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Dáil Éireann debate -
Wednesday, 14 May 1986

Vol. 366 No. 5

Ceisteanna—Questions. Oral Answers. - Financial Services Industry.

19.

asked the Minister for Finance if he will take action to end discriminatory tax provisions which are impeding the development of the financial services industry.

I assume that the Deputy is referring to the fact that the financial services sector does not qualify for the 10 per cent rate of corporation tax. That rate is confined to manufacturing, certain approved activities at Shannon and data processing and softwear development activities approved under the IDA international services programme. This is because these activities are regarded as having the best potential for employment creation in Ireland. The 10 per cent rate is a concessionary one and the fact that it has not been extended to the financial services sector could not be regarded as discriminatory against the sector; the normal regime of corporation tax applies for such services.

The Minister has dealt with one aspect of the Deputy's question. He is aware of the venture capital provision in the Finance Bill that is confined to the manufacturing side of industry and does not include the services sector. Will the Minister agree that across the board there is a similar discrimination in other State agencies such as Fóir Teoranta who confine themselves to manufacturing industry? Will he not agree that all of these facilities, whether in respect of taxes, grants or loans, should apply pari passu to services as well as to manufacturing?

I do not agree and the Government of which the Deputy was a member did not agree either.

Times have changed.

It was they who introduced the distinction between the rates. The displacement effect is different with service employment as compared with manufacturing employment. Increases in service employment in the non-trading sector very often displace other service employment. If a person opens a hairdressing salon in a town where there is already such an establishment and there is only business for one, the result is the closure of one of the undertakings. However, in the case of manufacturing it is different. Generally speaking, the opening of a new factory in a town does not affect existing firms because the products of both are likely to be exported and the only people likely to lose their jobs as a result of the additional output are people in other countries. That is the conceptual basis for the distinction.

What about tourism?

However, I agree there are grey areas between the two cases, The Deputy mentioned the tourist industry. There is a substantial export content here, but even in that case there are certain aspects that have a higher export content, such as hotel accommodation in the west of Ireland, as against other aspects such as retailing, where the export effect is relatively moderate. Unfortunately, as in all cases, we have to draw the line somewhere and we have drawn it at a certain point.

Leaving aside past decisions, will the Minister not agree that future employment lies to a great extent in the services area? In view of that fact, will the Minister not agree there should be a complete rethink of this matter? Obvious areas of employment lie in the tourist and construction industries, as well as in banking and insurance. The scope for future employment lies in those sectors and encouragement should be given to them. Has the Minister a general comment to make?

The problem is we have given a guarantee not to increase the 10 per cent rate before the year 2000. If we were to undertake the kind of review advocated by the Deputy, the effect would be that we would have to raise the 10 per cent rate to pay for reductions elsewhere. That is not on.

The Minister is taking a simplistic attitude. The matter is not as simple as that.

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