patrick honohan : progress and developments in relation to implementing the mortgage arrears resolution targets speech by mr patrick honohan, governor of the central bank of ireland, to the joint committee on finance, public expenditure and reform, dublin, 30 april 2014. * * * accompanying data tables can be found on the central bank of ireland website. thank you for inviting me to discuss the progress and developments in relation to implementing the mortgage arrears resolution targets. i welcome the opportunity to discuss the issue and i am also happy to discuss other matters the committee may wish to raise. when i was last before the committee in september i noted that there were indications the mortgage arrears resolution process was working and, while there was still some way to go, momentum was building. based on the evidence of recent months it is evident that the momentum has been established and we are starting to see progress by all banks in working to address mortgage arrears issues. although it is still fair to say that the full resolution across the system will take a significant amount of time. as you are aware under the mortgage arrears resolution targets imposed by the central bank last year the banks are required to meet quarterly targets on the resolution of mortgage arrears. to date we have received returns from the banks for three quarters and we reported the outcomes of our first assessment in november. we have recently concluded our audit and assessment of a sample of the banks ’ end 2013 target returns, which you discussed recently with the various institutions. based on the information submitted the banks have proposed sufficient numbers of solutions to meet the targets of proposing solutions to 50 per cent of those in arrears and concluding 15 per cent of these cases. the audit effort this time was channelled towards what we viewed as the highest risk areas. we focused on examining the areas and issues which have caused us most concern and areas which the banks must address now if they are to build a sustainable, long - term process to deal with arrears. the audit process involved examinations of individual loan files, based on institution - specific samples, distinguishing for example between situations where a bank could be perceived as still relying on short - term solutions, and where a bank seemed to be relying on what might be called “ bulk campaigns ” ( offering similar solutions across the board to a range of cases ). all in all, i would summarise our findings by saying that although we have noted, in the course of the audit, a number of areas of

##t ( which together cost nearly 2 percentage points of gdp ). the improvement in the accounts in 2006 came from the significant increase in revenue, which benefited from stronger economic growth, some one - off measures and temporary factors, and the success of the measures to extend and recover tax base contained in the budget for 2006 and the supplementary measures enacted last july. the ratio of tax and social security receipts to gdp rose from 40. 6 to 42. 3 per cent. more than half of the €37. 7 billion increase in tax revenue can be attributed to trends in the main tax bases. another 30 per cent can be ascribed to discretionary measures enacted with the budget for 2006 and the additional measures enacted in july. a further 5 per cent of the increase was due to favourable events during the year, in particular large - scale redemptions of post office savings certificates, which increased receipts from the taxes on interest income, and the return to the usual due dates for the tax on insurance companies ’ mathematical reserves. the remainder of the increase, some €6 billion, reflected the reduction of tax evasion and avoidance both as a result of enforcement action and in connection with some structural changes in the italian economy in recent year ( such as the increasingly important role of mass retailing ). despite the acceleration in economic growth, the ratio of primary current expenditure to gdp remained basically constant, near the highest levels of recent decades. the reduction in intermediate consumption was offset by the rapid increase in social benefits. the contraction of public investment spending continued. the deficit was considerably smaller than had been forecast both in drafting the budget and in the course of the year. both the official estimates and other forecasts underestimated the growth in revenue ; for that matter, receipts exceeded expectations in other euro - area countries as well. the general government borrowing requirement decreased by 1. 6 percentage points, to 3. 7 per cent of gdp. the ratio of debt to gdp rose for the second successive year, reaching 106. 8 per cent. for 2007, italy ’ s stability programme update of last december indicated a deficit of 2. 8 per cent of gdp. in march the combined report on the economy and public finances estimated net borrowing at 2. 3 per cent. the planning document now projects it at 2. 1 per cent by comparison with the combined report, the revenue projection is revised upwards by more than €2 billion for the year, taking account of the better - than - expected revenues of the first few months. expenditure is revised downwards