I am grateful for the opportunity to make a presentation to members and for the interest the committee has always shown in our sector. I am chief executive officer and Accounting Officer of Horse Racing Ireland. I am accompanied by Ms Margaret Davin, chief financial officer, and Mr. Michael O'Rourke, director of marketing.
The Horse and Greyhound Racing Act was signed into law in July 2001 which led to the formal establishment of Horse Racing Ireland. It replaced the Irish Horseracing Authority, incorporated many functions of the Irish Turf Club and created a board of 14 members representing the key sectors of the industry. The legislation received general cross-party support in the Oireachtas. Horse Racing Ireland's mission is to "develop and promote Ireland as a world centre of excellence for horseracing and breeding".
The industry is one of the few sectors in which Ireland can genuinely have a claim to world leadership. This is not merely rhetoric but has been consistently proven time and again in the marketplace and on the racetracks of the world. We "do horses well" in Ireland, with people coming from all over the world to see how we operate. The strength of the breeding industry is reflected in the fact that an Irish horse has been the leading sire in Europe for each of the last 19 years. It is exactly the type of industry and agricultural activity that we need to protect and develop in our current circumstances. It is labour intensive, with a very broad regional spread of employment. It is a green activity - probably the most environmentally friendly agricultural activity we have. It is low intensity in terms of land use.
The industry is export driven, with 50% of our horses exported to more than 40 countries worldwide. The industry provides a significant level of international inward investment to Ireland, with most of the major players in the international bloodstock and horse industry having a presence here. Most of this investment is in remote rural areas where alternatives are limited. In 2008 Mr. Alan Dukes undertook a study on behalf of the Irish Thoroughbred Breeders Association which showed that the industry provides 16,500 full-time jobs. I have distributed maps and charts which show the spread of those jobs around the country. The Dukes report found that the industry contributes in excess of €1 billion to the economy every year, with racing generating more than 80,000 tourist visits to Ireland annually.
Of course it is not just about the breeding industry. The 26 racecourses throughout the State contribute significantly to the sporting and social life of the communities they serve. They are at the heart of local economies and communities, as members will know from their own areas. Festival meetings at tracks such as Fairyhouse, Galway, Punchestown, Killarney and Listowel are major contributors to the tourism sector, contributing cumulatively more than €100 million in local economic activity. Point-to-point racing, which is the starting place for most great national hunt horses, is rooted in local rural communities, particularly in the Cork-Waterford region.
An issue I am keen to underline today is the relationship between racing and horse breeding. The racecourse is the proving ground of the thoroughbred. Successful horses may become successful stallions and these attract brood mares, many from outside Ireland, which in turn stimulates economic activity for a wide range of businesses, including feed suppliers, vets, farriers, transport providers and so on. At this time of the year, with the breeding season about to start, brood mares are coming from all parts of the world to board in stud farms in counties such as Meath, Kildare, Tipperary, Kilkenny and Cork, with a significant positive impact on local economies.
I saw a picture in a newspaper yesterday of the first ever foal by Sea the Stars, which is probably the best racehorse the world has seen. This foal was born on a farm in Trim in County Meath, but the mare is owned by an Australian businessman who keeps his brood mares in Trim. Sea the Stars is owned by a Hong Kong businesswoman who stands the horse in Kilcullen, County Kildare. This is a perfect illustration of the global impact of the industry, with investors from Australia and Hong Kong putting their assets in Trim and Kilcullen and generating significant economic impacts for local economies. There are 9,000 foals born every year with a similar story.
Breeding is environmentally sound and sustainable. The Dukes report showed that the racecourse and the farm are more closely linked than many would imagine. Most breeders are not major international operators, with the majority having fewer than five horses. The small breeder is the backbone of the racing and breeding industry.
Employment in the industry is spread throughout the country. The Dukes report pointed to some significant practical examples. The study showed that 428 full-time staff are employed within a five-mile radius of Bagenalstown in County Carlow, in trainers' yards, stud farms, at the racecourse, at the Red Mills feed company, as well as vets and equine suppliers. The same study showed 259 full-time jobs in the vicinity of Enniscorthy in County Wexford, 325 full-time jobs within a five-mile radius of Navan, County Meath, and 162 jobs in the vicinity of Fermoy in County Cork. These data show the real impact in terms of actual jobs. That is not to mention counties such as Kildare and south Tipperary where we see a major concentration of employment in the horse business. It is estimated that 3,000 people are employed in the industry in Kildare, where Horse Racing Ireland is based.
Such a vital business requires certainty of funding. When the horse and greyhound racing fund was established in 2001, it was to be fully financed from the revenue from excise duty on off-course betting. It is important to stress that the racing industry is not seeking handouts from Government from scarce Exchequer funding. The model, as originally envisaged, is viable, by which betting tax was to be ring-fenced for the development of this key indigenous industry. However, something has gone wrong with that model in the years since the horse and greyhound fund was established as a consequence of the reduction in the take to the State from betting tax.
When the fund was set up the rate of duty was set at 5%, but this has been progressively reduced to 2% and then 1% until, in 2006, the liability was transferred from the punter to the bookmaker. Also during that period, an increasing amount of business has moved to tax-free offshore platforms. We are now left with a situation where the Exchequer must make up the shortfall between the take in betting tax and the allocation to the horse and greyhound industries. This was never the intention at the time the legislation was introduced. It is not our wish to be in a situation where funding is debated annually and is dependent on the economic circumstances of the time. There must be a ring-fencing of the take from betting tax for the development of the two sectors. Where arbitrary annual grants are applied they will inevitably and naturally be subject to political pressures. That is not a sustainable position from which to develop a key industry. I may return to this point if time allows.
I would like to give committee members an oversight of the business structure of Horse Racing Ireland, as I understand the issue was raised at a previous meeting. We have a board of 14 members which acts as the national authority for horse racing in Ireland. Its statutory functions are set out in the Irish Horse Racing Industry Act 1994 and the Horse and Greyhound Racing Act 2001. These include, inter alia : the allocation of race fixtures, programmes and prize money; negotiation of media rights; control of the operations of on-course authorised bookmakers; stakeholding and distribution of prize funds; guaranteeing the cost of integrity services carried out by the Irish Turf Club; grants to authorised racecourses for capital development and capital projects; industry training and education; and the overall administration of Irish racing.
In addition, we operate three commercial wholly owned subsidiary companies: HRI Racecourses Limited, which acts as a holding company and operates the four racecourses at Leopardstown, Navan, Tipperary and Fairyhouse, owns the land at the Cork Racecourse in Mallow and has a shareholding in the operating company, Irish Thoroughbred Marketing which is an international marketing agency to promote investment in the bloodstock industry in Ireland and to encourage people overseas to buy Irish horses and develop inward investment and Tote Ireland which operates the on-course and off-course tote betting service. Our headquarters is located at Ballymany in the Curragh outside Newbridge and our total staff across all divisions is 150. There is an approximately 50:50 split between Horse Racing Ireland and our commercial subsidiaries.
Since 2008, our costs have been reduced by 28% and owing to decreased funding our staff numbers have declined by more than 20% or 30 people. Horse Racing Ireland is not protected from the recession nor is the wider industry. It is estimated that approximately 2,000 jobs have been lost in the industry since 2008. Unlike Dell, where 2,000 jobs were lost in one go jobs in this industry are being lost in dribs and drabs in towns and villages around the country, which tends not to be noticed. There has been a huge erosion in the industry over time and we are concerned the situation will worsen unless our funding improves.
Funding is the most important issue facing the industry. The 2001 Act intended that the industry would be fully financed from betting duty. While that model worked well in the beginning, within two years it was necessary for the Exchequer to top a shortfall on the revenues from betting. One would imagine this could be explained by a fall-off in betting activity which caused a reduction in the take from betting, but the opposite is the case. In 2001, total betting in Ireland, through betting shops or on track, was approximately €1.3 billion and the tax return to the Exchequer was €68 million. This was ringfenced and was sufficient to cover all the needs of Horse Racing Ireland and Bord na gCon. By 2009, while betting had increased four-fold to €4.5 billion, remarkably the take to the Exchequer had fallen to €31 million, which is the core of our problem. A quadrupling of betting turnover has been matched by a halving of the return to the Exchequer.
It is unacceptable that the Exchequer should have to top up the horse and greyhound racing fund. It is extraordinary that this should happen against the background of significant growth in betting turnover. This has come about because the levy on betting has been progressively reduced and is now down to 1%, the lowest rate of betting tax in the world. The rate is low enough to allow big operators to absorb it as part of their costs but smaller operators are struggling to pay a turnover tax irrespective of their level of profitability. Furthermore, online betting operations avoid paying the 1% levy, which is the core of the problem for funding of the industry.
The Government announced in May of last year that it intended to introduce legislation to reform the betting industry and to address the increasing amount of betting which is being routed outside the State to avoid payment of betting duty. There appeared to be all-party support for introduction of that legislation. A comprehensive policy document published by the Labour Party advocated a new licensing regime for online betting and Fine Gael issued positive statements supporting the Government's initiatives to address the issue. The matter came before a joint hearing of the Oireachtas Joint Committees on Arts, Sport, Tourism, Community, Rural and Gaeltacht Affairs and Agriculture, Fisheries and Food on 31 March at which all the major betting operators said they had no objection to paying an extra tax on online betting if the tax was applied in a fair manner. In a submission to Government in October on the subject of betting legislation we pointed out that betting is unique as one of the few forms of discretionary consumption which is exempt from VAT. By way of example, for every €1,000 spent on betting the Exchequer receives €10 in duty and no VAT. If that betting is done over the phone or on the Internet the Exchequer receives no money. Online betting is effectively all offshore. Even telephone call centres based in Ireland route their calls offshore and accrue no duty. If a punter spends €100 on betting he pays no tax. However, for every €1,000 spent on beer the Exchequer receives €240 in duty and VAT. In respect of petrol the Exchequer receives €583 in excise duty and VAT for every €1,000 spent. Whatever way one looks at it, betting is a tax free activity in the hands of the punter, which is unusual when compared to other forms of consumption.
The recently published Finance Bill 2011 contains relevant measures to address the taxation of offshore betting and betting exchanges. We expect further detail in a new betting (amendment) Bill which will amend the 80 year old Betting Act of 1931. These developments are welcome and could provide a framework under which this troublesome issue can be resolved. It is imperative that we get this right if the industry is to survive. This is a potential win-win situation: it can save the Exchequer a minimum of €30 million, the amount in top up it has been putting into the industry annually and will remove the need for funding of horse and greyhound racing by the central Exchequer. It can protect jobs in the betting industry by creating a level playing field and can protect jobs in the horse and greyhound industries by creating a security of funding which is not dependent on a Government grant. This would still leave Ireland with the lowest rate of betting tax in the world.
This is an urgent matter, one that goes to the survival of the racing and breeding industry. It is a show piece industry. Were it not here, it would be exactly the type of industry the country would try to create. If someone came to us today with a proposal to create 450 jobs in Bagnelstown, County Carlow, we would walk down there to assist them. It is important to stress the significant world standing of Ireland in this industry. We are not operating in isolation. While we are the third largest producer of horses and thoroughbreds in the world and the largest in Europe we are under significant threat. Two well organised and successful countries, Britain and France, compete for our business on the world stage, in particular France which is actively seeking to attract the leading bloodstock investors to invest there as opposed to investing in Ireland and has been successful in some cases, which is a source of great concern to us.
In the UK, the betting industry pays a tax rate of 3% on turnover, which is three times higher than the Irish rate. In France, the legislation provides for taxation of 15% of turnover, which is 15 times higher than in Ireland. I accept that France has a different system because it operates a tote monopoly but it returns 8% of this betting to the French equine industry. With this level of financing, the French bloodstock sector has been targeting Irish business by providing incentives for people to move their horses to France. By way of example, a horse called "King's Best" which sired "Workforce", the winner of this year's Epsom Derby and Prix de l'Arc de Triomphe, formerly at Kildangan Stud in Monasterevin is now at stud in France. There is a danger of this type of practice accelerating.
The racing industry does not want the taxpayer in Ireland to directly subvent the industry through the Exchequer. It believes there is a clear model, based on international practice and existing legislation, which established Horse Racing Ireland, to provide for secure funding through a proper tax system on the betting industry in Ireland. I am happy to take questions from members.