Michael Noonan (Limerick City, Fine Gael)

I propose to take Questions Nos. 7 and 9 together.

The ESRI and the Central Bank of Ireland prepared a report on the financial transactions tax at my request. I circulated this report to Deputies last Monday, 2 July, and published it yesterday. I thank the bodies for their work on the report which indicates that the "net revenue gain for Ireland from the introduction of an FTT ... is likely to be modest". Based on assumptions used by the European Commission, the report estimates the potential yield from a financial transactions tax in Ireland to be between €490 million and €730 million. Under the Commission's proposal, two thirds of this yield would have gone directly to the European Union to fund its budget. The Commission estimated that, if a financial transactions tax was introduced on an EU-wide basis, the overall yield would be €57 billion.

The report outlines the downsides and potential downsides to the introduction of a financial transactions tax. The first of these would be the impact on the financial sector. A financial transactions tax could displace financial sector activity, especially when alternative locations - in our case, London - are readily available. This would pose a real risk to Ireland, given that the financial services sector accounts for 10% of GDP. The macro-economic impact of a financial transactions tax would be that it would likely 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. There would also be an impact on the Exchequer. A 1% rate of stamp duty 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 which was €180 million in 2010 and €195 million in 2011. In the light of the wide variation in the estimated revenue yield from a financial transactions tax when different factors are taken into account and in the context of the uncertainty relating to the form such a tax would take, the report states 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.

At the most recent ECOFIN meeting on Friday, 22 June, it became clear that EU-wide agreement on a financial transactions tax would not be reached. Those countries that want to introduce such as tax will now request that this be done via enhanced co-operation. This mechanism would require at least nine member states to participate and agreement by qualified majority voting, comprising 72% of the overall votes and states representing 65% of the total EU population. Ireland is not going to be among the enhanced co-operation countries, but it will not stand in the way of those who want to introduce an financial transactions tax under this mechanism. I have stated clearly in the past that if a financial transactions tax cannot be introduced on a global basis, it would be better if it were introduced on an EU-wide basis. This would prevent distortion of activity within the European Union. I have also indicated our principled opposition to dealing with tax measures under the heading of enhanced co-operation. In such circumstances, our non-participation in the new enhanced co-operation initiative is consistent with the position we have taken to date on the introduction of a financial transactions tax.

It is also not clear what shape a financial transactions tax will finally take. The draft directive only received one initial reading and the current proposal could be modified. Ireland will continue to monitor the discussions which take place. Whatever measure is introduced should not interfere with the Single Market and would have to take account of the positions of other member states. For example, any financial transactions tax on share transactions would have to take account of the existing stamp duty charged on dealings in Irish shares.

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