaw 82 restructuring projects involving 156 credit unions during its lifetime. These newly merged credit unions are now better positioned to harness the efficiencies of their increased scale to prudently develop products and services that their members are looking for now, and into the future.
In addition revised regulations for credit unions commenced on 1st March 2018 which make changes to the investment and liquidity requirements and allow for greater diversification of investment income, including provision for up to €700 million investment in Tier 3 Approved Housing Bodies.
This Government recognises the important role of credit unions as a volunteer co-operative movement and its priorities remain the protection of members' savings, the financial stability of credit unions and the sector overall. The Government is determined to continue to support a strengthened and growing credit union movement. Credit unions are member owned and it is these members, with support from their representative bodies, who ultimately are responsible for setting and implementing their own individual strategic plans, with appropriate support from Government, which reflect the diverse nature of credit unions be they urban or rural, large or small, industrial or community.
72. Deputy Michael McGrath asked the Minister for Finance if he will request the Central Bank to compile up to date data on the number and value of SME and farm loans held by unregulated loan owners; if the Central Bank can compile such data; and if he will make a statement on the matter. [13644/18]
Amharc ar fhreagraI have been informed by the Central Bank that it does not routinely publish specific data on entities who are not regulated by the Central Bank and it is therefore not possible to provide the numbers requested by the Deputy.
I would however refer the Deputy to the Report on Mortgage Arrears which the Central Bank provided to the Minister for Finance in June 2016. The report is available on the department’s website and provides details of the total number of loans/value of loans owned by unregulated entities as at the end of June 2016.
Loans can be sold by regulated entities to entities that are not regulated by the Central Bank. In July 2015, the Consumer Protection (Regulation of Credit Servicing) Act 2015 (“the 2015 Act”) was introduced to fill the consumer protection gap where loans are sold by the original lender to an unregulated firm.
I should also refer to the Deputy’s Private Members’ Bill which was discussed in the Dáil on 6 March and which seeks to increase consumer protections when loans are sold by requiring the regulation of loan owners by the Central Bank.
The Government has committed to supporting the passage of this legislation and my officials are actively working to resolve the drafting challenges presented by the legislation in its current form. I understand that a meeting will be held with the Deputy this week.
Under the 2015 Act, if the firm which bought loans from the original lender is an unregulated firm, then the loans must be serviced by a ‘credit servicing firm’. Credit Servicing Firms are required to obtain authorisation from the Central Bank in order to conduct credit servicing activities as defined in the 2015 Act.
Credit servicing firms must act in accordance with the requirements of Irish financial services law that applies to ‘regulated financial service providers’. This ensures that consumers, whose loans are sold to another firm, maintain the same regulatory protections that they had prior to the sale, including under the various statutory Codes of Conduct issued by the Central Bank including the SME Regulations 2015.
73. Deputy Dara Calleary asked the Minister for Finance the fiscal rules surrounding the expected surplus from NAMA; if it will be considered a financial transaction; if it will be possible to utilise the proceeds for expenditure without impact on the expenditure benchmark; and if he will make a statement on the matter. [13128/18]
Amharc ar fhreagraNAMA 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 per cent of GDP 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; this is the equivalent of over €40,000 for every man, woman and child in the State.
My priority, therefore, is to use revenue windfalls 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 the stance of budgetary policy reflects this - I will not adopt pro-cyclical policies that endanger our recovery.
NAMA currently projects a surplus in the region of €3bn to be returned to the State once it completes its work. Surplus funds may only be returned to the Central Fund once NAMA's senior and subordinated debt has been redeemed in full. NAMA announced in October 2017 that it had redeemed all of its €30.2bn in senior debt, which was guaranteed by the State, but €1.6bn of subordinated debt is still outstanding.
In order to keep the activities of NAMA off-balance sheet, a special purpose vehicle or SPV was established and it holds the debt. The State owns 49% of the SPV, through another entity called NAMA, with the other 51% privately owned. From a statistical perspective, once the senior debt, subordinated debt, and private investors have been repaid then the State would be the sole shareholder and the NAMA SPV would then become classified into the general government sector, having no effect on the general government balance. This is expected to occur in 2020 and at that point in time NAMA will have no debt.
Under the European System of Accounts 2010, any NAMA surplus paid to the Exchequer will be considered a financial transaction. So while it will be Exchequer positive, it will not impact the general government balance. Therefore any resulting expenditure will worsen both the general government and the structural balances. Whether such expenditure would be compatible with the limits set by the expenditure benchmark can only be determined under the conditions that prevail at the time.
74. Deputy Thomas P. Broughan asked the Minister for Finance his strategy on the EU Commission's proposals to tax digital revenues in each country of the EU; and if he will make a statement on the matter. [13626/18]
Amharc ar fhreagra121. Deputy Jan O'Sullivan asked the Minister for Finance his views on digital taxation in particular current developments in the EU; and if he will make a statement on the matter. [13621/18]
Amharc ar fhreagraI propose to take Questions Nos. 74 and 121 together.
On Wednesday 21 March last the European Commission published detailed proposal for two different Directives on taxation and digitalisation.
The proposals have been prepared by the Commission with limited input from Member States and we will need to study them in detail. The proposals will now be debated, discussed and amended by Member States working together in Council. Unanimity between all Member States would be required before either or both proposals can be agreed.
It is noteworthy that the recent OECD Interim Report on Tax Challenges arising from Digitalisation shows that a lot more work needed before a global consensus can be reached on the issue of tax and digitalisation. Ireland's support for reaching globally agreed solutions on tax issues is well known and longstanding. We have fully supported efforts at EU level to implement globally agreed BEPS recommendations but we have always been more cautious where the Commission have sought to rewrite international tax rules in a manner that moves away from the global consensus.
We believe any policy approaches must focus on value creation – tax should be paid where value is created, not simply where a transaction happens. Given minimum global tax introduced after US tax reform, the debate is not about “fair tax” – it is only about where tax is paid.
The OECD report did not make a recommendation on the introduction of short term measures because there clearly was no consensus on the merit or need for such action given the risks and adverse consequences that can arise following their introduction.
Further efforts should now be directed at delivering the analysis and evidence needed to achieve a globally agreed, evidence based solution, sustainable in the long run and focussed on aligning taxing rights with the location of real substantive value creating activity. It has long been our position that it has been the mis-match arising from different tax systems which has facilitated aggressive tax planning and the only sustainable way to address this is for countries to cooperate globally through the OECD.
Ireland will continue to actively engage with work in the area of the digital economy at both OECD and EU level. We have been a strong voice in the many tax directives that have been agreed at EU level in recent years and we look forward to critically assessing the Commission’s proposals in the context of the discussions at Council.
75. Deputy Pearse Doherty asked the Minister for Finance if he will reverse the decision by the previous Government to allow bailed out banks carry forward 100% of losses for two decades in some cases. [13656/18]
Amharc ar fhreagraLoss relief for corporation tax is a long standing feature of the Irish Corporate Tax system and is a standard feature of all other OECD corporate tax systems. It allows for losses incurred in the course of business to be accounted for when calculating a business’ tax liabilities.
Section 396C of the TCA 1997 previously restricted losses for NAMA participating institutions to offset losses against 50% of taxable profits in a given year. At the time of its introduction the Government had limited involvement in the banking system. However, by Finance Bill 2013, this measure was considered to have outlasted its initial purpose. Due to the State’s substantial holdings in the banking sector (99.8% AIB and 15% of BOI at the time) it was deemed to be acting against the State’s interests.
Section 396C was repealed to:
- Reduce the State’s role as a ‘backstop’ provider of capital.
- Protect the existing value of the State’s equity and debt investments.
With the removal of Section 396C, AIB and BOI were restored to the same position as other Irish corporates including other Irish banks which effectively levelled the playing field.
To recognise the part that the banks played in the financial crisis, in 2013, the Government decided that the banking sector should make an annual contribution of approximately €150 million to the Exchequer for the period from 2014 to 2016. In Budget 2017, the payment of this levy was extended until 2021. It is anticipated that the bank levy could be expected to raise €750 million over five years.
As I have previously stated, I do not intend to change how tax losses are currently taxed for Irish banks, including those that were bailed out by the State, as I believe there could be consequences that would make it difficult for me to fulfil other objectives in respect of the Irish banking system. Concerns I have in making such changes include:
- A weakened capital position for each of the banks that we have an investment in.
- The valuation of our investments are likely to be materially impacted.
- Damage to our credibility in international markets
I would also note recent media reports regarding proposals to recommend legislation that would limit the use of tax losses in banks to a ten-year period. At the time local stockbrokers estimated that such a change would have a material negative impact on the value of both AIB and PTSB of 3% and 8% respectively which equates to a combined reduction in the value of the State’s holding in the two banks of over €300m.
76. Deputy Bernard J. Durkan asked the Minister for Finance the degree to which he is satisfied that the targets already identified for 2018 and thereafter in the context of Project Ireland 2040 are achievable and that the resultant economic benefit will accrue as anticipated; and if he will make a statement on the matter. [13648/18]
Amharc ar fhreagraAs part of Budget 2018, my Department forecast real GDP growth of 3.5 per cent this year. The labour market should benefit from this, with employment growth of 2.3 per cent expected this year. Strong employment growth is set to further reduce the unemployment rate, to around 5 ½ per cent by the end of this year.
Recent economic indicators have generally been positive and are consistent with a continuation of strong growth in the economy. My Department will publish updated economic forecasts as part of the 2018 Stability Programme Update in April.
While the short-term outlook is positive, there are a number of risks at present both internationally and domestically. Externally, the principal risk is the impact of Brexit. However the policy stance in the US, in relation to both trade and taxation, is also a key source of uncertainty. Domestically, competitiveness, housing supply pressures and the potential of overheating are among the significant risks we face.
The best way to mitigate such risks is to improve the resilience of the economy. The Government will play its part by continuing to implement competitiveness-oriented policies – including those that address bottlenecks – and ensuring that the public finances continue to be managed in a prudent fashion.
Such policies will have an important role to play if the strategic outcomes identified as part of the Project Ireland 2040 are to be achieved.
