Minister for Finance Paschal Donohoe has insisted an 89 per cent super tax on bonuses in excess of €20,000 in bailed-out Irish lenders should remain enshrined in Irish law, even as he moved to relax restrictions in the sector to allow variable pay up to that threshold for the first time since the financial crash.
The outgoing Minister also said he “absolutely understands the sensitivity” of Government decisions on Tuesday to allow bailed-out banks hand out bonuses of up to €20,000 and put them on a path to escape executive pay caps, given the scale of the banking crash and as households are dealing with the cost-of-living crisis.
The move, on foot of a recommendation in the banking review carried out by his department over the past 12 months, was met with criticism in the Dáil from the likes of rural Independent TD Mattie McGrath and Sinn Féin leader Mary Lou McDonald, who described it as “a real kick in the teeth for ordinary people” as they deal with the cost-of-living crisis.
However, Mr Donohoe said he wants “good people” in the banks at a time when they are struggling to attract and retain key staff in the face of competition from companies that are not subject to restrictions.
“I don’t see any changes and further steps beyond what are envisaged within this report,” Mr Donohoe said in response to questions from reporters.
“I believe steps that are not recommended in this report are not ones the Government should implement – and that includes the 89 per cent super tax.”
Bank of Ireland executives told staff in an internal email on Tuesday, as the industry digested the report, that the earliest it would be in a position to offer “an element of variable pay to colleagues is in 2024, based on 2023 full-year performance”.
Mr Donohoe said he is removing executive pay restrictions at Bank of Ireland, after it sold its remaining shares in the lender in September, and said the Government will lift an ongoing €500,000 pay cap at AIB and Permanent TSB, once taxpayers’ stake falls to what are being called appropriate levels.
He declined to say what the level should be or to comment on the pace of future share sales in both banks. The State’s holding in AIB has fallen from 71 per cent to 57 per cent so far this year and is expected to dip below the 50 per cent in early 2023. It also owns 63.5 per cent of Permanent TSB.
The banker remuneration recommendation was one of more than 30 made by the banking review team in a 200-plus-page report, published on Tuesday.
These included calls for the department to draft heads of a Bill to protect consumers’ and businesses’ access to cash and for banks to be obliged in future to submit “robust” assessments to regulators when they are closing branches or altering services in future.
Banking and Payments Federation Ireland (BPFI), which has long argued that pay limits put domestic banks at a disadvantage as they compete with international banks and technology companies for key staff, said the Government’s move was a “welcome step”.
The International Monetary Fund (IMF) urged in a report on the Irish financial system in July that all the pay restrictions introduced during the financial crisis should be ended – including what it called the “penal” 89 per cent bonus tax.
“These policies also result in an uneven playing field for the retail banks, which are in a catch-up game with more nimble and digitally advanced non-banks,” it said at the time.
However, rural Independent TD Mattie McGrath accused the Coalition in the Dáil of giving “two fingers” to ordinary people and paying bonuses “to the fat cats in the banks”.
He said that people are having difficulty putting food on the table or heating their homes and they bailed out the banks.
Earlier there were sharp exchanges between Taoiseach Micheál Martin and Sinn Féin leader Mary Lou McDonald.
She said: “It would be a bad call at any time but there is something really twisted about allowing big pay hikes for wealthy bankers while workers and families endure an unprecedented cost-of-living crisis.”
Ms McDonald highlighted people now relying on food banks to ensure their children get a decent meal.
“But that’s the reality that people are facing as Fine Gael prepares to resume leadership of Government by looking after the top brass in the banks.”
The “gratuitous pay and self-serving behaviour of big banks” had “led us to financial disaster to economic crash and to social catastrophe”.
But the banks have learned no lessons, she said, given the tracker mortgage scandal, “and even when the banks were caught red-handed, they continued to do harm”, with AIB and Bank of Ireland being fined this year more than €197 million for regulatory breaches.
“And to this day, not one banker has been held accountable for this scandal,” she said.
The Taoiseach, however, claimed that Sinn Féin’s opposition was a “kick in the teeth” to bank workers because the review of the banks recommended “the introduction of variable pay of up to €20,000 and for the provision of standard non-pay benefits for all employees in the three banks”.
He said the number of retail banks had gone from 13 to three, employing 20,000 people, and he accused Ms McDonald’s party of preventing those workers getting a pay rise.