Brian Stanley (Laois-Offaly, Sinn Fein)
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I welcome everyone to the meeting. No apologies have been received. To limit the spread of Covid-19, I ask all in attendance to wear face coverings when not addressing the committee. The Service requests that those present continue to wear such coverings when moving about the campus and when in close proximity to others, to respect other people's physical space and the public health advice. Members of the committee attending remotely must do so from within the precincts of Leinster House. This is due to the constitutional requirement that in order to participate in public meetings, members must be physically present within the confines of the Parliament. The Comptroller and Auditor General, Mr. Seamus McCarthy, is the permanent witness to the committee and he is accompanied by Mr. Leonard McKeown, deputy director of audit at the Office of the Comptroller and Auditor General.

This morning we will engage with the Department of Finance to examine the following matters: the 2020 Report of the Comptroller and Auditor General and Appropriation Accounts and Vote 7 - Finance and the 2020 Report on the Accounts of the Public Services of the Comptroller and Auditor General, Chapter 1 - Exchequer financial outturn for 2020, and Chapter 16 - Ireland Apple escrow fund; and the audited financial statements of the Exchequer 2020. The Department has been advised that the committee may wish to examine the liquidation of the Irish Bank Resolution Corporation, IBRC, and matters related to vehicle registration tax during the course of the engagement.

We are joined in the committee room by the following officials from that Department: Mr. John Hogan, Secretary General; Ms Emma Cunningham, assistant secretary; Mr. John McCarthy, chief economist; and Mr. Des Carville, head of shareholding and financial advisory division. The personnel from the finance Vote section of the Department of Public Expenditure and Reform were unavailable for today's meeting. I remind all of those in attendance to ensure that their mobile phones are switched off or are on silent.

Before we start I wish to explain some limitations to parliamentary privilege and the practices of the House as regards references witnesses may make to other persons in their evidence. As such witnesses are within the precincts of Leinster House, they are protected by absolute privilege in respect of the presentations they make to the committee. This means that they have an absolute defence against any defamation action for anything that they may say at the meeting. However, they are not expected to abuse that privilege and it is my duty as Cathaoirleach to ensure that it is not abused. Therefore, if their statements are potentially defamatory in respect of an identifiable person or entity, they will be directed to discontinue their remarks and it is imperative that they comply with such directions.

Members are reminded of the provisions of Standing Order 218 that the committee shall refrain from inquiring into the merits of a policy or policies of Government or a Minister of the Government, or the merits or objective of such policies. Members are also reminded of the long-standing parliamentary practice that they should not comment on, criticise or make charges against a person outside of the House or an official either by name or in such a way as to make him or her identifiable.

I call on the Comptroller and Auditor General, Mr. Seamus McCarthy, to make his opening statement.

Mr. Seamus McCarthy:

Gabhaim buíochas, a Chathaoirligh.

Bunreacht na hÉireann requires all revenues of the State to be paid into the Central Fund of the Exchequer, unless required otherwise by legislation. Funds are issued from the Central Fund on the authority of the Oireachtas to pay for public services, either through annual voted provisions in the Estimates process, or under standing statutory provisions to pay for what are called "Central Fund services". It is estimated that around 75% of total annual Government receipts and spending passes through the Central Fund.

The finance accounts are prepared each year by the Department of Finance, to present an account of the Central Fund transactions. The format of the accounts has evolved over time, and is unlike that of any other set of annual financial statements that come before the committee. The accounts are prepared on a cash basis, and so represent the actual movements of cash in the year.

The annual Exchequer account presents the cash receipts into and cash issues from the Central Fund. The account is presented together with a set of schedules that analyse the transactions, with a significant amount of explanation and detail set out in footnotes. The financial statements of the national debt of Ireland, which are prepared by the National Treasury Management Agency, NTMA, are also appended as part of the finance accounts.

Chapter 1 of my report on the accounts of the public services is a recurring chapter, which is designed to summarise the transactions on the Central Fund in a more accessible format, and to highlight key trends over time. While budget 2020 had forecast a small Exchequer surplus for the year, the outturn was an Exchequer deficit of just over €12.3 billion, primarily due to increases in voted issues to fund Covid-19 support measures.

As the finance accounts do not include a balance sheet, or a statement of the Exchequer’s financial position at the year end, the chapter on the Exchequer outturn aims to provide a summary position of key assets and liabilities at the year end. I will briefly outline just three of the liabilities that will impact the Central Fund into the future.

As the national debt account shows, Ireland’s national debt at the end of 2020 stood at €219.5 billion, up €12.8 billion from the end of 2019. However, the cost to the Exchequer of servicing the debt continued to fall, and fell by more than 10% in 2020, due to the refinancing of older, higher cost debt.

Liabilities under public private partnerships, or PPPs, are regarded as "off balance sheet" from a general Government perspective. PPP-related commitments outstanding at the end of 2020 totalled an estimated €6.7 billion.

The third point I will draw attention to is that the State is the sole contributor to the Eircom No. 2 pension fund. Towards the end of 2020, the fund’s remaining assets were almost fully exhausted. It is estimated that Exchequer funding of approximately €84 million for 2021 and €86 million a year thereafter will be required to meet the liabilities of the fund to Eircom pensioners.

Pursuant to section 28 of the NTMA (Amendment) Act 2000, the Minister for Finance delegated to the NTMA a range of functions in respect of the Ireland Apple escrow fund, including the production of annual financial statements which are subject to audit by me. These are published separately from the other NTMA accounts. The net assets of the escrow fund were €13.984 billion at year end 2020. This represents a decrease of €36 million from the 2019 net assets balance of €14.02 billion.

The 2020 appropriation account for the Vote for the Office of the Minister for Finance records gross expenditure of just under €36 million.

This is divided between two expenditure programmes. These relate to the costs incurred in respect of economic and fiscal policy, on which the Department spent €23.6 million, and banking and financial services policy, on which the Department spent €12.4 million.

Members may wish to note that the NTMA has provided a number of staff on loan to the Department to work in its banking unit. The related staff costs, and certain consultancy costs, are paid directly by the NTMA and are not recouped from the Department. In 2020, the costs incurred by the NTMA in that regard amounted to €1.8 million. This was in addition to the expenditure on banking and financial services policy recorded in the appropriation accounts.

Brian Stanley (Laois-Offaly, Sinn Fein)
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I welcome Mr. Hogan. This is his first appearance before us as he was appointed since the last time that Department officials were here. I wish him the best in his new position. He has five minutes in which to make his opening statement.

Mr. John Hogan:

I thank the Chairman and members of the committee for affording me the opportunity to address the committee. I think that the Chairman identified some of the officers and officials who accompany me. We have Mr. John McCarthy, chief economist, Ms Emma Cunningham, head of tax, and Mr. Des Carville, head of the shareholding and financial advisory division. We also have Ms Scline Scott, head of corporate division, and Ms Laura Cunningham, our finance officer.

I will focus on the specific items on today’s agenda and keep my comments brief. The agenda covers the Appropriation Accounts 2020, Chapters 1 and 16 of the Comptroller and Auditor General’s Annual Report 2020, and the Finance Accounts. As the Chairman mentioned, the committee has a number of items to discuss with us, including the special liquidation of the Irish Bank Resolution Corporation.

Turning to Vote 7, the Estimate for the Department for 2020 was set at €39.9 million or €38.6 million net of appropriations-in-aid available. The gross outturn spend for the year was just under €36 million, €3.9 million or 9.7% under the available allocation. As a result, the Department surrendered just under €3.4 million to the Exchequer.

The end-year surplus arose for a number of reasons. There was an underspend of over €600,000 on consultancy and other services costs; around €800,000 of the capital budget was left unspent as a result of the public health restrictions in the construction sector; for similar reasons there was an underspend on travel and subsistence, which was very much linked to Covid-19; and finally, there was an underspend on the disabled drivers fuel grant scheme of €530,000. As members know, this scheme is demand-led and is difficult to predict with great certainty.

In terms of the Exchequer Financial Outturn for 2020, I draw the committee's attention to the following key points. Despite the pandemic, tax revenues held up well, falling by just €2.1 billion or 3.6% on 2019. The two key drivers of the better-than-expected performance were income tax and corporation tax. Income tax is the largest tax head, accounting for 40% of the overall tax revenues in 2020. Taxes in the year were €22.7 billion, only €200 million lower than 2019 despite the high number of people in need of support via the pandemic unemployment payment.

The strong performance of income taxes was the result of the progressivity of the income tax system, interposed with the sectoral nature of the employment shock. Unfortunately, those worst affected by the pandemic were predominately in lower paid employment areas. However, as lower paid workers are largely kept outside the income tax net, the impact on income tax receipts was less than could be expected given the overall level of joblessness.

Corporation tax also over-performed, mainly due to high levels of profitability in a number of key sectors. The volatility and unpredictability of corporation tax receipts pose a challenge to the continued stability in the public finances.

The Department currently estimates that the impact of international tax reform discussions under way will be in the region of €2 billion per annum relative to baseline. As the discussions at OECD and EU levels continue, the impact will be kept under close review and updated accordingly.

The more domestically focussed tax heads, namely VAT and excise, were heavily impacted by the pandemic, as consumer spending collapsed as a result of public health restrictions. VAT returns fell €2.7 billion on 2019 to €12.4 billion, while excise receipts for the year were just under €5.5 billion, €500 million lower than 2019.

On the expenditure side, total net voted expenditure was €67.8 billion, an increase of some €13.7 billion or 25% on 2019. The significant growth in expenditure reflected Government policy to use the public sector balance sheet to offset the pandemic-induced contraction in private demand. For example, the three main income and business support schemes, which were the pandemic unemployment payment, the employment wage subsidy scheme and its predecessor the temporary wage subsidy scheme, as well as the Covid restrictions support scheme cost the Exchequer nearly €9.5 billion in 2020.

Turning to the Apple escrow fund, the committee is aware that as part of the European Commission's decision of August 2016, Ireland was ordered to recover from Apple the alleged State aid plus interest related to a ten-year period from 2003 up to 2014. Notwithstanding Ireland's appeal against the Commission's decision, the Irish Government complied with its obligation to recover the sum of €13.1 billion plus interest of €1.2 billion.

The Minister for Finance agreed with Apple that the amounts collected would be held in an escrow fund until the legal process is completed. The Ireland Apple escrow fund was established under the terms of a formal agreement between the Minister for Finance and Apple, pending the final outcome of legal challenges to the findings of a State-aid investigation undertaken by the European Commission.

The investment and management of the fund is jointly overseen by the Minister and Apple, with the Minister's functions delegated to the NTMA. The financial statements for 2020, published on 22 June, set out that the net assets at the end of 2020 totalled €13.98 million. The €36 million decline for the year primarily reflects the negative interest rate environment and negative yields on highly rated euro-sovereign and quasi-sovereign bonds that existed in 2020.

In terms of the Department, I will briefly describe the role that the Department plays in the effective implementation of Government policy. The Department's mission is to lead in the achievement of the Government's economic, fiscal and financial policy goals having regard to the programme for Government. In late 2020, the Department published a new Strategy Statement 2021-2023, which sets out how the Department will continue to work towards achieving strategic goals pertaining to public finances, the economy, the financial sector and the environment.

Despite the enormous challenges posed by Covid-19 in 2020 the Department continued to make progress on achieving these goals. More recently, as the pandemic has receded, the fall-out from the war in Ukraine has posed new and significant challenges for the domestic and international economy through terms of trade shocks not seen since the 1980s coupled with an enormous humanitarian crisis. Officials from the Department of Finance, while engaging with colleagues from across the civil and public service in a whole-of-Government response, have been working hard across a number of key areas. Specifically, the Department has been at the forefront of the implementation of financial market sanctions, as well as working with Government on designing and implementing measures to respond to the cost of living pressures now being felt across society as a result of the issues.

The economic and financial consequences of the Ukraine invasion, both globally and in Ireland, will be considerable. The most direct economic channel through which the war has and will impact Ireland is inflation. The Stability Programme Update, published last month, sets out a scenario in which inflation would average 6.25% this year, falling to 3% next year. Conversely, the forecast for growth has been lowered to 4.25% of modified domestic demand this year, from 6.5% estimated in budget 2022.

The fiscal impact will be large too. At this stage it is difficult to provide an accurate estimate as to the cost of supporting refugees arriving from Ukraine. Work to better understand the potential expenditure requirement is ongoing in the Department of Public Expenditure and Reform.

In closing, I first thank the Comptroller and Auditor General. We are always grateful to his office for the engagement and assistance we receive in ensuring that the Department produces accounts that meet the highest standards in public accounting. Finally, I thank the staff within the Department for their work during the period under review. They demonstrated considerable adaptability and flexibility in adopting to new working arrangements through 2020 to ensure that the core business of the Department continued, as well as put in an enormous effort to deliver and implement new temporary support arrangements at a time when the Irish economy and society most needed them. In addition, I am mindful of the successful collaboration with Oireachtas staff and members of both Houses to ensure the necessary Government and Oireachtas business and scrutiny was conducted as normal in abnormal times.

To conclude, I thank the Chairman and members for their invitation to meet the committee today as well as for their attention. I welcome any follow-on questions.

Brian Stanley (Laois-Offaly, Sinn Fein)
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I thank Mr. Hogan. The lead speaker today is Deputy Matt Carthy, who has 15 minutes. He will be followed by Deputy Devlin who, along with all other members, will have ten minutes.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I welcome Mr. Hogan and his colleagues. I thank them for attending.

I wish to raise a number of issues and the first one concerns the disabled drivers and disabled passengers scheme. The long-standing, long reported and long complained about issues relating to the scheme came to a head in 2020 with the decision by the Supreme Court. However, we have since had, essentially, the resignation of the medical board of appeal and it appears that the underlying issues have not been addressed. What is the Secretary General's view of the scheme as it operates now? How does the Department propose to address the very clear deficiencies that have been identified?

Mr. John Hogan:

There are a number of layers to this matter. The scheme has been in operation in various guises since, probably, the 1960s. The latest events in relation to a scheme, which was very tightly defined in statutory instruments and ultimately in recent times in legislation, have raised a number of issues for us.

We are dealing with the issue on several fronts. In the first instance, as the Deputy is probably aware, the medical board of appeal has resigned and we are in the process of recruiting new members to the board. An open recruitment process concluded in recent days. We are now moving to assess the individuals who applied to that process and-----

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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May I ask a question? The new board will be appointed on exactly the same basis as the old board. In other words, its remit and terms of reference will be the same.

Mr. John Hogan:

The remit and terms of reference are the same. I am conscious of the fact that-----

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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To be clear, the rationale provided for the resignation of the board of appeal has not had a substantive impact on how the board will operate in future.

Mr. John Hogan:

If I may take the Deputy through our thinking on this, that might help with his question. I am conscious that several people who applied for primary medical certificates but were not successful in that application have sought a mechanism of appeal. The board of appeal resigned. That is a statement of fact. We need to find a mechanism through which those appeals can be dealt with and that is the process that we have under way in the first instance.

The second item is the future of the scheme and how it is structured. I mentioned earlier that the scheme has probably been in existence since the 1960s. The definition of "disability" is very much framed in that era, if I may describe it in that way. It is framed against a definition of "disability" that is very much in the physical area. Some of the areas that were raised in the Supreme Court decision bring the wider aspects of disability into play. As part of the issue and how we bring this forward, there is an ongoing engagement with our colleagues in the Department of Children, Equality, Disability, Integration and Youth, where the Minister of State, Deputy Rabbitte, is chairing a review group into transport mobility schemes. The progress from that in respect of policy outcomes should be very much framed in how we look at where the disabled drivers scheme should and could go in future. That stream of work is very much under way. We have been feeding into that but also looking at an information-gathering exercise which included the outgoing members of the disabled drivers board of appeal to see what best practice is internationally, how these issues are dealt with in other jurisdictions and whether tax is the appropriate mechanism for dealing with them. That work has progressed to a significant extent and we are now feeding it into the mechanism that is chaired by the Department of Children, Equality, Disability, Integration and Youth.

There is a two-pronged approach to what we are trying to do here. One aspect is to recognise that there may be legitimate reasons individuals believed they were unsuccessful in their application for a primary medical certificate and we need to find a mechanism for dealing with that in the short term, but in the longer term it is to look at the wider issue in respect of the whole scheme and how it fits into the best mechanism for supporting transport mobility for disabled people.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Mr. Hogan mentioned that one of the reasons for the board to be reconstituted is that there are appeals outstanding or people who wish to make an appeal. Does he accept that the rate of successful appeals was incredibly low, to the point that it was-----

Mr. John Hogan:

It was quite low but it is very much framed in the conditionality that is associated with the scheme. In assessing the applications, both the granters of the primary medical certificate and, ultimately, the board of appeal have to take cognisance of what is in the legislation and the terms of reference for the scheme. That is where we go into the wider piece in respect of what is the future and the best mechanism for supporting transport disability-----

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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This is a scheme that has been operating under Mr. Hogan's Department for several years.

Mr. John Hogan:

It is.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Clear deficiencies have been identified, including through the court ruling, reports of the Ombudsman and the entire board of appeal tendering its resignation. Does Mr. Hogan accept that it is a failure on the part of his Department that another Department is now carrying out a review and he is waiting for that to be completed before corrective action is taken?

Mr. John Hogan:

No, I am not saying that another Department is now being charged with responsibility for all of this. We are feeding into the process there, taking our expertise and our knowledge of what we have done-----

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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It is being led by a Minister of State-----

Mr. John Hogan:

-----in respect of the disabled drivers scheme and inputting it into the wider discussion on how best to support disabled people in terms of their mobility needs.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Mr. Hogan accepts that amendments need to be made to the scheme-----

Mr. John Hogan:

I accept that we need to have a review in terms of what is the best approach for supporting the needs of these individuals.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I want to touch on the EU budget. The Comptroller and Auditor General has told us that Ireland's contribution to the EU budget in 2020 amounted to just under €2.6 billion, which was a 5.6% increase on the amount in 2019. Does Mr. Hogan accept it is always incredibly difficult to get a clear sense of what the EU receipts were in order to compare and contrast that?

Mr. John Hogan:

I will give the Deputy some detail from a note I have just been handed, if I may. Ireland has been a net contributor to the EU budget since 2014 and the position has grown since then. Our gross contributions for the current multi-financial framework period from 2021 to 2027 are forecast to rise in the coming period.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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To what figure are they forecast to rise?

Mr. John Hogan:

Our 2021 contribution was €3.5 billion. It is forecast to rise to €4.45 billion by 2027. Through the period, we have an average annual contribution of approximately €4 billion. Receipts are forecast to average approximately €2 billion out to 2027. The average annual net contribution is approximately €2 billion.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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That is a lot of money.

Mr. John McCarthy:

The Deputy is correct regarding the difficulty in terms of transparency. What we did approximately two years ago was to publish a report on a line-by-line basis. It went up to approximately 2020. We are happy to-----

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Was that report on EU transactions?

Mr. John McCarthy:

It was on inflows and outflows. We are happy to do that again and send it to the committee. It is on our website up to 2020.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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There is reference to it in the file provided for the meeting. It was published in 2020 in respect of 2018 figures.

Mr. John McCarthy:

Yes.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Will subsequent reports for 2019 and 2020 be published?

Mr. John McCarthy:

We can do that easily. We------

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Is the Department planning to do it?

Mr. John McCarthy:

Yes, we will do that.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Ireland is making an annual net contribution of more than €2 billion. What oversight do we have of that money? There has been much discussion at various committees, including this one weekly, exploring the detail of how moneys that have been approved are then expended. What oversight do we have nationally to ensure that our money that is being contributed to the EU budget is being well spent?

Mr. John Hogan:

If I may take a step back, the overall issue here is that we have now moved into the net contribution position. The Commission estimates the benefit to Ireland for our EU membership of the Single Market is approximately €30 billion, or close to 10% of our GNI. Many sectors of our society continue to benefit directly and indirectly from EU programmes, so we do see a benefit internally. Within the European system, there is oversight of it.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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There is. I am sorry to cut across Mr. Hogan. I am aware of that and of the work of the EU auditors and that there are budgetary oversight committees within the European Parliament. I am asking what is done at a national level to ensure the €4.5 billion we will be contributing to the EU budget will be expended in an appropriate manner, just as we would ascertain in respect of any other money that is being allocated from any Department.

Mr. John Hogan:

The annual budget for the EU is agreed by finance ministers every year. As part of that process, we have representatives sitting on budgetary committees in Brussels who have oversight of the details of the programmes and the expenditure relating to all that. If it would be helpful, we could probably come back with more detail on the representation there.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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That would be helpful. I thank Mr. Hogan. I do not have much time, so I will try to get through my questions as quickly as I can. Has the economic division of the Department completed any work in respect of collective bargaining?

Mr. John Hogan:

Mr. McCarthy may be aware whether there is an update in terms of-----

Mr. John McCarthy:

There is not.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Okay. I was aware that some work had been done.

Mr. John Hogan:

It may have been done by our colleagues at the Department of Public Expenditure and Reform.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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That may be the case. I will check that out.

Mr. John McCarthy:

Collective bargaining is within the space of the Department of the Taoiseach. Dealing with employers and the labour forum is within the space of the Taoiseach.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Mr. McCarthy's division has not carried out any analysis or impact assessment of-----

Mr. John McCarthy:

Other than a presentation that I gave to the Labour Employer Economic Forum, LEEF, last Friday, it is not within our space.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Okay. Mr. McCarthy is a busy man. Does the Department know the number of individuals who are ordinary residents in the State and are non-domiciled for tax purposes?

Mr. John Hogan:

I will have to come back to the Deputy on that one. I do not have-----

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Do we have a sense of what the income deferred by the Exchequer from those with that status would be? Is there a bottom line figure for that?

Mr. John Hogan:

There may well be but I do not have it to hand at the moment. We will come back to the Deputy on that.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Again, time is tight and there are many issues. It is a very big Department when you actually look into the detail of all it covers. On the Eircom pension fund, when did the Department first become aware of the potential outstanding liabilities in the fund? What action was taken initially on that?

Mr. John Hogan:

I assume that we became aware of that during the course of 2019. However, I do not have the details on that to hand. I will have to come back to the Deputy on it.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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We went from a situation where the State provided €1 billion to the fund to discovering that essentially, that liability could have almost doubled. How could we have ended up in that situation? Does Mr. Hogan have a view on it?

Mr. John Hogan:

I do not have an immediate view on it. However, we will come back to the Deputy with a detailed note.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I take it that Mr. Hogan does not know offhand who was managing the fund and what the oversight of the Department was in relation to it?

Mr. John Hogan:

It is not to hand.

Brian Stanley (Laois-Offaly, Sinn Fein)
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The Deputy's time is up.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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That is okay. On the special annual relief programme, how does the Department verify the tax savings of these high earning individuals? How did it verify that represents value for money?

Mr. John Hogan:

Is the Deputy talking about the special assignee relief programme, SARP?

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Yes.

Mr. John Hogan:

The special assignee relief programme was introduced in the Finance Act 2021 with the aim of reducing the cost to employers of assigning skilled individuals in their companies. Some 1,574 employees availed of the SARP directly in 2019. The annual cost of it has fallen by about 10%, from €42 million in 2018 to €38 million in 2019.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Is that because the cap was put in place?

Mr. John Hogan:

Yes, I believe the cap was beginning to have an effect at that stage.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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A cap of €1 million.

Mr. John Hogan:

Yes. There is an aggregate number of jobs that are associated with the scheme, where they were created and retained as a result of it. That increased to 862 in 2019. There was a significant decrease in the cost per SARP-related job at €44,000 in 2019, down from €73,000 in 2018.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I have only 30 seconds left. Mr. Hogan mentioned the saving because of the €1 million cap. That was a reversal of a previous decision to remove the cap in 2015. Has the Department carried an analysis of what the State lost as a result of that cap being lifted for those three years?

Mr. John Hogan:

The numbers feed through as part of the returns that come in through our Revenue Commissioners, so there is full transparency in terms of the cost associated with that. The change that we introduced in relation to the cap kind of reflects the fact that we continuously keep these tax expenditures under review. Where we feel there is a need to move the cap or reintroduce or make amendments, depending on how things are beginning to unfold in relation to the scheme, we move to do that.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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How robust is the review as to whether this scheme is available? As the name would dictate, this is a special tax mechanism that allows very wealthy people to avoid paying-----

Mr. John Hogan:

But-----

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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-----their taxes. How can Mr. Hogan say that there is job creation associated with this measure? I am essentially asking where the evidence for that is.

Mr. John Hogan:

The incentive is very much around attracting the types of individuals who in turn would then generate associated employment-----

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I am asking how the Department knows that employment would not have otherwise been crated if this scheme was not there. What is the evidence for that?

Mr. John Hogan:

When we review the scheme and look at the actual details in relation to the numbers employed and the types of industries that are associated with it, we would make an assessment that these things are successful in achieving-----

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I ask for a written note on that.

Mr. John Hogan:

Yes.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

Just in terms of that evidence.

Brian Stanley (Laois-Offaly, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

Later on I will allow members back in a second time if we can keep moving through it.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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I welcome Mr. Hogan and guests. I have a number of items that I want to touch on. As the previous speaker said, there is much to touch on within the Department. There are six specific items I want to ask about, namely, the NTMA; the EU budget; Irish Water; the Covid-19 credit guarantee scheme; the Apple escrow fund; and legal costs - just to forewarn the Department officials.

I will turn to the NTMA first and the long-term issuances in 2020 totalling €26 billion. I am just wondering about the overall cost of the €26 billion borrowed by the NTMA in 2020. Can the Department officials give me an outline on that? What is the current average interest rate of the NTMA borrowing? What oversight does the Department actually have on the primary dealers that currently have authority to issue Irish Government bonds? I will leave those questions to be answered now and then we will turn to Irish Water next.

Mr. John Hogan:

On the NTMA piece, over the past number of years we have seen a reprofiling and an elongation of our debt issuance. Certainly, if the Deputy looks at the cost of servicing the debt, even as far back as 2013, I believe the cost was anticipated to be in the order of about €7.5 billion. That has fallen substantially over the past number of years. The NTMA has taken advantage of the low interest rate environment to reprofile, as the Comptroller and Auditor General rightly noted in his presentation, the more expensive debt that was taken on board by the Irish State at that time. There has been a success in that regard, particularly in taking advantage of what was available on the international markets to reprofile and reorientate our debt at considerable saving to the Exchequer.

If I look at the wider debt picture at the moment, the thing to note is that we are seeing an increase in bond yields. It is very clear that the cost of borrowing internationally will increase over the next while. It is something that the Department has been signalling through our different publications over the past while, probably covered in the stability programme update, SPU, over the past number of days and certainly the annual debt report that was compiled by the Department earlier in the year. There has been a strong success in managing the reorientation of our debt into a more manageable space as we move forward. It puts us in a good situation in terms of the ongoing position of how we manage our finances over the next number of months. Does Mr. McCarthy have something he wants to add?

Mr. John McCarthy:

Let me just add one or two figures. In 2020, which is what the Deputy was asking about-----

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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Yes.

Mr. John McCarthy:

-----most of the debt was taken on in and around 0%. It obviously differed from debt instrument to debt instrument, but the vast majority of debt was at 0%. This was because the European Central Bank, ECB, and the Central Bank of Ireland to be more particular, was essentially backstopping debt issues in all euro area member states - quantitative easing, so to speak. That continued in 2021 as the ECB continued to hoover up much of the additional debt issuance. However, that is now being discontinued. We are moving from quantitative easing to a quantitative tightening space. The cost of borrowing, which was 1.7% this morning, has risen substantially.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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On the primary bond dealers, what is the oversight and how many are there?

Mr. John Hogan:

They are engaged by the NTMA directly.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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Directly. Okay. I am conscious of time and I have five minutes left. On Irish Water, the establishment cost was approximately €180 million in 2013.

I note that in June 2020, amounts totalling €372 million were issued from the Central Fund to Irish Water under a loan agreement. What are the terms of that agreement and how much has Irish Water cost the Exchequer to date?

Mr. John Hogan:

I have a detailed note on that and I will give the Deputy some of the figures from it. The individual facilities under the Minister's facility agreement, which was signed on 24 June, were as follows: facility 1 - €127 million committed; facility 2 - €111 million for 2019 non-domestic borrowing; facility 3 - €133 million committed for 2020 non-domestic borrowing; facility 4 - €160 million uncommitted for 2021 non-domestic borrowing; facility 5 - €146 million uncommitted for 2022 non-domestic borrowing; facility 6 - €184 million uncommitted for 2023 non-domestic borrowing; and facility 7 - €204 million uncommitted for 2024 non-domestic borrowing. For facilities 1 to 3, inclusive, covering pre-2019 spending, that is, historical non-domestic borrowing, together with 2019 and 2020, there was a total of €371 million. Facility 4 was subsequently committed and drawn down in 2021-----

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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What were the terms of that funding?

Mr. John Hogan:

I do not have the exact details in the note but we will send on some information on it.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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That was really the point of the question.

I turn now to the Covid-19 credit guarantee scheme. On the face of it, that scheme was extremely well received and it was really important to businesses. I understand the terms of the scheme included a maximum provision of up to €2 billion. What is the current value of loans drawn down under the scheme? How many applicants are estimated to have applied and how many received funding?

Mr. John Hogan:

The scheme was operated by the Strategic Banking Corporation of Ireland, SBCI, as the Deputy probably knows, on behalf of the Department of Enterprise, Trade and Employment. As he rightly said, it offered funding of up to €2 billion. The latest figures we have indicate it has delivered €563 million to more than 8,000 SMEs. The scheme is due to end in line with the EU temporary state aid framework in June 2022.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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A total of 8,000 companies drew down loans. Does Mr. Hogan have an idea of how many applied?

Mr. John Hogan:

I do not have the number of applicants. While the scheme is operated by the SBCI, which is a body under the aegis of the Department of Finance, the details were very much set out by the Department of Enterprise, Trade and Employment in terms of the overall governance of the scheme.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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Turning to the Apple escrow fund, the Comptroller and Auditor General outlined a number of elements of this in his opening remarks, as did Mr. Hogan. What is the up-to-date position regarding the fund at the end of March 2022?

Mr. John Hogan:

The details I gave are the ones we are in a position to give at this stage, which are those relating to the position to the end of December 2020. The actual accounts are produced on an annual basis and while I think they are being finalised at the moment, they still have to be considered and audited by the Comptroller and Auditor General. In fairness, I understand the details of the 2021 position cannot be disclosed until then.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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Okay.

Mr. John Hogan:

The only thing I can say around all of this is that what we have noted through the 2020 period is a decline in the value of the fund, which is very much linked to the negative interest rate environment.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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Would there be an impact on the State if the fund continues to lose value?

Mr. John Hogan:

No, the agreement that was reached with Apple is that the pot is the pot at the end of the day, if I can describe it that way. Whatever is there, whether it is above or below, whoever emerges at the end as the holder of the fund benefits from the entirety of the fund.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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As I have only one minute left, I will not get to the EU budget. On legal costs, I note that costs of €439,000 were awarded and the Department's legal costs, at €510,000, were greater than that. There were two settlements paid out in 2019 totalling €24 million. I recently put in a parliamentary question about all the various State Claims Agency amounts between 2016 and 2021. I understood the Department had claims amounting to €134 million during that period. Am I right in saying there were five in 2020?

Mr. John Hogan:

Is this on the State Claims Agency side or is it the-----

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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The State Claims Agency gave a total of €134 million for the period 2016 to 2021. Regarding the Department's own legal costs, I note there were awards of €439,000 and the legal costs amounted to €510,000.

Mr. Seamus McCarthy:

This is indicated in note 6.3 of the appropriation account.

Mr. John Hogan:

The Deputy is absolutely right. The figure of €438,000 was in regard to the costs associated with the Supreme Court case, as I mentioned earlier, which was to do with the disabled drivers scheme appeal.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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Did that claim relate to this one single case?

Mr. John Hogan:

Yes.

Brian Stanley (Laois-Offaly, Sinn Fein)
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As Deputy Carroll MacNeill is held up at a meeting of the Joint Committee on Gender Equality, I call Deputy Verona Murphy.

Verona Murphy (Wexford, Independent)
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I welcome the witnesses and congratulate Mr. Hogan on his appointment. In fact, I am not sure whether congratulations are in order but we will see as time goes on.

I have a number of quick-fire questions. The first relates to the Financial Services and Pensions Ombudsman, which I know is an independent office. I have been in receipt of some complaints in regard to the performance of the ombudsman and the length of time it takes to get a response from the office. Is Mr. Hogan aware of these issues? What oversight does he perform in terms of the ombudsman's role?

Mr. John Hogan:

There is a very strong interaction between members of the banking division and the Financial Services and Pensions Ombudsman, which involves continuous contact. I am not aware of any particular complaints about the office. There is one thing we are doing this year that probably is relevant to the issue the Deputy raised. We are committed to undertaking a periodic critical review of the code of practice for the governance of State bodies. This year, we are doing it on the Financial Services and Pensions Ombudsman.

Verona Murphy (Wexford, Independent)
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Very good.

Mr. John Hogan:

We can revert to the committee in due course on the findings of that review.

Verona Murphy (Wexford, Independent)
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I would appreciate that. I have not made a complaint but I really feel constituents should not have to come to a Deputy to get an answer from the ombudsman. I will reserve my position until I see how it goes. The office has responded to me but I can see from what has been passed to me that it has not been responding to certain individuals.

Mr. John Hogan:

I am happy to take that away. The Financial Services and Pensions Ombudsman is a very important part of our financial architecture, including the ability for people to identify issues they have with financial services companies and to receive a response from the office accordingly.

Verona Murphy (Wexford, Independent)
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There certainly are long delays in getting a response.

Mr. John Hogan:

The office has played a very important role in a number of issues that have arisen in the financial services sector over the past number of years. I am happy to note the Deputy's concerns and come back to her regarding our review.

Verona Murphy (Wexford, Independent)
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I appreciate that.

I concur with my colleague, Deputy Carthy, regarding primary medical certificates. This is a huge issue for people. Mobility is a big concern for anyone, particularly in rural Ireland, where it is much more difficult to get around. We do not have public transport and there is no access from a disability perspective. I will move on but I am an interested party, as they say, in this matter.

Mr. John Hogan:

The Deputy can take it from my response that we are active in recognising the issue and the challenge around all of it.

Verona Murphy (Wexford, Independent)
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Yes, and I will wait to see what happens.

Mr. John Hogan:

At the end of the day, it is not the Department of Finance or the Department of Children, Equality, Disability, Integration and Youth that is important in this. It is the people who benefit from the scheme.

Verona Murphy (Wexford, Independent)
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I agree with Mr. Hogan. The scheme needs to be reviewed and I would support him in that. I do not know whether it is appropriate for the witnesses to address it but the scheme certainly needs to be reviewed. There are a lot of dependent people impacted by it.

How does Ireland compare on an EU scale, on a per capitabasis, in terms of our national debt?

Mr. John Hogan:

My colleague, Mr. John McCarthy, might want to talk a little about that.

Verona Murphy (Wexford, Independent)
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Just a little, please, as I have very little time.

Mr. John Hogan:

Just to short-circuit that, we produce an annual debt report, as I mentioned earlier, which gives a very extensive analysis of our debt situation and compares it internationally.

Verona Murphy (Wexford, Independent)
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Does the committee have that report?

Mr. John McCarthy:

It is on our website and we will send it to the committee. On a per capitabasis, the national debt equates to €47,500 for every man, woman and child in the country, which is the fourth highest in the world.

Verona Murphy (Wexford, Independent)
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It is the fourth highest in the world. Do we expect that to increase due to the current situation with the Ukrainian war?

Mr. John McCarthy:

On the basis of the current trajectory, the amount of debt will stabilise between now and 2025.

Verona Murphy (Wexford, Independent)
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Is that based on interest payments being reduced?

Mr. John McCarthy:

It is based on balancing the books so we are not accumulating debt in future years.

Verona Murphy (Wexford, Independent)
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What does the Department consider an appropriate annual spend? Do the witnesses know what I mean? How much do we borrow versus how much do we spend?

Mr. John Hogan:

We set an expenditure ceiling, which is a part of the fiscal rules.

Mr. John McCarthy:

I do not want to veer into the policy space but the Government has set out an annual increase in spending of between 5% and 5.25% every year because that is in line with the annual growth rate of tax revenue.

Verona Murphy (Wexford, Independent)
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Does that take account of inflation?

Mr. John McCarthy:

That takes into account both the real growth rate in the economy and inflation in the economy. It is an average number over five years.

Verona Murphy (Wexford, Independent)
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What will the rate of inflation be this time next year? What is the Department's projection?

Mr. John McCarthy:

The projection for next year is 3%.

Verona Murphy (Wexford, Independent)
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Mr. McCarthy is very optimistic. I hope he is right.

Mr. John McCarthy:

So do I.

Verona Murphy (Wexford, Independent)
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What will the Department be doing to curb inflation? What will the Department do to get the rate to fall to 3%?

Mr. John Hogan:

There is an issue there. The rate for next year identifies the base effects feeding out of the process at that stage. That is why we project that inflation will be lower.

Verona Murphy (Wexford, Independent)
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What actions will be taken to get inflation to that 3% level?

Mr. John McCarthy:

When trying to curb inflation, there is role for budgetary and monetary policy. It is in the monetary policy space that interest rates will rise. For instance, the Deputy might have seen the Federal Reserve-----

Verona Murphy (Wexford, Independent)
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I am sorry for interrupting but I am asking what is the Department's strategy.

Mr. John McCarthy:

If Government runs a prudent budgetary policy where spending moves in line with revenue, then fiscal policy, budgetary policy, will not be aggravating or adding to inflation. That is what we would advocate.

Verona Murphy (Wexford, Independent)
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That is a broad answer. That is what the Department would advocate. Will our guests give me an example? What will happen with excise duty?

Mr. John McCarthy:

Government has already acted on-----

Mr. John Hogan:

I think we are moving into the policy space.

Verona Murphy (Wexford, Independent)
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We are not. I know the witnesses are not setting policy but they must have a defined role when it comes to giving advice.

Mr. John Hogan:

The advice piece is framed by how the Government wishes to proceed on a particular aspect of the response to the cost-of-living crisis.

Verona Murphy (Wexford, Independent)
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What if the Government was to reduce the excise take on fuel?

Mr. John Hogan:

We have already reduced the excise take, as the Deputy knows.

Verona Murphy (Wexford, Independent)
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Mr. Hogan is now veering into the policy area. That is not what I asked. I asked what would happen if the Government was to further reduce the excise take.

Mr. John Hogan:

Let me come to that point.

Verona Murphy (Wexford, Independent)
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What would happen if the Government was to further reduce the excise take?

Mr. John Hogan:

We would have to do that in the context of-----

Verona Murphy (Wexford, Independent)
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I am not asking if it will happen. I am asking about the effect it would have.

Mr. John Hogan:

The effect of any excise reduction would be a reduction of the cost at the pumps, for example, for diesel and petrol.

Verona Murphy (Wexford, Independent)
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That is the effect on the price. What effect would it have on the Exchequer's takings?

Mr. John Hogan:

Ultimately, if the Government is reducing excise, there is a consequent reduction in what is collected per litre.

Verona Murphy (Wexford, Independent)
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How do we measure the effect of not reducing excise where people cannot afford to pay because the cost of living has gone above what they can afford to live on? In that case, people's standard of living falls. The cost of living has risen so much that people leave their jobs. Now the Exchequer is paying an increased social welfare bill. How can that be correlated?

Mr. John Hogan:

One is then into trade-offs that occur when one is dealing with items such as this. Oftentimes, the opportunity is there for the Government to target support to those areas that are most in need, the most vulnerable areas of society that are feeling the effects.

Verona Murphy (Wexford, Independent)
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The gap is growing for the vulnerable areas on the basis of the cost of living. The reduction in excise that Mr. Hogan mentioned had virtually no impact because fuel has not come down further in price. It is still at the rate it was. We have reduced VAT on goods such as coal and heating oil. That will have no impact, particularly in rural Ireland.

Mr. John Hogan:

I think it did have an impact on the cost of fuel because the price of the average litre of petrol before the cut in excise-----

Verona Murphy (Wexford, Independent)
Link to this: Individually | In context | Oireachtas source

Mr. Hogan should drive around the country and have a look because it has not had an impact. Many stations are still charging €2 per litre.

Mr. John Hogan:

Perhaps it is only the stations I frequent that have passed on the saving.

Verona Murphy (Wexford, Independent)
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Mr. Hogan is probably city-based, and that is the issue. There is huge variation in costs.

Mr. John Hogan:

In the city and on the rare occasions I have an opportunity to travel to the country, I do notice the effect.

Verona Murphy (Wexford, Independent)
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Does the Department have a monitoring strategy in place? I am asked every day why the cost of fuel has not come down.

Mr. John Hogan:

Do we have a strategy to monitor the fuel price increase?

Verona Murphy (Wexford, Independent)
Link to this: Individually | In context | Oireachtas source

Yes.

Mr. John Hogan:

I do not think we do.

Verona Murphy (Wexford, Independent)
Link to this: Individually | In context | Oireachtas source

The fuel rebate, for instance, is based on an average.

Mr. John Hogan:

That is right.

Verona Murphy (Wexford, Independent)
Link to this: Individually | In context | Oireachtas source

That means there must be some monitoring system.

Mr. John Hogan:

The tax division looks as that as part of that exercise. We will come back to the Deputy in terms of how we do all that. I must say that I did notice a change over those days when the excise duty was cut. Some filling stations were slower than others to pass on the reduction but the prices I am seeing now compared to where they were-----

Verona Murphy (Wexford, Independent)
Link to this: Individually | In context | Oireachtas source

That is a complicated process.

Mr. John Hogan:

It is complicated. Every time we have a shift in energy price-----

Verona Murphy (Wexford, Independent)
Link to this: Individually | In context | Oireachtas source

Mr. Hogan is running down my clock. I am not impressed.

Mr. John Hogan:

I am not intending to do that.

Verona Murphy (Wexford, Independent)
Link to this: Individually | In context | Oireachtas source

I have one more question. Mr. Hogan has done an awful lot of talking-----

Brian Stanley (Laois-Offaly, Sinn Fein)
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Very briefly.

Verona Murphy (Wexford, Independent)
Link to this: Individually | In context | Oireachtas source

-----that did not answer any question. He can send me a note.

Mr. John Hogan:

Yes.

Verona Murphy (Wexford, Independent)
Link to this: Individually | In context | Oireachtas source

I want to see what action the Department is taking on insurance and the strategy that is employed to pass on the reduction we should now be seeing. I want to know how that is monitored and what the Department's involvement is. I want to know about the Department's interaction with Insurance Ireland. I want to know that we have a strategy in place that benefits the public.

Mr. John Hogan:

Does the Deputy want me to answer? Do I have time to answer?

Verona Murphy (Wexford, Independent)
Link to this: Individually | In context | Oireachtas source

There is no time for an answer because I do not want to disrespect the Chair.

Brian Stanley (Laois-Offaly, Sinn Fein)
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I will let Deputy Verona Murphy in a second time. The Deputy asked about the effects on the Exchequer. Would it be helpful to frame that question in the following way? Let us say, for example, there was a 10% or 15% reduction in the excise take on a given fuel, what would that mean in terms of loss to the Exchequer? Would that be a helpful way to frame that question?

Verona Murphy (Wexford, Independent)
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Yes, that is better than asking about the decrease in the price. I understand that the EU is involved when it comes to reducing VAT. There is no such permission required when it comes to excise.

Mr. John Hogan:

There is an excise directive.

Verona Murphy (Wexford, Independent)
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With the rate of excise we charge, we have plenty of scope. As the Chair said, perhaps we could consider a 10% reduction. At the level of excise we charge, there is plenty of scope.

Mr. John Hogan:

I think we are at the minimum rate on diesel.

Verona Murphy (Wexford, Independent)
Link to this: Individually | In context | Oireachtas source

Not as far as I am concerned.

Brian Stanley (Laois-Offaly, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

The question I mentioned there related to the effects on the Exchequer. In terms of the effects on price, the big concerns relate to the fact that the cost of diesel, which always cost 7% or 8% less than petrol, has now exceeded the cost of petrol. That is having a particular effect on the commercial sector. There is a question in that regard. I am not sure if measures can be taken in that area. We might come back to that point later.

Mr. John Hogan:

There was always a gap between the cost of diesel and petrol. We reduced the excise on petrol by 20 cent per litre and on diesel by 15 cent per litre. The committee members probably noticed over the years that as part of the tax strategy group, we often considered how to equalise diesel and petrol prices. It seems to have happened.

Verona Murphy (Wexford, Independent)
Link to this: Individually | In context | Oireachtas source

I will come back in on that later. I do not want to hold up the Chairman.

Brian Stanley (Laois-Offaly, Sinn Fein)
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Will Mr. Hogan come back to the committee with a table explaining what a 10% or 20% reduction would mean?

Mr. John Hogan:

We will see what we can do. Sometimes it is dependent on demand as well.

Mr. John McCarthy:

I do not have an estimate offhand. As the Deputy knows, we now have a legislative requirement each year that we meet our targets but I do not know offhand-----

Mr. John McCarthy:

I will.

Mr. John Hogan:

Yes. We agreed with Deputy Devlin that we would cover that.

Mr. John Hogan:

We are a little sensitive about being completely open on the location of some of the assets. If the Deputy wants a more detailed discussion on this, we could have it in private session. A number of assets are outstanding and need to be worked through by the special liquidators. As she is probably aware, there is a revised timeline for the completion of the special liquidators' job, which recognises a number of issues, predominantly Covid, but the change in the international environment has also impacted and inputted into that discussion or consideration by the liquidators.

Mr. John Hogan:

There is some media speculation on that. We are a little sensitive on what we say around that, given the international environment at the moment.

Mr. John Hogan:

Sorry, on the remaining loan portfolio, the opening loan portfolio was approximately €21 billion or €22 billion. The par value of the remaining loan portfolio is €3.4 billion. That is the value of the loan associated with it.

Mr. John Hogan:

Whatever the realisation, it will be worked through by the liquidators in time.

Mr. Des Carville:

The Deputy is referring to the €35 billion loan equity that went into Anglo Irish Bank and Irish Nationwide, which were merged into IBRC. What the liquidators have been doing since the liquidation commenced in 2013 is realising the assets. As the Secretary General said, we have €3.4 billion at par value of assets left to sell. We have disclosed there are 12 assets left to sell. There has been a delay to the timeline because these assets are primarily in the hospitality space and, with the advent of Covid two years ago, it is not the right time to sell hotel and pub assets. The decision was made to extend the timeline to try to realise the best possible return for the State.

Mr. Des Carville:

No. The assets were, if I could characterise them as such, in difficult jurisdictions. Getting title to the assets over the last number of years has proven difficult. That is why it has taken so long in terms of not being able to sell them previously. We now have a clear line of sight-----

Brian Stanley (Laois-Offaly, Sinn Fein)
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Does Mr. Hogan want to come back in again?

Mr. John Hogan:

If we need to break into private session on this, we are happy to do that.

Brian Stanley (Laois-Offaly, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

Okay. Is Mr. Carville okay to continue?

Mr. Des Carville:

I am okay.

Brian Stanley (Laois-Offaly, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

I understand that-----

Mr. John Hogan:

There is a sensitivity around this.

Mr. Des Carville:

There is a sensitivity around location.

Brian Stanley (Laois-Offaly, Sinn Fein)
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Of course. We need to be careful about that.

Mr. Des Carville:

I was saying because it is taking a little time to get clear legal title to the assets, they were not part of the loan sales that took place in 2013, 2014 and 2015. That bit of work is now completed but because of the type of assets they are, it did not make sense to realise them during Covid.

Mr. Des Carville:

It is 29 in total, 12-----

Mr. Des Carville:

Correct. Again, the costs around litigation are something we discuss with the liquidators on a monthly basis. I can update some of those figures because the liquidators have made pretty good progress. At the end of February, and these are the latest figures I have, the 17 has been reduced to six and the 12 has been reduced to ten. Recovery and enforcement is ten. That is 16 outstanding from 29 previously.

Brian Stanley (Laois-Offaly, Sinn Fein)
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I suggest we do that at the end of the session. We need to bring in the other members as well.

Mr. John Hogan:

I think the 100,000 target comes from the Department of Transport.

Mr. John Hogan:

There would have been discussions continually through the course of the formulation of the climate action plan over the last number of years. That 100,000 figure has been in circulation for a number of years.

Mr. John Hogan:

The climate action agenda and the response we have to put in place as a society, as a Government and right across the board on this, mean we will need action on quite a number of fronts. The electric vehicle piece is one important part of it but it is only one.

Mr. John Hogan:

A whole-of-government response is required right across.

Mr. John Hogan:

As part of the discussions around the climate action agenda, where targets are being set, there is that interaction with ourselves and with whatever Department is bringing them forward.

Mr. John Hogan:

I think we can come back to the committee with some colour on the discussions and the number of interactions that took place. I am not sure what we have in writing around it but the Deputy can rest assured that there was quite a bit of interaction.

On climate more generally, the Department has created its own climate economy group to look at all these issues as to how the targets that have been agreed will impact right across the economy. Mr. McCarthy chairs it. It will be a very important stream of work for us over the next months and years.

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Apologies for being late but I was also attending the Joint Committee on Gender Equality. I thank the officials for coming in. It is great to see them again. Last week, the Department of Justice was before the committee and one thing we went through was the transposition of the anti-money laundering directive, which I think was a European directive of 2015 ultimately was transposed in 2019. The State was exposed to a €2 million fine as a consequence of the two-year delay in its transposition. It was supposed to be done in 2017. The reason I raise it is twofold. First, it seemed to me that there needed to be interaction with the Department of Finance in the development of legislation to transpose the directive. What was the situation there? Will Mr. Hogan speak on that? Is there anything else we need to be concerned about in relation to delays or fines related to the transposition of directives?

I am coming to this in a slightly odd way that Mr. Hogan may not have prepared for but for my second question, is there further legislation or are there other EU directives that require transposition around money laundering? Can the Department speak on anything around that?

Mr. John Hogan:

The anti-money laundering agenda has been ongoing for quite some years at EU level. The directives very much set the context in which we transpose the rules that are made at European level.

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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We are also involved in developing them.

Mr. John Hogan:

We are very much involved in that. A new package was agreed on 20 July 2021. It has four elements. There is new regulation that will collectively replace the current fifth anti-money laundering directive. There is a new directive itself, a sixth one, a revised funds transfer regulation and a regulation establishing a new central supervisor for anti-money laundering matters at EU level.

Anti-money laundering touches quite a number of areas. The Deputy rightly identified the Department of Justice as being part of it. There is very strong co-ordination through the anti-money laundering committee which our Department chairs and which has representatives from the different areas across the State where anti-money laundering and terrorist financing issues arise. Sometimes transposition can be difficult and can touch on different Departments. We do co-ordinate across the different bodies. I think that anything the Department needs to do is up to date but I will double-check and if there is anything to the contrary we will come back on it. We are very conscious that when we are transposing regulations, we do so correctly. We are especially mindful when it might touch on other areas that we are cognisant of what the impact might be.

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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I appreciate that. I suppose the concern from the committee's perspective was that there was such a large fine, that it was an unusual thing and there was, as Mr. Hogan says, a series of anti-money laundering directives. In our dialogue with the Department of Justice, it indicated that it can be difficult to keep up and that there was directive after directive in relation to it. It generated concern here because "difficult to keep up" is not where we want to be. First, we are engaged at European level in the development of much of the technical detail behind the directives so we are already in it and it is not a surprise when it comes out that it somehow has to be transposed. There really is not a reason for ongoing delays and fines accruing as a consequence when we are engaged in the policy development in the first instance. Is it fair to say that we are engaged and that we have sight of them?

Mr. John Hogan:

At EU level?

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Yes, of course.

Mr. John Hogan:

We are yes, absolutely.

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Naturally. Therefore is there any other difficulty? What we are concerned about, particularly in the last ten weeks with the exposure from Russia and the concerns around financing and money laundering generally, is that we are at the top of our game on this and not, as we have been for the last six years, coming behind and paying fines.

Mr. John Hogan:

It is fair to say that we have had to invest quite a bit of effort in meeting the regulations and the standards that are expected on that. We have certainly closed that gap, to be frank.

We have been extremely active on financial sanctions over the last months as a result of the war in Ukraine. The package of sanctions has emerged at a European level, sometimes at extraordinary speed. We have been very conscious of our obligations at international level to move quickly to transpose those and we have done them successfully.

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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As I understand, it is really up to the banks and companies to, in practical effect, impose the sanctions. Is that correct?

Mr. John Hogan:

That is right, yes.

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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So what is the Department's level of oversight to see that is so? How does that work?

Mr. John Hogan:

There is oversight through the anti-money laundering committee. The Central Bank also has a role in the financial sector and is very active.

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Is there are reporting structure from the banks or the financial institutions to the Central Bank in relation to this specifically?

Mr. John Hogan:

As far as I am aware, there certainly is a lot of interaction in relation to it but I might come back to the Deputy on the precise detail of how that works.

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Okay, that would be great. I thank Mr. Hogan.

There are some general questions and there is general ill-ease. I received a very good response back from the Department of Finance, which is worth putting on the record. It relates to securitisation and the exposure of the financial market generally to Russian assets. Mr. Hogan may correct me if I am wrong but the Department told me that at the end of 2021, Russian assets represented only 0.1% of the on- and off-balance sheet financial assets and liabilities held by Irish authorised banks, that is, €1.7 billion, 0.3% of total assets of authorised investment funds, or €11.5 billion, and 0.1% of the total insurance sector assets of €97 million. I think the Department also gave me numbers in relation to the special purpose entities, SPEs, that just under 2% of the 3,000 special purpose entities, which of course are totally legitimate entities, had been identified as having links to Russia and that it was currently estimated that one in three of those, that is, 17 SPEs being 0.5% of the total SPE population was directly linked to individuals in the scope of the sanctions regime.

It seems to be a contained exposure; I do not want to say that it is small. What are the Department's concerns on this as we move forward? Particularly, as I asked about the enforcement of sanctions that have been imposed by the EU.

Mr. John Hogan:

The important thing for us was to put the sanctions regime that was expected of us internationally in place. We have done that successfully. The figures there are reviews that were undertaken by the Central Bank. It has a strong interaction as a result of the details that it gets from the 3,000 SPEs in Ireland in relation to their background and so on. I think there is strong, rigorous oversight on that. The information flow can give the committee some comfort that the interaction conducted by the Central Bank has been successful in identifying the scope and exposure there. As this unfolds, if there are additional requirements at EU level we will react to them at the same speed as we have done over the past number of months.

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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I appreciate that but there is a number there for directly, identifiably linked entities. It is useful, as Mr. Hogan says, that they can be identified, let us hope that is the universe of that, to individuals linked to the sanction regime. I suppose my question is what comes next? How can we be sure of enforcement? That is really what I want to know.

Mr. John Hogan:

The mechanism around enforcement is with the Central Bank there. There is another aspect which is interesting. It is not only national but also transnational in that at EU level on 7 March, member states were advised that the European Commission had launched its whistleblower tool so if individuals identified that there are challenges and issues there, that can be raised there. There are various mechanisms where the correct assessment of this would be monitored and enforced.

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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What is Mr. Hogan's assessment of the relative exposure of the Irish financial industry to Russian assets as I outlined? Is it something that we need to be concerned about?

Mr. John Hogan:

We always keep these things under review. We are a part of a global financial infrastructure. It is an important part of Ireland's economy. It is something that has been developed over the last number of years. All these things are things that we are very conscious of.

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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They will be kept under review.

Mr. John Hogan:

We keep them under review but that is to be expected-----

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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I appreciate that.

Mr. John Hogan:

It is absolutely expected in relation to it. Because in all these things-----

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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But what is Mr. Hogan's assessment of it?

Mr. John Hogan:

Our assessment at the moment is on the basis of the information that we have conducted through the Central Bank that we have done what needs to be done in relation to this. It will absolutely be kept under review.

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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What is Mr. Hogan's assessment as it relates to risk?

Mr. John Hogan:

In relation to the risk, the important thing is that we have information on what the potential is. That potential has been identified by the Central Bank, has been identified in the numbers which the Deputy correctly cited and which I have in my briefing document here. To the extent that a risk exists in this space, I think we have corralled and identified it. We will continue to ensure that as our understanding evolves as to what the expectation is internationally, we adapt and monitor the situation.

Brian Stanley (Laois-Offaly, Sinn Fein)
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I bring to members' attention that towards the end of this session we will move into private session briefly to deal with sensitive issues relating to where accounts may be, regarding the current conflict and all that. I call Deputy Munster who has ten minutes. When she has completed, we will take a short break.

Imelda Munster (Louth, Sinn Fein)
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I return the disabled drivers and passengers scheme. My colleague Deputy Carthy asked some questions about this. I understand that following the Supreme Court case, the Department undertook to put in place a technical legislative change which basically had no effect on the criteria required to obtain a primary medical certificate. Is that correct?

Mr. John Hogan:

What happened was that the provisions of the scheme were set out in the statutory instrument on the basis of the legal advice we received or set out in the primary legislation. Our imperative at that stage was to facilitate a mechanism that the scheme would and should continue as it was constructed but subject to our conducting or being in a position to conduct a review as to what the future path should be. I outlined to Deputy Carthy earlier two aspects of the work on this which are really important. One is to define a mechanism, that we have a scheme in place operating at a primary level through the HSE and that we have an appeals mechanism. Work is advancing on that. Equally there is the wider consideration of the appropriate mechanism to support people who have a disability and need to access State intervention in the mobility space. That work is ongoing in the Department of Children, Equality, Disability, Integration and Youth.

Imelda Munster (Louth, Sinn Fein)
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Given the level of appeals that are overturned and given that the entire board resigned, up until the resignation of the board, did the Department have any intention to reform the scheme?

Mr. John Hogan:

As I said earlier in response to another question, we keep tax schemes under fairly regular review. There had been some dialogue with the medical board of appeal on the scheme itself and how best to bring it forward. We are always conscious that in reviewing a scheme like this - as I said, this had been in existence since the 1960s - the nature of the parameters surrounding the scheme were quite tightly defined and that in essence-----

Imelda Munster (Louth, Sinn Fein)
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Okay.

Mr. John Hogan:

Sorry, Deputy, just to-----

Imelda Munster (Louth, Sinn Fein)
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Mr. Hogan said the nature and parameters of the scheme were quite tightly defined. Would it be possible for the Minister to alter the six criteria with the stroke of a pen? If he were to amend statutory instruments-----

Mr. John Hogan:

It would certainly need primary legislation to change it. In any intervention like this, particularly one involving sensitive issues like this, we are very cognisant that we want to find the right solution. At the stroke of a pen, as the Deputy described it, is not typically the best way to address this issue.

Imelda Munster (Louth, Sinn Fein)
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However, the Department has had ample time.

Mr. John Hogan:

I am sorry, what is-----

Imelda Munster (Louth, Sinn Fein)
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The Department is aware of the problems and has had ample time but has done nothing to date to make the scheme more inclusive. It took the entire board resigning to ram that home to the Department.

Mr. John Hogan:

I am not sure I agree with that. We were engaging in an initial review of the operation of the scheme. The ability to interact with our colleagues in the Department of Children, Equality, Disability, Integration and Youth now offers us a wider opportunity to develop that.

Imelda Munster (Louth, Sinn Fein)
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When did that engagement start?

Mr. John Hogan:

It would have started with an exchange of letters between the Ministers through the course of last year.

Imelda Munster (Louth, Sinn Fein)
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Just recently.

Mr. John Hogan:

Sorry, Deputy, just to be completely transparent on this-----

Imelda Munster (Louth, Sinn Fein)
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The proverbial hit the fan, more or less.

Mr. John Hogan:

I am sorry to cut across the Deputy.

Brian Stanley (Laois-Offaly, Sinn Fein)
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Mr. Hogan to respond.

Mr. John Hogan:

To be completely transparent on it, there was a meeting earlier this year in relation to the group chaired by the Minister of State, Deputy Rabbitte. In parallel, as I said to Deputy Carthy earlier, we have an information-gathering group, if I can describe it that way, to look at best practice internationally in terms of how states support work in this area.

Imelda Munster (Louth, Sinn Fein)
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I am sorry to cut across Mr. Hogan, but time is of the essence. When was that group set up?

Mr. John Hogan:

It would have been through the course of last year. The Department of Children, Equality, Disability, Integration and Youth one was the start of this year. Our own internal group would have worked through last year. It is looking at interventions to support mobility in this area, both tax-based interventions and also direct expenditure.

Imelda Munster (Louth, Sinn Fein)
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Would Mr. Hogan accept that the resignation of the entire board is a damning indictment of a scheme that is excessively restrictive, not fit for purpose and in need of change?

Mr. John Hogan:

I think what it-----

Imelda Munster (Louth, Sinn Fein)
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Owing to time, can Mr. Hogan answer "Yes" or "No"? Does he believe the Ombudsman's report and the entire board resigning are a damning indictment of a scheme that is not fit for purpose and needs to be changed?

Mr. John Hogan:

I think it raises a very significant issue for us in relation to how best to support people who are looking for State intervention in this area.

Imelda Munster (Louth, Sinn Fein)
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I am glad to hear that.

My next question is on Home Building Finance Ireland. Why was taxpayers' money used by Home Building Finance Ireland to fund the construction of private rental properties that were sold directly to cuckoo funds?

Mr. John Hogan:

I think the Deputy may have had a presentation from the chair and team in Home Building Finance Ireland in recent weeks.

Imelda Munster (Louth, Sinn Fein)
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We did, yes.

Mr. John Hogan:

Generally in the housing debate and in the housing situation we need interventions right across the board and at all levels to support building and the provision of accommodation. Home Building Finance Ireland has played an important role in providing additional moneys and support for different aspects of this.

Imelda Munster (Louth, Sinn Fein)
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Let me just touch on one. Some 83% of all properties constructed under the Home Building Finance Ireland momentum fund were private rental apartments, all of which were sold to institutional investors, to pre-agreed contacts. Has Mr. Hogan expressed concern about this at the quarterly meetings?

Mr. John Hogan:

I ask Mr. Carville to come in on that one.

Mr. Des Carville:

The Deputy may not be aware that I sit on the board of Home Building Finance Ireland. I was the interim chair when it was set up. Some 43% of the homes funded were owner-occupier homes. If the momentum fund is excluded, it can be looked at in the round. The momentum fund, as the Deputy will probably recall from what Ms Deering said, is now closed for business. It was closed at the end of last year. There was a particular reason for bringing that into the product offering. The idea behind Home Building Finance Ireland is that where there are market gaps, we are meant to be agile and flexible and bring in products that are useful. When they are no longer useful and no longer needed, the products are removed from our product suite.

Imelda Munster (Louth, Sinn Fein)
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Some 83% were private rental apartments.

Mr. Des Carville:

That was one product, but when Home Building Finance Ireland is looked at in the aggregate, which I think is a fair representation, 43% of homes were for owner occupiers, 23% for social housing and 30% for renters.

Imelda Munster (Louth, Sinn Fein)
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When it was before the Committee of Public Accounts last month, Home Building Finance Ireland confirmed that the average rent for a one-bedroom apartment under the scheme would be €1,800 per month. It would be €2,100 for a two-bedroom apartment and - wait for it - €3,100 for a three-bedroom apartment. One has to ask the question, who the hell are these apartments for? Is the taxpayer financing the distortion of the market with these ridiculously high rents we are subsidising? That question has to be asked.

Mr. Des Carville:

I would look at it in a slightly different way. What would happen if the momentum fund did not fund those apartments? Where would those people who are living in those apartments rent?

Imelda Munster (Louth, Sinn Fein)
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Who are those apartments for? If one can afford those prices-----

Mr. Des Carville:

Where would those people live if the momentum fund was not used in a temporary, targeted manner to help the construction of those apartments? Those people would be homeless. They would not have somewhere to live.

Imelda Munster (Louth, Sinn Fein)
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They probably still do not, because there are not many who can afford those sorts of prices. It comes back again to the distortion of the market. The Department said earlier that its remit was to avoid distorting the market. My question is about taxpayers funding the distortion of the market when we have to subsidise it.

Mr. Des Carville:

First of all, we must remember that Home Building Finance Ireland is a very small player in the market. It does not create the market and it does not set the prices.

Imelda Munster (Louth, Sinn Fein)
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I want to specifically speak about it. It also confirmed to the committee last month that the expected unit price of a property funded through their momentum fund was €485,000. This is a ridiculous waste of public money that could have been used for social or cost rental-----

Mr. Des Carville:

But if we look at the aggregate-----

Imelda Munster (Louth, Sinn Fein)
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Does Mr. Carville consider that cost affordable?

Mr. Des Carville:

The Deputy is focusing in on one product. I would prefer to focus on the aggregate.

Imelda Munster (Louth, Sinn Fein)
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No, we are talking about this particular aspect of it-----

Mr. Des Carville:

The aggregate sales price is €319,000.

Imelda Munster (Louth, Sinn Fein)
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-----which is publicly subsidised, and the question was that it said that-----

Brian Stanley (Laois-Offaly, Sinn Fein)
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I ask the Deputy to hold on for a second. Will Mr. Carville pull the microphone a little closer? We have gone over time, and I want to ask Mr. Carville to answer this.

Mr. Des Carville:

I was just making the point that, to be fair, with Home Building Finance Ireland, it is better to look at the aggregate performance. The average selling price of a Home Building Finance Ireland-funded unit is €319,000.

Imelda Munster (Louth, Sinn Fein)
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Right. I am quoting the figures that it gave us when it was last in. Was it not supposed to finance small builders who wanted to build affordable homes for people the length and breadth of the country?

Mr. Des Carville:

Absolutely. Home Building Finance Ireland has approved 71 different facilities since commencement in January 2019. That covers some larger schemes, and a plethora of smaller builders. There is a specific product for sub-ten units, which was a new product we introduced during the course of its life. We funded projects in 20 counties. We have an active team out on the road trying to promote Home Building Finance Ireland as a viable source of funding.

Imelda Munster (Louth, Sinn Fein)
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Okay. I just wanted to ask the question. Our committee has been advised by Home Building Finance Ireland of a percentage-----

Brian Stanley (Laois-Offaly, Sinn Fein)
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I ask the Deputy to be brief.

Imelda Munster (Louth, Sinn Fein)
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-----of properties constructed under the momentum fund that have gone into the rental market. They were 52% more expensive than those built without the momentum fund. How would the Department explain that?

Mr. Des Carville:

I think the Deputy is being unfair to Home Building Finance Ireland by focusing in on one product. I would look at the aggregate.

Imelda Munster (Louth, Sinn Fein)
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Hold on. I am asking a particular question. How is that something built through the momentum fund is 52% more expensive as opposed to units built without the momentum fund? How is that value for money? How is that not distorting the market? Why are we subsidising that?

Mr. Des Carville:

To be fair, I would need to go back and check to see exactly what figures the Deputy is quoting there. That is not a number I am familiar with. I could take that away and have a look at it, but I am not even sure how one would calculate a figure like that, just off the top of my head. That would be my response to that. Let me have a look at the transcript to see what Ms Deering actually said.

Brian Stanley (Laois-Offaly, Sinn Fein)
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We might come back to that later if the Deputy wants to come back in for the second round of questions.

Brian Stanley (Laois-Offaly, Sinn Fein)
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The next member to contribute is Deputy O'Connor.

James O'Connor (Cork East, Fianna Fail)
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I confirm I am in the precincts of Leinster House.

I thank our witnesses for appearing before the committee. Recognising the importance of the Department of Finance, in particular, to the economy, I acknowledge that extraordinarily difficult work has been done by so many civil servants working on this brief trying to keep businesses and the economy afloat during Covid. Credit is due in this regard.

Let me refer to the primary issue I would like to raise. The gross national debt in 2020 stood at approximately €220 billion. What we are starting to see, and as alluded to in reports today by Bloomberg, is a rise in interest rates in the UK and, potentially, the eurozone. In terms of the debt in Ireland and inflation at a scale that has not been seen in many decades, what is the exposure when it comes to the change in interest rates? The Secretary General or perhaps the chief economist, Mr. McCarthy, might like to answer that.

Mr. John Hogan:

I will start and then hand over to Mr. McCarthy. Early in the session I referred to our annual debt report, which is a very useful document, which is almost a handbook. on the national debt, exposure and what it means in terms of our own public finances and so on. Over the past number of years, there has been significant reprofiling and elongating of our debt. Associated with that, by virtue of benefiting from the lower-interest-rate environment, there has been the material impact on the cost of servicing the debt. As we look into the near and middle term, we are generally well placed to deal with the issues that are now arising, but, as we have stated in our own public documents over the past number of years, the very benign environment that has been operating internationally on bond yields, very much driven by central bank action, is beginning to come to an end. We have seen a movement on interest rates in the US, of which I am sure the Deputy will be very much aware.

In the European context, the ECB has already indicated some of the policy actions it intends to take over the coming while. They are very much linked to the winding down of asset programmes that have been instrumental in terms of the moderation of the international lending environment. However, what might have been described as an era of free or more-than-free money is very much coming to an end. We have been mindful of it. We have been indicating it in our documentation over recent years and have been planning accordingly. Mr. McCarthy had a number this morning where the bond yield had moved to 1.7%.

Mr. John McCarthy:

Yes.

Mr. John Hogan:

The direction of travel from where we are at this stage is very clear. The re-profiling and elongating of debt that is being conducting by the NTMA over recent years has put us in a good position. It is very different from where we were in 2013. As the Deputy might remember then, we were very much the story then, but we are in a much better position on the international debt markets and seen very much as part of the semi-core group of nations. Our bond yields trade very closely to Belgium and France at present. We would have envisaged and experienced quite a different scenario ten years ago. Does Mr. McCarthy want to add to that?

James O'Connor (Cork East, Fianna Fail)
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I suppose Mr. Hogan understands the luxury of time is not necessarily a commodity I have in great supply and I have to cut Mr. Hogan off. We are in a situation where we know that, in 2020, the NTMA and the Department of Finance were involved in the procurement of approximately €26 billion in borrowing. We are now facing into very uncertain economic times with the war in Ukraine which has the potential to do significantly more damage to the economy than Covid, which is pretty hard to believe, when it comes to the increase in the cost of oil and other seriously important commodities that are vital to the running of an island economy such as Ireland that does not have access to many raw materials as such. What does the Oireachtas need to do to enable the Department to get over the next 18 months, which look to be incredibly unpredictable? It is quite worrying.

One area on which there could be a very serious knock-on impact is our corporation tax if profits were to drop as a consequence of ever-increasing costs of supplying companies. That is something I hear on the ground from business people and SMEs throughout the country. I am sure the same could be said further up the ladder. We will see that later in the year in terms of when companies' profits are returned. I assume corporation tax is one of the areas that will be very badly impacted by the war and by supply issues in terms of companies facing increasing challenges as they try to get goods and services moved. They show that the Irish economy is extraordinarily exposed to some ongoing international issues, especially around the war in Ukraine. What work is the Department undertaking when it comes to trying to make the economy bulletproof to some degree? I know it is not entirely possible to do that. I would like some reassurances from the Secretary General in that regard.

Mr. John Hogan:

The Deputy mentioned the Oireachtas support for the work we do. It is forums such as this, where we can articulate the kind of considerations that we bring to bear when we look at how the public finances will be shaped over the coming years, that are useful mechanisms for bringing many of these issues to the fore. Last night the Committee on Budgetary Oversight met with the Minister, and Mr. McCarthy was there as well, in terms of the outline of our forecast in the stability programme update. That is a good segue for Mr. McCarthy to talk shortly about how we see things unfolding over the next while.

The Deputy rightly mentioned the corporation tax piece. Some of the issues to which he alluded are very relevant but so too is the international tax reform agenda. The Deputy will be quite aware that over recent years at the OECD at international level there has been a very strong focus on international corporation tax reform. We have been very much a part of that debate. We have been mindful from the very early stages that there would be a likely cost of whatever would emerge as a result of the latest base erosion and profit shifting, BEPS, process at OECD level and how that might impact on our public finances. Our planning has accordingly been shaped by those considerations. Does Mr. McCarthy want to add to that?

Mr. John McCarthy:

I will add to it very briefly. Within the stability programme we have revised down our forecast for this year. We are projecting modified domestic demand, which is our preferred measure of economic activity, of approximately 4.25% for this year. At the time of the budget we were talking about 6.5%. Over the medium term we see the economy has the capacity to grow by approximately 3% to 3.5%.

What is the Government doing in terms of trying to build resilience etc? My view is we are probably living in a more shock-prone world at this stage. Already since the start of this decade we have had a global pandemic, war on European soil and we have a much slower moving but nonetheless significant shock, namely, Brexit. Government is trying to build buffers to be able to address those shocks over time.

The key innovations were set out in the summer economic statement last year. Government is setting budgetary policy within a medium-term framework and setting spending within the trend growth rate of revenue but also, within that, ramping up its public capital programme. It is spending €12 billion to €13 billion per annum. Only a decade ago, if I was sitting here, we would be talking about spending €4 billion per annum on capital. It is boosting the supply side, addressing bottlenecks and ensuring Ireland remains attractive using all that public capital programme.

Of course, it is not all in physical infrastructure. It is in human capital as well because that will increasingly be a part of Ireland's attractiveness in years to come. That sort of macro framework is how Government is trying to build up resilience and build up buffers to this more shock-prone economy we are in.

Brian Stanley (Laois-Offaly, Sinn Fein)
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We have gone over time. I will allow Deputy O'Connor back in if time allows.

James O'Connor (Cork East, Fianna Fail)
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I appreciate that. My last question is to Mr. McCarthy. What he is saying is quite interesting.

Brian Stanley (Laois-Offaly, Sinn Fein)
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We have gone well over time.

James O'Connor (Cork East, Fianna Fail)
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I apologise.

Brian Stanley (Laois-Offaly, Sinn Fein)
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I will allow Deputy O'Connor back in a second time.

Neasa Hourigan (Dublin Central, Green Party)
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I will bounce around, as it were, for which I apologise but I have a few different areas I want to cover. I want go back to the IBRC very quickly and I will not deal with anything we will touch on in private session. I want to clarify something, because in some of the correspondence we received in our briefing from October and December 2021, there was a suggestion that the revised timeline or a review of that timeline would be laid before the Department of Finance at the end of quarter 1 of 2022. Is that the case?

Mr. John Hogan:

That is the case. We have received that.

Neasa Hourigan (Dublin Central, Green Party)
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The Department has received the new version.

Mr. John Hogan:

We have received that. There is no change to the timeline envisaged.

Neasa Hourigan (Dublin Central, Green Party)
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Is it still 2024.

Mr. John Hogan:

Yes.

Neasa Hourigan (Dublin Central, Green Party)
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Does the extension of time or the general review include the QIPG Refinance group or company, which is the Belfast-based subsidiary?

Mr. John Hogan:

Is Mr. Carville familiar with that?

Mr. Des Carville:

I am not familiar that QIPG Refinance.

Neasa Hourigan (Dublin Central, Green Party)
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Does the IBRC or any of its subsidiaries still have any joint ownerships with any private or State-owned companies other than itself?

Mr. Des Carville:

Not that I am aware of. It has a number of subsidiaries that will have to be part of the liquidation, but in terms of assets it holds, there are 12 remaining assets.

Neasa Hourigan (Dublin Central, Green Party)
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Great. Moving on, and I apologise again for bouncing around, as it were, action 76 of the Climate Action Plan 2021 is around the issue of sovereign green bonds. There seems to be a commitment in action 76 to the Department of Finance and the NTMA meeting regularly to look at the issue of sovereign green bonds. Do we have an update on that? Is that happening? How often have they met? I know the NTMA is probably the lead there.

Mr. John Hogan:

It is and I do not have the details of how often that has taken place.

The NTMA has already been active regarding the issuing of certain bonds. Perhaps I can revert to the Deputy with a note on this, if that might be okay?

Neasa Hourigan (Dublin Central, Green Party)
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Yes, that is fine. We are talking about sovereign green bonds, but has the Department considered or explored any schemes where we can have non-institutional investors included in a green bonds scheme? Is work that has been done?

Mr. John Hogan:

Who would the Deputy have in mind in that scenario?

Neasa Hourigan (Dublin Central, Green Party)
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The public.

Mr. John Hogan:

Yes. As part of our continuing consideration of the best way to pursue this agenda, we are open to ideas and we will consider it in due course.

Neasa Hourigan (Dublin Central, Green Party)
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Okay. At the moment, however, the NTMA-led work is confined to sovereign bonds.

Mr. John Hogan:

Yes, as far as I understand it.

Neasa Hourigan (Dublin Central, Green Party)
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We touched already on various types of tax schemes. In another committee where we sometimes look at tax expenditures, it seems that a significant proportion of tax expenditures are not regularly reviewed. It is in the region of 23%. Are there plans to take the entirety of tax expenditures and examine them as a whole? I refer to tax schemes that have not been reviewed recently.

Mr. John Hogan:

We have a fairly structured approach to reviewing many of the expenditures. The 23% the Deputy referred to includes things that would almost be part of the normal course of our tax system, whether income tax reliefs and so on.

Neasa Hourigan (Dublin Central, Green Party)
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Is Mr. Hogan saying they are not formally reviewed because they are looked at-----

Mr. John Hogan:

I think they are part of the normal reflections we conduct as part of the normal budgetary process.

Neasa Hourigan (Dublin Central, Green Party)
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I understand that 23% of expenditures - and I could be wrong about the precise percentage - represents about €7 billion in tax expenditures.

Mr. John Hogan:

Yes, and some of that probably relates - and I am going off the top of my head here, to be honest, if the Deputy will let me work through this - to pension reliefs, which are a normal part of the structure of the tax system.

Neasa Hourigan (Dublin Central, Green Party)
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Okay.

Mr. John Hogan:

In general terms, however, we have a procedure where tax schemes, depending on their nature and volume, and the Deputy will be aware of this aspect, are reviewed every three or five years. Equally, sometimes this even goes in a different direction. As part of the tax strategy group, TSG, papers, which again I think the Deputy receives, there is consideration in more general terms of different expenditures that might fall outside the 75% or 76% looked at as part of the process. Therefore, we have different mechanisms with which we undertake this process. The tax strategy group is-----

Neasa Hourigan (Dublin Central, Green Party)
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Is it a case of our classification of what is a review being too constrained? Does Mr. Hogan feel that this 23% of tax expenditures is being reviewed in some format?

Mr. John Hogan:

It is not being forgotten about, if I can describe it that way.

Neasa Hourigan (Dublin Central, Green Party)
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That is fine. That is essentially what I am asking.

Mr. John Hogan:

I reiterate that it is not being forgotten about. We are extremely cognisant of the different reliefs that exist in this context. Some of those are part of the structure of our tax system and come under consideration when the Minister is thinking about adjusting income tax bands or whatever it might be as part of the normal budgetary process. There is an awareness that tax expenditures have a cost to the Exchequer and to the public finances. The review of those tax expenditures, as I said, is structural and is probably a bit more routine than might be expected.

Neasa Hourigan (Dublin Central, Green Party)
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The Department produced a very good paper on well-being indicators. A great deal of work was done on gender equality budgeting during the last Government. While we seem to be moving into a phase where we will apply this to spending decisions and budgets, hopefully, is there an expectation that we would do the same with tax expenditures?

Mr. John Hogan:

I think we started the process last year, as part of the budget process. I think that is correct.

Ms Emma Cunningham:

Yes, a paper was published last year as part of the budget process. It was the beginning of the work on looking at tax through the-----

Neasa Hourigan (Dublin Central, Green Party)
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The lens of gender and equality.

Ms Emma Cunningham:

Yes.

Neasa Hourigan (Dublin Central, Green Party)
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Is the aim to phase that in? Is there a deadline for when that will be done?

Ms Emma Cunningham:

Yes, and the aim is that we would build on this work as part of the budget process each year. I refer to the TSG budgetary process.

Neasa Hourigan (Dublin Central, Green Party)
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Have we an end date for when it might be complete and up and running?

Ms Emma Cunningham:

I do not think we see this as a one-off project. We intend to look at more of the tax system through this lens over time.

Neasa Hourigan (Dublin Central, Green Party)
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My question is if there is an end date whereby every Department would have a benchmark requirement to meet a standard of review of this type.

Ms Emma Cunningham:

Again, this aspect probably sits more with the Department of Public Expenditure and Reform, which is leading on the work on gender across the Departments. We are just looking at this through the tax lens and our Department's work in this space.

Mr. John Hogan:

Representatives from the Department of Public Expenditure and Reform chair a group working on this aspect. As Ms Cunningham said, it is not an endpoint. We see this instead as a journey. We will continue to evolve and develop our thinking on this issue in the years to come.

Neasa Hourigan (Dublin Central, Green Party)
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Great. My last question-----

Brian Stanley (Laois-Offaly, Sinn Fein)
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I remind the Deputy of the time.

Neasa Hourigan (Dublin Central, Green Party)
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My last question is in the same area. I refer to data and access to information. For those of us who do not have a degree in economics, I learned a new phrase this week, which is "the walk between Exchequer spending and Government spending". Apparently, all economists know what this means and I have now learned what it means. When I learned this, it sounded to me like the Department has a table somewhere which has all the detailed information on the walk between Exchequer spending and Government spending. Can I please have that table?

Mr. John McCarthy:

Sure. It is in the stability programme update. I will send the Deputy a copy of the actual table, but we publish it in every budget and in every stability programme update. It is in the annex. I cannot find the precise page number, but this information is public.

Neasa Hourigan (Dublin Central, Green Party)
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Okay.

Mr. John McCarthy:

It is annex 3, page 55, of the stability programme update. Is that okay?

Neasa Hourigan (Dublin Central, Green Party)
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Yes. I thank Mr. McCarthy.

Mr. John McCarthy:

Just for the Deputy's information, there is the Exchequer perspective, but also the wider general government context, which takes into account the local authorities-----

Neasa Hourigan (Dublin Central, Green Party)
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To be clear, when I go looking for this information, is it broken down by line item?

Mr. John McCarthy:

It is. There is the Exchequer and the general government, GG, information on spending.

Neasa Hourigan (Dublin Central, Green Party)
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Okay. It is not broken down into any more detail than that.

Mr. John McCarthy:

That is as much information as we supply.

Neasa Hourigan (Dublin Central, Green Party)
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Is it as much information as the Department has?

Mr. John McCarthy:

What we publish in this context are all the different categories and the difference between Exchequer spending and general government spending. We have a little more information, in that all we publish is the net position. We also have some more information on the revenue and expenditure of the different items included.

Neasa Hourigan (Dublin Central, Green Party)
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The Department does not release that information.

Mr. John McCarthy:

We do not publish it.

Neasa Hourigan (Dublin Central, Green Party)
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Why not?

Mr. John McCarthy:

We feel the net position is less subject to revision, whereas perhaps some of the inflows or outflows would be revised more. It is something we can consider, and we may publish it.

Neasa Hourigan (Dublin Central, Green Party)
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To clarify, the Department does not publish this information because it thinks it is subject to flux or change. Could the Department publish this information retrospectively for previous years?

Mr. John McCarthy:

We could indeed.

Neasa Hourigan (Dublin Central, Green Party)
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I thank Mr. McCarthy.

Brian Stanley (Laois-Offaly, Sinn Fein)
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Perhaps the Department could supply a table for 2020-2021. That would be helpful.

Mr. John McCarthy:

Sure.

Neasa Hourigan (Dublin Central, Green Party)
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Yes, that would be very helpful.

Brian Stanley (Laois-Offaly, Sinn Fein)
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I call Deputy Colm Burke.

Colm Burke (Cork North Central, Fine Gael)
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I thank our guests for presenting their reports and dealing with our queries. Turning to the issue of the State's holdings in the various financial institutions, I understand that more AIB shares are being offloaded by the State. It was also announced before Christmas that the State would offload approximately 15% of its holdings over time. Regarding the cost to the State on day one and the potential return over the next three years, has the Department examined this aspect for Permanent TSB and AIB? In the context of the uncertainty of the market now, is a plan set out in this regard? I ask the witnesses to outline where we are with trying to recoup some of the moneys put in some ten or 12 years ago.

Mr. John Hogan:

I will address this question first, and then I will let Mr. Carville take over. When we invested in the three banks, namely, the Bank of Ireland, AIB and PTSB, from 2009 to 2011, a total of approximately €29.4 billion was invested.

Up to 8 April, the date on which the current Bank of Ireland trading plan was extended, some €19.8 billion had been recovered in cash by disposal, investment income and liability guarantee fees. On the investment made in the banks at this particular time and where we are now, the divestment has probably gone a little slower than we might have anticipated. Things have moved in a particular direction in markets over the past number of years that were not particularly favourable but we have managed to divest. I think the most recent one was 2017 where approximately 25% of the shares in AIB were divested. We have taken the opportunity through the Bank of Ireland trading plan and the AIB trading plan to make divestments in a controlled way over the past while. The buyback this morning is a kind of commercial and market decision taken by the bank. It will have some benefit for the State itself.

Colm Burke (Cork North Central, Fine Gael)
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Okay but in real terms if we look at what Mr. Hogan is saying, back in 2008, 2009 and 2010, it was €29.4 billion. He is saying we got back €19.8 billion so there is a shortfall there-----

Mr. John Hogan:

There is a shortfall there.

Colm Burke (Cork North Central, Fine Gael)
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-----of €9.6 billion.

Mr. John Hogan:

Yes.

Colm Burke (Cork North Central, Fine Gael)
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Taking the current valuations we have, what is his estimate? I am not tying him down on this because I am aware it varies by the day, if not the hour.

Mr. John Hogan:

It does, yes. I will let Mr. Carville come in here but ultimately these things are market-driven-----

Colm Burke (Cork North Central, Fine Gael)
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Absolutely.

Mr. John Hogan:

What we are looking at here is trying to maximise the return for the State around all this and we take market decisions on that basis.

Mr. Des Carville:

Exactly. The figure the Deputy is looking for as of this morning is approximately €4.6 billion of a gap between the €29.4 billion that went in and the cash we have received whether by way of fees, dividends, share sales. As the Secretary General said, in 2017, we sold €3.4 billion worth of stock. It was the second largest initial public offering, IPO, of stock in the world that year. We took advantage of market conditions at that point in time. Our shareholding in Bank of Ireland has gone from-----

Colm Burke (Cork North Central, Fine Gael)
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I am aware the market is very uncertain at the moment. If we decided in the morning to sell everything we have in all the banks then we would be down €4.6 billion in real terms.

Mr. Des Carville:

In theory, yes.

Colm Burke (Cork North Central, Fine Gael)
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In theory.

Mr. Des Carville:

Clearly, we could not sell that amount of stock.

Colm Burke (Cork North Central, Fine Gael)
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Therefore it would have to be over a period.

Mr. Des Carville:

Correct, and it has got to be done in a very carefully controlled manner in order to-----

Colm Burke (Cork North Central, Fine Gael)
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Yes.

Mr. Des Carville:

-----maximise the return for the taxpayer. This morning AIB announced two things. One was a dividend, so we will get 70% of that dividend of €122 million. The bank also announced a market buyback so we will benefit from that as well.

Colm Burke (Cork North Central, Fine Gael)
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Does Mr. Carville feel we might be better off holding on to what we have if the bank is now into profitability, inasmuch as we can call it profitability given there is a still a huge debt there? Would the State not be better off holding on on the basis it will now get an annual dividend, assuming the bank continues to trade in a profitable manner?

Mr. Des Carville:

We look at this equation all the time. Our job is maximise value for the taxpayer but also to reduce the shareholdings to zero in a carefully controlled manner, so there is a trade-off between selling shares at a price today-----

Colm Burke (Cork North Central, Fine Gael)
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Why do we need to reduce the shareholdings to zero? Why is there not a benefit for the State in having an input? The banks took major decisions the State had very little control over and then the taxpayers ended up being the net losers and the people had to bail them out. Why should we walk away and let them have a free hand without having some input in the long term?

Mr. Des Carville:

There are a couple of points to make there. First, looking at it from a purely financial perspective, it would take decades to recoup the full value of what we invested in the living banks by way of dividend. It would take decades to get that cash back. The second point is on influence over the banks. We have EU-mandated or Directorate-General for Competition, DG COMP-mandated relationship frameworks with the banks, so commercial decisions are for the banks and for the management and boards of the banks. Our influence is very limited to nil as a result.

Colm Burke (Cork North Central, Fine Gael)
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Okay. On the shareholding we now have, is that going to be adversely affected in any way by the withdrawal of the Ulster Bank and KBC Bank from the market? Are we going to be in a more challenging position as a result of their withdrawal?

Mr. Des Carville:

I suppose from an investor point of view, were I an international investor thinking of buying shares in the Irish banking market, I would first need to understand why these two banks had decided to exit. Very quickly I would realise there are benefits for the remaining banks in terms of their buying some of the assets the departing banks are selling. KBC's assets are being sold primarily to Bank of Ireland and the Ulster Bank assets are going to both PTSB and, it seems, AIB. Certainly its corporate book is. Its tracker book looks like it is heading in that direction as well. It improves the viability of the remaining banks because they are larger so their costs are spread over a larger base.

Colm Burke (Cork North Central, Fine Gael)
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Okay. I move on to one other area. The Exchequer figures for the end of April show a substantial increase in tax. I am aware that is taking into account that there was a reduction because of the Covid lockdowns, etc. I raise long-term planning and one of the problems we had in 2008 and 2009. Other countries do long-term planning where there is a fund built up that the state can dig into in the event of there being a recession. For argument's sake, if we had had such a fund available in 2008 and 2009 there would have been many things we could have done to keep projects going. In 2008 and 2009 when the crisis hit, it was locked down completely. Is there any long-term plan for dealing with that in view of the fact tax levels are extremely good?

Mr. John Hogan:

What we recognise in that contribution is the potential around the rainy day fund. Mr. McCarthy might want to talk a little about that.

Mr. John McCarthy:

If I recall correctly, 2018 was the last time the Exchequer or public finances moved into surplus and the Minister enacted a rainy day fund. He put it in place with the intention of doing exactly as the Deputy said. It was a fund to enable us to support the economy if it were subject to a major shock. Maybe it was 2019. I cannot remember the exact date. Of course, straight after the legislation was put on the Statute Book, Covid kicked in. We had been anticipating a surplus but it went massively in the opposite direction for obvious reasons. We are still running a deficit, so even though the position is improving we are still anticipating a general government deficit of approximately €2 billion for this year. The Minister's view, which I think is correct, is there is no point in borrowing to put money in a fund. In other words, when you are running a deficit you do not establish or capitalise a rainy day fund.

Brian Stanley (Laois-Offaly, Sinn Fein)
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I thank the Deputy.

Mr. John McCarthy:

It may be something in the future but given where we are right now-----

Brian Stanley (Laois-Offaly, Sinn Fein)
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The Deputy's time is up.

Colm Burke (Cork North Central, Fine Gael)
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But is the disadvantage then that if there is a sudden downturn and no rainy day fund, we are then at the mercy of the lenders if the State wanted to continue key projects and the lenders are saying they will not give any funding? It is thus at a disadvantage. I am just wondering about that.

Brian Stanley (Laois-Offaly, Sinn Fein)
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Mr. McCarthy should be brief.

Mr. John McCarthy:

It is a valid question. We must set that against borrowing at 1.7%, which is the rate as of this morning. That would be the cost of establishing a rainy day fund. Second, the Government has already borrowed a huge amount during and for Covid so we have cash sitting in the NTMA, etc., of approximately €30 billion. There are a huge amount of liquid assets that could be called if the economy was subjected to a shock.

Colm Burke (Cork North Central, Fine Gael)
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All right. I thank the Chairman.

Brian Stanley (Laois-Offaly, Sinn Fein)
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Okay. I raise the issue of the credit unions. The savings in credit unions went up by 2.8% in 2021.

At the end of last year there was a surplus of €17 billion in the credit unions. I am raising this in the context of the housing crisis. The credit union movement has indicated at different times that it would like to try to help with the housing problem because it has a co-operative ethos. We are unusual in European terms in that many other countries have community-owned banks and publicly owned banks, such as Germany, for example. Here, we have the credit union movement sitting beside the big players like AIB, Bank of Ireland, Permanent TSB, etc. Last year, 69% of new mortgages came from three banks, namely, AIB, Bank of Ireland and Permanent TSB. The credit union is in a bind. It can only lend up to 3% of total mortgages and 10% of total SME borrowing. It is caught at 3% while the three pillar banks were at 69% last year. The banks' SME lending was 90% of all SME lending whereas the credit union was restricted to below 10%. What is happening there?

For nearly as long I have been around there has been talk of reforming the credit union to allow them to play more of a role in this area. It appears to me, and to some others who keep an eye on these things, that there is heavy lobbying from the banks in this regard. There may be some bias - perhaps "bias" is too strong a word - in that we look favourably on the banks and let them do all of it. After the past 12 or 14 years we have learned a thing or two about the banks and the things we took for granted. There was a saying when I was a bit younger that something was as good as money in the bank, but we know now that money in the bank is not always good. Why are we restricting the credit union movement? It wants to get involved here. Money is needed for affordable housing, there are people who cannot get mortgages and schemes that cannot be funded and there is €17 billion sitting there.

Mr. John Hogan:

I will start and then let Mr. Carville add to it.

Brian Stanley (Laois-Offaly, Sinn Fein)
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If you could keep it brief-----

Mr. John Hogan:

I will keep it very brief. The Chairman asked what is happening with the credit union movement. There is a review of policy relating to the credit union movement under way at present. It is now at the closing stages. We have had the final stakeholder piece and Mr. Carville can talk a little about that.

Brian Stanley (Laois-Offaly, Sinn Fein)
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There is a review ongoing at the moment.

Mr. John Hogan:

Yes. The numbers the Chairman mentioned are probably regulatory targets that come from the regulator, that is, the Central Bank.

Mr. Des Carville:

I thank the Chairman for the question because credit unions are often overlooked at committees like this. I could talk for days about credit unions-----

Brian Stanley (Laois-Offaly, Sinn Fein)
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Do not.

Mr. Des Carville:

-----but I will not. The point about viability is a brilliant point and well made. It is of great concern to us because we have policy responsibility for the credit union sector. Credit unions have too much cash and not enough lending so that equation is badly skewed against them. There is a viability question for the sector in aggregate as a result of that. To be fair, it is really the responsibility of-----

Brian Stanley (Laois-Offaly, Sinn Fein)
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What does Mr. Carville mean by viability?

Mr. Des Carville:

Their continued survival.

Brian Stanley (Laois-Offaly, Sinn Fein)
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Only 27% of the money is out in loans.

Mr. Des Carville:

The balance-----

Brian Stanley (Laois-Offaly, Sinn Fein)
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The optimum is 50%. If a bank or credit union has €100 million, it can afford to lend €50 million because even if every debtor defaulted, it would still have €50 million. Look at what the banks did in the 2000s, for God's sake. The credit unions did not do it, by and large. The credit unions were stable.

Mr. Des Carville:

Some banks would have had a loan-to-deposit ratio of more than 250%. The Irish banks currently have a loan-to-deposit ratio of less than 100%. The equivalent figure for the credit union sector is 26%. That is too low. In a negative interest rate-----

Brian Stanley (Laois-Offaly, Sinn Fein)
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A quarter.

Mr. Des Carville:

-----or low interest rate environment, lending institutions need to generate a return on their excess cash but credit unions cannot. The way to make a return is by lending and making a margin on the lending versus the deposit base or funding cost. That equation is wrong. Either credit unions have to lend more or interest rates need to increase, which brings me to the Chairman's second point.

There is a viability question if this trend continues in the longer term. We must not forget that there are 220 individual credit unions and they all have different risk appetites and membership profiles and so on. It is not a homogenous group. Within that, there are definitely some credit unions that have the risk appetite and the wherewithal to do more SME lending and mortgage lending. There are limits set by the Central Bank, which is independent of us, but when credit unions start coming towards their limits, they can apply for an extension to those limits. Many credit unions that are hitting their limits have done that. Not every credit union wants to do SME lending or mortgage lending.

On engagement and lobbying, my team spends an awful lot of time with the sector and meeting individual credit unions. There were two people with the Minister of State at the Irish League of Credit Unions, ILCU, conference recently. We talk extensively to the sector to try to find out what is happening behind the scenes and on the ground. We are very receptive to the representative bodies talking to us at any stage. They are well represented in that regard.

Brian Stanley (Laois-Offaly, Sinn Fein)
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Mr. Carville has confirmed that banks have 100% of their assets loaned out.

Mr. Des Carville:

It is less than 100%.

Brian Stanley (Laois-Offaly, Sinn Fein)
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It is just under 100%. For credit unions, it is 26%. The figure I had for last year was 27% but we will settle on 26%, which is about a quarter. We are talking about viability. There is a pot of money there of €17 billion. I am not advocating crazy lending like the banks did in the 2000s. Around 50% would seem like a safe bet because the assets would be there even if everybody defaulted and everything went belly-up. The credit unions have had their hands tied behind their backs and a blindfold or a bag pulled over their heads. They are suffocated and prevented from getting into the mortgage market. A credit union with €70 million to lend can only do 14 mortgages at €250,000 each. That is all it can do. In other countries like Canada, Australia or the USA, there is more of a level playing field. Those are not exactly communist states or anything like that. We are talking about America, for God's sake. They seem to be able to allow the credit unions to play a bigger role.

The witnesses advise the Government on these policy decisions. There is a need to move this issue on because it has been going on for years. When we were caught in the middle of the recession and just starting to emerge from it, everybody was scratching their heads and asking what to do about housing. The credit unions said they wanted to intervene and help. I have a letter here from a local credit union saying that due to the regulatory caps being imposed and the regulations on the ability to provide mortgages, the cap is 7.5% of assets in business and home loans, so it is effectively stopped before it starts. This credit union has assets of €67 million and 7.5% of that is €4.9 million. Its existing business and home loan book amounts to just over €2 million. It has potential for a lot more. With the value of an average mortgage being €250,000, this credit union has the potential to give out only nine mortgages in total. It seems the credit union movement is being held back. The witnesses may not be able to give me a detailed answer to this question but do the banks lobby the Department of Finance very heavily on these matters? The witnesses may have only been in their roles a short time, but do they know what the situation has been over the years? Is there a lot of lobbying from the pillar banks - the banks we bailed out?

Mr. Des Carville:

The limits the Chairman is referring to are not set by the Department of Finance; they are set by the independent regulator.

Brian Stanley (Laois-Offaly, Sinn Fein)
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I know. They talk to the Department. I know everybody talks to each other. I am asking about lobbying.

Mr. John Hogan:

Mr. Carville is right. The limits are imposed on credit unions and, indeed, the banks by the regulator. As Mr. Carville has outlined, we are also mindful that there is an opportunity for the credit union movement to play a greater role in this area. Depending on the credit union, there may be an appetite to do that. That is why the Minister of State commissioned the policy review. He has had much engagement and interaction with different stakeholders around the credit union movement on this.

The public consultation exercise is now closed but if we are thinking about how to move forward, it could come down to legislative amendments to allow for more collaborative work between credit unions and other partners. It could allow for widening of products that credit unions have the opportunity to offer. In that environment there could also be more focused governance. All of that is in play.

Brian Stanley (Laois-Offaly, Sinn Fein)
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I know that could happen. I have asked the question twice about lobbying. Is there much lobbying from the banks and the banking sector in general? For example, does the Banking and Payments Federation Ireland, BPFI, lobby the Department on who should or should not be doing home lending over years? How have we arrived at a position where €17 billion cannot be touched and credit unions can only loan up to a maximum of 3% of the mortgage market? How have we arrived at that?

Mr. John Hogan:

I have not seen any lobbying from the banks actively against the role of the credit unions in that provision.

Brian Stanley (Laois-Offaly, Sinn Fein)
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Has Ms Cunningham heard of much lobbying from the banks, including the BPFI or others on behalf of the banks?

Mr. Des Carville:

I can confirm that in my eight and a half years in the Department of Finance and on secondment that I have not heard of any lobbying by the BPFI in that regard. It has certainly not come in my direction.

Brian Stanley (Laois-Offaly, Sinn Fein)
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I thank the witnesses. They can see where I am coming from with this. The figures are astonishing. We want safe lending; we do not want people to go mad, as some did in the noughties. However, we are in the middle of a housing crisis and we must bring credit unions into play to try to resolve some of this.

Mr. John Hogan:

Many of those matters are being pushed through as part of the review process.

Brian Stanley (Laois-Offaly, Sinn Fein)
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Okay. We will be ending the discussion at approximately 12.20 p.m. because we must briefly go into private session. Some members have indicated that they wish to contribute a second time.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I have a couple of quick questions. The Central Bank imposed a fine of €10.8 million on the Bank of New York Mellon, which is the agent for Ireland's escrow fund. What steps have either the Department or the NTMA taken in response to that fine?

Mr. John Hogan:

The fine related to a regulatory matter between the Central Bank and the institution. The Deputy mentioned the institution is active with the escrow fund, which comes under the guidance of the NTMA.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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The NTMA, in turn, comes under the Department's guidance.

Mr. John Hogan:

Yes. The regulatory matter is one between the institution and the Central Bank, and it has acted accordingly on that.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Okay. The fine will not have any impact on the relationship between the bank and the escrow fund.

Mr. John Hogan:

We expect that the escrow fund will be managed in an appropriate way through the NTMA mechanism we have in place.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Okay. What work does the Department do in the regulation of banks or companies that would essentially be in receipt of very beneficial contracts? They would essentially be State contracts. What role does the Department play in that regard?

Mr. John Hogan:

In any of those cases, we have public procurement exercises that we undertake. If conflicts of interest arise, they are borne in mind as part of the procurement process. Mr. Carville might know if there are any cases of us having an issue around any of those.

Mr. Des Carville:

When we are procuring for a financial panel - we are going through a procurement exercise now for the Department's legal panel - we ask for disclosure around regulatory matters of that nature.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I have a number of questions, but there is one I want to get to. To be very brief on that matter, is it fair to say in respect of fines or any of these issues, the Department is not necessarily proactive but rather it depends on information provided from others, whether it is the company or elsewhere.

Mr. Des Carville:

The information relates to historical matters and if something arose during the course of an engagement with a firm, we would be very proactive. I could not prejudge what might transpire. It clearly depends on the circumstances. Believe me when I say that we would be proactive.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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The privatisation of Telecom Éireann was one of the worst political decisions made, and we are still facing the repercussions of that in matters of broadband provision. I went through our earlier exchange on the pension fund. Essentially, €1 billion of additional taxpayers' money will be spent on a company that was privatised in 1999. This is a significant issue in the context of the public finances. It is referenced in chapter 1 of the Comptroller and Auditor General's report and it is listed as an item on today's agenda. To be frank, I do not understand why Mr. Hogan cannot provide more information on oversight and developments in that regard. Is it just the case the Irish taxpayers will be bearing the brunt of €1 billion because of an historical misstep, as we have heard before in the committee? Are we going to find out how we ended up in this position?

Mr. John Hogan:

The gap that has been identified in the pension fund was part of the agreement reached in 2014. At that time the projected shortfall would have been in the order of approximately €1 billion. It is clear that more money is required at this juncture.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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With respect, Mr. Hogan could not tell us who is managing the fund or the role of the Department in terms of oversight.

Mr. John Hogan:

There are two roles. One is with the Department dealing with communications and there is also an interaction with us. If the Deputy allows it, I can come back to him separately on that.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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It is a matter of public interest.

Brian Stanley (Laois-Offaly, Sinn Fein)
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When will the scheme involving that €1 billion reach finality? When will it expire? It is an extraordinary amount, as the Deputy notes.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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It would be when the last person in it dies.

Brian Stanley (Laois-Offaly, Sinn Fein)
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Are we talking about a number of decades? There could be people of different ages in the scheme.

Mr. John Hogan:

It is dependent on the life expectancy of the individuals who are beneficiaries of the fund.

Brian Stanley (Laois-Offaly, Sinn Fein)
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When did the last people in the scheme retire?

Mr. John Hogan:

If the Chairman allows, I will revert to the committee with some more information on that.

Brian Stanley (Laois-Offaly, Sinn Fein)
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Please do. It is an extraordinary amount that we have been caught for. The privatisation is bad enough when we see what has happened with broadband but we have now discovered we have been caught for a huge sum with the pension scheme. By the way, the workers are entitled to that money.

Verona Murphy (Wexford, Independent)
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I want to focus on how the Department manages Ireland's competitiveness, including strategies employed with the likes of carbon taxes. We have spoken about reductions already. We are now at €41 per tonne for the carbon tax and Germany is at €25 per tonne. We have vehicle registration tax at a level between 7% and 37% on cars but Germany has no such tax. What strategies are employed to keep Ireland competitive as an island nation with the rest of the EU?

Mr. John Hogan:

In the first instance, the decisions on carbon tax come under the policy space.

Verona Murphy (Wexford, Independent)
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I just mentioned the figure as €41 per tonne.

Mr. John Hogan:

Yes.

Verona Murphy (Wexford, Independent)
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If that is about somebody's policy, I am asking about competitiveness.

Mr. John Hogan:

Does Mr. McCarthy wish to contribute here?

Mr. John McCarthy:

I will perhaps say a few words about competitiveness but not about the carbon tax, or whatever. Issues like competitiveness are multifaceted and depend upon so many things. From a macro perspective, what we or Government are doing is trying to remain attractive for businesses to be able to make a profit, etc., and for investment to locate in Ireland. That comes back to the €12 billion or €13 billion per annum being spent on the national development plan, on continuing to invest in skills, etc., and on ensuring our corporation tax, as part of base erosion and profit shifting, BEPS, developments and all of those sorts of international changes still mean Ireland is an attractive place to do business. Ultimately, we want to boost productivity. Boosting productivity is how one can remain competitive while boosting wages. If one thinks of the most productive countries in the world, it is not surprising that they are the Swedens, Norways and the Switzerlands of the world. They are very competitive while also having high wages. Boosting productivity is absolutely key and one does that by investing in physical infrastructure, in human capital, etc., and I believe that is what the Government is doing.

Verona Murphy (Wexford, Independent)
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As regards being an island, when I discussed what we could do to reduce the cost of living, and we talked about not being able to reduce VAT, as a national interest measure, has there been no suggestion, in line with state aid rules, that we could reduce excise tax? Without any shadow of a doubt, there is nothing to stop the State reducing its carbon tax in line with Germany, or just reducing it, full stop. We are at €41 a tonne. I believe in Estonia this tax is at €2 a tonne. We are not competitive.

Brian Stanley (Laois-Offaly, Sinn Fein)
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Briefly, our witnesses may wish to come back to comment on that, as it is a specific question.

Verona Murphy (Wexford, Independent)
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We are not actually competitive and I know that from the discussions we have had.

Brian Stanley (Laois-Offaly, Sinn Fein)
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I am watching time as a number of members wish to contribute.

Mr. John Hogan:

It is worth recounting to the Deputy what we have done in the past number of months.

Verona Murphy (Wexford, Independent)
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I do not want to know what the Department has done. I am asking why we are not doing more. The cost of living has not gone down. No matter what measure is implemented; we still have a rising cost of living.

Mr. John Hogan:

Yes, we still have a rising cost of living.

Verona Murphy (Wexford, Independent)
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That is the question I am asking.

Mr. John Hogan:

Government has been clear to say that it cannot completely mitigate-----

Verona Murphy (Wexford, Independent)
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I am asking what Mr. Hogan's advice would be from the Department of Finance on a further reduction, on a national interest basis, of excise tax, which the EU states we can do with state aid rules in mind. We are not neighbouring any other country and are an island nation. Our nearest competitor is outside of the EU and is not subject to any rules.

Mr. John Hogan:

We are constrained by the excise or the energy tax directive which sets the-----

Verona Murphy (Wexford, Independent)
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This can be a national interest measure. If one looks at the measures contained within the annex, we are not so constrained.

Brian Stanley (Laois-Offaly, Sinn Fein)
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Our information from the annex is that it could be reduced. Could that happen?

Verona Murphy (Wexford, Independent)
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Of course it could, Chairman. It need never have been increased, never mind reduced.

Brian Stanley (Laois-Offaly, Sinn Fein)
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From Mr Hogan’s point of view, a "Yes" or "No" answer will suffice.

Mr. John Hogan:

It is a policy matter for the Government to decide upon.

Verona Murphy (Wexford, Independent)
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It may be but Mr. Hogan represents the Department of Finance. This question is from a competitiveness perspective in respect of the country moving its product off the island.

Mr. John Hogan:

In any proposal we would put to the Minister for Finance, we would outline what the various options are.

Verona Murphy (Wexford, Independent)
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I have one further quick question, through the Chair.

Brian Stanley (Laois-Offaly, Sinn Fein)
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Very quickly, please, Deputy.

Verona Murphy (Wexford, Independent)
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Would Mr. Hogan’s Department consider €41 per tonne of carbon tax to be an anti-competitive measure for an island nation about to enter recession? That is a “Yes” or “No” answer question.

Mr. John Hogan:

I am not sure but we appear to have steered into the policy space on that now.

Verona Murphy (Wexford, Independent)
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That is an excuse as this is a very simple question.

Mr. John Hogan:

The answer is "No", as I want to be as helpful on this as I can. When we provide advice to the Minister in any of these matters, we would outline what the options across all of the different available measures are-----

Brian Stanley (Laois-Offaly, Sinn Fein)
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I am sorry, Deputy but-----

Verona Murphy (Wexford, Independent)
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Have the Department officials advised that our carbon tax is too expensive and should have been reduced?

Brian Stanley (Laois-Offaly, Sinn Fein)
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I call Deputy Catherine Murphy.

Mr. John Hogan:

I would have to reflect on the risks register for the Deputy to see if it is there or not. We recognise that with all of these issues, Ireland’s place in the global financial market infrastructure is one which brings with it a responsibility in respect of the utmost propriety. The oversight which we see in respect of the section 110 and the special purpose entities, SPEs, and the information which is returned to the Central Bank is an important part of that process. It has been instrumental, as we discussed earlier, in identifying Russian involvement in the-----

Mr. John Hogan:

In regard to section 110 instruments, SPEs or securitisation vehicles, the nature of these particular instruments is that they offer an alternative financing mechanism. It is one which at a European level has been encouraged through the capital markets union programme of work and Ireland’s role in this is an important one in the overall scheme of things.

Mr. John Hogan:

Yes, I will return to the committee with an answer to the question on the risks register.

Brian Stanley (Laois-Offaly, Sinn Fein)
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There are three questions there for Mr. Hogan so he might answer them briefly, please.

Mr. John Hogan:

Yes, there are. I will perhaps have to come back to the Deputy with an answer to those questions. I have in my head a number for the primary dealers but I will probably be wrong if I say what it is. Do Mr. Carville or Mr. McCarthy have a sense of this number?

Mr. Des Carville:

We did-----

Mr. John McCarthy:

There are different-----

Mr. John Hogan:

I would prefer to come back to the Deputy with correct figures.

Mr. Des Carville:

A whole team of people have been seconded from the National Treasury Management Agency. The former banking unit was seconded by the former Minister, Michael Noonan, by direction from him. That involved me and a number of colleagues so it did not just concern myself alone.