asked the Minister for Finance the net outflow of manufacturing profits from the State for each year from 1980 to 1987 inclusive; and if the Government have any policy in relation to this issue.
12.
Ceisteanna—Questions. Oral Answers. - Outflow of Profits.
7.
asked the Minister for Finance the steps he proposes to take to ensure that the continued growth in exports will be reflected in increased employment, rather than in an increase in repatriated profits.
I propose to reply to Questions Nos. 7 and 12 together. Data for the net outflow of manufacturing profits are not available separately. They are included in the component "profits, dividends, royalties, etc", in the published Balance of International payments statement. The figures for this component in 1980-87 were as follows:
|
£m. |
|
|
1980 |
258.0 |
|
1981 |
361.7 |
|
1982 |
498.7 |
|
1983 |
658.6 |
|
1984 |
982.7 |
|
1985 |
1,320.6 |
|
1986 |
1,320 |
|
1987 |
1,275 |
The increase in the outflow of manufacturing profits must be seen in the context of the substantial rise in manufactured exports over the period. It should be emphasised that the rise in exports associated with the generation of these profits has resulted directly and indirectly in increased employment. The aggregate figures for employment of course reflect a number of other factors besides increased exports.
There was no growth in the profit outflow in 1987, despite a substantial increase in merchandise exports. This could, in part, be a result of the efforts being made to encourage the retention of a higher proportion of profits in Ireland.
The aim of Government policy is to increase the potential for growth and employment by the encouragement of profit retention for increased investment domestically. The retention of a greater proportion of the profits of these companies will depend to a large extent on growing confidence in the economy. An essential condition is an improvement in our international competitiveness so that we can successfully compete for further investment from these companies and from other firms contemplating investment in Europe.
I would draw attention to the scheme which provides for the issue of special tax-exempt securities for purchase by eligible foreign-owned companies operating in Ireland. The scheme, provided for under section 69 of the Finance Act, 1985, is intended to increase the range of investment possibilities for these firms so that they can have the choice and the opportunity of putting their surplus cash to work in Ireland.
The encouragement of profit retention is, of course, only a partial solution to a more fundamental problem of insufficient investment. For a number of years past, the level of private investment in the country, and especially investment by indigenous enterprise, has not been high enough to support the rates of economic growth we need. The thrust of current Government policy is directed at reviving private investment in the productive sectors. The basic requirements for this are confidence in economic management, a strengthening of our competitive position and low interest rates to enable a realistic return to business.
May I put it to the Minister that the figures he has given to the House in relation to the repatriation of profits are verging on scandalous, a situation which, as I am sure the Minister is aware, has recently been described by the ESRI as bizarre. We have had an export boom for the past number of years and we have a trade surplus but not one extra job has been created because of this repatriation of profits. May I ask the Minister if this is considered by the Government to be satisfactory? The Minister stated that it is the Government's aim to provide growth in employment but there is no way the Government will create growth in employment if the present situation is allowed to continue. I ask the Minister if he considers this to be satisfactory at present?
There is no doubt that it is not satisfactory and we have taken many steps to ensure that it will not continue at the levels that pertained when the Deputy opposite was Tánaiste in the previous Government. We have succeeded in a number of ways. For example, the section 69 bond and the ECU bond allow people to invest their excess profits here and to take the opportunity of making money here. It is a question of making profits with profits and more profits which, hopefully, will lead to investment here which will create jobs. There can be no jobs unless there is profit and it is about time Deputies realised that. It is up to us to have a sufficiently good climate to ensure that those profits stay here and provide the jobs here.
This nonsense about creating a climate seems to have entered into our directory here. Perhaps if one were selling tourism one might need a climate. Creating any climate is not going to create the jobs the Minister is talking about. From a practical point of view, will the Government consider ensuring that increased corporation profits tax is paid by these companies because, with the present rate of 10 per cent corporation tax most companies are paying far less, around 2 per cent or 3 per cent after write offs? That should be looked at as a matter of urgency. Second, will the Minister look at the tax situation in relation to offering tax rebates to companies if they put money into research and development in this country? We could bring in amendments to the taxation legislation to allow the companies certain tax avoidance measures if they re-invest here for research and development in which we are lagging way behind the existing developed countries and the newly industrialised countries.
Is the Deputy asking that we allow tax concessions to those who invest in research and development?
We should increase taxation initially.
I could not accept that it would be possible for us to compete in the international climate. We have to compete for investment here on the periphery of Europe with many other countries. Therefore certain concessions and reliefs must be given as has been the policy of successive Governments for all my time here, that is, nearly 20 years. That will continue and, far from putting further obstacles in the way as suggested by the Deputies, we are probably going to have to look at other ways of ensuring that we get the investment from abroad and also hold whatever investment we can here so that the jobs are created here and not exported.
I regret that the Minister does not consider my suggestions worthy. How does the Minister see job creation arising from the continuation of the present policies? Profits obviously have to be made in the private sector and we have no problems with profit being made but what is galling is that these profits are being repatriated without any commitment to re-investment. I would ask the Minister to accept that it is shortsighted to think that these jobs will be created when all these profits are being repatriated.
That is a good statement. I have already replied to the question.
The Minister gave a figure of £1,274 million being sent out of the country. Will the Minister accept that that arises out of gross profits of about £1,400 million and that the companies in question paid a paltry £150 million in CPT? In the light of that, has the Minister any serious intention of speaking to the Revenue Commissioners about the transfer pricing mechanisms which are in operation and about section 69 of the Finance Act which facilitates such transfers? Is the Minister aware that this practice has now been adopted by the Bank of Ireland which sent out £375 million to buy a bank in the US and to buy Irish Life who, three weeks ago, sent £75 million——
The Deputy seems to be imparting a lot of information rather than seeking it.
I make the point because the Minister said in March 1987 that money was flowing back——
Deputy Desmond, I must ask you to conclude the question.
The Deputy is beginning to get it confused. I gave it to him in the reply. What we are talking about here is profits, dividends, royalties. We are not in a position to separate them. In relation to moneys flowing back into the country, we have seen interest rates drop by 6.5 per cent in 14 months because of liquidity in the economy.
It has nothing to do with money coming in.
Interest rates are all to do with money supply. Nothing else governs them except money supply. In relation to the points made by the Deputy, we must try to secure sufficient investment to create jobs here. Are the Labour Party now saying that the hundreds of factories owned by multinationals and employing tens of thousands of people that came in here during the time that Labour were in government and were told that they could repatriate their profits if they so wished should now take their investment out of here? That is what they are saying.
(Interruptions.)
I am glad to see Deputy Mac Giolla admitting that. They are prepared to allow hundreds of thousands of jobs to go just like that. As far as we are concerned our duty is to try to encourage those people who are making those profits here to re-invest them here. We have introduced instruments to allow them to do so. We would hope that the climate would be right for them to invest further in manufacturing industry rather than in financial instruments. That is the policy that this Government are pursuing and we hope that it will create additional jobs.
Ten multinational companies account for 30 per cent of the export figures.