Brian Cowen (Laois-Offaly, Fianna Fail)

In the same way as there was a trop de zèle in some political parties in this country about the exemption, there was also a trop de zèle in the EU Commission. I used all my persuasive and diplomatic skills, to no avail, to get it to look beyond what I considered to be a narrow, legalistic approach to this issue. Thankfully, in the European Council meeting last week we were successful in suggesting in one of the conclusions that state aid rules be examined in a global context rather than in an internal context.

The European horse breeders association, representing stallion owners throughout Europe, lobbied the Commission on this issue and asked it not to take the view it took on the tax exemption in Ireland because of the impact that could have on the European horse breeding industry. The real competitors are not in Europe but in Australia and America. In fact, many people consider that world class stallions standing in Ireland is an important part of their job in developing the breeding industry in France, Germany, Italy and elsewhere in Europe. Their mares can come to Ireland instead of being sent in transport airplanes to Kentucky or Australia. That is the reality of the industry. It is a global industry and Ireland is a world leader in it.

It is with reluctance that I had to take this step. The reason I talk about the need for a replacement scheme is that I am convinced that if there is one area where a tax incentive has proven itself, it is this one. The Indecon report, admittedly on behalf of Horse Racing Ireland, referred to a cost of €3 million per year. The Revenue Commissioners have come up with returns which have become available as a result of changes in tax information brought in by my predecessor to try to get a handle on this issue. The suggestion was made that hundreds of millions of euro were being denied the taxpayer, but the maximum potential cost is €7.1 million. There will also be offsets which will bring that figure down even further.

We have built a world class industry through tax incentives on the basis of an annual cost which would be less than €7 million and more in line with the Indecon estimate of €4 million, which was portrayed at the time as being a self-serving report. That was a serious castigation of a very professional and widely sought-after consultant company in this country and elsewhere. I could not find out who made the complaint to the EU Commission or what the motivation was behind the complaint, but a situation has been brought about whereby something that was of huge benefit must be removed by me because I have been informed by the Commission that it would uphold proceedings against Ireland if I did not withdraw the exemption.

The Commission based its decision on preliminary findings and I was given the legal reasons on state aid as to why that was the case. I tried to explain the context and I asked for a comparative cost-benefit analysis before we went down this route. Unfortunately, the Commission was adamant that this file was opened and had to be dealt with in the way suggested. I have decided to do so on the basis that the Commission would then discuss with me how to replace this exemption with something that would have a similar effect, be it through a depreciation allowance system or whatever. The Commission made the point that under state aid, the exemption must be of a general character throughout the whole agricultural industry. I would then have to seek tax exemptions for boars, bulls and other four-legged animals. The whole thing was crazy.

We are where we are. I did not make this change for any politically correct reason.