Waving away €500m a year
Why would a country that is broke, whose taxpayers are about to be hit by another €3bn worth of austerity in the coming budget, turn down the opportunity to collect about half a billion euro a year from the sale of shares and derivatives?
Finance Minister Michael Noonan said he would not stop his fellow eurozone colleagues from setting up such a ‘Robin Hood’ tax. In fact, he said, he would “wave them on” — but Ireland would not be party to it.
Instead, we would stick by the hundreds of financial service companies that have located mainly in Dublin’s Financial Services Centre where they employ 33,000 people, and try to protect them from further taxation.
The industry provides about €1bn a year in corporation tax and another €1bn a year in PRSI and taxation from the people it employs, not just in Dublin, but throughout the country.
The danger was that they might all leave and set up in London, where they will not be subject to this financial transaction tax (FTT). They stay in Ireland even though the stamp duty they pay is double the rate they would have to pay in London.
However, the tax is being constructed so it will be based on the place that the trade is done, which means that if a trade happens between London and Dublin, then the tax from both sides would go to Ireland, if this country opted in and the UK remains out.
But with Ireland opting out, it will lose its share of the tax to Germany or whatever other EU centre is involved in the trade. The only way a trade can avoid the tax is to abandon all its European clients and stop trading in the EU — including on remote access. So tax will be collected on any deals that involve Ireland in any way, but it won’t end up in Irish coffers.
Ireland does levy stamp duty on their sale of shares but only big institutional trades are covered. There is no tax on derivatives here.
The FTT is designed for the first time to tax derivatives, which essentially bet against movement, up or down, in goods or services, shares, bonds, currencies, interest rates and commodities, including food.
Nobody really knows how much money is involved, as they are not transparent like trading in a stocks and involve large amounts of credit, which can cause booms and busts as they did during the 2008 financial catastrophe.
A letter in the summer supporting such a tax was signed by more than 1,000 world-renowned economists, and was followed by a further letter signed by 50 mostly former executives of major finance houses — JP Morgan, Goldman Sachs, Rothschild — and some involved in major banks and stock exchanges.
These financiers said derivatives are now worth 70 times the size of the real economy, and warn that if all bets were called in, there would not be enough money in the world to pay them off.
The financiers also pointed out that these are designed to turn very short-term profits, and do not fulfil the primary original role of the market, which ias to raise money for investing in production. And they declared that the FTT would “have negligible effect on long-term investment” and that it would actually improve how the markets function.
The Government does not appear to have researched the issue widely, however. A Freedom of Information search by Labour MEP Nessa Childers turned up what appears to be the only analysis on the effect of a financial transaction tax on Ireland. It was carried out by AIMA, the world’s biggest hedge fund lobbyist.
It was transmitted to the Government through a committee called the IFSC Clearing House Group, which is co-ordinated directly with the Department of the Taoiseach, with regular meetings held in Government Buildings and involves many other departments also, including Finance.
The group, facilitated by civil servants, includes many international financial firms such as JP Morgan, HSBC and State Street, and lobbying organisations such as the Federation of International Banks in Ireland, the Irish Banking Federation, the international hedge fund lobby, AIMA. Accountancy firms such as KPMG, PwC and Deloitte are also present, the documents show.
Industry sources say that the IFSC is not a hotbed of hedge funds and derivative trading, as the vast majority of this is done through London, with Ireland acting as a kind of back office for the companies involved.
But the Government is adamant that unless Britain and the rest of the world changes its mind and joins a “Robin Hood” tax, it won’t risk it.
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