Here's my Budget speech from last week, and YouTube videos of same -
This was the first budget of the Fine Gael-Fianna Fáil coalition, and there were very few surprises in it. It was much like one would have expected, given the neoliberal position of both groups. There was a serious lack of mention of inequality in the budget. I do not think it was equality-proofed and I am not aware of any Government analysis of what the effects of the budget will be on society and on the wider world.
The corporate tax rate and our internationally recognised status as a corporate tax haven remain unchanged. We will continue to allow real estate investment trusts, REITs, some of the most profitable corporations and vulture funds on the planet, to escape the rules of democratic society, and we are not even sure what this will cost. The Minister for Finance has stated that he does not know what his 2013 Finance Act has cost the State in gifted tax exemptions. As he stated last April, "REITs are publicly listed companies, meaning their Financial Statements are publicly available, but the specific figures required to calculate their rental profit (the proportion of profit that is exempt) is not necessarily available in these public documents". The budget has not sufficiently addressed the favourable treatment being afforded to REITs at the expense of the traditional landlord.
On 16 January 2014 I raised this issue with the Minister in the Dáil. I said:
However, many large tracts of property that will be sold off will not be bought by Irish people. They will be purchased by foreign investors who will reap benefits at the expense of the Irish people. These people will end up with a lot of rental property, which will give them a monopoly in the game.
I wish I had been wrong, but that is exactly what has happened. The level of influence of vulture funds and REITs in this country has gone off the Richter scale. If people are wondering why a two-bedroom apartment in a working-class area of this city can cost up to €1,500, there is a very good reason for it. These people have a monopoly and we have not addressed the problem.
The tax benefits and exemptions they were afforded are questionable from a legal point of view. I have written to the EU regarding the exemptions for non-resident investors in Irish REITs and asked whether they breach EU state-aid rules. The Commission has confirmed to me that it is examining it.
I have also written to Revenue regarding exemptions from dividend withholding tax for Irish companies. It confirmed to me that registered Irish charities are exempt from dividend withholding tax. This would mean that an Irish charity investing in a REIT would pay no tax on any profits it receives from the REIT. Given the current abuse of charity status by US vulture funds, it would be very interesting to see what particular charities are currently investing in REITs. I realise the Minister is looking at section 110 and there may be some clawback in this area.
I received a reply to a freedom of information request to the Department of Finance regarding WK Nowlan, the firm that now operates Hibernia REIT. There was correspondence from WK Nowlan to the Minister, Deputy Noonan, in 2011, lobbying the Minister to introduce REIT legislation in Ireland. An incredible amount of correspondence was involved. The letters reference a positive meeting with NAMA in regard to REITs and NAMA’s willingness to engage with REITs if they were established.
It would seem that a conflict of interest should have been established by NAMA regarding these meetings considering the role of Kevin Nowlan within the agency at the time of the letter. He was a senior portfolio manager with NAMA. Before he moved in there he transferred his 30% shareholding in WK Nowlan into a trust offshore. However, it seems WK Nowlan was still able to gain unfettered access to the agency. As we now know, following the successful lobbying of WK Nowlan over a three-year period, REITs were introduced in 2013. Kevin Nowlan, having left NAMA, is now the CEO of Hibernia REIT.
First, the company lobbied the Minister to get favourable status in setting up these REITs. Then the same gentlemen, who were in NAMA, left NAMA and they actually admit that they benefited from the knowledge in NAMA. They proceeded to buy back some stuff they sold for peanuts to some US investment funds. In time there will be a serious issue with all this and it will be problematic for the Government dealing with it.
In a recent programme on RTE, which may have been filmed last year, David McWilliams questioned the same individual, Mr. Kevin Nowlan, about how they set up business and how they did out of the crash, as follows.
David McWilliams: There was no cash in Ireland, no access to cash, so you had to go to where the cash was. When you knocked on the door of George Soros’s, what did you say to them?
Kevin Nowlan: So we basically said that Dublin is a great office market. We said that you can buy office buildings basically in, or below, basement cost.
David McWilliams: What does that mean?
Kevin Nowlan: So you can buy them below what they can be built for. What we had to answer was we said we could do off markets.
David McWilliams: What does that mean?
Kevin Nowlan: That means, you know, a lot of property ends up in The Irish Timesor in the Irish Independentfor sale by receivers or whatever. Basically we know enough people in Dublin to be able to go and buy the properties, without having to go to auction or having to go to the market. And we’ve done 18 deals, and 16 of them we’ve done off market. We’ve bought debt, we’ve, you know, we’ve done quiet deals with people, we’ve done deals with banks, we’ve done them in a variety of different ways. If you buy something in an active vibrant economy, below what it actually costs to replace it, you should be in pretty good shape to make money.
He was 100% right. We have seen so much of that go on in this country in the past five years and NAMA has played a huge role in it at a huge cost to the Irish people. What has gone on is frightening. Sadly the Government does not want to know. It does not want to address the issue. I realise that we will get some sort of commission of investigation into Project Eagle, but it is very important for the future of business in Ireland that we look at every aspect of how NAMA has operated because it has repercussions for long-term business in Ireland. It has repercussions for how many international investors are prepared to come here. If we do not prove ourselves to be accountable and transparent in how we do big business, it will come back and bite us.
I have a concern linked to this. NAMA is supposedly to produce 20,000 housing units at approximately €330,000 each. I have looked at the Government’s housing initiatives. However, it is not addressing the problems that created the housing crisis in the first place. If the Government genuinely believes that the 5% rebate up to €20,000 is not for the developers, it is living in cloud cuckoo land. It is for the developers.
There is a big misunderstanding between a builder and a developer. A builder builds properties, usually at a contract price; a developer is the guy who finances it. It is true to say that in recent times the developers have not been interested in getting back into the residential property market because the margin is not big enough. However, that is not true of the builders. I know of many builders who would be very happy to make €5,000 per unit clear profit, which is great money. There are builders who would be delighted to earn it. However, if the developer wants €35,000 or €40,000 and the Government is introducing a measure that will bring him into the market, the Government is simply putting it in his pocket and it is driving up the price of the house. That is guaranteed to happen; it is logic. No one could argue against it. I do not know where the rationale is coming from. It will drive up the price of the property. It does not make any sense.
Why did we not tackle the cost of construction? Why are we not looking at what it is costing to produce that house or apartment? We are not looking at it. We have not tackled it. The SI 9 is costing over €20,000 per unit. Why did we not get the local authorities to go back and independently check on the level of quality that applied by the builder or developer?
Local authorities have land. I asked the witnesses who came before the housing committee why they did not compulsorily purchase land in Dublin. They said they had more land than the local authority could build on for several years and that land was not the problem. I know that places such as Wexford do not have it and the same may be true in other counties. So the land is there. The local authority has the potential to deliver housing for less than €200,000 a unit. However, we are asking NAMA to deliver 20,000 units at over €300,000 each.
There are a few factors. The first is land price. It is allowing, perhaps, €40,000 a unit for the price of the land and a margin of about €40,000 for the developer. There is the €20,000 for the SI 9, which the local authorities could be doing.
That is €100,000 of a difference already before we go any further. Where is the logic of letting this organisation do it? I will tell the House who is going to build these 20,000 houses and apartments for NAMA. There is a small group of developers who have been treated very kindly by NAMA while there are many developers who have been treated very badly by it. The guys who were treated very kindly, who are back in and doing a roaring business, are the same boys who NAMA is now looking to work with. They are working with investment funds and with their cherry-picked favourite developers. They are going to provide 20,000 units for the State at about €330,000 each while we ignore the fact we can actually get our local authorities to provide units for €200,000. If the local authorities do not have the wherewithal to actually deliver the houses we need, be they social, affordable or otherwise, then let us get them the wherewithal if they can deliver units for that money. Why in God's name would we engage NAMA to do it when its record is pitiful? NAMA has so many questions to answer and if there is ever a truly independent commission of investigation into the total workings of NAMA, do we know what we are going to find out? We are going to find out that the manner in which NAMA behaved has cost the State billions of euro, not millions of euro or the €190 million we are arguing about over Project Eagle and a discount fee. We are talking about billions of euro. I do not understand the logic of allowing these guys to progress with their favourite developers to provide units at €330,000 each when we can get units built by the local authorities for €200,000. The Government talks about social housing but considering the model it is going with, it is still going to be looking to the private sector to deliver many of them. When are we going to learn? We should be learning from our experience. We realised that the neoliberal market version has not worked for us and has cost us too much money. It has failed to deliver. The Government is coming up with 20,000 units to bribe the developers to get back into the game when all it needs to do is to organise finance for the builders because the banks in the State would not dream of lending to the builders. The big boys do not need to go to the Irish banks for money. They might get it anyway but they can go off-shore also. It is about time there was a change of direction in how we organise our society.