Oireachtas Joint and Select Committees
Wednesday, 14 November 2012
Joint Oireachtas Committee on Finance, Public Expenditure and Reform
Scrutiny of EU Legislative Proposals.
The first item on the agenda is recording of decisions taken at the Sub-Committee on EU Scrutiny, Finance and Public Expenditure meeting immediately preceding this meeting. The following matters were agreed by the sub-committee. With regard to COM (2012) 206, proposal for a Council Directive amending Directive 2006/112 EC on the Common System of Value Added Tax as regards the treatment of vouchers, it was agreed that this proposal required no further scrutiny.
COM (2012) 336, proposal for a Council Regulation establishing a facility for providing financial assistance for member states whose currency is not the euro, it was proposed that this proposal required no further scrutiny.
COM (2012) 340, Draft Amending Budget No. 4 to the General Budget 2012 - general statement of revenue and statement of expenditure, Section III commission, it was proposed that this proposal required no further scrutiny.
COM (2012) 352, proposal for a regulation of the European Parliament and of the Council on key information documents for investment in products, it was proposed that this proposal required no further scrutiny.
COM (2012) 360, proposal for a directive of the European Parliament and of the Council on insurance mediation, it was agreed that this matter required further scrutiny and that further information would be brought before the committee.
In regard to COM (2012) 388, amended proposal for the Council Regulation laying down the multi-annual financial framework for the years 2014 to 2020, it was proposed that this proposal required no further scrutiny.
The following proposals were noted: COM (2012) 180, proposal for a Council Decision on the position to be taken by the European Union in the EEA joint committee concerning an amendment of Annex XXI statistics and COM (2012) 291, proposal for a Council implementing decision amending an implementation decision 2011/77 EU on the granting of EU financial assistance to Ireland and 2011/344 EU on the granting of EU financial assistance to Portugal.
Is it agreed to publicly record the decisions as made earlier today at the meeting of the Sub-Committee on European Scrutiny, Finance and Public Expenditure? Agreed.
We will now move on to item No. 6 on today's agenda, scrutiny of COM (2011) 819 and COM (2011) 821, which are known as the two pack regulations; COM (2011) 594, dealing with a financial transaction tax and COM (2011) 121/4, the common consolidated corporate tax base. Officials from the Department of Finance are here to assist members in scrutinising the above proposals.
During the first session, we will scrutinise COM (2011) 891 and COM (2011) 821, which are the two pack regulations. In this regard, I welcome Mr. Tony Gallagher and Ms Alice Smith, EU and International Division, Department of Finance. The committee will first hear a short presentation from the officials following which we will have a questions and answers session.
I remind all members to switch off their mobile telephones. I also wish to advise the witnesses that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence they are to give to this committee. If they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a person or persons or an entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable.
I now invite Mr. Tony Gallagher to make his opening statement.
Mr. Tony Gallagher:
I am accompanied today by my colleagues, Mr. John Palmer, Mr. Fergal Ó Brolcháin and Ms Alice Smith.
I thank the committee for the invitation to brief it on the Commission's two legislative proposals to strengthen further economic governance in the euro area. The two regulations are generally described as the "two pack".
We supplied the committee with notes on the two draft regulations earlier this year and we have updated them. Before turning to the specific points, I will comment on them briefly. The global financial and economic crisis that emerged in 2008 and the associated fiscal crisis that continues to threaten instability for the European Union and particularly the euro area have exposed shortcomings in the governance of the economic and monetary union. These events have highlighted the need for the EU and euro area to introduce a wide range of measures to reform the fiscal and economic governance system in place at the outset of the crisis.
The previous governance system was inadequate in that it was too narrow and shallow in scope and did not lead to emerging problems and imbalances being identified in time to head off the crisis or even lessen its effects. We could argue that the two pack proposals are coming rather late in the day but the justification for them is very strong. In the short term, these measures will contribute to restoring global confidence in the economic stability of the euro area and the EU as a whole. They will also make it difficult in the years ahead for the government of any euro area member state to adopt policies similar to those which led to the crisis without the dangers inherent in those policies being identified at an early stage, with measures taken to challenge and reverse them.
The main reform process began with Europe 2020, the EU's growth strategy for the decade ahead, which aims to make the EU a smart, sustainable and inclusive economy. This was followed by the European Semester, to which was added the Euro Plus Pact and the so-called six pack, which came into effect on 13 December last year. The six pack is designed to reform and strengthen the Stability and Growth Pact and introduce new macroeconomic surveillance. The two pack being discussed today is a further step in the process and is to a great extent a natural extension of the measures contained in the six pack. It is only applicable to euro area member states.
It is important to keep in mind that the two pack is part of a larger package of measures to enhance budgetary and fiscal co-operation within Europe. It has become increasingly clear from the high level debates taking place internationally that such measures cannot be divorced from the essential building blocks on which a genuine economic and monetary union should be based, such as an integrated financial framework and banking union.
Having reached agreement on the six pack with the European Parliament and European Council in autumn 2011, the Commission unveiled two pieces of additional legislation on 23 November 2011. These draft regulations are aimed at strengthening the existing surveillance mechanisms and promoting further economic integration and convergence in the euro area.
The first piece of proposed legislation COM (2011) 821, is on the monitoring and assessment of draft budgetary plans and ensuring the correction of excessive deficits. It will apply to all countries in the euro area, with special provisions being made for those subject to an excessive deficit procedure. This proposed regulation will require all euro area member countries to present the draft budgetary plans to the European Commission by 15 October each year. It will also give the Commission the right to assess these draft budgetary plans and, if necessary, to issue an opinion on them. It is also proposed that the Commission will have the power to request that a draft budgetary plan be revised should it consider the plan seriously non-compliant with the policy obligations in the Stability and Growth Pact.
All this will be done publicly to ensure full transparency. The regulation also proposes that closer monitoring and reporting requirements for euro area countries in an excessive deficit procedure will apply on an ongoing basis throughout the budgetary cycle. Euro area member states will be required to have in place independent bodies to monitor compliance with fiscal rules and base their budgets on macroeconomic forecasts that are independently produced or endorsed.
A second regulation, COM (2011) 819, on the strengthening of economic and budgetary surveillance, sets out explicit rules for enhanced surveillance. It will be applicable in three cases. The first is where member states face severe difficulties with regard to financial stability; the second is when member states are in receipt of financial assistance on either a precautionary basis or as part of a full-scale assistance programme; and the third is where member states have recently exited from such a programme.
The objective of this regulation is to strengthen economic and fiscal surveillance of euro area countries threatened with serious financial instability, as well as those which have recently exited from an EU-IMF assistance programme. In the case of euro area member states under a financial assistance programme or which face a serious threat of financial instability, it also aims to ensure that the surveillance process is robust, follows clear procedures and is embedded in EU law. Member states seeking financial assistance must produce and comply with a macroeconomic adjustment programme. If necessary, the Council may decide that a member state that does not comply with this programme should face financial consequences with regard to disbursements of the financial assistance.
This is a sketch of the two proposals and I will provide more detail on them. COM (2011) 821 is concerned with budgetary surveillance. The draft regulation introduces strong monitoring of budgetary policies for euro area countries through additional ex antemonitoring to run alongside the European Semester, which applies to all 27 member states. It also has increased requirements and close monitoring for euro area countries in an excessive deficit procedure. Under this regulation, a common budgetary timetable must be followed, with member states having to publish by at least 30 April each year the medium term fiscal plans in accordance with a medium term budgetary framework. They must include information that has in the past been published in stability programme updates.
The draft budget for the following year applies to central government and the main parameters of the draft budgets for all subjects of government must be published by 15 October, with full budgets adopted by 31 December. Article 5.3 of the draft regulation effectively requires the same information to be presented in a draft budgetary plan, the content and layout of which would be stipulated by the European Commission. This is to ensure that budgetary information for all euro area member states will be presented in a common format to the European Commission.
The regulation also provides that an independent body must be in place in each member state to monitor compliance with numerical fiscal rules. In addition, all medium term fiscal plans and draft budgets must be prepared on macroeconomic forecasts produced or endorsed by an independent body or a body which has functional autonomy from budgetary authorities. Article 6 of the draft regulation sets out the framework to apply in terms of the Commission's assessment of the draft budgetary plans. The Commission will be able to adopt an opinion on these plans, which must be delivered by the end of November at the latest. If a draft budgetary plan is particularly problematic, the Commission may, within two weeks of receipt, address an opinion to the member state requesting revisions to the plan.
Other provisions of the draft regulation include provisions for the closer monitoring of member states in an excessive deficit procedure which involves enhanced reporting. There are also provisions setting out the procedures to be implemented to require a member state to take corrective action to address excessive deficits and assess the suitability or effectiveness of those actions.
Ireland, along with other eurozone countries, agrees with the overall aims of the draft regulations. However, it is likely this will have implications for the timing of the budgetary process and it will be a matter for the Government to consider how future domestic processes will satisfy the requirements of the regulation.
However, with regard to the requirement for independent bodies, it should be noted that the Irish Fiscal Advisory Council, which will be established on a statutory basis following the enactment of the Fiscal Responsibility Bill, is already required to provide an assessment of the official spring and autumn economic and budgetary forecasts set out by the Government. As Ireland is under an EU-IMF programme, the elements in the draft regulation that relate to member states in excessive deficit procedures do not currently apply.
COM (2011) 819 is entitled “Draft Regulation of the European Parliament and of the Council on the strengthening of economic and budgetary surveillance of Member States experiencing or threatened with serious difficulties with respect to their financial stability in the euro area”, and its main features apply where a member state is either experiencing difficulties affecting its financial stability or is receiving financial assistance on a precautionary basis, and it provides for the Commission to make it subject to the enhanced surveillance process. Where a member state is under enhanced surveillance, it will have to adopt measures to address the causes of its difficulties in consultation with the relevant institutions, including the ECB and the IMF. The Commission may request such a member state to provide detailed data on financial institutions and carry out stress tests on them. The member state will also be subject to assessments of its supervisory capacity with regard to its banking system. The Commission and other institutions will carry out regular review missions of the member state under surveillance and, where further measures are needed, the Council may recommend that it takes appropriate action. Any member state that intends to seek financial assistance will have to inform the appropriate institutions, including the Commission and the ECB. A member state requesting financial assistance will be required to prepare a draft macroeconomic adjustment programme aimed at enabling it to return to the financial markets. This programme will be subject to approval by the Council.
A post-programme surveillance process will be put in place and maintained for a member state until a minimum of 75% of the financial assistance it has received has been repaid. Ireland is currently in an adjustment programme and so this draft regulation does not have any immediate impact on us. It will only affect Ireland when we come out of the arrangement, when we will still be subject to enhanced surveillance until we have repaid at least 75% of the assistance we have received.
The main intention of the reforms being undertaken in the economic governance process is to prevent member states reaching a point where they have no option but to seek to enter an EU-IMF programme. Accordingly, introducing a means whereby enhanced surveillance can come into effect before that stage - albeit when the member state is already experiencing significant difficulties - is desirable.
In terms of where the regulations are, ECOFIN, on which the Minister for Finance represents Ireland, reached agreement on a general approach on 21 February 2012. Since then, two European parliamentary reports - the Gauzèsreport on COM (2011) 821 and the Ferreira report on COM (2011) 819 - have been approved at committee level by the Economic and Monetary Affairs Committee of the European Parliament and voted on in plenary in June in respect of their content. We are still awaiting the vote on the final legislative resolution and they formally remain in first reading.
Since last July, an ad hocworking group on economic governance has scrutinised the European Parliament's amendments. In parallel, the Cyprus Presidency has had several meetings with the two above-named rapporteurs to seek common ground. In its Conclusions of 19 October, the European Council urged for the regulations, which it described as “key piece of legislation necessary for the reinforcement of the new economic governance in the EU”, to be agreed by the end of 2012 at the latest. Therefore, considerable efforts are being made to conclude the process by the end of this year. The two draft regulations are still works in progress because both are being negotiated between the Council - as represented by the Presidency - and the Parliament, with the assistance of the Commission with a view to coming to an agreement.
With regard to the current state of negotiations, almost all open issues seem to have been agreed on the budgetary surveillance - the Gauzès report - and we are hopeful of overall agreement shortly. Progress is also being made on the budgetary plans, detailed in the Ferreira report, but negotiations on these are more difficult. Ministers discussed the state of play regarding the legislative process at the ECOFIN meeting yesterday, 13 November. The Council adjusted its position in negotiations with the European Parliament on the two draft regulations in order to facilitate rapid agreement with the Parliament so as to enable the regulations to be adopted before the end of the year. There is the possibility of more trilogues in Strasbourg next week. I thank members for their attention. I and my colleagues are happy to provide the committee with whatever further clarity we can on these proposals.
Regarding COM (2011) 818, Mr. Gallagher states there are practical concerns regarding the requirements to base budgetary arithmetic on independent macroeconomic forecasts. He also said the draft regulation lacks detail. One of the concerns highlighted is that the independent macroeconomic forecasts can sometimes be in conflict with what is considered the official forecast. Do those independent commentators include rating agencies and others making macroeconomic value judgments?
Mr. John Palmer:
The way the regulations are drafted, the Government will have to make a decision on how to handle it. There is a range of possibilities. The Government could go to fully independently produced forecasts or it could go the route of endorsement. The endorsement route would mean the Department of Finance maintains its role of producing official forecasts and another body, more than likely the fiscal council, is required to endorse them. To some extent, that would have to be an iterative process but does not involve rating agencies.
There is an element of self-fulfilling prophecy to rating agencies. Countries can end up in certain circumstances after rating agencies have issued a rating because it sets the mood music. Is that part of the measurement process when it comes to independent agencies?
It will come as no surprise to the officials that Sinn Féin and I are opposed to the measures. We have discussed them in the Chamber in respect of their impact on democratic accountability and the ability of the Oireachtas to set economic policy. In my view, it ties us into a fiscal straitjacket. It is also part of the austerity programme within the Commission. During the debate on the Fiscal Responsibility Bill, I raised the point that the Oireachtas has the final say on approving or rejecting the budget produced by the Government. There is a responsibility on the Government to have an assessment of the budget's impact and its social and economic cost to the citizens. The same obligation does not exist within the Commission. The problem is that we have the implementation of a one-size-fits-all fiscal rule across Europe, regardless of whether the jacket fits. When this committee met with members of the Bundestag and other groups as part of a trip, one of the things that struck a chord was a German parliamentarian saying that Germany is devising rules it thought it could never get away with in its wildest dreams.
They are using this crisis to try to impose restrictions and conditions on member states which in my view are not in the best interest of this State.
I take issue with the statement in the note we were given that this proposal is really about information gathering - perhaps that was a reference made by another member state. The directive repeats the word "surveillance" and when these proposals are adopted that is what it will do. It is about deeper surveillance and allowing the Commission a deeper role in our budgetary proposals and process. That is the mood music of where I am coming from, but my specific question is the same as that of the Chairman. I heard what Mr. Palmer had to say with regard to the Department's concern about the requirement that the budgetary arithmetic and the forecasting be based on independent advice. I note the point that it could be in the form of approval. Regardless of which way we go - whether it is independent advice or a case of the Department providing the forecast and the Irish Fiscal Advisory Council approving it - the reality is that we are conferring responsibility for forecasting on the fiscal council. There are two options. We may go with the requirement to base our budgetary arithmetic on independent macroeconomic forecasts. If the Department does its forecast and the council rejects those figures, that leaves the final say to the council or some other agency. What would happen in a scenario in which the Department produced a macroeconomic forecast to which the independent body would not subscribe? Would this place an obligation on the Department to base its budgetary proposals on what the independent body - that is, the fiscal council - states? That is a major shift which raises questions about how the Department will be structured. If the Department no longer has this role, what are the implications for the configuration of the Department?
Mr. John Palmer:
I think the Deputy is working off the original information note that was issued prior to ECOFIN's first reading. At that point, the original text as proposed by the Commission only had the independent body option. In the first reading, Ireland, together with several other member states, managed to convince the Council that this was a bit restrictive, and the text adopted by the Council states "independently produced or endorsed". There was a concern that should an independent body produce, for example, a very optimistic forecast, this would put us in a difficult position in which we would be required to base our budgetary forecasts on what we viewed as an over-optimistic macroeconomic forecast, with consequent effects on revenue. We continually raised this issue with the Commission, making the point that such a forecast might even be in conflict with its own forecasts for the Irish economy. It recognised that this might happen and suggested there would be a logical iterative process between bodies, so whether one took the independent body route or the endorsed route, the Department would be able to cope. The object is to take away what it sees as the danger that existed in the past whereby member states, for whatever reason, adopted what it viewed as unrealistic forecasts. In response to the question of how to solve that problem, this is the formulation they came up with.
I agree with that. There is a need to be cognisant of what independent forecasters are saying. The forecasting ability of the Department in years gone by is well documented. I am not sure what the Department has done with the mid-term statement that is sitting in our pigeonholes but I am sure the forecasts have again been downgraded for this year and next year, and, if the trend continues, they will be downgraded again in the future.
Will Mr. Palmer take me through the key question about this proposal? I understand the Department will have two options: first, it can decide to ask the fiscal council for its macroeconomic forecast and then base the budgetary arithmetic on its forecasts; second, the Department can produce the macroeconomic forecast, as it does currently, and then seek the endorsement of the fiscal council. With regard to the latter option, that is fine if the fiscal council agrees to endorse the forecast, but what is the Department's position if it does not endorse it?
Mr. John Palmer:
As I have said, it is almost a negotiation process. We would have to work with them, although I emphasise that this is contingent on the Government choosing that route. The Government must still consider whether it wants to use an independent body or take the endorsement route, and whether it wants the independent body to be the fiscal council. We cannot pre-empt those decisions. The only logical outcome is that we would have to have what is essentially a negotiating process. One would not expect there to be a very precise cut-off point - that is, where the body states that the forecast for the next year is X and anything above that is wrong. One would be looking at whether things were reasonable or endorsable in the range.
If the fiscal council were doing this, its own credibility would be at stake. If its forecasts were widely different from those of all the other independent bodies - particularly the Commission, the IMF and so forth - it would be in a difficult situation. Ultimately, the way the regulation is set up and agreed by the Council is that we must base our budgetary forecasts on independent macroeconomic forecasts - that is, forecasts that are either independently produced or endorsed by an independent body.
My point is that if, for the purpose of this discussion, we take it that the fiscal council will be the independent agency - it may not be, but there is merit and sense to the suggestion - the buck will stop with the fiscal council. I understand the point Mr. Palmer is making that it can negotiate. However, if the fiscal council, after endless nights of negotiation, turns around to the Department and states it is still not willing to endorse its macroeconomic forecasts, then the Department is not in compliance with the regulation. I do not know how many staff are engaged in macroeconomic forecasting in the Department of Finance or what their role will be in the future, given that the Department will not be able to base its budget arithmetic on the forecasts it produces. At the end of the day it will be the fiscal council, for the sake of this argument, that has the final say.
Mr. John Palmer:
This is a matter that must be examined to decide what is the best way to go, but we see a big difference between the production of macroeconomic forecasts and an endorsement role. One is obviously a very significant role. The endorsement role consists of looking at the methodologies and at the data that is going in and deciding whether everything makes sense. The Deputy is setting up a scenario in which the Irish Advisory Fiscal Council insists on a hard position and we cannot come close to it. We just do not see that as being realistic, but ultimately the Deputy is correct: if we go in that direction, the regulation will require us to base our budget on macroeconomic forecasts that are endorsed by an independent body.
I thank Mr. Palmer for providing clarity on this. This is worth pointing out because we are dealing with Report and Final Stages of the Fiscal Responsibility Bill, which establishes the fiscal council. I believe this is a good thing in terms of independent advice; I do not agree with the advice it has given us, but it is good to have it. It represents a significant strengthening of the role of that body. If that is the body that will be giving independent advice, it will have a substantial role. Ultimately, when it comes to macroeconomic forecasts, the buck will stop with a number of individuals who are selected by the Minister for Finance, which is a crucial point. These forecasts have been wrong before; I know we overshot the last time.
The most recent growth forecast was downgraded twice before we were informed that the State had overachieved. Every prediction for economic growth has been wrong. In saying this, I am not criticising the Department as I understand that forecasting is difficult and all the independent agencies were also wrong. It is a major development when a group of individuals is given the power to have the budget of a state based on its say-so in terms of its macro-economic forecasts.
I welcome the officials from the Department of Finance. I will address the issue of macro-economic forecasts in a moment but first I welcome the legislative proposals. Irish taxpayers should be pleased that significant aspects of the rules that we, as a programme country, are obliged to follow will be applied to other countries. Perhaps some of the difficulties Europe has experienced by virtue of a lack of regulation in the past will be reduced, if not eliminated, by the proposed measures. It should be noted that much of what the Council has decided does not apply to Ireland and relates to other countries which are on the verge of entering a programme or experiencing some level of difficulty.
On the aspects of the proposal that relate to the repayment of 75% debt from European Union sources, we heard that these sources comprise the European Stability Mechanism, European Financial Stabilisation Mechanism, European Central Bank and multilateral loans. Do they also include what would be described as European bank lending? In other words, is there a difference between what is described in this proposal as "aid" a nation receives from European institutions and what could be described as borrowing from European institutions, including banks?
Irish debt percentages do not include the portion of our debt which arises from funding provided by the International Monetary Fund. While I should perhaps know the figure, what percentage of our current debt is from European Union sources? In other words, are we close to achieving the 25% threshold under which we would not longer be subject to supervision?
Mr. Fergal Ó Brolcháin:
The Deputy asked a question on the 75% figure. This refers to financial support lending from the EU funding mechanisms, namely, the EFSF, EFSM, ESM and bilateral loans from member states. It does not refer to instruments such as the European Investment Bank or liquidity provided by the European Central Bank to the banking system.
On our programme funding, we have currently drawn down 80% of our total programme funding and it is broadly in balance, in other words, we have drawn down 80% of the EU funding and 80% of the IMF funding. The latter is not covered by the proposal. The 75% limit refers to a repayment, which means a country will remain in enhanced surveillance until it has repaid 75% of the financial assistance it has received.
Mr. Fergal Ó Brolcháin:
No, enhanced surveillance could apply to countries that have emerging problems. A country with an emerging problem could be in enhanced surveillance. The 75% limit refers to the time post-programme when a country remains in enhanced surveillance. However, the regulation provides that enhanced surveillance could apply to countries with emerging problems.
Mr. Fergal Ó Brolcháin:
I would not like to reference any particular member state. If one looks at the intention of the measure, it is obviously forward looking. It is, in one sense, looking at the experience leading up to the time when this problem erupted and the view is that if we had been in a position to take certain actions along the lines provided for, some of the problems may not have arisen. It looks at the matter in this way and projects it forward to be used to develop an instrument to deal with this type of issue in future.
I will skip through two other areas as the Chairman is very strict with time. What is the difference between the surveillance that would be in place after a country leaves a programme compared with the surveillance currently applied to Ireland by the troika?
Mr. Fergal Ó Brolcháin:
From a European Union perspective, enhanced surveillance is still being developed, as it were. For this reason, it is not clear to what the regulation refers. While it does not provide for a particular timeframe, it refers to regular surveillance. To take the approach adopted by the International Monetary Fund as an example, the IMF also has post-programme surveillance but it runs these twice yearly. If one were to take this as an indication of what might be done, surveillance could involve twice-yearly visits. The IMF examines a considerably reduced number of indicators, including fiscal balance, economic performance and balance of payments and does so on the basis of ability to repay. I expect, although we cannot be definitive in this regard at the moment because the operational aspects of the proposal need to be developed, that the EU enhanced surveillance would adopt a similar approach. I do not expect quarterly visits.
It would not be good news for the Merrion Hotel if the delegations were to visit less frequently.
On the independent macro economic forecast, there are different types of forecast. Can the Government choose which independent forecaster to use or must it advise the relevant authorities in advance? In other words, could it nominate the Irish Fiscal Advisory Council as its designated body whose forecasts it would support or endorse? Alternatively, would some form of auction take place, with different independent groups being called in to ascertain which of their forecasts would most closely mirror those of the Department? Could different elements of different macro-economic forecasts be used? For example, could the Government use the growth rate of one forecaster and the unemployment level of another forecaster?
Mr. John Palmer:
Independent macro economic forecast means, according to the regulation, the macro-economic forecast produced or endorsed by independent bodies. I do not believe there is scope to split up the forecasts. There is one difference, however. There is a reference in the regulation to independent macro economic forecasts and another reference to independent budgetary forecasts. We must also indicate in the case of the latter that they were either independently produced or endorsed. I do not believe there is much scope to split up forecasts.
Mr. John Palmer:
Absolutely. Once the regulation is adopted the Minister and the Government will have to decide exactly how they want to satisfy the requirements of the regulation. As I have said there is a wide range of models ranging from the UK where the office of budget responsibility took out of the Treasury the entire macroeconomic forecasting and made it independent. That is one approach and potentially a way we could go. Alternatively, we could go with an independent body, endorsing it. More than likely we would be looking at the fiscal council but that is a decision to be made. Under the Fiscal Responsibility Bill, as Mr. Tony Gallagher said in his statement, the fiscal council already has, on a non-statutory basis, a function of assessing our forecasts. That is what the Bill provides for. We did not want to pre-empt the adoption of this regulation by putting in anything else there.
I welcome the officials and thank them for appearing before the committee. I wish to check with Mr. Tony Gallagher the various rules of the Stability and Growth Pact, Article 4, paragraph 1, numerical fiscal rules. I should know this, I apologise. Is it correct that one of those is the 3% budget deficit? Is the debt brake also included in that?
Many of these rules are very sensible. It is an awful indictment of politics in Ireland that we have to do this as it is exactly what we should have been doing for years. I would much prefer the Department of Finance to play this role than a group of removed bureaucrats, no matter how good, in Brussels or wherever. Who will do the analysis? When the Government submits its budget in mid-October, I presume there is a group of technocrats sitting in Brussels who will put our budget through the wringer. Who are they?
Mr. Tony Gallagher:
The EU Commission and I expect the Irish desk, the people who have most information on the Irish economy and who are in frequent contact with the Department of Finance and who know a great deal about the economy. They will be looking at the budget from a technical point of view to ensure it is within the SGP parameters. In reference to what Deputy Doherty said, if they refer an opinion back to the Irish Parliament, they will not have any power to change the composition of the budget, they will be seeking to keep the budget plans within the SGP parameters?
Who are these people? For whom do they work? What unit are they? What is the level of oversight? What expertise do they have? What access does the Oireachtas have to vet them? Who is this group of technocrats?
Great. Perhaps Mr. Gallagher would do that. I agree with something Deputy Doherty said. This is a very substantive loss of sovereignty to the State. I am very comfortable with the Department of Finance doing the analysis. This reinforces for me that these are faceless, invisible, anonymous technocrats somewhere in Europe doing analysis of our budget which I believe is the remit of the Department of Finance. I would be obliged if Mr. Gallagher could let the committee know who these people are. I would like to see their qualifications. I want to know who they are. Ideally, I would like to meet them. I would like to know what input the State has into their hiring and firing and who audits them. These are important questions. These people will have tremendous power over Government decisions here.
I have been reading the various articles. There is much emphasis put on the Government supplying the technocrats with very detailed breakdown of expenditure and revenue. Is it Mr. Gallagher's view that these technocrats will form an opinion not just on whether we are compliant with the various rules but on whether they believe it is a healthy mix? For example, could they say that even though we are compliant, they think we are spending too much on roads and not enough on schools?
Mr. Tony Gallagher:
May I respond to that question? As I tried to say earlier, the opinion will be based on whether the draft budget is in line with the requirements of the Stability and Growth Pact and recommendations of the European semester before the budget is adopted. It does not give the Commission the power to change budgetary plans and they will not comment on the mix. The idea is that they want to inform the stakeholders at an early stage with information that will equip them in the course of the national budgetary process to make informed decisions. Deputy Donnelly said the proposals are an indictment of the Irish political system. They apply to everybody in the euro area and we signed up to this specifically under Article 136 of the Lisbon treaty.
We did to a point, but this goes much further than that. For example, I very reluctantly endorsed a "Yes" vote on the fiscal compact. My biggest concern was the structural deficit. That is absolutely new. It means that the 60% debt to GDP becomes completely irrelevant because the structural deficit mathematics show that the debt to GDP ratio actually is one over X, where X is growth. If growth is at 4%, the debt to GDP target is not 60%, it is 25%. To hardwire that kind of economics into any law is very dangerous but I guess that is neither here nor there.
Mr. Gallagher said they will not comment on the mix but they will comment, if I understand this correctly, on our adherence to medium-term objectives. The medium-term objectives most definitely get into areas such as investment in human capital, investment in physical infrastructure, and whether we are on a stable growth trajectory. Is it not, therefore, reasonable to assume that the Commission might say we have 20 boxes to tick for compliance, for which it is giving us green light? However the Commission could also say that Ireland is setting itself up for failure as it is massively under-investing in education and will miss its medium-term objectives even though in compliance with the various fiscal rules. Am I correct in thinking it is Mr. Gallagher's understanding that they would not make such comments?
May I get Mr. Gallagher's opinion on enforcement mechanisms? We can have what, I hope, will be a useful conversation with the European Commission about the budget to make it as healthy as possible. Ultimately if, having got the Commission's opinion, we fundamentally disagree and are going ahead with the budget as proposed, what power of enforcement does the European Commission have?
Mr. John Palmer:
Under the regulation, none per se, but if it is right and we press ahead, then under the Stability and Growth Pact, if we end up with an observed significant deviation from our MTO or from the adjustment path towards it, the warning from the Commission will kick in, coupled with recommendations to the Council to take actions within six months of the warning. If a member state does not take effective action within the relevant deadline, the Council can make a decision of non-compliance, and that is when the sanctions process kicks in, with an interest-bearing deposit of 0.2% of GDP of the preceding year, which is put in place on the basis of reverse QMV. In other words, a qualified majority vote is needed at Council to overturn the Commission's recommendation. It should be borne in mind that this is subject to exceptional circumstance and all the various other safeguards. That is where it kicks off. If, further down the road, the member state ends up in an excessive deficit, there are non-interest-bearing deposits, and if it continues to fail to take action, there are fines and then possibly annual fines.
Mr. John Palmer:
If we continue to ignore its officials and they are right and we end up in excessive deficit, then the interest-bearing deposit will become a non-interest-bearing deposit. The State is then carrying the cost of that money, and if it does not abide by the advice of the officials and take the recommended actions, the interest-bearing deposit turns into a fine, which can turn into annual fines. Ultimately - this is where it ties into the surveillance regulation - if a state continues down that road, it is unlikely to be able to raise money on the markets, so it will probably need to look for assistance and then it will be into a macroeconomic adjustment programme, which is effectively where we are now. There are no particular sanctions because the EU has the ultimate sanction of not disbursing money.
I thank the officials for attending and for explaining and elaborating on these arrangements. Deputy Doherty referred to the tension there might be between the Department, endorsed by the Irish Fiscal Advisory Council, and an outside agency on growth forecasts. Is it possible that we could get an transparent outline framework of the model assumptions for growth? It is an area that resembles a blizzard. We are told what the Department's growth forecasts are but no one has an idea of the outline framework of the model used to produce them. The ingredients for arriving at the forecasts are presumably the same. They are the measurable elements of economic activity, but they go into a framework of modelling that will produce different outputs depending on where the twists and turns are in it. Is that not correct? We are all able to make Lego, Airfix and Meccano models. The public deserves an outline framework of what the models are built on.
Deputy Donnelly asked who are the bureaucrats in Europe and what qualifications they hold. These are good questions because we are told the aim is to adhere to the Stability and Growth Pact objectives in the medium term. The simple parameter is a 60% ratio of debt to national income or GDP. I do not know if the case has been made sufficiently relevantly for Ireland that national income, which applies to the indigenous economy, is different from the gross domestic product of a depot economy, as in the old British Empire, which had the East India Company in parts of India and so on. Multinationals generate goods and services in this country and debt-to-national-income is a different equation from debt-to-GDP.
The Commission is not too concerned about the composition of the budgetary mix as long as Stability and Growth Pact targets are in prospect. When penalties begin to kick in or adverse report card comments are made, quite apart from the measurement under this arrangement taking cognisance of the fact that the state is falling down, the rest of the world and his wife knows that such a country is in troubled waters anyway and will be unable to raise money. It is an academic and unnecessary exercise. Does Mr. Palmer have a comment on these thoughts?
Mr. John Palmer:
With regard to the Deputy's question about methodologies, assumptions and so forth, there is in the draft regulation a requirement that these macroeconomic and budgetary forecasts be made public together with the documents they underpin, so they are in our draft budget for central Government, which had to be done by 15 October. Furthermore, in the draft budgetary plans, which are slightly different and which we will not be subject to next year because we are in a macroeconomic adjustment programme, we must set out the methodologies and so forth. I draw attention to the six-pack, which comprises five regulations and one directive. The directive is on budgetary frameworks and it must be transposed by the end of 2013. It is something we will do next year. It states: "Member States shall specify which institution is responsible for producing macroeconomic and budgetary forecasts and shall make public the official macroeconomic and budgetary forecasts prepared for fiscal planning, including the methodologies, assumptions, and relevant parameters underpinning those forecasts". When we transpose the directive and this regulation comes into play, hopefully that will satisfy the Deputy's curiosity because the methodologies, assumptions and everything else will have to be out there.
I welcome Ms Brenda McVeigh, Mr. Liam Smith, Mr. Jim Byrne, Ms Martina Shaughnessy and Ms Ilona McIlroy from the Department of Finance. There will be a short presentation to the committee which will be followed by a question and answer session. I remind all present that all mobile phones must be switched off.
By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence they give this committee. If a witness is directed by the committee to cease giving evidence on a particular matter and the witness continues to so do, the witness is entitled thereafter only to qualified privilege in respect of his or her evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise nor make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice that they should not comment on, criticise or make charges against a person outside the House or an official by name in such a way as to make him or her identifiable.
Ms Brenda McVeigh:
I thank the committee for the invitation to attend today's meeting to discuss the details of the European Commission's financial transaction tax, FTT. The European Commission issued a press release in September 2011 to present a proposal for a FTT. The tax would be levied on all transactions in financial instruments between financial institutions when at least one party to the transaction is located in the EU. The exchange of shares and bonds would be taxed at a rate of 0.1% and derivative contracts at a rate of 0.01%. The Commission estimated the FTT could raise approximately €57 billion every year. This estimate was on the basis that FTT would issue in all member states. However, members will be aware that this will now not be the case. The Commission proposed that the tax should come into effect from 1 January 2014.
The Commission decided to propose a new tax on financial transactions for two reasons. The first was to ensure the financial sector makes a fair contribution at a time of fiscal consolidation in the member states. The financial sector played a role in the origins of the economic crisis. Governments and European citizens at large have borne the cost of massive taxpayer-funded bailouts to support the financial sector. Furthermore, the sector is currently under-taxed compared with other sectors. The proposal for a FTT would generate significant additional tax revenue from the financial sector to contribute to public finances. The second reason is that a co-ordinated framework at EU level would help to strengthen the Single Market. Today, several member states, including Ireland, have in place a form of FTT. The proposal would introduce new minimum tax rates and harmonise different existing taxes on financial transactions in the EU. This will help to reduce competitive distortions in the Single Market, discourage risky trading activities and complement regulatory measures aimed at avoiding future crises. The FTT at EU level would strengthen the EU's position to promote common rules for the introduction of such a tax at a global level, notably through the G20.
The revenues from the tax would be shared between the EU and the member states. The current proposal is that part of the tax would be used as an EU own resource, which would partly reduce national contributions. Member states might decide to increase their share of the amount collected by taxing financial transactions at a higher rate. Members of the committee may be aware that the issue of how revenue from the tax will be allocated is still up for discussion.
At the ECOFIN meeting in June of this year it became clear that an EU-wide FTT would not be agreed, and those countries who favour the tax will now try to introduce it by way of enhanced co-operation, in which at least nine countries must participate. This requires those countries to write to the Commission asking it to produce a formal proposal for such a directive. Eleven countries - Germany, France, Austria, Belgium, Portugal, Slovenia, Spain, Italy, Slovakia, Estonia and Greece - have written to the European Commission to this effect. On 23 October 2012, the Commission submitted its proposal for a Council decision to authorise enhanced co-operation in the area of the FTT.
Under the terms of the Commission's original draft directive, the FTT would have applied to financial transactions which were carried out by a financial institution established in the EU, or by a financial institution that was not established in the EU but transacted business with another EU financial institution or was acting on behalf of a person who was established in the EU, whether the institution was acting for itself or for a third party. The tax would have applied whether the transaction was undertaken in a regulated market, over the counter or as an inter-group transaction. The term "established in the EU" has a broad meaning. It includes financial institutions from outside the EU which transact business with an EU-resident person, company or individual. This is a specific mitigating design feature in order to respond to the risk of relocation. The terms “financial instrument”, “derivative” and "financial institution" are drafted very widely and cover the vast majority of transactions in financial instruments. However, many financial activities are not considered to be financial transactions in the context of the FTT, which follows the above-mentioned objectives. Share and bond issues and most day-to-day financial activities relevant to citizens and businesses remain outside the scope of FTT, as do insurance contracts, mortgage lending, consumer credits, payment services etc. Also, currency transactions on spot markets are outside the scope of the FTT, which preserves the free movement of capital. However, derivatives agreements based on currency transactions are covered by the FTT since they are not currency transactions as such. In addition, the issue or redemption of shares or units in an undertaking for collective investment in transferable securities, UCITS, or alternative investment fund will be liable to the FTT.
We have not yet received a revised Commission proposal for the enhanced co-operation FTT. While the enhanced co-operation countries have requested the objectives and scope be based on the original Commission proposal, we understand the Commission is considering whether some adjustments are required to their original proposal to reflect the smaller number of member states that would be applying it.
The Economic and Social Research Institute, ESRI, and the Central Bank were requested to prepare an assessment of the FTT as drafted by the Commission. This report was circulated to Oireachtas Members and published in July. Given the wide variation in the estimated revenue yield from a FTT when different factors are taken into account and the uncertainty as to the form the tax would take, the report states that more detail would be needed on the final shape and scope of the tax before a definitive conclusion could be reached about its impact on the Irish financial system and taxation revenue.
The report indicates that the net revenue gain for Ireland from the introduction of a FTT is likely to be modest. Based on assumptions used by the Commission, the report estimates the potential yield from the FTT to be between €490 million and €730 million. Under the Commission's proposal, two thirds of this yield would have gone directly to the EU to fund its budget. If the EU retained two thirds of the yield, on the basis of the yield estimates in the ESRI-Central Bank report, the net yield to Ireland would be in the region of €163 million to €243 million - not dissimilar to the current yield from stamp duty on share transfers, which was €195 million in 2011. Ireland would have been forced to abolish this if it were to introduce a FTT.
The report identified some disadvantages and potential disadvantages to the introduction of a FTT. The first was the impact on the financial sector.A FTT could displace financial sector activity, especially when alternative locations are readily available - in this case the UK. This would pose a real risk to Ireland given that the financial services sector accounts for 10% of GDP and approximately 33,000 jobs. The second was the macro-economic impact: a FTT would probably lead to a lower level of economic activity in the financial sector, which might also result in lower receipts from income tax and corporation tax. The third potential disadvantage was the impact on the Exchequer. A stamp duty of 1% applies to transfers of shares in Irish companies. The Commission's proposal would involve the abolition of this tax and the loss of existing stamp duty revenue, approximately €195 million in 2011.
Ireland will not be among those countries participating in the FTT by enhanced co-operation. Ireland's position is that a FTT would be best applied on a wide international basis to include the major financial centres. If it cannot be introduced on a global basis, it would be better if it were introduced on at least an EU-wide basis, rather than only in the eurozone. This would prevent any distortion of activity within the Union. This is in line with the Commission's desire that the tax should be applied on a global basis. Such an approach would avoid the risk of activities gravitating to jurisdictions where taxes are not levied on financial transactions. A FTT could affect the financial services industry, especially in the IFSC, and lead to some activities moving abroad, particularly if it were not introduced on an EU-wide basis. A FTT could affect transactions in Irish Government bonds, particularly in the secondary market, and may also affect the ECB's ability to give effect to its own monetary policy via the repurchase or repo market. A number of countries such as Sweden and the UK have also raised this point in respect of their own debt management. Of concern to us is the Commission's own projection that a FTT could reduce EU growth and raise the cost of using financial products for ordinary non-financial companies.
Both of these aspects would be harmful to EU recovery.
As previously indicated, the introduction of the FTT would have required Ireland to abolish its current tax on financial transactions, which is a stamp duty on transfers of shares in Irish incorporated companies and which currently stands at 1%. One of the Commission's aims in introducing a FTT is to ensure that the financial sector makes a fair contribution to the cost of the crisis. Ireland is committed to the principle that the banks will contribute to the cost of State support. The banks have been charged for the Government's guarantee of their liabilities and the National Asset Management Agency Act provides for a surcharge on the banks should NAMA result in a loss for the taxpayer. The Central Bank and Credit Institutions (Resolution) Act 2011 provides for the introduction of such a levy on authorised credit institutions, which would be paid into a bank resolution fund.
The Minister for Finance has stated that Ireland is not in favour of a FTT as an own-resource measure. Ireland has traditionally opposed the concept of an EU-wide tax and believes that the financing of the EU budget should continue to be mainly based on gross national income. There have been suggestions that revenue from a FTT could be used for a particular policy goal such as development or climate finance. Ireland has traditionally opposed the hypothecation of tax revenues - that is, the dedication of all or part of the revenue from a specific tax to a particular purpose - as this may restrict the use of such revenues for public policy purposes as the Government sees fit.
A total of 11 countries have written to the European Commission requesting a proposal for a FTT by enhanced co-operation. On 23 October the Commission submitted its proposal for a Council decision to authorise enhanced co-operation in the area of FTT. The Council will be obliged to decide on the matter after consent from the European Parliament. A subsequent Commission proposal for a directive implementing the enhanced co-operation in the area of a FTT should follow in due course, although the timing of this is not clear. Ireland will not be among the participating countries but the Minister has said that we will not stand in the way of those who want to introduce a FTT under this mechanism. Our non-participation in the new enhanced co-operation initiative is consistent with the position we have taken to date on the Commission's FTT proposal.
The enhanced co-operation mechanism is relatively new. This will be only the third measure in the EU to proceed by way of enhanced co-operation - if it does proceed - and the first in taxation. We have concerns about the enhanced co-operation procedure, not only in principle but also because this is the first occasion on which it will be used for tax purposes, due to a lack of clarity on what this means in practice.
Officials from the Department of Finance and the Revenue Commissioners held separate meetings with officials of the European Commission and the European Council recently to discuss the procedures for the introduction of a FTT through enhanced co-operation. The Commission is working on a revised proposal in advance of the Council vote to allow enhanced co-operation for a FTT to proceed. However, at a recent COREPER meeting, Council legal services stated that the Commission cannot present a proposal until it has authorisation from the Council that enhanced co-operation can proceed. Also, once consent to proceed with enhanced co-operation is given by the Council, the enhanced co-operation countries could change the scope of the FTT, so long as the revised proposal meets with the general principle of the original proposal - that is, to impose levies on financial transactions. Therefore, the non-participating countries would be up-front in agreeing to the introduction of a FTT without knowing what shape it might finally take. Obviously, Ireland and the 15 other non-participating countries are seeking clarification about this procedure. This also has implications for Ireland in chairing meetings under the Presidency and acting as an honest broker for both participating and non-participating member states.
The Council vote on whether to allow the participating member states to proceed with the introduction of a FTT by enhanced co-operation will be by way of qualified majority voting, QMV. This requires at least 255 votes in favour, representing a majority of the members, where the proposal is from the Commission. In addition, a member of the European Council or the Council itself may request that where an Act is adopted by the European Council or the Council by a qualified majority, a check is made to ensure that the member states comprising the qualified majority represent at least 62% of the total population of the Union. The qualified majority is of all countries, including those which abstain and not just those which vote for and against.
We will continue to monitor discussions on the FTT to ensure the compatibility of any proposed measure with the internal market and with existing taxes on financial transactions. We are anxious to avoid double taxation of transactions. For example, a transfer of shares in an Irish-registered company which involved a financial institution in an enhanced co-operation country could be subject to both Irish stamp duty and a FTT. Ireland is likely to be chairing meetings on an enhanced co-operation FTT during its EU Presidency from January to June next year. We will facilitate the discussions but we will also be seeking to ensure that the concerns of non-participating member states are addressed. We are anxious to obtain clarity about the procedure, particularly in the context of chairing meetings during our Presidency.
Members may also be aware that there was a "state of play" discussion at yesterday's ECOFIN meeting, which was attended by the Minister for Finance. At that meeting, the Commission presented its authorising mandate for enhanced co-operation and indicated that it is working quickly on the draft proposal. The new Minister from the Netherlands indicated that his country would consider opting in to the enhanced co-operation procedure subject to three conditions. The Council legal services advised that the Commission could only table the proposal after the vote had been taken. The Presidency indicated that it would proceed in a practical way and would first wait for the decision of the European Parliament - which we expect in December - before proceeding.
I thank members for their attention. We will be happy to respond to any questions they may wish to pose or observations they may make.
I thank Ms McVeigh and her officials for coming before us to discuss the Council directive and the Council decision. I apologise for being absent when she was making her opening statement but I was obliged to be present in the Dáil Chamber.
The Minister for Finance came before the committee last week and addressed this issue. Is Ireland's position on this matter that the jury is still out, or have we taken a definitive decision to the effect that we are not participating?
Ms Brenda McVeigh:
The position is that, assuming the enhanced co-operation proceeds, the Commission will be obliged to come forward with what will probably be a revised proposal for a FTT. If it does so, Ireland will not be involved at the outset but it will retain the option to opt in if something is brought forward with which we believe we can live.
Ms McVeigh stated that stamp duty is the measure by means of which income is derived from the financial services sector at present. Other than the application of stamp duty to shares, what mechanisms are available in this regard in respect of the IFSC?
I will continue with my questions on this matter before inviting members to contribute.
A host of transactions are taking place in the IFSC and other financial institutions across the globe. One of the reasons Ireland has a financial services centre - and the reason all of these transactions are not emanating from London instead - is that ours is an English-speaking country in the eurozone. As such, we occupy a particular location on the economic map of Europe. As this matter moves forward, will the Department be examining the level of transactions in which Ireland currently engages with the countries that are to participate in the enhanced co-operation mechanism? Does it intend to calculate the revenue for Ireland from its transactions with those countries in the first and second quarters of next year? Although the Department has provided an estimation of the projected income, if we engage in an exercise such as that to which I refer and identify the revenue that will be foregone by not imposing a tax on these transactions, we could obtain an idea of the real income level involved.
Ms Brenda McVeigh:
I suggest we would always monitor developments in regard to any draft directive that would impact on our financial institutions but first and foremost the Commission's proposal was not supposed to be introduced before 2014. Even if this proposal was introduced without any adjustments being made to it, there are so many unknowns in it about where the FTT would impact and on what type of financial instrument it would impact. It would have been difficult to have said that we would monitor how those transactions are occurring because we could not say today what types of transactions would be affected by the FTT as it is currently drafted.
To return to earlier comments on information on accountancy measures and revenue streams that become available at a European-wide level, it would be possible to find out what the Estonian and German revenue from these streams are just as we have income and VAT figures for the first quarter and the second quarter of the year. Is it an assumption or an identified measure that the Department of Finance would calculate what the revenue would be from this proposal? If the Germans were to get X from this from Irish transactions, we would know what Y was, what we should be getting? Will the Department be carrying out that examination?
Ms Brenda McVeigh:
Once the proposal is in place and once we know the types of transactions are involved, it would become clearer what we could do. We would have to see what is being affected and what access to information we have. If we had access to information we would try to access it to keep an eye on this.
I will be brief. I thank Ms McVeigh for her presentation on the FTT. The Government's approach to this is the right one maybe for the wrong reasons but its approach in terms of opposing the tax in the format being suggested is definitely the right one. Also, in her presentation she said that the Government believes that it is best that the EU budget is funded through own resources and not through a tax-raising measure. The idea of a financial transactions tax is one Sinn Féin supports. We have supported the concept of a financial transaction tax on a global basis or on a European-wide basis. We have supported the idea of a Tobin tax and this is where we differ from the Government in that we believe it should be focused on addressing poverty and inequality. I note Ms McVeigh said that traditionally Ireland has been opposed to the hypothecation of tax revenues, dedicating a part of revenue for a specific tax for a specific purpose. Many taxes are raised in this State for specific purposes. We have just had the introduction of the household tax which we are told is to be put into a local government fund. If the Government leads on the principle of having a tax that would be focused on addressing poverty and inequality, that would be fine and it is the right position to oppose enhanced co-operation. The idea that the Commission would have an independent stream of revenue to fund its own programmes is wrong. This country has a long tradition of being a champion in addressing poverty and inequality internationally but, unfortunately, in our State the statistics are getting worse for our own people. There is an onus on the Department to not only assess what other models are coming before the Commission or what other member states are saying but also to present its own proposal on this. I am conscious of the fact that the Europe-wide FTT is not on the table. I would be interested to hear what measures the Government is taking to steer a tax that would be acceptable to the Government. What proposals is it putting on the table other than only reacting to the proposals coming from the Commission or from other member states?
The Chairperson mentioned the possibility of an opt in and opt out to this proposal in terms of enhanced co-operation at a later stage and while I accept the fact that the FTT could be restructured depending on which members are included and that it could be decided to proceed with this, fundamental points have been outlined in terms of the Government's position, namely, that it is opposed to a non-EU-wide tax being levied and opposed to the Commission using this as a source of funding. I am not sure what kind of scenario could unfold that those two criteria could be satisfied. Ms McVeigh might outline to the committee the tests the Government might have in that respect and if those tests would measure any proposals The Government is taking the right position on this maybe for the wrong reasons but it is the right position. I would like the Government, even though it might not be successful, to lead on the idea of introducing a global financial transaction tax. Unless countries like ours make those demands, we allow others to steer the debate. Even if we are not successful at this time, hopefully some day we will get a consensus that a type of Tobin tax should be introduced to address issues around poverty and inequality and it is probably on that focus my party and the Government would disagree.
Ms Brenda McVeigh:
On what the Government might be doing in trying to lead proposals, we have said repeatedly that we have a stamp duty model in place. It is a very steady test and stream of revenue income. France introduced stamp duty last August, we think Spain is about to introduce stamp duty and the UK has a stamp duty model in place. It is a tried and tested model. We have suggested that a stamp duty model is something the Commission should examine putting in place in a harmonised way throughout the countries. It would have to be teased out a little bit further but it is a successful stream of revenue for a number of member states and something we believe should be examined as well.
On the tests for opting in and opting out of the proposal, it needs to be highlighted that 11 countries to date have indicated they will opt in to the enhanced co-operation procedure. That means 16 countries have opted out. On balance, it appears we have adopted a reasonable position in saying that this needs to be further examined, especially in the area of tax. As to whether this proposal has been teased out enough, we have been open in saying that there are gaps in the current proposal and that it needs further testing. We would welcome sight of an impact assessment of even the FTT proposal that is on the table never mind one that might come forward eventually probably sometime during our Presidency. There is enough camaraderie, for want of a better term, among the 16 countries that have opted out, which are all singing from the same hymn sheet, perhaps for different reasons as the Deputy said, in saying this needs further discussion.
With the indulgence of the Chairman, I have two final questions. There is a proposal for enhanced co-operation to which 11 member states have opted in. Has an assessment been carried out by the Department or has it asked anybody else to carry out an assessment of what impact, positive or negative, enhanced co-operation on the basis of the proposal on the table could have for Ireland? I know an assessment was done in regard to the FTT generally but if the proposal proceeds what impact would that have on those states which have opted out of it?
There is a huge issue in terms of the Commission's legitimacy and accountability in that it should not have the power to have an independent revenue source. I would like to hear that the Government believes that this is an issue for it. I know it is outlined in the statement that the best way to fund is through the member states' contributions based on the model that is there. The FTT would be a major change if the Commission was to have an independent revenue stream. It does not have that political legitimacy. I do not believe anybody could dispute that because its members are not directly elected.
Ms Brenda McVeigh:
On the question of the impact, we have not done or even tried to do any impact assessment of how this proposal might affect Ireland if it pans out that the 11 go forward.
At the moment we feel that it is difficult for us to do that, again, because there are so many unknowns in the current proposal and bearing in mind that we have had a level of clarity from the Commission and the Council that suggests that the current proposal does not have to be the one that even the 11 are signing up to. Currently, even the 11 countries are in some way going to sign up to the unknown because the final proposal must meet with the general principles of a financial transactions tax, FTT, which means that there must be a tax or levy on financial transactions, and to some extent there is also a regulatory aspect to the issue as well. In meeting with those general principles the Commission can come forward with proposals that might not at all reflect what is in the current proposal. Therefore, it is very difficult to ask us to carry out an impact assessment on what might be a complete unknown.
Ms Brenda McVeigh:
It is very difficult to say. Currently, 16 countries are not opting into the agreement and multiple difficulties have been flagged by various countries. Malta has brought forward an interesting paper and the United Kingdom has been vocal in its opposition to the tax. If the Commission and the member states want all member states to go forward with a tax there cannot be any doubt but that adjustments will have to be made to the current proposal.
I too welcome the officials to the meeting this afternoon. The issue definitely falls under EU scrutiny because the Government has made it clear that as a country we are opposed to the financial transaction tax. It is clear that approximately 60% of the countries within the EU share that position. We should not have any insecurity in that regard.
To follow on from the previous question, it is noteworthy that a large number of eurozone countries are proceeding with the FTT. It would have to be a corollary of the argument that if the reason we are not proceeding with it is that if we did we would lose jobs then there must be potential to attract jobs by virtue of the fact that we will be one of a small group of eurozone countries that will not have such a tax.
I watched a British parliamentary committee grilling three chief executives from Google, Amazon and Starbucks. Specific mention was made of this country's corporation tax and the fact that they were appalled that those companies were paying their corporation tax in Ireland. Amazon is based in Cork and Google is in Dublin. It seemed to me that they were very much speaking out of both sides of their mouth because when it comes to a FTT, they are more than happy to protect their own companies that are based in London. I hope we would never see reputable companies abused in an Oireachtas committee in the way that happened to those companies. They are more than welcome to continue to move en masse from the United Kingdom to this country.
In regard to the proposed proportionality of the revenue that could be gleaned from a financial transaction tax, it is said that it would be shared between the EU and the countries concerned. What is the proposed proportionate distribution between the European Union and the country the tax is generated from?
Two thirds to the European Union and one third to the member state. Would it be proposed that if we were to proceed we would have to abolish our current stamp duty position on shares or would it be another tax?
I thank the witnesses. I have a keen interest in this issue. I would like any decision we make on FTT to be research-driven and evidence-based. A total of 33,000 people work in the financial services centre and it has been suggested that 3,000 of those could be affected if an FTT is introduced. That said, I maintain the need for research and for decisions to be evidence-based on whether such a tax would affect the economy.
Ms McVeigh mentioned the possible effects of the introduction of such a tax compared to losses in stamp duty revenue. Reference was made to between €163 million and €443 million. She indicated that because this country would have to abolish stamp duties the effect of the changes would be revenue-neutral.
We seem to get half-truths from both sides on the financial transaction tax rather than the full picture. As an elected parliamentarian I am keen to get the information rather than a piece of information that suits one particular side of the argument. What Ms McVeigh said appears to be a partial truth because it does not equate with the contribution we make to the EU and the reduction in the budget.
Okay, I just wanted to be clear on the matter because it is difficult to ascertain the facts from either side. Each group only gives half of the story. The financial transaction tax is portrayed as a tax. Is it not also a tool to encourage growth and reduce the boom-to-bust cycle? I refer to putting a control into high frequency trades, HFTs. Reducing the number of HFTs would reduce the damage it does to the European economy. Is that correct?
Ms Brenda McVeigh:
There is an argument to be made both ways. As Deputy Humphreys is aware, trading on the secondary markets could be affected by an FTT. The repo market could also be affected. One must take that into account and whether it would restrict markets if we do not have access to them any longer. Derivative contracts must be taken into account also.
If Ms McVeigh does not wish to respond to the next question that is fine but I am interested in learning from her experience. High frequency traders sometimes carry out large trades over a particular day which have a massive impact on the European economy. Because of the increase they could be paying up to 50% tax in the case of FTT because sometimes they would turn over their entire book in a single day. That would be a positive effect in that the likelihood of a run on the market would decrease. Pension funds pay tax at 0.5% and people hold bonds and shares for up to two years. I refer to people who have taken a long-term investment in the market. They need a stable, sustainable market rather than HFTs which trade massive amounts of money in a day and sometimes create panic within the market, which has a knock-on effect on unemployment and sustainability. Therefore there would be a positive effect of an FTT. Has Ms McVeigh taken into account the high frequency trade and the positive elements associated with that?
Sometimes we use tax to control the volume of trade.
I will let Deputy Mathews deal with that because I am sure he could give a lecture on the way it is dealt with.
The United Kingdom is against this but the UK has a financial transaction tax, FTT-----
-----of 0.5% which generates £5 billion a year, and that does not include trade derivatives. It says it is against it, but it still operates it in the market. The US securities regulator also operates it and it generates approximately $1 billion. It operates it on a rate of 0.00257%. It increased it from 0.0017% in 2010 to its current level. The same arguments we hear against the FTT were given at the time.
The witnesses have access to the information and we get brief presentations. I do not have the resources to go into such great detail. The Swedish model is usually given as an example of what was done in the 1980s but the Swedish model is not what is being proposed. The Swedish model allowed people to bypass the FTT by trading through brokers outside the country. It is not stated that the Swedish model was changed subsequently to one we are proposing and it generates approximately €1 billion in revenue for the Swedish economy without much avoidance.
That is the reason I was concerned about the figures given because they did not give the entire picture. Can the witnesses give me more detail on what they have given in their presentation because it appears to be only a partial presentation? In terms of supporting the Minister, the role of this committee in the next year is to seriously examine the FTT but we do not appear to be getting the full picture from presentations. Is there a mechanism whereby the witnesses can facilitate this committee in trying to get a fuller picture? I referred earlier to research driven and evidence based information. I am somewhat concerned that we are not getting the entire picture today.
Ms Brenda McVeigh:
In terms of this presentation, it must be accepted that we are one of three items on the agenda and therefore we were trying to tailor the presentation to the fact that this would not be the entire discussion today. It is quite a detailed presentation bearing in mind the time we believed we would be given on it.
In terms of looking for information about other countries, impacts, etc., we are willing to make available whatever information we have and we could make available immediately the up-to-date position of all 27 countries regarding the current proposal from the Commission. We are willing to make that available to the members if they do not have it already.
Ms Brenda McVeigh:
As I said earlier, it is difficult to do research on something that has so many unknowns. The draft directive as currently drafted is not clear on what is in and what is out or even the type of institution that is in or out. It has been difficult from the beginning, and the ESRI and Central Bank report highlighted that. It is very difficult to carry out any kind of analysis on the impact on Ireland or on any member state when there are so many unknowns in the directive.
I thank the witnesses for attending and presenting the paper. I am a little concerned that we have allowed ourselves to see a long shadow looming over this country in the area of financial transactions, etc. It is a shadow that should not be there because there is not even a proposal yet. It alarms me that the country has decided to stay outside a conversation. They have said we should have a conversation with not less than nine members out of 27, one third of the participants in number, to see if we can address the following, which Ms McVeigh sets out on page 2. It states:
This is the germ of a good idea because even the leaders of Europe are thinking about the urgent necessity for a single supervisory regulator for the banking system and that that regulation would be seen to be working before they even start opening the levers of the European Stability Mechanism, ESM. We have an opportunity, therefore, as a member of the EU that has had the biggest financial explosion in the EU. We talk about €64 billion in capitalisation. That is not the figure. It is €135 billion of loan losses across the institutions in Ireland. The six Irish-owned ones account for about €100 billion. We saw in a report only three weeks ago that Certus, the wind down vehicle of Lloyd's Bank, has taken over the Bank of Scotland Ireland loan book, which reached a peak of about €40 billion, and has written off €22 billion.
This will help to reduce competitive distortions in the Single Market, discourage risky trading activities and complement regulatory measures aimed at avoiding future crises. The financial transactions tax at EU level would strengthen the EU's position [and so on] to promote common rules for the introduction of such a tax at global level notably through the G20.
We had a report last week from the Bank of Ireland. Amidst the noise the journalist magnified about pensions and salaries was the far more sinister aspect, namely, that on its balance sheet was €105 billion of total loans and a total provision against those loans of only €7 billion, with 74% of that loan book in mortgages, buy to let properties, property development, property investment in construction, etc. We are told that bank is among the most capitalised banks in Europe. It could not be when we had the biggest credit and asset bubble bust in the eurozone. There is not a chance that €7 billion of provisions will suffice. It should start at €20 billion and perhaps rise to €25 billion. That is an €18 billion shortfall in capital and it does not matter what the headlines say today about a bond of €1 billion being issued, taken away and so on, and Wilbur Ross and his friends putting in €1.1 billion for 35% of the bank. That bank has a mismatch on funding and assets, maturities on assets and assets in the wrong sectors that would blow the minds of anybody with experience.
We have to get real so that we can tell our creditors in the eurosystem that we need about €70 billion of creditor capitalisation, the elimination of the ELA in IRBC - this is all banking related; that is the reason I am going into it - the tearing up of the promissory notes, and a renegotiation of the capital funding of the two operating remainder banks to ensure that in turn those banks, under proper management, can start sorting out the assets they have, including the €105 billion in the Bank of Ireland, the approximately €120 billion in AIB, and the others because-----
I have a few questions that follow from that. I was just contextualising it.
We do have taxes on other areas. It is not just stamp duty on shares but every time a person writes a cheque. It must be remembered that tax was introduced at a time when writing cheques was a large part of transactions in this economy. All businesses wrote cheques. That is the reason they got the revenue out of those transactions. They were financial transactions. The euro-dollar market, which was the forerunner of the capital markets and inter-bank markets, had not started. We must get stuck in, come up with fresh ideas and say we need an FDIC in Europe to complement the supervisory banking process that must come in by 1 January. We need to properly assess and spring clean the 6,000 banks across Europe. It may be that a minimum of €3 trillion is needed. In European terms we should start thinking about getting that mutualised funded and perhaps perpetualised funded with no redemptions of principal in the way the councils post the First World War were funded on a perpetual-----
London is a jungle in the off-balance-sheet shadow banking world. An article entitled "MF Global and the great Wall St re-hypothecation scandal", published on 7 December 2011, states the dangers and fragility of the investment banks around the world and how they could collapse all the supposedly solid high-street banks, the repositories of savings of households and companies.
We need to employ an iron fist and to have great leadership in Europe. Dancing around the problem and lurching into ideas regarding financial transactions taxes are not sufficient. We must think about muscular financial engineering to solve this.
London should be exposed for what it is. It is carrying out rehypothecation on a scale that is absolutely radioactive, and people cannot even measure the radioactivity.
I have not had an opportunity to consider this. Other major transaction centres have introduced financial transaction taxes. I have not had an opportunity to examine those in Hong Kong, Johannesburg, Mumbai or Taipei, which have fairly new financial markets. They are raising approximately $23 billion per year. Has Ms McVeigh's team had an opportunity to examine these taxes considering how new they are in global trading?
I thank the delegates for appearing. The committee, as part of its work programme, hopes to consider the financial transaction tax in the first or second quarter of 2013. On Deputy Humphreys' point, I note the Department has examined the issue. We would be grateful if Ms McVeigh and her officials were available to appear before the committee once more in this regard. The committee would be grateful if it received modelling or scoping results produced by the Department prior to its examination of the issue as it would facilitate it in laying out the terms of reference of its exercise in this area.
We will now proceed to the scrutiny of COM (2011) 121/4, on the common consolidated corporation tax base, CCCTB. I welcome Mr. Gary Tobin, Ms Fay Kearney and Mr. John Fanning from the Department of Finance and from Revenue. The committee will first hear a short presentation from the officials following which we will have a questions and answers session.
I remind all members to switch off their mobile telephones.
I advise the witnesses that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence they are to give to this committee. If they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a person or persons or an entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable.
I invite Mr. Gary Tobin to make his opening statement.
Mr. Gary Tobin:
I thank the Chairman for the invitation to attend. We were before a similar committee, a committee on EU scrutiny established under Standing Orders, in 2011. At that meeting, the CCCTB was referred to. We are very pleased to be invited back.
We have circulated among members an opening statement and we have a PowerPoint presentation. I am conscious that the committee has heard two opening statements from my colleagues in the Department of Finance this afternoon. I am completely in the hands of the committee in this regard. If it wishes, I will read my full opening statement or, if it prefers, I will highlight a few points therefrom.
Mr. Gary Tobin:
That might allow more questions from members.
Let me refer to the White Paper on Ireland's accession to the European Economic Community, published the year I was born. It states on page 23 that the Community also intends to introduce a uniform system for the taxation of companies but has not yet worked out proposals on the subject. That such a uniform system is still not in place some 40 years later perhaps demonstrates the practical and difficult obstacles that would have to be overcome to put it into place.
CCCTB would introduce new common rules for calculating and allocating company taxation across the European Union. It would involve a new sharing mechanism, essentially a rule of thumb that proposes that the individual taxable profit base of each company within an international group would be aggregated or pooled to form a consolidated tax base. That consolidated base would be re-attributed to those same companies based on their presence in any member state, that presence being measured by a formula accounting for the scale of assets, the number of employees, payroll costs and sales in any member state by comparison with those of the group as a whole. Each member state's share of the profits would then be taxed at national tax rates, thereby preserving national sovereignty over the rate of taxation.
Ireland's position on the CCCTB is well known. We are sceptical about it. Nonetheless, our key message is that Ireland, while being totally opposed to tax harmonisation, as with a number of member states, is willing to engage with the Commission and other member states on the issue. We believe the best way to influence the discussions is by being in the room at the time. Therefore, the stated policy of the Government is to engage constructively with other member states on the issue.
The CCCTB is currently the subject of discussions within a Council working group. It is probably safe to say the discussions of that group are moving quite slowly.
As for next steps, it is the intention of the Irish Presidency to continue the work of the Council working group on the proposal. The engagement with the common consolidated corporate tax base, CCCTB, is ongoing and examination of this complex proposal still is at a relatively early stage. There are many technical and practical issues yet to be resolved.
I thank Mr. Tobin. From the layman's perspective and having listened to the earlier presentation by Ms Brenda McVeigh regarding the financial transaction tax, is the CCCTB an optional tax base like the financial transaction tax or is this one to which, if it moves ahead, all member states must adhere?
Mr. Gary Tobin:
The Commission proposal is that the CCCTB would be an optional system for companies. Essentially, this means that companies or groups of companies would only opt in were it to make sense from their perspective to so do. Essentially, one could imagine that a company or group of companies would consider the two different types of tax systems in place, that is, the CCCTB system or the national system under which they currently were operating, and would make a decision about which was optimal from their perspective. One could argue that might mean under which system they would pay less tax.
Mr. Gary Tobin:
However, I should state in conclusion that it of course is the Commission proposal that the system be optional. Ultimately, it would be a decision for the Council to decide on the final format of any system. The Council may decide that having an optional system is impractical, that it is impractical to operate two parallel tax systems. Consequently, the Council may decide to make the system compulsory.
Yes, a local company like Ford. Apple arrived in Ireland long before the corporation tax levels were put in place here and it came here for different reasons. Were such a company to consider opting for the CCCTB base as opposed to the existing corporation tax regime, Mr. Tobin's point is such a company could apply to have that tax model applied to that business. Would this be on the basis that the company was based in Ireland or on a European-wide level because it is such an extensive company?
Mr. Gary Tobin:
On the assumption that it comprised a group of companies within the European Union, it would be obliged to opt as a group to enter the CCCTB system. There is a principle within the proposed directive called "all in or all out", whereby the group is either within the CCCTB or outside it.
Okay. I am trying to flesh out this issue in my head. In a situation in which, for example, Apple has one base in the Republic of Ireland and another in Poland - even though the financial headquarters is in Ireland - is it possible that Apple could operate two different structures? I refer to the company structure in another European state. Would it be possible for a company that is located in two different jurisdictions to operate two different tax systems, whereby it would avail of the Irish corporation tax base in Ireland and of the CCCTB in Poland?
Mr. Gary Tobin:
Under the proposal from the European Commission, the group would be obliged to opt together. All the parts must be included, that is, the Irish and Polish operations of whatever company and there are certain rules for opting in and out of groups laid down in the directive. In general, however, the parts must be either all in or all out.
I will pre-excuse myself as I must leave to take the Chair in the Dáil Chamber for 45 minutes. I thank Mr. Tobin for his attendance. Had a company based in Cork called ABC Limited operations in Poland, Italy and France, at present it would fall to be assessed for corporation tax in the aforementioned three jurisdictions because the company would have operational residency therein. Really, were CCCTB to be introduced while the old regime also obtained, there would be a two-speed tax system for corporates. That is one point to explain to people. It could be a transitional arrangement or whatever.
Mr. Gary Tobin:
Obviously. Moreover, under the Commission proposal it would be an optional system. To elaborate briefly, for a number of very large European companies, this is what is perceived to be attractive about the system, because they would not be obliged to join it. They could choose to opt in or to opt out, possibly depending on under which system they would pay less tax.
In any event, they will pay a lot of money to the "big five" to outline the different scenarios to ascertain where the least tax load would fall. One can be sure of that in any case. In the debate, discussion or conversation on this issue, it would be important for public understanding to tease out what is the philosophical basis of taxation. I acknowledge everyone hates it but there is some relationship between citizens working in Ireland, earning an income and paying an income tax. It is for a reason and I note the Tax Transparency Bill will try to explain where the tax goes in a way, to give it some kind of philosophical basis. The same point applies to companies. Does a company invest in Ireland because we have water around the island and, therefore, invading land-based armies have at least one further obstacle to overcome? The European experience is they had two extremely serious wars within 20 years of each other. Moreover, they had experienced other wars earlier, as well as the subsequent Soviet blanket over eastern Europe after the Second World War. People running companies and boards of companies do not talk about this but they think about it. Perhaps that is a bigger reason so many multinational corporations, MNCs, come to Ireland with their foreign direct investment. It is not simply because of corporation tax at a rate of 12.5%. I believe, professionally, they would not even blink an eye were the headline rate at 15%. Moreover, this could be worth a serious amount of money for the Exchequer on an annual basis. Based on the last corporate profit tax returns, it would amount to €600 million. For any companies contemplating coming to Ireland, it would not put them off because as members are aware, they do their tax planning on a global basis, which ascertains what is the effective tax rate. However, as I noted in respect of the earlier presentation, we again have created a shadow that might not be there. I invite Mr. Tobin and his colleagues to be brave, to think differently and perhaps to suggest to the Government and the Cabinet that a corporation tax rate of 15% could be cemented in for the next seven years.
Mr. Gary Tobin:
It certainly is. By way of reply, we are consumed by the financial crisis that Europe faces at present. I believe that at present, 21 of the 27 European Union member states effectively are in excessive deficit procedures. That means that 21 of the 27 European Union member states have deficits greater than 3% of GDP at present. At present, companies crave certainty above all else. When we talk to companies - as we do because the IDA brings in companies that may wish to locate into Ireland to talk to us - what they ask more than anything else is for certainty. While this purely is an anecdotal piece of information, companies have told me that they seek certainty and have asked that we neither increase nor reduce the corporation tax rate. They simply seek certainty to be able to plan.
With respect, through the Chair, I have commented to that point. One could have certainty at a rate of 15% for the next seven years. Incidentally, that would be on the back of a reduction in the costs of production and distribution experienced by these companies over the past three or four years that outweigh by a multiple of two to three times the slight increase in the corporation profit tax that would be involved. They have had serious reductions of between 15% and 20% in the input costs of their operations. That has been beautiful but is not set in cement, whereas corporation tax would be.
Mr. Tobin showed the sharing mechanism on the CCCTB. Could he give a practical example of that, even with indicative figures, although I am not asking for it now? That would enable us to understand the presentation.
Mr. Gary Tobin:
It is an important question about how the whole system would operate. Essentially, if one had a company with a particular level of profit, that profit would be put into a central bucket. It would be reallocated back to be taxed at the individual tax rate of an individual European country, depending on what percentage of sales were carried out in each country, the percentage of labour, the number of employees in each country and the percentage of assets.
The Commission has posited that this formula would be on the basis of three thirds. One would make one's estimation on the basis one third of fixed assets, one third of sales by destination and one third of payroll. The Commission has always been careful to say that ultimately this is a political decision. It would, therefore, be up to the Council to decide how it finally wants to allocate the profit, and what final formula it would like.
Given that the financial crisis has engulfed the whole eurozone and the wider community, it is fair to say that most countries are now more reluctant than they have ever been to potentially give away part of their tax base and allow a new system to reallocate it based on a formula that probably has not been fully worked out. While the sharing mechanism and consolidation element of the proposal is central to what the Commission has brought forward, in the current environment the level of scepticism around the consolidation element of the proposal has probably increased quite significantly.
The recommendations and the next steps to constructive engagement are, as Mr. Tobin said, the right way to go. I do not think it will happen anytime fast, but we should certainly be at the table to ensure that we influence the outcome. I thank Mr. Tobin for his presentation and for taking the time to come here today.
I thank Mr. Tobin and his colleagues for attending the committee. It is hard to measure whether this is stagnant or a work in progress. If there are any further proposals for directional indications or shifts on this, I would be grateful if Mr. Tobin could inform the committee of same by correspondence.
I wish to thank the officials for attending the committee today. It has been of great assistance to the committee to get an insight into the broad range of issues that have arisen in this debate. I now propose to adjourn the committee. Is that agreed? Agreed.