Business Week: PAC trains spotlight on Project Eagle

The sale by the National Asset Management Agency (Nama) of Project Eagle was in the news again this week as its officials, as well as the Comptroller and Auditor General (C&AG), appeared before the Oireachtas Public Accounts Committee (PAC) for a grilling.

The two organisations have been at loggerheads ever since the C&AG's report a couple of weeks ago found Nama may have cost the taxpayer €220 million when it sold the portfolio of about 900 properties, mainly in Northern Ireland, to US firm Cerberus for £1.3 billion.

Well, Nama officials were furious about that finding and moved quickly to attempt to discredit the report, saying the C&AG, which is the State’s spending watchdog, did not have the requisite expertise to make the determination.

The C&AG, Séamus McCarthy, told the PAC that a team of qualified accountants with significant audit and evaluation experience had compiled the report. He pointed out that the C&AG audits the Health Service Executive but does not have specific skills in the medical sector.

In relation to the final figure on the sale, he admitted that his office could not be absolute on the loss of money on the sale of Project Eagle, and that it could be altered upwards or downwards.

Up next for the PAC was Nama chairman Frank Daly, who has been unwavering in his defence of the proceedings. He told the committee Nama had yielded the best possible result for the taxpayer and would more or less do it all over again in the same way.

Daly also told the politicians that Nama had forced Pimco, a rival bidder for the portfolio, to withdraw from the process when it learned of proposed fixer fees.

It is alleged that Frank Cushnahan, a Nama Northern Ireland Advisory Committee member; Belfast law firm Brown Rudnick; and the managing partner of Tughans solicitors Ian Coulter were to receive the fees if Project Eagle was sold to Pimco.

The C&AG had said Pimco had made the decision to withdraw from the process itself, after it had become aware people had stood to benefit financially from the sale, but Daly insisted they had exited the process because Nama had made it clear they “wanted them out”. Daly added he was shocked and appalled to learn of the allegations.

Budget 2017 is now less than a fortnight away and the usual kite-flying and jostling for position is well under way. Taoiseach Enda Kenny is probably off the Christmas card list of his Minister for Jobs after very publicly shooting one such kite down.

Mary Mitchell O’Connor had proposed a 30 per cent tax rate for returning emigrant graduates. She suggested the preferential tax rate would apply to those earning in excess of €75,000.

Speaking in the Dáil later, Fianna Fáil leader Micheál Martin had been laying into “this bananas idea’’ for several minutes before asking Kenny whether he agreed that the plan was “unfair and discriminatory’’.

Martin must have been flabbergasted when Kenny replied: “Yes, I do.’’ The Taoiseach went on to say it would be “unfair and discriminatory, of course’’ if a returning emigrant paid a different rate of tax simply because they had come back to live in Ireland. Ouch.

It's safe to say, though, this Budget will take place against a reasonably favourable backdrop for the Government, with more statistics out this week indicating that the Republic is well on the road to recovery.

Firstly, the State rose one place to 23rd out of 138 counties in an index of global competitiveness by the World Economic Forum. It marks the third year in succession in which Ireland has increased its ranking, having slipped to 28th place in 2013.

The Republic is ranked the eighth most competitive economy in the euro zone, and the 11th most competitive in the EU28. The National Competitiveness Council patted Ireland on the back for the steady improvement, but said to be wary of those pesky "macroeconomic legacy issues" that could threaten future competitiveness.

The Central Statistics Office (CSO) also had figures out that showed the number of children living in jobless households in Ireland has fallen sharply since 2012, with the proportion at 13.3 per cent in the second quarter of 2016. That's a significant decline on the 20.1 per cent recorded in the second quarter of 2012.

Separately, the CSO said retail sales fell 4.7 per cent in August on the back of falling car sales which jumped 13.8 per cent the previous month. Year-on-year however, retail sales rose 5.2 per cent, reflecting a moderate recovery in the sector.

The Government received its regular International Monetary Fund (IMF) report card this week. The "post-bailout assessment" warned that insurance spend per capita in the Republic is now four times higher than the EU average.

The Washington-based organisation also warned of “new imbalances” in the commercial property sector. It acknowledged that, as with residential real estate, the sector had largely rebounded but that “foreign investment inflows or equity funding like real-estate investment trusts can easily reverse if market sentiment changes”.

Such a scenario, it said, could lead to a sharp drop in commercial property values, leaving lenders facing “another hit from a collapse in collateral values via financial ‘decelerator’ mechanisms, as observed in the post-crisis period”.

The assessment also warned that many Irish households are still indebted and that in the event of rise in interest rates rise, many borrowers – particularly those with standard variable mortgages – could face difficulties servicing their debts.

There was also a view presented on the Central Bank’s oft-criticised mortgage lending rules. Unsurprisingly, the ever-prudent IMF endorsed the plans and said they had reduced price pressure in the market while moderating expectations around future increases.

The organisation may well have lost what few friends it had among the Irish public when it then urged the Central Bank to maintain the rules while conducting regular impact analyses to evaluate their effectiveness.

For its part, the Central Bank indicated that it was open to changing the rules if required. Deputy governor Sharon Donnery had previously signalled her reluctance to loosen the reins, but said in an interview with Bloomberg the bank would "absolutely" change the rules if required.

The OECD was also in town. On a visit to Dublin, Pascal Saint-Amans, its tax policy chief, said the bulk of the €13 billion Apple owes in back taxes belongs in the United States. "There is no ambiguity here: the bulk of it belongs to the United States," he said.

While he declined to comment directly on the European Commission’s ruling, he said that, as most of the company’s research and development took place in the US, it was clear profits should be associated with that jurisdiction.

He also talked about the Republic’s controversial 12.5 per cent corporate tax rate and insisted it was not under threat from moves to reform the global tax system.

He said the OECD’s base-erosion and profit-shifting project – better known as Beps – was about aligning profits with economic activity and did not have a direct bearing on national taxation rates.

“There is no questioning of the rates taken by some countries,” he said. “Clearly the US is much too high but I cannot say that Ireland is too low; it’s not. It’s accepted. Even the French have understood that Ireland will not change its tax rate. It’s here and it’s perfectly fine.”