I welcome the Minister for Finance, Deputy Noonan, and his officials to this meeting. The Minister is here to brief the joint committee on the upcoming ECOFIN Council on 8 December and on the most recent ECOFIN Council last month. After the Minister has made his opening remarks, the members of the committee may put questions to him.
Forthcoming ECOFIN Council: Minister for Finance
The Ceann Comhairle has instructed that I attend the Chamber for Topical Issues shortly. I do not know whether I will get through my speech before I have to leave. I presume there will be a short suspension of this sitting while the joint committee waits for me to return.
I thank the Chair and the members of the committee for inviting me to speak in advance of the next ECOFIN Council of Ministers meeting, which will take place in Brussels on Tuesday, 8 December. This is the last ECOFIN Council under the Luxembourg Presidency, with the Netherlands taking over the Presidency from 1 January 2016. While there are indications that the proposed agenda will change, this is a useful opportunity to discuss the issues that will be considered by the finance Ministers at the ECOFIN Council. When the committee invited me to make these remarks, it asked me to provide a brief overview of the proceedings of the ECOFIN Council that took place in Brussels on 10 November last. The November ECOFIN agenda included discussions relating to the Commission action plan on building a capital markets union, the implementation of the banking union, the Single Resolution Mechanism in the context of the rules for bridge financing, economic governance, the follow-up to the five presidents' report, climate finance and the follow-up to the G20 and IMF meetings in Lima in October.
With regard to the Commission action plan on building a capital markets union, CMU, the Council adopted conclusions on the action plan at the meeting. The action plan aims to establish a fully functioning CMU in the EU by the end of 2019. The union will include all 28 member states. One of its main aims is to improve access to finance for European SMEs and start-ups. Stronger capital markets should make the financial system more resilient to shocks as it would broaden the range of available funding sources. Ireland is an enthusiastic supporter of the union and we accept that the EU focus must move beyond crisis management and increasingly turn to how financial markets can best serve the broader policy objectives of jobs and growth, like we are doing in our own economy.
On the implementation of banking union, the focus remains on instruments to deal with the recovery and resolution of failing banks. Participants in the banking union are the 19 countries of the euro area, whilst seven other member states have indicated their intention to join. The primary elements are the transposition of a directive on bank recovery and resolution, BRRD, ratification of an intergovernmental agreement, IGA, on the Single Resolution Fund, SRF, and transposition of a directive on deposit guarantee schemes. Ireland transposed the BRRD last July and the directive on the deposit guarantee schemes in November. As you know, we also ratified the intergovernmental agreement last week in advance of the 30 November deadline.
The other item on the agenda related to banking union, was the Single Resolution Mechanism, SRM, and rules for bridge financing. The SRF is part of the SRM aimed at ensuring the orderly resolution of failing banks. While this will be financed by banks, bridge financing will be needed for the SRF during an initial phase, when the fund's resources have not been fully built up to the estimated €55 billion it will have in eight years. Ministers agreed on an approach to be followed to finalise the bridge financing arrangements, which will consist of national credit lines from the member states and the details of this will be endorsed at the December ECOFIN. Any money will be recovered from the banking sector at a later stage by means of ex-post contributions.
Moving on to the topic of economic governance and the follow-up to the five Presidents’ report, entitled Completing Europe’s Economic and Monetary Union. Ministers participated in a first exchange of views on the Commission’s package of measures, which were published on 21 October, to take forward a number of the short-term measures set out in stage 1 of the report. The package includes proposals for external representation of the euro area at the IMF and the creation of national competitiveness councils. The Commission also announced as part of its package that it had established the advisory European Fiscal Board by Commission decision. Other suggestions include a revamp of the European semester economic and fiscal policy monitoring process, better use of the EU's economic imbalances procedure and a renewed convergence process.
On climate finance, the Council adopted conclusions in advance of the international climate conference, the COP 21, which is currently taking place in Paris. These conclusions focused on the EU’s climate finance contributions towards the $100 billion per year pledged by developed countries by 2020.
Finally, the Council was debriefed by the Commission and the Presidency on the G20 and IMF meetings which took place in Lima between 8 October and 11 October. Ireland is represented at these fora through EU membership and our Canadian constituency at the IMF. The G20 meeting focused on growth strategies, taxation, financial regulation and priorities for 2016, when China will have the G20 presidency. At the IMF meetings, the EU Presidency submitted to the international monetary and financial committee an agreed statement on the world economy, outlook and challenges, and IMF policy issues.
I will turn to the draft agenda for next week’s ECOFIN and provide an outline of the key issues that are likely to arise. As this will be the last Council under the Luxembourg Presidency, I would like to acknowledge the success of the Luxembourg Presidency to date and the progress it is making. The Netherlands will take over the Presidency role on 1 January, and I wish those involved every success in moving the agenda on. Let me also remind the committee at this stage that this is still a draft agenda - there may well be changes between now and the meeting, in terms of content and the order of the discussion. Ambassadors are meeting tomorrow to consider the draft agenda.
The agenda is busy in content as it stands, but some items will change and I will draw the committee’s attention to these as I work through them. The Council will begin by considering legislative deliberations, and this takes place in public session. Based on the draft of the agenda before us, six items are scheduled for discussion: the approval of the list of "A" items, which are items to be taken without discussion; securitisation; completion of banking union; financial transaction tax, FTT; and the common consolidated corporate tax base, CCCTB.
Securitisation is marked as a possible agenda item. The initiative on harmonising securitisation in the EU is part of the CMU action plan adopted by the CION on 30 September. The context is that the traditional dominance of EU banks in financing the economy is seen as imbalanced in contrast to the US. This leads to an EU policy focus on the potential to source additional financing for the economy from capital markets. The proposal for an EU framework of EU securitisation aims at two main objectives: first, to remove the regulatory disadvantages for simple and transparent securitisation products, and, second, to reduce or eliminate unduly high operational costs for issuers and investors. This framework should provide confidence to investors and a high standard for the EU, and also help parties evaluate the risks relating to securitisation both within and across products. On completion of banking union, the discussion is expected to focus on two items: the proposed European deposit insurance scheme, EDIS, and backstop to the SRM. The EDIS, which was published recently, will seek to allow a gradual move between now and 2024 to a fully mutualised EU deposit guarantee arrangement. This is the final pillar of banking union and is necessary to ensure savings are equally protected in all member states and to further weaken the link between banks and the sovereign. The backstop to the SRM is necessary to provide certainty on the issue of where money would come from in the event that the SRF had insufficient resources or that it exhausts its resources. In those circumstances, it is important that there is an alternative source of financing available to it. Every effort will be made to have this backstop in place well in advance of the completion of the transition period to full mutualisation of the SRM by 2024.
The next item on the agenda involves a state-of-play discussion on the FTT. Ireland is not among the participating countries but we will not stand in the way of those who want to introduce such a tax. We will continue to monitor discussions on the FTT to ensure the compatibility of any proposed measure with the internal market and with existing taxes on financial transactions, including our stamp duty and with a view to protecting our existing financial services business.
On the common consolidated corporate tax base, Ministers will be provided with an update by the Luxembourg Presidency on the current state of play of this dossier. We have yet to see the exact details of the re-launched CCCTB proposal. During the Luxembourg Presidency, the EU working party meetings focussed on identifying outcomes of the OECD’s work base erosion and profit shifting where there could be overlap with some of the international aspects of the proposed CCCTB.
Ireland is engaging constructively in these matters while holding a firm line that matters of direct taxation remain a member state competence and that unanimity in tax matters is maintained.
The second part of the agenda deals with non-legislative activities. Based on the draft agenda, there are 12 items scheduled for discussion. These comprise the approval of the list of "A" items, items to be taken without discussion; the ECOFIN report to the European Council on tax issues; the report by finance Ministers on tax issues in the framework of the Euro Plus Pact; the code of conduct; the future of the code of conduct; base erosion and profit shifting, BEPS; implementation of the banking union; the European semester; flexibility in the Stability and Growth Pact; statistics; annual report of the European Court of Auditors on the implementation of the budget for the financial year 2014; and the fight against terrorist financing.
We will have to suspend the meeting to allow the Minister deal with business in the Dáil.
Sitting suspended at 5.05 p.m. and resumed at 6.20 p.m.
We are now back in public session.
I will continue with my introductory remarks. The first three items, namely, the ECOFIN report to the European Council on tax issues, the report by Finance Ministers on tax issues in the framework of the Euro Plus Pact and the code of conduct, are expected to be taken as “A” items, that is, items agreed without debate. The ECOFIN report to the European Council on tax issues and the Euro Plus Pact provide an update on discussions of legislative proposals on tax issues at Council at the end of every Presidency. The code of conduct group on business taxation also issued a report outlining its work during the Luxembourg Presidency.
Ireland supports the work on the future of the code of conduct, which has been effective in eliminating harmful tax practices in member states since it was established in 1999. It is an important forum for member states to discuss, review and monitor preferential and harmful tax regimes across the European Union. It is appropriate to review the role of the code in the light of the changed international landscape on tax and the conclusion of the OECD's work on BEPS. Some member states want to extend the mandate of the code but Ireland believes that much has been achieved using the existing mandate and that the work of the code should continue to focus on preferential regimes. There has also been some discussion about introducing minimum effective tax rates as a way of addressing concerns about base erosion and profit shifting. However, Ireland believes these issues are best addressed through the implementation of the OECD BEPS reports, which contain internationally agreed standards to reform the global taxation environment. These discussions will continue under the Dutch Presidency of the EU next year.
The draft Council conclusions address the international tax environment in which the EU operates in light of the OECD’s publication of the BEPS reports. Ireland has been a strong supporter of BEPS since the action plan was published in July 2013 and we believe it is the best approach for dealing with aggressive tax planning and to better align the right to tax with real economic substance and activity. The aim of the measures contained in the final reports is to give countries the tools they need to ensure that profits are taxed where economic activities are performed and where value is created, while giving business greater certainty by reducing disputes over the application of international tax rules. Ireland will play an active part in the work to implement the BEPS recommendations domestically, at EU level and globally.
The discussion on the implementation of the banking union will inform Ministers where member states stand in terms of the implementation of the banking union, particularly in the context of the transposition of the bank recovery and resolution directive, BRRD, the deposit guarantee scheme directive and the ratification of the intergovernmental agreement to the Single Resolution Mechanism and I have already updated the committee on these in my remarks about the November ECOFIN. The European Commission has confirmed that sufficient member states have ratified the intergovernmental agreement to enable the Single Resolution Mechanism commence from 1 January 2016. It is also likely that a statement on the bridge financing arrangements to the Single Resolution Fund will be adopted at the meeting. The background to this is the political commitment made by ECOFIN Ministers that participating member states should put in place a system by which bridge financing would be available as a last resort to ensure that the Single Resolution Fund has adequate funding during the transition period to full mutualisation. It has been agreed that each member state will enter into a loan facility agreement with the Single Resolution Board to provide it with a credit line in circumstances where one of its banks got into financial trouble and there were still losses to be absorbed after the bail-in and resolution fund processes have been exhausted. Ireland’s credit line will be an amount up to €1.815 billion and represents 3.3% of the overall credit lines of participating member states. Obviously, enabling legislation will have to be brought through the Houses of the Oireachtas.
The next main item is the European semester discussion which will focus on three different elements, namely, the annual growth survey for 2016, the alert mechanism report for 2016 and the broad economic policy guidelines for member states whose currency is the euro, all of which were published on 26 November. The three reform pillars identified by the Juncker Commission in the 2015 annual growth survey have been largely restated. These are relaunching investment, a renewed commitment to structural reforms and pursuing fiscal responsibility. Given the moderate pace of recovery across the euro area, these remain appropriate. The alert mechanism report identifies the member states for which further analysis in the form of an in-depth review is necessary in order to decide whether an imbalance in need of policy action exists. Based on indicator readings in the scoreboard that accompanies the review, the Commission has decided that in-depth reviews are warranted for 18 member states, including Ireland. In general, the readings for Ireland reflect imbalances accumulated during the boom which are in the process of unwinding. As a result, the in-depth review to be undertaken in the new year is unlikely to be problematic.
The broad economic policy guidelines call on member states to pursue policies which support the recovery and facilitate the correction of macroeconomic imbalances, implement labour reforms where required, maintain the broadly neutral fiscal stance and to facilitate the gradual reduction of non-performing loans. We welcome the proposals and the opportunity to focus on common challenges.
There will be a state-of-play discussion on flexibility in the Stability and Growth Pact and it is expected that a commonly agreed position will be endorsed at the ECOFIN meeting, following the agreement reached at technical level. This will provide guidance on optimising the flexibility already built into the existing rules of the Stability and Growth Pact. It will not change or replace the existing rules or legislation. This newly clarified common position is intended to serve as the basis for codification in an updated code of conduct. The code of conduct is the harmonised framework formalising how the Stability and Growth Pact is applied. This commonly agreed position will clarify how three specific policy dimensions will be taken into account when applying the rules.
These relate to cyclical economic conditions, structural reforms, and government investments aiming at, ancillary to and economically equivalent to structural reforms.
The ECOFIN conclusions on EU statistics and the annual report of the European Statistical Governance Advisory Board, EGSAB, on the implementation of a code of practice are expected to be taken without discussion. The Council has reviewed and welcomed the progress made by the European statistical system in the areas of quality assurance of key statistical output, the 2015 Economic and Financial Committee, EFC, Status Report on Information Requirements in EMU, statistics for the macroeconomic imbalances procedure, and the modernisation of the European statistical system. The Council will also welcome the seventh annual report on the implementation of a code of practice and note the recommendations as regards the preparedness of the European statistical system to respond to the challenges stemming from data revolution and regionalisation.
The annual report of the European Court of Auditors, ECA, on the implementation of the budget for the financial year 2014 was published on 10 November and will be presented to ECOFIN. The ECA's opinion is that the 2014 annual accounts present a "true and fair view" of the financial position of the European Union. There are several relatively minor references to Ireland in the report. We will implement the action plan developed by the Department of Agriculture, Food and the Marine to rectify weaknesses that exist.
Finally, under any other business, the fight against terrorist financing will be raised. The recent terrorist attacks in Paris were heinous and deplorable and my sympathies go to the French people. In the wake of those attacks, the European Commission is due to bring forward a number of proposals at ECOFIN regarding terrorist financing. This follows an extraordinary Justice and Home Affairs Council which took place on 20 November. The conclusions of that meeting indicate the Commission may outline initiatives to strengthen the way member states' financial intelligence units, FIUs, work with each other to exchange information on suspected terrorist financing, to strengthen controls over non-banking payment mechanisms which may favour anonymity, and to find ways for the EU to curb illicit trade in cultural goods which could be used by terrorist groupings selling such goods for funding. I look forward to receiving the details of the proposals from the Commission. Ireland is ready to play its part in supporting practical measures to further counter the financing of terrorism.
I hope the committee has found my summary of last month's ECOFIN meeting and the outline of this month's agenda informative. I thank members for their attention and will be happy to respond to any questions or observations they have.
Thank you, Minister. I will now take questions from members, beginning with Deputy Michael McGrath.
I welcome the Minister and his officials. It is good to have an update on the November ECOFIN and an overview of the agenda for the meeting next week. The Minister referred to the European deposit insurance scheme as the final piece of the banking union jigsaw, its function being to ensure savings are equally protected in all member states. Will he clarify where that scheme stands today? The level of protection in Ireland is set at a threshold of €100,000. Will the same threshold apply across the EU under the deposit insurance scheme? Will the scheme be funded at a national level in the same way as our own deposit guarantee fund, which is maintained and administered by the Central Bank? Will Irish citizens who have money in European banks in other jurisdictions be covered in precisely the same way as they are in this jurisdiction in respect of deposits with Irish banks?
The threshold is €100,000 and the scheme is required to be administered nationally in all funded member states.
When is it expected to be in place across the European Union?
It is in place at present as a series of sovereign funds. The intention is that, as with the resolution fund, it will progress towards mutualisation. There are three phases to the proposed implementation. From 2017 to 2020 is the reinsurance phase for national deposit guarantee schemes, DGSs. From 2020 to 2024, we move to a co-insurance scheme. Finally, a full insurance scheme for the national DGSs will be implemented from July 2024. Deposit guarantee schemes provide an essential safety net to depositors in times of financial turbulence and afford them the necessary confidence that their money will be protected up to a particular level. A European deposit insurance scheme is considered the final pillar of banking union and is necessary to ensure savings are equally protected in all member states, thus further weakening the link between the banks and the sovereign.
I thank the Minister for outlining the transitional arrangements. He referred in his opening statement to last-resort bridge financing in the context of the Single Resolution Fund. The Minister stated, "Ireland's credit line will be an amount of €1.815 billion and represents 3.3% of the overall credit lines of participating member states". Will he clarify whether that is money we need to provide, or if the requirement is to open up a credit line which, if called upon, would make that amount available? The Minister indicated that enabling legislation will be required. Is that legislation necessary to implement in the term of the current Dáil, or what obligations do we have in that regard?
The resolution fund builds up over an eight-year period and it is only at the end of this period that it will be fully mutualised. During the intermediary steps in year one, member states will be using national funds and a very small proportion of the mutualised fund. Bridging finance arises in a scenario where a bank in a particular euro jurisdiction gets into difficulty and when one goes down through the cascade of assets that require to be bailed in and gets to the resolution fund, if the latter is not fully mutualised one could work one's way through it very quickly and there still would be an amount to be funded. The purpose of the bridging finance is to provide a credit line that may be called upon during that period as necessary. The idea is that as the fund builds up, there would not be as much need for bridging finances as there was during the intermediary stages. We do not plan to bring forward the relevant legislation before this session, nor, probably, in the life of this Government. Nevertheless, we see it coming down the line in the short to medium term rather than the long term.
The Minister has made clear on several occasions that the Government's position on a financial transaction tax, FTT, is that we will not seek to prevent other countries from participating but we do not propose that Ireland will participate at this stage. It is a position we support. The Minister said there will be a state-of-play discussion on the FTT at the ECOFIN meeting. How many countries are expected to participate through the enhanced co-operation mechanism, have they agreed the rate of the FTT and when will it take effect?
During the Irish Presidency, we put FTT on the agenda so that those countries that wanted to move ahead, in a context where there was no hope of unanimity, would be able to do so.
At the time the participants thought they would make quick progress but they have not. Eleven countries are involved and very little progress has been made.
Are 11 countries involved?
Yes, 11 countries.
In regard to the Common Consolidated Corporate Tax Base, CCCTB, which has been around a long time, the Minister states: "Ministers will be provided with an update by the Luxembourg Presidency on the current state of play of this dossier. We have yet to see the exact details of the re-launched CCCTB proposal." Is there an emerging shape to those proposals? Are they materially different from the proposals the European Commission launched before? Will the Minister reaffirm the position of the Government on CCCTB?
We are constructively engaged, as we always are, on these issues. Commissioner Moscovici is now in charge. He indicated at a meeting, which must be 12 months ago, that he was withdrawing the original CCCTB proposals and would come back with alternative proposals. He stated his intention to build a new proposal of a more limited design on what he thought were the aspects that were agreed in the discussions held previously. Effectively he was dropping all the proposals on consolidation. He proposed to have a public consultation on the new CCCTB. There is no emerging shape to it yet. It seems to be focused on the tax base rather than the consolidation of the other measures. It is still vague. We can say with reasonable certainty that when the proposals come, they will be more limited than what was on the table until now. Whether they will find favour with member states is difficult to say.
I refer to the relationship between BEPS and CCCTB. Some of the original proposals from CCCTB involve a redistribution of where profits would be taxable and that the redistribution among countries would be based on their market share in that country, the employee headcount, where the turnover was generated, so it would strike me as a potential threat to Ireland, given that we are boxing well above our weight in terms of foreign direct investment and multinational presence. Is there a relationship between that aspect of BEPS which is looking at profit shifting and CCCTB, which is trying to define a methodology of where multinational profits should be taxed in different jurisdictions based on the metrics I outlined?
There is not the relationship to which the Deputy refers but the Commission is looking at implementing anti-BEPS measures at EU level, perhaps a directive as a first step. It is an attempt to bring in new CCCTBs. so there is that connection. The Commission proposal to implement the OECD's recommendations in a consistent way across the European Union is expected in January 2016. Ireland is generally supportive of this work to the extent that any proposed EU implementation is consistent with the OECD's work. Ireland will continue to constructively engage as always, while holding a firm position, that tax remains in the competency of member states and that unanimity is required on tax matters.
Cuirim fáilte roimh an Aire agus gabhaim buíochas leis as an gcur i láthair a thug sé dúinn.
I wish to deal with the Common Position on flexibility of the Stability and Growth Pact, which ECOFIN is to be briefed on. Obviously the Government was one of the architects of the Stability and Growth Pact. What is wrong with the rules now and what needs to be made more flexible?
Different countries would have a different perspective on the Stability and Growth Pact. The difficulties arise not in the rules but in the implementation of the rules. Certain countries look for flexibility in the implementation of the rules. The two calls on the table at present is that extra security spending in European countries to combat terrorism should be exempt from the rules and should be an addition to any other spending by European countries. A similar case is being made for funding to deal with the problems arising from migration across Europe. Countries that are on the front line of receiving migrants across their borders should have the flexibility to discount the investments they are making in providing for migrants. There is a number of issues like that.
Is the Government looking for further flexibility in respect of Ireland's needs outside of those?
We have a number of issues, one of which is we would like flexibility in order to make the application of the rules more growth friendly. Let me give the example of relaxing the rules for investments and structural reform in the preventive arm. We have gone through eight years of recession and it is quite clear that during that eight-year period the kinds of investment that would normally be made in both social and economic infrastructure were not made in this country. We are playing catch up in investment. As it looks now, we will have a balanced budget ahead of 2018. We will have extra resources when we balance our budget. We would like the flexibility to be able to spend on investment. As long as the possibility of flexibility exists and we can have face to face talks with the Commission, we can be accommodated. It is not that we have specifics in mind; we want flexibility on this and that.
In regard to structural reforms, if we were bringing in measures that cost money to make the labour market more flexible or if we were introducing measures to increase the participation of women in the labour force, we would like the flexibility to be able to do that on the clear understanding that there was a demonstrable payback as the labour force grew and as the fruits of the extra people in the labour force went into the economy.
There are issues but it is not a predetermined checklist but a question of a number of themes we would wish to apply.
With regard to the interpretation of those rules by the Government and the Fiscal Council, obviously the Government has said that in the next five years the figures take into account the demographic and inflationary pressures, however the Fiscal Council is of the view that it does not adequately account for them. Is there not a necessity for a more uniform interpretation of those rules by the Government and the Fiscal Council?
The rule maker and the rule administrator for Ireland as for all other European countries is the European Commission. We deal with the Commission. The Fiscal Council has a separate and distinct role. It is very important that it should be free to give a view that is different from that of the Government. One of the problems identified in the recent past was that contrarian views were not entertained and were sometimes mocked and derided. I think it is very important that we preserve the independence of the Fiscal Council and we support its right to comment, but that does not mean we have to agree with it all the time. That is my position. In terms of the application of the rules, we have to deal with the Commission. Last Monday week the Commission decided our budget was totally in accordance with the rules but pointed out some upside risks.
It said the budget was broadly compliant and cleared it. The Commission said we could go ahead for 2016 and implement the budget without any alteration whatsoever, and that is what we are doing.
In regard to the criticism made by the Fiscal Advisory Council, it also said our 2016 budget was in accord with the rules, but made a criticism concerning the Supplementary Estimates in 2015. It is a matter of opinion. As long as I have been here - I am here a long time now - there have been Supplementary Estimates at this time of the year every year. One could argue the Supplementary Estimates this year were slightly heavier than they were in previous years, but the extra money was used for the health services, for buying new buses in Dublin, for repairing country roads, for extra policing and extra money for the Garda and across a range of issues. If one is a practical, practising politician, one probably has a different view than the Fiscal Advisory Council. I am not criticising the right of the council to have an independent view and to express it strongly. All I am saying is that I as Minister for Finance, and Deputy Howlin as Minister for Public Expenditure and Reform, also have the right to go to the Government and get decisions that do not accord with the council's advice, because we think it is socially and economically necessary to do so.
Does the Minister still think that? There was heavy criticism of Fianna Fáil when it was in power because it narrowed the tax take and the ability to take taxes, but also spent billions of euro and built that into the spend of the State, on the basis of funds that did not show a consistent trend over the years. For example, much of the spend was based on stamp duty from the property market, etc. Some of the criticisms of the current Government are based on the narrowing of the tax base with regard to the USC etc. and the heavy spending the Government has focused on, which is based on, for example, the ahead of profile corporation tax receipts etc.
First, I will provide a context. From the start of 2014 until the end of 2016, the increase in expenditure is forecast to be 4%, the increase in taxation receipts to be 15% and the increase in GDP to be 18%. Therefore, when we run the comparative figures, the Government is extraordinarily prudent in how it manages the finances of the State. In its recent report, the Irish Fiscal Advisory Council said budget 2016 was prudent. Also, earlier in the year it endorsed the forecasts we have made for 2016.
There was a problem in the past and as the Deputy said, the Fianna Fáil led Government was criticised for it. It was criticised for relying on just one sector of the economy, building and development, and for driving that through tax breaks. That became the engine of growth and also the engine of funding the Exchequer, because the argument was that it was building and development that generated the transactional taxes, whether stamp duty, income tax from workers or whatever. However, on this occasion we are growing the economy across all the sectors and job creation figures will show that over the past two years, all sectors have added quite a number of jobs. Therefore, the growth is broadly based.
The Deputy also echoed something that has been repeated elsewhere, that the very strong inflows of corporation tax in 2015 are windfall taxes and that they will not be repeated in future years. I received a letter from the chairman of the Revenue Commissioners, which I published, and the letter states that the flow of corporation tax is not cyclical and that it will continue. He said there was a question in regard to approximately €300 million of it, but said that the vast bulk of it would be repeated next year because it comes from increased business activity across the sectors. Whether it is from the foreign direct investment sector or indigenous Irish business, they are all trading more, making more profit and paying more tax.
The Minister mentioned the recovery is broadly based and there is no doubt but that the recovery has seeped into more sectors. However, it seems we still have a huge imbalance in the economy. For example, some 90% of our exports are through the FDI sector. The focus is on that imbalance when we look at some of the figures coming through. I believe the Exchequer figures to be published tomorrow will be very much ahead of expectations, yet employment figures for this year and last month are flat. While unemployment has reduced, it has reduced quite slowly in comparison to the level of Exchequer increases. This leads one to believe that most of the Exchequer increases are coming from the FDI sector, which has a huge capacity to increase exports without bringing on much extra employment. An imbalanced economy like that leads to exposure, because economic shocks in imbalanced export economies such as ours can create great damage. Is that not a concern for the Minister?
Everybody is aware of how strong the FDI sector is in Ireland. If we look at the recent job figures, less than 20% of the jobs were created in FDI companies. Some 80% of the jobs were created across the economy.
The exports are mostly being created by the FDI sector.
Yes, because -----
Members should stick to the point, which is ECOFIN.
We are coming at this from the point of view of the basis of corporation tax.
On the ECOFIN discussions, there is a report from the ECON committee, which is preparing to finalise on the common consolidated corporate tax base, CCCTB. I understand what the Minister has said about the likelihood of the CCCTB being changed. The European Union is giving direction on this and there is a trend that we have to date managed to withstand. Is it likely that we will have the necessary allies within the Union to withstand it for much longer? What is the Government's strategy to withstand it in the future?
Sorry to interrupt, but may I have the agreement of the members that Deputy Rabbitte will take the Chair? Agreed.
Deputy Rabbitte took the Chair.
The Economic and Monetary Affairs Committee voted to adopt a legislative report bringing transparency, co-ordination, convergence to the corporate tax policies in the Union on 1 December 2015, yesterday. This report asks the European Commission to table measures to improve corporate tax transparency, co-ordination and EU-wide policy convergence. The recommendations contained in the report build on the work of the Parliament's special committee on tax rulings, set up in the wake of the LuxLeaks revelations, whose recommendations were approved at the 26 November plenary session. The report covers recommendations on a wide range of measures, including country by country reporting, CCCTB, improving cross-border taxation dispute resolution mechanisms and reform of the code of conduct group.
In the area of taxation, the European Parliament is not a co-legislator. As such, there will be no immediate legislative impact from the report. However, the Commission may take the report into account in preparing the January corporate tax package on the implementation of the BEPS measures in the European Union. The European Parliament does not have a taxation function and while its reports are usually very interesting and thorough, they are advisory in nature. Therefore, I do not see them as a threat, but as good research work which is always worth reading.
To go back to the previous issue raised which I did not answer, the Deputy spoke about the tax trends for November. We are approximately €470 million ahead of profile for November. This brings the position, after 11 months of the year, to a shade under €3 billion of taxes above the forecast. If we go back to the budget, it mentioned a sum of €2.2 billion, which was to give us the wherewithal to give us the extra expenditure measures to which I referred in the Supplementary Estimates.
It also gave us enough to bring the deficit down from 2.7% to 2.1% of GDP. With the extra tax coming in and on the assumption that December will be in line with forecasts, it is safe to say the end of year deficit will be below 2% and probably around 1.7% or 1.8% or even down to 1.6%. That advances the base for the budget for 2016. We said that for 2016 we were pitching for 1.2% but we will be so close to the end position for 2016 once the year starts that it would be safe to assume we can take 0.4% off that as well. That would be 0.8% or 0.7%. As we are getting signals that the rules may change again in Europe and that a balanced budget may be redefined as 0.5% rather than 0%, one can see how close we are. That is why I referred earlier to the possibility of balancing the budget ahead of our 2018 deadline. However, that is in nominal terms. I would have to go through the figures in more detail to give the committee an estimate of when there will be structural balance.
On the particular ECOFIN report, it suggested that where countries broke the law on state aid or taxation, the repayment of that aid would be pooled into a fund to be paid out to countries whose tax base was eroded. What is the Government's view on that?
The relevant Commissioner, the former Finance Minister of Denmark, Commission Margrethe Vestager, has said she does not think that will fly. There is no legal basis for it. If there is a rebate, it will go to the sovereigns which should have collected the tax in the view of the European Union in the first instance.
Deputy Tóibín has overshot the runway.
Obviously, extra documentation and information is required by the EU on the Apple case. I understood the Government's view was that all of the documentation had been made available. What else is the EU looking for and what else do we have to provide?
The Commission has asked the equivalent of supplementary questions and we are providing the replies now. The work is going on now. From the date we received the request, we estimate it will take about three weeks. We should be able to send the material requested before Christmas. Any possible decision has now gone into the new year, however. The other relevant information in which the Deputy might be interested is that the Dutch have launched an appeal against the adverse finding on Starbucks. As such, the Deputy can see how things are developing. The Commission is handing down rulings and the member states are taking them to the European Court.
It is not quite right of Deputy Tóibín to say that the Government narrowed the tax base. I ask the Minister whether it is in fact the case that the Government has broadened the tax base. The takings from USC will be somewhat less for obvious reasons.
That is right. Obviously, we broadened the tax base by introducing property tax and eliminating a great many tax breaks particularly in building and construction. One could also argue that we broadened the tax base by charging for scarce resources such as water. The Deputy was saying that because we exempted another 40,000 people from USC in the last budget and because we reduced the two lower rates of USC by a percentage point each, some of the commentariat were saying that it was a narrowing of the tax base and getting us into difficulties again. We do not believe so. We consider that personal taxes are too high and we are going to the electorate on the basis that resources being available will eliminate USC completely.
I think Deputy Tóibín agrees with that.
It is more of a shifting of the tax base.
The Minister referred to the BEPS reports. ECOFIN has done its business on that now. Is that it? ECOFIN has approved the reports and the matter now goes to the G20. Is that right?
The OECD was acting as the correspondent with the G20. It is the OECD which has completed its work. Separately, the Commission took a hand in things. The common consolidated corporate tax base, CCCTB, was a Commission initiative which was not going anywhere fast. When Commissioner Moscovici took office with the other new Commissioners last year, he announced very quickly that he would pull back the original CCCTB paper as there were too many divergent opinions. He said he would try to consolidate a new paper around the areas where there was a degree of agreement. Beyond that, we have not seen a document yet.
When the OECD completed its reports, did they not go to ECOFIN?
That is not the direct line, but there would have been conversations between the Commission and the OECD and a general acceptance of the BEPS reports across the Union.
The Minister referred to what the Commission might do in January 2016. What was that a reference to?
It may bring forward a new anti-base erosion and profit shifting directive and legislate to provide a legislative base for the recommendations made by the OECD.
That is the Commission dealing with the European dimension and it is for the United States of America to deal with it there. Is the Commission minded to deal with it as early as early 2016?
It will signpost it in early 2016, but legislation takes a while, as the Acting Chairman knows. There is no resiling from the BEPS reports in any country. From my short experience on the G20 when Ireland had the Presidency, I note that the G20 countries were very hot on this topic and committed to getting the OECD to carry out a full report and see it through to implementation in all OECD countries.
The clerk and I are aware that the OECD appreciates the participation of the Department of Finance and is on record regarding the co-operation it received. I thank the Minister for attending. Is there anything he wishes to say in conclusion?
The Acting Chairman said the OECD was appreciative of us. My officials built up a very strong relationship with Pascal Saint-Amans, the French official who led this work. He was here several times and put himself out to take our views into account. We were fully supportive of him and it worked out rather well.
The Minister said there were substantial changes in the financial transactions tax. Is it any closer to being acceptable to the Government? What effect would Brexit have on the Government's position in this regard?
In principle, we favour a financial transactions tax, but there would be distortions in trade and business, especially in financial services, unless it applied globally. As a fall-back position, it would need to apply at least across the 28 member states of the European Union before we would find it acceptable. Our biggest problem, to be very precise, is that as long as the UK stays out, which it intends to do, we fear a transfer of activity from the financial services industry in Dublin to London.
Brexit would not make any difference on this specific issue. It is a policy matter.
I do not think it would make any difference on this specific issue. It is not that we are opposed in principle. As a matter of fact, we charge 1% on share transactions. That is set at a much higher level than any financial transactions tax proposal that the 11 countries have come up with to date. They have come up with very small amounts and percentages that would apply to share transactions and perhaps some other financial instruments. Stamp duty on shares in Ireland is a measure that is worth €280 million to us.
I thank the Minister. I ask the members of the committee to stay on to deal with a couple of items of housekeeping.
The joint committee adjourned at 7.10 p.m. until 2 p.m. on Thursday, 3 December 2015.