Written Answers. - Cost of Loans.

Tuesday, 11 December 1990

Dáil Éireann Debate
Vol. 403 No. 8

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  22.  Mr. J. Bruton  Information on John Bruton  Zoom on John Bruton   asked the Minister for Finance  Information on Albert Reynolds  Zoom on Albert Reynolds   the reason the estimated cost to the Exchequer of section 84 loans has doubled since 1984.

Minister for Finance (Mr. A. Reynolds): Information on Albert Reynolds  Zoom on Albert Reynolds  According to estimates prepared by the Revenue Commissioners, the gross cost to the Exchequer of domestic-sourced section 84 loans almost doubled from a figure of £69 million for 1984 to a figure of £128 million in 1989. However, the net cost after taking into account the yield from the levy on section 84 loan interest, which was introduced in 1986, is estimated to have risen by only 49 per cent from 1984 to £103 million in 1989.

It would appear that the two main factors responsible for the increased cost are the increase in the volume of such loans between 1984 and 1989 and the use in recent years of high coupon section 84 loans. The increased tax loss arises because both these factors result in the bank concerned receiving a much higher amount of tax-free interest from the borrower and having much higher funding costs for off-setting against its taxable income from other lending.

As the Deputy is no doubt aware, measures were taken in the 1989 and 1990 Finance Acts to restrict the growth of section 84 lending, the principal features of which were to impose ceilings on the volume of section 84 loans which could be made by existing section 84 lenders. As the figures quoted above for 1989 relate to accounting periods ending not later than 31 March 1989, they do not reflect the effect of the measures in the 1989 or 1990 Finance Acts.

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