MINISTER FOR Finance Brian Lenihan has defended the decision to establish Nama and said that nationalising banks would have dried up funding for the institutions as had happened in Iceland.
Speaking at the annual dinner of the Irish Taxation Institute last night, Mr Lenihan said the Government’s plan for economic recovery involved restoring order to the public finances, repairing the banking system and regaining competitiveness and jobs.
He defended the State guarantee to stabilise funding for the banks and the establishment of Nama to clean up balance sheets.
Mr Lenihan added that recapitalisation of the banks and reform of the regulatory system were also vital components of the strategy.
“The extent of State ownership of the banks will depend on Nama discounts, regulatory capital requirements and the amount of new private capital. The Government has never ruled out increased State ownership,” he said.
Mr Lenihan added that those who argued for 100 per cent nationalisation were wrong as statutory State takeover of the banks would have undermined confidence and dried up funding for the banks and the State.
He said nationalisation would have involved the banks being de-listed from the stock exchange and would have made the eventual exit from State ownership difficult and expensive. “Only one country has followed this approach in this crisis: Iceland,” said the Minister.
He added that the banks needed to support economic recovery by providing credit to viable businesses and households. There were guidelines under the Nama legislation for lending to small to medium-sized enterprises (SMEs) but there could be no return to the credit-driven growth of the past.
“The consensus forecast is for a return to positive growth in the second half of this year. Growth is projected to strengthen next year and beyond, led by exports with net job creation of 20,000 next year, and 45,000 each year thereafter with SMEs being crucial in creating new jobs,” he said.
The Minister noted measures in this year’s Finance Bill designed to boost growth including the car scrappage scheme, an extension of tax exemption for new start-up companies, the Islamic finance initiative, improved research and development tax credit, tax treatment of dividends, withholding tax on royalty income and measures to improve tax offering on internationally traded services.
He added that consumer spending would rise next year as confidence returned and employment increased. “The plan for economic recovery is working. Positive growth later this year will lead to employment growth next year. Confidence is returning, externally and domestically and the full implementation of the Government’s plan will restore sustainable growth, create new jobs, and deliver economic prosperity.”
Mr Lenihan pointed to what had been achieved on the public finances and said without the fiscal correction of 5 per cent of GDP last year and 2.5 per cent this year the budget deficit would have ballooned to 20 per cent of GDP.
“We must stick with the programme and deliver €3 billion of adjustments in 2011,” he added.
President of the institute Olivia Lynch said it was vital that three key tax moves should be made in order to secure Ireland’s competitiveness, particularly in the light of the new 50 per cent income tax rate in the UK.
She said the combined marginal rate of income tax and PRSI should be below 50 per cent by 2012 in the light of the Minister’s budget announcement that he will oversee a major reform of PRSI and income tax this year.
Ms Lynch also called for a new business forum to bring the best heads together to initiate tax policies for a globally competitive environment.
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