Vol. 501 No. 2
3 Mr. Noonan asked the Minister for Finance if duty free sales will be abolished by decision of the EU Commissioners from June 1999; the proposals, if any, he has to take action at ECOFIN to extend the abolition deadline; the plans, if any, he has to protect the jobs at risk in Ireland as a consequence of the decision; and if he will make a statement on the matter. [5555/99]
The decisions to end EU duty free and tax free sales in 1999 have already been taken by the EU Council in the context of the "1993 Tax Package". Duty free sales to travellers going to destinations outside the EU are not affected and should continue.
The relevant EU Directives here have been adopted. The duty free measure was not adopted in isolation. Most notably Council Directive 92/12/EEC provides for the abolition of duty free sales for intra-EU travel after 30 June 1999. This and the other decisions relating to tax free selling, formed a part of an overall single market tax package. The EU Commission and some other member states agreed to the extension of duty free selling in 1992 until 1999 as representing a final concession. That view is maintained by the Commission – which initially sought immediate abolition in 1992 and now remains opposed to any extension – and by a small number of the member states of the EU, who are also opposed to any extension of time for duty free sales now.
As this House is aware, Ireland has actively and persistently raised this issue within the EU at various levels over the years. The decision to end duty free sales was confirmed by the Commission at the ECOFIN meeting on 19 May 1998 when I raised the topic and was, at that time, supported by many member states. Since that time, both Germany and France have indicated their concern at the proposed abolition and the mood in Council has moved towards a reconsideration of the issue.
At the Vienna Summit in December 1998, the EU Heads of State and Government considered this issue in depth, leading to a mandate to the ECOFIN Ministers and the EU Commission. The Commission was requested to produce a report for ECOFIN.
Last Wednesday, the Commission responded to that mandate. Following its examination, the Commission report considers that the abolition of duty free sales for intra-EU travel will not have a significant negative impact on employment overall, and says the extension of such sales would create uncertainty and disadvantage normal retailers and other means of transport.
The Commission states that the factors it took into account included the following. The growing demand for transport services, stimulated notably by the existence of the Single Market, is not likely to be affected by the abolition of duty free sales. Most travellers, it argues, will continue to shop during waiting time at the airports or spending time on ferries, even after the abolition of intra-EU duty free sales. This, it says, is confirmed by the experience at US airports where there is continuing expansion of tax-paid shopping malls.
The Commission also points out that the difference between some prices duty free and duty paid is often insignificant, particularly in the case of goods other than tobacco. The Commission has also referred to the gain to the national exchequers if duty free sales are abolished and has commented on the growth of employment in high-street retailers.
We are disappointed with the Commission report. The study which we commissioned from KPMG was produced and sent to the Commission. It pointed to the potential negative effects on employment particularly in the ferry sector. The Commission report is not a sufficient reply to the clear request of the Vienna Council for a short-term extension of the transition arrangements for ending duty-free sales. The Commission has not made any proposal in this regard.
Neither do I believe that use of the existing EU measures, such as the Structural Funds, where such could apply, as the Commission suggests is the best solution to use to limit the impact of this change in employment. While such measures have a role to play, their impact is necessarily limited and an extension of time is still the outcome that we will support at ECOFIN.
The next step is for the Commission's report to be considered by the Finance and Economic Ministers at the ECOFIN Council on March 15, when the Commission will present its report.
I doubt that it will be well received. It has already been criticised by a number of member states. I intend to continue to press the Commission on this matter.
In the event that we do not convert the Commission at that meeting it will most likely become a matter which the Heads of State and Government may wish to consider at the European Council in Berlin on 24-25 March.
I acknowledge the broad bipartisan support we have in the House to see this matter resolved on a satisfactory basis. The Government has set out its view that a deferral of the abolition of duty free sales is necessary.
My colleagues in Government and I, will continue to work to that end, both at Council or through bilateral contacts. In the end it will be necessary for the Council to convince the Commission that an extension is necessary here.
As a racing man, will the Minister give odds on the chances of duty free sales being extended beyond June of this year?
The decision has moved on considerably since Ireland raised the matter. My colleague, the Minister for Public Enterprise and I, spent a great deal of time at Council meetings drumming up support for this and it is only fair to say that when we started we were in a minority of one. In the intervening period most member states have come on side and, as expressed at the Vienna Council, most of them wish to see deferral of the 30 June deadline. However, as I pointed out previously in this House and in other fora, the unanimous support of the 15 member states is required.
Although nearly all member states favour extending the deadline, some are still holding out. In one member state, if one is to believe media reports, one of the government's coalition partners has said it will withdraw from government if the decision is changed. Much as the prime minister of that country might wish to sit on the fence on this issue, as Deputy Noonan and I might wish to do in such circumstances, his dilemma is understandable.
I sympathise with the Minister. Obviously, other governments have had worse troubles than this Government in recent weeks.
Does the Minister agree it is hard for the Irish Government to prosecute its case since the Taoiseach, as Minister for Finance, agreed to the package in 1993, failed to exercise the Irish veto on that occasion and did not negotiate a sufficiently long transition period to protect the jobs now at risk?
The Commission is of the view that seven or eight years was sufficiently long for member states to deal with these matters. When this decision was made it was part of a single tax package dealing with a wide variety of indirect taxation. The only area on which progress has been made, and for which the Commission is holding out, is keeping to the deadline for the abolition of duty free sales.
When this was negotiated a variety of measures in the VAT and other areas were on the table. However, progress in the other areas has been similar to watching paint dry; nothing has happened. The Commission decided to take up duty free sales and insist that it be abolished on 30 June 1999. The abolition of duty free sales was originally part of an overall tax package and it was in that context that member states gave it consideration in the early 1990s. Realistically, however, nothing fundamental has happened in the other indirect taxation areas. The Irish Government, therefore, believes there is no justification for pressing ahead with the abolition of duty free sales when it has been proved beyond doubt that there will be job losses. Even if there was only one net job loss, it would be too much.
There is a small gain for the Exchequer in terms of extra taxation but, in the overall scheme, that is not a large hill of beans. The Govern ment's position is to continue to press for the deferral of the date and, at this stage, the majority of member states support our position. However, only one country need hold out for the decision to remain in place.
The Minister and the advisers who drafted his reply appear to be suffering from a misconception in putting forward the argument that because people will still be waiting in airports for planes and at ferry ports for ferries the same quantum of retail business will probably be conducted. That is to miss the central point. It is not the quantum of retail business that is at issue but the margin. Aer Rianta's margin will be cut to about one-third of its current level even if the same amount of retail business is conducted.
The Minister misunderstands one of the fundamentals of this issue. Does he plan to hold talks with the ferry companies and Aer Rianta to ascertain whether the retail side can be developed so that not only the same quantum of business can be retained at air and ferry ports but that the margin can also be preserved? Otherwise the cost will run into Aer Rianta landing charges at Shannon, Cork and Dublin and will in turn end up in airline fares. As the ferry companies will not get their margin on excise free goods any longer, they will also be obliged to increase fares. Is the Minister aware that the primary ferry company serving Rosslare to France has announced it might have to go off the route for long stretches of the year if duty free sales are not retained?
My reply was long and the Deputy appears to have misunderstood what I said about waiting in airports. That point was made by the Commission in its report last week; it is not the Government's position. The Commission stated that the factors it took into account included the waiting time.
The Minister referred to sales in US airports but the margin is the issue.
The Commission said that in its report. The relevant paragraph from my reply is that:
The Commission states that the factors which it took into account included the following. The growing demand for transport services, stimulated notably by the existence of the single market, is not likely to be affected by the abolition of duty free sales. Most travellers, it argues, will continue to shop during waiting time at the airports or spending time on ferries, even after the abolition of intra-EU duty free sales. This, it says, is confirmed by the experience at US airports where there is continuing expansion of tax paid shopping malls.
That is the Commission's opinion but the Government disagrees.
The Government commissioned KPMG to produce a report some time ago and I submitted it to the Commission. The report dealt thoroughly with the matters raised by the Deputy. As a result of my visits to the regional airports, which I undertook before the ECOFIN meeting last May, I am conversant with the position of the regional airports and effects of the abolition of duty free sales. In one of the airports, for example, the removal of its duty free sales profits would put it in a loss making position. Even in Shannon Airport, the removal of the profits on duty free sales would have a severe effect on its surplus.
It would disappear.
The situation in Dublin is a little different. That has been the basis of the Irish case. We do not agree with the Commission's assessment.
The Commission was asked at the Vienna Council to prepare this report and it has done so. The report has not yet been discussed because ECOFIN is not due to meet until 15 March. I am certain it will not be greeted with warmth and applause. However, nobody has been in doubt for some time that the Commission is taking a hard line stance on this issue and the fact that last week's report indicates no change in its position is not surprising.
However, I am confident this matter will be revisited at the Heads of States meeting on 24 and 25 March. If not, it will undoubtedly arise at the Cologne Summit in June.
That concludes the time for Priority Questions. Two Priority Questions remain and they will be taken in ordinary time.
