So there’s a new sheriff in town.
Michael Noonan slipped quietly out the side door this week as Enda Kenny lapped up the last of the adulation before following his trusted lieutenant of many years out of Government.
There are two fresh faces on Merrion Street, with the 38-year-old Leo Varadkar moving into the Department of the Taoiseach, while, next door, Paschal Donohoe (42) is getting his feet behind the desk in the Department of Finance.
It was certainly a generational shift in the two most powerful offices of government, although whether that translates into policy shifts we’ll have to wait and see. It’s fair to say both men will need that extra pep in their step with a busy agenda ahead.
Donohoe, who is also holding down the fort in the Department of Public Expenditure, already has a swelling in-tray with the sale of AIB getting under way; Brexit; international scrutiny of the State's corporate tax policies; and a budget in October.
For one thing, his new department’s chief economist, John McCarthy, was before an Oireachtas committee this week warning of the State’s reliance – or over-reliance – on a small number of multinational companies for tax take.
McCarthy said the concentration of corporate tax receipts on a relatively small number of sectors and firms “is, as always, a concern”. Last year, he said, the top 10 payers accounted for 37 per cent of total corporate tax receipts.
Of course, another thing Donohoe will have to contend with is a whole new cohort of lobbyists pulling his coat tails in different directions. There were calls from business groups Ibec and Isme to increase spending on capital infrastructure for starters.
Ibec, predictably, also called for the marginal rate of tax to come down, while Isme gave the public-sector pay deal both barrels. “It’s immoral and it’s socially corrosive,” said chief executive Neil McDonnell. “It shouldn’t be happening.”
As ever, Donohoe’s task will be to balance any changes to taxes and spending with the size of the State pie, while also staying within the parameters of the European Union’s fiscal rules. Noonan insisted as he left office that his rainy-day fund would not need to be raided.
He said “sudden departures from policy wouldn’t be helpful”, and that a review of the capital programme as well as extra funding from the European Investment Bank would be sufficient to fund more infrastructure.
Noonan was speaking after US financial services group Northern Trust said it planned to create another 400 jobs in Limerick over the next five years, bringing the group’s total workforce in the city up to 1,500.
AIB flotation
One way the State will raise funds is with the sale of AIB in the coming weeks. It is set to raise up to €3.8 billion, according to the share price unveiled by the Government this week, but EU orders dictate the cash is likely to go towards paying off the national debt.
The sale of a 25 per cent stake in AIB with shares priced at between €3.90 and €4.90 will also generate €41 million in fees for investment bankers, lawyers and other parties involved.
Investment banks and brokers working on the sale said they had secured enough demand to cover it – something the Department of Finance said was “in line with expectations” and showed “good investor interest”.
A number of AIB directors are planning to buy stock in the bank after it floats, having agreed not to participate in the initial sale to avoid any perceived conflicts of interest.
Separately, the head of the Financial Services Union said he would be seeking a return to a profit-share deal for employees after the flotation. If staff can improve productivity all round, they "should share in that", Larry Broderick said.
However, AIB warned in documents relating to the flotation that the inconclusive outcome of the UK election may give rise to “political instability”, which could have an impact on its business.
Full steam ahead on Brexit?
Then there’s Brexit. It was confirmed this week that the UK election result will not affect plans to have the first round of formal negotiations on June 19th.
There was, however, more research published to suggest Ireland badly needs those negotiations to go well. The ESRI estimated that the €2.6 billion cross-Border trade in goods could fall by up to 17 per cent if no trade deal is struck.
The imposition of World Trade Organisation tariffs was the “worst-case scenario” of a hard Brexit in the study, which was commissioned by Intertrade Ireland. Meat and dairy sectors would be worst affected, with exports of beef from the south hit hardest.
In better news, international law firm Pinsent Masons instructed a Dublin commercial property agent to find a 10,000sq ft office space for it. It is one of a number of UK-based firms believed to be considering a Dublin base following Brexit.
That came as a record number of UK solicitors were admitted to practise in the Republic in the first six months of 2016. Recent figures show 186 solicitors were admitted to practise here from January to June, compared with fewer than 50 for the same period last year.
We know the Government has been engaged in a charm offensive to lure jobs here from the UK. As part of that, it has published a brochure selling Dublin to the European Commission as a location for the European Banking Authority (EBA).
In it, Noonan and Eoghan Murphy – who was a minister of state in the Department of Finance before Varadkar's reshuffle – pledged that staff at the authority would not pay income tax in the Republic should the organisation decide to move here.
They would also be exempt from paying duty on such things as cars should they bring them for personal use. That applies to all decentralised EU agencies, not just the EBA.
Meanwhile, it emerged the Central Bank is struggling to fill some 200 available roles. Earlier this year it emerged the regulator had decided to allocate 28 out of 170 new full-time staff to cover Brexit – but it is apparently facing a “resourcing challenge”.
What bubble?
Finally, while it seems the talk of a possible housing bubble just won't go away, Central Bank deputy governor Sharon Donnery rejected the suggestion this week.
“While we see some pockets of growth emerging in credit, particularly with regard to fixed-rate mortgages increasing, the overall situation in relation to credit, I would say, remains subdued,” she said.
One of the legacies of the last bubble is the number of non-performing loans on the balance sheets of the Republic’s main banks. Some of the banks are considering new ways to shift the loans off their balance sheets as they face mounting pressure from the European Central Bank.
One proposal is to set up special-purpose vehicles that would house bundles of distressed loans. They would need to sell a majority stake in the vehicles to outside investors, possibly including overseas private-equity firms.
That could lead to more home repossessions, a feature of the problem which the State’s competition watchdog this week said ought to be more effective.
In a series of recommendations to encourage new players into our “dysfunctional” mortgage market, the Competition and Consumer Protection Commission said restrictions on lenders being able to “possess loan security” in the event of a mortgage default have the effect of raising loan rates for the wider market.
