Thursday, 26 March 2009
Dáil Eireann Debate
1. Deputy Richard Bruton asked the Minister for Finance the borrowing targets for the emergency budget; if the decision that 9.5% borrowing must be met is still in place; and the information that he will publish in advance to allow Dáil Éireann make the optimal choice in the budget. [12765/09]
Minister for Finance (Deputy Brian Lenihan): The restoration of Ireland’s public finances to a stable and sustainable footing presents a significant challenge, but one the Government is determined to meet. Already steps have been taken to meet this challenge but the deterioration in the domestic and international economy has demonstrated that there remains a need for further action.
Many countries are facing challenging budgetary positions. This week the European Commission, when opening the excessive deficit procedure for Ireland, also did so for Greece, Spain and France, while the UK and Hungary have had a procedure open for some time now. I have already stated current indications are that economic activity in Ireland will be very weak this year and the publication of today’s annual growth figures for last year underlines this point.
Lower levels of economic activity will obviously have implications for future tax revenue receipts and, consequently, the borrowing requirement. Internationally, the latest prediction by the IMF forecasts that global economic activity will contract by between 0.5% and 1% this year. This would be the first decline in activity in 60 years. For advanced countries, which constitute a large part of our export markets, GDP this year is projected to decline by over 3%
Our position as a small, open economy means that we attract a high degree of international attention, particularly from the markets on which we are increasingly dependent for borrowing because of our budgetary position. These markets need to have confidence that we will take the necessary budgetary measures to restore the public finances to a sustainable footing. We cannot look outward for solutions. The primary source of our recovery must be found from within. We will have to adjust our cost base, improve our competitiveness, restore order to the public finances and revitalise the Irish economy.
The addendum to the stability programme update, published on 9 January last, forecast total tax receipts in 2009 of approximately €37 billion. However, in light of the continuing weakness in the Exchequer returns, my Department now anticipates that there could be a shortfall of up to €3 billion on this figure. This would mean that only €34 billion in tax receipts would be collected in 2009, representing a year on year decline of over 16%.
In light of this, the Government decided to announce further measures to stabilise the budgetary situation. This will involve the introduction of additional taxation and expenditure measures in 2009 to address the continued deterioration in the public finances. The supplementary budget will be presented to the Dáil on 7 April and will set out a multi-annual plan to restore stability to the public finances. The scale of the challenge we face means that all options must now be on the table, including action on both current and capital expenditure, as well as revenue raising measures.
The Government has already taken significant action to restore stability to the public finances and the supplementary budget will continue this process. Taking action now will ensure that confidence in our public finances can be restored and that we are positioned to take advantage of a recovery in the international situation when it occurs.
As the Taoiseach stated yesterday, in formulating the supplementary budget in the context of what is best for the economy, the Government will seek to be as close as possible to the general Government deficit target of 9.5% of GDP. Regarding the details of what will be presented in the supplementary budget, it is not the usual practice to speculate in advance on the content of any budget and I do not propose to deviate from this practice now.
However, the Government has sought to engage all parties in our efforts to address the difficulties in the public finances. With this in mind I have made my Department available to the Opposition on an unprecedented scale by arranging for officials to brief the main Opposition spokespersons on the latest available figures and on the emerging position. The Opposition has also been asked to submit any proposals it may have to the Department of Finance for costing by officials. I am open to considering what further information that can be made available can be put into the public domain in advance of the supplementary budget.
In that context, I have noted that during this week’s pre-budget debate Deputy Bruton outlined proposals on dealing with the structural deficit. I believe that there is some common ground between us and I would be happy to engage further with him in the next week.
Deputy Richard Bruton: Are the Government’s commitments to the EU couched in terms of the budget deficit or what is commonly known as the structural deficit, which makes allowances for the stage of the business cycle one is at? What information has changed which led the Taoiseach to withdraw from the commitment he was very categorical about in early March that 9.5% of GDP would be the borrowing target?
Will the Minister give the House more information than we have seen to date so that we can have an intelligent discussion about the options that face us? Will we see what happened on the last occasion, where the Minister came in with budgetary announcements and promptly had to do U-turns on many of them because they had not been subject to proper scrutiny or teased out?
Deputy Brian Lenihan: The Government sought to engage all parties in the effort to address the difficulties in the public finances. With this in mind, I have made my Department available to the Opposition on an unprecedented scale by arranging for officials to brief the main Opposition spokespersons on the latest available figures and on the emerging position.
I am not briefed on the content of the briefings my officials give the Opposition parties. By convention, I am not made aware of what has been discussed by Deputy Bruton and my Department and I can assure him I have every confidence in the protocols it follows that it provides him with all the information it can regarding these matters.
The Deputy has only to request the information he seeks from my Department and it will be made available to him. The one item which cannot be disclosed to him relate to the preparations for the Government itself because the Government, under the Constitution, is entitled to confidentiality in the exercise of its deliberations. I do not know if the Deputy has made such a request because my Department does not disclose to me what its discussions with him have been. My Department cannot disclose materials to the Deputy which have been prepared for the consideration of the Government in the assessment of the options open to it.
Deputy Richard Bruton: Who does the Minister think he is fooling? He knows as well as I do that the so-called deliberative process is excluded from all of the rest of the House. His officials would throw a complete blanket over anything under discussion. Any of the options from an bord snip nua and any of the tax options will be excluded and we will not get any information.
I wrote to the Minister on 13 March and have had no reply to any of my requests for information. The notion that we are being brought in to engage in an intelligent debate is entirely spurious. We can go to the Department to get proposals costed, as we could in a general election. That is nothing. It does not tell us anything about the state of the economy. It does not give us the Minister’s revised forecasts for tax, the economy or spending projections. It does not tell us about the costs of different proposals which have been developed by Mr. McCarthy and his colleagues.
Deputy Brian Lenihan: I have arranged for the Deputy to meet with myself and an official today so that information, in so far as it can be provided, will be provided. I am prepared to engage with him on a political basis regarding matters which cannot be disclosed by my officials. I cannot go beyond that at this stage. I received the Deputy’s letter earlier this week, I have been considering it and have arranged a meeting. I will endeavour to meet him and the Labour Party spokesperson, from whom I received a letter dated 23 March today, on the same basis. That is as far as I can progress this matter.
The Deputy mentioned in the House the day before yesterday the fact that in his estimation the structural deficit accounted for approximately 8% of the total borrowing requirement this year and that was the position in January. My Department is revising that estimate. None of these calculations stand still, as the Deputy, who is an economist, well knows. The calculations made in December are not relevant in April. The commitments made in the addendum in early January were based on a December analysis which, in light of the economic deterioration and the worsening economic conditions, no longer holds for today.
The science of economics is much like the science of meteorology. One is predicting future weather patterns. The patterns have changed since the addendum for growth was produced. Even this morning the disclosure that there was substantial economic decline in the latter part of last years changes our assessment of a number of positions, as the Deputy is well aware. I am willing to discuss these matters with him and I am also willing to provide from within my Department the information which will enable him to make choices and options. I am prepared to discuss any choices or options he wishes to put to me.
2. Deputy Joan Burton asked the Minister for Finance if he will set out and explain the economic priorities he identified to a newspaper (details supplied) including his proposal to clamp down on crony capitalism as reported on 17 March 2009; and if he will make a statement on the matter. [12684/09]
Deputy Brian Lenihan: As regards economic priorities, there has been extensive discussion in the House of all aspects of the economic position. In my interviews with the media over the St Patrick’s Day period I did not say anything that I have not said before. As Deputies will know, Ireland has been the subject of much unfavourable comment in some foreign media and my concern was to counteract that by presenting a more balanced view of the Irish economy.
Regarding corporate governance, I explained my belief that the Government should tackle the issue of cross-directorships in financial institutions. By that I mean that situations where there appears to be a reciprocal distribution of directorships between companies, albeit not on a formalised basis, should be appropriately restricted and controlled to ensure that good corporate governance is not prejudiced. I also indicated a concern about the ability of financial institutions to select, as chairpersons, individuals who have had extensive executive responsibilities within the same institution. Again, this could lead to weaker governance and should be controlled.
I will be discussing the development of these ideas and how best they can be translated into practice with my Cabinet colleagues shortly. The Government will also, of course, be considering how these issues may be relevant beyond the financial services sector. These are important issues and require careful study.
In the meantime the Government has considered provisions to deal with certain specific things that have come to light, including new requirements in relation to loans to directors and connected persons. However I believe it is also necessary to consider the issue of corporate governance from a wider perspective.
I would favour a review to be carried out by the Company Law Review Group which would consider the revision of the existing combined code on corporate governance. Deputies might wish to note that the UK recently announced an independent review of bank corporate governance including the balance of skills, experience and independence required on boards, the effectiveness of board practices and the role of institutional shareholders in engaging effectively with companies and monitoring of boards.
Deputy Joan Burton: I thank the Minister for his reply. A front-page article in the international edition of the Financial Times on St. Patrick’s Day — exactly a year after the St. Patrick’s Day massacre in regard to Anglo Irish Bank shares — stated that Ireland is planning to introduce tough legislation to clamp down on “crony capitalism and excess bank lending” in the wake of the property bubble that has “hammered” its leading banks. The article refers to a statement by the Minister, Deputy Brian Lenihan, that there is a problem in all small countries in that there are “too many incestuous relationships” within their financial systems. This is an extraordinary statement for a Minister for Finance to make about his country’s banks.
Would the Minister include in his definition of “incestuous relationships” the relationship of Mr. Seán FitzPatrick to the Irish Nationwide Building Society in regard to the warehousing of loans of €122 million? Would he include in this definition a situation where the board of the Irish Nationwide Building Society, even after it had been guaranteed by the taxpayer to the tune of billions of euro, paid out a bonus of €1 million to its chief executive officer and persisted with pension arrangements for this individual which appear to amount to some €27 million? We should bear in mind that one quarter of this pension will be tax free and that most of the pension arrangements involve further mitigation of tax, particularly in regard to estate duty taxes and inheritance taxes.
Deputy Brian Lenihan: I have a particular concern that large companies — particularly banks, for which I bear ministerial responsibility — are overly reliant on a small circle of persons for appointments to their boards. It is important, in the long-term interest of the companies themselves and in the interest of the public and stakeholders, that there should be an opportunity for new voices to be heard and fresh thinking to be deployed. Where a relatively small group is meeting and working together over time, an accepted way of working and viewing issues tends to become established. Many of us could produce examples from different areas of life where it was a newcomer or outsider who first identified something that was missed by all the insiders.
Clearly, in a relatively small company, the number of suitable people for promotion to senior positions will be always limited. However, I am of the view that we must do more to encourage boards to bring in those with a wider range of views and backgrounds. I am also of the view that alignments between bank directors and other companies — in other words, cross-directorships — are not helpful to the proper management of the banking system. That is why I have raised this specific issue. It is one of the lessons we must learn from the events we have witnessed in the past year.
The circumstances of the loan between Mr. FitzPatrick and the Irish Nationwide Building Society are under investigation by the regulator. We must await its report, which I have no doubt will establish the facts, as it has established the facts in regard to other matters. In regard to Mr. Fingleton’s pension arrangement and the payment to him of a bonus, we must distinguish between the two transactions. My Department is in correspondence with the Irish Nationwide Building Society on the matter of the bonus payment. I have also asked for further information about it. It seems the bonus arrangement was sanctioned before the guarantee was given but paid afterward. I want to be in a position to assess my options in regard to that bonus payment to see whether it can be recovered, first by the society itself, or, in the absence of a power in the society to do so, what options are available to me as Minister to deal with it on foot of the guarantee arrangement.
In regard to the pension fund, again, the full facts will have to be established. From the limited information available to me on the basis of such conversations as I have had with the two directors appointed at my request to the board of the Irish Nationwide Building Society, the value of the amount transferred into the pension fund in the first instance is substantially less than the figures quoted. The current value of the pension fund has substantially diminished with changes in stock values. That being said, this matter requires further examination and establishment of the facts before further assessment can be made of the options open to the institution and, in default of such an option, the options available to me as Minister for Finance.
Deputy Joan Burton: Does the Minister not agree that the best way to break up an incestuous relationship is to get rid of some of the parties to the relationship? Does the Minister accept that he has shown himself to be extraordinarily slow in bringing about change in the bank boards and that such change is a critical measure in terms of showing international bond holders that we are serious about bank reform?
The Minister introduced the legislation guaranteeing the financial institutions at the end of September. Since then there has been much talk from both the Minister and the Taoiseach about due diligence. Some of us have even begun to believe it is a person. Where was the due diligence when it came to discovering that this chief executive officer and others had accumulated extraordinary entitlements at a time when they were coming cap in hand to the Minister, on behalf of the taxpayer, to bail out their institutions? Why did “due diligence” not step into the frame, from wherever she was, to point out that this guarantee arrangement is subject to an oversight, which is a common arrangement in business deals? Did the Minister have the benefit of legal advisers when he offered the guarantee and left himself absolutely naked in regard to the rights — very expensive rights from a taxpayer’s point of view — that were accumulated by the chief executive officers and board members not only of the Irish Nationwide Building Society but also of Anglo Irish Bank?
Deputy Brian Lenihan: I refute the Deputy’s assertion that there has been little change in the management of the six institutions which were guaranteed as and from 30 September 2008. In the less than six-month period since then, there has been a change of chairman or chief executive officer, or both, in five of those institutions. There have been substantial changes in the board of Anglo Irish Bank. This represents a significant amount of change in the leadership personnel of the six institutions in the period since the guarantee was given.
Deputy Brian Lenihan: I am not willing to get into personalities on the floor of the House. I am making the point that there has been substantial change in the board management structure of five of the six institutions since the guarantee was given. The Attorney General, the legal adviser to the Government under the Constitution, was present throughout the discussions on the guarantee. Lest there be further misrepresentation of my position, let it be clear that neither the chief executive officer of the Irish Nationwide Building Society nor the then chairman of Anglo Irish Bank made any representations to me whatsoever in connection with the guarantee.
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