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Banks will not be liable to pay taxes for at least 20 years

Thu, Nov 9, 2017, 13:22

Eoin Burke-Kennedy

Minister for Finance Paschal Donohoe: said changing the rules would have a detrimental impact on the value of the State’s investment in the banks. Photograph: Brenda Fitzsimons




Minister for Finance Paschal Donohoe has ruled out amending tax regulations, which allow banks to offset losses made during the recession against future tax bills.

The current rules on “deferred tax assets” mean that AIB and Bank of Ireland, which both made over a €1 billion in profit last year, will not be liable to pay corporation tax here for at least 20 years.

Mr Donohoe said, however, that changing the rules would have a detrimental impact on the value of the State’s investment in the banks and could precipitate further capital shortfalls on the banks’ balance sheets.

“Any indication that we are going to change the taxation status of the deferred losses would have an effect on other objectives we’re looking to fulfil with the banks,” he told the finance select committee, which was meeting to consider the Government’s Finance Bill.

The rules applying to deferred tax assets were restricted in 2009 by the then finance minister Brian Lenihan, who placed a 50 per cent limit on the losses bailed-out banks could carry forward.

Capital requirements

However, in 2014 his successor Michael Noonan reversed the change, in part, to allow banks meet tougher capital requirements without further State assistance.

“The net effect of the measures in terms of tax receipts is one of timing which will be offset by an improvement in the valuation of the State’s equity stakes in the banks as well as its net investments, while the risk to the State as a backstop provider of capital is reduced,” Mr Donohoe said.

“Rather than change or interfere with the deferred tax assets by changing tax policy, the Government has ensured a contribution from the sector through the bank levy which has been payable since 2014,” he said, noting the levy will net the exchequer €750 million over the next five years.

Sinn Féin’s Pearse Doherty said it was a disgrace that Irish banks, which had caused so much economic and social damage to the country, were effectively allowed to pay no tax.

“I would like to steer this parliament in a direction where we no longer tolerate a situation where a bank, which records €1.5 billion of profit in 2017 [AIB’s projected profit], doesn’t pay a penny in tax to the State,” he said.

The deputy said he was not arguing against the idea of losses being carried forward, but for the previous restriction adopted by Mr Lenihan to be reinstated.

“He [Lenihan] had the foresight to see that these banks were going to be profitable at some point,” Mr Doherty said.

Fianna Fáil’s Michael McGrath tabled an amendment to the Bill, calling on the Government to examine the impact on banks of resurrecting this restriction.

While acknowledging the rules governing trading losses being carried forward was an important feature of the tax code, Mr McGrath said the circumstances regarding the banks in Ireland “are truly exceptional and warrants examination”.

He also wondered if the rules could used to ensure the banks meet their responsibilities in relation to the brewing tracker mortgage controversy.

However, Mr Donohoe warned changing the rules would have too many negative consequences.

State’s debt management agency has issued €15.75bn benchmark bonds in 2017

Thu, Nov 9, 2017, 12:10

Colin Gleeson

Conor O’Kelly, chief executive, the National Treasury Management Agency (NTMA). Photograph: Dara Mac Dónaill / The Irish Times




The State’s debt management agency has sold €1.2 billion of the benchmark Government bonds in an auction on Thursday.

The National Treasury Management Agency (NTMA) sold €800 million of nine-year bonds at a yield of 0.54 per cent and €450 million of 28-year debt at a yield of 1.7 per cent in its final bond auction of the year.

With the completion of Thursday’s auction, the NTMA has issued €15.75 billion benchmark bonds in 2017.

Latest CSO numbers also point to increased transport and housing costs

Thu, Nov 9, 2017, 11:45
Updated: Thu, Nov 9, 2017, 12:07

Eoin Burke-Kennedy




Irish inflation has risen to a six-month high of 0.6 per cent on foot of higher prices in restaurants and hotels as well as increased transport and housing costs.

The latest consumer price numbers from the Central Statistics Office (CSO) show overall inflationary pressure in the Irish economy, however, remains fairly subdued.

The main monthly changes affecting the CSO’s Consumer Price Index in October were decreases in the cost of hotel accommodation and air fares.

Electricity charges, rents and the cost of home-heating oil were also higher on a monthly basis.

On an annual basis, housing, water, electricity, gas and other fuel prices rose by 3.1 per cent in October, while prices in restaurants and hotels were up 2.7 per cent.

Education costs also rose by 1.8 per cent while prices for alcohol and tobacco rose 1.2 per cent.

However, prices for clothing and footwear dropped 4.7 per cent on an annual basis, while furnishings and household equipment prices were down 3.6 per cent.

“Despite strong Irish economic growth, there is little sign of sustained pressure on the prices front, which appears to be the same story across the euro zone, suggesting that the European Central Bank will be in no hurry to tighten monetary policy,” Merrion economist Alan McQuaid said.

“Although the annual inflation rate should pick up in the coming months, inflationary pressures in Ireland, as measured by the headline consumer price index, are in general likely to stay reasonably well-contained for the immediate future,” he said.

“Oil prices will be critical in determining the headline inflation outlook over the next 12 months or so, but they remain volatile and hard to predict given the uncertainty over Opec supply and geopolitical tensions in the Middle East,” he said.

Outlook notes ‘substantial’ Irish contribution’ made by construction

Thu, Nov 9, 2017, 11:02

Patrick Smyth Europe Editor, in Brussels

EU commissioner for economic and financial affairs Pierre Moscovici presents the autumn economic forecasts on Thursday. Photograph: Reuters




The EU Commission predicts 2.2 per cent economic growth in the euro area this year, up 0.5 per cent on its earlier prediction.

Its forecast for the Republic, published in its Autumn Forecast report, is equally upbeat, with real Irish GDP growth predicted to rise by 4.8 per cent in 2017, moderating to 3.9 and 3.1 per cent in 2018 and 2019 .

That places Irish growth close to the top of the EU league with only Malta (5.6 per cent) and Romania (5.7 per cent) growing faster this year.

The commission does, however, warn of the distorting effects of multinational companies’ activities on Irish growth figures. “The activities of multinational enterprises continue to distort headline figures and complicate macroeconomic forecasts. The Government deficit is moving closer to balance but risks to the fiscal outlook remain.”

The uncertainty arising from the Brexit process makes trade predictions very tentative, the report says. Exports are projected to increase in line with global trade while imports are predicted to gather momentum on the back of strong consumer demand, leading to a moderation of the positive impact of net exports on GDP growth.

The general government deficit is projected to fall to 0.4 per cent of GDP in 2017, an improvement of 0.4 percentage points net of one-offs compared with the previous year’s deficit and reflecting the sustained pace of economic growth.

The report says that Ireland’s Budget 2018, which includes spending measures of around 0.4 per cent of GDP that are partly covered by revenue increases of 0.3 per cent, will still see the deficit fall to 0.2 per cent of GDP in 2018.

The commission has also raised its forecast for euro area growth over the next two years – to 2.1 per cent (up 0.3 percentage points ) in 2018 and 1.9 (up 0.2 percentage points) in 2019. The full EU is expected to grow 2.3 per cent this year.

The commissioner for economic and financial affairs, Pierre Moscovici, said at the report’s launch that: “After five years of moderate recovery, European growth has now accelerated. We see good news on many fronts, with more jobs being created, rising investment and strengthening public finances.”

Its system needs to move from corruption to honesty, opacity to transparency, discretion to predictability, and from looking after the privileged to serving the people.

about 8 hours ago

Martin Wolf

A favela in Rio. Brazil needs a political and economic rebirth.




Brazil is in economic, political and moral crisis. This is not my judgment. It is the judgment of a former senior official I have known for decades.

It is hard to argue with this: the economy has suffered a huge recession, with real incomes per head down 9 per cent between 2013 and 2016; growth is structurally too slow; the fiscal position is unsustainable; and a corruption scandal has engulfed the political elite and leading businessmen.

Indeed, the Supreme Court has authorised investigations into one-third of current cabinet members, one-third of senators, and one-third of state governors, as well as the president, leaders of congress and of the main political parties. Not surprisingly, politicians and parties are discredited. As I learnt when in Brazil last month, local experts fear this may lead to an extreme polarisation of politics. Yet a crisis can also lead to change. Brazil should seize that opportunity.


One must not exaggerate the gloom. Life expectancy has risen from 60 years in 1970 to 74 in 2017, while the fertility rate has fallen from five children per woman to just 1.7.

The energy of the judiciary in pursuing the Lava Jato, or Car Wash, investigation into corruption is admirable. The recession has even turned into a mild recovery: the International Monetary Fund forecasts growth at 0.7 per cent this year and 1.5 per cent in 2018. The latter could be too pessimistic. The monetary stability gained in the 1990s persists, with year-on-year consumer price inflation down to 2.5 per cent in September.

Nevertheless, the structural economic and political challenges are huge. Income inequality remains among the highest in the world. That is not offset by fast growth: between 1995 and 2016 real gross domestic product per head rose just 25 per cent, putting Brazil behind Argentina, Mexico, Colombia and Chile. Relative to the US, Brazil’s real GDP per head has stagnated over the past quarter of a century. It is a little over a quarter of US levels, which makes this failure to catch up disturbing.

According to the Conference Board, Brazil’s total factor productivity – a measure of its rate of innovation – fell, at an average rate of 0.7 per cent a year between 2000 and 2016. Brazil’s national savings rate, always low, was just 16 per cent in 2016. Consequently, the central bank’s real short-term rate has averaged just under 5 per cent over the past decade. As a result, investment rates are quite low, too. Moreover, the population is ageing. In all, the growth rate of potential GDP is probably below 2 per cent.


Poor growth prospects make the dire fiscal position worse. Brazil has a huge structural fiscal deficit: the IMF thinks it will reach 11 per cent of GDP by 2022. Revenue is already quite close to 30 per cent of GDP. This should rise with the recovery, but not by enough to close the deficit and bring the rise in public indebtedness under control, since spending is close to 40 per cent of GDP. The government’s mandated spending cap will run into mandated spending, especially on pensions. By the early 2020s, it would have to eliminate all discretionary spending.

Brazil needs comprehensive economic and fiscal reform. The most important economic reforms include: opening up a relatively closed economy; tax reform; labour market reform; higher investment in infrastructure; and policies aimed at raising national savings. The latter connects with the fiscal reforms. These must include a comprehensive pension reform, to bring spending under control. A funded pension scheme could raise national savings. The government must also have the freedom to control the numbers and pay of civil servants. Doing all this would liberate resources for other areas.

It would be a mistake to see the needed reforms as technical. They are highly political. They involve making fundamental changes in the way the state, politicians and officials operate.

The system needs to move from corruption to honesty, opacity to transparency, discretion to predictability, and from looking after the privileged to serving the people. That is what the corruption scandals, the slow-burning fiscal crisis, the inefficient pattern of government spending and the longer-term economic weaknesses are telling Brazilians.

Particularly in a free and democratic society, making such deep changes poses a huge challenge. This is especially true when the situation is improving in the short term. Furthermore, the embattled current government (perhaps surprisingly) and the central bank (far less so) have done a decent job of restoring confidence in Brazil.


Yet political problems need political solutions. Here, the omens for the presidential election in 2018 are bad. Luiz Inácio Lula da Silva, under sentence for corruption, is leading in the polls, but may be prevented from standing. Second in the polls is Jair Bolsonaro, a rightwinger who makes Donald Trump look moderate and self-disciplined. Neither of these people would provide the reforms Brazil now needs, for different reasons: Mr Lula is discredited; and Mr Bolsonaro is a populist authoritarian. Better candidates exist. But support for them is still modest. Where, one wonders, is Brazil’s Emmanuel Macron?

It is impossible to visit Brazil, even for a short time, and not be enthused by the warmth of its people and the vitality of its culture. But the country has fallen on hard times.

Yes, the short-term position is improving, a little. But too many people are unemployed, the economy is too feeble, the politics too corrupt, and the state too captured. That is what history and recent events tell Brazilians. Brazil needs a political and economic rebirth. The crisis makes this necessary. If that does not happen, the future looks sad.

Copyright The Financial Times Limited 2017

Increase has accelerated with prices rising 12.8 per cent over past 12 months

about 12 hours ago

Conor Pope

Limerick city. Residential property prices outside of Dublin are 29.9 per cent lower than their May 2007 peak.




The cost of buying a home in Dublin has climbed by 87 per cent since the bottom of the property market in the post-crash period was recorded in 2013, new data has revealed.

The rate at which house prices are climbing has accelerated and rose by 12.8 per cent in the year to the end of September, according to new figures from the Central Statistics Office (CSO).

The fresh figures compare with an increase of 11.8 per cent in the year to the end of August and growth of 8 per cent in the 12 months to September 2016.

In Dublin, residential property prices increased by 12.2 per cent in the year to September with house prices climbing by 12.4 per cent and the cost of apartments going up by 11.4 per cent.

The highest house price growth in the capital was recorded in Dublin City, where price climbed by 13.9 per cent. In contrast, the lowest growth was in Dún Laoghaire-Rathdown, with house prices rising 9.9 per cent.

Residential property prices outside Dublin were 13.2 per cent higher in the year to September.

House prices increased 12.8 per cent over the period.

  • Irish mortgage holders to benefit from low rates for another two years

The west region showed the greatest price growth, with house prices increasing 16.5 per cent.

The midwest region showed the least price growth, with house prices increasing 9.8 per cent.

Apartment prices outside Dublin went up by 15.5 per cent in the period.

Overall, the national index is 23.7 per cent lower than its highest level in 2007.

Dublin residential property prices are 24.5 per cent lower than their February 2007 peak, while residential property prices in the rest of Ireland are 29.9 per cent lower than their May 2007 peak.

From the trough in early 2013, prices nationally have increased by 70.2 per cent. In the same period, Dublin residential property prices have increased 87 per cent while residential property prices excluding Dublin are 61.4 per cent higher.

‘Deteriorating situation’

Diarmuid Kelly, chief executive of Brokers Ireland, which represents 1,300 broker firms, described “the deteriorating situation” as “very worrying”.

“We’re now very close to a decade on from the financial crisis. Thousands upon thousands of people who would normally have planned to buy a home in the intervening period have not been able to achieve that aspiration,” he said.

Mr Kelly said the State had prioritised the effects of the housing shortage rather than the cause – a lack of supply of new homes.

He said regulations restricting lending and regulations in relation to rents had been prioritised, “all of which have had unintended consequences, such as excluding young people from home buying when property prices were at their lowest”.

A spokesman for KBC said “inadequate supply” remains a key issue. “A modest increase in supply seems to be falling far behind the growth in prospective home purchasers as pent-up demand from recent years now seems to be emerging forcefully.

“In this context, we would highlight a 17.6 per cent increase in the number of home purchase-related mortgage drawdowns in the second quarter of 2017. As the average monetary value of these drawdowns was just 8.1 per cent higher than a year earlier (and consequently falling well short of the increase in average house prices), it appears substantially higher ‘natural’ demand for housing rather than easier credit conditions is a key factor in the recent acceleration in property price inflation.”

Stronger wage growth could add to the case for further rate hikes by Bank of England

about 12 hours ago

Britain’s official statistics agency said in August that net migration fell to its lowest level in three years.




British employers are having to raise their pay offers in the face of growing recruitment problems, two surveys showed on Wednesday, following a fall in the number of European Union workers since the Brexit vote.

Stronger pay growth would ease a big problem for Britain’s economy – wages lagging inflation – and could add to the case for further interest rates hikes by the Bank of England, which last week raised rates for the first time since 2007.

The Recruitment and Employment Confederation said its monthly survey showed starting salaries rose in October at the second-quickest rate since November 2015.

“We already know that EU workers are leaving because of the uncertainties they are facing right now,” REC chief executive Kevin Green said.

“We therefore need clarity around what future immigration systems will look like. Otherwise, the situation will get worse and employers will face even more staff shortages.”

Separately on Wednesday, the Bank of England said recruitment difficulties had intensified and were above normal in a range of activities.

The BoE report, based on the findings of its regional agents across the country, said companies expected pay settlements next year to offer increases of around 2.5 – 3.5 per cent rather than the 2 – 3 per cent range seen during 2017.

Last week, the BoE predicted overall pay growth of around 3 per cent next year, up from just over 2 per cent this year.

Britain’s official statistics agency said in August that net migration fell to its lowest level in three years with more than half the drop caused by European Union citizens leaving and fewer arriving since the Brexit vote.

REC said its survey, conducted with data firm IHS Markit, showed the availability of permanent and temporary workers continued to fall sharply last month.

Last week, the Bank of England raised interest rates for the first time in 10 years, in part because it expects the plunge in unemployment in Britain will soon start to push up wages.

The BoE also thinks slower growth in investment by businesses ahead of Brexit will aggravate a problem already facing Britain’s economy: that it cannot grow as fast as before without generating extra inflation pressure.

In its regional agents report, the BoE said business investment would continue to grow at a modest pace over the next year before weaker increases over the following two years.

“Economic uncertainty was the biggest drag on investment plans,” the BoE said on Wednesday, citing a survey of 375 firms.

“Expectations about future trading arrangements and other factors related to the United Kingdom’s decision to leave the European Union, such as concerns around the future availability of overseas labour, were also reported to be restraining investment,” it said.