DELAY AIB SALE UNTIL PROCEEDS CAN BE COMMITTED TO CAPITAL INVESTMENT- HOWLIN
Issued 9 May 2017
This motion isn’t just about economics.
About cautious fiscal plans and prudent public spending.
This motion is also about some basic morality.
It’s about an economic collapse, brought about by our profligate, property-speculating banks.
And it’s about the enormous price our people paid to rescue the banks and to rescue the economy.
The last Government, with much difficulty, managed just about in time to reverse the economic engines and to rescue our economy.
When we went into Government, we took charge of a country whose economic foundations were under threat; where public services could not be guaranteed, unemployed was rocketing and the numbers working and paying tax were continuing to fall and the banks were continuing to drain the public finances.
I want to acknowledge the work of Michael Noonan as Minister for Finance in managing the banking crisis.
We replaced the hated Anglo Irish ‘prom notes’ and achieved Exchequer savings of €3bn payment each year.
By cutting the interest rates on our programme loans and stretching out the maturities, we saved the State €30bn.
We burned junior bondholders, to the tune of €15bn.
And we set the State on course to recover almost entirely the cost of our investment in the pillar banks – which would halve the overall cost of the bank rescue.
None of which is to say that we should or even could do any of this again.
Those were truly desperate times and we imposed desperate remedies.
Inevitably, a lot of very hard decisions had to be made, with very hard consequences.
Burdens were shouldered and people suffered in their incomes and their quality of life.
But always in the hope that conditions would improve.
In the hope that debt would be brought back under control, that our financial institutions would recover, that economic activity would pick up, that unemployment would be cut back down again.
In the hope that people who had endured so much in times of hardship could get some dividend from the recovery.
The economy has now markedly recovered, from the biggest economic shock our State has ever encountered.
And our enforced investment, of money we had to borrow to invest in our two pillar banks, now looks set to deliver a return.
To borrow a crude slogan, more than justified in these circumstances: “It’s payback time”.
A payback not in the terms that so much appeals to Fine Gael: a handful of euro in every pocket, too widely dispersed to be significant and too soon dissipated.
But a payback of spending in the infrastructure of our country.
If Donald Trump was right about one thing in his campaign – and God knows he said enough that he must have been right about something – then he was right to stress that a principal duty of Government is to maintain, repair and improve the country’s infrastructure.
The people need roads, bridges, broadband, schools, theatres and performance spaces, not to mention houses and hospitals.
They look to Government, from public resources, to build these things.
This Government has the resources – but it doesn’t want to do the building.
The country is now well on the road to economic recovery.
This recovery created as many jobs over the last four years as were created between Independence and 1996.
But what we are facing now are emerging infrastructural bottlenecks.
In transport and housing, hospitals and schools.
The initial public offering of AIB shares could happen as soon as the end of the month.
What we in Labour are saying is that we should delay this sale until the proceeds can be committed to capital investment.
Currently under the EU fiscal rules and system of accounts, the proceeds would not count as general government revenue, and would be used to pay down debt.
The Ireland Strategic Investment Fund (ISIF) holds a discretionary portfolio of €8.1bn and a directed portfolio valued at €12.6bn.
This directed portfolio consists of €11.3bn worth of shares in AIB and €1.1bn worth of shares amounting to 14% of Bank of Ireland.
A total of approximately €16 billion came from the old National Pension Reserve fund and €4.8bn from the Exchequer.
The State has already received a total of €3.453bn from the sale of investments in AIB, and a further €920m in income from its AIB investment.
A further dividend of €250 million will also be paid in 2017.
If we sell now then, in effect, the proceeds of holdings in our strategic investment fund would be used simply and solely to pay down debt.
In reply to a recent Dáil Question, the Minister estimated that the sale now of 25% of AIB would reduce the national debt by 1% of GDP.
We strongly believe this would be a wasted opportunity and a waste of money.
Any proceeds of a sale of AIB shares should be dedicated to the proposes for which we set up the strategic investment fund – a Labour Party proposal – for investment in the Irish economy.
There is no pressure to sell these shares right now.
Everyone here knows that it’s not the size of our national debt in absolute terms that’s important.
It is the size of our debt relative to the size of our economy that matters.
The policy of selling off our bank shares as soon as we could was originally based on an urgent need to reduce our debt levels.
But, because of the recovery, that situation has changed dramatically.
The Irish national debt-to-GDP ratio continues to fall at a rapid pace, due to economic growth and continued achievement of budgetary targets.
And the costs of servicing the national debt have consistently been declining as well.
As I mentioned, diverting everything we get from selling a quarter of AIB would only reduce our debt by one percentage point or so.
The social good we could deliver if we invested that money in public infrastructure would be much more significant than reducing the national debt by such a marginal if not downright irrelevant amount.
For many months now, I have been making the case for changes to the stability and growth pact in order to allow for greater investment in public infrastructure.
This Government has resisted the idea.
It has failed to make any sort of case at a European level.
The result is that we are caught in a bind that is to a large extent of our own making.
Until we get these rules amended, none of the proceeds from any sale of AIB can be invested into building houses, hospitals or schools.
The financial advisers working on the sale will stand to earn at least €40m.
But the Irish people will see no tangible benefit at all.
It is the sheer waste involved in diverting our assets to such a pointless exercise that makes me despair of the fiscal ideology that prevails in Government.
If you don’t want to take my word for that, then ask the International Monetary Fund.
Just a further €2.66bn is due to be allocated in the Mid Term Review of the Capital Investment Plan.
Capital spending in 2017 will be equal to just 1.6% of GDP, a very low level of investment for a growing economy, a growing and aging population, and the threat of Brexit.
Investment will, admittedly, increase modestly, to 2.2% of GDP in 2021.
We in Labour believe that much greater capital investment is required.
And that belief is not confined to the Left.
There is now a near universal consensus that capital investment in Ireland must be increased to tackle all the difficulties we can all of us recite:
Infrastructural bottlenecks, historical underinvestment, dealing with the rapid growth within the domestic economy, dealing with a growing and ageing population, not to mention the challenges we face from Brexit.
However, the austerity fetishists would not just disagree with this modest proposal.
They would go further in the opposite direction.
They would take €1bn extra every year out of the economy and they would bury it in a rainy day fund – a fund that was argued for by no-one anywhere except by the authors of the Fine Gael election manifesto.
We need to scrap this proposed rainy day fund and instead use that €3bn for capital spending.
We need to call a halt for the Government’s further madness in planning to impose a 45% debt ratio target, on top of its rainy day fund.
We need to use the proceeds from the sale of any portion of AIB to further boost the amount available for investment, rather than using these proceeds to pay-down debt.
We need to frontload this investment as much as possible, rather than reverting to pro-cyclical investment strategies.
And we need, above all, to see capital investment as providing real social benefits as well as economic growth, rather than creating a false choice in relation to such investment.
If the Dáil and the Government accepts these proposals then, instead of having just €2.65bn to invest in schools and homes and transport, the Government would have over €8.5bn to spend over the next few years, without any negative risks to our economy.
In summary then, the pension fund, now the ISIF, is our rainy day fund.
We believe that its directed portfolio, as it grows, should be made available for commercial investment in projects of national significance and commercial potential in the public sector.
We insist that the Stability and Growth Pact and the fiscal rules must be reformed so as to facilitate this much needed increase in capital spending.
I have made this case to my colleagues in the Party of European Socialists and it has been accepted.
I believe all party leaders here to advance this same agenda through their EU political groups.
And the Government of course should do the same at the European Council.
But, in advance of these necessary changes to the fiscal rules, there should be no thought at all of us selling our shares in AIB.