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Dáil Question on Sale of AIB Shares – 18th November 2015

QUESTION NO: 17

DÁIL QUESTION addressed to the Minister for Finance (Deputy Michael Noonan)
by Deputy Anthony Lawlor for ORAL ANSWER on 18/11/2015
To ask the Minister for Finance if the proceeds from the sale of shares in Allied Irish Bankss can be better utilised for capital projects rather than to reduct the State’s debt; and if he will make a statement on the matter.

REPLY.
As outlined in previous parliamentary questions regarding the sale of financial assets, these type of transactions do not result in a beneficial impact to the General Government Balance (GGB) under Eurostat rules. This is due to the fact that is classified as a ‘financial transaction’ whereby it is essentially the exchange of one form of asset (shares, equities, loans) for another kind (cash). Consequently, the sale of any shareholding in Allied Irish Bank (AIB) would not count as general government revenue but any additional spending would be supplementary to existing expenditure projections. Therefore, there will not be increased capacity to spend on capital projects as a result of the sale of shares in AIB without affecting the general government balance.

It should be noted that as part of Budget 2016 a capital plan for the period 2016-2021 was prepared by the Department of Public Expenditure and Reform and published by the Government. Compliance with the fiscal rules that apply to Ireland under the preventive arm of the Stability and Growth Pact was taken into account in the formulation of the capital plan.

However, while not improving the deficit cash proceeds arising from the sale of AIB shares would result in a reduced requirement for Exchequer borrowing which ultimately results in lower debt. A lower debt level is not only beneficial in terms of the fiscal sustainability of the State but would also lead to reduced interest payments in future years. The strategy of reducing the National debt is consistent with the Government policy of repaying the borrowing previously undertaken to finance the bailout of the banking sector during the financial crisis.

In summary, therefore, 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.