Press release
Speech by Minister for Finance Michael McGrath at the Irish Funds Annual Dinner
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Thank you, Eoin, for the introduction. I’m delighted to be here this evening. I would like to thank Irish Funds for organising this event and for the invitation to speak.
We are joined this evening by my colleague in the Department of Finance Minister of State Jennifer Carroll McNeill. I would like to commend Jennifer for the stellar work she is undertaking in the department in the area of Funds and also across the wider Financial Services sector.
As the outset I want to recognise the key role Irish Funds plays as the industry representative body for the funds sector in Ireland, working in close co-operation with my department, the Regulator and member firms in nurturing the expertise and talent which is integral to the success we are celebrating this evening.
Every organisation needs strong and dedicated leadership to succeed and Irish Funds is particularly well served by its Chief Executive Pat Lardner who is quite simply a trailblazer for the Irish Funds sector. No journey is too far and no issue is too complex for Pat to take on and I join with you all in saluting his leadership of the organisation.
The work of Irish Funds is of course a shared endeavour. The Irish Funds team has gone from strength to strength delivering the vision and ambition of the sector. We can see the impact of this in the continued growth of employment, assets under administration and the breadth of the product offering.
As current Chair of Irish Funds Eoin Fitzgerald is following in the footsteps of predecessors who have given their expertise willingly in advancing the Irish Funds sector. In fact the day to day work of the team at Irish Funds is complemented by the commitment of the Governing Council who are elected by the Members and the various working groups who voluntarily contribute valuable practical insights to the benefit of fellow members and policy makers. By its nature much of this works goes on in the background but it is hugely important and much appreciated. You can be collectively very proud of all that you have achieved.
The majority of funds under administration by your member firms are the hard earned savings of current and future retirees. Enjoying a comfortable retirement with dignity is something that should be achievable for all and I congratulate you for everything you are doing to bring this about.
Before I speak specifically about the Funds sector I want to share some thoughts about the Irish economy and the work we are undertaking.
The war in Ukraine, coming so soon after the end of the pandemic and the fallout from Brexit has created a whole new set of challenges for policymakers.
A key challenge has been dealing with inflation. To avoid inflationary pressures becoming entrenched, Central Banks have brought the era of cheap money to a close. In the euro area, monetary policy has tightened and with another increase of a quarter of a percentage point today the ECB has now raised its main lending rate by 3.75% since last July.
I am very much aware of the impact this change in monetary policy is having on business and mortgage holders. In relation to the mortgage sector I have been undertaking extensive work regarding loans held by non-bank lenders.
I am on the record as saying that the impact of particularly high interest rates on non-bank clients is a legacy of the global financial crisis and the main banks must come forward with solutions including making it easier for borrowers to switch mortgage provider to avail of lower rates. The Central Bank also has a key role to play in monitoring the non-bank sector and I have recently given my thoughts to the Governor in relation to the review of the Consumer Protection Code.
There has been welcome news in terms of the easing of prices in the wholesale energy markets over recent months. This suggests that headline inflation is past its peak and is now on a downward trajectory. I look forward to seeing these developments reflected in lower consumer bills for electricity and gas.
On another positive note, employment is now at its highest level ever, with almost 2.6 million people at work in the final quarter of 2022. The latest release from the CSO earlier today indicates that unemployment in Ireland is below 4% for the first time since 2001.
And the public finances are in a strong position. We recorded a General Government surplus of €8 billion last year and the recent update to our departmental forecasts project a surplus of €10 billion for this year.
However there are considerable risks that we need to be conscious of. Inflation may prove stickier than previously thought and in relation to Tax revenue, potentially volatile corporation tax receipts pose a risk to the public finances.
To put this in context, we took in €4 billion in Corporation Tax in 2014, as recently as 2020 it was less than €12 billion whereas this year it is forecast to exceed €24 billion. My department estimates that almost half of this is potentially windfall in nature.
CT receipts are also highly concentrated, with just 10 large companies accounting for 57 per cent of all corporate tax paid last year. This is up from 40% in 2019. CT receipts also account for over 27% of the total net tax take, just 6 years ago that was 15%.
All of this tells me that we need to be extremely careful with how we use these receipts, in particular we cannot build up permanent expenditure commitments on the back of what may be temporary revenue.
In this regard, a total of €6 billion has now been transferred to the National Reserve Fund to strengthen our economic and fiscal buffers. And I will shortly publish a scoping paper setting out high level principles regarding a more long-term focused savings fund.
The paper looks similar funds which have been set up internationally to help deal with such issues, including in Norway, Australia and Japan. The establishment of a new long term savings fund will be an important initiative to secure the future wellbeing of the economy and society.
It will require bringing legislation to the Oireachtas setting out how the fund will be built up and the circumstances in which we will draw on it. Work on advancing this will continue to be undertaken by my officials in the period ahead.
Just to say some words about housing: Each of us know that supply is key, this includes social, affordable, cost rental and private. And we have been making progress with strong numbers recently in terms of completions and commencements.
To further assist the market the government has recently announced a number of new measures to bolster the supply of homes:
However, we know that the State cannot deliver all our housing needs alone. Capital from all sources is needed to urgently build as many homes as possible across the country and the only way we can deliver housing at the substantial scale we need is by also attracting private capital to the market, alongside this significant public investment.
I would also like to take the opportunity to outline the work the Department of Finance are doing to support the funds industry and to develop the financial services sector.
I recently received Cabinet approval for a review of the Funds sector. This review will seek to ensure that the funds sector framework is up-to-date and fit for purpose in the years ahead and that it continues to support national and regional economic growth, as well as job creation.
The review will offer all stakeholders – including those in the room tonight – a chance to reflect on the achievements of the sector but also to consider what policy makers and the industry may need to do into the future.
There will be extensive engagement during the review, including a public consultation for which we will give you due notice of commencement, together with a 3 month period for completion of submissions. I would encourage you to actively engage in this process. I see this as positive opportunity and ultimately I believe the outcome will be an even stronger sector than we currently have.
A core facilitator of Ireland’s success has been the EU regulation that supports harmonisation, enables passporting of services throughout the Union and indeed beyond, and has established well recognised global brands such as the AIFMD and UCITS.
A recent example of Ireland’s leadership in this area at European level is in relation to the review of the AIFMD. A key pillar of its success is the delegation model facilitated by the Directive. We have been very clear about the benefits that the delegation model provides – such as access to expertise in specific markets, enabling fund managers to best serve the interests of clients. I know that the Irish funds sector has been a strong advocate for the delegation model as well. While negotiations continue, it is clear that our message on delegation has landed in these discussions.
Another key issue in the review is the introduction of an EU framework for loan origination. If agreed, this would be a significant change. We support the introduction of an EU framework for loan origination to enable different sources of funding while balancing associated risks to ensure financial stability and investor protection.
After all, this is what the Capital Markets Union is about – improving how our markets function so that we can support the financing of the European economy while promoting a more diversified and resilient financial system. Trilogue negotiations on the AIFMD are ongoing and my officials continue to actively engage on the file.
We are equally engaged on the other files related to the Capital Markets Union package.
We reached agreement on the revised ELTIF Regulation, which aims to accelerate take-up by investors with a long-term investment horizon to offer a new source of long-term financing to companies.
In addition we are continuing to progress files such as the European Single Access Point, the Markets in Financial Instruments Regulation, and the Listings Review.
We are also looking ahead to the upcoming Retail Investment Strategy.
The details of the strategy are still to be published, but we share its overall goals of ensuring that consumers who invest in capital markets can do so with confidence and trust, that market outcomes are improved, and that consumer participation is increased.
I will also touch on my department’s work and in particular that of my colleague Minister Carroll MacNeill to support the financial services sector more broadly.
I would like to take the opportunity to thank Irish Funds for your contribution to successive governments' strategies for the development of the international financial services sector.
In particular, I want to acknowledge the two nominees of Irish Funds who currently serve on the Ireland for Finance Joint Committee: Olwyn Alexander and Tadhg Young have been active contributors to the discussions at the Joint Committee. I appreciate the time they take from their busy schedules to share their expertise and insight with the Minister of State and my officials.
It’s now over thirty years since the IFSC was set up. Since then, the sector has grown from being a small one located in the North Inner city of Dublin to being a truly national one. And I don’t mind saying that that includes Cork! I can see Eoin Motherway, Chair of the Cork Financial Services Forum smiling!
Delivering the Ireland for Finance strategy is a partnership between your industry and the State. On a macro level it delivers a huge economic impact. But as a public representative who is accountable to the people, I also think of the strategy as delivering employment in our communities. Good, well paid jobs spread throughout the country.
In summary, there is a considerable amount of policy work underway that impacts your sector: the Fund Review, implementation of the Ireland for Finance strategy and the ongoing negotiation of EU rules in which Ireland is playing a proactive role. Your input into these processes is indispensable and I thank you for your continued engagement.
As an industry you are rising to task of meeting challenges that affect us all in society, none more important than supporting the transition to a more sustainable future. By directing capital towards initiatives such as reducing carbon emissions, promoting renewable energy, and mitigating the effects of climate change we can help create a more equitable future, while also providing long-term financial benefits.
I recognise that firms face challenges in implementing the expanding regulatory system. However, these initiatives are necessary and will facilitate investment in sustainable growth. It is important that we hear from firms as to how it can be made usable and fit for purpose without sacrificing the necessary ambitious standards we need to make a truly sustainable transition.
The industry also has an important role to play in helping consumers make the most of what the financial system can offer. Engagement on this issue will be particularly pertinent given the upcoming EU Retail Investment Strategy.
I therefore encourage and welcome further dialogue with you all to help us tackle these big challenges. I know that the Irish Funds Annual Global Conference is coming up in a couple of weeks. This will provide a further opportunity to engage with colleagues and to deepen the discussion on these important issues.
In conclusion, I would like to congratulate you once again on your success in developing Ireland’s status as a global leader in the investment funds industry and wish you all a very enjoyable evening.
Thank you.