Minister Noonan – Opening Speech - Private Members Motion in relation to the Sale of AIB

Minister for Finance Michael Noonan T.D. Opening Speech

Dáil Éireann

Counter Motion to Private Members Motion in relation to the Sale of AIB

9th May 2017


I move amendment No. 1;

To delete all the words after “Dáil Éireann” and substitute the following:


  • Affirms its support for the Programme for Partnership Government commitment to provide for a sale of our banking investments where conditions permit.
  • Recognises the sustainable increases in infrastructure spending being achieved under the Capital Plan, “Building on Recovery”, including the additional funding of €5.14 billion committed by Government since the original plan was published in 2015.
  • Welcomes the Government’s intention to produce a new 10 year capital plan by the end of 2017, setting out the Government’s key investment priorities over the coming decade.
  • Commends the Government’s continued achievement of budgetary targets and sustainable economic growth and notes that a range of policy measures have been undertaken over recent years to address the budgetary implications of population ageing.
  • Recognises that these Government policies have played a role in the continued low debt servicing costs which are also driven by the ECB’s ongoing non-standard monetary policy measures and therefore should not be assumed to be permanent.
  • Supports the sensible objective of the Stability and Growth Pact to drive budgetary discipline and sustainable public finances in the EU and the Euro Area and recognises the important changes that Ireland has already secured in relation to the operation of the fiscal rules in relation to the expenditure benchmark.
  • Affirms that the Government is committed to compliance with the fiscal rules which are designed to avoid the mistakes of the past and ensure that increases in public expenditure are sustainably financed and not funded on the back of cyclical or windfall revenues and recognises that the fiscal rules are enshrined in Irish law in the Fiscal Responsibility Act 2012, which implemented the Treaty on Stability, Coordination and Governance that Ireland acceded to in 2012 following the decision of the Irish people in the referendum held on the 31st of May 2012.
  • Supports the Government’s policy to exit our banking investments in a measured and careful manner returning them to private ownership over time and in a manner that maximises value for the taxpayer.
  • Recognises that public indebtedness has risen significantly as a result of this support and it is entirely appropriate to utilise any proceeds from the sale of our remaining investments to reduce this debt burden and the associated ongoing debt servicing costs.
  • Notes the significant progress made by the Government in recovering taxpayer support to AIB to date and that future capital investment decisions are entirely unrelated to the achievement of the Government banking policy and should not influence those objectives."

I wish to thank the Deputies for the Motion proposed this evening. It addresses a number of important and distinct policy areas. While I, and I’m sure many of the Deputies in this house, can largely agree with the sentiments of the Motion proposed, in one critical respect it is flawed and for this reason I have tabled a Counter-motion. The Motion, as proposed by the Deputy, attempts to constrain the progress of the Government’s banking policy, and efforts being made to further aid the normalisation of the Irish banking sector, by tying them artificially to expenditure constraints imposed by the European Union Stability and Growth Pact. I would urge this House not to conflate two separate and discrete policy areas. An understandable desire for higher levels of capital investment is not a reasonable justification for delaying this government’s policy to bring down public debt and contain contingent liabilities while moving to a more normalised banking environment that will help to foster greater competition in the banking sector.

I propose to address each of the areas raised by the Deputy’s Motion in turn.

Capital Plan

There is a broad consensus on the need for increased public investment. Indeed, I share this view. The Government’s current Capital Plan sets a baseline from which we intend to increase investment in critical infrastructure into the future. 

As outlined in the 2017 Estimates, gross voted capital expenditure will increase to €4.5 billion in 2017. This represents an increase of almost €400 million in comparison to the 2016 outturn. By 2021 it is envisaged that Gross Voted Capital Expenditure will reach €7.3 billion, an increase of over 100 per cent in comparison to its level in 2014. Based on my Department’s GNP forecasts, Ireland's Exchequer public investment will reach 2.7% of GNP by 2021.

In addition, as outlined in the Capital Plan, the wider State sector, including our ports, airports, energy network etc., plans to invest €14½ billion in capital projects over the period 2016-2021. This amounts to approximately €2.4 billion invested per year and brings total state-backed investment in 2017 to 3.1% of GNP, rising to 3.7% of GNP by 2021.

Increases in investment over the coming years will be prioritised on the basis of the outcome of the review of the Capital Plan currently underway. This evidence-based review will include an analysis of demand for future infrastructure needs and the capacity of the building industry to deliver increased output. It will culminate in the formulation of a ten year plan addressing the key priorities identified by Government.

Fiscal Rules

The objective of the Stability and Growth Pact is sustainable public finances in the EU and the Euro Area. The European Commission takes the view that budgetary discipline means that you cannot differentiate between different types of expenditure because all deficit-financed expenditure must be repaid by future taxes and granting special treatment to certain kinds of expenditure would create incentives for creative accounting.

Ireland has secured important changes in the operation of the fiscal rules, for example, by getting the reference rate for the expenditure benchmark updated every year instead of every three years which have been universally applied to all Member States.

We are committed to compliance with the fiscal rules which are designed to avoid the mistakes of the past and ensure that increases in public expenditure are sustainably financed and not funded on the back of cyclical or windfall revenues. I would also remind the Deputies that the fiscal rules are enshrined in Irish law in the Fiscal Responsibility Act 2012, which implemented the Treaty on Stability, Coordination and Governance that Ireland acceded to following the decision of the Irish people in the referendum held on the 31st of May 2012.

National Debt Levels

Clearly I can agree with the motion where it recognises the significant achievements made by the Government in reducing the headline debt to GDP ratio and bringing the public finances onto a more sustainable footing, which should not to be understated. However we are not in a position to rest on our laurels. Notwithstanding the progress that has been made over the past number of years, the absolute level of debt remains high at over €200 billion. It is over four times the level it was in 2007 and remains high relative to our EU peers, on a per capita basis.

It has been said that any proceeds of a sale should not be used to reduce the national debt as it would have little or no impact on the debt-to-GDP ratio. This to me represents flawed logic. It is precisely because the nominal amount of debt is so high that the impact might be considered small; but this makes the need to reduce the debt level all the more pressing. 

Further, the cost of servicing the national debt has fallen, primarily as a result of improvements in our credit spreads - we are now issuing debt at lower interest rates and at longer maturities. While this is noteworthy progress, the reductions in servicing costs are due primarily to improvements in financing terms and the profile of our debt. Similar to the reduction in our debt-to-GDP ratio, this has arisen primarily from sustained improvements in economic growth rather than significant reductions in the absolute level of debt. Clearly the cost of servicing has also been greatly assisted by the ECB’s ongoing non-standard monetary policy measures which cannot be assumed to be permanent.

There is no room for complacency, and the Government is committed to its target of a debt-to-GDP target of 45 per cent by the mid-2020’s or thereafter depending on economic growth.  This target takes account of the particular risks that Ireland, as a small and very open economy faces, in an uncertain global context. It also takes account of the fact that GDP is a less than perfect measure for Ireland.

The Government’s position on management of the public debt and the establishment of a rainy day fund are important examples of measures which will help to maintain competiveness and sustain the public finances in a way that will help to protect against future risks.

My strong view is that public indebtedness rose partly due to the recapitalisation of the Banks; the appropriate way of treating one-off revenue from divesting the State of its banking assets is to use these proceeds towards debt reduction and to reduce the cost of debt servicing in future years. The strategy of reducing the National debt is consistent with Government policy of repaying the borrowing previously undertaken to finance the bailout of the banking sector during the financial crisis.

Banking Policy

Turning to banking policy and as the house will know well, the State was forced to rescue the banking system at an unprecedented cost to Irish citizens of €64bn. Maximising the value of the State’s remaining investments in the banks with a view to reducing the cost of this support for the Irish taxpayer remains a key priority for this Government. These disposals will help reduce debt, contain contingent liabilities for the State and foster further competition in the market. This is a view endorsed by a number of outside institutions, including the IMF.

Furthermore this Government does not believe that the State should own and support banks when the capital markets are willing and capable of providing this function. Equity investments in any sector are risky propositions and the State’s resources are better allocated to more appropriate areas.

Clearly the largest investment we made was in AIB – reaching a total of €20.8bn. We’ve already recouped €6.6bn of this, through disposals, interest charges, coupons and fees. It is clear, given the size of the investment, that an IPO or Initial Public Offering is the optimal route to recouping the full value of our investment over time. This position is the firm view of the Department of Finance and is supported by advice received through 2015 and 2016 from our financial advisors Rothschild and, previously, Goldman Sachs.

The advantage of a sell down through the stock market is that it allows us de-risk our exposure over time as circumstances permit. While we benefit from the proceeds of disposals along the way the State can recoup the value of an improvement in the bank’s prospects over the medium term.

As we look at stock markets today, conditions are encouraging with bank stocks generally trading positively and my officials inform me that the Irish macro-economic story is resonating well with international investors. However, we have made no decision yet to proceed, and I will make this call in the coming weeks based on advice from my officials, our banking syndicate and our independent financial advisor Rothschild.

In light of all this I’m sure Deputies would agree that it doesn’t make sense to introduce any further constraints into our decision making process. Delaying a sale of shares, as the Motion proposes, would be putting the proverbial cart before the horse. Until such a transaction can occur, there are no proceeds to be debated.



Tuesday 9 May 2017