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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.

 

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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.

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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.

 

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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

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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

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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

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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

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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

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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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Minister Donohoe’s speech to Dáil on Fianna Fáil Private Members’ Bill Consumer Protection (Regulation of Credit Servicing Firms) (Amendment) Bill 2018

Tuesday 6th March 2018 

 

Check Against Delivery

 

INTRODUCTION

I wish to thank the Deputy for the work that he has put into preparing this Bill.

Before getting into the details of the principles of the Bill, I believe that it is important to give the issue some context.

This is an emotive issue and people are understandably fearful.

One of my key priorities as Minister for Finance, is to normalise the banking system, to ensure that the banks continue to support the economy by providing access to credit to households and businesses, within an appropriate framework of consumer protection.

This also includes ensuring that there is an appropriate framework in place for the resolution of complaints.

We must be careful to ensure the fairest and most effective support for any borrower who faces great difficulty. 

We must be careful that any actions we take to further protect borrowers whose loans are sold do not have unintended and very negative consequences for the banks, their relationship with the regulator and all our citizens who depend on a functioning banking system in their day to day lives. 

 

ADDRESSING FEARS

I fully recognise the position that families in arrears are in when dealing with firms who they are not familiar with and whose reputations, whether warranted or not, are likely to make them extremely concerned about how they will act.

I want to put these fears in context.

The most recent Central Bank figures show that the number of mortgage accounts for principal dwelling houses (PDH) in arrears fell further in the third quarter of 2017; this marks the seventeenth consecutive quarter of decline.

The number of PDH mortgage accounts that were classified as restructured at end-September was 119,070.

Of these restructured accounts, 87 per cent were deemed to be meeting the terms of their current restructure arrangement, up slightly from the previous quarter.  

Repossession numbers in Ireland remain low in comparison with other countries and repossessions take longer in Ireland than elsewhere. 

To drill down further into the repossessions figures in the context of our debate here this evening, the following Central Bank statistics illustrate quite clearly the proportion of repossessions which have been taken by Banks and non-Bank entities. 

 It is worth stating them here.

  • In 2015, the total PDH properties repossessed was 1,535, this was made up of 1,299 by Banks and 236 by Non-Banks.
  • In 2016, the total PDH properties repossessed was 1,693, this was made up of 1,452 by Banks and 241 by Non-Banks.
  • In 2017 (up to end September), the total PDH properties repossessed was 1,106, this was made up of 982 by Banks and 124 by Non-Banks.

This is because the Government has also reformed personal insolvency legislation, and banks no longer have a veto on insolvency arrangements.

In addition, the Abhaile service helps borrowers in arrears to find the best solutions and keep them, if possible, in their own homes.

This is assisting borrowers, particularly those in longer term arrears. A dedicated legal and financial adviser can work with borrowers in arrears and their lender to find the best solution for them. 

If called to court to face repossession proceedings on their home, they will be able to meet a Duty Solicitor at the court. 

A MABS staff member will also be present at court to help them.

Take up of the Abhaile scheme has been high, with over 10,000 vouchers for these consultations issued since the start of the scheme in July 2016.

 

ADDRESSING NON-PERFORMING LOANS

So a lot has been done which is helping keep people in their homes.

As I say, context is important, things have improved in the Irish economy over the past years from the worst of the crisis and we are in a considerably better place than we were a few short years ago.

Non–performing loans (NPLs) at the banks in which the State has invested have reduced by 60% from €54 billion at their peak in 2013 to an estimated level of c. €22 billion at end-December 2017.

That said, they are considerably higher than is acceptable in the long run and the Single Supervisory Mechanism – the system of banking supervision in Europe-  has ordered that action be taken to ensure that the banks get back into a strong position so that they can provide support to the real economy.

Even if the SSM had not ordered something to be done, it would have been incumbent on the individual banks to take action.

Properly addressing and resolving NPLs will normalise the banking sector and should create more scope for proper competition between the banks which should benefit the customer in the long run.

We need to return the banks to a normalised state where they can provide funds for SMEs, for consumers and for people looking for mortgages without the drag on their funds caused by non-performing loans.

Banks with a low level of NPLs are an important element of a secure economy.

 

CONSUMER PROTECTION

So what has the Government done to protect mortgage holders who have gotten into difficulties?

The Government brought in the Consumer Protection (Regulation of Credit Servicing Firms) Act 2015 to fill the consumer protection gap where loans are sold by the original lender to an unregulated firm. 

Under the 2015 Act, if the firm who bought loans from the original lender is an unregulated firm, then the loans must be serviced by a ‘credit servicing firm’ which is regulated by the Central Bank. 

Because the credit servicing firm is regulated by the Central Bank, the full range of protections which applied before the loan was sold continue to apply after the sale.

As things stand, the Code of Conduct on Mortgage Arrears is a statutory code which provides a strong consumer protection framework, to ensure borrowers in arrears or pre-arrears in respect of a mortgage loan secured on a primary residence are treated in a timely, transparent and fair manner.

The Code is part of financial services legislation and applies to all regulated financial service providers.

This Bill seeks to apply the CCMA to mortgages which are not already covered by the Code.

Presumably this would include buy-to-let mortgages and mortgages where the borrower is not in any danger of falling into arrears.

I have asked the Central Bank to review the existing CCMA to see areas where it may need to be strengthened and to report to me on the issue as soon as is practically possible.

We also have to look at the other side of the equation, at the lenders who have issued the loans that are now in arrears.

We have to acknowledge that PTSB, one of the banks in which the State has a significant investment has particular difficulties which it needs to resolve.

PTSB’s latest published NPL ratio of 28% is one of the highest in the Eurozone. It is over five times the European average.

Therefore, PTSB must deliver a significant reduction in its NPL ratio, and within a timeframe that meets the expectations of the Single Supervisory Mechanism.

Under the terms of the Relationship Framework with the bank, loan sales do not require my consent as Minister for Finance. 

This Framework is a legally binding contract which cannot be changed unilaterally.

It was put in place at the insistence of the European Commission to protect competition in the market place.

However, the bank is required to consult with me when a loan sale reaches an advanced stage and is of significant scale and will do so in due course. Although

I have been briefed on the matter, the formal consultation has not yet taken place.

It is important to again highlight that all mortgage holders receive their full contractual conduct rights, regardless of the owner of the loan.

They still have the same rights and obligations as they had before the sale.

 

THE BILL

As I have said, I fully recognise the very real concern that the public have in relation to this sale and I also acknowledge the good intent behind the Private Members Bill.

The Government has agreed to support the Bill.

However, there are a lot of significant drafting issues with the Bill which need to be addressed in order to make it more effective and even to make it practical to implement.

My officials have consulted with the Central Bank and it has raised a number of specific issues which will need to be addressed including some concerns that it has in relation to the possible impact that the Bill as currently drafted could have on the independence of the Bank.

It would also appear that it may be appropriate that this Bill be referred to the European Central Bank for their observations. Under Standing Order 149(3), it would be a matter for the relevant Committee to consult with the European Central Bank.

I am also aware that as part of the European Council Action Plan on NPLs published in July 2017, the European Commission will publish in the next week its proposals for the authorisation of credit servicers across the European Union.  

The definition of “credit agreement owner” in the Bill appears to include securitisations while there appears to be an intention to exclude them in section 9 and I would welcome further exploration of this issue.

It is always an issue for legislation of how to achieve the objective while avoiding unintended consequences.

I think that I need to stress that it may be difficult to formulate the Bill in a manner which permits securitisation vehicles as they are currently formulated to continue to function as unregulated entities, without also providing an opportunity for more active loan owner purchasers to structure themselves in a way which falls outside the scope of the Bill.

This is not just a theoretical matter, if Irish banks cannot use securitisation effectively they will have less finance to provide to the real economy and it will come at a higher cost.

I also have concerns about how we square the circle of the practicalities of regulating loan owners who are based outside Ireland with the free movement of capital in the EU and with EU competition law and these issues will require further exploration.

Some of the issues with the Bill as drafted are fairly easy to resolve. For example, the Bill refers to the Financial Services Ombudsman in a number of places but the appropriate reference should be to the Financial Services and Pensions Ombudsman since the passage of last year’s legislation.

There are a number of other technical issues which are too detailed for discussion here today where we are looking at the high level principles of this Bill. 

Regulation comes with consequences and the Bill as initiated could have a number of unintended consequences which we should seek to mitigate as far as possible.

I would hope that any technical issues can be resolved relatively quickly and without controversy.

Therefore I would like to take this opportunity to make my officials available to provide whatever drafting assistance they can to the Deputy in advance of the consideration of the Bill at pre-legislative Committee.

We may be able to progress the Bill quicker in this way than the line by line amendment process which takes place at Committee Stage.

I should also say that I met with a number of the main banks last week as part of my normal engagement process.

I took the opportunity to again make it clear to the banks that they need to be fully cognisant of customers’ concerns in relation to their actions.

 

CONCLUSION

In conclusion, I welcome the Bill as introduced by the Deputy and support the policy intent behind it but it will take significant work to develop it to a level where it can be an effective piece of legislation.

The Government has committed to support this Bill and I will provide whatever assistance that my Department can to ensure that the Bill attains its objective.  

Thank you.

ENDS

 

Check Against Delivery

 

Contact:

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

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

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Check against delivery

 

INTRODUCTION

Good evening everyone – it is a pleasure to be here.

I would like to thank David Fennell, President of the Irish Tax Institute, for inviting me here this evening to address you as the guest of honour.

I know that the annual ITI dinner is an important occasion.

At an engagement last year I told my audience of a very telling exchange between Michael Faraday, the British scientist, and William Gladstone, who was Chancellor of the Exchequer, at the time the two met.

An audience of the best tax brains in the country might appreciate it also.

Faraday was demonstrating to Gladstone his latest discovery in the field of electromagnetic induction when the elder statesman grew impatient and asked what use all of this new technology was to him.

Faraday, without missing a beat said;

​Why, sir, there is every probability that you will be able to tax it.
The response from Mr Gladstone was not recorded, unfortunately.

But tonight is a night for giving those hard working brains a rest, and to catch up and network with colleagues and friends.

OVERVIEW

I am pleased to say that we continue to make good progress on the public finances.

Taxes are a tangible indicator of the underlying economic performance and they continue to perform well across a broad range of headings.

Last year overall revenues grew by a robust 6 per cent on 2016 and were in line with expectations.

For this year we expect receipts to grow by a similar magnitude to just under €54 billion, some 14 per cent or €6½ billion above our pre-crisis peak level.

As would be expected in an improving economy, expenditure demands exist; however spending is being managed within expectations, and is growing at a lower, more sustainable rate than the tax revenues which help fund these public services and investment.

Other metrics continue to move in the right direction – we are close to achieving a balanced budget which is a significant achievement against the backdrop of our recent fiscal difficulties.

This is reflected in improving market perception of Ireland whereby in recent months Irish Government bonds have been trading at yields in the region of just 50 basis points above equivalent German debt.

However, while our general government debt-to-GDP ratio is now down to about 70 per cent of GDP we need to continue to make progress on reducing our elevated stock of debt to provide ‘shock absorption’ capacity for future challenges which may lie ahead.

The latest data indicate that the economy is continuing to perform strongly.

While the headline GDP growth rate was driven by the multinational sector and in particular exports linked to contract manufacturing, the domestic economy also made a strong positive contribution with modified domestic demand – which adjusts for distortions in the Irish national accounts – up 5.2 per cent on an annual basis.

As of January, unemployment is down to 6.1 per cent, from 7.4 per cent a year earlier.

But while we can be confident, there is no room for complacency in a changing world.

Since taking on the privilege of becoming Ireland’s Minister for Finance, I have emphasised that my priority will be tax certainty.

The 12.5% rate remains a cornerstone of our corporation tax offering and that will not be changing during my term as Minister.

However, there is more to Ireland’s position on corporation tax than a committed defence of our rate.

In recent years we have been on a path of modernising our system to meet the best international standards, while also playing our part in shaping the direction of international policy making.

Ireland has played a full part in early delivery of key OECD BEPS commitments:

• The OECD Global Forum on Transparency and Exchange of Information awarded Ireland the highest possible rating on transparency and exchange of information. Only 22 countries have this rating.
• In keeping with our commitment to transparency, Ireland was among the first countries to implement Country by Country Reporting.
• The Knowledge Development Box was the first OECD-compliant patent box in the world.
• Ireland was among the first countries to sign the OECD BEPS multilateral instrument in June in last year, which makes important reforms to our international network of tax treaties.
• We have eliminated stateless companies and introduced mandatory disclosure of aggressive tax planning.

Where change to our domestic regime has been required, we have taken the necessary decisions, though they were not always easy to take.

Our ability to tackle important challenges in the past stands to us now.

It shows Ireland’s ability to adapt and evolve while retaining the core strengths of our offering.

A SMALL, OPEN ECONOMY

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 tax 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.

Our regime is among the most transparent in the world.

The policy of having a low rate and a broad base is founded on sound economic reasoning.

We expect companies to pay their fair share, and all the evidence and analysis shows that we collect every cent of corporation tax due in this country.

And while corporation tax receipts remain buoyant, I will not get carried away.
Concentration risks remain and I must ensure that we spend today is not just what we expect to collect tomorrow.

CHANGE IN THE INTERNATIONAL ENVIRONMENT

Given the emphasis on stability and certainty, you might expect that a Minister for Finance would be in a position to dust off last year’s ITI speech and repeat the same points.

But as we all know, the international tax environment has never been more changeable.

For many years the prospect of US tax reform was considered a perennial uncertainty.

Even late last year, some people were telling me that it would never happen.

They said that the numbers simply didn’t add up, either in Congress or on the books.
But they did.

But it is my job to ensure that Ireland is ready and positioned to compete whatever the outcome.

I am known for being positive in my outlook but even leaving aside my outlook, every indication is that we remain competitive.

Of course, I am not ignoring the concerns that remain about how the reforms might affect some companies and their future investment decisions.

Nor am I underestimating the very real concerns around WTO compliance and other international obligations.

However, for many years we have argued that companies pay their fair share of tax in Ireland, but that we cannot be held responsible for taxes that are properly due and payable elsewhere.

We have found it hard to get that message through at times and our reputation has suffered – unfairly – as a result.

Now, deemed repatriation means that the United States is calling in its taxes.

Companies will be required to pay hundreds of billions of dollars in US tax liabilities, dating back to 1986.

This is a vindication of what Ireland has been saying for many years.

Though others have called on Ireland to claim these taxes, we have always been clear on what was Irish and what was not.

The global collection of taxes that are not due to us is important.

Reputation is a proxy for certainty: A tax system that meets international standards, while seeing this significant change in global tax collection, is better protected from external pressure for change.

FACING THE CHALLENGES

This matters because those pressures are there.
But this is a shared challenge.

Tax advisors and the professional services industry must also play a part.
It is in your long-term interests that it comes from within the industry, that you make long-term decisions with your clients, conscious of my objectives and the standards that we must maintain.

The price of certainty is legitimacy.

I offer stability to a system I stand over.

This is a game changer.

So I want to be clear.

I see Ireland’s future as a country that competes from a position of legitimacy.

I intend to make durable policy choices that we can sustain and stand over for the longer term.

In the coming years, it will be my job to position Ireland to compete in the next evolution of the international economy, which, in my view, will be digital.

DIGITAL TAXATION

The digital tax debate has brought together many of the most important issues in international tax, such as questions about how value is created, and the underlying tension between residence and source taxation.

I very much welcome the work being done by the OECD in this area and look forward to the forthcoming report on digital taxation in April.

This will provide the blueprint for how we build a global consensus in this area.
At European level, 28 prime ministers, including An Taoiseach, have reached a unanimous view on the need to ensure that companies pay their fair share of taxes, but also on the necessity of a global playing field in this area.

The European Commission will shortly bring forward its proposals, but it will be for the Member States to decide on any course of action.

I will be coming to table looking for the EU to align with the OECD and to ensure European competitiveness.

I expect that a number of my ministerial colleagues share this view.

CONCLUSION – THE COFFEY REPORT

Before I conclude, I would like to thank those who took part in the consultation process on the Coffey review.

I believe that stakeholder engagement is essential if we are to provide certainty about our future direction, both in terms of the choices we make and the timing of changes.

My Department is reviewing the submissions received and reflecting on the contributions made from across a diverse range of stakeholders.

This consultation process was not a once-off exercise, but the beginning of a rolling series of engagements between my Department and stakeholders.

My Department has a good track record in open and engaged policy making, and that approach will continue.

There will be important opportunities between now and the summer to provide feedback to interested parties and for you to provide further input.
As we move forward to determine the policy choices guiding the implementation of those recommendations over the coming period that stakeholder engagement will continue.

I am clear in what I want to achieve, but I hope I have been equally clear in what I expect.

I want a competitive and stable tax system that is above reproach.

I want to take the decisions now and in the coming years that will serve as a platform for the continued evolution of our economic model.

At a time of great change it is easy to lose sight of what is not changing.

Ireland’s constancy on international tax is not just part of our message: it is part of our track record.

Thank you and enjoy your night.

ENDS

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THE NEW, NEW ECONOMY

Speech by Minister for Finance and Public Expenditure and Reform, Paschal Donohoe at Ibec

 

Check Against Delivery

 

INTRODUCTION

Good morning everyone.

As we approach the bicentenary of the birth of Karl Marx – a milestone I am not sure is marked very festively in this building, or maybe it is- his famous observation from The Communist Manifesto of 1848 feels relevant, when he wrote that ‘All that is solid melts into air’.

We are not experiencing the melting of investment and trade, but we are seeing a change, even if that change is to less solid, but no less real, investments.

I want to talk to you this morning about that change in an Ireland that, compared to twenty years ago, has changed profoundly.

New communities of new Irish people live, work and thrive throughout our country.

New technologies have transformed the way we work, rest and play.

And new companies – new in every sense of the word – trade and operate here.

New in the sense that some companies- some of your companies- are long established, but new to Ireland – international brands choosing to locate in this country.

New in the sense that long established companies now engage in new forms of investment.

And finally, new in the sense that many companies did not exist even a few short years ago – nearly 88,000 companies were registered in the 2012 to 2016 period.

When last year’s numbers become known, it will likely rise above 100,000 registrations since the depths of our economic crisis.

 

OUR JOURNEY

Our modern economy has added layers of investment and success at different points in our recent history.

Our journey away from a closed economy was led by the export of goods.

To this we added excellence in the trading of services across many different sectors.

The more recent layer of development has been the increasing importance of investment and trade in intangible assets.

Of course, all of this has allowed a journey away from our historical status as an exporter of our own people.

So what are these intangible assets and how valuable are they in our global and Irish economy?

The OECD describes an intangible asset as something;

  • which is not a physical or financial asset,
  • which is capable of being owned or controlled for use in commercial activities, and
  • whose use or transfer would be compensated in a transaction between third parties.

So by intangible assets we mean branding, product design and development, working systems and the type of intellectual property synonymous with the modern high-tech sector but in fact existing in industries way beyond just that- the innovation we have seen in our food and drink sector being a case in point. 

The very recent Capitalism without Capital by Jonathan Haskel and Stian Westlake adds greatly to our understanding of intangible assets.

As well as explaining what intangible assets are- the design, branding and so on to which I have already referred- it also talks about the qualities of these assets and what they can bring to the companies and the economies that nurture them.

The authors focus on four qualities in their work, the ‘four Ss’ of

  • scalability,
  • sunkenness,
  • spillovers and

All of these qualities make investment in intangible assets very different to investment in physical or tangible assets.

Indeed, intangibles are now the largest component of headline investment in Ireland.

In the first three quarters of last year, for example, almost 35% of modified investment – that is, total investment with the distortionary effects of globalisation removed – was in intangible assets.

That is up from just 9% in 2000.

It is a similar story in our nearest trading partner.

A report published by the UK Government in 2016 suggested UK investment in intangible or knowledge assets has been greater than that for tangible assets since the early 2000s.

In 2014 it stood at £133bn, as opposed to £121bn in tangible investment.

Looking at it differently, from an industry rather than country perspective, sectors like computer technology, entertainment and media, consumer products and services, and healthcare have huge levels of intangible, rather than tangible, assets on their balance sheets.

This move is hugely beneficial to the so-called “frontier firms” who know how to make the most from the investment.

This frontier element is now a vital part of our economy.

And with all this in mind, I want to address three key questions;

  • The first is about how to measure, how to properly capture this new type of economic activity.
  • The second is how to deal with the political questions this new economic activity poses- and I mean political in the broadest sense of that word.
  • And thirdly, having sought to answer those questions, or at least mapped out a path to answering them, I want to talk about how Ireland can continue to win in the new, new economy.

 

MEASURING THE NEW, NEW ECONOMY

Measuring and interpreting the size of the Irish economy is particularly challenging given that our economy is so deeply embedded in global supply-chains.

The 26 per cent growth rate recorded in 2015 is the clearest example of this challenge.

This growth rate was driven by movements from the multinational sector, in particular from the on-shoring of intellectual property and outsourcing of production – two key features of the new, new economy.

But just because it is difficult to measure, does not mean this new, new economy is not real.

A key challenge related to mobile intellectual property, and globalisation more generally, is measuring economic activity.

In response to the well-known limitations with GDP and GNP figures as measures of economic activity, an Economic Statistics Review Group was established by the CSO in late 2016.

One of the key recommendations of the Group was for the CSO to develop a new indicator of the size of the economy that excludes the effects of globalisation.

In July, the CSO published for the first time an alternative measure of the size of the economy, so-called “modified Gross National Income”, i.e. GNI-star.

Without getting too technical at 10.30 on a Wednesday morning, GNI-star excludes:

  • the depreciation of foreign-owned intellectual property assets located in Ireland, which was one of the main reasons for the 26 per cent growth rate in 2015; and
  • the depreciation of aircraft owned by aircraft-leasing companies.

The level of GNI-star is estimated at €189 billion in 2016.

This compares to GDP of €276 billion and GNP of €227 billion.

This has important implications. 

For instance, if this new measure is used to scale our debt, the debt ratio was 106 per in 2016.

It can be seen easily then that the debt-to-GDP figure of around 73 per cent paints an overly benign picture.

So just like other forms of capital, intellectual property generates income flows which boost GDP.

However, unlike most tangible assets, intangibles and their associated benefits are highly mobile – intellectual property can move very quickly.

My key point is that despite this complexity, we can measure this new economic activity.

However, we will need to look at our economy through a different lens to get a clear picture of performance.

 

QUESTIONS THAT THE NEW, NEW ECONOMY POSES

So, we are making progress in understanding how and why the knowledge economy works.

We must champion it as a driver of a better country and a better society.

Not everyone will immediately benefit from technological progress and increased global integration and the transition towards the knowledge economy.

There will be both winners and losers.

Which leads to me the second question I posed- how do we solve the political issues that new, new economy raises?

How do we build a stable consensus for the new, new economy?

The key way to share the wealth, as it were, is through our tax system.

So I want to make two points – one on international tax and one on our domestic taxation system.

I am on record as saying that the OECD is the place to deal with this issue, as it will in the coming weeks.

The key principles for me are;

  1. That we tax where value is created.
  2. That any new rules on taxation are supported globally.
  3. That we define what a digital transaction is.

I am on record as having spelled out these principles as the best way to make progress in this area.

The third principle is of particular importance.

Too often, we speak of “digital companies“ or the “digital economy“ , as if it was something different, something external to the economy in which we operate.

In fact, we now live in a digitised economy, where digital transactions are a big part of every company’s business, be it an American tech company, an Irish food producer or a German car manufacturer.

The future of digital tax is important to all such companies- and to all of us.

These taxing issues are the result of the disconnectedness, of the discord, of multiple tax systems.

This really matters because, to quote from David Pilling’s new text, The Growth Delusion;

There are many competing explanations for what has caused popular rage in countries that have, judged by conventional measures, never been richer. There is, though, a common thread. People do not see the reality of our lives reflected in the official picture, painted principally by economists.

This lack of recognition could only fester amidst talk of concepts like intangible qualities and assets.

And this is why our system of domestic taxation must be seen to be fair.

Of course, Ireland is recognised as already having a highly progressive and redistributive tax system.

The OECD said so in 2016, and this will not change during my tenure as Minister for Finance.

Indeed, in 2018, it is estimated that the top 1% of earners in Ireland, in receipt of 12% of total income, will pay over 25% of all income tax and USC.

But the need for our economic system to be fair, and seen to be fair, will only deepen in the future.

 

HOW IRELAND CAN KEEP WINNING IN THE NEW, NEW ECONOMY

So with issues of measuring the new, new economy and of ensuring that is fair and equitable on the table, the next obvious question is how to make it work for Ireland.

How do we keep on winning?

Is there an economic Johnny Sexton drop kick?

Or, instead, are there not multiple phases, coordinated over a long period, that we must participate in?

In my view there are five key policies for success.

The first is the need to focus on so-called public goods that will support the new, new economy.

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 Taoiseach and I, to that end, will publish the National Development Plan in the coming weeks.

These investments – totaling over €100 billion in the next ten years- will be transformative in nature, supporting our economy and society in the most ambitious manner in the history of our young country.

 

The second is to foster the correct legal framework for intellectual property.

Ireland has, now, the necessary legal framework that allows inflows of intangible investment into this country.

The Higher Education Authority has been engaging in this work and will shortly publish its analysis of intellectual property policies and their implementation, looking at how Ireland can best strengthen practices in this area, and manage conflicts, for example in relation to commercialization of IP within the higher education sector.

Given that the technology is constantly evolving, it is of paramount importance that we continue to keep this under review and take the necessary steps to ensure that our legal code is fit for purpose.

 

The third is to have a tax system that fosters the development of intangible assets

Our new, new economy must remain an attractive location for investment in intangibles and the new economy more generally.

That is why our core offering is a competitive, business-friendly regime with a rock solid commitment to the 12.5 per cent corporation tax rate. 

It will not be going up, and it will not be coming down.

Certainty in the tax treatment of intellectual property – indeed in relation to our tax regime – is a vital component of our competitive offering; a point which was considered in the public consulation that has just closed on Seamus Coffey’s report on corporation tax that my Department published late last year.

 

The fourth policy is to develop our human capital as well as our physical infrastructure.

The most important resource in the new, new economy is our people.

It is crucial that we continue to invest in human capital so that our workers have the skills and knowledge to succeed in the new economy.

Indeed, retraining and upskilling will become increasingly important as technological progress disrupts existing industries, in particular, through automation.

Our decision to increase the national training fund levy was an example of our determination to make progress in this area.

 

And the fifth key policy is to foster the development of clusters in important growth areas in order to attract new investment.

At the moment, clusters exist in Ireland in areas like the technology, pharmachemical and audiovisual sectors as well as many others.

All of you, I am sure, know of our reputation in this area.

Many of you work in just such a cluster.

 

The Government will continue to nurture the clusters we have and attract new ones.

That way, we win.

Pursuing these five key policies,

  • on public goods;
  • on the right legal framework;
  • on tax certainty;
  • on human capital;
  • and on clusters;

will best place Ireland to succeed in the new economy and will help re-position the economy further up the ‘value chain’.

We need a national conversation on the new, new economy – on how to make it fair and how to make work for this country- and I hope that this will continue.

 

READY FOR WHAT LIES AHEAD

I am an immensely optimistic person, and I am immensely optimistic for the future of our great, little country.

The years that lie ahead, notwithstanding the many threats and risks that exist, will be good for us.

They will be good because we have equipped our economy to meet the changes that have occurred and will occur in finance, in technology, in human life itself, and stand at the centre of that change.

Many of you are proof of that.

The question is not “has the economy has changed?”

Because it has.

Nor is the question “is this new, new economy real?”

Because it is.

The question is “what are we going to do to sustain this new, new economy for Ireland in the future?”

Are we going to, as a country, enthusiastically embrace an economy of ideas, based in substantive economic activity that brings jobs and creates wealth that allows for the continued healing of our society after a lost decade?

Are we going to use the new, new economy to make Ireland a safer, fairer, cleaner and a better place to live?

Or are we going to view this new way of doing things with negativity, distrust and skepticism?

Small countries like Ireland- agile and open- are particularly well placed for what lies ahead, as we are more able than bigger countries to adjust to the changes and developments around us.

Small really is beautiful.

And while we are small, we are thinking big.

Many of you have heard it said that Ireland has, up to now, endured a “lost decade”- lost jobs, lost investment, and lost hope.

The next ten years will be about so much more than simply recovering those losses.

Going back Mr Haskell and Mr Westlake’s book Capitalism without Capital again, they point out that two small countries- Singapore and Ireland- have taken the steps necessary- steps like the correct tax code and the development of financial and intellectual clusters- to lead the way on the fostering and development of intangible assets.

With that in mind, the next ten years for Ireland will be about change and ambition to deliver better standard of living, greater fairness and a better life for those born here, and those who choose to live here.

And wanting those things for our people is nothing new.

Thank you.

 

ENDS

Wednesday, 7th February 2018

 

Check Against Delivery

 

Contact:

Deborah Sweeney – Press Adviser to Minister Donohoe – +353 (0) 86 858 6878

Aidan Murphy – Press Officer, Department of Finance – +353 (0) 85 886 6667 

pressoffice@finance.gov.ie

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Check Against Delivery 

 

Introduction

Thank you Chairman for the opportunity to speak with the Committee alongside officials from my Department.  I am accompanied today by John Palmer and Eoin Dorgan, both of whom have been involved in developing the range of options as set out in the Rainy Day Fund Consultation Paper.

 

Background and Context

I would like to begin firstly, by providing some background and context to the proposal I have set out in relation to the setting up of a Rainy Day Fund.  The concept was originally mooted by my predecessor as part of the Summer Economic Statement or SES in 2016.  It was announced that once the Medium Term Budgetary Objective or MTO of a balanced budget was achieved, a rainy day fund would be set up.  The establishment of the fund forms part of a wider policy commitment to ensuring sound public finances.  It will play an important role in creating a fiscal safety buffer to help absorb inevitable future shocks to our economy, while at the same time ensuring the long-term sustainability of Ireland’s public finances.  In the 2016 SES, the Government committed to consulting the Oireachtas before bring forward detailed proposals.

 

 

Outline of the proposal

The initial proposal for a rainy day fund envisaged an annual contribution of €1 billion per annum to commence post achievement of the medium-term budgetary objective or MTO.  Subsequently, the government reduced the planned contribution to €500 million per annum for the years 2019 to 2021, in order to fund additional capital expenditure over the same period.  The level of contributions thereafter was left as an open question and it is one of the many topics on which I welcome your views today.

 

Oireachtas Consultation

In Budget 2018, I announced that government had decided to transfer €1.5 billion from the Ireland Strategic Investment Fund to the Rainy Day Fund when it is established.  I also published the Consultation Paper to initiate this Oireachtas consultation process and I welcome the paper that I have received from Fianna Fáil along with the papers from the Fiscal Council and the Parliamentary Budget Office.  Before I form any particular view on the specific details of the fund, I would hope today to get some initial views from the Committee in relation to the outstanding questions I have set out in the Consultation Paper.  Some of these matters relate to the design, operation and purpose of the fund; as well as the issues of how it is resourced; withdrawal triggers and its governance, etc.

 

Contingency Reserve Fund

Broadly speaking, the current proposal is to design a rainy day fund that will primarily meet budgetary demands which may arise from specific, one-off shocks.  As set out in section three of the Consultation Paper however, a natural question arises as to whether the rainy day fund should be used, in the first instance as a contingency reserve.  It would be necessary to clearly define the circumstances under which funds in such a reserve fund could be deployed, so as to ensure it is used only during a time of crisis.  Force majeure events which might necessitate access to the contingency reserve may include either natural disasters or public emergencies for example.  Expenditure based on a withdrawal from a Contingency Reserve Fund would be permissible within the parameters of the fiscal rules.  If at the end of a given budgetary year, the funds within the contingency reserve remained unused, they could then be transferred to a separate rainy day fund, the establishment of which would require primary legislation.

 

These are just some of the issues outlined in the Consultation Paper which require further consideration in relation to a possible Contingency Reserve Fund.  Other important questions to be answered include:  whether such a contingency reserve should be held within the Exchequer account or within a rainy day fund; how the withdrawal triggers should be determined; and what kind of shocks or events should be considered as triggers.  As I mentioned at the outset, I am keen to hear the views of the members of the Committee today in relation to these and other questions put forward as part of the Consultation Paper.

 

Operational and Administrative issues

Sections 4 and 5 of the Consultation Paper raise questions on Operational and Administrative matters associated with the overall Rainy Day Fund.  These design and operational issues relate to the deposit mechanism, the withdrawal mechanism, the size at which the fund should be capped and the replenishment methodology.   Other practicalities to be considered include how the fund might be invested, what governance structures would be most appropriate and who should administer and manage the fund.

 

It is on these issues, as on all other points raised in the Paper, which I am looking forward to hearing the views of the Committee today.

 

Deposits, withdrawals and size of fund

To begin today’s discussion, I will identify some of the key design concepts of the fund on which your views will be important.  The design of the fund is important, as it will underpin the effectiveness of its use.

 

Deposit mechanism

At present, the proposal envisages a deposit mechanism whereby, aside from the €1.5 billion seed funding from ISIF, there will be an annual contribution of €500 million from the exchequer until 2021.  Is this sufficient?  Should additional seed funding be made to the rainy day fund?  How should the size of annual contributions be determined thereafter?  A number of options spring to mind.  One would be to have a fixed contribution key in either nominal or as a percentage of GDP or GNI* terms.  An alternative could be to lodge windfall tax revenue on the basis of revenues above target in general terms or in relation to specific taxes.  I am sure that there are other options as well.

 

Withdrawal mechanism

In respect of the withdrawal mechanism, clear and defined rules will be required in respect of the events and conditions which could trigger a withdrawal proposal, and the process by which such a proposal would be progressed by the various State actors. International evidence shows that these triggers tend to comprise economic and fiscal triggers, based on indicators such as unemployment, and revenue and expenditure levels, as well as democratic triggers relating to approval by the executive and parliament.

 

The design of these triggers will be a critical task in developing the fund. The triggers should be appropriate and relevant, as well as being based on data which is timely and transparent.  There is a need to also strike a balance between sufficient checks and balances, and a process that allows the speedy utilisation of the funds given it will be needed in a crisis.

 

Maximum fund size

Associated with the interplay between deposits into and withdrawals out of the fund are the issues of the overall fund size and the process by which it should be replenished, if it used. The optimum size must be determined, so that we have sufficient capacity to address challenges emerging, but while also avoiding the carry costs of a cash or near cash fund which could become too large.  Given the State’s debt levels are consistently identified as one of the State’s top risks, the State should always be seeking to pay down debt except where there is a better return for the State.  In this case, the rainy day fund provides resources to mitigate tail-risk events that would have a significant impact on the Irish economy and public finances, thus justifying the additional interest costs on the debt that could be paid down by the rainy day fund.

 

Once the maximum size is achieved, should annual contributions continue for the purposes of budgetary discipline or cease?  If they continue, should the surplus in the fund be used to pay down debt?

 

I consider that the rainy day fund should be of a sufficient size to act as a fiscal buffer to bridge the impact of the shock.  The rainy day fund should give the economy and public finances time to make the longer term adjustments to re-establish debt market access at normalised levels.  This is connected to the paying down of debt as the lower the State’s existing debt level, the more sustainable the cost of debt from markets.

 

Potential replenishment of fund

Subsequent to any withdrawal, and determined by the target fund size, the fund will need to be replenished to rebuild the fiscal buffer. Clearly, replenishment will also be influenced by the prevailing economic and fiscal conditions, which might impact on the timing of the exchequer’s capacity to recommence contributions to the fund.  Should the provisions for the replenishment of the rainy day fund be determined now or should they be determined post the withdrawal of the funds so they can fully take account of the circumstances of the State at that time?

 

Compliance with EU fiscal rules

It is also important to note that a key consideration in the design of any rainy day fund, is that it must be compliant with Ireland’s legal obligations as set out in the Stability and Growth Pact, as well as the Fiscal Compact.  The fiscal rules dictate that use of funds from a contingency reserve or payments into the Rainy Day fund would be treated as expenditure by the Exchequer.  Payments made to the Fund are deemed a financial transaction within general government, but not counted as part of the general government deficit.  In terms of withdrawals from the fund however, these will result in expenditure that worsens the general government balance.

 

In addition to all of these issues, the Consultation Paper outlines some options on the governance structure for the fund, and how it might be managed, with the NTMA indicated as a possibility.

 

Conclusion

In concluding, I look forward to a constructive engagement with you all as this will help us to form an evidence-based and considered proposal.  Accordingly,

I welcome the views of the committee on the Consultation Paper and the various issues to which I have referred.

ENDS

 

Check Against Delivery 

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Statement by Minister Donohoe to the Joint Oireachtas Committee on Finance, Public Expenditure & Reform and Taoiseach – Tracker Mortgages

Tuesday, 16th January 2018

 

Check against delivery

 

Introduction

Thank you Chairman.

Firstly, I would like to thank you and the Committee for the opportunity to attend before the Committee to discuss the tracker mortgage issue and also the “Our Public Service 2020” initiative.

I would also like to acknowledge the considerable work and public service this Committee and its members have carried out in bringing the tracker scandal to the fore, and in particular in hearing the testimony of people who have been significantly harmed by the unacceptable actions of banks.

I can assure Committee members and the public that the Government is treating this matter very seriously and that it is determined to see the situation resolved to the satisfaction of impacted customers as quickly as possible.

Owing to the work of the Central Bank, particularly in its implementation of the industry wide Tracker Mortgage Examination, it has been clearly demonstrated that mortgage lenders have failed significantly in their regulatory and contractual responsibilities to many of their tracker mortgage borrowers.

The failure of the banks in this regard has imposed significant harm on their customers.  It is now their responsibility to put that right and to do so without further delay.

 

Background

The fair treatment of consumers is a key requirement of the financial services regulatory framework and of the Central Bank Consumer Protection Code. The Code requires all residential mortgage lenders to act honestly and fairly in the best interests of their customers, and not to mislead customers about the products they provide.

It also requires lenders to make a full disclosure of all relevant information to a consumer in a way which seeks to inform the consumer and to enable a consumer to make an informed decision before entering into, or changing, a loan or other financial services agreement.

Through their treatment of some of their mortgage customers, lenders have shown a complete disregard for the Code, and have demonstrated that within these financial institutions ethical cultural issues still remain.

The Central Bank has for some time made clear to lenders that they had and have a duty to act in the best interests of their consumers when recommending that a borrower switch a tracker mortgage to another type of mortgage product.

Prior to the commencement of the industry wide tracker investigation, the Central Bank identified and pursued a number of tracker related failings with a number of mortgage lenders.

These failings related to issues ranging from a lack of transparency for the borrower, a failure to fully inform customers of the consequences of switching from a tracker mortgage, the application of incorrect tracker rates and a failure to afford customers their contractual entitlements to specified tracker interest rates.

At the same time, the Financial Services and Pensions Ombudsman was receiving individual tracker related complaints. The Ombudsman was adjudicating on these cases and in addition some of these cases were also coming before the Courts.

 

Central Bank industry wide examination

The growing number of issues arising relating to tracker mortgages raised concerns in the Central Bank that there may be other tracker related issues which could be impacting upon borrowers across the system. As a consequence of this the Central Bank announced in October 2015 that it had commenced a broader industry wide examination of tracker mortgage related issues. This systems wide review was intended to cover, amongst other things, the transparency of communications with, and the contractual rights of tracker mortgage borrowers.

Over time the Examination has grown to become the most complex and significant consumer protection review ever undertaken by the Central Bank. It covered fifteen mortgage lenders who may at any time have sold a tracker mortgage product to a consumer borrower from the time the lender commenced selling tracker mortgages until December 2015, and involves the review of more than two million mortgage accounts by lenders.

As such, it covers both banks and other regulated mortgage lenders, and also includes lenders who are no longer providing new mortgage credit. It also covers mortgages which have been redeemed or borrowers whose tracker mortgage has been transferred to another creditor.

The industry wide examination requires all lenders to examine the extent to which they have been meeting their contractual obligations to their tracker mortgage customers or their compliance with their obligations under the Central Bank’s Consumer Protection Code and other consumer protection regulatory requirements.

 

Central Bank progress update on the examination

Since it commenced its industry wide examination, the Central Bank has published a number of update reports the latest of which was on 20 December last.

That latest update indicated that approximately 26,600 customers have been identified as having been impacted pursuant to the industry wide examination. This is an increase of 13,600 on the position as outlined in the earlier October update. The acceptance of further impacted tracker mortgage accounts by lenders, such as the 6,000 additional impacted accounts accepted by Bank of Ireland in November, is proof that the Central Bank’s strategy of continuously challenging lenders is having important benefits for consumers.

In total circa 33,700 customers have now been identified as being impacted owing to tracker mortgage failings. This includes the 7,100 impacted tracker borrowers that were identified prior to the commencement of the industry wide examination.

While the Central Bank now believes that the vast majority of impacted tracker customers have now been identified, it will continue to review, challenge and verify the work undertaken by lenders.

 

Redress and compensation

Following the Central Bank’s October progress update report – and owing to both my and the Government’s concern relating to very slow progress in the provision of redress and compensation to impacted customers – I met with the CEOs of the five main banks at the end of October and made it very clear to them that all affected customers are to be identified and provided with appropriate redress and compensation as a matter of urgency.

While some payments had been made at that time, these were small in number and many impacted borrowers were still unclear if or when they would hear from their lender.

Following these meetings, the banks in question made certain and specific commitments with regard to the payment of redress and compensation to impacted customers. I note that, in its December update report, the Central Bank confirmed that the five main mortgage lenders were on course to meet their October 2017 commitments, and also that known issues around disputed groups in respect of certain lenders have been resolved to the satisfaction of the Central Bank.

As at end-December, approximately €250 million in redress and compensation has now been paid to 12,900 impacted customers as identified from the industry wide examination, and this includes payments to 3,700 impacted accounts identified since last September.

This is additional to €47 million in compensation and redress which was paid for impacted cases identified before the commencement of the Central Bank industry wide examination.

The prompt payment of remaining redress and compensation payments to outstanding impacted borrowers is now a key requirement, and indeed it will be a practical demonstration of the regret that banks are now expressing for the harm they have inflicted upon their impacted tracker borrowers.

It is the case that the level of compensation offers are, in the first instance, a matter for the individual mortgage lender. It is the lenders which caused the harm to their own customers and therefore the primary responsibility for putting that right should also rest with them. The level of compensation offered should of course be proportionate to the level of harm and stress which was incurred, and individual lenders should have regard to this when they make compensation payments to their own customers. The provision of fair and appropriate compensation offers up front will minimise the risk of causing further inconvenience and hurt for impacted customers and will go some way towards giving a practical expression to the words of regret which have been heard in recent months.

Of course in the more difficult cases, such as where people lost their homes, the lender will need to consult closely with the impacted borrower on the level of detriment which has occurred and therefore the total level of redress and compensation which is appropriate in in their particular circumstances.

However, urgent consideration should also be given to these cases by the banks and they should not be deferred or put to the end of the line for payment.

It is also important to have an independent appeals process in place to deal with customers who are dissatisfied with any aspect of the redress package that they receive from lenders, and the Central Bank Tracker Redress Framework provides for this.  This will give any customer the right to challenge any aspect of the redress and compensation offered; this can, in the first instance, be to the appeals panels set out under the tracker framework but of course impacted tracker borrowers also have the right to take their case to the Financial Services and Pensions Ombudsman or ultimately the courts.

Of course, a fundamental element of the redress and compensation process is that the upfront payment which is made by a lender cannot be reduced by any subsequent appeal that may be made by the borrower, either to the appeals process under the Tracker Examination framework or ultimately the Ombudsman or the courts.

The detailed appeals process set out in the Central Bank’s framework for the Tracker Examination allows borrowers to take the matter further, without risk to them, if they consider that the level of the upfront payment is not appropriate in their particular case. This appeals process will also allow the individual borrower to set out their full individual circumstances and to set out in detail the full harm which was imposed upon them by their lender, and consequently why a higher level of payment may be appropriate in their case.

 

Enforcement

In terms of enforcement, I believe the existing supervision and enforcement powers of the Central Bank are strong and should be used to punish wrong doing where supported by the evidence. The Central Bank has already demonstrated that it is willing to use the full extent of its powers as evidenced by its imposition in 2016 of a monetary penalty of €4.5 million on Springboard Mortgages Limited for serious failings in its obligations to its tracker mortgage customers.

The Central Bank has advised that it is also pursuing enforcement investigations in relation to Permanent tsb and Ulster Bank Ireland, and that they have commenced another enforcement investigation. The Central Bank has also stated that it expects all the main mortgage lenders will face enforcement investigations in due course.

It is also important to note that the Central Bank also has statutory reporting obligations to An Garda Síochána or another relevant statutory agency where information obtained by it at any stage prior to, during, or after an investigation, gives rise to a suspicion that a criminal offence may have been committed.

 

Other Actions Taken

In light of the appalling behaviour of mortgage lenders, I have taken a number of actions with the interest of consumers in mind.

As Minister for Finance, I have mandated the Central Bank under section 6A of the Central Bank Act 1942 to prepare a report on:

  • the current culture and behaviour and the associated risks in the retail banks, and
  • the actions that may be taken to ensure that banks prioritise customer interests in the future.

On foot of this report – which is expected to be provided in the second quarter of this year – the Government will determine whether any additional legislative and regulatory changes are needed that would enhance accountability in the banks to ensure customer interests are prioritised.

In addition, following the publication of the Central Bank December update report, I announced two additional measures to further promote the interests of consumers and which are to:

  • double the level of compensation – to €500,000 – that the Financial Services and Pensions Ombudsman may award to a consumer who has been adversely affected by the action of a financial services provider.
  • appoint two new members to the Central Bank Commission who will have a strong consumer protection profile.

I also note – and indeed welcome – the initiative from the banking industry to establish an Irish Banking Standards Board which will broadly mirror the approach adopted in the UK.  However, this is an initiative from the banking sector itself and it will not minimise or reduce any existing or proposed legislative or regulatory measure.

 

Conclusion

This Examination has laid bare the fact that very poor cultural and governance issues still exist within lending institutions in Ireland post the banking crash and that if banks are to regain the trust of customers than they must be prepared to change their attitudes significantly. Customers of these lenders have been treated appallingly and in some severe cases have even lost their homes, either directly or indirectly, due to the shameful behaviour of their lenders. This behaviour is simply unacceptable.

This Government will continue to support the Central Bank in its efforts to complete the Tracker Examination as quickly as possible, and it looks forward to receiving a further update report from the Central Bank in due course on the basis of end-March 2018 data. If further sufficient progress regarding the payment of redress and compensation to impacted customers has not been made at that point, the Government will be prepared to consider further possible actions.

Thank you for your attention and I look forward to your comments and questions.

ENDS

 

Check Against Delivery

 

Contact:

Deborah Sweeney, Press Adviser to Minister Donohoe – 086 858 6878

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

pressoffice@finance.gov.ie

 

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Opening Statement by Mr Des Carville, Head of the Shareholding and Financial Advisory Division, Department of Finance

Public Accounts Committee

Thursday, 14th December 2017

 

 

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Minister D’Arcy’s statement on tracker mortgages made to Seanad Éireann on 22 November 2017

 

Check against delivery

 

Introduction

I thank Senators for raising the important issue of tracker mortgages.

The fair treatment of consumers is a key requirement of the financial services regulatory framework and of the Central Bank Consumer Protection Code.

The Code requires all residential mortgage lenders to act honestly and fairly in the best interests of their customers and not to mislead customers about the products they provide.

It also requires lenders to make a full disclosure of all relevant information to a consumer in a way which seeks to inform the consumer and to enable a consumer to make an informed decision before entering into, or changing, a loan or other financial services agreement.

However, it has now clearly been demonstrated that mortgage lenders have significantly failed in their regulatory or contractual responsibilities to many of their tracker mortgage borrowers.

 

Background

The Central Bank has long warned lenders of their duty to act in the best interests of their consumers when recommending that a borrower switch a tracker mortgage to another type of mortgage product.

Indeed the Central Bank specifically provided in the Code of Conduct on Mortgage Arrears that mortgage lenders must not, except where it would be in the interest of the borrower, require a borrower to change from an existing tracker mortgage to another mortgage type as part of an alternative repayment arrangement to address a mortgage difficulty.

Over time, the Central Bank identified and pursued a number of tracker related issues with some lenders.  These included issues ranging from a lack of transparency for the borrower, a failure to fully inform customers of the consequences of switching from a tracker mortgage, the application of incorrect tracker rates and a failure to afford customers their contractual entitlements to specified tracker interest rates.

Separately individual tracker related complaints were also presenting to the Financial Services Ombudsman and that Office was making determination on these cases, some of which were also coming before the Courts.  Also, due in part to these developments, the matter was coming to greater public attention more generally.

In total, the Central Bank had identified around 7,100 mortgage accounts where tracker failure were identified and which adversely impacted upon mortgage borrowers, prior to the commencement of the Bank’s industry wide tracker mortgage examination.

 

Central Bank industry wide examination

Having regard to these developments, and to Central Bank concerns that there may be other tracker related issues which could be impacting other consumer borrowers across the system, the Central Bank announced in October 2015 that it had commenced a broader industry wide examination of tracker mortgage related issues.  This systems wide review was intended to cover, amongst other things, transparency of communications with, and contractual rights of tracker mortgage borrowers.

This examination has turned out to be the largest review ever carried out by the Central Bank on its consumer protection side.  It covered fifteen mortgage lenders who may at any time have sold a tracker mortgage product to a consumer borrower from the time the lender commenced selling tracker mortgages until December 2015.

As such, it covered both banks and other regulated mortgage lenders, and also included lenders who are no longer providing new mortgage credit.  It also covers mortgages which have been redeemed or borrowers whose tracker mortgage has been transferred to another creditor.

The industry wide examination requires all lenders to examine the extent to which they have been meeting their contractual obligations to their tracker mortgage customers or their compliance with their obligations under the Central Bank’s Consumer Protection Code and other consumer protection regulatory requirements.

Under the initial phase of the industry wide examination, the Central Bank required lenders to put in place governance structures and systems to conduct a comprehensive examination.

The second phase of the examination involved an extensive internal review of mortgage books to identify mortgage borrowers which were impacted by banks’ failings.  This phase was due to finalise at the end of September last.

In its latest update on progress on the tracker mortgage examination – as published last month – the Central Bank indicated that 13,000 impacted mortgage borrowers had so far been identified though it was also noted that this number would be expected to increase.  In particular, the Central Bank noted that it was continuing to challenge lenders on the number of impacted customers.

As Senators will now be aware, on 9 November last Bank of Ireland accepted that it had a further 6,000 impacted tracker mortgage accounts.  This is on top of the 4,300 it had earlier accepted arising from the Central Bank examination; and indeed the 2,100 accounts identified earlier before the industry wide examination even started.

These 6,000 additional accounts are groups of customers that the Central Bank had identified as having been impacted but which Bank of Ireland had previously disputed.

KBC is another bank which has recently said that it is continuing to engage with the Central Bank on the identification of impacted customers.

The Central Bank has stated that the number of impacted accounts will now increase on the end September position in light of the recent announcement by Bank of Ireland and that it may increase further as it continues to challenge mortgage lenders.

 

Redress and compensation

The two other phases of the Central Bank examination cover the calculation and the payment of redress and compensation for impacted customers.

When the Central Bank published its update report last month, payments amounting to €120 million had been paid to 3,300 impacted accounts as identified from the recent industry wide examination.  This is additional to €43 million in compensation and redress which was paid for impacted cases identified before the commencement of the Central Bank industry wide examination.

However, when the Minister for Finance met the Chief Executives of the five main banks at the end of October he made it very clear to them that all affected customers are to be identified and that the wrong is to be put right through the payment of appropriate redress and compensation without any further undue delay.

Following on from those meetings, the banks also committed to do the following:-

  • AIB is to pay redress and compensation to over 4,100 of their customers before the end of this year;
  • Bank of Ireland is to pay redress and compensation to the 4,300 of their customers that they accepted had been impacted at that point – as indicated above, since then that bank has accepted that a further 6,000 mortgage accounts have also been impacted and payments in respect of these accounts is now also to start before the end of 2017;
  • PTSB is to pay redress and compensation to almost 2,000 customers before the end of this year and
  • Ulster Bank is to pay redress and compensation to 1,000 customers before the end of this year and to the bulk of their remaining impacted borrowers in early 2018.

 

KBC also said that all its customers identified so far as having been impacted have been or are in the process of being contacted and that redress and compensation payments have commenced.

The payment of redress and compensation to impacted borrowers without any further delay is now a key requirement, as it will be a practical reflection of the regret that banks are now expressing for the harm they have inflicted to their impacted borrowers.

The payment of redress and compensation serve two different functions.  Redress is intended to return the borrower to the position she or he would have been in if the harm had not occurred; in effect, to give back the money that was wrongly taken from the borrower.

Compensation is additional payment on top and is intended to reflect the detriment to the borrower which arose from being put on the incorrect interest rate.

While the Central Bank cannot formally require lenders to implement uniform redress and compensation programmes, the Central Bank nevertheless has repeatedly challenged lenders on their proposals.

The Tracker Examination framework clearly set out the Central Bank’s expectations that appropriate redress and compensation is to be provided to impacted borrowers.

Lenders are also to categorise impacted customers by reference to the type and level of detriment suffered, and that compensation is expected to be proportionate to the level of harm which was incurred.

The types of detriment identified range from overcharging due to the application of incorrect interest rates – which at the lower end of the scale may have only been a small difference and for a short period of time – to the failure to return a borrower to a tracker rate after a period where the interest rate was fixed and up to cases of more significant harm such as a loss of ownership of mortgaged properties.

A higher level of compensation would be expected in cases were a severe level of harm has been inflicted on a customer.

Some people have said that a very uniform redress and compensation approach to the payment of compensation should be put in place by the Central Bank for all banks.  A uniform redress and compensation approach could fail to address an individual’s particular circumstances adequately as many personal circumstances and experiences will be different from each other.  A uniform redress approach could also mean that it would become the de facto maximum level of payment across the system and that it could prevent or inhibit lenders from putting in place a somewhat more generous package for its own impacted borrowers.

Overall the approach to compensation adopted by the Central Bank is the one which is available to it under the existing law, which places the onus on lenders to come up with their own schemes for their own affected customers.  However, the Central Bank also reserves the right to challenge lenders in particular cases if it considers it necessary or appropriate to do so.

The Principles for Redress set out by the Central Bank also provides for the general up-front payment of redress and compensation to all impacted borrowers.  This upfront payment, however, does not preclude or prevent the borrower from appealing the level or any aspect of compensation if he or she does not consider that it is appropriate to the harm that was inflicted in their particular case.  Regardless of the outcome of any appeal, the initial payment cannot be reduced.

Two types of appeals panels are to be set up by each lender as part of the Tracker Framework process.  The first is intended to deal with the more serious cases of harm and the panel membership is fully made up of members independent of the lender.  The second appeals panel is intended to hear cases where the level of harm is not as serious and the majority of the members on this panel are also independent of the lender.

Impacted borrowers also have the further right to appeal their case or circumstances to the statutory independent Financial Services Ombudsman or to the courts.

And it is worth repeating, that a fundamental element of the redress and compensation process is that the upfront payment which is made by a lender cannot be reduced by any subsequent appeal that may be made by the borrower, either to the appeals process under the tracker examination framework or ultimately the Ombudsman or the courts.

The approach to the payment of redress and compensation is designed to deliver the most efficient process in the interests of impacted borrowers.  Upfront compensation frameworks are determined by lenders, though subject to Central Bank challenge, and provide for the making of payments as quickly as possible.

The detailed appeals process then allows borrowers to take the matter further, without risk to them, if they consider that the level of the upfront payment is not appropriate in their particular case.  This appeals process then allows the individual borrower to set out their full individual circumstances and to set out in detail the full harm which was imposed on them by their lender and consequently why a higher level of payment is appropriate in their case.

 

Enforcement

It will also be important to hold the banks to account for their actions.  The existing supervision and enforcement powers of the Central Bank are strong and should be used to punish wrong doing where supported by the evidence.  So far, the Central Bank has imposed a monetary penalty of €4.5 million on Springboard Mortgages Limited for serious failings in its obligations to its tracker mortgage customers.  The Central Bank is also pursuing enforcement investigations in relation to Permanent tsb, Bank of Ireland and Ulster Bank Ireland.

The Central Bank is also liaising with An Garda Síochána and other relevant statutory bodies such as the Competition and Consumer Protection Commission and it has statutory reporting obligations to An Garda Síochána or another relevant statutory agency where information obtained by it at any stage prior to, during, or after an investigation, gives rise to a suspicion that a criminal offence may have been committed.  The Central Bank takes its reporting obligations – as provided for under Section 33AK of the Central Bank Act 1942 – very seriously and complies with them on an on-going basis as appropriate.  The Central Bank has met An Garda Síochána and discussed, at a high level, what it has seen and while it has not made a formal statutory section 33AK report of suspicions to other relevant agencies, it is keeping the matter under constant review.

The Central Bank has also engaged with the Financial Services Ombudsman with regard to the welcome amendments to the time periods for customers to make complaints to the Ombudsman pursuant to the Central Bank and Financial Services Authority of Ireland (Amendment) Act 2017.  This legislation now extends the time limits for long-term financial services beyond six years to permit complaints to the Ombudsman within three years of the customer becoming aware of the cause of complaint.

 

Conclusion

The Government will be monitoring the progress and outcome of this important Central Bank examination very carefully, and it has concluded that follow up actions will be pursued if the main banks do not meet the updated commitments made to the Minister.  I look forward to an update being provided by the Central Bank to the Minister for Finance in mid-December.

However, what is clear at this point is that some tracker mortgage customers have been treated disgracefully by mortgage lenders and that many borrowers have incurred considerable loss; in particular where they have either directly or indirectly lost their homes due to this harmful action by lenders.  I assure the House that the Government is fully aware of the seriousness of this matter and it wishes to have adequate redress and compensation provided to impacted consumers as quickly as possible.  At this point the Government wishes to support and encourage the Central Bank to complete its tracker mortgage examination investigation as quickly as possible.

 

ENDS

22nd November 2017

 

 

 

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THE CHALLENGE OF BREXIT: IRELAND, THE EU AND THE TRANSATLANTIC RELATIONSHIP

PASCHAL DONOHOE TD, MINISTER FOR FINANCE AND PUBLIC EXPENDITURE & REFORM

THE BROOKINGS INSTITUTE, MONDAY NOVEMBER 13 2017

Excerpts from speech

 

Check against Delivery

 

INTRODUCTION

Ladies and Gentlemen, let me start by thanking you for the invitation to address the Brookings Institute.

I know the Institute is one of the foremost think tanks in the world, tracing its roots back to the first organisation devoted to analyzing public policy issues at the national level in the United States.

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 since its foundation.

 

THE CHALLENGES OF BREXIT

The overarching challenge for Ireland today is 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 and also for Ireland’s relationship with the United States.

In the first instance 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, it is still our single largest trade partner.

Estimates vary somewhat but over 110 million border crossings took place between Ireland and the UK in 2016.

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 we must ensure there are effective transitional arrangements leading to the closest possible trading relationship between the UK and the EU.

The Government is optimistic that this challenge can be met but we are under no illusions about the complexity and difficulty that must be overcome.

We have already taken important steps to prepare our economy, including significant measures announced last month in my Budget for 2018 and in Ireland’s Trade and Investment Strategy.

Brexit will also be a critical factor in our longer-term economic strategy;

A new 10-year Capital Plan is in preparation;

We’re revising our enterprise policy which sets out our longer term ambition for enterprise growth and job creation;

We are in active discussions with the European Investment Bank for a potential increase in investment in Ireland; and

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.

Stabilising our national finances by reducing our national debt and need to borrow.

 

THE IMPACT OF POPULISM

There are lessons to be learnt from Brexit for all of us.

It represents a choice by a substantial portion of the electorate in a fully developed member of the global community to turn away from an interconnected Europe.

A choice to try and turn back the clock on some of their closest international relationships.

There has been significant analysis since Brexit that suggests that the vote was in part a reaction to increased globalisation.

I’m sure many of you here have read similar analysis that points to the rise in populism being driven in part by a backlash against a perceived economic injustice arising from globalisation and global trade.

This is not just an issue in Britain.

Nor is it confined to the English speaking world.

Right across the globe, in a host of countries with differing economic and political situations, a growing number of voters are asking what is there to hold on to in a world that is moving so quickly?

Many people have examined and rejected the existing political and economic frameworks which many would claim have served us well.

A crucial challenge is that those societies or countries that have either anchored the growth of globalization or are perceived to have benefitted the most from it are now leading the questioning of its benefits.

Many of you may know Dani Rodick from the John F Kennedy School of Government at Harvard University.

He made the point that until recently, it looked as if the world’s economic and political order was set on an established, predictable course.

Advanced democracies would be led by centrist politicians, trying to address inequality and exclusion at home while remaining committed to an open economy.

We have learnt that these conventional assumptions are just that – assumptions.

And they have been upended by a range of elections in Europe and across the world which have challenged what was previously settled economic and political orthodoxy.

 

BILATERAL TRADE

The lesson I think that we must take from Brexit is that it is not enough to assume that we need to communicate better the benefits of trade and globalisation.

The lesson is that it is not enough to believe that globalisation has lifted hundreds of millions out poverty around the world, laid the basis for our economic prosperity and created a safer world.

The lesson is that we need to tell people about how globalisation and an interconnected world has changed their lives for the better.

As a small open economy Ireland is a good example of what globalisation means.

To take our relationship with the United States as an example, every year our trade is worth over $100 billion.

Taking goods and services together, we sell almost as much to the US as America does to Ireland.

There are about one hundred and fifty thousand people in Ireland employed by US companies and about a hundred thousand jobs in the US economy, across every state, employed through Irish companies.

When you factor in the rest of the EU you are looking at two of the most developed markets in the world, over eight hundred million people looking to buy goods and services from each other.

I believe that our trade relationship will only grow stronger.

And while trade talks are currently on hold I very much hope that a transatlantic trade arrangement will be agreed in the future.

This will be particularly exciting for Ireland because I believe we are uniquely positioned to act as a bridge between these two huge economies.

After all, Ireland is not just a member of the European Union but a close friend of the United States.

Our ties go beyond commercial opportunities – we share a language and a history, as well as business.

But however strong our trade relationship is now and no matter how much it grows in the future it won’t persuade people of the benefits of globalization by itself.

 

INTERNATIONAL TAX

International tax issues are often discussed in the context of globalisation.

In this context, there is a lot of interest in Ireland, and worldwide, on potential changes to the US tax code, and the current debate here on the issue.

The recently published legislative proposals give a lot more detail on the intentions of Congress as to what any reforms will look like.

If agreed, these changes would represent a significant change from the current system under which the US taxes the global profits of US multinationals only when those profits are repatriated to the US at the full headline US tax rate.

As with any tax changes, the devil is in the detail.

The substantive detail of any final legislation will be important.

As you know, agreement between the House of Representatives, the Senate and President Trump will be needed before any legislation can ultimately be agreed and any changes can be introduced.

The implications of US tax reform for Ireland, and for the rest of the world, will depend on the exact nature of those changes which are ultimately agreed.

I am aware that sometimes Ireland is mentioned in the debate and discussion on US tax reform.

This is to be expected given the large numbers of US companies that has chosen Ireland as the ideal EU location to invest in, and trade from.

US tax reform however is not about Ireland: it is about modernising US tax rules.

It has been 30 years since the last substantial changes to the US tax code and the world has moved on significantly since then.

Ireland has always been clear that US tax reform will help to address aggressive tax planning by US multinationals.

We have taken action where we could but only US action combined with ongoing global reform at OECD can ultimately ensure international tax rules are up to scratch for the modern world.

This is why Ireland continues to play an important and constructive role in the international tax debate.

We are working closely with some 100 countries at the OECD, including the United States, to find evidence-based answers to the difficult questions posed by the digitalisation of the global economy.

As a small open economy, connected to Europe, the US, and the wider world, we are of course affected by changes in the international environment.

I do believe however, that change also brings opportunities.

The right choice for Ireland is to continue our commitment to a corporation tax system that it competitive, transparent and stable.

One issue that is clear however is that Ireland’s membership of the EU is, and will remain, a key factor in attracting FDI from the US and elsewhere.

Global business, from the US or elsewhere, will always want to have operations in the EU, and Ireland will remain very competitive and attractive as an EU location to invest in and do business from.

Ireland’s corporation tax regime and 12.5% corporation tax rate will continue to be competitive while also offering long-term certainty to international business.

And for the avoidance of any doubt, we have no intention to either increase or reduce the 12.5% rate.

 

CONCLUSION

No matter the issue, be it tax or trade or Brexit, it is vital that we are able to discuss the realities of a situation and can challenge the preconceived notions and assumptions that might be shaping our understanding of them.

For Ireland, Brexit represents a huge challenge.

But 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, such as the recent trade deal between the EU and Japan, which is providing new opportunities for Irish exporters, in particular the farming community.

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 Ireland, there will be opportunities as well and the Government will work to maximise those where possible.

Following Brexit, Ireland 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.

It is easy to understand Brexit as a reaction to an ever changing and complex world.

But the world will continue change and our role as Government and leaders is to ensure that whatever the challenges we are ready to meet and overcome them.

Thank you.

ENDS

 

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Speech by Minister of State Michael D’Arcy TD

A&L Goodbody Annual Asset Management & Investment Funds Seminar

A&L Goodbody, North Wall Quay, Dublin 1

26th October 2017

 

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Good afternoon ladies and gentlemen, I would like to start by thanking A&L Goodbody for inviting me to address you this afternoon.

In respect of the funds industry, this subsector of financial services has served Ireland very well for many years and I certainly believe there is further scope for the sector’s continued development. Events like today are vital in continuing to promote and facilitate dialogue across the sector.

As Minister of State for Financial Services and Insurance, I lead the Government’s International Financial Services 2020 Strategy. As many of you in the room will be aware, the IFS2020 Strategy was launched by the Government in 2015 to respond to the ever changing and increasingly competitive environment for international financial services. IFS2020 has a vision for Ireland to be recognised as a global location of choice for specialised international financial services. 

The Strategy aims to increase the numbers employed in international financial services by 30% or 10,000 new jobs over the five years of the Strategy. In the first two years we saw a 13% increase in the numbers employed in IFS, placing us on track for achieving our jobs target by 2020.

Of course a key part of our development as a centre for financial services has been the growth of the fund industry.  Ireland is the third largest fund jurisdiction in the world, and the second largest in Europe. At the end of 2016, we had some 6,000 funds domiciled in Ireland, managing over €2 trillion of assets with €4.3 trillion of assets under administration.

8 of the top 10 global fund administrators are operating in Ireland with over 40% of the world’s hedge funds by value serviced from Ireland.

Ireland welcomes the efforts of the Commission to further the goals of the Capital Markets Union. However, in the recent Commission Consultation on the ESAs we made clear, as did a large number of other Member States, that there was no need for significant reform of the European System of Financial Supervision at this stage. A number of the proposals recently put forth by the Commission go beyond what we consider necessary to achieve these aims.

We believe that the use of the powers already available to the ESAs, such as binding mediation, breach of union law, and especially Peer Reviews, can achieve the objective of supervisory convergence. We do not accept the argument that direct supervision of certain activities is required to ensure supervisory convergence.

The Commission’s proposals may increase costs for industry and increase timelines for authorisation and approvals. None of which will help us achieve deeper and more integrated Capital Markets. The ESAs have only been in existence since 2011, which is a short space of time to evaluate their performance.

At the recent meeting on the proposals, officials have made clear our concerns and we will continue working with other Member States to try and ensure we achieve a positive outcome on this file in Council.

As you will be aware, in July the Government approved the legal drafting of the Investment Limited Partnership (Amendment) Bill, 2017. Heads of legislation have been prepared by my Department and submitted to the Office of the Parliamentary Counsel. A draftsperson has been appointed and my officials will continue to engage with the drafting process.

I want to acknowledge the recent engagement between officials and Irish Funds on the Heads of the Bill. This engagement has been helpful in the process of preparing for pre-legislative scrutiny and will also feed into the drafting process. 

The Department is seeking that pre-legislative scrutiny for the legislative proposals be facilitated as quickly as possible and I have written to the Chair of the Committee requesting an early date for pre-legislative scrutiny of the proposals.

In the past year we’ve seen a key development in respect of not only the funds industry but also in increasing trade diversification in respect of financial services.

In December 2016, we were pleased with the announcement from the People’s Bank of China (PBoC) and Central Bank of Ireland that Ireland had been granted a Renminbi Qualified Institutional Investor (RQFII) quota. The quota of 50 billion yuan (around €6.9 billion) allows Irish-domiciled financial institutions to invest in China’s domestic bond and equity markets using China’s own currency. Irish financial service providers will now be able to offer this additional service to European markets.

The granting of a quota for Ireland aligns with the objectives of the Government’s IFS2020 Strategy. The quota improves Ireland’s financial services ecosystem and increases Ireland’s attractiveness for foreign direct investment.

I cannot speak at events such as today without discussing Brexit. It goes without saying that Ireland remains 100% committed to the EU. The EU is a market of 500 million people and in 2016, our goods exports to the rest of the EU were nearly three times what we exported to the UK.

Our overall priorities are clear – protect the peace process, no hard border, maintenance of Common Travel Area, an effective transitional arrangement leading to the closest possible trading relationship with UK, and work for the future of our Union.   

Ireland has developed strong relationships with both the EU and the UK and we’re intent on keeping both following the UK’s exit from the EU.

From a financial services perspective I believe Ireland is perfect location for firms looking for a base in the EU to enable them to passport financial services across the Union. Aside from our commitment to the EU we also have a number of other factors which make Ireland an attractive location for investment.

Ireland will become the EU’s only jurisdiction which is both English speaking and a common law jurisdiction after the UK’s departure. Ireland has a strong pro-business environment with a stable and consistent 12.5% corporation tax rate. For funds Ireland is an established global hub for the industry, and with developments such as RQFII (R-Quiffy) and the upcoming Investment Limited Partnership legislation I believe we will continue to create an attractive environment for the further development of the sector. 

In looking to the future, officials in the Department of Finance have begun engaging with stakeholders on the development of IFS2020’s Action Plan 2018. IFS2020 has always been a flexible and adaptable Strategy, with annual action plans focusing the direction of the Strategy with measureable deliverables.

Before I conclude I’d like to highlight the third annual European Financial Forum which is due to take place 31st January 2018 in Dublin Castle. The EFF is a key deliverable as part of the IFS2020 Strategy. Last year’s Forum was attended by 650 delegates, representing over 400 companies from 20 countries around the world and across the spectrum of international financial services. I can promise you that our speakers next year will worth coming to hear and I am looking forward to making some announcements very shortly. The EFF is becoming a flagship event of the financial services calendar and we want to make sure it stays there.

I’d like to thank you once again for the opportunity to speak at today’s event. I hope I have been able to highlight to you the Irish Government’s commitment to not only international financial services as a whole but also the funds sector. All that remains for me to do is to wish you a productive and informative evening.

Thank You

ENDS

 

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Private Members’ Motion on Tracker Mortgages

Paschal Donohoe TD, Minister for Finance and Public Expenditure & Reform

Wednesday October 25th 2017

 

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INTRODUCTION

Thank you Ceann Comhairle,

I would like to start by apologising for my absence from the House earlier as I was speaking to the media to further clarify this issue for those who have been treated so shabbily by the banks.

I thank my colleague, the Minister of State, for stepping in.

I have, however, been following parts of the debate remotely and I will make myself fully aware of what has been said.

I want to thank everyone who contributed to the debate tonight and I think that this has been very useful in further highlighting the issue.

 

THE BANKS

At this stage, I have met with the chief executives of the five main banks and they are in no doubt as to what I and the Government think of their actions and inactions on this issue and what I expect them to do to rectify matters and in what time frames.

They have committed to working with the Central Bank to fully meet its expectations.  

All of them have made statements unreservedly apologising to their customers adversely and shamefully impacted by the tracker rate scandal.

They have committed to a resolution for affected customers and I, the government and the Central Bank will be keeping a careful eye on them to ensure that there is no slippage.

As the Minister of State said earlier,

  • AIB is now committed to the payment of redress and compensation to over 4,100 of their customers before the end of this year;
  • Bank of Ireland to 4,300 of their customers before the end of this year;
  • PTSB to almost 2,000 customers before the end of this year and
  • Ulster Bank to 1,000 customers before the end of this year.

KBC also expects to pay the majority of its impacted customers this year and all banks have committed to resolving and completing payments to outstanding impacted accounts in 2018.

The banks will now provide the Central Bank with all the information required and do this within the timelines set by the Bank.

 

NEXT STEPS

I have asked the Governor to provide me with a progress report by December on whether banks have made acceptable and sufficient progress in line with the commitments they are announcing today.

If satisfactory progress is being made I have asked for a further report to be provided to me by end March.

However, if the Central Bank deems that the progress made on this issue has not been sufficient or acceptable, there are a range of possible policy measures available to me, including:

  • Introducing new legislative requirements for stricter reporting for all retail banks.
  • Amending tax law in a targeted way, potentially in relation to the bank levy.
  • Activist actions as a shareholder in three of the banks consistent with the protection of franchise value over the medium term.

Let me issue a clear warning to the banks that I will not hesitate to act decisively if the Central Bank tells me that progress is not sufficient.

The banks have behaved is a manner which is completely unacceptable and it is their duty to put this right and to do so quickly.

 

BANK CULTURE

In addition, I have mandated the Central Bank under sections 6A of the Central Bank Act 1942 to prepare a report for me on the current cultures and behaviours and the associated risks in the banks today and the actions that will ensure that banks prioritise customer interests in the future. 

On foot of this report the Government will determine whether any additional legislative and regulatory changes are needed that would enhance accountability in the banks for ensuring customer interests are prioritised.

 

WORK ALREADY DONE

I think that it is important to acknowledge the scale and complexity of the problem which has had a bearing on the amount of time that it takes to be resolved.

This examination has turned out to be the largest review ever carried out by the Central Bank on its consumer protection side.

It covered fifteen mortgage lenders – eleven of which it has transpired have issues to address – who may at any time have sold a tracker mortgage product to a consumer borrower, and required the review of over two million mortgage accounts.

In their personal appearances before the Joint Committee for Finance, Public Expenditure and Reform and Taoiseach, it was clear that these mortgage customers have been treated disgracefully by mortgage lenders and that they have  incurred considerable distress, loss and harm.

This suffering and harm is replicated in multiple other mortgage customers of the banks – in particular those which have either directly or indirectly lost their homes due to this harmful action by lenders.

Sadly some of the harm done to customers at this point is irreparable. 

I believe that all parties in the House are in agreement that the banks behaviour has been completely unacceptable. 

We are now approaching the conclusion of the process for the majority of customers who have suffered as a result of the behaviour of the banks and the process of the payment of compensation will now intensify by all the banks.

We will remain vigilant to ensure that the banks live up to their promises and we will continue to critically examine what more needs to be done to ensure that customers are treated properly in the future.

 

CONCLUSION

I would like to thank Deputy McGrath, the many other Deputies in this House, particularly the members of the Joint Oireachtas Finance, Public Expenditure and Reform and Taoiseach Committee for drawing attention to this issue.

I would also like to echo the Minister of State earlier in paying tribute to many people outside this House who have over a long period sought to bring this scandal to public attention and to ensure that the harm caused to many impacted borrowers would be recognised and as far as possible at this point put right. 

We should be clear that it was the mortgage lenders that caused this harm to their customers and that the primary responsibility to urgently resolve the problem rests with them.

Therefore, all lenders now need to bring the Central Bank examination to a conclusion without any further delay, and to do so to the satisfaction of the Central Bank and more importantly to the satisfaction of their customers which they wronged and to finally act in the best interest of their customers.

Thank you.

 

ENDS

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Fianna Fáil Private Members’ Motion on tracker mortgages

Minister of State Michael D’Arcy Opening Speech

25th October 2017

 

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I wish to move amendment No. [  ].

Cheann Comhairle

I thank Deputy [McGrath] for the raising this very important issue in the House this evening. 

As the Taoiseach recently stated in this chamber, the behaviour of the banks in relation to the tracker mortgage issue has been scandalous.

This scandal should never have happened and the Government is determined to ensure that it should not be repeated.

The Minister for Finance has now met the CEOs of the main banks namely Bank of Ireland, AIB, Ulster Bank, PTSB and KBC.

As Deputies will note, all five banks have now made statements unreservedly apologising to their behaviour.

This, however, is very much a belated development and on its own will be worthless.

The top priority now for Government is to ensure that all affected customers are identified and crucially that the wrong is put right through the payment of appropriate redress and compensation.

Let me be very clear on behalf of the Government, the time has now come for the banks to move urgently on this.

For the record, after meeting the Minister

  • AIB is now committed to the payment of redress and compensation to over 4,100 of their customers before the end of this year;
  • Bank of Ireland to 4,300 of their customers before the end of this year;
  • PTSB to almost 2,000 customers before the end of this year and
  • Ulster Bank to 1,000 customers before the end of this year.

KBC also expects to pay the majority of its impacted customers this year and all banks have committed to resolving and completing payments to outstanding impacted accounts in 2018.

The Government has also determined that a range of follow up actions will be pursued to ensure banks stand by these commitments.  Crucially, they must now actively and constructively engage with the Central Bank and provide all the information required by and within the timelines set by the Central Bank. 

The Minister for Finance has asked the Governor of the Central Bank to provide him a progress report by December – in particular, on whether or not banks have made acceptable and sufficient progress in line with the commitments they are announcing today.  Let me be clear to the House, if banks do not meet their new requirements other issues will be brought to the table.

Turning to the particular motion before the House this evening, I wish to first of all state that the Government very much agrees with the sentiment – and indeed the substance as well – of the motion tabled by Deputy McGrath.

While the Government is tabling an amendment to the motion, it is only seeking to make some very small adjustments to the motion; none of these it is suggested will detract in any substantive way from the initial motion.

In total, the Government is proposing three minor amendments to the original Fianna Fáil motion.

In indent number one, under the heading

“calls on the Central Bank of Ireland to:”

the Government proposes to delete the words “the Government” and replace it with the word “it” – the purpose of this change is to make clear that the reference is to the Central Bank.

It is considered that it would be more appropriate to refer to the Central Bank in this particular context given that the Bank is independent in the performance of its supervisory and regulatory functions in relation to regulated financial service providers.

The Government is also proposing some minor amendments to both the fourth last and second last indents of the motion.

In the fourth last indent, the Government is proposing to replace the current sentence to provide that consideration will be given to strengthening consumer protection laws if necessary.  As Deputies may be aware at this point, the Minister’s recent statement indicates that the has made a formal request under section 6A of the Central Bank Act 1942 as amended asking that the Central Bank prepare a report on the current cultures, behaviours and associated risks in the banks.   On foot of this report, the Government will consider and determine whether any additional legislative and regulatory changes are needed that would enhance accountability in the banks and ensuring customer interests are prioritised.   The Government is of the opinion that this will be a better time and context to consider legislative amendments which may better assist the Central Bank and the Competition and Consumer Protection Commission in fulfilling their roles.

The final amendment being proposed by the Government seeks only to recast the motion to request that the Central Bank of Ireland and the Financial Services Ombudsman consider introducing a helpline to assist bank customers in relation to tracker mortgage issue.  Having regard to their respective independent statutory remits, it is considered that this would be a more appropriate formulation of the understandable desire to help provide more assessable information to impacted, and potentially impacted, tracker mortgage borrowers regarding the status of their complaints.

While it is important that this Houses raises and discusses issues of very significant relevance to the public, and in particular on matters which have wrongly and adversely impacted on some households, it is also important to recognise the work the Central Bank has already done during the course of the tracker investigation. 

Since 2010 the Central Bank has been dealing with mortgage lenders on tracker mortgage related issues. The Bank had identified and pursued issues in relation to transparency with specific lenders regarding their borrowers who opted to switch from a tracker rate or who had a right to revert to a tracker rate after the end of a period where their mortgage rate was fixed.  Individual cases were also presenting to the Financial Services Ombudsman and that Office was making determinations on these cases, some of which were also coming before the Courts.  Also, due in part to these developments, the matter was coming to greater public attention more generally. 

Having regard to such developments, the Central Bank issued a public statement in October 2015 which indicated that it had commenced a systems wide examination of tracker mortgage related issues which covered, amongst other things, transparency of communications with and contractual rights of tracker mortgage borrowers. This examination has turned out to be the largest review ever carried out by the Central Bank on its consumer protection side. It covered fifteen mortgage lenders – eleven of which it has transpired have issues to address – who may at any time have sold a tracker mortgage product to a consumer borrower, and required the review of over two million mortgage accounts. It covers both banks and other regulated lenders and includes lenders who are no longer providing new mortgage credit. It also covers mortgages which have been redeemed or instances of tracker mortgages which have been transferred to another creditor.

The examination has required all lenders to examine the extent to which they have been meeting not only their contractual obligations to their tracker mortgage customers, but also compliance with their obligations under the Central Bank’s Consumer Protection Code and other consumer protection regulatory requirements in their dealings with their customers; in particular in the way material information was or was not provided to their customers to enable them make an informed decision on the options available to them regarding their mortgage.

However, matters are now coming to a head and the process of the payment of compensation will now intensify by all the banks.  Nevertheless, what is clear now for some time is that mortgage customers have been treated disgracefully by mortgage lenders and that many of them have incurred considerable loss or even greater harm – in particular those which have either directly or indirectly lost their homes due to this harmful action by lenders. Sadly some of the harm done to customers at this point is irreparable.  I believe that all parties in the House are in agreement that the banks behaviour has been completely unacceptable. 

To finalise, I would also like to pay tribute to Deputy McGrath, to many other Deputies in this House, to the members of the Joint Oireachtas Finance, Public Expenditure and Reform and Taoiseach Committee and also to many people outside this House who have over a long period sought to bring this scandal to public attention and to ensure that the harm caused to many impacted borrowers would be recognised and as far as possible at this point put right.  This work has demonstrated a high level of public service.     

However, as stated by the Minister in this House yesterday, we should be clear that it was the mortgage lenders that caused this harm to their customers and that the primary responsibility to urgently resolve the problem rests with them. Therefore, all lenders now need to bring the Central Bank examination to a conclusion without any further delay, and to do so to the satisfaction of the Central Bank and more importantly to the satisfaction of their customers which they wronged and to finally act in the best interest of their customers.

ENDS

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