Dáil debates

Thursday, 29 September 2016

Other Questions

Financial Transactions Tax

2:35 pm

Photo of Thomas PringleThomas Pringle (Donegal, Independent)
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8. To ask the Minister for Finance if he will back the European financial transactions tax, FTT, initiative and support the introduction of the FTT here; and if he will make a statement on the matter. [27547/16]

Photo of Thomas PringleThomas Pringle (Donegal, Independent)
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The question relates to the financial transactions tax being proposed by a number of EU member states through the enhanced co-operation procedure. What are the Government's views on the proposal?

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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Ireland already has a tax on financial transactions, a stamp duty on transfers of shares in Irish incorporated companies which currently stands at 1%. The yield from this charge in 2015 was €424.13 million and I understand receipts to the end of August 2016 were more than €260 million.

The financial institutions levy I announced as part of budget 2014 is a revenue raising measure which provides for a contribution from the banking sector to Ireland's economic recovery. The levy is in place for the years 2014 to 2016, inclusive, with an anticipated annual yield of €150 million. As the levy is a percentage of an institution's DIRT liability in 2011, liability to the levy relates to the size of an institution's Irish operation.

The entire banking system has been underpinned by the strong Government support provided both here and abroad. It is appropriate, therefore, that the banking sector should make a contribution to the State's economic recovery. Accordingly, I announced in my budget 2016 statement that I propose to extend the levy out to 2021, subject to a review taking place of the methodology used to calculate the levy. This will bring in an additional €750 million over the period, which is a significant additional contribution to the Exchequer.

With regard to the discussions at European Union level, the Government's position is that a financial transactions tax would be best applied on a wide international basis to include the major financial centres to prevent the danger of activities gravitating to jurisdictions where taxes are not levied on financial transactions. Notwithstanding this, the Government is not prepared to stand in the way of EU member states which wish to work together to implement a financial transactions tax. In this regard, adoption of a decision formally authorising enhanced co-operation took place during the Irish Presidency of the European Union in January 2013.

Additional information not given on the floor of the House

The proposal for a directive from the European Commission in the area of a financial transactions tax was published in February 2013. Ireland had many concerns about the proposal as drafted, not least of which were the potential impacts on, and the trading of, Irish sovereign debt in the secondary market and in total, the potential negative impact on the liquidity of the financial sector as a whole. Members of the Economic and Financial Sub-Committee on EU Sovereign Debt Markets have stated that the introduction of a financial transactions tax would have a significantly negative effect on sovereign debt markets and may impair the good functioning of secondary markets for sovereign debt resulting in reduced liquidity, reduced investor demand and, therefore, higher financing costs for states.

Our concerns are widely shared among member states, including some of the participating countries. These concerns have led to the issuing of a communiqué by the participating member states announcing that they have agreed to implement a financial transaction tax in a progressive manner, with the first step being a charge on shares and some derivatives.

On 17 June 2016, the ECOFIN Council discussed the current state of play with regard to the proposal of a number of member states to introduce a financial transaction tax. In the context of this discussion, ten of the original 11 member states - Estonia has indicated it no longer supports the proposal - issued a statement setting out their agreement on the core design principles of a financial transactions tax. The statement indicates that further reassurances were needed on two issues in particular, for which two task forces will be immediately set up. First, taxation of derivatives should not have a negative impact on public borrowing costs. Second, tax collection should be cost effective. The outcome of these two task forces was to be discussed in September. We understand the task forces have had some discussions but that significant differences of opinion remain.

Much uncertainty remains, therefore, as to the form the financial transactions tax might take and more detail would be needed on the final shape of the tax before a definitive conclusion could be reached about its impact on Irish taxation revenue.

Photo of Thomas PringleThomas Pringle (Donegal, Independent)
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I thank the Minister for his response, which was virtually identical to a reply to a parliamentary question I asked in June. The only difference I discerned was that the 1% transaction tax in share trading had raised €260 million by the end of August this year.

The gist of the Minister's argument appears to be that the regime in place in Ireland is much more onerous than the current proposal for a financial transactions tax. In his response in June, the Minister indicated the proposed financial transactions tax would raise an estimated €360 million, which is a much lower figure than the figures he cited today. If that is the case, why is he not encouraging the ten countries proposing a financial transactions tax to introduce a system based on our regime, given that it is effective and works well?

The Minister cited figures on the revenue generated this year from our financial transactions tax. Does he have figures for the amounts generated in previous years? There appears to be a lack of understanding regarding the way in which this revenue is raised.

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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I do not have figures for previous years but I will have them sent to the Deputy. Our position on a financial transactions tax has not changed since June when I last replied to a question from the Deputy on this matter.

In Europe, one of the countries that was involved, Estonia, has dropped out and the other ten have not yet reached agreement. I think they are about to make a report but, so far, I do not see that there is going to be agreement to any particular financial transactions tax emerging from the enhanced co-operation between the now ten member states. There is still quite a difference of opinion among the members participating in the enhanced co-operation and, outside of that, there is a wide divergence of views.

The Irish position is driven by our proximity to the City of London and the view, certainly up to Brexit, that if we imposed a financial transactions tax here and the UK did not, and made it clear it would not, there would be a movement of financial services activity from Dublin to London, and there are 38,000 employed in the financial services industry in Ireland.

2:45 pm

Photo of Thomas PringleThomas Pringle (Donegal, Independent)
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I have two points. First, with regard to the transactions moving, the proposal is that the financial transactions tax is levied on the portion of a transaction that belongs in the member state where the financial transactions tax is in place. Therefore, in effect, for a company to move in order to benefit, it would have to deal only in transactions that are outside all the member states participating in the financial transactions tax. The argument that businesses would move does not stand up unless they stop trading completely with any country that has a financial transactions tax in place.

Second, with regard to the risk of businesses moving to London, our rates are already higher than the rates in London and we do not see that draw to London from Dublin despite the more onerous taxes, so that argument does not stand up either. Perhaps the Minister is happy that our tax rates are far higher than the financial transactions tax and that is why the Minister does not want to participate in it.

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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No. We have considered this very carefully and I have stated the policy position. I admit that the relationship and the potential change may be more significant after Brexit, depending on the result of the negotiations regarding the relationships between the UK and the EU. Certainly, the City of London is going to be central to those negotiations. The position is as I have stated and we are not contemplating a change at present.