I propose to take Questions Nos. 17 and 38 together.
I requested the Economic and Social Research Institute (ESRI) and the Central Bank to prepare an assessment of the Commission’s original Financial Transactions Tax (FTT) proposal to implement an FTT in the EU. The ESRI/Central Bank report was published in July last year. Given the wide variation in the estimated revenue yield from a FTT when different factors are taken into account and the uncertainty as to the form the tax would take, the report states that more detail would be needed on the final shape and scope of the tax before a definitive conclusion could be reached about its impact on the Irish financial system and taxation revenue.
The report indicates that the “net revenue gain for Ireland from the introduction of an FTT … is likely to be modest”. Based on assumptions used by the Commission, the report estimates the potential yield from the FTT to be between €490m and €730m. Under the Commission’s proposal, 2/3rd of this yield would have gone directly to the EU to fund its Budget.
The report identified the following downsides and potential downsides to the introduction of an FTT:
- Financial sector impact: An FTT could displace financial sector activity, especially when alternative locations are readily available – in this case the UK. This would pose a real risk to Ireland given the financial services sector accounts for 10% of GDP.
- Macro-economic impact: An FTT would likely lead to a lower level of economic activity in the financial sector, which might also result in lower receipts from income tax and corporation tax.
- Exchequer impact: A 1% stamp duty applies on transfers of shares in Irish companies. The Commission’s proposal would involve the abolition of this tax and the loss of existing Stamp Duty revenue, c. €195m in 2011 and c. €170 m in 2012.
The report also identified that “financial firms operating in Ireland may make their decision to stay in Ireland or relocate based on a range of factors, and not solely whether a FTT is applied. These considerations include taxation, the legal and regulatory environment, availability of skilled employees, and general costs of conducting business in Ireland, including the additional potential costs associated with the FTT. Nevertheless, given that several firms in both financial intermediation and fund service providers are large employers within their sectors, concentrated employment losses are a possibility if relocation occurred within those sectors”.
There is also empirical evidence which can be relied on to support the contention that the introduction of an FTT may lead to job losses. Sweden opposes the European Commission’s proposed FTT because when it introduced such a tax in 1984 its financial services industry reduced in size, and the tax was eventually repealed in 1990.
As previously stated the report was based on the original Commission proposal. There is no revised formal FTT proposal from the Commission at this point – only a proposal to authorise the introduction of an FTT by enhanced co-operation, rather than a proposal outlining the shape of the FTT itself. The Commission’s formal proposal for a Directive implementing enhanced co-operation in the area of financial transactions tax will only be available after the Council vote has taken place to authorise enhanced co-operation. It is also quite possible that the states who do wish to introduce an FTT may amend the Commission proposal, and in this regard it is worth noting that the new French FTT, introduced in August 2012, is closer to a Stamp Duty than to the current Commission proposal. I do not propose to request a further analysis unless and until the Commission issues a revised proposal, and any decision to request a further analysis will depend on the form that proposal takes.
As the Deputies are aware, Ireland will not be one of the enhanced co-operation countries but 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. As the current EU Presidency, we also have a responsibility to act impartially among Member States in chairing meetings and facilitating discussions on the FTT.
