JOINT COMMITTEE ON EUROPEAN AFFAIRS (Sub-Committee on Ireland's Future in the European Union) debate -
Tuesday, 4 Nov 2008

EU Economic and Financial Matters: Discussion.

Chairman

I welcome our guests. The sub-committee was set up to examine the future of Ireland in the European Union following the Lisbon treaty referendum result. We have four terms of reference, based on which we have created a work plan. We are due to have our work completed and reported on by the end of November. We are engaging in four modules. Today we begin the first part of our third module. We will examine the future of Ireland in the European Union in economic matters, particularly with regard to where we stand following the Lisbon treaty referendum. I welcome Dr. Alan Ahearne to discuss this question. I also welcome colleagues from the Irish Taxation Institute. Within the discussion of our economic future, we particularly want to examine our taxation policy, where it stands at present and where it could stand in the future.

Each guest is invited to speak for ten minutes on the module in which we are engaged. The leader of each group of members will then have an opportunity to put questions to the guest. Members who have not spoken will then have an opportunity to speak.

I draw attention to the fact that while members of the sub-committee have absolute privilege, the same privilege does not apply to witnesses appearing before the sub-committee. I remind members of the parliamentary practice that they should not comment on, criticise or make charges against a person outside the Houses or of an official, either by name or in such a way as to make him or her identifiable.

Dr. Alan Ahearne and a speaker from the Irish Taxation Institute will each speak for ten minutes. I invite Dr. Ahearne to speak.

Dr. Alan Ahearne

I thank the Chairman and members of the sub-committee for the invitation to speak to them and to share my thoughts about Ireland's future in the European Union, especially in relation to economic and financial matters.

The economy faces very serious near-term challenges, largely reflecting the bursting of the property bubble here, the crisis in international credit markets and the risks of a deep and prolonged recession in many of our major trading partners. Most forecasters expect the economy to contract this year and next. The public finances are on an unsustainable path and the banking sector is in need of major restructuring. With the past excesses in the construction and banking sectors likely to unwind only gradually in coming years, it is clear that the country's economic recovery will be led by exports, as it was in the 1990s. Our return to relying on exports as the engine of growth underscores the importance of our relationship with the rest of the European Union. The Union is, by far, the largest market for Irish exports, accounting for two out of every three euro in merchandise export revenues last year.

Most of our exports are produced by foreign owned affiliates of multinational companies in Ireland, particularly US multinational companies, reflecting our extraordinary success in attracting foreign investment. Continued strong inflows of foreign direct investment is critical for our economic future and ability to emerge swiftly from the current slump. With our low rate of corporation tax and high skill levels, one of the most important factors in attracting foreign direct investment to these shores is our close integration with the rest of Europe.

From what I can gather this country's rejection of the Lisbon treaty has raised doubts in the minds of senior management of some multinational corporations about our place in Europe and about our commitment to the EU economic project. Any wavering, either real or perceived, in our enthusiasm for the European Single Market, greater competitiveness in Europe, the Lisbon reform agenda and deeper economic integration in Europe will almost certainly leave us at a disadvantage in the highly competitive fight for foreign direct investment.

Nowhere are the benefits to Ireland of economic and financial integration more visible today than in the protection from financial meltdown that we enjoy from membership of the single currency area. The dreadful experiences of Iceland, some new EU member states and, to a lesser extent, Denmark remind us that if a small open economy is to have a crisis, it is far better off to have that crisis while being part of a large single currency area.

Being a member of the euro area requires that we follow the rules. In this regard Ireland will need to convince the European institutions and our European partners that we have a credible strategy for reducing the budget deficit over a reasonable time frame. The Government may find the external discipline resulting from the EU rules helpful in persuading the Irish public to swallow the bitter medicine of fiscal consolidation over the next few years. On the other hand, countries have found to their cost that blaming Brussels for the hard choices that must be made can backfire and weaken voters' enthusiasm for the single market.

As a person who visits Brussels regularly, I was struck by the shock and disappointment among officials and the broader economic community about Ireland's rejection of the Lisbon treaty. Ireland had been viewed as the star pupil and a major beneficiary of economic and monetary union in Europe. Now the Brussels community seems unsure about Ireland's intentions and puzzled as to why Ireland has chosen to burn political capital and risk potential isolation at a time when we face the most severe economic crisis in living memory.

Chairman

I thank Dr. Ahearne. I will hand over to our colleagues from the taxation institute. I take it Mr. Redmond will speak first.

Mr. Mark Redmond

I thank the Chairman and members of the sub-committee. On behalf of the Irish Taxation Institute, I sincerely thank the sub-committee for inviting us here this afternoon. I am joined by my colleagues, Ms Una Maguire, who is responsible for EU matters within the institute, Mr. Andrew Clarke, a past president of the institute who last year was president of the Confédération Fiscale Européenne, CFE, which is the European-wide collective body of tax institutes, and Mr. Roddy Ryan, a member of the institute and a director with Glen Dimplex, who is familiar with the issues we are discussing this afternoon.

The institute has followed the work of this sub-committee with great interest. We recognise the volume of work undertaken by the sub-committee, the critical importance of the issues on the sub-committee's agenda and the short time frame the sub-committee has been given to deliberate on these matters. In that context, we are grateful to the sub-committee for making time for the institute this afternoon. We sincerely hope we are of help to the sub-committee's deliberations. If any further input from the institute would be of help to the sub-committee, rest assured that will be readily forthcoming.

We have been asked to focus our comments this afternoon on what Ireland's future policy approach should be within the European Union in respect of taxation policy.

Taxation is one of the key issues of concern to our people when it comes to membership of the European Union, in particular, in terms of the Lisbon treaty. In the course of the debate on the Lisbon treaty major concerns were raised about our ability to maintain control over our corporation tax, and particularly our corporation tax rate, should the treaty be ratified.

This issue was linked by some in the debate to the separate matter of EU proposals to harmonise the corporate tax base throughout the European Union known as CCCTB. At this point, I want to stress to the sub-committee that these two issues are not directly linked. The Lisbon treaty does not require Ireland to participate in the CCCTB project should it ever happen, and it does not facilitate the imposition of CCCTB, should that proceed, upon Ireland.

A number of parties who have already appeared before the sub-committee have emphasised the absolute necessity for Ireland to maintain a corporation tax policy that is underpinned by certainty and competitiveness, and they identified this as one of the key factors, along with others such as infrastructure and investment in education, in attracting inward investment.

Any threat to our 12.5% corporation tax rate will give rise to considerable uncertainty in the minds of those who have currently invested in our economy or are considering investing here, thereby damaging the competitiveness of our economy and our capacity to sustain and create employment. The political consensus in Ireland on this point and the affirmation of the continuation of the 12.5% rate in last month's Budget Statement are particularly important because they provide certainty regarding Ireland's corporation tax policy for those who have created employment here and for those who may consider investing to create new employment. The provisions of the Lisbon treaty provide no threat to this certainty. My colleague, Una Maguire, will deal with this matter.

With regard to the CCCTB, the Irish Taxation Institute has raised concerns consistently regarding these proposals. Ms Maguire will also deal with this matter. For the key reasons of maintaining certainty and competitiveness, Ireland must retain control over its corporation tax rate and structure. It is important to emphasise that we operate a very transparent corporation structure in Ireland with no hidden adjustments or deductions. We are fortunate to have an advanced and rigorous Revenue authority which underpins our self-assessment with appropriate checks and balances to ensure those availing of the 12.5% corporation tax rate bring the required substance and presence to their operations in Ireland. The sub-committee has heard detailed comments on these matters from representatives of the multinational sector, IDA Ireland and Enterprise Ireland among others. We support the comments made to the sub-committee by previous speakers. In the current difficult economic circumstances we collectively face, it is vital that we maintain control of our taxation rates and structures in order that we can act swiftly and without unnecessary hindrance in managing the public finances.

It is also vital that we maintain our influence and credibility at EU level. The sub-committee has heard in some detail the scale of the positive contribution to our social and economic well-being arising from EU membership, most recently from Dr. Alan Ahearne. It has also heard about the apparent damage to Ireland's influence and standing at the EU table since the rejection of the Lisbon treaty. It is in our collective interests to take whatever action we can to repair this damage.

Ms Una Maguire

I echo Mr. Redmond's thanks to the Chairman and the sub-committee for inviting us to address this meeting. The first matter I will deal with is Ireland's veto over changes to direct taxation and the concept of unanimity in the context of the Lisbon treaty. In the course of the Lisbon treaty debate there was considerable uncertainty regarding Ireland's ability to control its own destiny in respect of its corporation tax rate if the Lisbon treaty was ratified. It appears this was one of the significant factors leading to the rejection of the treaty last June. The Irish Taxation Institute issued an unambiguous statement in advance of the referendum that the terms of the Lisbon treaty presented no threat to our ability to control our own destiny regarding our corporation tax rates.

Unanimity applies to any changes to direct taxation in the European Union. Under the Lisbon treaty, all direct taxation measures remain subject to unanimity, meaning Ireland's veto on tax changes is intact and copperfastened. The Lisbon treaty would allow the Council of the European Union, acting by unanimity and unless any parliament objected, to extend the use of qualified majority voting, QMV, to areas where unanimity is required at present. However, the decision to make such an extension of QMV to the area of taxation must be unanimous. Accordingly, under the Lisbon treaty, Ireland would have a veto over any such extension. The Irish Taxation Institute's statement made it clear that under the Lisbon treaty, Ireland's 12.5% corporation tax rate and other direct taxation measures were safe and that the Government would retain control over direct taxation policy.

I also wish to cover the entirely separate issue of the European Commission's proposal for a common consolidated corporate tax base, CCCTB. We note the issue has arisen in the sub-committee's deliberations to date. In the statement made by the Irish Taxation Institute prior to the referendum it was made clear that the Lisbon treaty and CCCTB were entirely separate issues that should not be linked. To date, strong concerns have been expressed across the European Union about the impact of any proposal along the lines of the CCCTB. The overall concern is that the competitiveness of the European Union and the internal market would be damaged, that the Union would disadvantage itself against emerging economies and that the system would lead to increased compliance costs and effective tax rates for businesses operating within the Union.

In addition to these shared concerns, we understand the prioritisation previously attached to the CCCTB project may no longer be as strong but as this item has been on the EU agenda for 20 years or more, we must remain focused and continue to engage in the debate on any such proposal in the future. I reaffirm the reality that there is no link between the Lisbon treaty and the CCCTB.

Chairman

I thank all the witnesses for their contributions. The order of speakers is as follows: Fianna Fáil, Fine Gael, the Labour Party and the Independent group.

Deputy Michael McGrath

I welcome Dr. Ahearne and the Irish Taxation Institute delegation and I thank representatives for their contributions. It is important that the taxation institute, as the competent authority in Ireland to comment on such matters, has reaffirmed that the CCTB issue and Ireland's control over direct taxation matters such as corporation tax are entirely separate. It was proven in the survey following the rejection of the Lisbon treaty that concern regarding this issue was a significant factor in many people voting "No". However, that issue has been dealt with comprehensively. Direct taxation will remain a competence of member states and not the Union.

I have several questions for Dr. Ahearne regarding the Stability and Growth Pact and Ireland's obligations as a member of the euro zone. In recent days, moves were made by the European Commission to initiate the excessive deficit procedure. Given many countries in the euro zone are likely to enter recession, does Dr. Ahearne feel the terms of the pact are realistic and sustainable in the present economic climate? Will the pact be revised in light of the prevailing economic conditions?

Competition law, which is necessary for the internal market, remains an exclusive competence of the EU. Will Dr. Ahearne comment on the interaction between domestic competition law and EU competition law because there is confusion regarding where the lines of demarcation are and where they should be in adjudicating on competition issues that affect Ireland and Ireland within the Union generally?

I refer to the issue of public services and the potential impact of the treaty on services of general economic interest in the protocol attached to the treaty. Do Dr. Ahearne or the representatives of the ITI feel there was a threat to public services in Ireland arising from the provisions in the protocol? It is clear the provisions recognise the importance of public services in member states.

The common commercial policy was a key issue during the referendum campaign. The policy explicitly refers to foreign direct investment and the "No" side put forward the argument that in some way FDI could be impacted negatively because of this reference. Will the witnesses comment on that?

Dr. Alan Ahearne

The Stability and Growth Pact was reformed in 2005 to make it a little more flexible and it allows governments to run deficits greater than 3% in exceptional circumstances. If these are not exceptional circumstances, I do not know what are. This is an unprecedented global financial crisis. The deterioration in Ireland's public finances has been unprecedented, in large part because the contraction in the economy is enormous and because so much tax revenue comes from property. It would be impossible for the Government to keep the budget deficit, for example, below 3% in 2009. That would have involved such a contraction in fiscal policy that it would have put the Irish economy unambiguously into a depression. The reform was revised to prevent that exact type of thing from happening. It was done to ensure that Governments do not have to slam the brakes on too hard when they face exceptional circumstances. It makes sense for the Irish Government to run large budget deficits. There are times when a country should run a big surplus and times when it should run a large deficit. At this time, Ireland and many other members of the euro area should run large deficits.

One of the problems member states are encountering is that EU monetary policy is currently not as effective as it usually is. The Union is not getting the same bang for its buck when interest rates are reduced, as a consequence of the problems in the credit markets. Most economists agree this is a time when fiscal and budgetary policy needs to step up to the plate. A fiscal stimulus is needed in the United States, in Europe and in Asia if a deep global recession is to be avoided. Some of the large countries in the euro area, such as Italy and France, are already close to the 3% limit. If they are to provide the effective fiscal stimulus that is needed, they will have to run deficits which are significantly bigger than 3%. The banking capitalisation that is taking place across Europe, which is adding to the public debt, will ensure that some countries significantly breach the 3% limit. I am not sure whether that will necessitate a revision of the Stability and Growth Pact. I imagine that the institutions would be sensitive about throwing away the Stability and Growth Pact. Rightly, they would like a strategy to be put in place — over three, four or five years — to ensure that any country which exceeds the 3% limit can bring its deficit back down again. They need to be convinced that a strategy is in place. It is in a country's own interest to ensure that such a strategy is in place, even if it is not demanded by its neighbours or the European institutions. When a country is facing budget deficits of the kind that have been mentioned, it needs a sensible budgetary policy that involves a credible consolidation strategy.

As I am not a lawyer, I do not wish to comment on competition law. It is not my area of expertise. I did not see any threat to the public services in the protocol. I share Deputy Michael McGrath's opinion on that. It seems that it is up to the national Governments to decide on that. Perhaps Mr. Redmond would like to pick up on that issue.

Mr. Mark Redmond

We are not experts on the issues of competition law, public services and common commercial policy, but we certainly do not envisage that those matters will be threatened. I will defer to my colleagues in that regard.

Deputy Beverley Flynn

The suggestion that Ireland's veto in the corporation tax area might be undermined by the treaty was a big issue during the course of the referendum campaign. I want to nail down the two points on which people based that suggestion. First, we need to deal with the points being made about the European Court of Justice ruling on Article 93, which relates to indirect taxation, if we are to eliminate that argument in the future. The purpose of this sub-committee is to bring clarity to some of the issues that were raised over the course of the referendum campaign. We need to put those issues to bed once and for all. Second, we need to deal with the suggestion that enhanced co-operation, which has been in place since 1999, is dangerous for Ireland. It has been suggested that if nine or more countries decide to engage in enhanced co-operation in the area of corporation tax, it would have implications for us.

Mr. Mark Redmond

Under the Lisbon treaty, Ireland retains its absolute veto in relation to direct taxation policy. That was confirmed under the Lisbon treaty. Issues such as decisions taken by the European Court of Justice and possible engagements in enhanced co-operation have no bearing on that fact. I invite my colleague, Ms Maguire, to elaborate further on the matter.

Ms Una Maguire

In our written statement and our opening statement, we put it beyond doubt that the veto on direct corporation tax measures is copper-fastened by the Lisbon treaty. We also mentioned that in the context of any move to qualified majority voting. As a member state of the European Union, Ireland must ensure that its legislation does not contravene the rulings of the European Court of Justice. Perhaps it is misguided to link that to the Lisbon treaty. That is the situation for Ireland and any other EU member state.

Deputy Billy Timmins

I thank the speakers for the clarity they have brought to this issue. They have answered any questions I had but I will raise a few ancillary issues.

The speakers have clarified the issue Deputy Flynn raised regarding Article 113 in the consolidated treaty. Why did some commentators get it wrong? Some financial and business journalists claimed there were implications for our capacity to retain our veto after ratifying the Lisbon treaty, notwithstanding the fact that the before the referendum the Irish Taxation Institute issued a statement as unambiguous as its statement today.

In Ms Maguire's submission she talked about the proposal for a common consolidated corporate tax base and said there was concern that the competitiveness of the European Union and the internal market would be damaged if such a policy was put in place. Will she elaborate on this?

I would not like to embroil Dr. Ahearne in a political difficulty, but it was reported that last night the Minister for Finance stated membership of the euro system was the major cause of the Irish housing bubble. He said one of the main factors fuelling the domestic housing bubble in the Republic was the low interest rate policy pursued by the European Central Bank. He went on to say he did not blame the European Union but told reporters he was drawing attention to the objective economic factors. Would Dr. Ahearne have any comment to make on the accuracy of this statement and what responsibility, if any, our membership of the euro system had for causing the domestic housing bubble?

Mr. Mark Redmond

I will take the Deputy's first question on the confusion caused. I would be the first to admit that taxation matters are confusing to the lay person and when combined with the EU——

Deputy Billy Timmins

Only one side was confused.

Mr. Mark Redmond

I thank the Deputy for his comments on the clarity we brought to the issue because it is very complex. When one enters the arena of taxation there is the potential to cause confusion. It is important for those who can to bring clarity to the debate and we are happy to do so. On competitiveness, I defer to Mr. Ryan.

Mr. Roddy Ryan

I do not believe the CCCTB will come to pass. It will be introduced only if all nations agree and there is a clear, demonstrable economic benefit to the European Union as a whole. An impact assessment has been made but has not yet been released. I do not believe it will show the introduction of CCCTB would make a significant contribution to EU GDP. While business in general is in favour of it, provided companies can decide to opt into the system, I do not believe the major states of Europe want it to be optional. At some stage these two opposing positions will become manifest. The CCCTB is incredibly complicated and could produce enormous distortions while being introduced. If introduced, it would lead to countries outside the European Union enjoying a significant competitive advantage vis-à-vis the European Union. Companies in countries such as Singapore would enjoy a significant advantage over those based in Europe. That is an important part of the competitive aspect. For these reasons I do not believe the CCCTB will come to pass. It is not in our interests that it should; neither would it be in the interests of business in Europe generally.

Dr. Alan Ahearne

Low interest rates contributed to the bubble, but were part of the advantage of joining the European Union. Interest rates can be too high or too low for an economy. If one is a member of the European Union, one's economy is doing very well, as Ireland's was. When interest rates become inappropriately low, there is a duty of good policy making on the national government to take some measures to offset those inappropriately low interest rates. In a domestic setting this would call for action on the taxation of property, for example. If interest rates fall and cause house prices to rise at an unsustainably fast rate, good policy-making requires a government to take action to offset this, such as raising taxes, including property tax and capital gains tax, and reducing mortgage interest relief. There must be a way to counteract what is going on inappropriately, though we know that one size does not fit all in terms of interest rates because this is the nature of life in a monetary union. There are many advantages to monetary union and the national government must guard against the potential downsides to it. The UK is not part of the euro area but it had a housing bubble so it is not necessarily true that it only affects countries in the euro area.

Counterfactuals are always difficult but we might imagine what could have happened had Ireland not joined the euro. Would we still have seen much borrowing for housing? I think so but house buyers here might have borrowed in euro. We would still have had the punt, with higher interest rates, but lower interest rates in the euro area would have made borrowing in euro attractive for people buying houses. This is similar to what people in Hungary have done with Swiss francs and euro. In the hypothetical case I have outlined, many people in Ireland would have mortgages in foreign currencies, such as euro, and this would be problematic if the punt got into difficulties and depreciated; the punt value of mortgages would go up.

If the Minister made that statement he is right about low interest rates but that does not suggest that what happened to the domestic property market is someone else's fault.

Deputy Billy Timmins

Am I right in saying that Dr. Ahearne feels the impact of low interest rates could have been negated had we taken certain internal policy steps?

Dr. Alan Ahearne

If we were to do it all over again that is how it should be done.

Deputy Joe Costello

I thank the Chairman and I thank the delegates for coming here and enlightening us, as far as that is possible on these complicated matters of finance and taxation. What was said was very helpful.

Dr. Ahearne's opening remarks related to the importance of foreign direct investment. He suggested that economic recovery could only be made through exports and that the majority of our exports come via foreign direct investment. Can Dr. Ahearne elaborate on this? Is he suggesting that we cannot get ourselves out of this recession, that we are entirely dependent on the goodwill of other countries that have invested here and are responsible for the majority of our manufactured exports, if not services?

Regarding the domestic financial crisis and our unilateral actions in providing a guarantee on liability to the banks, we operated as though we are not in the euro zone. One or two member states, particularly France, through President Sarkozy, gave us a slap on the wrist for this. How does Dr. Ahearne view our actions. It is ironic that a country outside the euro zone, the United Kingdom, led the initiative in terms of injecting liquidity into various financial institutions for those within the zone. There seems to be a degree of contradiction in how countries inside and outside the euro zone operated.

The growth and stability ratio is set at 3% but Ireland is at between 6.5% and 7.75% in the current budget. It is reported in today's newspapers that the country is to be hauled over the coals by the European Union and fined for breaches of the pact. There seems to be a huge margin of flexibility, to say the least, in all of the rules and regulations of the European Union. What regulation took place? Now that the financial turmoil has come to a head commentators are saying our domestic regulator was asleep when the financial institutions were operating outside the regulations within which they were supposed to operate and that the European Union is only now waking up to the degree of turmoil in the Irish economy and never understood we were as far down the tubes as we were. What can we do in that context? The Minister for Finance seems to be saying it was not our own financial institutions which caused the crisis, that it was caused by events in the international economy.

I seek further clarification of the consolidated tax base. I am aware of the distinction between the harmonisation of the tax base and the consolidated tax base. Is the consolidated tax base all bad? As I understand, its purpose is to break down the cross-border barriers in the member states to maximise or optimise trading in order that it will be less expensive for small and medium-sized businesses, in particular. Big operators are able to negotiate the various regimes, but a common consolidated tax base would facilitate more business. It would, therefore, be an advantage to have it.

Dr. Alan Ahearne

I thank the Chairman and the Deputy for their questions. To elaborate on the economic recovery, Ireland is a small open economy. In the 1990s our growth was export led. We had annual export growth of approximately 20%. That slowed dramatically from around 2002 onwards to approximately 3% or 4% in real terms. What was driving the economy at that stage was domestic factors, particularly property. That, however, is unsustainable. We will eventually see stabilisation in the property market but we will not see the property market booming again for a long time. The only sector of the economy that is really big enough to allow sustainable growth, therefore, is exports, as previously. As to whether that would be from indigenous firms or foreign direct investment, presumably indigenous firms exporting also make a very valuable contribution to GDP growth. In terms of the arithmetic, 90% of merchandise exports are dominated by the multinationals. In terms of making an impact on GDP, even if we had very rapid growth in indigenous exports, the sector is too small to drive the overall economy. It is also true that the same factors that help multinational companies are also beneficial to indigenous exporters; it is not that the two are somehow fighting against each other. Competitiveness, for example, is something that promotes exports, whether from a foreign-owned company or an indigenous company. The sheer arithmetic of the size of the multinational sector here relative to the economy means that if we are to have fast growth, they will be critical to it.

Deputy Joe Costello

Dr. Ahearne mentioned there were serious doubts in the minds of senior management in the multinational sector. Is that correct?

Dr. Alan Ahearne

I have had conversations with people in multinationals here and at head office in the United States. My impression is they seem to be confused about where Ireland sees itself in the European Union. In headquarters in the United States they read a headline on the front page of the Financial Times that states Ireland has rejected the European treaty. The feedback I have is that they are questioning whether Ireland is really committed to the European Union and the European project. It is one more uncertainty that we could do without.

Deputy Costello mentioned the UK model of bank guarantees. What I like about the UK model is that it has a Government guarantee of some liabilities, which is a good and necessary thing and the recapitalisation of banks, which is necessary. The total UK package was a good one. The Irish scheme also has guarantees. There are questions as to whether we needed to guarantee as much as we did. For example, the UK Government guaranteed new bank borrowing from other banks but not existing bank borrowing. The Irish Government guaranteed everything. There are issues regarding the particular liabilities. One could only make an informed judgment if one knew the details of what the Government faced on that Monday night. I do not have those details. There may be aspects of the closely linked banking system which make a blanket guarantee the only possible option. I like the recapitalisation part of the UK programme. We have also seen this in other European countries. That seems to be unfinished business in our restructuring.

Deputy Costello also asked about the Stability and Growth Pact. No country has been fined yet so it is premature to talk about the Irish Government being fined. As to who is to blame, so far most of the downturn in Ireland is domestic. The decline of our GDP is largely caused by the contraction in property, particularly new home building. That has fed through to consumption. So far, our recession is mostly domestic but the global credit crunch may impact more in the future. We have not seen that so far. Our exports are still growing. If the global economy goes into recession our export growth will be threatened. So far, our exports have held up reasonably well. We may see a bigger hit to our exports if more of the drag comes from international rather than domestic factors.

Mr. Mark Redmond

With your permission, Chairman, I will ask Mr. Roddy Ryan to deal with the Deputy's question on the consolidated base.

Mr. Roddy Ryan

Tax people use terminology such as "harmonisation" and "consolidation". By harmonisation they mean that the same tax rate operates throughout the Union. The consolidated base is a different thing. It means one adds up the tax base the way one computes profits and then one consolidates it. One adds together the profits of all the related companies around the European Union. The common consolidated corporate tax base, CCCTB, is about allocating that combined group of profits among the different countries, based on a formula of sales, employees and net assets. The income allocated to each country is then taxed at the tax rate applicable in that country.

One might ask if the system is wholly bad. Many large European businesses are in favour of the CCCTB, provided it is optional. They want to have the option of applying it for themselves. The advantage for them might be that they might get relief they would not otherwise get for losses and that their costs of complying, preparing tax returns and so on, might be less than they would otherwise have been. There are some arguments in favour of it. There are counter arguments. A difficulty is that with the system being proposed and gradually evolved, the compliance cost saving will be far less than was originally envisaged, if anything at all. There is also a significant fear that the real objective of the larger member states is to increase the tax rates. The more the debate goes on the less in favour of it large business will be.

Should small enterprises be in favour of it? By definition, the vast majority of small enterprises do not operate outside their own countries. For those enterprises, it is completely irrelevant. It might be of some benefit for small enterprises seeking to expand into one or two other countries where there may be slightly lesser rules. In my experience, Irish enterprises have been well able to expand outside Ireland into all sorts of different countries and have never found tax a burden or impediment to extending their activities into other countries. We do not need this to enable small enterprises to expand.

Senator Déirdre de Búrca

I welcome all of the speakers here today and thank them for their presentations. First, I will ask a general question on comments I heard on the radio recently which were made by Professor Galbraith, professor of economics in the University of Texas. He made an interesting point, namely, that the European Union, because it is seen to have hard-wired certain economic policies into its constitutional framework, will be less flexible and less capable of responding effectively to the economic downturn the global economy is experiencing than the United States or other parts of the world.

The Stability and Growth Pact might be an example of a policy that was enshrined in the European constitutional treaties that viewed any necessity to go outside of borrowing more than 3% of GDP to be something that would only happen in exceptional circumstances and be relatively temporary. Chances are we may be facing into a quite significant and prolonged global economic downturn and, if so, the Stability and Growth Pact will have to change or at least some modification will have to be made to it. On that general point, what are the speakers' views on whether the European Union is now at a disadvantage in terms of being able to respond to the new global economic conditions in which it finds itself because of the economic policies enshrined within its constitutional framework?

My next question, which I address to Dr. Ahearne, is to confirm that I understand correctly the point he made. He seemed to suggest that it is important for member states, particularly in times such as we are experiencing at present, to have control over fiscal policy. He seemed to suggest that given the fact that the European Union has control — I do not know whether I understood him correctly or not — over monetary policy and therefore interest rates, in difficult times such as these it is important for member states to be able to use fiscal stimuli to generate growth. Do I take it that he feels any eventual ceding to the European Union of competence for fiscal policy would not be a desirable development and that member states should retain their control over fiscal policy indefinitely into the future?

My next question is to do with tax competition. Is it the speakers' view that tax competition within the Single Market is a good and desirable thing and, if so, why?

Ms Maguire concluded her opening remarks with the statement that there is no link between the Lisbon treaty and the CCCTB. Is there a link between the introduction of the CCCTB and the capacity of member states to control the setting of their own taxation levels, particularly corporation tax levels? That was the insinuation. It was not that the Lisbon treaty would somehow weaken it, but that the push towards the introduction of the CCCTB, whether written into the treaty or not, would undermine over time the control of member states over taxation policy.

Mr. Mark Redmond

In respect of the Senator's question on tax competition, we would certainly strongly argue it is a good thing. We would also strongly argue that within the context of the benefits that European Union membership has brought to Ireland, which have been clearly articulated over the hearings of the committee, and which include a net transfer of some €50 billion to €60 billion over the lifetime of our membership and access to a market of 450 million people, it is importance to stress the importance of maintaining our ability to control our direct taxation policy for the reasons I mentioned such as that we can respond where necessary, in terms of our own economic requirements and circumstances, without hindrance. If I may, I will defer, first to Ms Maguire and then to Mr. Ryan, in respect of Senator de Búrca's questions on the CCCTB, enhanced co-operation and the Lisbon treaty.

Ms Una Maguire

To comment briefly on the perceived links between the Lisbon treaty and the CCCTB, we all have spoken here today about the fact that the CCCTB may or may not happen. The questions surrounding tax and the Lisbon treaty must be dealt with regardless of the CCCTB because there is no link between the two. I referred to the questions about tax which arose as part of the Lisbon debate regarding the veto and any doubt about the extension of qualified majority voting to tax. This has been put beyond doubt and is copper-fastened and secured under the Lisbon treaty.

Many of the concerns we have discussed with regard to the introduction of a CCCTB hinge on the important word mentioned by Mr. Roddy Ryan, namely, "optionality". If the proposal is to come through, then support for a CCCTB will hinge on the optional or otherwise nature of any proposed system.

Mr. Roddy Ryan

I will finish the point on the CCCTB. If it were to be introduced, countries would lose some control over the level of tax they receive. They would lose no control over their ability to set rates. What they would lose control over is the amount of income available to tax. I will give a stark illustration of this. Two or three countries are major proponents of a CCCTB and at an early stage one of these was Germany. Interesting work has been done by the Oxford business school on who would be the winners and losers in this. A total of 8,000 companies from throughout Europe were analysed and the researchers felt that if it were to be introduced on an optional basis Germany would lose 13% of it corporate tax revenue. I do not know whether it was coincidental but Germany's enthusiasm for the CCCTB seems to have diminished considerably over recent months.

Dr. Alan Ahearne

My point about the fiscal stimulus is that it is not so much about who controls monetary policy. The UK controls its own interest rates but the UK needs fiscal stimulus and the Government there has introduced a certain amount. The US also controls its own interest rates and it also needs fiscal stimulus. It is important now because normally when central banks cut interest rates part of the reason it is stimulative is that it promotes extra lending by banks. At present, because of the credit crunch we do not have extra lending from banks. Interest rate reductions are not as powerful as they usually are and on top of this, interest rates are already low in many areas so there is not as much bang for the buck in cutting interest rates.

Another tool of macro-economic policy is available and this is fiscal policy. During many economic downturns of the past 40 years, countries did not need much fiscal stimulus because the central banks were able to turn the economies around. However, this may not be true in the current environment given the problems in credit markets. They probably require help from fiscal stimulus and this help may need to be substantial. For this reason, in the UK, US and euro areas fiscal stimulus becomes important.

I do not advocate a free for all whereby countries can run any type of budget deficits. Problems are associated with running a large budget deficit in that it tends to push up long-term interest rates which can snuff out some of the stimulus. There is always a trade off. For 2009, given the situation faced by the global economy, some fiscal stimulus and large deficits, approximately 3% in some cases, are desirable and would make good economic policy.

With regard to whether the EU is at a disadvantage, there are so many uncertainties at present it is hard to know what approach will be the best. One area where the EU is at a disadvantage is that it cannot do what the US Federal Government is doing in the $700 billion Paulson plan, whereby one big pot of money will be used to help US financial institutions. We do not have fiscal federalism in Europe and we do not have one big pot. We have national Governments taking their own approaches. These are co-ordinated but they are all somewhat different. Questions are raised as to whether this co-ordinated but different approach will be as effective as what is being done in the US. It is too early to tell.

Ms Mary Lou MacDonald, MEP

I thank the three delegates for their interesting presentations. The impression has been given that Ireland's participation in the Single Market has in some way been damaged by the "No" vote on the Lisbon treaty. Will Dr. Ahearne confirm that market access has not been compromised and that we still enjoy access to the vast markets we had before the treaty was ever on the horizon? Furthermore, goodwill is part of the equation in our trading patterns and capacity to export our way to recovery, which will be reliant on our capacity to innovate and have a competitive edge. The narrative that suggests Ireland's economic prospects and prospects for inward direct investment have been undermined by the Lisbon treaty referendum result is grossly overstated. Confidence is needed. Corporations in America need to know where Ireland stands in Europe. Does Dr. Ahearne share our view that the Government needs to state categorically and repeatedly that Ireland remains engaged and at the heart of the European project and that our position on the Lisbon treaty does not in any way negate this?

The reason the CCCTB came up in this debate is that it is a live issue at European level and will not go away. Commissioner Kovács has indicated he will examine the enhanced co-operation mechanism. Whether he can is a moot point. The Commission and the French Government have indicated clearly that this is part of their political horizon. Given that the European Union has the levers in regard to monetary policy, why would we presume fiscal policy is off limits? That is a major political assumption, with due respect to the Irish Taxation Institute.

Ms Maguire mentioned Article 48, a new innovative clause or passerelle. She clearly identified that this is a mechanism to move from unanimity to qualified majority voting. I am, therefore, deeply puzzled that she could claim the Lisbon treaty copperfastened an existing veto on taxation policy. The treaty does nothing of the sort, as it opens up a new avenue for the removal of the veto. Therein lies the rub because the veto remains but the Government has the discretion to concede it. As it stands, if the veto were removed, it would be presented to the people by way of referendum with a package of other reform measures. That is how these issues have been dealt with traditionally. The Lisbon treaty opens up an entirely different scenario. We made this point repeatedly during the campaign. Legal advice provided for the sub-committee confirms that analysis.

The taxation issue goes to the heart of people's concerns about the European Union. It is clear that there is no appetite in Ireland for the Union to take over fiscal policy or have a role in determining direct taxation measures. That is an almost universally held view. The Irish Taxation Institute made comments during the campaign and given the democratic decision of the people, it will accept they were not enough to quell public disquiet. We all agree that fiscal flexibility is essential, not least now; that we wish to limit EU competence creep; and that we want to keep direct taxation off the table. We have all acknowledged the new Article 48 provision. In that context, why would we not seek a protocol that dispels all concern by setting out in clear and legally binding terms that these matters are off the table? Such a protocol should make it clear, as far as Ireland is concerned, that the people exercise a veto on the matter of taxation. That is the core issue. Taxation is not just of concern to business — it goes to the heart of how a democratic society is run. Can we agree that it would be helpful and progressive to draw up such a protocol?

One of the reasons I make this argument is that the term "tax competition" has been mentioned. I remind the sub-committee that "tax dumping" is a term frequently used in relation to Ireland at EU level by people who do not see our approach as competitive. They feel we are playing outside the rules in a grossly opportunistic manner. I do not doubt that efforts will continue to be made at a political level to bring an end to that "dumping", as it has been distinguished. Now that the Lisbon treaty has been rejected by the Irish people — some people might not like it, but that is where we are at — the Government needs to decide where we stand. Can we not agree that a protocol of the kind I have mentioned should be pursued and secured by the Government? Such a protocol would put to rest the concerns held by a broad spectrum of people, albeit for different reasons. I refer to people involved in business, economic commentators and people on the right and left of the political divide. Would that not be a worthwhile and profitable thing to pursue?

Dr. Alan Ahearne

I agree that our access to the Single Market has not been damaged by the rejection of the Lisbon treaty. We do not face any new tariffs, quotas or import duties as a result. However, our ability to benefit from the Single Market has been affected by the result of the referendum. The sub-committee is aware that much of Ireland's export growth is driven by foreign direct investment. When foreign companies invest in Ireland by developing new plants here, their produce is almost exclusively exported. Such goods account for a large proportion of Ireland's export numbers. We need to reflect on the effect of the "No" vote on the perception of foreign investors. I refer to those who decide where to locate and expand. What do they feel about the Irish economy, and about the attractiveness of Ireland as a place in which to locate, now that we have rejected the treaty? As I mentioned in my opening remarks, the feedback I have received suggests that the result of the referendum surprised people who make such decisions. They are confused that Ireland voted "No" and therefore cast some uncertainty and doubt on how Ireland sees itself within Europe. While Government statements confirming Ireland's commitment to Europe are helpful, there is no doubt that the vote sent a powerful message. It got people's attention. It created concerns about how Ireland's sees itself. The result of the referendum added another factor to the long list of factors companies consider when deciding where to locate. The fact that Ireland voted "No" in the Lisbon treaty referendum is seen as a negative when such decisions are being made. It is one of many factors, but it does not help.

Mr. Mark Redmond

I agree with the point made by Ms McDonald, MEP, about the need to keep our eye on the ball in relation to control of direct taxation. We need to reflect on the intentions of certain elements at EU level in that regard. The development of a common consolidated corporate tax base is the latest manifestation of the Union's ongoing attempt to take control of direct taxation. Other attempts to do that have been made over the past 20 years, as Ms Maguire mentioned. We can safely predict that further attempts to achieve that will be made in the years to come.

It is very important Ireland maintains its respect and credibility at the EU table in dealing with these efforts when they appear every five to ten years. We are not alone in this. Without scientific evidence, I suspect the majority of member states do not want to surrender direct control of their direct taxation matters from a national level.

Regarding the comments on the impact of the "No" vote on our standing in Europe, I will defer to my colleague, Mr. Clark, in a moment. It is correct that the 12.5% rate is not just about the business sector but about jobs and employment.

On Deputy Costello's point about the SME sector, the 12.5% rate is as important to the SME sector as to the FDI sector. The 12.5% rate was negotiated with the EU. Regarding control of our direct taxation policy, the guarantee we believe is enshrined in the Lisbon treaty, which rests with our democratically-elected Government acting on behalf of the people, is as clear as it needs to be. Others may disagree and we respect that. If any further clarity can be brought to the debate we fully support that.

Ms Mary Lou McDonald, MEP

Does that mean Mr. Redmond would support the concept of a legally binding protocol affording that level of clarity?

Mr. Mark Redmond

We would support whatever measure can be taken in the parameters within which we find ourselves that would bring greater clarity on what we think is already clear, namely, our veto on direct taxation matters.

Mr. Andrew Clarke

As president of the European Body of Tax Advisers I have had much contact in Brussels with the new states which have approached us to join. The latest applicant is Russia, because we have members from outside as well as inside the EU. The new member states, which are mainly from eastern European countries, have always held Ireland up as the model. They frequently tell me that is where they want to go. However, they were very surprised and taken aback by the "No" vote. Of course it is a democratic decision by the Irish people but the perception in many of these countries is that it shows a certain cooling in Irish enthusiasm for the European project. That impression reigns in certain of those member states and the tax advisers with whom I have had contact in recent times.

We also have representation in Brussels and our staff contacting the various departments in the Commission have told me there has been a fair amount of comment and surprise about the Irish position. Mr. Ryan and I were talking before this meeting about how there has been a somewhat negative reaction from certain multinationals. While it is not possible to say there has been an immediate reaction to the "No" vote, we are still very much in the short term. What effect will it have in the longer term on FDI?

Chairman

I will let everybody else come in again with any further questions. I have three questions, two to the Irish Taxation Institute and one to Dr. Ahearne.

To the institute, what role, if any, would the European Commission or any other European institute play in assessing the level of corporation tax in Ireland? If we were to decide to change our current rate, what procedures would we need to go through with Europe now or in future?

To go back to a question on the European Court of Justice, can Ms Maguire elaborate on the role it could play in setting rates for indirect taxation? I am interested in this from the perspective of rates of indirect taxation.

My third question is for Dr. Ahearne and relates to what President Sarkozy said recently regarding the president of the European Central Bank playing a more active role in discussing monetary policy with European Heads of State. What was Dr. Ahearne's reaction to this proposal?

I ask the representatives of the Irish Taxation Institute to respond first.

Mr. Mark Redmond

In respect of the Chairman's first question, the key point is that we retain control at a national level of the corporation tax rate that we set, provided it is set impartially and not to the advantage of a particular sector or industry within Ireland.

Chairman

Who determines the impartiality of the rate?

Mr. Mark Redmond

This comes within the provisions of the state aid rules that operate in terms of European Union membership. I will defer to Mr. Ryan on this matter because we have found that the state aid rules have worked to the advantage of Ireland, in terms of tax policy and our economic position.

Mr. Roddy Ryan

About ten years ago the Commission instituted a study of all tax practices and systems around the European Union. It made out a list of the tax breaks being given to businesses and found that Ireland is the most transparent in Europe in terms of tax reliefs for businesses. It also found that many of the incentives and deals that exist in European countries contravene state aid rules. The Commission required these member states to either eliminate them roll them back.

The follow up to this study was a code of conduct that European Union countries had to abide by when introducing further changes to tax laws. This has been beneficial to us because it has resulted in the removal of many incentives in other countries that impeded investment in Ireland. There are areas of direct taxation in which the Commission has been of benefit to Ireland.

Ms Una Maguire

Can I clarify whether the question on the European Court of Justice relates to direct or indirect taxation?

Chairman

It was on direct taxation.

Ms Una Maguire

It would be advisable to start by saying that as things stand the ECJ has a role in protecting the European treaty, the four freedoms and competition in the European Union. As I said on direct taxation, Ireland, like any other member state, has a role in ensuring its national legislation does not infringe on ECJ judgments or on any of those freedoms.

In terms of indirect taxation and distortion of competition, the Lisbon treaty envisages a role for the ECJ. This is a proposed reality but, to the best of my knowledge, any powers given to the European Court of Justice in that context would be guided by the Council acting unanimously. I wish to emphasise the word "unanimous". The proposals must be put forward by all member states, including Ireland.

Dr. Alan Ahearne

One of the very positive aspects of economic and monetary union is the independence of the European Central Bank. We have seen generally low inflation expectations for the first decade of the EMU and any threat to the independence of the ECB is a threat to the economy of the euro area. In recent years politicians have made too many comments on monetary policy and this has been a problem, but it works both ways. The ECB has made comments on structural reforms and has blamed problems in the euro area on the lack of structural reforms. That dialogue in public has not been particularly helpful. It would be better to have less of that. The US Treasury never comments on interest rates. The US Federal Government agencies never comment on exchange rates. They may comment in private but they do not do it in public. A little more of that type of approach would be helpful. President Trichet testifies in front of committees of the Parliament. The financial markets would like to see a televised public meeting between the ECB and the euro group. That would guard against the notion that somehow the ECB is being pressurised by ministers for finance, by the euro group. That would probably be helpful in terms of each side explaining themselves. It would help if the ECB could explain why it makes certain decisions and if finance ministers can explain what they are doing. If they can do it in that sort of setting it may be helpful.

Chairman

If anyone has any further questions I will allow them. However, I remind the meeting that we will have our next group in at 4 p.m. and I would like to give everybody the opportunity to rest for five minutes before going into the next session. If anybody has a question I will allow it.

Deputy Joe Costello

In regard to the area of taxation, everybody across the table is of the opinion that tax competition is a good thing. I am not sure whether Dr. Ahearne said that. However, the taxation sector that is represented here said that. What is being talked about in saying that? We used to have very high corporation taxation which was reduced to 10% for manufactured export goods. At that point the European Union intervened and we raised it to 12.5% across the board. Is that the correct level to pitch it at? Should it be reduced to 10% to attract more foreign direct investment? Should we increase it to 15%, as one or two parties around the table have suggested? At this point, if both the national parliament and national government must operate effectively on the matter, one by veto and the unanimity in relation to the QMV, and all of the parties in this jurisdiction have already been party to the changes in our corporation tax in terms of reducing it to attract foreign direct investment, is there any reason we should even talk about a protocol which would require the Lisbon treaty to be renegotiated and have everybody vote again? Is the situation so hypothetical that it is something that should or should not be considered?

Deputy Michael McGrath

Dr. Ahearne in his initial contribution said that our close integration in Europe is a key factor in our economic success and that the rejection of the treaty raised doubts among multinationals and that any wavering of our commitment to Europe, real or perceived would put us at a competitive disadvantage. He put it very well. I want to ask him and the Irish Taxation Institute a question in regard to that. Our European partners have stated categorically that there is no mood for renegotiation of the treaty. If Ireland refuses to put the Lisbon treaty, with clarifications to the people a second time, and our European partners find a way, through enhanced co-operation or some other legal mechanism to go ahead with the key Lisbon reforms, we would have a two tier Europe. In that scenario would Ireland be at a disadvantage economically in terms of foreign direct investment, in terms of the investment decisions that indigenous companies would have to make? What would be the view of Ireland in that context if that were to transpire? That is a distinct possibility if certain options are chosen.

Dr. Alan Ahearne

The idea of a two speed European Union would frighten me at the best of times. In the current environment and given the challenges we face, it would be catastrophic and to be avoided at all costs.

Deputy Costello mentioned corporation tax. Similarly, an increase in corporation tax would have the potential to lead to disaster. It would suggest to multinationals that we were going to close the budget deficit in part by raising the corporation tax rate. To talk about going from a rate of 12.5% to 15% would open a Pandora's box. How much of the country's extra revenue would come from higher corporation tax returns and would 15% be the limit? Any movement would open a door to further increases and be very damaging.

Mr. Mark Redmond

I fully endorse what Dr. Ahearne said. As Deputy Costello said, the 12.5% rate is underpinned by political consensus. That is important in maintaining certainty for inward investment. It is only one factor, but a very important one, which multinationals consider when choosing to base their operations here. Any signal that the rate might go up would give rise to very strong concerns about its impact on existing and future employment.

With regard to protocols and clarity, I can only repeat what I have said. The view of the Irish Taxation Institute was placed on record before the referendum took place. The issue is very clear. We retain control over our destiny in these matters. We must be pragmatic about what can be achieved in any situation but if further clarity can be achieved within these parameters, we would support this.

Deputy McGrath's point echoes the theme raised by other delegates before the sub-committee. We respect the decision of the electorate. The sub-committee has been told that the result has not yet had an impact on inward investment. However, the multinational and foreign direct investment community are waiting anxiously to see what happens next.

Deputy Beverley Flynn

What possible further clarity could a protocol give us? We are talking about clarification of something that is already clear. Is the seeking of a protocol sensible? One side is putting it forward as an option. If the issue is clear already, what exactly are we clarifying?

Ms Mary Lou McDonald, MEP

The question of a two-speed European Union has been mentioned. We already have a multi-layered and multi-speed Union. Britain is not in the euro zone. Did the world cave in on its foreign direct investment? I have a difficulty with big claims such as that being made. I hope our capacity to attract investment is not damaged by anything. I rather suspect sabotaging the education system is far more dangerous in terms of our medium and long-term growth prospects. That is my view. Others are entitled to a contrary one.

The new passerelle clause, Article 48, changes the veto. It moves from a situation where unanimity is cast in stone to a mechanism under which the veto can be conceded in favour of a qualified majority. The passerelle clauses are considered to be so significant that when France first held a referendum, it was on this issue. That is how innovative they are considered to be.

Some may argue that we have sufficient certainty but I would like to see more. The issue is not merely one of corporation tax but of tax sovereignty. The securing of a protocol — albeit one that simply sets out Ireland's position, the absolute nature of our tax sovereignty and the necessity for a referendum in order that it is the people, not the Government, who exercise the veto — would provide the certainty the people are seeking.

It goes back to that issue of how much and how far. Taxation is a bridge much too far. That — I say to Deputy McGrath as he shakes his hand — is the considered position of the people expressed in a democratically held referendum. We either deal with the issues arising from the referendum campaign or we do not. It seems these are the choices in front of us. If it is the case that there is no ill-will at European level, that there is a general sense that, in fact, tax competition is good and that nobody wants to cede these rights, I do not see any difficulty whatsoever in going to our political partners to make a logical politically sensible case.

Deputy Michael McGrath

Sinn Féin appears to be suggesting fiscal policy should now be a matter for the people rather than the Government which is democratically elected. It is the case that if the Government wanted to change the corporate tax rate, it has the power to do so. To suggest we should go back to the people by way of referendum every time we want to change a fiscal instrument is completely nonsensical.

Ms Mary Lou McDonald, MEP

It is not a matter of the rates but where the decision is made. It is a crucial difference.

Deputy Joe Costello

My understanding is that the Millward Brown survey indicated that, when it came to the vote, fiscal policy was a minor issue and that only two groups, Libertas and Sinn Féin, had raised the issue to a significant degree. Sinn Féin is on record as stating it wishes to increase our corporation tax rate. Libertas's entire operation is questionable in that respect. Therefore, it is not true to state the people voted on the issue. The Eurobarometer and Millward Brown survey did not suggest the issue was significant.

Chairman

I thank Deputy Costello. We will have ample opportunity in a couple of weeks' time to thrash all of this out and we will all be here for it.

I ask the Irish Taxation Institute to respond to the questions put. We will then suspend the sitting. There are three guests waiting and I want to do them the courtesy of bringing them in.

Mr. Mark Redmond

Mr. Ryan wants to make a brief comment.

Mr. Roddy Ryan

I want to make the same point as Deputy McGrath. Every year there is a Finance Bill published and enacted in which the Government decides what it wants to do with direct taxes which it changes in countless ways every year. If the Government was afraid that something was to be foisted upon it and did not agree to it, it would have the same power to make the changes if it wished. It does not seem logical to state we would not trust the Government to veto something when, in fact, it has the same powers to introduce changes year in, year out. I do not understand the logic.

Chairman

I thank all our guests for coming. Their contributions are very helpul. I am grateful to all of them for giving of their time and expertise.

Sitting suspended at 4.05 p.m. and resumed at 4.15 p.m.