Address by Paschal Donohoe T.D.,

Minister for Finance and Public Expenditure and Reform,

Peterson Institute for International Economics

Washington DC, 11 December 2018

 

Check against delivery

Ladies and gentlemen,

It is a pleasure to be back in Washington, and to be here this morning, at the Peterson Institute for International Economics.

 

Institutes and think tanks such as this play an important role as forums for analysis, discussion and debate on the themes that shape the global economy.

As a policy maker, I recognise the vital contribution that independent analysis and commentary provides.

 

The Institute’s capacity to gather such a broad range of expertise over the years is why it has been able to maintain itself as such an important voice in American and global debates.

 

And, indeed, why you have been voted the best economic think tank in North America for the past three years. 

 

Before we begin, I would like to pay tribute to the memory of the late President George H. W. Bush, and the important contribution he made to ending the Cold War and the division of Europe.

 

Because ending this division made possible the united Europe of freedom and security that we enjoy today.

When the Berlin Wall fell, President Bush imagined a new world order taking its place, ‘a world where the rule of law supplants the role of the jungle; a world in which nations recognise their shared responsibility for freedom and justice; a world where the strong respect the rights of the weak.’

 

This vision of a world order based on the rule of law, backed by strong global institutions, has been a defining characteristic of how we in Ireland, a small country, outward-looking and open to the world, believe the international order should be arranged.

 

And central to our vision is a strong transatlantic relationship, in which Europe and the United States work together to uphold shared values and principles, and to promote prosperity and well-being for our people.

 

So this morning, I want to speak of that transatlantic relationship, its past and present.

 

And I want to look to the future.

 

To the role Ireland might play, post Brexit, in bridging the Atlantic.

 

A Modern Ireland-US Relationship

 

In the weeks leading up to this visit I have enjoyed ‘Capitalism in America’ by Alan Greenspan and Adrian Wooldridge. It charts the history of your economy.

 

The first chapter, ‘A Commercial Republic’ describes the catalysts of economic transformation between 1776 and 1860. It identifies the laying of the first transatlantic cable on 28th July 1866 as a key moment, creating integrated transatlantic financial markets. It neglects to mention that the departure of the vessel that began this project was from Valentia Island, off the West Coast of Ireland.

 

So, from the very first transatlantic cables to the passenger liners of the early twentieth century, to the busy air routes above our skies today, the Atlantic Ocean has been a highway between Ireland and the United States, carrying people, goods, hopes and ideas.

 

Ours is a shared history of connections.

 

Of family ties built over generations.

 

Of political ties, built on values and beliefs held in common.

 

Of countless business, cultural, academic, and sporting ties.

 

These bonds of friendship and cooperation that cross the Atlantic have helped shape the Ireland in which I grew up, and the Ireland of today.

 

The United States made a central contribution to the search for peace in Northern Ireland, through the leadership, support and encouragement shown by US Presidents and politicians, including of course, Senator George Mitchell and many others.

We remain thankful for the achievement of the Good Friday Agreement.

In the twenty years since it was signed, it has provided the basis for peace, stability, reconciliation and cooperation on the island of Ireland.

 

It also created a new opening in relations between Ireland and the United Kingdom.

 

I will say a few words about this in a moment.

 

But for now I want to talk about the contribution the United States has made to development of the Irish economy.

 

I was nine years old when President Ronald Reagan visited Ireland in 1984. In an address to our Parliament, the President celebrated the fact that 300 American firms had invested there, employing some 40,000 people.

 

Three decades later, the number of US companies Ireland hosts has more than doubled, while the employment they create has increased fourfold – a reflection of the substance underlying investment. 

 

Why have US firms built such a strong presence in Ireland?

 

No single reason, but many.

 

A common law, a common language and a connected culture, reflected in the 33 million Americans who claim Irish heritage.

A pro-business environment, underpinned by a tax code which is not only competitive in rate, but – more importantly – stable, simple and transparent in function.

 

A talented labour force, with Europe’s youngest population and one of its best educated.  

 

And linked to this – most critically, I believe – an openness.

Not just to investment, but to people. 

 

When we joined the European Union in 1973, less than 5% of Ireland’s population was born overseas.

 

Today, that number is 17%.

 

Our workforce is the third most international in Europe.

 

We’ve come to recognise, I think, that our nation’s greatest strength is the strength of our welcome.

 

That ‘cead míle fáilte’ – one hundred thousand welcomes – is more than a common Irish greeting. It’s a national creed. 

 

That while we are an island people, we are the very opposite of insular.

And that far from being on the periphery of Europe, we are at the centre of the transatlantic economy.

Combined with access to the world’s largest single market of 500 million consumers, it’s this attribute, above any other, that has made Ireland a natural home for US investment.

 

A Two-Way Street

 

At the same time, Ireland is investing in the US.

 

Because in the 21st century, transatlantic trade and investment is not a one way flow. It’s a two way street.

 

According to the US Bureau of Economic Analysis, Ireland’s investment in the US totalled $147.8 billion dollars last year; a stake in the US economy larger than countries many times our size.

 

More than 500 Irish companies have facilities here.

 

What do these firms do?

 

They build American homes – from CRH / Oldcastle, this continent’s largest asphalt producer; to Kingspan, a market leader in advanced insulation, Irish firms are at the cutting edge of US construction.

 

They save American lives – Aerogen’s revolutionary aerosol delivery system, developed in Galway, has improved health outcomes for more than 2.5 million Americans. Icon’s award winning research and development services have led to the approval of 18 of the world’s 20 best-selling drugs. 

They sustain Americans – whether in the form of Kerrygold, America’s third largest butter brand; McCann’s, one of its favourite imported cereals; or the advanced nutrition products of Kerry, Glanbia and others.

 

And, of course, they employ Americans.

 

Over 100,000 to be exact. Across all fifty states of the Union.

 

The success of our companies abroad is rooted in the health of our economy at home.

 

From a point of crisis, our country has made remarkable progress over the past few years: rebalancing our public finances; restoring our competiveness; returning to near full employment.

 

This year, our economy is forecast to grow by 7.5%, on the back of 7.2% last year.

 

We look forward to growth of 4.5% in 2019.

 

Our unemployment rate is down to 5.5%.

 

We have come a long way, through hard work and commitment.

 

We are committed to continuing this work, to provide the greatest opportunity for our people to realise their ambitions and potential.

And the greatest support and protection, for those who are vulnerable in our society.   

 

But we recognise the challenges that will impact on our ability to pursue further growth, and to provide these opportunities and supports.

 

One of these, of course, is Brexit.

 

The Challenge of Brexit

 

We are at a historic moment.

 

Ireland and the UK joined the EU together, forty five years ago.

 

In the decades since then, we have grown closer, by working together as partners in the EU.

 

The United Kingdom is our closest neighbour and our friend. We are bound together by geography and by a shared history, culture, kinship and trade.

 

I deeply regret that our British friends have chosen to embark on a different path, even if, of course, I respect their decision to do so. 

 

The British Parliament has been considering the terms of the Withdrawal Agreement, and the accompanying Political Declaration on the shape of the future relationship that the UK will have with the EU after it is left.

 

There is much at stake.

 

For the United Kingdom.

 

For Ireland, the EU Member State that will be most directly affected.

 

For all of the other members of the European Union.

 

And indeed for the United States; a close and valued partner for all of us.

 

It is a weighty decision, one that I hope our British friends and partners will consider carefully.

 

Crucially for Ireland, the Withdrawal Agreement guarantees, through the backstop arrangements in the Protocol on Ireland and Northern Ireland, that there will be no hard border on the island of Ireland in any circumstances.

 

From the very beginning, protecting the Peace Process and the Good Friday Agreement – and the open border on the island of Ireland that is so central to both – has been a priority for the Irish Government.

 

We also set out to protect the Common Travel Area between Ireland and Britain; to minimise the impact on our trade, jobs and our economy; and to reaffirm our place at the heart of a strong and prosperous European Union.

 

On each of these priorities, we have reached a satisfactory outcome.

 

And equally importantly, the Withdrawal Agreement secures a transition period, during which much will remain unchanged, providing certainty to citizens and businesses.

 

Looking forward, we want to see the closest possible relationship between the UK and the EU.

 

The ambition to achieve a deep and comprehensive partnership between the EU and the UK set out in the Political Declaration is very welcome, and we will work to make this possible.

 

This is a carefully balanced agreement.

 

As with any such negotiations, there have been compromises on both sides.

 

Let me be clear. There is no scope to reopen the Withdrawal Agreement.

 

Preparing our Economy

 

We are not under any illusions about the challenges that Brexit will bring. For our economy, for businesses, for our citizens, and for the way we engage with our British friends once they have left the EU.

 

We are working hard to prepare, and to be ready for all scenarios.

 

Since the UK referendum in 2016, Brexit has been embedded in the Irish Government’s economic decision making, and in the management of our economy.

 

We have already taken important steps to prepare. 

 

And, due to the sound policies of recent years, Ireland is facing the challenge of Brexit in a robust economic position.

 

But there is no room for complacency.

 

In our budget for 2019, we have continued the overall approach of prudent financial management, to strengthen the resilience of Ireland’s economy.

 

We are working to build up our fiscal capacity, and to pay down debt, so that we have the buffers to cope with uncertainty and to weather future shocks.

 

Over the next decade, we will invest €116 billion – more than a third of our GDP – in long-term critical infrastructure, while keeping current expenditure in line with economic growth.

 

Our Government’s enterprise agencies continue to work with a wide range of companies, helping them to deal with Brexit – making them more competitive, diversifying their market exposure, and up-skilling their teams.

 

And while Brexit will pose undoubted challenges, there will be opportunities as well, and the Government will work to maximise those where possible.

We will be the only country in the EU that is an English speaking, common law jurisdiction.

 

We have a young, well-educated population and the Government continues to build a business friendly environment, for businesses large and small, foreign and domestic.

 

We will remain open to business and talent – from the United States and elsewhere.

 

Taxation

 

The world economy is increasingly interconnected and interdependent. Globalisation and the digitalisation of the economy continue apace. This presents challenges to policymakers in a number of areas.

 

But especially in the field of international taxation.

 

In a world of click bait and soundbites it is difficult to explain how some companies seem to be able to avoid paying their fair share of tax.

 

Policymakers have faced up to this challenge.

 

In this regard that I welcome the recent reforms to the US tax code. We are seeing evidence of US companies re-patriating historical profits to be taxed in the US.

I believe the changes introduced combined with the widespread implementation of the BEPS recommendations will have a major impact.

 

We in Ireland have been playing our part.

 

Ireland’s Corporate Tax Roadmap was published in September and outlines the actions Ireland has taken, and the actions that will be taken over the coming years.

 

Further to legislating for a new Exit Tax, new Controlled Foreign Company rules and the BEPS Multilateral Instrument this year, our tax administration has worked bilaterally with its counterparts in Malta to bring about an end to the so-called Single Malt scheme.

 

The agreement will mean companies will no longer be able to use the bilateral treaty to avoid tax. 

 

You may be aware that Ireland has principled objections to the EU’s proposed Digital Services Tax.

 

There is no agreement on this proposal, and negotiations are set to continue until March. We will continue to voice our principled opposition.

 

I firmly believe that a globally agreed sustainable solution to the challenges digitalisation presents is best achieved at the OECD.

 

We are working very closely with our partners at the OECD, including the US Government.

 

We share significant common ground. For instance, we both agree it is best to seek consensus on a way forward rather than countries taking unilateral action and both have faith that the OECD will deliver a solution.

 

We are like-minded in the belief that the solutions to these challenges are within the corporate income tax system rather than taxing turnover. This principle encourages investment and growth which ultimately benefits wider society.

 

It is in everyone’s interest that the ongoing work results in an international tax framework that is sustainable into the long run to provide certainty to business and to governments into the future.

 

Conclusion

 

Ladies and gentlemen,

Our EU membership has been central to the success of our small, open, trading and competitive economy. It has enhanced, not diminished, our sovereignty.

 

Only last Monday night, I sat with twenty six other European Ministers of Finance negotiating a way forward for deeper and more secure monetary union. This is an expression of sovereignty, not the erosion of it.

 

Membership of the Single Market and Customs Union is a core element of our economic strategy.

 

Access has allowed our economy to prosper and has greatly assisted in attracting business.

 

It has given us full access to EU trade agreements with other major markets and a capacity to engage in global free trade that we could not possibly have on our own.

 

I would like to see discussions progress towards a trade agreement between the United States and the EU, as I believe both our economies would stand to benefit.

 

I believe that the open, rules-based global trading system has contributed to raising living standards on both sides of the Atlantic, and throughout the world.

 

The EU is a home which we have helped build. And while there are many challenges, the Irish Government is confident that we can work together as twenty seven countries, to deal with those challenges.

 

We are committed to remaining at the heart of the EU.

 

And while Europe is our home and our closest marketplace, our horizons are broader.

 

Under a programme called ‘‘Global Ireland’’, we are leading an ambitious extension of Ireland’s international footprint.

 

This includes strengthening our embassy in Washington, and a new consulate in Los Angeles.

 

We are expanding our Development Aid programme.

 

We are campaigning for a seat on the UN Security Council in 2021.

 

We are taking these steps to position Ireland for the future, in our increasingly inter-connected and inter-dependent world.

 

A strong Ireland-US friendship within a wider partnership between the EU and the United States is an essential part of our vision.

 

In celebrated novel TransAtlantic, the Irish writer, Colum McCann, remarks on the multitude of connections and intersections – great and small – that criss-cross the ocean between us.

 

How true that is also of the great relationship between Ireland and America.

 

Hewn from the hopes, aspirations and contributions of countless women and men who have crossed our shared Atlantic to build homes and lives on each other’s side of it.

 

This rich multiplicity of connection sustains the transatlantic ties on which our shared prosperity rests.

 

Ireland will play its part to strengthen and grow these bonds of friendship so that the Atlantic continues to be a rich and vibrant highway of people, goods, hopes and ideas, binding us together. 

 

ENDS

Thursday 6th December 2018

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Speech by Minister Paschal Donohoe, TD

2018 European Investment Bank and Department of Finance “Investing for the Future” Conference

 

Good morning ladies and gentlemen.

 

You are all very welcome to today’s conference on “Investing for the Future”.

 

This event was organised by my department and the European Investment Bank and is very kindly hosted by Governor Lane and his colleagues at the Central Bank of Ireland.

 

I would like to start by welcoming EIB Vice President Andrew McDowell.

 

our own director of the EIB, Des Carville;

 

and Cormac Murphy who heads up the Dublin office.

 

President Hoyer is travelling to Ireland for this event and I am looking forward to discussing Ireland’s very successful and positive engagement with the bank with him when we meet later this evening.

 

I would also like to thank all the other officials who have travelled from the EIB’s head office in Luxembourg to be with us today and tomorrow.

 

We are now at a stage when we need to secure additional EIB funding for areas outside the traditional areas of engagement.  This is particularly true in relation to private sector engagement.

In this regard, today’s conference promises many interesting panel discussions on topics which I hope you will find interesting, engaging and topical.

 

They are relevant to you, the bank as a lender and the Government as policy priorities.

 

There are three things I hope you take away from today:

 

The first takeaway is a greater understanding of the scale and breadth of the EIB and to appreciate how it can benefit member states;

 

Secondly a greater insight into what the Government and the State are doing to assist industry in the key areas covered by the panel discussion today;

 

I will leave the third and final mystery takeaway until the very end of my address.

 

First Takeaway – Benefits of EU membership and the EIB

Let us start with reminding ourselves what the EIB is and what it represents.

 

It has been at the centre of Europe since being established by the Treaty of Rome in 1958 and it celebrated its sixtieth anniversary this year.

 

It is the world’s largest international public lending institution and has been active in Ireland for 45 years.

 

Furthermore access to its funding and expertise is one of the many benefits of our membership of the European Union.

 

Just to touch on this latter point first: In these times it is important that we acknowledge and appreciate the broad range of benefits our membership of the EU bestows.

 

And I am glad to see recent research indicates that the citizens of Europe see and appreciate how membership of the EU benefits them.

 

The most recent Eurobarometer survey of approximately. 28,000 people across 28 Member States showed that almost two thirds of citizens believed that their country benefitted from membership of the EU.

 

This is the highest score ever measured since 1983.

 

What was very notable from an Irish perspective was that this figure rose to 81% in terms of Irish respondents.

 

This was the second highest score[1] in the EU 28 and is consistent with many other polls which demonstrate that we are resolutely pro-European.

 

We have been and continue to be committed Europeans. This is never truer than the present moment given the current developments in relation to Brexit.  While we do not support the withdrawal of the UK from the EU, we do acknowledge the outcome of the Referendum and, as you know, we are working very closely with our EU and UK colleagues to ensure that the impact will be minimalised on all of our people and businesses.  Regardless of Brexit, Ireland’s future is very much in Europe and with the EU. 

 

We know that we have benefitted from EU membership in a wide variety of ways. Some of these benefits can be intangible such as the peace and stability in Europe.

 

But it is important to celebrate tangible benefits such as the EIB, which directs 90% of its activity towards EU member states.

 

The EIB is the largest multilateral financing institution in the world with a Triple A rating from the top three rating agencies.

 

To give you a sense of scale, its balance sheet had loans outstanding of over €450 billion at the end of 2017 and current lending activity is approximately €60 billion per annum.

 

It has lent over €1.3 trillion over its life.

 

Since Ireland joined the EC in 1973, the bank has supported 449 Irish projects to the tune of €17 billion.

 

Some of its first Irish projects in 1973 included companies such as Irish Sugar, IAWS, CIE and Golden Vale.

 

The largest project here to date was €490 million for the National Children’s Hospital. The economic and social impact of such support and commitment shown by the EIB to Ireland is clear.

 

The EIB Group, which is comprised of the bank and the European Investment Fund, lent just over €1bn in Ireland in 2017 and is on track to achieve a similar figure this year.   I would like to congratulate and thank everyone who was involved in helping us achieve this goal both in Ireland and in Luxembourg.  

 

Last week the EIB announced €30m investment into Dublin based biotech pioneers Nuritas.

 

You will hear some fascinating case studies throughout the day including innovative agri-tech company Devenish Nutrition.

 

These are new areas of activity for the EIB in Ireland and demonstrate the breadth of products which the bank offers.

 

President Hoyer and Vice President McDowell will be signing tomorrow a Gas Networks Ireland project and there are also other signings today and tomorrow involving renewable energy and the future BREXIT loan Guarantee scheme.

 

The range across these examples clearly shows the widening and deepening of the Ireland/EIB relationship over recent years and the level of shared imagination and ambition between us.  I look forward to further new areas for the future. 

 

Alliances are very important in Europe, especially for smaller countries such as Ireland, and the EIB is no different.

 

EU Member States are in nine shareholder groupings called constituencies. Each constituency has its own Vice President at the bank.

 

Whilst large European countries like Germany and France have their own constituencies, smaller countries are joined together into a number of group constituencies.

 

We are in a constituency along with Denmark, Romania and Greece. When you think of it, it is actually a very diverse yet a very representative group with a Nordic, an eastern country, a southern country and an island.

 

Our constituency’s right to appoint a Vice President is shared equally amongst the four countries. Currently we hold the vice-presidency, which is very capably held by Andrew McDowell who you will hear from shortly.

 

Our director, Des Carville, sits on the board,  the Risk Policy Committee and is an alternate member of two other board committees.

 

We have a dedicated team within my Department which deals with policy matters regarding the bank and supports our director and myself in my capacity as a Governor of the bank.

 

The bank opened a Dublin office, headed by Cormac Murphy, in 2016. It will relocate from Mount Street to the NTMA’s new offices on North Wall Quay next year.

 

The bank employs over 90 Irish nationals in its workforce of over 3,000 including its Head of Legal and Head of Internal Audit.

 

So our dedication to, involvement with and belief in the EIB has never been higher.

 

Second Takeaway – Government Action

 

The second takeaway, is to hopefully come away with a better understanding of what the Irish Government and State are doing through the various departments and agencies to assist industry in the key areas covered by today’s panel discussions. 

 

Housing is a top priority for this Government.

 

My colleague Minister Murphy will be talking this morning along with representatives from two new dedicated agencies created to address the housing shortage; Home Building Finance Ireland and the Land Development Agency.

 

I am delighted to have announced this morning that the legislation for Home Building Finance Ireland was signed by the President earlier this week so I expect it to commence its lending activity early in the New Year.

 

Minister Bruton will speak about his intention to make Ireland a leader in tackling climate change and the need for the private sector to play a key role in achieving this.  

 

Just before your lunch in the Central Bank’s Exhibition Centre, my colleague Minister D’Arcy will discuss Ireland’s recent Green Bond which highlights our ambitions for building a sustainable, low carbon society through sustainable finance.

 

After lunch, I am delighted to see that the Funding for Growth Panel will include representatives from the Credit Union sector, which my Department has policy responsibility for, and the SBCI as it is a body under the aegis of my Department. 

 

Finally, just before EIB President Hoyer’s closing remarks you will be joined by my colleague Minister McEntee to give you a perspective on Brexit and the EU post Brexit. 

 

So in the issues that matter to you, the Irish Government is proactive and engaged.

 

Final Takeaway – networking

The third and final takeaway really is no mystery – it is an action point.

 

Today is as much as anything a networking event. I hope you will be able to stay for the day and network over lunch, the coffee breaks and the drinks reception later.

 

This is a great opportunity to renew or make new connections with the bank through Werner, Andrew, Des and Cormac and their colleagues throughout the day.

 

Hopefully you will be better informed about the bank and what it offers and can find a way to tap into its resources for your companies or for your client companies.

 

Before I hand over to Andrew, I would just like to once again thank Governor Lane and his staff in the Central Bank for the kind use of their facilities today.

 

ENDS

 

[1] LU was highest at 85%; CZ was lowest at 34%; HR 36%; IT 39%

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Introduction
Good Afternoon ladies and gentlemen, honoured members of Chartered Accountants Ireland.

Thank you for welcoming me here today.

I would like to start off by acknowledging the success of the President of the Institute, Feargal McCormack, at the British Accountancy Awards in September.

His firm, PKF-FPM, took home no less than three awards.

For an independent Northern Ireland based firm this is a phenomenal achievement and I congratulate you and all your colleagues.

I am aware that a number of you here today are finance professionals from the public service and are members of other Accountancy Bodies such as CIPFA, CIMA and ACCA. You are most welcome.

Great Brunswick Street

Every time I have had the opportunity to walk through the gleaming, striking facade of this building I am minded to reflect on what a strong vote of confidence in the future of your organisation the redevelopment of Chartered House was.

Right here in the centre of Dublin this pioneering headquarters, education and training centre forms a bold canvas for your work in the years to come.

Indeed the ground on which we stand has a long storied strand in the grand history of our fair city.

An almanac from 1862, not long before the Chartered Accountants of Ireland was established by Royal Charter in 1888, shows that this area was a hub for a wide variety of occupations from gas light inspectors to coal merchants.

They were all important professions of the age. Key enablers for the society and economy of the time to function.

What is Accountancy in 2018?
Popular culture loves a good stereotype. A caricature of a profession and those who practise it.

The old impression of your profession sitting in their back offices, totting up figures and speaking a language that largely unintelligible– does this resonate with what accountancy is in 2018?

Standing here with you today in Chartered House, looking out onto an audience of dynamic female and male business leaders and shapers, I don’t think anything could be further from the reality.

Accounting is not some staid, Dickensian craft.

Accounting is the language of business.

At the Centre of the Economy
You are at the centre of our economy, at the crossroads of a multitude of different companies and sectors.

Your profession is endlessly dynamic, rewarding and challenging.

The accounting, auditing and other services institute members provide allow Governments, investors, shareholders, employees and citizens to see through the fog and perceive the economic reality and the opportunities within.

I have spoken before on how we lost our sense of economic reality during the Celtic Tiger.

We lost track of the fundamentals of what a successful stable economy and society should and could be.

We sacrificed transparency and real innovation for something that was not real.

Years of hard work, sacrifice and prudent decision making has us back to strong economic growth and back in control of our finances.

But we must not forget lessons we have learned the hard way.

That we cannot bet our prosperity and society on unsustainable illusions.

Accounting is the language of business and economic reality. It is the base upon which all sustainable and innovative economies are built.

You must be the vanguard of speaking this language fluently and audibly.

Of applying the many improved and reformed accountancy standards and rules which our economies and societies needed and demanded.

But more than that the institute is a key hub and incubator for a new culture of clarity, transparency and passion.

Paul Collier, the Oxford based economist writes the following of institutions in his new book ‘The Future of Capitalism’ that “institutions encapsulate the accumulated social learnings from a range of experience too vast to be known by any individual”.

This is a key role for all of you, of supporting professionals in their development for norms and standards.

Norms where diversity of thought and innovation go hand in hand.

Our regulators have spoken extensively of the importance of culture in financial services firms.

But I believe true cultural change is impossible if the practitioners and decision makers do not reflect our society.

To that end I am pleased to see the institute representing and encouraging opportunity for your female members.

One third of the governing council is female with a membership split of 60/40 male to female.

The student body is currently 51% female. This is a great indicator of the future but the systems must be put in place to allow the female leaders of tomorrow to step forward.

I am also heartened to see members of the institute as well as other accountancy bodies work and contribute to the public sector.

Indeed a number of my parliamentary colleagues are members of the institute.

Given how valuable the skillset set and perspective you possess is, I feel obliged to say what a huge contribution more of you could make to a public service which is rapidly modernising, changing and professionalising.

So if the opportunity came to serve and it worked for you please do consider it.

These are my challenges to you.

That is societies challenge to you. As an institute, as professionals and practitioners of the future.

To be leaders of transparency, diversity and innovation.

The Economy
Speaking of economic realities, thankfully ours is a much improved one.

Our economy is in good shape, the latest data confirming that the strong growth we have experienced over the last number of years has continued into the first half of 2018.

Importantly domestic demand is now making a positive contribution to growth, reflecting the rising levels of consumer spending and the sustained investment by Irish businesses.

I am proud to be able to say that the strength of our economy is nowhere more apparent than in the labour market.

Job creation has continued at a robust pace over the last number of years, as a result there are now more people in work than ever before.

Greater employment opportunities have in turn helped to reduce the unemployment rate which is now at its lowest level in a decade.

The positive economic outlook in the recent budget should support the creation of 62,000 additional jobs next year.

Whilst the unemployment rate is expected to fall to just over 5 per cent.

We should not lose sight of the profound impact this has had on our nation and our people.

Every job added is a potential job seeker back on his or her feet and participating in the real economy.

A school leaver starting to make their way in the world.

A household building a better future for itself.

Risks Remain
The strength of our economic recovery and the positive outlook for the years ahead reflect, not only the hard work we have endured as a nation but also the benefits we have enjoyed as a small open economy.

However our openness also means that we are particularly exposed to a number of risks in the years ahead:

• First and foremost there remains significant uncertainty around the outcome from Brexit;

• Secondly, given the importance of the traded sector in the Irish economy, any disruption to world trade, in particular from increasing protectionism, could significantly impact Irish growth prospects;

• In addition, a faster-than-expected normalisation of monetary policy in the euro area or changes in other jurisdictions that affect the competitiveness of Ireland’s corporate tax regime all have the potential to constrain our growth trajectory.

As we cannot directly control these risks, we must focus on mitigating against them. The best way to do so is through the prudent management of our public finances and by focusing on competitiveness-oriented policies.

By dealing with economic realities and not unsustainable illusions.

The strength of the economic recovery has been reflected in our public finances. In 2019 we will reach an important milestone, balancing the budget for the first time in a decade.

However this is not an end in itself, it is imperative that we continue to enhance the resilience of our public finances to ensure sustained economic growth.

That is why we are establishing the Rainy Day Fund.

The Fund will be capitalised with €1.5 billion from the Ireland Strategic Investment Fund and supplemented with an annual contribution of €500 million from the Exchequer starting from 2019.

Some of the historically high levels of corporation tax will be set aside for the purpose of capitalising the Fund.

We have not forgotten the lessons learned from the crisis.

Brexit
You will be well aware of the recent significant developments on BREXIT.

After a lengthy negotiation process, a draft Withdrawal Agreement between the United Kingdom and the European Union has been agreed.

Importantly, this agreement satisfies our national priorities set out at the outset of the Brexit negotiations, namely to;

• Protect the Good Friday Agreement
• Maintain the common travel area and related benefits
• Reaffirm our place at the heart of the EU
• And protect trade, jobs and the economy

Of course, we cannot become complacent.

The risk of disorderly Brexit remains ever-present until the final text is ratified by both the UK and the EU.

Irrespective of the future relationship between the UK and the EU, we will face a very different world once the UK does depart.

The UK will inevitably become a ‘third country’.

The status quo will change.

Both Government and business will have to embark on this journey into this new world.

Although we will inevitably face many obstacles along the way, I am confident that working together we can and will overcome these challenges.

The International Focus and Team Ireland
A key part of overcoming this challenge is making sure we continue to build relationships.

The UK will remain a key relationship of course.

I know this remains a key priority for the institute and your President.

Feargal, as Managing Director of a thriving practise with offices on both sides of the border, you know what’s at stake and I am pleased that you have been such a strong voice for the business community in Northern Ireland.

And we need to continue to look to increase our engagement and partnerships within the EU and further afield.

And a key part of this is our diaspora.

In 2015 the previous Government published the first comprehensive articulation of national policy towards the Irish diaspora around the world.
A key part of this strategy is using our global scope to amplify the reach of partners like the Institute.

I was pleased to see the Institute engage so actively with our embassy network on the way to and during the World Congress of Accountants in Sydney earlier this month.

I note that Feargal met diplomats and local members in Abu Dhabi, Dubai, Sydney, Melbourne and Singapore.

And I see that he welcomed the 27,000th member of the Institute at a function at the Ambassador’s residence in Abu Dhabi.

I spoke before of accountancy as a language.

It is also a passport.

And nothing indicates that more than a successful young accountant receiving her membership of the Institute whilst living and working in the UAE.

Taxation Reform
As with accountancy rules and standards, our taxation system is evolving to reflect the changes in how we do business.

Bigger and increasingly globalised and digitalised companies need a tax system to suit.

Corporation tax, and global tax reform, remains very high on the international political agenda.

The OECD BEPS process has been the vehicle for major corporate tax changes in recent times and although its implementation is still in its early stages we are already seeing some fruits of that work beginning to emerge.

However it is important to understand that the international tax landscape is continuing to change and the key question remains as to how this can be achieved in the safest way possible.

My view, from the perspective as an open, small economy, is that this is best achieved by global consensus at the OECD.

So while change is inevitable, I believe that any changes must be designed for the long term.

for a situation whereby the call for quick fixes in this area are met is a cause for concern.

My concern is that some of these proposals are short-sighted and may cause difficulty in the longer term.

I do not support short-term measures nor do I support measures that transform corporation tax from a tax on profits to a revenue based tax.

I believe that the BEPS project shows us the best way to move forward – seek global agreement at the OECD and then seek to implement measures domestically, bilaterally and, where appropriate, through EU Directives.

For Ireland to have a credible voice in international discussions we must do our part in implementing the BEPS agreements.

Ireland has been an enthusiastic participant in the BEPS process from the start as a means of addressing the most egregious aspects of aggressive tax planning.

I published the Corporation Tax Roadmap in September to outline the substantial actions that we in Ireland have taken and will continue to take on international tax reform, some of which were announced in the recent Budget and are included in the current Finance Bill.

This year’s Finance Bill includes important legislation on Controlled Foreign Company rules and Exit Taxes.

The ratification of the Multilateral Instrument in this year’s Finance Bill is also an important step in Ireland playing its part, and it is expected that the final step in ratification will be taken in January next year.

We are already working towards implementing our future commitments and my Department published a detailed consultation paper on other aspect of the Anti-Tax Avoidance Directive very recently.

I trust that many in this room will be among those contributing important submissions to this consultation.

I would also highlight that role of industries and the professions is also important in the ongoing global debate.

Your profession has a key role to play and I would encourage you to engage positively by contributing to the ongoing international tax debate to ensure we end up with a system which addresses the challenges arising from the digitisation of the economy in a way which makes it fit for purpose and fair to all.

Conclusion
We live in challenging times.

As we look to the future, we must be cognisant of the elevated risks posed by Brexit, in addition to the risks posed by increasing protectionism and changes to the international tax landscape.

Given these challenges over the horizon, the government remains committed to ensuring that our economy is as resilient in bad times as it is dynamic in good times.

We are striving to run our economy, to set policy, to deliver public services in the best way possible.

And we ask the same of the Institute.

To be champions in this new era of transparency and innovation and diversity.

To think big and wide and to help others do the same.

To lead the way in best practise, to contribute to public discourse and to be partners and positive influencers within our economy and society.

Thank you.
Ends

Speech by Minister Donohoe to the Eversheds Sutherland Conference on Culture:

Leadership, Accountability and Culture in Financial Services

 14th November 2018

 

 

I’d like to thank Eversheds Sutherland for inviting me here this morning, and in particular Ciaran Walker for moderating this event. 

I know some of you heard me speak on this subject in Trinity a few weeks ago and you may be familiar with some of the points that I previously made. 

However, these points bear repeating as they are vital elements of the dialogue necessary to drive cultural change within the financial sector.

I would like to assure you that I, and my colleagues in Government, are supportive of measures to change behaviour, operations and organisational culture within the financial sector, in order to keep the customer at the heart of its operations.

The culture review has been described as a watershed moment for Irish banks.

It comes at a time when culture is to the fore of the international discussion on banking practices, as illustrated by the roll-out of senior manager regimes right across developed financial systems.

As I said before, the true test of whether this is a turning point for Irish banks, and the financial services industry more widely, will be if we find ourselves with firms who truly do consider the impact of their business decisions on individuals, the economy and society as a whole.

Getting to that point is what requires a seismic cultural shift. 

 

Culture

The culture of any organisation encompasses the collective values, beliefs and behaviours of its members, which contribute to its unique social and psychological environment.

Because culture is not just the procedures set out by management, or the laws that a business must follow, but is made up of the choices that each individual makes, it presents a difficulty for regulators and policy makers: changing culture is not as easy as simply changing the rules.

Nonetheless, we have an opportunity to bring about real change in the financial services industry – changes that are not reactionary, but proactive and carefully considered.

There are many good examples of what organisational culture means.

For example Herb Kelleher, founder of Southwest Airlines, offers the straightforward definition that culture is what people do when no one is watching.

Kelleher further elaborates on how his company achieves its goals of good organisational culture by ensuring that employees are put first.

 

He says:

‘If you truly treat your employees that way, they will treat your customers well, your customers will come back, and that’s what makes your shareholders happy. So there is no constituency at war with any other constituency. Ultimately, it’s shareholder value that you’re producing’.

 

At last month’s Central Bank conference in Trinity College, business leaders shared their experiences of working within frameworks of accountability and responsibility in other countries.

Their central message was clear – while leading change in cultural attitudes starts from the top down, we need to start talking to each other and learning from each other at all levels to achieve the goal of cultural change that we are striving for.

Ethical behaviour must be fostered from the top by the board of directors and senior management team, in what they do, say and by the examples they set.

Living examples of ethical principles by leaders will send a clear message that the organisational expectation is that good ethics must prevail to allow good business with a firm focus on consumer protection to flourish.

The opinion of the Central Bank in its report that ‘banks undertaking comprehensive organisational transformations (…) should place an emphasis on inclusive and collaborative leadership styles, aimed at integrating as many people and perspectives as possible’ lends itself to that same message.

The UK Financial Conduct Authority has some good practical examples of best practise and it is this that I am speaking about when I say we can learn from others in order to achieve the desired goal of good cultural environment that will benefit everyone.

I mentioned that I had taken time to reflect on the findings of the Culture Report; I am also taking time to consider how legislation can be used to best effect.

I am determined to adopt such a strategic approach in proposing and bringing through legislation that allows the Central Bank and firms within the financial sector to drive the necessary changes in culture. 

My officials and I will systematically work on these proposals, as opposed to adopting a short term crisis response.

 

Government Objective

The Government’s objective is a sustainable financial services industry, with rewards reaped over the long-term for customers, staff, and shareholders. It is one where consideration of the impact on individuals, the economy and society as a whole is firmly embedded in organisational culture.

In changing to a culture more focused on individuals, the economy and society, we need to properly reflect the Latin origins of the word ‘culture’ – to tend to, to grow, to nurture – by cultivating new norms within the financial sector, as opposed to merely transplanting another set of rules.

Our study of political philosophy points to the importance of statute in creating the social norms which influence our everyday actions as citizens. 

This wider societal norm applies equally within individual firms. 

I was particularly struck by Derville’s previous citing of research which demonstrates that there is not a random spread of bad behaviour within the financial sector but that it is concentrated in certain banks and firms. 

This demonstrates the need for common conduct standards throughout the banking sector to ensure fair treatment of customers and to ensure a level playing field for competition within the sector.

As I’ve previously stated, I intend to seek Government approval for a Central Bank Amendment Bill in early 2019.

In drafting the proposed legislation, my officials have been undertaking detailed analysis of how best to further enhance the regulatory and enforcement powers of the Central Bank.

My Department is engaging with the Central Bank and other stakeholders, while also evaluating best practice, including lessons from the UK’s experiences, in order to ensure that the legislation addresses the recognised failings set out by the Culture Report, while also being fit for purpose.

 

The Principle of Trust

Historically the core principle at the heart of the banking sector has been ‘trust’.  This principle of trust was at the core of the Florentine banking system in the 14th Century, prior to the existence of legally enforceable regulation. 

For the centuries since, trust has been at the core of banks’ operations. 

I was particularly struck by Baroness Onora O’Neill’s comments at the Trinity conference when she stated that honesty and competency lead to trust. 

The sector as a whole now needs to convince wider society that it can be trusted again so it can avail of its ‘social license to operate’. 

Unfortunately in Ireland the bond of trust between banks and their stakeholders has been sundered.

The deep generational impacts of our financial crisis have left ordinary citizens suspicious of banks and bankers.

So trust needs to be restored at all levels of Irish banking.

Perhaps the definitive work on this subject is Francis Fukuyama’s ‘Trust’, published in 1995.

Fresh from predicting the ‘End of History’, he sought to establish the key factors that influence economic and social prosperity.

He concludes that the social virtue of trust is foundational.

Fukuyama views modern institutions as a necessary but not sufficient condition for prosperity and the social well-being it underpins in advanced societies.

For such societies to truly flourish, institutions need to be combined with certain communal social and ethical habits, of which social trust is the most fundamental.

His argument is particularly prescient in our present time as he warns that ‘we cannot take these older ethical habits for granted’.

 

Legislative change

In bringing forward legislation on foot of the Central Bank’s proposals and particularly when working with my colleague, the Attorney General, there three key tests I will apply.

First, is the legislative intervention appropriate?

At the Trinity conference, Professor Marco Lamandini caused us to ponder on the fact that the intensity of regulation can exempt people from thinking that they should act properly and in the best interests of customers.

Second, will it be proportionate?

It is crucial that any new accountability regime applies fairly to different staff within the bank and wider sector in terms of reflecting the importance and significance of their respective roles within their firm and the sector as a whole.

Finally, any such legislation must be effective.

There will be a cost to this regulation. Are the improvements worth it? We must be particularly cautious that we don’t drive consumers into lesser regulated sectors where costs are lower because of this, thereby putting them in an inferior position.

These considerations must be carefully adhered to in advancing the culture proposals that are robust and not open to challenge. 

 

Key themes

I previously articulated the key principles which I believe changes should focus on in order to impact banking culture. These are:

  • Responsibility;
  • Accountability; and,
  • Diversity.

These three principles set out many steps, which I will further elaborate on.

 

Responsibility

Responsibility should exist at both a personal and organisational level. 

At the personal level, individuals must be empowered to speak up – within their own organisations, and to the Central Bank in cases where it is a regulatory matter. 

The Central Bank’s proposals for common conduct standards could, if legally possible, play an important role in empowering bank employees to speak up by making it a requirement for them to do so when they witness wrongdoing.

It is also in the industry’s long-term interests to have people at all levels taking responsibility:  whether that be the branch official taking responsibility for providing the customer with the most appropriate product, to the senior manager taking responsibility for innovations that improve the bank’s wider product offering to customers.

 

Accountability

Accountability means not only being responsible for something but also ultimately being answerable for one’s actions. 

A great deal of work has gone into making non-executive directors accountable for their actions, now this needs to be carried through to the executives, making senior management and middle management accountable for their decisions.

At the organisational level, responsibilities should be clearly defined and ownership taken. 

If the sector is to advance, it is vital that those working within it are willing to innovate, and fail, while taking all of the reasonable steps to manage the associated risk. 

This regime should be designed to call to account those taking unnecessary, uncalculated risks; who engage in moral hazard, who refuse to follow the correct protocols and processes, who lie to or mislead their colleagues and clients, and who knowingly commit wrongdoing.

It is for the protection of firms’ own reputations and the industry as a whole.

This regime should not be about taking action against any individual who has taken all the steps, caution and due diligence that could be reasonably expected, and is acting in good faith.

 

Diversity

Most importantly, it is clear that changes need to be made to foster diversity and inclusion in the banking and financial services sector.

When we are cultivating the ‘right’ type of culture in banks, it must be one that is reflective of the broad spectrum of our society.

The Culture Report found that the banks have much more work to do in terms of ensuring their organisations are sufficiently diverse and inclusive, particularly at senior level. 

I am aware that this is challenging given the stringent regulatory requirements for suitably qualified individuals.

Without diversity – of experience, perception, and thought – firms will be unable to prevent group-think, guard against over-confidence or promote internal challenge; all characteristics that were seen in banking in the lead-up to the financial crisis.

Some banks are taking the lead by publically setting themselves diversity targets, which is to be applauded.  

These efforts need to be expanded and continually built upon.

 

Practical Implementation

The practical implementation of these measures will play a vital role in determining whether culture changes or not.

I will await the Central Bank’s recommended approach but the following broad thrust would appear to have merit:

 

A phased introduction – over time and across financial sectors. 

In speaking I have focused on the banking sector but I see the logic in extending some of the Central Bank’s proposals to other financial sectors. 

 

A consultative approach – hearing from all sides so as to identify potential unintended consequences.

 

Industry should engage with the Central Bank and my Department at an early stage to ensure that any valid and reasonable concerns about the regulatory changes are addressed.

 

Clear guidance from the regulator – however, this can only be guidance as the very spirit of changing culture is to foster a different and better approach, and firms must take the initiative to improve themselves.

Any new regulatory regime must be practicable and proportionate; here we can learn from the UK’s experiences with implementing a Senior Manager’s regime, what they found works and what doesn’t.

But again let me reiterate, the changes required here cannot be outsourced for a quick solution.

We can find and learn from examples of best practice, but at the end of the day firms must put in the work themselves.

On a practical level, my officials are working on what is legally and constitutionally possible with the assistance of the Attorney General and his Office.

The steps that industry are taking from their own initiative are also to be welcomed. I am pleased to note the launch of the public consultation by the Irish Banking Culture Board Establishment Office.

However, it is vital that we recognise that industry initiatives are not a substitute for regulation and will not supplant the proposed regulatory changes already in train.

 

Closing Remarks

There are challenges here for the Central Bank, for Government, and for industry.

I have said that the true test of whether this is a turning point for Irish banks will be if we find ourselves with firms who truly consider the impact of their business decisions on individuals, the economy and society as a whole. Working together, I believe we can achieve it.

Thank you very much for your attention.

 

 

ENDS

Speech by Minister Paschal Donohoe, TD

Opening of Grant Thornton Offices

13-18 City Quay, Dublin 2

12th November 2018

 

Check against Delivery

 

Good Morning,

Thank you for inviting me to officially open the new headquarters of Grant Thornton here at City Quay right in the heart of Dublin city.

This confident move is a testament to the hard work and great success you have enjoyed over recent years in Ireland and is a strong vote of confidence in the capability and future of your firm.

I congratulate you.

Much has been written on the dominance of the ‘Big Four’ in the space in which Grant Thornton now operates.

I note that earlier this year Grant Thornton UK announced that it was withdrawing from the audit market for FTSE 350 firms.

I am glad that Grant Thornton Ireland feels that the corporate landscape in Ireland for these kinds of services remains competitive and note that you see it as a key part of your strategy to grow the business.

The economy needs a wide variety of different operators of different sizes, specialities and skillsets and Grant Thornton has much to offer public and private clients.

 

Getting our bearings

Given we are but a stone’s throw from your old office there is clearly something to this area which drew you and kept you here. Let us get our bearings for a moment.  

In front of us is the river Liffey, a waterway with a thousand years of economic pedigree to it.

To the Northwest of us stands Liberty Hall, long a focal point for the trade union movement in Ireland.

To our North East the docklands and the banking and financial services hub that grew up in the place of industries of old.

From fewer than sixty people working in the Dublin Docklands in 1987, the International Financial Services (IFS) sector now employs over 35,000.

We have a deep pool of staff, managers, professional advisers, regulators and service providers with sophisticated domain knowledge in the key mobile financial services sectors.

There are only a limited number of places in the world with such an ecosystem.

And just up the river a wave of modern technology companies have opened up yet another new frontier making Dublin one of the world’s premier tech hubs.

All of this is a real microcosm for some of the major elements of our economy and our society.

Directly across the river, in the middle of all of this, quietly sits the figure of commerce atop the dome of the Customs House.

Apart from all the hustle and bustle around her.

A solemn figure built atop firm foundations, a structure laid down for all to see.

I find that quite symbolic.

 

The Language of Business

A few weeks ago I addressed the Collins Institute on the great economic and political challenges we face domestically and internationally.

Years of hard work, sacrifice and prudent decision making have taken has us back to strong economic growth and back in control of our finances.

Yet we continue to wrestle with the consequences of painful financial mismanagement and strive to ensure this never happens again.

We lost our sense of economic reality during the Celtic Tiger.

We lost track of the fundamentals of what a successful stable economy and society should and could be.

Our political institutions, our banks and much more, stopped dealing with the real language of the economy and dealt instead with unsustainable mirages.

They sacrificed transparency and real innovation.

We paid dearly for this.

Accounting is the language of business. It is the communication of economic realities and the base upon which all sustainable and innovative economies are built.

The accounting, auditing and other services you provide allow Governments, investors, shareholders, employees and citizens to see the economic reality.

Now it was clear that there were deficiencies in some key accounting standards and rules which applied throughout economies across the developed world.

And extensive work has been done on improving these at both a national and international level.

The language of business has evolved to better serve our needs.

I note that this week Collins Dictionary announced its newly inducted Word of the Year – ‘plogging’.

The combination of picking litter and jogging.

Plogging.

The Grant Thornton Corporate Challenge 5k is a great success each year.

Might I humbly suggest incorporating some upper body work into the mix via plogging?

Other words of note inducted included ‘single use’.

As in ‘single use’ plastic items.

Our language evolves to reflect our evolving concerns in this ever changing world.

Clearly concerns around sustainability are to the fore here.

Sustainability in environmental terms.

In health terms. In economic terms.

And the language of business is no different.

The language has changed in response to real world economic problems and deficiencies.

And within these new rules, these new approaches, is the concept of a different culture.

One where transparency, diversity of thought and innovation go hand in hand.

But it will only ever be as good as those who speak it and teach it.

And that is where you come in.

As a firm, as individuals, graduates and seasoned professionals.

 

Firm Level

We need you to speak the language of business with ever more clarity, transparency and passion.

We need you to help businesses understand the present in a different way so they may better strive and innovate for the future.

Regulators have spoken extensively of the importance of culture in financial services firms.

In a city like Dublin, with its eco-system of accountancy firms, law firms, other advisors and combined labour pool, financial services firms are an important part of culture transmission in our society.

A phrase often attributed to Peter Drucker goes that ‘culture eats strategy for breakfast’

So your culture is an integral part of what you do.

I am heartened to see how prominently cultural transformation and change features both internally and in the work that Grant Thornton does.

 

Graduates

The new headquarters opened today by Grant Thornton is part of a major investment which includes training 240 of Ireland’s brightest graduates.

I applaud those who are beginning their careers, the young women and men who will start their professional journeys with accounting and associated services with Grant Thornton in this innovative and collaborative new workspace.

I note that Grant Thornton was named employer of the year in 2017 by the International Accounting Bulletin (IAB) and has been recognised consistently for its excellent workplace, so you are starting on fertile ground.

After many years of hard work and determination we once again have much more to offer our graduates than emigration.

We have the fastest growing economy in Europe and you are, thankfully, in a position where you have many choices.

Know that the choice you make now in following an apprenticeship in the language of business will be challenging and illuminating.

You are placing yourselves at the centre of our economy, at the crossroads of a multitude of different companies and sectors.

Some of which are small, some of which are large. Indeed many of which do not yet exist.

You have long rewarding careers ahead of you.

You will learn much.

I am sure many of you will move to a multiplicity of different firms over the courses of your careers and that is something to be applauded.

One thing I would like to see more of is some of you consider getting some experience in the public sector at some point.

It is quite common in the UK for financial services professionals to move in and out of the HM Treasury.

I believe this trend would be of enormous benefit to both financial services firms and the Irish public sector.

So if the opportunity ever presented itself to undertake a temporary ‘secondment’ to an arm of the state please consider it.

Then you can return to City Quay with another string in your bow or, as may well be the case, those of you who move to the public sector may decide to stay there, embarking on fulfilling and worthwhile careers.

 

Seasoned Professionals

To those experienced professionals who are the in the mid to senior echelons of Grant Thornton, much is required of you as well.

You have to speak the language of business in a way that embodies the transparent and innovative way our society and economy needs and demands.

As discussed previously, culture is key to all of this and ensuring the makeup of decision makers reflects society as a whole.

I am heartened by the clear buy-in management has in creating a culture of diversity and inclusion right at the core of the business.

The Embrace programme run by the Head of Diversity and Inclusion, Sasha Kerins, is a powerful statement of intent and I am pleased to see a pragmatic and data driven approach in understanding and assessing your progress.

The International Accounting Bulletin (IAB) recognised Grant Thornton’s Women in Business report with the Thought Leadership Initiative of the Year Award last year.

The Families blog by Sinead Donovan, the Gender Diversity blog by Maura Cronin, the Multicultural blog by Catherine Taguiling, the LGBT blog by William O’Carroll and much more on your website really give an insight into an organisation that is embracing change and a new way of doing things.

 

Conclusion

I will finish with a quote attributed to the King himself, Elvis Presley:

I have no use for bodyguards, but I have very specific use for two highly trained certified public accountants’. 

Little could Elvis have known that they would become one in the same – we need strong, transparent and innovative financial services firms like Grant Thornton to safeguard our economies and our futures.

To speak the language of business in a way that protects us today and delivers future growth and prosperity tomorrow. 

Thank you.

ENDS

CHECK AGAINST DELIVERY

 

Opening Remarks and Thanks

I’d like to welcome you all here this morning.

 

I want to begin by acknowledging the work of Professor Blanaid Clarke and her colleagues in putting this conference together. I also want to particularly thank Blanaid for her eight years of service on the Central Bank Commission during some of its most challenging times.

 

I know that Blanaid’s fellow Commission members greatly appreciated her legal expertise and the academic rigour she brought to the Board.

 

Her work illustrates the importance of marrying the knowledge and expertise that exist within our universities with public policy and regulatory decision making.

 

 

Introduction

It is my very great honour to give the opening address at this conference.

 

As some of you may know, I was a student here at Trinity, so it is a novel experience to be back here in the lecturer’s position, although I certainly don’t intend to lecture you.

 

This is the first opportunity I’ve had to speak at length on the issue of culture and diversity since, following my request, the Central Bank published its report on behaviour and culture in the five main retail banks in Ireland.

 

I have taken this time to reflect on the findings of the report, and to consider its implications.

 

The Edmund Burke Theatre is certainly an appropriate setting for a discussion about culture and values and while I was preparing my remarks for this address, I considered what he might have had to say on this subject.

 

One of Burke’s life-long concerns was the moral codes governing the behaviour of individuals as citizens and the social obligations that flow from participation in the commercial life of a society.

 

In keeping with this, one of the clear takeaways from the Culture Report is that employees in the banks did not feel able to speak up and stand up when something was happening, whether it was mistakes being made, poor processes and controls in place, or outright wrongdoing.

 

We will all face times when we have to choose between a quiet life and ‘doing the right thing’, but such choices are made even more difficult when the lines between right and wrong are blurred, and our colleagues and peers, people we admire, are engaged in the ‘wrong’.

 

However, in charting a course through these dilemmas, Burke provides clarity when he states that:

 

There is, however, a limit at which forbearance ceases to be a virtue.”

 

It is easy to single out bankers, but we have many examples across many professions in this countrywhere an excess of forbearance has been damaging to public trust in our institutions and to our public life in general.

 

It is also easy to think that this is a problem confined to Ireland but it occurs across the world, as illustrated by the roll-out of senior manager regimes across developed financial systems.

 

Nonetheless, as members of  society, regardless of our role, it is our moral obligation to make choices which will not be to the detriment to our community, not only in our work but in our everyday lives.

 

By making these statements I am not unduly criticising those working in financial sectors but instead encouraging them to speak up if they feel or know that something is wrong.

 

Culture

The culture of any organisation encompasses values and behaviours that contribute to its unique social and psychological environment.

 

One straightforward definition of culture that is  particularly noteworthy is that ‘culture is what people do when no one is watching’.

 

Because this focus on culture is such a new concept in the spheres of banking and regulation, much of our understanding comes from the academic research in this area.

 

According to David Needle, lecturer of business at King’s College London, an organisation’s culture represents the collective values, beliefs and principles of its members.

 

It is a product of factors such as management style, and the organisation’s vision, norms, environment, and habits.

 

Taking this analysis, culture is not just the rules set out by management, or the laws that a business must follow, but is made up of the choices that each individual makes.

 

The nebulous intangibles of culture present a difficulty for regulators and policy makers.

 

Nonetheless, we have an opportunity to bring about real change in the financial services industry – changes that are not reactionary, but proactive and carefully considered.

 

I mentioned that I had taken time to reflect on the findings of the Culture Report; I am also taking time to consider how legislation can be used to best effect.

 

Many of the specific issues unearthed by the mortgage tracker scandal took place more than a decade ago.  The regulatory landscape has been utterly overhauled since the financial crisis, with the Central Bank Reform Act 2010 and the Central Bank Supervision and Enforcement Act 2013.

 

Likewise, the European Single Supervisory Mechanism, which was introduced in 2014, changed regulation and supervision of the banking sector almost beyond recognition.

 

I want to assure you that the Central Bank of Ireland is acknowledged now as being one of the most robust and challenging institutions in Europe, and that so-called “light touch” regulation is a thing of the past.

 

Our Central Bank, like many public institutions, has learnt the hard way from the crisis and made radical changes to its own behaviour, operations and organisational culture. Now it is time for industry to do the same.

 

It was Christine Lagarde who said that:

 

“Those working in the financial sector must be as serious about values as they are about valuation, and just as passionate about culture as they are about capital”.

 

I, and the Government, are determined to drive the necessary changes.  We are now fortunate to be in a period of growth, a chapter where we can take the time to do things properly.

 

The word ‘culture’ stems from the Latin meaning ‘to cultivate’.

 

My objective in legislating for expanded Central Bank powers, is to cultivate a sustainable financial services industry, with rewards reaped over the long-term for customers, staff, and shareholders, and where consideration of the impact on individuals, the economy and society as a whole is firmly embedded in organisational culture.

 

In order to achieve these objectives, I intend to seek Government approval for a Central Bank Amendment Bill in early 2019. In drafting the proposed legislation, my officials have been undertaking detailed analysis of how best to further enhance the regulatory and enforcement powers of the Central Bank.

 

My Department is engaging with the Central Bank and other stakeholders, while also evaluating best practice, in order to ensure that the legislation addresses the recognised failings set out by the Culture Report, while also being fit for purpose.

 

 

The banking sector is heavily regulated for a variety of reasons, including:

  • its critical economic functions,
  • the need to maintain financial stability, and
  • the need to address the very significant information asymmetries between the bank and the individual consumer.

 

As part of this regulatory regime we must insist that individual customers are getting superior protections and better treatment.

 

We want to work in partnership with the Central Bank and the financial sector, as a change of culture will only work if there is buy-in on all sides.

 

Rules can change, but it is up to banks and firms themselves to put in the work to change attitudes and practices.

 

To that end, we are throwing down the gauntlet to industry to rise to the challenge and ensure the necessary internal changes are made.

 

This involves industry working constructively with the Central Bank.

 

Nevertheless, the Central Bank must fully rely on the credible sanction of enforcement to deter potential wrong-doing.  However, this should not be to the detriment of cooperation.

 

Firms, and the individuals working within them, should feel confident in approaching the regulator with concerns at an early stage.

 

We want industry and individuals to take ownership and learn from mistakes.

 

I think this is something the Central Bank itself recognises, as the culture review gave it plenty of food for thought on how it interacts with industry.

 

Key themes

It was back in October 2017 that I said it was clear to me that there were significant cultural failings in the banking sector.

 

In the year since, I’ve put much thought into what ‘good’ culture might look like.

 

There are three key principles which I believe the changes should focus on in order to impact banking culture.

These are:

  • Responsibility;
  • Accountability; and,

 

These three principles set out many steps, which I will now set out in further detail.

 

Responsibility

Responsibility should exist at both a personal and organisational level.  

 

At the personal level, individuals must be empowered to speak up – within their own organisations, and to the Central Bank.

 

At the organisational level, responsibilities should be clearly defined and ownership taken.

 

The Responsibility Maps envisaged under the Senior Executive Accountability Regime should not be bringing new or ground-breaking concepts to industry, but rather formalising good governance practices as a regulatory requirement.  

 

It is worrying to think that any organisation is not already clearly documenting its key management and governance arrangements, reporting lines or interaction with its parent company.

 

My own Department publishes its own Governance Framework on its website.

 

Regardless of whether there is a legal requirement to do so, it should be a basic management tool. And for any firm not already doing these things, it should be a wake-up call.

 

Accountability

Accountability means not only being responsible for something but also ultimately being answerable for one’s actions.  

 

A great deal of work has gone into making non-executive directors accountable for their actions, now this needs to be carried through to the executives, making senior management and middle management accountable for their decisions.

 

Accountability is not about scapegoating, and should not be used to create a fear of failure. 

 

Regulatory powers to enforce individual accountability will not be used prosecutorially. Intent and actions taken are at the core of accountability.

 

This regime should be designed to call to account those taking unnecessary, uncalculated risks; who engage in moral hazard, who refuse to follow the correct protocols and processes, who lie to or mislead their colleagues and clients, and who knowingly commit wrongdoing.

 

It is for the protection of  firms’ own reputations and the industry as a whole.

 

This regime is not about taking action against any individual who has taken all the steps, caution and due diligence that could be reasonably expected, and is acting in good faith.

 

 

Diversity

Finally, and most importantly, it is clear that changes need to be made to foster diversity and inclusion in the banking sector.

 

When we are cultivating the ‘right’ type of culture in banks, it must be one that is reflective of the broad spectrum of our society.

 

The Ireland of today is vastly different to the one Edmund Burke inhabited, but often, it seems, that the balance of power remains in the hands of a homogenous few.

 

As the financial services landscape and society itself evolve, firms need to learn how to adapt.

 

For banks and other financial services firms, it can be difficult to strike the delicate balance between adhering to the strict obligations imposed by virtue of operating in a heavily regulated sphere, and the need to be nimble and responsive to customer and market demands in order to stay relevant.

 

Indeed, the Culture Report found that the banks have much more work to do in terms of ensuring their organisations are sufficiently diverse and inclusive, particularly at senior level.

 

Then again, the stringent regulatory requirements for suitably qualified individuals can often be self-limiting on the diversity front, and this is something that the Central Bank must also consider.

 

Without diversity – of experience, perception, and thought – firms will be unable to prevent group-think, guard against over-confidence, or promote internal challenge; all characteristics that were seen in banking in the lead-up to the financial crisis.

 

For the long-term future of the industry, there is a need for firms and those working in the industry to take an active part in mentoring and outreach programmes that encourage participation by a more diverse range of people.

 

This is also the time for firms themselves to step up, and we can see that some banks are taking the lead by publically setting themselves diversity targets, which is to be applauded.

 

But these efforts need to go beyond a single dimension of diversity, and must be at all levels, particularly senior and middle managerial positions in order for the benefits of diversity and inclusion to truly be reaped.

 

Practical Implementation

The practical implementation of these measures will play a vital role in determining whether culture changes or not.

 

I will await the Central Bank’s recommended approach but the following broad thrust would appear to have merit:

 

 

  • A phased introduction – over time and across financial sectors;
  • A consultative approach – hearing from all sides so as to identify potential unintended consequences. Industry should engage with the Central Bank and my Department at an early stage to ensure that any valid and reasonable concerns about the regulatory changes are addressed.
  • Clear guidance from the regulator – however, this can only be guidance as the very spirit of changing culture is to foster a different and better approach, and firms must take the initiative to improve themselves.

 

There needs to be a clear move by banks and industry away from incentivising short-termism and rewarding behaviours that negatively impact on individual customers, and the wider economy and society.

 

This will require changes to performance related salary structures, to how firms view and treat their employees, and to organisational strategies and goals to move towards more holistic priorities.

 

I am interested to hear the views of participants on how best to implement a regulatory approach to culture.

 

Closing Remarks

There are challenges here for the Central Bank, for Government, and for industry.

 

The culture review has been described by some as a watershed moment for Irish banks.

 

I think the true test of whether this is a turning point for Irish banks, and the financial services industry more widely, will be if we find ourselves with firms who truly do consider the impact of their business decisions on individuals, the economy and society as a whole.

 

I trust there will be plenty of spirited debate from today’s panellists and I look forward to hearing the variety of opinions on culture and behaviour, and learning from them.

 

As I finish, I will leave you with a few more words from Burke, which I hope will colour your perspective on today’s discussions:

“It is not what a lawyer tells me I may do; but what humanity, reason, and justice tell me I ought to do.”

 

Thank you very much for your attention.

 

ENDS

 

23rd October 2018

 

Check Against Delivery

 

Speech on the Finance Bill 2018 by the Minister for Finance and Public Expenditure & Reform, Paschal Donohoe TD

 

A Cheann Comhairle, I move that this Bill be read a second time.   

 

Two weeks ago I made my Budget statement in this House.

 

I noted that a decade had now passed since the financial crisis.

 

In a dynamic and ever-changing global environment, the Irish economy continues to strengthen and grow.

 

A record number of our citizens now have jobs.

 

Our public finances are balanced for the first time in a decade.

 

We have made remarkable progress and the dark days of crisis have passed.

 

But many risks remain, in particular, the political, economic and diplomatic challenge of our generation that is represented by Brexit.

 

That is why it is critical that we continue to enhance the underlying strength and resilience of our economy.

 

In order to build resilience we must continue to manage out public finances responsibly and keep our tax base broad, stable and sustainable.

 

When I made my Budget statement in this House two weeks ago I said that Budget 2019 was designed to secure our future.

 

It is a progressive budget with an emphasis on strengthening our national finances.

 

It is a responsible Budget for a modern and caring Ireland that aims to position us at the centre of a changing world.

 

Many of the changes required by the Budget are contained in Finance Bill 2018. 

 

I will shortly set out the Bill in more detail but firstly I would like to look at some of the key themes running through it.

 

FINANCE BILL THEMES

 

Income Tax and USC

This Finance Bill delivers on our commitment to continue to make targeted changes to the income tax system within available resources and make steady and sustainable progress in reducing the income tax burden, focusing on low and middle income earners.

 

To ease this burden, the Bill will increase the entry point to the higher rate of income tax for all earners by €750, raising it from €34,550 to €35,300 in the case of a single worker.

 

The third rate of the Universal Social Charge will be reduced from 4.75 per cent to 4.5 per cent to give a further targeted benefit to low and middle level incomes.

 

As I said on Budget day, this Government believes that workers enter the higher rate of income tax at too low a level of income. The impact of these changes means that the top marginal rate on incomes up to €70,000 will be reduced to 48.5 per cent and fewer people on incomes around the national average will have any income subject to the 40 per cent rate of income tax.

 

The Bill will also provide for a modest increase in the ceiling of the second USC rate band from €19,372 to €19,874. This is to ensure that the salary of a full-time worker on the minimum wage will remain outside the top rates of USC, following the increase in the hourly minimum wage to €9.80, which will take effect from 1 January 2019.

 

Also, for families where one spouse works primarily in the home to care for children or other dependants, I am happy to announce an increase to the Home Carer Credit of €300. This brings the value of the credit to €1,500 per year and is expected to benefit around 85,000 working families.

 

For self-employed workers who make up an important part of our economy, the Earned Income Credit will be increased by a further €200 to €1,350.

 

To support the single affordable childcare scheme, I propose to amend section 194A of the Taxes Consolidation Act 1997 to ensure that payments to childcare providers under the scheme do not give rise to tax liabilities for the parents.  It is not my intention that payments under the scheme should give rise to tax liabilities for parents or guardians.

 

In the absence of any legislative relieving provisions, the payments made under the scheme would fall to be taxable, as they are made on behalf of the parent/guardian as a contribution towards the crèche fees. The effect of the proposal will also be retrospective to ensure that payments already made under similar administrative schemes are also exempt.

 

Encouraging enterprise

Moving now to the areas of employment and enterprise, it is timely to recall the commitment set out in the Programme for Government to support a leap forward in the capacity and performance of our enterprise sector. The Bill contains a number of measures relating to the Key Employee Engagement Programme (KEEP), the Employment and Investment Incentive (EII) and the Start-up Refunds for Entrepreneurs (SURE), which seek to advance the agenda.

 

The take-up of KEEP has been limited so far so I intend to double the ratio of share options to salary and increases the total value of options from €250,000 to €300,000. Currently the company can grant options to the particular employee/director up to a maximum of €250,000 in any three year period. I now propose that the company can grant options to the particular employee up to a maximum of €300,000 in any period, i.e. a lifetime limit from that company for that particular person. The €3,000,000 overall KEEP limit remains for companies, and employees are not restricted from entering into future KEEP arrangements with future employers.

 

As deputies may be aware, following significant changes to the EII and SURE in last year’s Finance Act, I asked my department to arrange a comprehensive review of these incentives with a focus on their efficiency and effectiveness.

 

Having considered the recommendations contained in the recent report by Indecon Economic Consultants, I am proposing a package of measures.

 

Firstly, I am proposing changes to the application procedure for the incentives to a largely self-certification model. This will address the most significant problem with the current design of the scheme relating to delays in the application process. While primarily self-assessment, it is important to note that under the proposed new arrangements, companies may ask Revenue to confirm that they have met the requirements for General Block Exemption Regulation (GBER) compliance. I think that this is a fair support for many companies and investors given that they may not be familiar with EU State aid rules.

 

Secondly, the new text also provides for a specific investor eligibility regime for investment in very small enterprises – the Start-up Capital Incentive. In particular and in accordance with EU State aid rules, connected persons are permitted greater freedom to invest, in limited amounts, in very small start-ups. 

 

Thirdly, the section includes a very substantial consolidation and updating of the current text of Part 16 (EII and SURE) of the Taxes Consolidation Act 1997. The aim is to make the scheme more intelligible for stakeholders. In addition, the draft brings forward a number of technical adjustments to the incentives, which seek to simplify and clarify the legislative provisions.

 

It also includes an anti-avoidance measure where, in the case that a holding company sells a subsidiary and the money is returned to the holding company, the holding company must now return the capital to the investors immediately rather than, as at present, where it can retain the proceeds for the remainder of the four years without triggering a clawback of relief.

 

Finally, in light of the substantial review just undertaken, I also propose extending EII and SURE by an additional year to the end of 2021; this is consistent with the procedures set out in my Department’s Tax Expenditure Guidelines.

 

This is a priority package to address the main shortcomings identified with the scheme. I intend that other issues raised in the Indecon report will be addressed in a subsequent Finance Bill.

 

Looking now to the film industry, the film tax credit acts as a stimulus to the development of an indigenous audio-visual industry, to support the expression of Irish culture and the creation of quality employment opportunities in the State. The relief is currently scheduled to end in 2020.  In view of the long lead-time for film productions, I am providing now for a four-year extension of the credit, until December 2024, to provide the certainty the industry needs in order to continue to grow.

 

To support the development of the sector beyond the current established hubs, I am also introducing, subject to State aid approval, a new, short-term regional uplift for certain productions made in areas designated under the State aid regional guidelines. The regional uplift will commence at five per cent and will be phased out over four years on a tiered basis.

 

Agriculture

Turning now to the farming sector, I acknowledge that income volatility is a very significant difficulty for farming families and that 2018 is turning out to be a particularly difficult year. I propose to make the income averaging scheme available to a greater range of farms.

 

Income averaging allows eligible farmers to calculate their taxable income as the average of their income in the current year and the previous four years, on a rolling basis, thus smoothing their tax liability over a five year cycle. I propose extending the Income Averaging Scheme to farmers with self-employed, off-farm income/farmers whose spouses have off-farm, self-employed income (with averaging only applying in respect of farm profits), so as to ensure its availability to the entire sector.

 

In addition, the Bill renews for a further three years:

 

  • the 25 per cent General Stock Relief on Income Tax;
  • the 50 per cent Stock Relief on Income Tax for Registered Farm Partnerships; and
  • the 100 per cent Stock Relief on Income Tax for Certain Young Trained Farmers.

 

  

International taxation

Before I move on to look at the Bill in detail, I wish to address our commitment to the ongoing process of international tax reform. I announced in Budget 2019 the introduction of two new measures from the Anti-Tax Avoidance Directive (ARAD), an ATAD-compliant Exit Tax regime and new Controlled Foreign Company (CFC) rules. CFC rules are designed to prevent the artificial diversion of profits to offshore entities in low-tax or no-tax jurisdictions.

 

The new ATAD-compliant Exit Tax regime will impose a charge to tax at 12.5 per cent on unrealised gains where companies migrate or transfer assets offshore, such that they leave the scope of Irish tax. It replaces a pre-existing, focussed anti-avoidance exit charge with a new broad-based Exit Tax.

 

The introduction of both these measures, in addition to the commitments to further action set out in the Corporation Tax Roadmap published in September, clearly demonstrates Ireland’s commitment to ensuring that our tax regime is stable, legitimate and transparent, to support continuing investment and job creation in the State.

 

FINANCE BILL 2018 – SECTION BY SECTION

 

I will now take you through the Finance Bill from the beginning. However Deputies will appreciate that in the limited time available to me it is not possible to cover every single section in detail.

 

Part 1 of the Bill deals with the Universal Social Charge, Income Tax, Corporation Tax and Capital Gains Tax.

 

Sections 2 to 5 deal with the income tax measures I have already outlined.

 

Section 9 extends the benefit-in-kind exemption for electric vehicles until 31st December 2021 to support policies to reduce carbon emissions in the transport sector. Having regard to value for money and tax equity considerations, it also applies a cap of €50,000 on this exemption such that an electric vehicle with an original market value exceeding €50,000 will be subject to BIK on the amount in excess of €50,000.

 

In section 14, I propose amending section 205A of the Taxes Consolidation Act 1997 to extend the same tax treatment for awards under the restorative justice process to women who were resident in institutions associated with the Magdalen laundries.

 

Section 15 is a technical amendment and Section 16 introduces a new Accelerated Capital Allowances scheme for gas-propelled vehicles and refuelling equipment, which I signalled in my Budget speech.

 

Section 17 amends and commences a relief, introduced last year in Finance Bill 2017 subject to a commencement order, which allows a benefit to employers who incur capital costs on equipment and/or buildings used for the purposes of providing childcare services or fitness facilities to employees.

 

Section 20 relates to the relief available to certain start-up companies in their first three years of trading. Following a review performed by my Department, I am extending the relief for a further three years, to 31st December 2021. This relief is designed to support employment creation and broaden the corporation tax base.

 

Section 21 proposes that the amount of interest paid in respect of loans used to purchase, improve or repair a residential property that may be deducted by landlords will be increased to 100 per cent from 1st January 2019.  This change is an acceleration of the rate of the restoration of the full value of this relief.

 

Section 23 relates to EII and SURE, Section 24 deals with film relief and Section 25 deals with controlled foreign companies (CFCs), I have described these measures already.

 

Section 28 amends section 603A of the Taxes Consolidation Act 1997 TCA 1997.  In broad terms, section 603A provides relief from Capital Gains Tax on the transfer of a site by a parent or civil partner to a child of the parent or a child of the civil partner, where the transfer is to enable the child to construct his/her principal private residence on the site. The section is being amended to allow both a child and his/her spouse/civil partner to benefit from the relief available under the section.

 

Part 2 of the Bill deals with Excise.

 

Section 31 amends the definition of a ‘sugar sweetened drink’ to ensure that certain categories of beverages will be subject to sugar sweetened drinks tax where they do not meet a minimum calcium content of 119 milligrams per 100 millilitres. The amendment fulfils the commitment made to the European Commission as part of the formal EU State aid notification process for sugar sweetened drinks tax. 

 

Section 32 confirms the Budget increases in the rates of Tobacco Products Tax and Minimum Excise Duty for cigarettes in support of public health policy. 

 

Section 33 provides for an increase in the rate of betting duty and betting intermediary duty with effect from 1 January 2019. The rate of betting duty is increased from 1 per cent to 2 per cent for bookmakers and remote bookmakers while betting intermediary duty is increased from 15 per cent to 25 per cent.

 

Section 35 provides for a Vehicle Registration Tax or VRT surcharge of 1 per cent on diesel cars in recognition of growing air pollution concerns from pollutants emitted in high amounts by diesel vehicles.   

 

Section 37 extends the VRT relief for Hybrid Electric vehicles until 31st December 2019 in support of climate change policy. 

 

Part 3 of the Bill deals with Value-Added Tax, or VAT.

 

Section 41 gives effect to the Budget increase in the VAT rate applying to tourism activities, with services and goods currently applying at 9 per cent increasing to 13.5 per cent from 1st January 2019, with the exception of newspapers and sports facilities. This section also provides for a reduction in VAT on digital publications from 23 per cent to 9 per cent.

 

Part 4 of the Bill deals with Stamp Duties.

 

Section 46 provides for, as I announced in Budget 2019, the extension for a further three years to 31st December 2021 of the young trained farmers’ stamp duty relief. This extension must be notified to the EU authorities and is therefore being made subject to a Commencement Order. This section also contains a number of amendments to ensure a number of stamp duty related provisions in the legislation comply with EU State aid regulations and reflect current practice.

 

 

Section 47 provides for taxpayers having a right of appeal to the Appeal Commissioners against a decision made by Revenue in relation to a claim for a repayment of stamp duty which is not currently provided for in the legislation.

 

 

Part 5 of the Bill deals with Capital Acquisitions Tax, or CAT and includes Section 50 which amends the dwelling house exemption to ensure that properties which have been placed in a discretionary trust are brought within the assessment criteria for determining if the beneficiary meets the conditions to qualify for the exemption.

 

Section 51 addresses my Budget announcement to increase the Group A tax-free threshold which applies to gifts and inheritances from parents to their children from €310,000 to €320,000. This will apply to gifts or inheritances received on or after 10th October.

 

 

Finally, Part 6 of the Bill deals with miscellaneous matters and here I just want to mention that Section 53 makes a number of technical amendments to facilitate the operation of the tax appeals process.

 

 

CONCLUSION

 

As is customary with the Finance Bill there are still a small number of matters under consideration that I may bring forward at Committee Stage and of course I will also consider any suggestions put forward during our debate here over the next couple of days.

 

Thank you.

 

ENDS

 

Contact:

Deborah Sweeney [Press Adviser to Minister Donohoe] – 086 858 6878
Aidan Murphy [Press Officer, Department of Finance] – 085 886 6667

Press Office pressoffice@finance.gov.ie – 01 676 0336

 

 

 

Chairman,

I would like to thank the Committee for the invitation to appear here today to discuss the forthcoming Budget and I welcome the contributions you will have to make in this regard. This year the Budget will be presented to the Houses of the Oireachtas on Tuesday, 9th October. 

Over recent months, many elements of our reformed budgetary process have taken place. In June, the Summer Economic Statement was published and the National Economic Dialogue also took place. In July, my Departments published the Mid-Year Expenditure Report and the Tax Strategy Group Papers in respect of Budget 2019. These new and transparent features of our annual budgetary process ensure that all stakeholders can have an input into the way in which our budget policies are formulated. Earlier this month, my Department published its second annual debt report and an analysis of demographic trends and their input on sustainability of the public finances. 

As I set out in the publication of the Summer Economic Statement, I am committed to not adopting a budgetary policy that would increase the deficit and result in additional borrowing.

The focus of Budget 2019 will be to sustain our recent progress and to maintain our careful management of the public finances.

The Summer Economic Statement makes clear that budgetary policy will be designed on the basis of what is right for the economy. From a budgetary perspective, this facilitates the building-up of fiscal capacity, which can help mitigate against future negative risks and potential shocks.

In terms of our current economic outlook, we are in good shape. With GDP up by 2.5 per cent in the second quarter of the year, quarter-on-quarter, and 9.0 per cent year-on-year, it is encouraging that robust growth is being recorded across all sectors of the economy, both domestic-facing and exporting. There was an annual increase in employment of 3.4 per cent or 74,000 jobs in the year to the second quarter of 2018, bringing total employment to over 2 ¼ million – we are close to approaching what could be termed ‘full employment’.

The next set of official macroeconomic forecasts will be produced as part of Budget 2019, following the IFAC endorsement process which is currently underway.

We must be mindful, however, of new challenges in the wake of the growth we are now experiencing in our economy.

From an international perspective, some of the other risks are being widely recognised now as the general rise in protectionist policies and the unpredictability of the international tax environment. Ireland, as a smaller, open economy, is particularly exposed to these risks, and we must ensure that we continue to implement sensible fiscal policies and strive to steer our public finances along a sustainable path.

In 184 days, our most important trading partner will formally leave the EU. Whilst a transition period remains our baseline assumption, there will still be a major structural change in our economic relationship with the U.K.

It is important to be clear that the actual agreement on a future relationship can only be finalised and concluded once the UK has become a third country, that is, after it leaves the EU on 29 March 2019. This is why agreement of a status quo transitional arrangement is so important. Of course, it is in the interest of everyone that a future relationship agreement is concluded as quickly as possible after the UK leaves the EU, to provide certainty sooner rather than later.

I note that your Pre-Budget discussion document points to the possibility of a ‘no deal’ Brexit outcome as a potential fiscal risk. With Brexit some things are going to change and we are planning accordingly. The risk of a more adverse outcome than expected is one of the principal reasons that the Government has put in place prudent measures in the case of a failure to reach any Brexit agreement.

These measures include:

  • Targeting a balanced budget over the cycle, including using windfall receipts to reduce public debt;
  • Measures to rebuild our fiscal buffers, including the establishment of the Rainy Day Fund;
  • Increasing capital expenditure to enhance the productive capacity of the economy; and
  • The significant suite of measures to support SMEs announced in previous budgets.

In terms of other risks, I note the Committee’s recommendation that the Government consider using fiscal policy to decrease Ireland’s dependence on imported oil and gas. As an energy importer, Ireland is adversely affected by increasing oil prices. However, the prudent economic and fiscal policies implemented over recent years have placed Ireland in a stronger position to weather any shock which may materialise, including an oil shock. 

Reducing our public debt and its servicing costs remains a key priority. Our current debt level equates to €42,000 per capita and is the third highest in the developed world. This Government is steadfast in its commitment to the pursuit of sound budgetary policy. Legislation has been drafted on the Government’s proposal for a Rainy Day Fund.

The Government has committed to initially seeding the fund with monies from the Ireland Strategic Investment Fund, as well as setting aside some of the historically high levels of corporation tax for the purpose of creating the fund. This means the risk of permanently increasing expenditure on the basis of transient receipts is reduced. With this in mind, a contribution of €500 million to the rainy day fund will be provided for next year, in addition to the €1.5 billion planned this year.

This Government recognises the clear supply and affordability constraints in the housing market. In my previous two budgets, I introduced significant increases to both capital and current allocations of the Department of Housing, Planning and Local Government. The capital budget has increased by 145 per cent since 2016, to over €1 billion which reflects the Government’s position that the only way to solve the current issues in the market over the long-term is to build more homes, including social housing, student accommodation and affordable homes for first time buyers and people on average incomes.

Some of the measures introduced include the allocation of €200 million for the Local Infrastructure Housing Activation Fund (LIHAF) and the introduction and subsequent increase in the vacant site levy, from 3 per cent in the first year to 7 per cent for the second and subsequent years.

Last year I also increased the rate of commercial stamp duty to help re-balance the construction industry away from commercial construction towards more residential building.

These and other measures are helping to dramatically boost supply. The latest figures from the CSO show a 34 per cent increase new home completions from last year. The number of planning permissions granted for residential development are similarly showing very strong growth, up 39 per cent in the year to June.

Despite these promising figures, there is still a long way to go before the various issues in our housing market can be resolved. Homelessness is an area that the Government is committed to resolving and I will continue to support my colleague Minister Murphy, in the various initiatives his department is engaged in.

To touch on our current fiscal position at end August, €32.4 billion tax revenues were collected – up €1.6 billion (5%) on the same period last year, and broadly on target, highlighting that our fiscal position is continuing to improve and we are closing-in on a balanced headline budgetary position.

Turning to expenditure, maintaining a sustainable public expenditure policy requires focus not only on the quantum of expenditure each year, but also on the quality of that expenditure and the results being achieved. In tandem with the policy of sustainable current expenditure increases is the recognition of the role capital spending can play in mitigating risk, enhancing the resilience of the economy and raising our growth capacity.

Indeed, I welcome the ESRI’s advice published today in their Autumn Quarterly Economic Commentary, highlighting the need for a holistic approach to fiscal policy in this year’s Budget. I agree that given key infrastructural deficits in areas such as housing, along with the possibility next year of a more adverse than expected outcome in the Brexit negotiations, that a non-contractionary Budget is appropriate.

That is why €1.5 billion has been allocated towards increased capital investment next year, an increase of almost 25 per cent, as set out in the National Development Plan (NDP). This allocation will allow us to ensure a sustained increase in the delivery of social housing, offer additional schools places, enable the provision of new transport infrastructure and help progress the delivery of the National Children’s Hospital among other important projects.

Systematic information about the efficiency and effectiveness of expenditure is crucial in assessing the extent to which public expenditure is delivering key social and economic objectives. Over the last number of years, the budgetary framework has undergone significant reform. A number of initiatives are now in place that focus on what is being achieved by public spending. Underpinning this process has been a number of structural reforms that support targeted improvements in the delivery of public services in a sustainable manner.

The Committee has a number of recommendations relating to the Spending Review. The aim of this process is to embed an evaluation mentality in the public service, with the goal of avoiding reactionary budgets and large annual shifts in expenditure. It also helps to maintain an ongoing evaluation of the effectiveness of existing levels of expenditure. I would welcome engagement with the Committee on how the impact of the review process can be maximised.

Other structural reforms include performance and equality budgeting, including establishment of an Equality Budgeting Expert Advisory Group to provide advice on the most effective way to advance Equality Budgeting Policy and progress the initiative. 

Ireland has made good progress in the area of climate proofing through tracking climate-related output targets in the annual Revised Estimates Volume and ex-post evaluation of climate-focussed expenditure programmes. These reforms are aimed at increasing transparency and accountability in the Budget process, facilitating meaningful dialogue around our policies and priorities.

Ensuring the implementation of Project Ireland 2040 is of the upmost importance to this Government. As such, the publication of the improved and expanded Investment Project and Programme Tracker last week is to be welcomed. This builds on the work of the Programme Delivery Board, who have identified a number of important initial priorities which have now seen significant progress.

These include: improving information flows for project monitoring, establishing a Land Development Agency, establishing a Construction Sector Group and progressing the four developmental funds. Addressing these issues will ensure that projects outlined in the NDP can be delivered on time and on budget and that the objectives set out in the National Planning Framework are achieved on a value for money basis.

I note the Committee’s recommendation that consideration be given to increasing carbon tax over a number of years. While I consider that the carbon tax can play an important role in helping to reduce national emissions, in any analysis of the carbon tax, it is necessary to consider not just its potential to reduce national emissions, but also wider economic and social impacts. The ESRI, as part of its joint research programme with my Department, has produced initial research providing a perspective on the environmental, economic and social impacts of increases to the carbon tax. I am informed that it is developing a multi-annual model for the same purpose which will inform our views on the impacts of multi annual increases to the carbon tax. 

Finally, the Committee’s Pre Budget document makes a number of other recommendations in the tax area which will be given full consideration in the context of the forthcoming Budget.

I would like to thank the Committee again for the opportunity to speak here today and I am happy to address any questions you may have.

ENDS

26th September 2018

Introduction

Good evening ladies and gentlemen.

It’s a great pleasure to be here with you this evening, and I would like begin by first thanking Ibec for the invitation to speak, and to mark your 25th anniversary.

I would also like to take the opportunity to acknowledge the contribution your outgoing President, Ms Edel Creely of Trilogy Technologies has given, and to wish Edel the best for the future.

As the new incoming President of Ibec, I would also like to congratulate and wish Mr Paraic Curtis, of TE Medical, the best in his new role, and I am sure the he will make a valuable contribution to the organisation in the years ahead.

As I look around the room and see representatives from across our business sectors, this event provides me with an opportunity to reflect on the domestic enterprise sector, the key role it played in our economy recovery, and the role it continues to play in driving robust growth.

Indeed, Government engagement with business leaders and other social partners is a well-established part of the development of public policy, not just in Ireland but throughout Europe.

The Government recognises the contribution that social dialogue can make to maximising a common understanding across all sectors of society as we respond to the many challenges facing the country.

To this end, the establishment by my department of the Labour Employer Economic Forum (LEEF) has created a direct means through which employer groups and unions can articulate their policy priorities to Government, and long may this continue.

Turning now to budgetary matters, many of you will be aware that I will deliver my second Budget as both Minister for Finance and Public Expenditure & Reform on 9 October.

As we approach this, I am happy to tell you that our economy is in good shape and is expected to grow significantly this year and next.

I am particularly pleased that our recent growth figures are not just a story of the multinational sector, as domestic demand is also making a significant positive contributions, even on an underlying basis.

Indeed there is no story more positive than the one emanating from our labour market, where we saw full time employment growth of over four per cent in the second quarter this year, with more people working in our economy than ever before.

As we look ahead to 2019, real and growing risks exist.

  • First and foremost is the potential fallout from a more adverse-than-expected outcome of the Brexit discussions currently under way;
  • Secondly, given the importance of the traded sector in the Irish economy, any disruption to world trade, in particular from increasing protectionism, could significantly impact Irish growth prospects;
  • In addition, a faster-than-expected normalisation of monetary policy in the Euro area or changes in other jurisdictions that affect the competitiveness of Ireland’s corporate tax regime all have the potential to constrain our growth trajectory.

As Minister for Finance, the best means available to me to mitigate these risks is through budgetary policy, careful management of the public finances and also competitiveness-oriented policies.

In Budget 2019, this is what the Government will continue to do.

So let me use this opportunity to briefly highlight four key areas that touch specifically on my overall approach to the management of the economy; areas that we must continue to make progress in, in order to maintain sustainable growth and renew the social contract that underpins support for our democratic system. 

Domestic enterprise, productivity and Future Jobs

As business leaders you know that domestic enterprises are the bed rock of our economy. SMEs in particular are vital to our continued progress. They make up 99.8 percent of all enterprises, and account for 69.9 percent of the workforce.

Of course, we also have a number of world renowned Irish owned multinationals, many of whom I see represented in front of me this evening.

The Government sees the domestic enterprise sector, and SMEs in particular, as a key engine of sustained economic growth.

But there are challenges that the domestic enterprise sector faces, particularly in the areas of productivity and innovation, areas that have become increasingly important as we approach full employment, with the scope to utilise untapped pools of resources becoming increasingly constrained.

In order to rise to these challenges, and to the rapid changes in technology and globalisation, my colleague Minister Heather Humphreys, the Minister for Business, Enterprise, and Innovation, has recently received Cabinet approval to launch a Future Jobs programme in the New Year.

This programme, which will replace the highly successful Action Plan for Jobs, will place an increased emphasis on productivity growth, particularly amongst SMEs, while also aiming to broaden labour force participation rates.

It will also aim to develop future skills and talent to exploit opportunities arising from both the digital and green economies.

Housing & land use

Turning now to the second area that I would like to highlight, and where progress is imperative, is in housing.

In order to address the under supply of affordable housing for our citizens, the Government last week established in law a new Land Development Agency (LDA).

This new Agency will help deliver urban redevelopment and housing in strategic locations and help meet broader policy objectives as set down in Project Ireland 2040.

The LDA will have two overarching objectives.

Firstly, by identifying and coordinating the development of State land, either owned by local authorities, commercial State bodies or State agencies, the LDA will drive sustainable urban redevelopment.

Secondly, the new agency will boost the supply of all types of housing, including social, affordable and private housing by providing expertise in the planning, design and development processes and maximising the use of State owned land.

The creation of the LDA marks a new and significant departure for the State.

The State will now play an active and influential role in the design and development of our urban areas.

In applying international best practice in active land management, the LDA will ensure a more proactive management of the State’s extensive land bank, counterbalancing the boom-bust cycles of development that have in recent decades undermined the country’s economic growth.

The LDA will also be able to provide the expert capacity needed for a more strategic and long-term approach to the use of State land, helping to bolster some level of continued commercial and residential construction even in economic downturns.

Overall, the funding earmarked for ‘Rebuilding Ireland’ has been increased to over €6 billion out to 2021.

In total, there has been a 145 percent increase in Exchequer capital funding for new builds and acquisitions since 2016, from €433 million to €1.06 billion.

The private sector is now also responding, with recent home completions figures from the CSO showing a 34 per cent increase, with planning permissions also up substantially.

Although there is still a long way to go, the considerable investment Government is making in housing should be seen as part of our overall plan to continue to maintain and improve competitiveness in our economy, as well as address key a social issue.

 

Income tax reform

Now to the fiscal side, in terms of budgetary strategy for 2019, I am committed to pursuing an overall Budgetary policy that ensures fiscal sustainability, and a continuation of broadening and reforming our tax base.

Indeed, the third area that I would like to highlight, and where I am committed to making continued improvements, is in the area of income tax reform.

As you are surely aware, Ireland has one of the most progressive personal income tax systems in the developed world.

Our redistributive tax system has consistently been acknowledged in positive terms by the IMF, the OECD and the ESRI.

Nonetheless, I note from a report from the Irish Tax Institute this week that taxpayers here are paying more tax in 2018 than they did 10 years ago.

In response to this, I have two observations.

First, I do not believe that the tax system – or indeed the approach to regulation, fiscal policy or overall economic management – that prevailed in 2008 is a useful benchmark or indeed one that we would look to return to.

As numerous reports and inquiries have shown, the tax base in 2008 was too narrow, there was an over-reliance on transaction taxes and excessive levels of tax expenditures that encouraged economic activity that was not in the public interest.

It is also worth reflecting on the considerable reform to the overall structure of the Irish tax system that has taken place since 2008.

Over the last decade, reforms to the income tax system and the broadening of the income tax base were introduced in the interest of ensuring a stable revenue stream for the Exchequer in order to fund essential public services.

However, it is my conviction that workers in our economy start to pay the marginal rate of tax at too low an income level.

We cannot hope to remain competitive if someone on a relatively low income, and who decides to work a few hours overtime, has nearly half that extra money taken in tax.

Progress has already been made to address this issue in the last number of Budgets by focusing on reducing the tax burden on low to middle income earners, while maintaining a broad tax base.

This has been done by making targeted changes to the USC, but also by increasing the entry point to the higher rate of income tax.

In Budget 2019, the Government will fulfil our commitment to making steady and sustainable progress in reducing the income tax burden for low and middle income earners by concentrating on increasing the level at which workers fall into the higher tax bracket.

Looking beyond Budget 2019, if economic circumstances allow, we will continue to reduce the tax burden on middle-income earners by increasing the standard rate cut-off point over a number of Budgets to a level that is competitive with our neighbouring jurisdictions.

In particular, we must be increasingly aware of the difference in the cut-off point for the standard rate of income tax between Ireland and a post-Brexit UK. Increases in take-home pay have positive knock-on consequences for businesses and jobs in the domestic economy.

The Government is committed to measures that positively benefit workers while also keeping the tax base broad and ensuring that our personal taxation system is both competitive and resilient in the future.

Brexit

Lastly and perhaps most critically, I would like to conclude with Brexit.

We are entering the most critical phase in the negotiation of the UK’s withdrawal from the European Union.

Ireland will be central to these discussions and the Government is confident that we will achieve an outcome that is in the best interests of our country.

However, irrespective of the future relationship between the UK and the EU, we will face a very different world once the UK does depart.

When we reach agreement on a Withdrawal Treaty, the UK will become a ‘third country’.

The status quo will change.

It will require a renewed approach from the Government as we develop and build our alliances within the EU.

And it will also mean changes for your many sectors too, as your members look to develop new markets and opportunities while managing and mitigating the risks that will arise.

Government and business will embark on a shared journey into this new world.

We will inevitably face many obstacles along the way.

But I am equally confident that working together as we have done in the recent past, we can and will rise to, and overcome, this great national challenge.

Conclusion

And with that I will thank you for your time, thank Ibec for the invitation to address you, and I hope you enjoy the rest of the evening’s events. 

Ends

Thursday 20th September 2018

17th September 2018

 

Check Against Delivery

 

Madam President,

Members of the Chamber,

Ladies and Gentlemen,

 

It is a pleasure to be back in Belfast. This is a city built on industry and trade, and I am delighted to be here at the Northern Ireland Chamber of Commerce and Industry today.

 

I know the Chamber has a long and distinguished history, and that your members today are drawn from over 1,200 businesses, representing sectors as diverse as agri-food and manufacturing. I was impressed to learn that, together, Chamber members employ over 100,000 people, supporting families and creating opportunities around Northern Ireland.

 

I believe that groups like the Chamber play an important role, not just as the voice of the business community, but also as a mirror to society. Because of your size and scope, you can reflect not just the concerns of your members, but also those of society as a whole.

 

And so it is a welcome opportunity for me to be with you today. I would like to thank Ellvena Graham, President of the Chamber, and Ann McGregor, your Chief Executive, for the invitation to address you, and I look forward to what I am sure will be an interesting exchange of ideas.

 

The issue I would like to speak to you about today is one of immediate concern to all of us here, , one that will affect all of us on the island of Ireland, namely the United Kingdom’s decision to withdraw from the European Union.

 

Brexit is an unprecedented challenge; for Ireland, for the United Kingdom, and for the European Union.

 

It will have significant implications in particular for the island of Ireland. Be it the impact on trade, the impact on agriculture, the impact on tourism, the challenge of Brexit is not something that can be underestimated.

 

But the very first impact that we have to manage is on the Good Friday Agreement and the avoidance of a hard border on the island of Ireland.

 

 

Good Friday Agreement

 

The Irish Government has, from the outset, recognised this challenge and has been focused on protecting the achievements of the peace process and the Good Friday Agreement, twenty years after its signature, now in its twentieth year. A key element in this approach is to ensure there can be no hard border between us.

 

This is a position shared by the other members of the European Union.

 

I know that Prime Minister May and the British Government are also committed to avoiding a return to a hard border.

 

I think everyone in this room will understand why removing the border was integral to the peace process.  

 

Ireland and the United Kingdom’s shared membership of the EU also played a key role, as the Single Market and Customs Union removed the need for customs posts and checks.

 

With the removal of security installations and checkpoints as a result of the Good Friday Agreement, the border, while still a political fact, became almost invisible, enabling businesses and communities on either side to engage freely.

 

Every day, over thirty thousand people cross the border, to work, to go to school, to visit friends and family.

 

As you all know, the border of today is free-flowing and frictionless. This is of critical importance to the 7,400 businesses in Northern Ireland that trade across the border, supporting over 167,000 jobs. Cross-border trade represents the first export market for some 73% of Northern Ireland’s small and medium sized companies.

 

Many of you will have supply chains, distribution networks, and customers on both sides of the border.

And the border is about far more than just trade, as this audience knows very well. The invisible border allows over 100,000 cross-border relationships, commercial, political and social, to thrive.

 

Psychologically, it has transformed the landscape and allowed identity to breathe more freely.

Protecting this precious achievement, a backbone to our hard-won peace, is critical for all parties in the Brexit negotiations.

 

Brexit Negotiations

 

We are at another critical stage of those negotiations. In fact it might be more accurate to say that every stage of the Brexit negotiations have been critical, and that we are now entering the final stage.

 

It is welcome that talks are taking place continuously, and that both sets of negotiators are committed to intensifying negotiations in the coming weeks.

 

We have confidence in the European Union negotiator, Michel Barnier, and his team, and are in close touch with him and his staff. He and the other Member States understand the importance of avoiding a hard border.

 

Our priority now is to conclude the Withdrawal Agreement, including the Protocol on Ireland and Northern Ireland, which encompasses the backstop for the border.

 

I would urge the British Government to engage with all the issues identified in the Protocol. At various stages in this process, Prime Minister May and her Government have made clear commitments on guaranteeing that there will be no hard border. There is now a short period left in which to deliver on these commitments.

 

For our part, the Irish Government’s position on the backstop remains clear. While our preference is for an overall EU-UK relationship which would resolve all issues, it remains essential that a backstop is agreed which provides certainty that a hard border will be avoided in any circumstances.

 

This means that a backstop must be in place unless and until another solution is found. It cannot be temporary. The absence of a hard border has to be guaranteed no matter what the future relationship will be.

 

This is about providing certainty for businesses and people living on either side of the border and about protecting the gains of the hard won peace. We are not motivated by any other aim.

 

The European Council made it clear in June that nothing is agreed until everything is agreed. This means that there can be no Withdrawal Agreement, and therefore no transition, without an agreement on the backstop.

 

So it is my hope that progress can be achieved in the coming weeks to find agreement on a legally operable backstop as an integral part of the Withdrawal Agreement.

 

It is our wish that these negotiations will be successful.

 

As a Government and an economy, we are facing the huge challenges posed by Brexit from a position of strength, having laid the foundations for a solid and sustained recovery over recent years. We are confident that our economy is resilient and that appropriate fiscal policies are in place to help us to adjust to the economic effects of the UK’s negotiated withdrawal from the EU.

 

While focused on reaching an agreement, these negotiations are so important to us, and the consequences so far-reaching, that we are taking all necessary steps to prepare for all eventualities. It would be remiss of the Government not to have the appropriate contingency plans in place for all outcomes given their potential impact.

 

Of course, I fully recognise that for many of you, England, Scotland and Wales are important markets. East-West trade is significant and important for all of us, North and South. Protecting that trade and commerce is also vital.

 

It is in all our interest that agreement is reached, that the transition period – so important for providing certainty for business and society as a whole – is put in place, and that agreement can be reached on the closest possible future relationship between the EU and the United Kingdom.

 

It is the Irish Government’s view that any EU-UK future relationship agreement should be comprehensive, ambitious, and as wide as possible in its scope – avoiding any tariff barriers and minimising to the greatest extent possible any non-tariff barriers, while ensuring a level playing field.

 

At the same time, the Irish Government is mindful of the importance of protecting the integrity of the EU’s Single Market, which is central to our continuing prosperity.

 

The closest possible relationship would greatly benefit both parts of our island and, I believe, benefit the UK as a whole, and the whole of the EU. How close that relationship can be will depend on the wishes of the British Government.

 

Restoration of Power-Sharing

 

We find ourselves at a key juncture for Ireland, the UK, and the European Union.

The decisions that are taken in the coming weeks and months will have lasting consequences for politics, the economy, and relations in these islands.

 

It is thus regrettable that the power-sharing Executive and Assembly have not been in place now for nineteen months. This situation means that the North South Ministerial Council provided for under the Good Friday Agreement also cannot operate, at a critical moment for the island of Ireland.

 

In these final stages of the negotiations, I think everyone recognises the importance of there being a voice for Northern Ireland on Brexit, and on the range of other issues that require attention by the devolved institutions of the Good Friday Agreement.

 

It is my hope that progress can be found between the political parties to enable an early restoration of the Executive.

 

I know the Tánaiste and Minister for Foreign Affairs and Trade, Simon Coveney, is working closely with Secretary of State for Northern Ireland, Karen Bradley, even as we speak, on how the two Governments can support a way forward. 

 

 

Ireland-UK Relationship

 

We are also committed to maintaining the close and strong ties of friendship and cooperation between Ireland and the United Kingdom. The UK is our important partner and nearest neighbour. I do not need to enumerate the many ties of family, culture, history, and business which we share. It is for this reasons that both Governments have prioritised maintaining the Common Travel Area is the context of Brexit.

 

Even if Brexit means Ireland and the United Kingdom will no longer be partners in the EU, we will remain indispensable partners.

 

 

PEACE Programme

 

Our responsibility – as politicians, business leaders, and members of society – is to create a society of opportunity for all, and to build a better future for the next generation.

 

This means taking forward the vital work of peace and reconciliation between our communities and between the different traditions on this island that we share. This is something the Irish and British Governments are committed to supporting.

 

The European Union is also making an important contribution in his area, through the funding it provides under the PEACE and INTERREG programmes. Between 2014 – 2020 PEACE and INTERREG will provide €550 million funding, supporting projects which aim to foster reconciliation and cooperation, and to assist some of the most marginalised members of society.

 

I will visit one of these projects in North Belfast later today. Springboard’s Journeys project aims to help young people who have been disadvantaged, and I look forward to hearing from them about their experiences and hopes for the future.

 

The Irish Government, the EU and the UK are committed to ensuring the successful implementation of the current PEACE and INTERREG programmes. WE are also committed to putting in place successor arrangements in the post-2020 period. The European Commission’s proposal in May for a special new PEACE PLUS programme, to build on the work of PEACE and INTERREG is thus very welcome.

 

Conclusion

 

Brexit is a challenge of historic proportion for the island of Ireland, for all of us in the Irish and British Governments, and this challenge is more difficult because of the uncertainty about the final outcome.  This uncertainty makes preparation difficult for any Government or business but I know that we are all preparing as best we can.

 

While the challenges being faced are clear, so too are the risks of not rising to meet them, and with continued goodwill from all sides and good work in the coming weeks I believe that an agreement can be reached. Future generations will not thank us if we do not reach the right deal.

 

I think it is probably safe to say that most people in this room would agree with that approach and I hope that when next I’m here it is to discuss how we can make the best of that comprehensive and ambitious agreement.

 

ENDS

 

Keynote Address by Minister for Finance and Public Expenditure & Reform, Paschal Donohoe T.D. to the Dublin Economics Workshop

TRANSCRIPT OF SPEECH:

Good afternoon Ladies and Gentlemen. It’s a great pleasure to be here with you this afternoon, and to have the opportunity to address this Workshop again. I want to pick up on many of the themes that have been articulated there by Ciaran, but before I do that, I want to kick off with some words of recognition myself. I wanted to in particular recognise my former Lecturer and Colleague, Sean Barrett who is here today. Much of what I now believe in Economics, and many of the things which at times I’ve questioned, are in no small way due to him. I spent a year being taught by him when I studied Transport Economics in Trinity College, many many years ago.

I also want to acknowledge and thank all the staff from both the Department of Public Expenditure & Reform and the Department of Finance who are here today. I also want to acknowledge my friend and close political colleague, Minister Michael D’Arcy who is here today. We’re here in his constituency, I joked with him earlier on, that I seem to spend more time in his constituency these days than I do in my own. He replied back to me, he spends more time in Dublin Central than he does in his own! So it’s great to be here with you this afternoon. And to respond back to the agenda that Ciaran has talked about.

What I’m going to do, is I’m going to open up and tell you all about my week. The various needs that I’ve engaged with. The different forces that are there and relevant to our country. I’m going to bring that in then I’ll move into four thoughts that I have about how things are different now in 2018 versus where we were in 2008. I will then relate those four thoughts to four principals that are important to me as I frame Budget 2019 with the Government, and look to the implementation of Ireland 2040, which is our National Development Plan and Planning Framework for our country.

So to begin with my week. I’m sure that many of you who are here this afternoon, when you arrived into White’s here, you do so with a small sign of relief that the week was coming to an end. You’d be able to spend the weekend with friends and colleagues, discussing the finer details of economics over a drink or whatever you like, this evening. And as you were looking back into your week on the way here, I was having a look back at mine. Last Saturday morning, I was in Vienna, on the second day of a two day Informal Meeting of the European Ministers for Finance. Where we spent the morning dealing with two particular issues. The first issue was the future direction of European Corporate Tax Policy. The second issue was an intervention from the Chancellor of the Exchequer, Philip Hammond, regarding the proximity of Brexit.

In the first part of that meeting, we grappled with and debated the changing local and European economy within which Corporate Tax is being developed and the growing debate underway regarding whether those Tax Models are appropriate for the Digital Economy. And if they’re not appropriate for the Digital Economy, how they should be changed. Across that morning when many many Ministers spoke on the issue, we debated and differing views that exist, regarding should we levy taxes on turnover? Should they be levied on profit? If you do want to have a different Tax Model for the Digital Economy, where does the Digital Economy begin or end? Where does the rest of the economy begin and end? If you are going to make such changes in Digital Tax Policy, and did so in a way that’s independent of the direction of Global Corporate Tax Policy, what are the implications for Global Tax Cooperation? What are the implications for Global Trade?

So this was a debate in which there were many different sides. Myself, my Nordic, some of my Baltic Colleagues, advocated our point of view. But a number of other countries advocated a different point of view. That particular debate was bookended by Chancellor Hammond making the point that we’re now entering into a crucial period of Brexit negotiations. And asking questions regarding how key elements of financial risk need to be managed, as this negotiation continues, and hopefully concludes, and we look forward into a very changed 2019.

So that part of my week, dealt with issues that are fundamental to our neighbourhood, and fundamental to a small open economy, that has skin in the game, regarding how trade is organised, regarding how trade flows, and regarding how trade is taxed. And in that whole debate, we can see views that are there, we can see potential changes, and some areas we can see where consensus exists. But this is a debate that is quite fundamental to many elements of our economic model.

Upon returning home from Vienna, and having a brief day of respite on Sunday, I then spend Monday and Tuesday meeting all of the Social and Economic Partners who have a view in relation to Budget 2019. I opened up Monday morning meeting all of the Farm Organisations. Tuesday afternoon I met all of my colleagues in the Trade Union Movement. The next day I met IBEC and the Community and Voluntary Sector. I made the point to each group that the broad theme that’s articulated in each Sector, tends to be the need for more investment or expenditure in their particular sector. And/or unchanged taxes or lower taxes for that sector as well.

My job and the job which I have done, and the job which the Government will continue to do in Budget 2019 is how we move beyond an individual need or a sectoral need, into what the collective journey is for our country and for our society. Across the rest of this week, in between Cabinet, and a number of meetings in relation to Ireland 2040 and the Land Development Agency which we launched yesterday morning, on Tuesday evening I met Kevin Hassett, the Chairman of the Council of Economic Advisors to President Trump. I’ve just come this morning from a meeting with Governor Mark Carney of the Bank of England. Each of those meetings underscored to me, two things. Firstly, the remarkable progress and indeed economic stability at a macroeconomic level that has been secured here in Ireland. And also the horizon of change that lies in front of us. That change consists not just of potential difficulty, but also of great opportunity. It’s a panoramic horizon of change, much of which our country can prosper from. Other elements of which we will need to confront and deal with and look how we make ourselves secure.

So I say all of that, just to frame the engagement and the challenges that are underway, as we move to Budget 2019, and as we look at making decisions that will influence 2019 and beyond. The reconciliation of the individual of a sectoral need with that of the collective. The reconciliation of an open economy, an open society, which sees openness as a source of strength, while globalisation is changing in front of our eyes. Sizing ourselves as a country anchored in the Project of European Political Integration and Global Integration, each of which is now going through a period of change.

That’s the horizon within which this Government is working to secure and try and represent those who we are privileged to lead. But it’s also the framework within which public debate needs to happen. It’s also the framework within which we have to tease off that which we did not confront when we were in a similar period of economic growth, and that’s the concept of Trade Offs. It’s the concept that you can only spend €1 of the Taxpayers money once, and the concept that opportunity cost is real. But when we do have an opportunity cost, you’re also doing something else, that has the potential to serve the State and do a good.

So then I relate that to where we are now, to if I look, briefly sketch out, some of the things that we have to deal with, with where Ireland stands now in 2018, with where we would have stood a decade ago. And what I’m going to do is outline four areas of change. Some good, in fact mostly good. Some that would be a challenge that we need to be conscious.

I’m going to touch on where we are from a Tax and Expenditure point of view. Where we are from a Debt/Banking Regulation perspective. Thirdly the composition of our economy. And then fourthly the Institutional Framework within which political and public policy decisions are being made.

So let me open up with the first point in relation to Tax and Expenditure, or in other words, Budgetary Choices that have been made or will be made across the coming period of time. Let me compare and contrast two different sets of figures. One in relation to Taxation, the other one in relation to Expenditure. If I look at the three year period in the run up to the crash, across that period, we saw public expenditure here in Ireland, increase from €23 billion to €36 billion, across a three year period, a 57% increase. Across the three years in which Ireland has looked to secure itself in the aftermath of the Bailout Programme, the same rate of public expenditure or growth was between 13% and 14%.

If I compare the Taxation and Social Welfare changes, that I have made as Minister for Finance and Public Expenditure and Reform, and the Government has made, over the last three years versus the three year period between 2004 and 2007. Over the last three years, the combined total of Tax and Social Welfare packages in any given year, have been between €600 million to €800 million per annum. In the period between ’04 and ’07, they began at €1.6 billion, they ended at €2.6 billion. So that’s the quantum of change that is taking place, within the two key parameters of budgetary policy, in terms of how we are spending the country’s money, and then in terms of the combined value of Tax and Social Welfare changes.

If I then lead onto a second area of change, in relation to Debt. And if I observe where we are with levels of Public Debt and levels of Private Debt. At the highest point of our Private Debt Cycle, before the crisis period, Private Debt as a percentage of household income stood at 213%. Most recent figures show that now, this stands at 133%. In terms of public debt we’re between the first and third most indebted county per head of population versus many other economies within the Developed World. So we’ve seen a remarkable change in the composition of debt. We’ve seen a decrease of it at a private level. We have seen a significant increase of it on a public level.

Thirdly, if you look at where we are from an Economic Composition point of view, in terms of the shape of our economy. We have an economy that now has a very different composition to where it was across the pre-crisis period. If you compare where we are now versus where we were then, you can see for example an economy in which we need the Construction Sector to continue to grow. But it’s a construction, but it is an overall economy that now has many varied different sources of growth. If you compare us to where we were, and the pre-crisis period, we all know we became too reliant on two Sectors of economic growth. And even when you peel back where we are, in the international and globally traded parts of our economy, that sometimes just captured under the broad heading of FDI, within that FDI acronym, we see a gigantic variety of a multiplicity of Sectors and different forms of economy, all integrated into many many different global supply chains, active in many different parts of the Global Economy. From Pharmaceuticals to Tech, from Services to an increasingly high valued Food and Drink Sector. So we’ve seen an economy that has a very very different composition to what we would have seen a decade ago.

If you just look at the most recent economic indicators, some of which Ciaran touched a moment ago on, in his introduction, we’ve seen a different level of growth, a different pacing of growth, to what we had seen back then. For example, we’ve seen the rate of full time employment growth, now stands at approximately 4%. We’ve seen consumption growth across the first half of this year, on average around 4% to 4.5%. And if you look at where we are with Tax Receipts at the end of August, we’re up 5% versus the same time period a year ago. So we are seeing a different composition to that economy, and greater diversity in the economy to what we had seen before.

Now the final area of change that is very different, is the institutions now, within which economic and public policy is being made. The institutions, the processes are fundamentally different to what they would have been a number of years ago, and before the crisis period. For those of you who have read `Why Nations Fail’ by James A. Robinson and Daron Acemoglu, for those of you who have read books like you know Francis Fukuyama’s book `The Origins of Political Order’, all of those make the point that Institutions matter. If you look at where we are institutionally now versus where we were pre-crisis, we have seen a really considerable change. What are those changes? Institutionally we now have the Department of Public Expenditure & Reform, working alongside the Department of Finance. Different and significant Government Departments with a sole focus on things which can make a fundamental difference to how our economy performs. In addition to the Central Bank, we now have the Irish Fiscal Advisory Council, commenting on performance, offering critique, offering advice, offering rigorous and independent evaluation. And this is before I even begin to get into, fundamental changes of process and fundamental changes at institutional level, within the European Union. If you look at where we are from a Banking Regulation point of view, in addition to the Fundamental Changes of culture and process, that have happened at a national level, we now have institutions such as the Single Supervisory Mechanism, and we now have a completely overhauled, scrutiny and resolution framework, at European Level, that was completely absent in the pre-crisis period. Running alongside this, is a budgetary process, which at European level is more transparent, more meaningful and which has a level of rigour and political profile to it, which it has acquired since the crisis period.

And this is real. This matters. This means that when I’m representing Ireland, at our monthly meetings of Ecofin and Eurogroup, on a regular basis, I have to update my colleagues on the economic performance of Ireland. It means that when we are having discussion on Banking Union, you have the Single Supervisory Mechanism, you have the European Central Bank, all participating in those debates, with the full weight of their Regulatory and Sanction power, and each Member State, having to talk about how their system is performing, and interconnectedness of their Banking Systems, with the European public. So these are all fundamental changes. A process at economic performance level. And then at Institutional level versus now against where we were in the pre-crisis period.

So that then takes me through to where we are now, Budget 2019, three weeks to go next Tuesday. If you look at those four areas of change, how do I relate that to my approach and the themes of the Government as we look to frame the approaching Budget. Well let me begin with point number one. And point number one is, and again has been acknowledged by Ciaran in his introduction, when I spoke to you here last year, and answered your questions, and gave my address, I spoke about the need to increase capital investment in our economy. What needs to be factored into the debate now, is that’s not just being announced anymore, it’s happening, it’s underway. Levels of capital investment, in the economy this year, funded through the Exchequer, have increased by €800 million, in nominal terms versus where it was last year. And for next year, we have already pre-programmed in, and announced, an increase of €1.5 billion in capital investment. And importantly, that level of investment was announced between 12 and 18 months ago, to give Agencies, to give Government Departments and to give the Private Sector, the time and the capacity to organise themselves in response to that higher level of capital investment. So a defining theme of Budget 2019, and the Budgets after that, won’t be about looking to make further changes to capital expenditure, given the level of profiling that we have now announced. It would be making sure that expenditure is used in the proper way. And to that point, in the coming weeks, the Department of Public Expenditure & Reform will be publishing a Project Tracker, to outline Project by Project how that €1.5 billion is being used and where it is going.

The second point that leads into then is the Budgetary Framework for Budget 2019. This relates back to the changes that I touched upon earlier on in terms of what’s happening with Bodies like IFAC and then how this is a consequence of the European Budgetary Framework. I have made the point on many many different occasions that Fiscal Space for me or the Artist Formally Known as Fiscal Space, has now evolved into Budgetary Stats. We have to look at what is the right thing for our economy, at the point in which we find ourselves in the economic cycle. And where we stand now, as I’ve already indicated in the Summer Economic Statement, is that we have a broad Budget Day Package of €3.4 billion, out of which €2.6 billion has already been invested or allocated. So if we want to go beyond that further €800 million in engagement that I will have with Government and with the Oireachtas, we will be required to make changes elsewhere. And that will be the Guiding Framework for this Budget, as was the case with my last two Budgets. Which means that this will be a Budget, which comes on to the next point, a Budget that looks to make gradual and affordable changes. When I’ve been making this case in the past, I’m often then faced with the charge that if you’re making change that is gradual, why bother making change at all? And to which I would ask you to think about, what are the alternatives to that? If we’re saying we’re not going to make the change at a gradual level, or in a way that is affordable, does that then mean we do nothing? And if doing nothing isn’t acceptable, does that mean then we look to make massive increases all in one give and go. Well we tried that before, in the figures that I referenced earlier on, and look how that turned out.

So what that means from a Tax point of view, is the objectives that I have for making changes in the Standard Rate Cut Off point, at which earners move into the higher rates of income tax. Changes that we want to make in Social Welfare Packages, or the implementation of the USC. Expenditure changes that I touched on earlier on, all of those will be, and I’m aiming to deliver it, at a rate that is affordable to the country. And by affordable, it means I can’t do everything at once. And by it being affordable, means I cannot meet all the needs at once. Choices have to be made. And if we are, and as we spend the money of the State, we have to do so in a way that is careful and affordable.

And that leads onto a final point in relation to Fiscal Policy overall. And this is one of my personal learning’s from what we went through in the crisis period, and what it means now for future choices. And at the heart of this, is the contention that in the period leading up to our fall, Ireland didn’t give enough contemplation or recognition to what it means to be inside a Single Currency Zone. We were happy and wanted to take trading benefits of having a stable currency, in the Euro, but the flipside of that, of the responsibilities, and also what’s not available to you, if you’re inside a Single Currency Zone, perhaps did not get the recognition and focus that it deserved. And that means as we move and come into the next phase of our economic policy, a greater realisation that if we don’t set our monetary policy, if we don’t determine what is the value of our shared currency, it means that Budgetary and Fiscal Policy becomes even more important. And means you have to take even greater care, for ensuring that changes you make in Budgetary Policy, are right for the economy at any given point in its economic cycle.

So they’ll be the four thoughts that will be guiding me, as myself, Michael, all of my Colleagues in Government, and both my Departments look to frame this Budget. We’ll be embedding all of this in, a longer term analysis regarding where we believe our country needs to stand. That there are benefits in consciously being an open economy and an open society. That there are benefits in offering key areas of certainty in really important policy areas, when so much else is afflux. That there are benefits in making clear that people who are creating jobs here at home, and to those who are looking to come to Ireland to create jobs, and I’ve been unambiguous and clear regarding our role in the European Union, and our role in the Eurozone. And amidst the horizon that I touched on earlier on, of change, of opportunity, of some difficulty, I continue to remain very optimistic about our ability, if we make the right choices, to navigate our way towards an even more secure and even better future.

Thank you.

Ends

Contact:

Deborah Sweeney [Press Adviser to Minister Donohoe] – 086 858 6878

Aidan Murphy [Press Officer, Department of Finance] – 085 886 6667

Press Office pressoffice@finance.gov.ie – 01 676 0336

 

 

Check Against Delivery

 

10th July 2018

 

I am delighted to be here this morning and would like to thank you for the opportunity to open today’s conference.

The decisions made in the annual budget impact us all and any discussion that informs debate on the implications of these decisions is to be welcomed.

Indeed, the recent National Economic Dialogue provided another opportunity to consider how to optimise available resources in the interests of all citizens.

The aim of the dialogue, which was chaired by the Director of the ESRI, Professor Alan Barrett, is to foster discussion on how best to sustain and strengthen the recovery while taking account of the many competing economic and social priorities within the available resources.

It also affirms the Government’s belief in the value of open dialogue as a public good.

This October, I will deliver my second Budget as Minister for both Finance and Public Expenditure & Reform.

The Government will frame budgetary policy on the basis of what is right for the economy in order to ensure steady improvements in Irish employment and living standards. 

The fact that we can now continue the work of improving the lives of our citizens is testament to the economic progress Ireland has achieved in recent years.

Our economy is in good shape and is again expected to grow significantly this year and next before returning to a growth rate in line with potential.

Economic growth has also resulted in more employment opportunities.

There are now more people working than ever before and full employment, while unthinkable a few years back, is fast approaching.

Against this positive backdrop, we will broadly balance our books again next year and set up a Rainy Day Fund. Due to the political choices we have made in Project Ireland 2040 and the National Development Plan to substantially increase capital spending, which is increasing by €1.5 billion (25 per cent) next year to over €7 billion, we plan to run a very small deficit next year, while positioning our economy to better meet the needs of society.  

We are prioritising capital spending in order to address the serious infrastructural deficits that emerged during the recession and to position our economy and society for the opportunities and threats ahead.

This is the right way to rebalance our economy for the future.

 

The Right Social & Economic Model

 

Well-managed economies are characterised by durable improvements in living standards rather than the ‘all-or-nothing’ approach that has been a feature of Irish economic history, especially in more recent times.

Historically, Ireland’s economic performance has been less consistent than that of other small open economies in the EU, while our propensity to suffer economic shocks and resilience to withstand such shocks has been out of line with these comparator countries.

As we pursued a pro-cyclical approach to fiscal policy in the past, our comparator countries witnessed incremental and sustainable increases in living standards and retained their national sovereignty when the global financial crisis struck.

To avoid repeating the mistakes of the past, it is critical that we are constant in our approach, which in essence means deciding on the appropriate economic and social model for the country and having the political commitment and consensus to stick with it across political and economic cycles.

We only have to look at other small, open countries like Finland, Sweden and Denmark to see well-managed economies with excellent public services paid for on a sustainable basis.

This Government and its predecessor have pursued central elements of our comparator countries’ approach since 2011 – fiscal responsibility, active labour market policies and a broadening of the tax base.

However, this work is not yet completed. Particular priorities for the period ahead include:

  • Deeper social dialogue to enhances consensus for the appropriate social and economic model for the country;
  • Enhancing social insurance to deliver greater economic security;
  • Industrial rebalancing with a renewed focus on building an indigenous system of innovation and improving the productivity of domestic enterprise;
  • A broad and sustainable tax base;
  • An active land management policy where land is planned and developed in a co-ordinated manner in the public interest; and
  • Improving the market incomes of people at the lower end of the income distribution.

 

Policies that Renew Our Social Contract

 

 In this context, I want to highlight two areas where it is important that we continue to make progress in order to renew the social contract that underpins support for our democratic system.

 First, as you are aware, the labour share of national incomes has been on a downward trend in advanced economies since the 1980s.

This trend has been driven by rapid changes in technology and globalisation, with the IMF attributing approximately half of the fall in the labour share to the former and about one quarter to globalisation.

A decline in the labour share is significant as it implies a decoupling of wages and productivity and is also likely to increase pre-tax income inequality since capital tends to be more concentrated than labour.

Ireland has not been immune from this trend.

However, after a number of years of modest wage growth, the latest figures point to a sustainable pick-up in wages in 2017.

Average annual earnings grew by 2.0 per cent last year compared to 1.3 per cent in 2016.

We expect this upward trend to continue as the labour market reaches full employment.

Given low inflation, real wage growth is at a similar level.

As such, the labour share is now broadly back in line with its share during the Celtic Tiger period and it is likely that it will increase over the coming years as domestic demand increasingly drives growth.

It is of course imperative that these wage developments are commensurate with trends in productivity over the coming years.

Everyone has a responsibility to ensure that the pace of wage growth is sustainable and affordable in order to protect Ireland’s competitiveness.

The other area where progress is imperative is in housing.

From a very low base and after a lost decade of starved investment, there are signs of progress.

The measures put into action by Government to increase housing supply have tackled the issue from a number of sides.

We have very significantly increased public expenditure on housing, introduced tax measures like the vacant site levy and improved how the planning system operates and delivers on its objectives

These measures are now taking hold and showing through a strong and sustained increase in housing supply.

New house completions ­– increased by 42 per cent in the four quarters to Q1 2018, to 15,193. The most recent planning permissions indicate that supply will continue to expand with planning granted for 8,405 units Q1 2018, up 81 per cent on Q1 2017.

While these numbers lag behind annual demand estimates of 30,000 – 35,000, significant progress is being made.

 

The Right Budgetary Stance for Our Economy

 

In the Summer Economic Statement, published last month, I set out the parameters of the Budget 2019 package at €3.4 billion.

Of this €2.6 billion has been pre-committed, leaving €800 million for further allocation. Each year, attention is focused on the distribution of this remainder, yet central Government spends over €60 billion annually.

This remainder – or the artist formerly known as the fiscal space – may well have been the appropriate element of focus in the period following the recession, when the amounts available to bring about service improvements were constrained.

However a full and literal application of the fiscal rules would now involve the adoption of pro-cyclical policies not appropriate to our position in the economic cycle. 

Increasingly the risks to the economy are real. As such, we need to build up our fiscal capacity in order to respond to these challenges – to enhance our resilience.

This is why the Government is prioritising reducing public debt, establishing a Rainy Day Fund, and avoiding pro-cyclical budgetary policies. 

What we cannot do is look at the framework of fiscal rules, and say – because a certain element or part of that architecture could say that we might be able to spend more money- is that we go down that pathway if that’s money that we don’t have, and our economy needs to borrow to do it.

So the way in which the Government will be putting together this Budget is looking at what is the right budgetary stance to take.

This approach has the support of many observers of the budgetary process, with the Fiscal Council, in its most recent Fiscal Assessment Report, recommending a budgetary package in line with that set out in the Summer Economic Statement and correctly pointing out that the spending rule is impacted to a degree by pro-cyclical bias. 

As the ESRI has recently pointed out, a challenge we now face is how to use budgetary policy to facilitate the transition from substantial economic growth rates synonymous with a rapid recovery to a more sustainable rate of growth over the medium terms.

 

Spending at a Sustainable Rate

 

Expenditure on public services and capital investment must be financed from a sustainable source. As Exchequer revenue is impacted by the cycle of the economy, basing expenditure commitments on the current high level of revenue would only serve to introduce uncertainty to the future provision of public services.

And, as I said at the National Economic Dialogue a number of weeks ago, I’m struck by the view in relation to the gradual approach we are taking in relation to tax reform or tax reduction, where many would claim that because of the approach being adopted, which is a gradual one, that is a reason for not doing anything at all.

Well, I’d like to consider the alternative to gradualism.

The first scenario is to do nothing at all; to do nothing at all in relation to tax reform and personal taxation in the midst of the changes in income that I’m talking about sows the seeds to undermine the perceived fairness of our tax system.

An alternative to gradualism or to doing nothing at all is to do a huge amount at once. We’ve been there before. Look how that turned out for us. So gradualism, in terms of public expenditure and in terms of tax reform and reduction, I believe, is good and the most sensible approach to take to build a resilient future.

Exchequer revenue is impacted by where the economy is at each point in time. This is why I want to take care in relation to managing the degree to which expenditure grows and of course dealing with all of the pressures that those choices create.

Of course, efficient use of resources will also extend to the National Development Plan, which will implement the recommendations of the IMF’s 2017 Public Investment Management Assessment. This will lead to a greater focus by Government on achieving value for taxpayers’ money when it comes to public capital investment over the period of the plan.

With enhanced risks to the global economy, the priority must be to rebuild budgetary buffers. This will increase the capacity of the Irish economy to absorb any shocks if and when they occur. With this in mind, a contribution of €500 million to the Rainy Day Fund will be provided for in Budget 2019.

On a similar theme, public debt, as evidenced by the debt-to-GNI* ratio of 97% this year, remains high and needs to be addressed. Reducing the nominal debt will reduce the resources required to service that debt. Resources that could otherwise be used to provide public services. Lower nominal debt would also increase the ability to withstand any adverse economic developments that may arise in the future.

Finally, I would like to reiterate that continuing economic growth and year-on-year growth in revenue cannot be taken as a certainty. Our economy will face a stern challenge as the UK prepares to leave the European Union. There are also possible disruptions to the global trading system. As a small open economy, Ireland’s budgetary policy must be directed towards improving our fiscal capacity to provide public services in the face of potential shocks to the economy.

 

Thank you.

 

I’d like to begin by thanking the whole team for the great job they’ve done organising the session here this morning, which has made all of our dialogue flow so smoothly. Alan [Barrett – Chair] opened up with eight points that he wanted to talk to you about. I’m going to structure my own contribution into three different areas.

I want to talk about how previous National Economic Dialogues have influenced decisions that the Government has made. I want to talk about the Framework for Budget 2018, and what’s to come after that. And I want to talk about policy priorities that are increasingly important to this Government, as we think about Budget 2019. And as we think about longer term plans that will make a difference to our country and to its citizens.

Alan ended with where I want to begin, by him calling out very explicitly the value of dialogue. And the value of engagement, as we have seen here. I want to underline my view of how completely appropriate it is to have a dialogue that is public, in which the voices of all stakeholders in our society, particularly when they disagree, can be heard, can be teased out. We can have inquiry in a public and in a respectful manner.

This of itself is intrinsically a public good. And we should be aware of that, as we look at how we can continue and even broaden this dialogue across the coming period. And I do this because there are a number of challenges, and a number of observations that are on my mind, on a daily basis, as I fulfil the Offices that I’m privileged to hold on behalf of the country.

There are two particular challenges that I grapple with, that I think are really important in democracies elsewhere at the moment, that we need to reflect upon, in terms of choices that we all make across the coming year and years for our society and for our economy. The first one is the sense of progress. The sense that we’re all in this together. The sense that we can make a difference. And to offer the observation that if a democracy gets to a point where it believes it can make no progress on things that matter to its citizens, if a democracy gets to a point that the only thing that look inevitable is decay, then it opens up really big questions regarding what kind of choices countries will make and what can take the place of the kind of systems that we have at the moment. And this has to matter to countries, and it has to matter to all of us that want to look at how we can make a difference to our citizens, the citizens that you represent, and as against the interest of sectional or vested interests.

The second point that I would make is an economic one. Which is if you look at the challenge that we have of how we can sustain economies within democracies. As we look at how those economies are evolving. If we face a vista where fewer and fewer of our citizens feel that they might be able to participate in capital, and the kind of capital that we’ve known best here in Ireland are the hope of having, owing or having access to a stable home. Or the hope of having access to capital that might sustain an income for you in later life. If those things begin to fragment or begin to shift, then it really opens up very very big questions regarding how those economies are organised. And these are issues which, while they may sound to be at a very high level, are the reason why the Government is putting such time and effort into a roadmap in relation to pension reform for our country. And into the ongoing focus that Eoghan Murphy has regarding the housing market and how we shift it, and the complete support that I have for him and his Department in the work that they do.

And as I look at those particular challenges, to put a very optimistic question to you all, which is my view and my belief that actually the countries and economies and democracies that are best able to respond back to these challenges are countries and economies that are small, that are open, and that strive towards a particular set of values. And if you look at the progress that our democracy has made, over the last decade, and recent decades, in responding back to the most challenging questions in relation to our political identity, our political institutions, the way we want to sustain them. To respond back to the most challenging and recent questions, regarding the multiple existential economic crises that we had at the same time, not so long ago, then maybe as a small open economy, if we could respond back to those kind of challenges, we have within ourselves to respond back to the kind of challenges we talked about over the last two days, and the deeper themes that I’ve touched on a moment ago, that guide me in my thinking about matters that I have to present to Government.

That then leads on to, if dialogue is, I believe, a public good at the moment, it can only become a public good that people want to sustain, if it makes a difference. And if we look at themes that we have discussed in previous dialogues, let me touch on four of them, where dialogue that has happened here, has informed choices that Government has made.

The first one is the challenge of climate change. This is an agenda which we must do more on. I’ve talked about this at other events recently. So I’ll just underscore my belief, that it is a challenge that we have much to do to rise to. That being said, at the last Economic Dialogue we had a big focus on the shift that we need to make in capital investment. As we stand now in Ireland 2040, that is a programme now, equal to €22 billion worth of additional capital investment in those things that make a difference to respond back to the challenge of climate change. We have also seen recently the publication of the National Mitigation Framework for Climate Change. All of which is an effort to respond back to this challenge. But I want to underscore how much more we need to do, and to say that some of the choices in relation to this, are going to be difficult.

Secondly, in relation to planning. Again, an ongoing theme of recent dialogue, to look at where we are now, we now have a renewed National Planning Framework, delivered by Minister Murphy in Ireland 2040. And it’s really impactful for me to hear the readout for the session in relation to this, to hear stakeholders in that dialogue say now their key concern is how we make that Framework happen, as opposed to focus on a lack of Framework. That’s a seismic shift of where we have been over the last couple of years. A dialogue about delivering a Framework is far better and far easier to respond back to than the dialogue about not having a Framework at all. And that is again something that has happened due to the dialogue that has happened here.

Thirdly, an ongoing area of focus and other dialogue has been, for example, where we have stood in relation to public service pay, where we stand in relation to how we manage the development of wage growth in our economy. And while I am conscious of the ongoing work and ongoing challenges we will always have there, for those who work in the public service, we now have a three year Framework in which we are looking to address that. For those who work within the trading and private sector within our economy, we’ve seen a huge amount of effort and focus going on, into what is the degree of wage growth within that part of our economy, that can deliver an improvement in people’s living standards, without causing the kind of unravelling that we’ve had to deal with in the past.

And then finally, in relation to budgetary choice, again what is different to where we were in the past, and we heard many calls in the past for focus on reform, increased focus on efficiency. Is now that we’re moving into the second year of a comprehensive spending review; that review has made a big difference to budgetary choices that we made in Budget ’18 and would help with budgetary choices that we make in Budget ’19. And to highlight the value of that, later on this year we will publish forty papers in this area. And these are not papers that are being inflicted by either of my Departments on the other Departments. These are papers that are being jointly delivered, that will call out areas of efficiency and areas of opportunity that in turn will help us deal with decisions that we have to make, to respond back to matters and challenges that have been raised by colleagues around the table here today.

So, that leads into my second area regarding what the Framework is within which we’ll make those choices. And I want to emphasis points that I made in relation to the Summer Economic Statement, while contrasting that with some calls that I’ve heard here around the table, over the last couple of days. It’s striking for me to hear calls for greater public investment and greater public spending. And for those calls not to be accompanied by the fact that the Government has already committed to €2.6 billion more of higher levels of public spending for next year. Out of that €2.6 billion, €1.5 billion of it is in higher capital investments. Next year capital investment in our economy will increase by a quarter [25%] versus where we are this year. This year, spending in capital formation in our economy, through the Exchequer, will increase by €800 million versus where we were last year. These are really significant changes. They’re changes that are needed, and they are happening. And, in terms of the Budgetary Framework that the Government will move to, I will not be delivering any changes that imperil my ability to deliver a deficit that is no greater than 0.1% for next year.

And I’m going to do that, because this will be the second year in a row, in which we can point to our economy delivering books that are broadly balanced, while accompanying this by the set up of a Rainy Day Fund.

And I do all of this because one of the things that perhaps didn’t get the prominence in the discussions that we have had here today, but was touched on, is the changing economic and political environment within which our open economy is secured at the moment. And we heard the Taoiseach refer earlier on to Paul Krugman, and the concept that he had of the great moderation. A question I think we should consider is whether the last five or six years were actually another wave of the great moderation, externally. And if that was to change, what that will mean for our economy. And as somebody who is in the room, in Euro Group and Ecofin, when I see other countries still grappling with difficulties that we have had in the past, I’m absolutely determined to ensure that our national finances, offer the greatest security possible to our country, if we see conditions begin to shift in a way they might. And I will deliver that. That will happen. It will happen in Budget 2019. And that context to our national finances, it’s not something that has been raised to a great degree by many of you. That’s not a criticism, it’s just a fact. I wouldn’t expect it to be. That is my role and that’s what the Government is here to do. But it is the context within which we will be making those decisions.

And it is a context now of looking at what is the right budgetary stance for our economy, before I move onto challenges in relation to our society. The artist formally known as fiscal space, will not be making a return. What we have to do now is look at what is the right stance for our economy? What are the right choices that we can make? What we cannot do is look at the framework of fiscal rules, and say – because a certain element or part of that architecture could say that we might be able to spend more money- is that we go down that pathway if that’s money that we don’t have, and our economy needs to borrow to do it.

So the way in which the Government will be putting together this Budget is looking at what is the right Budgetary stance to take. What is the appropriate stance for our fiscal decisions that we will make, in the context of where our economy is at the moment, and in the context of what we are seeing happening abroad, and how that might influence an open economy.

And that then leads onto the six policy areas that reflect most of the discussion that we have had that will allow the perculation of the right budgetary stance for our economy, into things that I want to use to make a difference to our society. Because to underscore what I said on many occasions, a recovering economy isn’t the same thing as a healed society; and why we will always have much that we need to do, and will always have much that we need to do to heal our society. That isn’t a sign of why we shouldn’t try, it’s the clarion call as to why we need to keep at it, and why we need changes that can make a difference. But a good economy and safe national finances are a prerequisite to doing it, which is why I’m guided by the Framework I touched on a moment ago.

So what are the kind of themes that will continue to inform choices that we will make? They’re to reaffirm the themes that were outlined by the Taoiseach yesterday morning. Themes that he has laid out, that he has mandated the Government to deliver. That the Government will deliver in this and future decisions that we have made.

The first one is to look at how we can continue to rebalance our economy towards changes that we need to make in our indigenous and domestic sector. And towards how we respond back to the very very demanding agenda of decarbonisation and climate change.

The second one is, is how we can use our Social Insurance System to continue to deliver tangible improvements to our citizens, whether they be self-employed, whether they be our citizens with disabilities, whether they be our citizens who don’t have access to changes in the labour market, or are citizens who do work that matters to the State, and matters deeply to our society, but is not work that is paid for. How we can use our Social Insurance System to respond back to that.

Thirdly, how we can have a tax base that is broad and stable? A priority which was important for me in the last Budget, will be as important for me in the next one.

Fourthly, how we can have a better approach to land. From the planning of land to the supply of land to the organisation of land. And I want to say the work that Minister Murphy is doing in this area is work that  I believe can and will make a difference to the challenges that we have, and he has my absolutely support in looking at how we can make that happen. You’ve seen a sign from that in terms of the commitment that the Government has, and the resources that we have made available to Home Building Finance Ireland. And I will be continuing to work with him, to look at the further changes that we need to make in that area. And we’re working to bringing some important work to a conclusion in that area, soon.

Fifthly, how we continue to make gradual and sustained improvements to the take home pay and living standards of our citizens. I am committed to tax reform. I am committed to changing the tax code, where we can get ourselves to a place that, if you’re earning an average wage in our country, you’re not on the higher rate of income tax.

But I’m unambiguous in my commitment to delivering that. And some of the understandable questions that have been raised about my approach, have been around the gradual approach of doing it. To say well, if the difference is only €5 or €10 a year, why do it at all. There’s two other questions I would pose to those who would put that question to me, which are all in the spirit of, well, what is the alternative to doing that? One alternative is, big bang approaches, big bang changes to our tax code. We’ve been down that path before. Look how that worked out for all of us. The second approach is not to do anything at all. That’s not a tenable approach to take. It’s not a tenable approach to take with the pressures that many feel at the moment, in relation to their standard of living, and not a tenable approach given the sense that many of our citizens have, regarding the challenges that they have in just getting by at the moment.

And then the final area of focus will be, how we continue to deliver sustained and increased investment in our public services, and accompany that with a deeper commitment and sense of reform, than we have had to date. And I will continue to look at choices that we have to make in healthcare, continuing to work with my colleague Minister Harris regarding how we can accompany  all time high levels of investment in our health service, with the right governance structures in place, that are then settled to ensure we have accountability regarding how that money is spent.

So they’re the six themes that the Taoiseach has talked about, that he’s asked me to deliver along with the rest of the Cabinet, which we will be doing. That will inform choices that we make in Budget 2019 and beyond. The kind of dialogue that we’ve had, and the way in which I’ve heard people talk about these issues, will inform the choices. My view is, is even though the artist formally known as fiscal space is no longer with us, I am struck by the growing appreciation within these kind of dialogues regarding the constraints that we’re under. It has been interesting, in hearing contributions from colleagues, that all of us are aware that we can’t do everything. And it is really encouraging for me to hear that sense develop. Whether that sense can be maintained across the coming months, is of course the challenge that’s open to all of you, not just to me.

As we look at where we are now versus where we were in the past, and versus where we want to go to, I’m struck by the fact that budgetary policy did not end up with a difficulty that it was in by Ministers for Finance saying no to unpopular things, or saying no to things that were not needed. It was the cumulative impact of saying yes to things that many did want that was a factor but not the factor in budgetary choices that ended up being made about the breadth of our tax base, and the growth of public expenditure that was a factor in the difficulty we ended up in. And by being very clear, on my budgetary framework, where I want to be with my deficit, and the guides that will be important to me in policy choices that I want to make, I’m laying out today the compass that the Government will be using in the second half of the year to get to that point.

A future that’s the same as our present, isn’t the kind of Framework that we need to sustain our citizens in the journey that we have to make. A present that’s no better than our past is not a source of optimism either. And what we want to do, I believe as a society, and I’m heartened by how this has underpinned many of the contributions that I’ve heard here today, is try to create an economic and social model that’s inclusive, that’s sustainable, and in which we all have a stake. I believe in some areas we are closer to that than we were a year ago. I believe in other areas, we still have a journey to make. And the Taoiseach is committed to trying to create a Framework in which we can conclude that journey. And his Ministers are going to work with all of you to try to make that happen.

So to end with where I begun, as we look at what is happening at the moment in relation to dialogue, as we look at the kind of pressure that many institutions that we want to sustain in our country are under elsewhere, we’re different here in Ireland. We want to maintain that and I look forward to working with all of you to try and translate this kind of debate into policy choices that will make a tangible difference to our citizens, while being conscious of all of the competing pressures, all of the challenges that are there, from trade to tax to Brexit, that we need to navigate our way through. And the dialogue we’ve had today, provides a bit of a compass to it. In the second half of the year, we’ll be laying out the map to do it.

So thank you for your contribution. I look forward to working with all of you across the rest of this year.

Press conference re.

 

Summer Economic Statement 2018

 

Opening statement by Mr Paschal Donohoe, T.D.,

Minister for Finance and Public Expenditure and Reform

 

19th June 2018

Introduction

Good morning / afternoon and thank you for coming.

Today the Government is publishing its annual Summer Economic Statement.  This Statement is a key element in the reformed budgetary process by providing a policy background for discussions in the Dail and, subsequently, at the National Economic Dialogue next week.

It also sets out this Government’s medium-term economic and fiscal strategy.

Economic backdrop

A suite of economic indicators confirm that the Irish economy is growing at a healthy pace. 

My Department expects GDP growth of 5.6 per cent this year and 4.0 per cent next year.

This strong growth performance is paying dividends in the labour market where the unemployment rate has fallen below 6 per cent and the number of people working in our economy is close to its highest level ever.

Indeed, the economy is fast approaching full employment. In this context, we must take due care with our management of the economy.

Against this positive backdrop, we plan to run a very small deficit next year because of the political choices we have made in Project Ireland 2040 and the National Development Plan to substantially increase capital spending, which is increasing by €1.5 billion (25 per cent) next year to over €7 billion. 

 

This investment will ensure the delivery of vital social housing projects like O’Devaney Gardens, critical transport infrastructure like BusConnects and the prioritisation of new health new projects like the children’s urgent care centre that will be completed next year at James Connolly Memorial Hospital.

 

We are prioritising capital spending in order to address the serious infrastructural deficits that emerged during the recession and to position our economy and society for the opportunities and threats ahead.

 

As the ESRI noted today in its Quarterly Economic Commentary, more public investment increases the potential output of the economy by enhancing productivity and employment and thereby supporting growth in the long run.

Crucially, by increasing internal demand, the impact of public investment is mainly felt in the domestic sector of the economy.

This is the right way to rebalance our economy for the future.

Fiscal policy

The Stability Programme targeted a deficit of 0.1 per cent of GDP next year.

The Government is re-iterating this as our minimum target today – we will not adopt taxation and spending measures that result in a larger deficit than this.

This would accommodate a budgetary package of €3.4 billion, of which €2.6 billion has been pre-committed to expenditure measures leaving €0.8 billion for further allocation.

 

Any unfunded taxation or expenditure measures that go beyond this would necessarily involve more borrowing and will result in a subsequent increase in the deficit position.

 

Increasing the deficit would also mean that we would miss our Medium Term Objective (MTO) target for 2019 and as a result we would be in breach of the fiscal rules.

Let me stress what borrowing is: it is spending other people’s money and, of course, it will have to be repaid.

Budgetary strategy

The Summer Economic Statement sets out the key elements of the Government’s budgetary strategy.  Broadly speaking this revolves around five key areas:

  • Ensuring steady and sustainable improvements in living standards;
  • Rebuilding fiscal capacity
  • The need for prioritisation and realism
  • The need to avoid pro-cyclical fiscal policies
  • That budgetary policy will focus on ensuring fiscal sustainability

Public Expenditure

Turning now to public expenditure, the Government is determined to ensure that our budgetary strategy is based on steady increases in public expenditure underpinned by stable and predictable tax revenue

Incremental and sustainable improvements in public services is always to be preferred over the ‘feast-or-famine’ alternative.

Expectations have increased given the remarkable performance of our economy. 

However, I want to make it clear that not all demands can be met. 

In the first instance, expenditure continues to exceed revenue and we are still borrowing to meet the shortfall; if more resources are allocated, the deficit would be even larger.

Excessive growth in expenditure in an economy at full employment entails risk.  This is not a risk I want to expose the Irish taxpayer to; especially given the abundance of external risks now facing the economy.

The provision of public services can be enhanced – within existing allocations – by reforming the way public services are delivered. 

Each year, central Government spends over €60 billion; I am convinced that there remains scope to improve the efficiency with which this is allocated.  The spending review, which will be published in July, will be crucial in this regard.

It is also vital that we maintain a broad tax base that generates a sustainable revenue stream necessary to fund public services. 

We cannot build permanent expenditure commitments on revenues that may not be sustainable.

This is why the Government is setting aside some of the historically high levels of Corporation Tax for the purpose of creating the Rainy Day Fund.

Fiscal space

Finally, I would like to turn to the issue of fiscal space. 

The full and literal application of the fiscal rules in recent years has led to a focus on what is available in terms of the fiscal space. 

This was appropriate in a period when the amounts were somewhat constrained and there was a need to bring about service improvements following many years of consolidation. 

However, there are a number of reasons why utilisation of the fiscal space is not appropriate in the current circumstances.

Firstly, fully applying the rules would involve the adoption of pro-cyclical policies not remotely appropriate to our position in the economic cycle.

We don’t have the available tax revenue to use up all of the so-called space, meaning that we would have to borrow more to do this.

That would be the wrong path for our society and economy.

Secondly, with a debt to GNI* ratio of 100 per cent last year the focus must be on balancing the books and reducing nominal debt.

Finally, risks to the global economy are growing. In this context, the priority must be to rebuild fiscal buffers so that the Irish economy can best absorb economic shocks if and when they occur.

The Government will frame budgetary policy on the basis of what is right for the economy in order to ensure continued, steady improvements in Irish employment and living standards.  We only have to look at other small, open countries like Finland, Sweden and Denmark to see well-managed economies with excellent public services paid for on a sustainable basis; this is what the Government wants for the Irish people.

 

Conclusion

In conclusion, we are approaching the 10th anniversary of the deepest crisis in the modern era. 

While the economic situation is relatively healthy at present, it is clear that the external environment is becoming increasingly challenging.

The UK’s imminent exit from the European Union, changes in the international corporate tax landscape, and the possibility of disruptions to the global trading system are some of the principal risks facing the Irish economy at present.

A crucial policy response is to build up our fiscal capacity in order to respond to these challenges – to enhance our resilience.

This is why the Government is prioritising reducing public debt, establishing a Rainy Day Fund, and avoiding pro-cyclical budgetary policies.

While there are risks ahead there are also opportunities; our goal is to position our economy to minimise the risk and to maximise the opportunity. 

Economic growth is not an end in itself – but it is a necessary means to an end.  Continued economic growth is the way that we will achieve our objective of ensure progressive and steady improvement of living standards in our Republic.

Thank you once again for coming and I will now take your questions.

 

Tuesday, June 12th 2018

CHECK AGAINST DELIVERY

Good afternoon.  I would like to thank the Chairman and Committee members for inviting me to speak to you today on a number of EU related matters namely: 

  1. Government approach to the future EU Budget and the next Multiannual Financial Framework for the years 2021-2027;
  2. the 2018 country specific recommendations for Ireland as related to my Department;
  3. developments on Banking Union; and
  4. The recently published EU legislative proposals for Whistleblower Protection.
  1. Government approach to the future EU and the next Multiannual Financial Framework 2021-2027

Turning to the first item, it is timely to have a discussion now that we have the European Commission’s proposal for the Draft Budget 2019 and on the next Multiannual Financial Framework (MFF).

Ireland and the EU Budget

The European project has helped to transform Ireland from one of the least developed Member States when we joined, to one of the more prosperous today. We all recognise how we have benefitted from the EU and it’s important to use that experience to help shape the debate on the future of Europe and what our priorities should be.

 

The Post-2020 MFF comes at a time of change and adjustment for the EU – longer-term challenges such as economic competitiveness, continuing youth unemployment and climate change, emerging challenges to international trade and access to the single market as well as international challenges, such as migration, security and terrorism – have become more pronounced in recent times. In addition, the departure of the UK will cause both short and longer-term practical challenges for the MFF. 

It is worth recalling how Ireland’s relationship with the EU Budget has evolved. As you will be aware, Ireland has traditionally been a significant net beneficiary of the EU Budget. Since accession in 1973 until 2016, we paid in approximately €34bn but received €76bn, €42bn more than we have contributed.

Contributions

With Ireland’s growing prosperity, we have moved from being a net beneficiary to a net contributor to the EU budget over the last number of years. Member State contributions to the EU Budget are calculated by the EU Commission in line with the provisions outlined in the Own Resource Decision which was ratified by all Member States in 2016. This Own Resource Decision lays down three sources of EU revenue, or ‘Own Resources’:

  • Customs duties, collectively known as “Traditional Own Resources”;
  • Contributions based on VAT; and
  • Gross National Income (GNI) based contributions.

When taken together the Traditional Own Resources and VAT elements account for approximately 30% of Member State contributions. The remainder mainly comes from Gross National Income (GNI). This is an important element as it links the contributions of Member States to the size of their economy.

Given the high levels of economic growth in Ireland in recent years, combined with a lack of such growth amongst other Member States until recently, our overall share of contributions to the EU Budget has grown and Ireland became a net contributor to the EU Budget – on a cash flow basis – for the first time in 2014. Ireland’s current contribution as set out in the Stability Programme Update and is forecast to be approximately €2.7 billion in 2018, moving towards €2.9 billion in 2019. It is worth noting that while these forecasts are volatile and contingent on a number of variables – such as economic growth in Ireland and the EU’s overall level of expenditure in any given year – the trend in relation to Ireland’s growing contributions is continuing.

 Receipts

Under the current MFF it is forecast that Ireland will receive just over €12bn over the course of the seven years. The majority of Irish receipts from the EU – about 80% – come through the Common Agricultural Policy (CAP) and are spent on areas such as direct income and market support to the agricultural sector. Further monies are received for rural development programmes. There is broad awareness in both urban and rural areas of Ireland of the role which these funds have played in helping to modernise and develop our economy. 

While Ireland has in the past benefited enormously from Structural and Cohesion Funding, which continues to play an important role for many other Member States in fostering economic development and prosperity, receipts in this area have been declining in recent years because of our economic growth.  I especially welcome the Commission’s proposal for a new PEACE PLUS programme to continue and build on previous PEACE and INTERREG programmes.  The Irish Government has been consistent about its commitment to the implementation of the current programmes and to successor programmes post-2020. 

Ireland has also benefited from, and is supportive of, programmes for Competitiveness for Growth and Jobs including Horizon 2020, Connecting Europe Facility, and Erasmus+. For example, the Horizon 2020 programme which supports research and development is an important driver of research excellence and Ireland is on track to achieve €1.2bn in competitive funding under the current MFF in this area.

MFF 2021-2027

Ireland welcomes the European Commission’s publication of proposals on the post-2020 MFF. While many parts of the proposal have been published – such as on agriculture and cohesion – a number of others have yet to be released.

 Some of the key points in the proposal include:

  • €1.135 trillion in commitments in 2018 prices; or €1.279.4 trillion in current prices, covering the period 2021 to 2027.  This is equivalent to 1.11 per cent of the EU27’s Gross National Income (GNI).
  • More funding for priority areas including research and innovation, young people, the digital economy, border management, security and defence. 
  • CAP and Cohesion Policy funding to be reduced by approximately 5 per cent.
  • Erasmus+ to be doubled

 The Commission have made a number of proposals on Own Resources:

  • An increase in the Own Resources ceiling from 1.2 per cent to 1.29 per cent of EU-27 Gross National Income (GNI).
  • A Reduction from 20 per cent to 10 per cent in the amount Member States can retain when collecting customs revenues.
  • A more simplified approach for calculating VAT payments to the EU.  
  • The retention of Gross National Income (GNI).
  • The elimination of Rebates.

 In addition the Commission are proposing a number of measures in order to increase Own Resources, for example

  • 20 per cent of the revenues from the Emissions Trading System;
  • 3 per cent of the new Common Consolidated Corporate Tax Base.  This is expected to be phased in once legislation has been adopted;
  • A National contribution calculated on the amount of non-recycled plastic packaging waste in each Member State.  This is set at eighty cent per kilo. 

 The Government has already begun to develop a national position on these matters.  We believe that the MFF Post-2020 should continue to adapt to the EU’s evolving priorities. We also believe that we should not lose sight of the value and contribution of traditional policies including agriculture and cohesion.  The CAP is a key national interest and will continue to be so. We want the EU to continue to fund programmes that work and work well. Expenditure in the area of agriculture helps support 44 million jobs across the EU, while contributing to food security and safety, rural sustainability and environmental standards.  Cohesion is another important policy tool of the Union. Structural funds for less developed Member States of the Union will enable them to unlock their economic potential, which will benefit all of us in the long run.  We will need to carefully consider the implications of any amendments in these areas.

We welcome the emphasis on other policies that function well, including Erasmus+, the Framework Programme for Research and Innovation and the EU’s global instruments. It is vital also that there be a continuation of the PEACE and Interreg programmes post Brexit, as foreseen in the Commission’s Progress Report from last December.

Ireland believes that the amount of expenditure at EU level will need to be proportionate and appropriate to the overall levels of available funding and that the discussions on the post-2020 MFF priorities and objectives will need to be framed in this context. That accepted, the Taoiseach has indicated that Ireland is open to contributing more provided that it meets European Added Value objectives.

As the Committee will appreciate, the Commission’s proposals are complex and will require careful analysis and study. They are under-pinned by legislative proposals in each of the sectoral areas. All relevant Government Departments are examining these carefully and will prepare to engage in the detailed discussions which will begin at official level shortly. We look forward to engaging in a positive, constructive manner in the upcoming negotiations on the MFF post 2020.

  1. The 2018 country specific recommendations (CSRs) for Ireland as related to my Departments

Let me now turn to the second item on the agenda, which is the country specific recommendations as related to my Departments. 

The European Semester is an annual cycle of economic and budgetary policy coordination in which guidance is provided to Member States before they take policy decisions at national level. The Department of An Taoiseach centrally coordinates Ireland’s participation in the Semester process.  The Semester process starts every year in November, when the Commission publish the Annual Growth Survey, which outlines the general economic priorities for the European Union, and the Alert Mechanism Report, which identifies Member States that are experiencing economic imbalances – and is part of the European early warning system that identifies economic issues or sectors that countries need to address. Later in March, the European Commission publish a Country Report for each Member State. This assesses the progress made by each Member State in addressing the issues identified in the previous year’s Country Specific Recommendations.  In April, Member States respond to the Commission’s analysis in the Country Report by submitting a National Reform Programme, which provides an overview of structural reforms and policy actions that are currently are underway and also by submitting the Stability Programme Update, which sets out the updated macroeconomic and fiscal forecasts for the period 2018 – 2021.  Once the Commission has considered these, it publishes the Country Specific Recommendations for each Member State on policy measures to be considered by Member States over the coming twelve to eighteen months.

Similar to last year, Ireland received three recommendations, in the areas of fiscal policy, government expenditure and investment, and the management of long term non-performing loans.

CSR1 deals with the effectiveness of public finances and expenditure. In particular it focuses on the reduction of government debt and broadening the tax base, as it did last year. Ireland’s stronger than expected headline growth in 2017 has allowed us to make good progress towards achieving our medium-term objective (MTO) and reducing government debt, which has also benefitted from the use of “windfall gains” from the sale of part of AIB. 

CSR 2 addresses the implementation of the National Development Plan. This recommendation reflects the government investment priorities and dovetails with the Irish government’s stated priorities including childcare, housing and water services.

For the first time, CSR 3 focuses on productivity growth, with particular regard for small and medium enterprises. This is welcome, as the Department has collaborated with the OECD on firm-level productivity research, which was published in March and on which a presentation was given at the March ECOFIN.  CSR3 also emphasises resolution of long-term loan arrears, building on initiatives for vulnerable households.

These recommendations have been examined by my Department and are not surprising given the emphasis placed on these areas in the Country Report.  Such recommendations are to be expected for a growing economy and I agree with their overall substance.  I will provide further information on these later in the meeting.  At present, the Country Specific Recommendations will be on the agenda for discussion and agreement at the ECOFIN Council on 22 June and, following that, are then expected to be endorsed by the European Council on 28 – 29 June.  They will finally be adopted at ECOFIN on 13 July.  Member States will then be able to reflect them in their budgetary and policy plans for 2019.

  1. Developments on Banking Union

I will turn now to the issue of Banking Union. As members will know, in response to the financial crisis, a number of initiatives were introduced at EU level to create a safer financial sector. These initiatives form a Single Rulebook for all financial actors in the EU Member States which consists of a set of legislative texts that are applied to all financial institutions across the EU. Specifically, the rules include capital requirements for banks, rules for managing failing banks and improved deposit guarantee schemes.

The most significant elements are –

    • the Capital Requirements Regulation and the Capital Requirements Directive, known as CRR and CRD – these were first agreed in 2013;
    • the Bank Recovery and Resolution Directive, or BRRD; and
    • the Deposit Guarantee Schemes Directive.  These two elements were agreed in 2014.

The Commission has also made a proposal for a European Deposit Insurance Scheme, or EDIS. 

In addition to this Single Rulebook, which is the foundation of the Banking Union, there was a commitment to shift supervision to the European level, with the introduction of the Single Supervisory Mechanism in November 2014, and later with the establishment of the Single Resolution Mechanism.

 Key Pillars

A roadmap for the creation of the Banking Union set out the main steps to be undertaken by the EU institutions based on risk reduction and risk sharing.  Three pillars were set up and comprise of:

  • a Single Supervisory Mechanism, the SSM.
  • a Single Resolution Mechanism, SRM, which includes a Single Resolution Fund
  • European Deposit Insurance Scheme, or EDIS.

 Ireland has been supportive of Banking Union from the outset and we are continuing to work closely with our EU colleagues to further advance this.

 

Risk Reduction Measures Package

At the Ecofin meeting in May, Ministers agreed the latest measures in Banking Union – known as the “Risk Reduction Measures”.

These measures were proposed by the European Commission in November 2016 and aimed to implement reforms agreed at international level. The package comprised two regulations and two directives and aimed to update and amend the Capital Requirements Regulation and the Capital Requirements Directive, as well as the Bank Recovery and Resolution Directive, which are the aspects of the Single Rulebook which underpin the first two Pillars of Banking Union.

These proposals are designed to ensure that banks have sufficient loss absorption and recapitalisation capacity in the case of a bank resolution.  The aim is to enable banks to continue critical functions without endangering financial stability or requiring taxpayer support.  One of the key amendments was to introduce at an EU level the ‘Total Loss-Absorbing Capacity’ standard, which had been agreed at international level for Global Systemically Important Banks.  With the package agreed in May, this ‘Total Loss-Absorbing Capacity’ standard was integrated into EU law.

The amendments to the Capital Requirements Regulation and the Capital Requirements Directive introduced stronger prudential requirements for banks, ensuring they are adequately capitalised and less susceptible to liquidity issues. These amendments for the most part aim to implement additional international standards agreed since the implementation of the original Capital Requirements Regulation and the Capital Requirements Directive in 2013. However, they also include measures which aim to reduce the regulatory burden on smaller, less complex banks as well as targeted proposals to help finance the real economy.

I believe that the Risk Reduction package agreed at ECOFIN on 25 May was a good one. I am hopeful that the European Parliament will be able shortly to start negotiations, allowing us to agree these proposals and enact them as soon as possible.  It will fall to the incoming Austrian Presidency to advance these negotiations.

  1. EU legislative proposals for Whistleblower Protection

The final item you asked me to address is the proposed EU Directive on the protection of whistleblowers, which was published on the 23rd of April.

As the members of the Committee may be aware, Ireland is one of just 10 EU Member States to have enacted a comprehensive package of protections for whistleblowers in the form of the Protected Disclosures Act 2014.  The Act is well regarded internationally and seen as an exemplar of this type of legislation.

Accordingly, while I welcome the EU’s initiative in this area, careful consideration is needed as regards how these proposals will interact with the operation of the Protected Disclosures Act. I do not want the protections our legislation offers to be diluted by any of the EU’s proposals. In this regard, I am pleased to see that the approach the EU has taken mirrors many of the provisions of our legislation in that it applies to broad categories of workers and reportable wrongdoings and provides for both internal and external channels for reporting of wrongdoing.

The protections from retaliation provided for in the draft Directive are also broadly similar to those provided for in our legislation and include protection from dismissal (including the right to seek interim relief from dismissal) and from other forms of detriment such as reduction in pay, suspension, demotion or withholding of promotion as well as intimidation and harassment.

There are, however, a number of key differences between the proposed Directive and the Protected Disclosures Act. In particular, the Directive:

    • Applies to a wider cohort of persons, including volunteers, unpaid trainees and job applicants;
    • Includes a wider range of matters that may be reported as wrongdoings, including reporting on corporate tax avoidance; and
    • Places specific obligations on businesses with over 50 employees or a turnover of €10m or more to establish formal channels and procedures for receiving disclosures.  Companies in financial services or in any areas of high risk of being vulnerable to money laundering or terrorist financing will be required to establish internal channels irrespective of size. 

The practical implications of all of these will require careful consideration and clarification, including engagement with relevant stakeholders and with the EU Commission.

Transposition of the Directive, if adopted, may require some amendments to the Protected Disclosures Act to reflect the provisions of the Directive and ensure harmonisation of the procedures for making a disclosure under the Directive and under the Protected Disclosures Act.

Finally, as the Committee may be aware, a statutory review of the operation of the Protected Disclosures Act is being finalised. The potential impact of the Directive will have to be taken into consideration in making any of the recommendations contained in the review. The review will be published by the statutory deadline of 8 July.

CONCLUSION

Chairman and members of the Committee, I trust that the above gives you an outline of the various issues you asked me to address in your invitation.  I would like to thank you for your attention and, at this point, I will be happy to respond to any questions or observations that Members may have. 

ENDS

CHECK AGAINST DELIVERY

 

Good afternoon Ladies and Gentlemen. I am delighted to be here with you today and I would like to thank FSI for inviting me to speak with you today.

 

Economic and Fiscal Developments

I would like to start by giving you an overview of our economy. Our recovery is continuing at a robust pace. GDP grew by 7.8 per cent in 2017. Recovery is perhaps most clearly evident in the labour market with employment growth of 2.9 per cent recorded in 2017  over 2016, representing the creation of over 61,300 additional jobs over the year.

In terms of our fiscal outlook, public finances are continuing to move in the right direction and are being placed on a more sustainable footing, with a balanced budget in sight and a falling debt ratio.

One of the challenges we face is to build upon these economic and fiscal successes, and to ensure that our recovery continues to grow at a strong and sustainable pace.

Now turning to developments in financial services at European level.

 

Pan European Personal Pension Product

There are a number of EU financial services dossiers of interest to this audience progressing at EU level.  I know you have been engaging with officials on these files and I appreciate your views.  I just wanted to mention here one of the files that is the Pan European Personal Pension Product.

Department of Finance officials are very engaged on pension developments at a European level.  Negotiations are ongoing at Council to develop a Pan-European Personal Pension Product – or ‘PEPP’.  The European Commission announced their proposals for the PEPP in June 2017.  The aim of the proposal is to lay the foundations for a safer, more cost-efficient and transparent market in affordable and voluntary personal pension savings that can be managed on a pan-European scale.  Our officials are constructively engaging with our European colleagues and domestic stakeholders on the development of PEPP to ensure Irish interests are reflected and that a successful product is created.

 

IFS2020

As many in this room will no doubt be aware, we are now in the fourth year of our International Financial Services 2020 Strategy (IFS2020).

Against the backdrop of the increasingly competitive and dynamic international environment for financial services, our aim is to increase the numbers employed in the sector by 30% or 10,000 net new jobs by 2020.

We are on track to achieve this target with almost 7,000 net new jobs created in the first three years of the strategy.

As part of the development of the IFS2020 Action Plan 2018, my colleague, Minister of State Michael D’Arcy TD, identified six key priority areas for 2018:

  • Sustainable Finance
  • The development of Ireland’s regions for IFS
  • Education and skills
  • Aviation finance
  • Financial market infrastructure, and
  • Investment limited partnership legislation.

The six areas look at both capitalising on opportunities in new and emerging areas such as sustainable finance, while also continuing to improve our environment in sectors where we already excel such as aviation finance.

 

Education and Skills Measures

IFS2020 also places a strong emphasis on education and improving Ireland’s offering in terms of skills and talent. One education measure that I should note here today is the International Financial Services apprenticeships offered by Financial Services Ireland which have been up and running since September 2017. The delivery of these apprenticeships is a really important step in improving Ireland’s financial services offerings as a whole and I would encourage all of you here today to get involved in these programmes in any way that you can to help lend your financial services expertise. As part of IFS2020, we have seen the development of apprenticeships across a number of subsectors in financial services such as accounting, FinTech, insurance and data analytics. These apprenticeships are designed for a broad range of applicants from school leavers to those looking for a career change.

 

New Strategy for IFS 

While IFS2020 has served our financial services environment well for the number of years it is vital we continue to look ahead to what our offering will look like in the longer term.

The new strategy should provide the ecosystem to continue to enhance the opportunities for the sector, and to ensure Ireland continues to be recognised as a global location of choice for international financial services.

A series of targeted and focussed consultation on the content of the strategy will take place in the coming months.

 

European Financial Forum (EFF)

I’d like to highlight the European Financial Forum, the Forum has become a flagship event of the financial services calendar and is a core part of the IFS2020 Strategy.

In 2018 we heard from headline speakers such as Valdis Dombrovskis; Vice President of the European Commission; Colm Kelleher, President of Morgan Stanley; and Mike McGavick, CEO of XL Group to name but a few. I can confirm that the fourth annual EFF will be held once again in Dublin Castle on 13 February 2019 and I look forward to seeing some of you in attendance next year.

 

Some Brexit announcements

Public announcements in the international banking sector include CitiGroup; JP Morgan; Bank of America Merrill Lynch; Toronto Dominion; Barclays. There have also been announcements made in respect of the Insurance and Reinsurance sectors recently. These include: XL Catlin; Chaucer; Legal and General; Beasley Re; Royal London; Everest Re Group; Marine insurers The Standard Club, and North P&I Club have also announced their intention to establish operations here.

In September, Kroll/KBRA became the first ratings agency to announce that their EU HQ location would be in Dublin, and this was followed recently by Thomson Reuters’ announcement relocating their FX Multilateral Trading Facility.

[Some firms have indicated to officials they will not be in a position to publically announce Brexit relocation activity due to commercial and other reasons.]

 

Conclusion

To conclude, the Irish financial services industry has come a long way since the establishment of the IFSC in 1987. In the intervening years the industry has grown dramatically to become a global leader and major contributor to the Irish economy.

While there are challenges ahead, the industry appears to be well placed to face these. We share the goals of growth and development for the industry and look forward to continuing our collective efforts to develop Ireland as a hub for investment funds.

Thank you again for the opportunity to speak with you this afternoon.

 

Ends

 

Contact: Aidan Murphy, Press Officer, Department of Finance – 085 886 6667

Check Against Delivery

17 May 2018

Introduction
Good morning Ladies and Gentlemen. I am delighted to be here with you today and I would like to thank Irish Funds and Pat Lardner for inviting me to speak with you this morning at the 20th Irish Funds Annual Global Conference.
This is an event that has gone from strength to strength and, which mirrors the remarkable development of the Irish Funds sector.
As I was traveling here this morning, I reflected on what might have been said at that first conference, back in 1998, when the net asset value of authorised collective investment schemes was just under £60 billion.
While, I am sure the focus was on growing and developing the sector, it is highly unlikely that anyone present could have quite imagined the thriving picture that we now have.

Irish funds sector
Today, as you know, Ireland is the third largest fund jurisdiction in the world, and the second largest in Europe with 6,800 funds domiciled here, managing €2.39 trillion of assets domiciled in Ireland at the end of 2017.
And, the funds industry has assisted in positioning Ireland as a competitive and vibrant economy, not least through the 16,000 jobs which it supports across the country.
This annual event is vital in bringing together key thought-leaders in the industry to seek and discuss innovative solutions to some of the key challenges of our time.
The agenda is forward looking and ranges across areas such as digitalisation and Fintech, investment trends, regulation and the risks and opportunities presented by Brexit.
I am pleased that my colleague, the Tánaiste, Simon Coveney, T.D. will be joining you this afternoon, where you will have an opportunity to get his perspective on the current position of Brexit.
The funds industry has, indeed, been a successful and significant element of the Irish financial services landscape for many years.
This success has been underpinned by changes in the legislative landscape that have made Ireland an attractive domicile for promoters in Asia, across Europe, the U.S. and further afield.
We provide a supportive environment with a robust and consistent regulatory regime that underpins confidence in Irish domiciled investment funds.

Investment Limited Partnership (ILP) Legislation & Irish Collective Asset-management Vehicle (ICAV)
Currently on the domestic front, our Investment Limited Partnership (ILP) legislation is being reviewed to make it more relevant to today. We have engaged with all stakeholders and are continuing to work on the updated legislation.
In tandem with updating the ILP, a number of technical changes are being made to the Irish Collective Asset-management Vehicle (ICAV) which will help to make the ICAV framework more efficient.

Economic and Fiscal Developments
Turning to the economy, our recovery is continuing at a robust pace. GDP grew by 7.8 per cent in 2017. Recovery is perhaps most clearly evident in the labour market with employment growth of 2.9 per cent recorded in 2017 over 2016, representing the creation of over 61,300 additional jobs over the year.
In terms of our fiscal outlook, public finances are continuing to move in the right direction and are being placed on a more sustainable footing, with a balanced budget in sight and a falling debt ratio.
In this regard, it is important to stress that I am continuing to prioritise the reduction of our debt burden so that the economy can withstand any adverse developments in the future.
One of the challenges we face is to build upon these economic and fiscal successes, and to ensure that our recovery continues to grow at a strong and sustainable pace.

Capital Markets Union
I now want to touch upon Capital Markets Union, which has been a key project for this Commission and a project that we in Ireland have been very supportive of.
Capital Markets Union is important in order for Europe to establish the building blocks of an integrated capital market in the EU through supporting the development of alternative sources of finance, complementary to bank-financing – including venture capital, crowdfunding and market-based finance.
Economic analysis suggests that purely bank-based financial systems are more prone to crises and might produce lower growth performance whilst cross-border capital market integration can complement fiscal risk sharing.
We, in Europe, are only a small percentage of the global market. This is a point often overlooked by some.
Retaining, and where possible, increasing the attractiveness of the European package to non-European investors is paramount and something we will continue to press for in discussions at the European level.
For EU capital markets to prosper, they must be open and globally competitive, and able to attract additional investment and expertise internationally.
In terms of achieving progress on this important project, we must focus on those aspects of the Commission proposals that relate to CMU and can be realistically completed before the European Parliament elections and the end of the existing Commission’s term.
With that in mind I want to highlight some of the recent Commission proposals that can be progressed in the coming months within Council and Parliament.

Cross Border Distribution of Funds
One of the best ways to develop our capital markets is to eliminate as many barriers within Europe for the transfer of capital between Member States.
The Commission’s proposals to reduce barriers for the cross-border distribution of investment funds is a positive step in this direction.
We believe the proposals will go some way towards simplifying requirements for the distribution of funds cross border and make improve transparency for investors.

Fintech
Building upon innovative solutions for the industry, Ireland is supportive of the Commission’s recently published Fintech Action Plan as this area is a key strategic objective of our strategy for Ireland’s international financial services sector.
We believe that fragmentation of Fintech along national lines should be kept to a minimum and we support the development of a European framework to help prevent such an outcome.

Crowdfunding
One good example is the proposed European regulation of crowdfunding service providers.
Crowdfunding is an emerging and innovative industry and my Department carried out a public consultation on the potential regulation of crowdfunding where there was general support for regulation from industry and stakeholders.
It is anticipated that the regulation of crowdfunding service providers on a harmonised European level will allow for the possibility of Irish crowdfunding platforms to passport their services to other European Member States, thereby widening their prospective market and making the European crowdfunding market more competitive. This is welcome from an Irish perspective.
Focusing our efforts on these important files, should ensure that we have gone a good way towards enhancing European capital markets and thus further the very important goals of developing our Capital Markets Union.

IFS2020 (and new IAC international member position)
As many in this room will be no doubt be aware, we are now in the fourth year of our International Financial Services 2020 Strategy (IFS2020).
Against the backdrop of the increasingly competitive and dynamic international environment for financial services our aim was to increase the numbers employed in the sector by 30% or 10,000 net new jobs by 2020.
We are on track to achieve this target with almost 7,000 net new jobs created in the first three years of the strategy.
Irish Funds played a vital role in IFS2020 during which they acted as Secretariat and in this regard I would like to say a particular word of thanks to Pat Lardner and his team.
The IFS2020 Action Plan 2018 contains a suite of measures to be implemented by private and public sector stakeholders throughout this year.
As part of the development of the Action Plan my colleague Minister of State Michael D’Arcy TD identified six key priority areas for 2018.
The strength of IFS2020 lies in combining the talents, and experience of both our public and private sector stakeholders to ensure we have a consistent and focused approach to development. It is also key that the strategy benefits from a global perspective, and thus there is an international member on the Industry Advisory Committee.
I wish to take this opportunity to thank the outgoing international member Professor Michael Manelli for his contribution to the IFS2020 strategy.
And also, to highlight that a selection process was started last week by Minister of State, Michael D’Arcy T.D., to identify a new international member for the committee.
We look forward to receiving expressions of interest in the position.

Brexit
Before I conclude I wish to highlight that Brexit is clearly one of the key issues for us, and as I stated earlier, the Tánaiste, Simon Coveney T.D., will address you on this topic later in the day. In that context, let me just refer to it briefly to outline our current position as we are in another crucial stage of negotiations.
Following on from the adoption by the European Council in March of additional guidelines, a schedule of negotiations is underway between the EU and the UK leading up to the European Council next month.
These negotiations are focused on all outstanding issues in the draft Withdrawal Agreement, including the Protocol on Ireland and Northern Ireland, as well as the future relationship.
We are putting important plans and strategies in place at national and sectoral level, including the Action Plan for Jobs, the Trade and Investment Strategy and with the 10 year National Development Plan launched last February.
The Government is well prepared for the Brexit process and will continue to work to protect and promote Ireland’s interests.
While Brexit will pose challenges to the Irish economy, there will also be opportunities and the Government will work to maximise those where possible.
Following Brexit, we will be the only country in the EU that is an English speaking common law jurisdiction.
We have ensured additional resourcing of Enterprise Ireland and the IDA to help retain, attract and develop businesses within Ireland and to help Irish businesses export to new markets.

Conclusion
To conclude, the Irish funds industry has come a long way since the establishment of the IFSC in 1987. In the intervening years the sector has grown dramatically to become a global leader and major contributor to the Irish economy.
While there are clearly challenges ahead, the industry appears to be well placed to face these. We share the goals of growth and development for the industry and look forward to continuing our collective efforts to develop Ireland as a hub for investment funds.
I wish you all the best with your programme today and look forward to seeing the outcome of your discussions.
Thank you again for the opportunity to speak with you this morning.

 

Ends

 

Contact:

Deborah Sweeney – Press Adviser to Minister Donohoe – 086 858 6878

Opening Statement by the Minister for Finance and Public Expenditure and Reform, Paschal Donohoe TD to the Budget Oversight Committee – Stability Programme Update 2018

18th April 2018

 

Check Against Delivery

 

Chairman, members, I welcome the opportunity to be here today to discuss the draft Stability Programme Update.

The Stability Programme sets out the Governments macroeconomic and fiscal forecasts for Ireland and is the first update of the Government’s projections since Budget 2018 in October of last year.

The Stability Programme is presented in draft form – I am of course willing to take on board constructive suggestions from members of the Committee. 

The final version will be submitted to Brussels later this month.

I wish to stress that the macroeconomic forecasts underpinning the Stability Programme have been endorsed by the Irish Fiscal Advisory Council.

The Council also welcomes the progress my Department has made towards developing alternative models for its medium-term forecasts.

 

ECONOMIC DEVELOPMENTS

Turning firstly to the economic situation, I am greatly encouraged by the latest data showing that the economy grew by 7.8 per cent last year.

I would stress that while the headline GDP figure can be exaggerated in an Irish context, other indicators such as consumer spending, labour market trends and taxation receipts confirm the strong recovery.

My Department has increased its GDP growth forecast this year to 5.6 per cent reflecting the stronger economic momentum in the second half of last year.

For next year, GDP growth of 4.0 per cent is forecast.

So the economy is in good shape. However, yesterday I stressed that this growth cannot be taken for granted and I want to emphasise this again today.

The UK’s impending exit from the EU, changes to the international corporation tax landscape and rising geopolitical tensions could all potentially derail the recovery.

From 2020 onwards, the economy has the capacity to grow by around 3 per cent per annum with positive contributions from both exports and domestic demand.

 

THE LABOUR MARKET

The economic recovery is perhaps most clearly evident in the labour market with employment growth of 2.9 per cent recorded last year, representing the addition of some 61,000 jobs.

As a result, there are now more than 2.2 million people at work for the first time since 2008.

In other words, we have now recovered 9 out of every 10 jobs lost during the crisis.

The labour market will continue to benefit from strong growth in domestic demand, with employment growth of 2.7 per cent forecast for this year.

On this basis, there will be more people at work in Ireland this year than ever before. 

Accordingly, unemployment is set to fall further to 5.8 per cent this year and to 5.3 per cent by 2019 – down from a peak of 16 per cent in 2012.

Indeed, the economy is fast approaching full employment. In this context, it is important that Governement policy does not overheat the economy.

 

THE PUBLIC FINANCES

Turning to the public finances; they continue to move in the right direction.

In terms of the underlying General Government deficit targets, progress continues to be made.

I am pleased to outline that, notwithstanding the additional expenditure, as a result of the reclassification of approved housing bodies, the deficit of 0.3 per cent of GDP recorded last year is in line with the Budget day estimate. This provides further evidence that the public finances are becoming increasingly sustainable.

Furthermore, a prudent approach to fiscal policy is being implemented, with tax revenue in 2017 growing by 6 per cent year-on-year, while gross voted expenditure is up by 4½ per cent.

This demonstrates the Government’s commitment to maintaining sound public finances, thereby ensuring that the policy mistakes of the past are not repeated.  

Turning to this year, the latest Exchequer Returns to the end of the first quarter show that the Government continues to deliver on its commitments.  

It is also important to point out that annual growth has been strong with tax receipts 3.5 per cent higher compared to the same period in 2017 and positive annual growth witnessed across most tax heads.

Turning to expenditure, it is being managed by Departments within their allocations thus far, with overall expenditure slightly below profile (2.3 per cent).

Capital investment to enhance our growth potential and address key infrastructural bottlenecks is slightly behind profile but still well up on last year, reflecting the substantially increased resources allocated at Budget 2018.

These are resources to improve our society by building the houses, schools, roads and hospitals our people need.

For next year, €2.6 billion in expenditure has already been committed. Included in this is €1.5 billion for additional capital spending, €0.4 billion to provide for demographic-related costs, €0.4 for public sector pay and €0.3 billion for carry-over costs associated with measures introduced this year.

A key Government priority is to reduce the level of public indebtedness we are experiencing and we are making significant progress in this respect.

However, it must be acknowledged that the recent evolution of the debt to GDP ratio present an overly benign view of our public indebtedness. 

The debt to GDP ratio has decreased only because GDP has increased.

Other measures, notably the ratio of debt to GNI* show that while declining – public debt still remains high in Ireland.

The legacies of the crisis persist with the total stock of debt amounting to €206 billion this year.

This represents around €40,000 worth of debt for every man, woman and child.

It is essential that we start to reduce this burden so that the economy can withstand adverse developments if, and when, they occur.

 

CONCLUSION

Despite the strong momentum, a continuation of robust growth cannot be taken for granted as there are a number of significant external and domestic risks on the horizon that could potentially derail the recovery.

Principal among these are the potential fallout from the UK’s impending exit from the European Union and the possibility of a significant disruption to world trade from increasing protectionism.

Domestically, notwithstanding the well-known limitations with GDP, it is clear that the recovery continues to outperform expectations and while this is to be welcomed, it creates its own challenges.

Indeed, if the economy continues to grow in excess of its potential, capacity constraints will begin to emerge.

In these circumstances, it is essential that budgetary policy does not contribute to overheating and that the pro-cyclical policies of the past are not repeated. 

The best way of dealing with these risks is through prudent management of the public finances and competitiveness-oriented policies.

This is what the Government will continue to do.

ENDS

Speech by Minister Donohoe to the Irish Business Network, Buenos Aires, Argentina

15th March 2018

 

Introduction

It is a pleasure for me to be here with you this evening to represent the Government at the St Patrick’s Day celebrations in Argentina.

Thank you to Matthew Moran, Richard Fenning and Orla Treacy for leading the Irish Business Network Argentina (IBNA) and helping it grow

Thank you to the representatives of Enterprise Ireland who have come from Brazil to be with us tonight – Conor Fahy (Director for Latin America, Eastern Europe, Russia and the CIS), and Melissa Feddis (Manager South America).

I wish to begin by encouraging the Irish Business Network, as a body, to continue your excellent work in fostering and further developing business links between Argentina and Ireland that lead to mutual economic benefits for both our nations.

Argentina and Ireland are faced with an entirely new set of challenges in a rapidly changing international political and economic environment. Certainties about global trade and politics are changing. The final magnitude of the change is still to be determined but change is happening.

Amid this global volatility, Argentina is successfully re-positioning itself as a significant regional and global actor. Important milestones have included the hosting of the WTO Ministerial Conference here last year, attended by my colleagues, Ministers Pat Breen and Andrew Doyle, as well as Argentina’s G20 Presidency this year.

For our part, thanks to the hard work of the Irish people and the right policy choices, Ireland’s economic recovery is strongly embedded. Our priority now is to ensure that the huge economic progress we have made in recent years is matched by greater momentum towards a social recovery so that the fruits of our success are broadly shared by all our citizens and in every region of the country.

As many of you will be aware St Patrick’s Day represents an important opportunity for the Irish Government not just to represent Irish business abroad but also to meet some of the key players in that business. Ultimately, the benefits that come to Ireland from international trade come from your dedication and your hard work.

The role of the Irish Government, and mine as Minister for Finance and Public Expenditure & Reform, is to make it as easy as possible for you to establish your business, to grow your business, and to not put any obstacles in the way of the success of your business.

 

Shared Outlook

Ireland and Argentina are different in many ways, Argentina’s population is nearly nine times larger than ours. Buenos Aires alone has a population more than half that of Ireland.

However, we also have a lot in common.

Over the years, many thousands of Irish people have made their way to Argentina and I think the fact that Argentina is home to one of the largest Irish communities in the world is testament not just to Argentinian hospitality, but also to a shared understanding and view of the world.

I think it is that shared view of the world and similar outlook on life that has led to so many close relationships between our countries; be it business, as with so many here in this room or the personal connections that have been formed over the years.

Ireland and Argentina both now share a common outlook on the volume of trade and the importance of openness and engagement with the global economy.

It is fair to say that this outlook has been etched in forty years of Irish foreign and economic policy. But it is clear that President Macri and his administration have developed an ambitious agenda based on openness, trade and reform.

The external changes which the Argentinian Government is responding to are regularly described as globalisation.

 

Globalisation

There are a wide range of opinions and arguments regarding what exactly globalisation means. Without getting into those debates, I would say that I think it is a useful term that manages to capture how a range of complex forces across the world are broadly bringing the world closer together.

As successful business people you are probably more aware than most about the range of challenges and opportunities that can arise from globalisation. More customers can also mean more competitors. Balancing the risks and opportunities is what international business is all about.

From my perspective, globalisation is a force that has lifted hundreds of millions of people out of poverty, laid the basis for our economic prosperity and created a safer world. But equally it is not a panacea to every problem.

It can also be a disruptive force. Particularly when combined with the incredible rate of technological progress the world is experiencing, globalisation can often be painted as something that people should be concerned about.

This anxiety has been a significant factor in many of the rejections of the status quo we have seen in recent years, including most recently the outcome of the election in Italy – the mother country for many Argentines.

My view is that populism will never deliver people the real remedies they are seeking to today’s problems of rapid change and economic insecurity. However, we should be less swift to dismiss the very real anxieties that have spawned them. Nor should we delude ourselves that the globalisation that has transformed lives and pulled millions out of poverty is irreversible.

I need hardly remind an audience in Argentina, which was a huge beneficiary of the first age of globalisation in the 19th century, that nothing is pre-determined in human affairs or with political institutions and that progress and decline are two sides of the same coin. The first era of globalisation came to a tragic end on Flander’s Fields with the First World War. It took generations after that for our current global era to come into being.

We cannot be complacent and indeed there are real challenges to our current global system. We need to make the case for it and defend it at a time when its enemies are gathering strength.

 

An Open Economy

That is why Ireland is committed to remaining an open economy. We made a choice to focus on international trade as one of the cornerstones of Ireland’s economic strategy.

While this approach does require careful management of the vagaries of international trade, as Minister for Finance and Public Expenditure & Reform, I am acutely aware of the contribution that international trade brings to Ireland which is why I continue to emphasise the need to support it as much as possible.

 

Mercosur

This global outlook is one of the reasons Ireland is fully committed to the ongoing work to agree a trade deal between Mercosur and the EU. This deal will represent an opportunity for over 400 million people in the EU and nearly 300 million in Mercosur countries to improve their business relationships.

Ireland remains fully committed to the Mercosur negotiation, especially in view of the important economic gains expected for both sides from a comprehensive, ambitious and balanced EU-Mercosur Agreement.

While we do have concerns in relation to agriculture, and the potential impact on the EU beef sector, I am confident that we will ultimately achieve that comprehensive and ambitious trade agreement. And that trade agreement will contribute to future prosperity in every member state of the EU and Mercosur.

 

Changing Minds

Actually, persuading people about globalisation can be difficult. It can be very hard to combat a fundamental misunderstanding about international trade because it can require the audience to change a preconceived notion they themselves may not give a lot of thought to.

The idea of globalisation as a harm, and of trade as a threat, is a seductive one. It takes economic insecurity and points to ‘the other’ as the cause. That is always a very appealing answer when the reality is usually significantly more complicated.

I recognise that trying to combat that perception solely with numbers and statistics does not always work. What is needed is to put some human faces on those numbers. Be it the Irish entrepreneur who is now selling his product in a new market of 500 million people strong or an Irish company now hiring Argentinian workers in an Argentine based plant, the actual benefits of trade need to be made real for people.

And we also need to recognise that not every person will benefit in every way from trade right away. But every citizen is also a consumer. International trade and globalisation reduces the cost of goods and services and provides new opportunities for business.

 

Brexit  

From Ireland’s point of view any discussion of globalisation and trade must include reference to Brexit.

Britain’s exit from the European Union will be a defining moment in our relationship and I would like to speak to you briefly today about what Brexit means for Ireland and the EU.

In the first instance, and without getting bogged down in all the detail available, I want to emphasize the scale of the challenge that Brexit brings. While Ireland’s trade with Britain has dropped from over 50% in 1973 to 17% today they are still our single largest trade partner.

Estimates vary somewhat but over one hundred million border crossings take place between Ireland and the UK every year. Irish people cross the border for vacations, for university, for work, and even for marriage.

So we share not just trade but language, history and culture.

We also share the hard won peace process in Northern Ireland.

Brexit negotiations between the EU and the UK are ongoing but I can confirm that Ireland’s priorities remain unchanged.

We must protect the peace process. We must ensure that there is no introduction of a hard border.  We must maintain the Common Travel Area between Ireland and the UK.

And finally we must ensure there are effective transitional arrangements leading to the closest possible trading relationship between the UK and the EU.

This challenge can be met but we are under no illusions about the complexity and difficulty that must be overcome.

 

Conclusion

Globalisation is an incredible force but it does need to be managed carefully. Neither Government nor business should assume that everything will work out. Nor can we take it for granted.

For Ireland a crucial national challenge is Brexit.

But despite the scale of the challenge we are not facing it alone.

Our EU membership has been central to the success of our small, open, trading and competitive economy.  Membership of the Single Market and Customs Union is a core element of our Economic Strategy. Access has allowed our economy to prosper and has greatly assisted in attracting business.

It has given us full access to EU trade agreements with other major markets and a capacity to engage in global free trade that we could not possibly have on our own. The EU is a home which we have helped build and while there are many challenges, the Irish Government is confident that we can work together as 27 countries, to deal with all of those challenges.

While Brexit will pose undoubted challenges to the Irish economy, there will also be some opportunities and the Government will work to maximise those where possible.

The world will continue to change and our role as Government and leaders is to ensure that whatever the challenges we are ready to meet and overcome them.

In conclusion, I want to again wish you well in your work to further enhance our bilateral economic ties and to assure of our Government’s ongoing support in this regard.   I look forward to meeting you all in our networking session later but before that I am happy to take any questions you may have.

Thank you.

ENDS

 

Check Against Delivery

 

Contact:

Deborah Sweeney – Press Adviser to Minister Donohoe – +353 86 858 6878

Aidan Murphy – Press Officer, Department of Finance – +353 85 886 6667

Press Office pressoffice@finance.gov.ie

LAUNCH OF OECD ECONOMIC SURVEY ON IRELAND 2018

PASCHAL DONOHOE T.D., MINISTER FOR FINANCE AND PUBLIC EXPENDITURE AND REFORM

DEPARTMENT OF FINANCE ANNUAL POLICY CONFERENCE, RADISSON BLU GOLDEN LANE THURSDAY 8TH MARCH 

 

Check against Delivery

 

INTRODUCTION

Good morning everyone.

I am very pleased to open the Department’s fifth annual Policy Conference and to welcome you all here today for what I expect will be an interesting and thought-provoking event.

I am particularly delighted to welcome Mr. Angel Gurría, Secretary-General of the OECD to Dublin today to launch the OECD’s biennial Economic Survey of Ireland.

It is appropriate that we are launching the survey at this conference. As you are all aware, this year’s conference title is “Gathering Evidence Ensuring Growth”.

THE OECD REPORT

The OECD’s is universally recognised for the quality of its analysis.

The survey being launched today is objective and evidence-based research at its finest and today’s first presentation, covering research on firm-level productivity, represents a joint research collaboration between economists in my Department and the OECD.

It also fed into the findings of the OECD’s Economic Survey.

The second topic concerns SME investment decisions and whether or not they are under-investing today.

And the third and final topic today investigates how responsive taxpayers are to their marginal rate of income tax.

Both the second and third topics are outputs of the Department’s joint research programme with the ESRI, which is now in its fourth successful year.

I believe that it is vital that policy decisions are informed by a high quality, robust evidence-base – be it analysis conducted by my Department alone or in conjunction with other institutions.

But as well as producing the evidence, we need to disseminate it and debate it with policy stakeholders.

And that is the purpose of today’s conference – why great brains like your own are here to stimulate debate and discussion with policy makers, social partners, tax practitioners, academics and other stakeholders.

 

IRELAND’S RELATIONSHIP WITH THE OECD 

I would like, if I may, to say a word about Ireland’s long and mutually beneficial relationship with the OECD.

Indeed Ireland was among the founding members of the OECD in 1961.

The OECD provides expert policy advice supported by evidence-based analysis, peer learning and exchanges of best practice.

As a small open economy, with important trade relationships both inside and outside the EU, it makes sense for us to work towards global consensus on important issues of policy.

This approach has already delivered an unprecedented level of progress under the OECD BEPS process, and Ireland has not been slow to deliver on our international obligations.

 

FINDINGS OF THE SURVEY

As for today’s report itself, our economic and financial position have improved considerably since the last survey was published in 2015.

The prudent policy choices over recent years have placed Ireland in a stronger place in 2018.

There has been robust economic growth perhaps best reflected in the labour market – which has seen strong employment growth and a corresponding fall in unemployment – to just 6 per cent at present.

 

MACROECONOMIC DEVELOPMENTS AND CHALLENGES

The report focuses on the main developments and key challenges facing the economy and I believe that it addresses important issues in a comprehensive, balanced and fair manner.

I broadly share its assessment regarding the short-term economic outlook and associated challenges.

The economy is performing strongly with growth expected to moderate to more sustainable rates over the medium-term.

The challenges and risks identified in the report are similar to those which my Department identified in Budget 2018.

The sensible economic and fiscal policies implemented over recent years have placed Ireland in a stronger position to better weather these challenges, although vulnerabilities remain.

But the biggest uncertainty on the horizon is, of course, Brexit.

In the report, the OECD assesses the economic effects of an illustrative Brexit scenario, and finds that the negative economic impacts of Brexit may be much larger for Ireland than for the average of all other EU countries.

This finding is consistent with research my Department published last year.

I can assure all attendees here today that the Government is not under any illusions about the complexity of Brexit.

Detailed work is continuing at home to prepare for the UK’s exit, in parallel to work underway in Brussels.

This includes contingency planning for all possible scenarios.

We have already taken important steps to prepare our economy, including the Action Plan for Jobs process, and our Trade and Investment Strategy, in addition to dedicated measures in the Budget and extra capital supports for the State and its agencies to factor Brexit into our longer-term economic strategy.

A key message of the report is that the resilience of the economy to future shocks needs to be buttressed by improving the stability of both the public finances and the financial system.

This has been an important focus of Government policy over the past number of years.

To that end, our public finances are now in a much better position to withstand fiscal shocks.

Based on Budget 2018 forecasts, we will broadly balance the books this year and meet our medium-term budgetary objective, or MTO.

However, as the survey notes, our public debt per person remains among the highest in the OECD.

It is therefore essential that we continue to reduce our debt burden.

In this context, I am determined that we do not repeat the mistakes of the past.

We will operate a countercyclical fiscal policy and ensure that it does not contribute to overheating.

Measures such as the Rainy Day Fund are an important part of this and this countercyclical approach will help improve the resilience of our public finances in the event of an economic downturn. 

 

CREATING THE CONDITIONS FOR SUSTAINABLE PRODUCTIVITY GROWTH 

Focusing now to the special theme of the OECD review, namely reforms for sustainable productivity growth, I would like to thank the OECD for taking on this topic.

My own Department has been working with the OECD over the last number of years, using OECD models with Irish data to understand what is going on beneath the aggregate statistics.

This work has helped to provide the evidence-base for the OECD’s thematic chapter on productivity and its associated recommendations.

This topic is of particular importance given the role of productivity growth in sustainably increasing living standards in the long run.

Economies cannot solely rely on increases in capital and labour to improve living standards in the long-run.

It is therefore crucial that our endowments of capital and labour are used more productively, thereby enabling firms to improve their efficiency and profitability. This in turn enhances our ability to maintain international competitiveness, while supporting wage growth and sustainable increases in living standards.

As the presentations today will show, Ireland has one of the highest levels of labour productivity among OECD members.

However this is largely as a result of high productivity levels in a small number of foreign-owned sectors, and a small group of firms within these sectors.

As the results from our research from the OECD have shown, and which you will see today, a large number of firms have experienced a decline in productivity since 2006.

Therefore, as the OECD quite rightly points out, that a critical question to further raise living standards in Ireland is how to enhance the productivity of local firms and I welcome the OECD’s recommendations in this regard.

And you might be interested to know that I will be discussing productivity challenges with colleagues in Europe next week.

Given the worrying evidence of a slowdown in productivity growth across advanced economies, including Ireland, productivity enhancing reforms have been given a particular emphasis under the European Semester process.

 

IMPROVE WELL-BEING FURTHER OVER THE MEDIUM-TERM 

As we launch the report today, we are now the fastest-growing economy in Europe.

Having said that, we must not become complacent.

We need ensure that the recovery becomes more inclusive.

One of the main messages of the Survey is that there are several areas where well-being could be improved over the medium-term.

These areas include the supply of housing, water infrastructure, health services and labour market participation.

I firmly believe that I, as the Minister for Finance and for Public Expenditure and Reform, along with the rest of the Government, must continue to take the necessary actions in order to improve well-being.

After all, our most important resource is our people.

We have made substantive structural reforms to the labour market.

It is crucial that we continue to invest in human capital so that our workers have the skills and knowledge to succeed in the economy.

My Department is focused on ensuring that the taxation system is balanced in such a way so as to support the growth prospects of our economy and improve living standards within society.

The Government’s strategy for tackling housing issues is set out in Rebuilding Ireland – An Action Plan for Housing and Homelessness.

The Government has committed to spending €5.35 billion to implement the plan, with the overarching objective of significantly increasing housing supply.

It is essential that our economy sees continued investment in public infrastructure that facilitates the priorities like high-speed broadband and public transport, in better cities and in better communities.

The National Development Plan commits to investments totalling over €110 billion in the next ten years.

It will be transformative in nature, supporting our economy and society in the most ambitious manner in the history of our young country.

 

CONCLUSION

To conclude, I want to express my gratitude to the Secretary-General Gurría and to all who worked on the OECD report for being here with us this morning and for producing what is a very balanced and constructive assessment of the Irish economy.

The Survey provides us with some valuable policy insights and recommendations which we can use to inform and shape economic and social policy in the period ahead.

Thank you and I hope you enjoy the Conference.

ENDS


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