Lenihan: Bank recapitalisation a last resort

THE Government will only inject taxpayers’ money into Irish banks as “a last resort” Finance Minister Brian Lenihan said yesterday.

He said the Government has not ruled out recapitalising the banks with public money but it would prefer if this was done with private investment.

He also indicated that the “liquid assets” of the Pension Reserve Fund “could be used in the appropriate circumstances”.

Speaking on RTÉ radio, Mr Lenihan said: “The Government hasn’t ruled out public investment, but what we have said is the banks will have to seek private investment in the first instance.”

He said: “It’s entirely legitimate that the taxpayers should not be asked to put all of the funds that are necessary to capitalise the banks into them. After all, were the taxpayer to put all of the funds into the six Irish banks and financial institutions you would then, in effect, be nationalising the banks.”

Mr Lenihan did not rule out further income tax increases over the next two years and warned that further cuts in public spending will be needed.

He said 10% of the State’s day-to-day public spending currently needs to be borrowed. “That is unsustainable in the medium term,” he said.

“We cannot continue to borrow for day-to-day purposes,” said the minister, who added that an “ongoing radical programme” is required to examine public expenditure if the target of a 3% deficit is to be met by 2011.

“We have to adjust our public expenditure to ensure that it corresponds to what we can afford. We don’t have any option on this,” he said.

Mr Lenihan is awaiting a report from the Tax Commission which will indicate how Ireland’s income tax system can be reformed.

Pending that reform, the minister said the income tax levy he introduced in the budget was the fairest and most progressive way to raise funds.

He said there was “a difficulty in maintaining tax and expenditure in the current climate”.

He said that bringing the budget forward to mid-October was a wise decision in political terms, because it began “the essential process of public understanding of the gravity of the situation we are in”.

He expressed his confidence that Fianna Fáil will stay together despite two recent defections from the parliamentary party.

“I am confident that we have the resilience as a people to pull ourselves together and get out of these difficulties which we face,” he said.

Mr Lenihan said the Financial Times report, which classified him as the second worst finance minister in Europe, didn’t really upset him.

He said that the reason for the classification was because he did not consult with other EU ministers over the decision to guarantee bank deposits.

The minister said that last September he took decisive action and put the national interest first when he saw that the banking system was in imminent danger.