Roadmap For Banking and Property Reform : SMART TAXES NETWORK
NAMA Trust
A Trust representing the interests of taxpayers should be set up by government. The Trust will be charged to put taxpayers ahead of other beneficiaries in the bank recapitalisation process. First, the government should make it clear that the governments guarantee will not continue beyond September 2010 and force the banks to estimate the full extent of current losses on the loans, just as the Swedish government did in their banking crisis 19 years ago.
The banks’ shareholders and bondholders should take substantial write-down of their interests in exchange for some shares in the new NAMA Trust – (each bank would be different). The NAMA Trust would take over the loans for their true value as assessed in a fully transparent manner as described before.
Capital would be provided to the banks in exchange for voting equity shares held in the NAMA Trust. These shares and previously government bought shares, should held in the public NAMA Trust until a time when it can dispose of these assets in an orderly fashion. This public investment should not be made until private avenues for recapitalisation are exhausted.
The recapitalisation should be with government bonds as per the current proposal with the ECB but with flexibility to fund from wider global market too – not open to Nama solution.
The NAMA Trust can disburse any of its shareholdings so as to maximise the return to taxpayers. Benefiting taxpayers must be registered as tax compliant on the date of the NAMA Trust creation. Thus, no tax exile would benefit from these shares. This should be notified to the public after execution and the NAMA Trust will then have 60 days to issue every shareholder a share of the sale proceeds net of operating costs and a special capital gains tax of 33pc.
The Trust should be independent and at arms length from government, so the Irish banks will remain private enterprises, removing all the perceived disadvantages of nationalisation. The NAMA Trust must be explicitly prohibited from acting as a vehicle for future borrowings by the Exchequer so that its independent status is preserved. The banks can of course buy government bonds in the usual way. A supervisory board with independent directors guarding the interests of beneficiaries of the NAMA Trust should be appointed to every recapitalised bank.
The NAMA Trust’s risk, credit and audit committees should include independent experts who cannot be employees of the State or any other parties to this undertaking. The NAMA Trust’s board must include a significant presence of independent directors.
Approval of a special all-parties Oireachtas Committee would be required by the NAMA Trust to issue new debt to complete development projects on foot of a detailed report and recommendation from the NAMA Trust credit and risk committees based on economic, environmental and planning feasibility studies that must be published for the purpose of public consultation.
The NAMA Trust must issue public quarterly and annual reports containing all information concerning the value of the assets held and detailing all losses that might have arisen in the interim period. The NAMA Trust rust should disclose all potential conflicts of interest and general conditions of employment for staff, senior management and directors. All NAMA Trust deliberations and decisions should be made public.
The NAMA Trust will have a right to pursue delinquent borrowers’ collateralised property legally shielded from authorities or banks at any time after July 2008. Banks participating in the NAMA Trust will be required to impose strict caps on executive compensation and to set up new boards and committees with a mandatory requirement for taxpayers’ representatives. These would be positions that could not be occupied by a present or past public employee or anyone who has worked in the Irish banking or development industry in the last seven years.
Independent departments to manage NAMA Trust assets should be set up within the banks. These departments’ performance will be benchmarked against overall bank performance to ensure that taxpayers are given full protection against the banks prioritizing their own loans ahead of those held by the NAMA Trust.
Valuation of Distressed Development Loans
A detailed and transparent valuation methodology based on the SCS (Society of Chartered Surveyors) ‘market value’, published before the NAMA transactions are complete, should be an absolute condition to ensure accountability and protect taxpayers interests.
Every bank should undergo a loan book evaluation before the valuation of any loans by NAMA. The outcome of this evaluation should be publicly disclosed.
Every NAMA loan, its owners and its location on searcheable maps and it’s estimated value should be publicly disclosed.
Valuations Within a Sustainable Planning and Taxation System
An annual land value tax (LVT) should be introduced as soon as possible. The tax should be based on land values at the start of the property boom (1998-2000) which means there is more to fall. The LVT should replace transaction property taxes and could be allowable against income tax so that it is broadly revenue neutral. Or if politically mandated, a high LVT could increase overall tax revenue without damaging economic recovery. LVT is theoretically the only kind of tax that could achieve this feat. A personal allowance would reduce the impact on homeowners but leave speculative undeveloped land exposed. Homeowners who bought at the height of the boom would be credited with their previous stamp duty.
The net effect would be to bring forward the necessary correction of land values needed to re-energise the economy. LVT would have the secondary effect of clarifying the purchase price of the distressed development property portfolio by the NAMA Trust by removing ‘hope value’ not created by the subsequent quality and efficiency of design, construction and servicing systems of the developed property.
This achieves everything that a fire sale of distressed loans would do but without the ‘shock doctrine’ downside.
The LVT would also serve as an automatic taxation mechanism in the future to reduce the high government borrowing that is sorely needed to protect the economy. See next section. It would reassure the ECB that Ireland is not taking advantage of the prudence of savers in other Member States as property taxes would be seen as severe punishment and effective restraint on a future property-based borrowing spree.
The NAMA Trust, the majority shareholder in the reformed banks will also reassure Irish savers and protect Irish citizens from the spectre of nationalized banks controlled by Fianna Fail who have yet to show any ability to disappoint their property development and landowners friends.
