Thursday, 5 July 2012
Financial Transactions Tax
Question 7: To ask the Minister for Finance if he has carried out a cost-benefit analysis in order to assess the benefits or consequences for Ireland of adopting a European financial transaction tax; the conclusions of any such analysis; and if he will make a statement on the matter. [32719/12]
Question 9: To ask the Minister for Finance if he will explain in detail the reasons behind his decision not to participate in the new European tax on financial transactions agreed in principle by nine EU countries on 22 June 2012; and if he will make a statement on the matter. [32718/12]
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.
I realise that if London does not play ball by buying into the notion of a financial transactions tax, this will prove problematic for Ireland. However, in principle, we should argue in favour of the introduction of such a tax. Perhaps the Minister might try to convince George Osborne about the merits of a financial transactions tax. Having such a tax must be a good idea in the long term, particularly as it would lead to greater stability in the financial system. In the light of the fact that the financial sector played such a major role in causing the difficulties which obtain across the globe, it is only fair that it should be obliged to carry the can to some extent.
The European Commissioner on Taxation and Customs Union, Audit and Anti-Fraud, Mr. Algirdas emeta, has made a number of interesting points on this matter. He stated the cost of a financial transactions tax would be small and absolutely legitimate, particularly in the light of the support the financial sector has been granted in recent years. He went on to say, "The financial markets have to make a fair contribution to the crisis they provoked". Furthermore, he commented that a financial transactions tax "will act as a disincentive to high frequency trading and other practices which increase risk without ensuring liquidity". Does the Minister agree that the benefits of introducing a financial transactions tax would include an equal distribution of the tax burden and a more responsible financial sector? As he indicated, such a tax, particularly if it were introduced on an EU-wide basis, would yield revenues of as much as €57 billion. Does he agree that it would be great if the financial sector was made to work for society again rather than having it the other way around?
In all the discussions which have taken place to date Ireland has never opposed the principle of a financial transactions tax. However, we have pragmatic reasons for believing it might not work in all circumstances. Our first position is that if it could be introduced through the G20 at a global level, we would be in favour. Our fall-back position is that if it could be introduced across the 28 countries in the European Union - Croatia acceded to the Union four days ago - this would also be acceptable. The difficulty is that in Dublin there are 33,000 people working in the industry which is responsible for 10% of GDP. If a tax on financial transactions is introduced in Dublin and not in London which is only an hour away by aeroplane, there will be dislocation. In the circumstances in which we find ourselves, we cannot take the risk.
The nine countries forging ahead in this regard are moving away from what is contained in the Commission's paper and considering the imposition of stamp duty on financial transactions. Ireland already imposes stamp duty of 1% on these transactions, while the United Kingdom charges 0.5%. Current thinking seems to be leaning towards widening the base and imposing stamp duty on transactions other than those which relate to dealings in shares. There also appear to be moves afoot to deal with the problem to which the Deputy referred, namely, high speed computerised transactions which are certainly placing systems at risk.
We will see what emerges and I will report fully on the matter, either in the House or at the joint committee. We will then make a judgment on the matter. Even though we have opted out of joining the other nine states which are moving ahead, there is nothing to prevent us from joining them at a later date if they develop a tax which is acceptable to us. We will see. With the way our economy is and our high levels of unemployment, the main important matter is to preserve the financial services industry Ireland, especially in Dublin, because it is one of the sectors expanding at present.
Without England, the idea is seriously problematic for Ireland. Given the size of the English financial sector, it needs England's involvement if it is going to work effectively at European level. Perhaps the Minister will consider going over and having a cup of tea with George Osborne and appealing to his social conscience.
The ESRI report said there would be a modest increase and the Minister mentioned figures between €490 million and €730 million. Many people in Ireland see that as a nice sum of money to bring in through a financial transaction tax. I am glad the Minister accepts the principle relating to €57 billion across Europe. We need to get everyone on board in Europe and internationally. With the amount of revenue out there and the good it could do, I urge the Minister to push it at EU level and at international level.
Is the Minister 100% sure that, if we did something with the other eight or nine European countries, it would severely damage 33,000 jobs?
No, I am not sure. Politics is an inexact science. We are trying to evaluate risk and we are making our best judgment on the risk. The type of financial transaction tax proposed in the European Commission paper would have a significant impact on jobs in Ireland, and particularly in Dublin. Ireland already has stamp duty, so if the Commission goes down the stamp duty route, we will see how it plays and we will keep an open mind.
There was very little information about how a financial transaction tax would have an impact in Ireland, so I asked the ESRI to evaluate the Commission paper to help me take up a negotiating position. I decided then that Deputies may as well share in it. It is somewhat dated now because the Commission has moved away from the idea in the Commission paper and is following a different route.